<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INFONET SERVICES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7374 95-4148675
(STATE OR OTHER JURISDICTION
OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2100 EAST GRAND AVENUE
EL SEGUNDO, CALIFORNIA 90245-1022
(310) 335-2600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ERNEST U. GAMBARO, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
INFONET SERVICES CORPORATION
2100 EAST GRAND AVENUE
EL SEGUNDO, CALIFORNIA 90245-1022
(310) 335-2600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
WILLIAM J. CERNIUS, ESQ. RISE B. NORMAN, ESQ.
PAUL A. GALLEBERG, ESQ. SIMPSON THACHER & BARTLETT
LATHAM & WATKINS 425 LEXINGTON AVENUE
650 TOWN CENTER DRIVE, 20TH FLOOR NEW YORK, NEW YORK 10017-3954
COSTA MESA, CALIFORNIA 92626-1925 (212) 455-2000
(714) 540-1235
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE (2)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Class B Common Stock, par value
$0.01 per share.............. $1,000,000,000 $278,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1999
PROSPECTUS
[ ] SHARES
[LOGO OF INFONET APPEARS HERE]
CLASS B COMMON STOCK
-----------
This is Infonet Services Corporation's initial public offering of Class B
common stock. We are offering shares and the selling stockholders
identified on page 64 of this prospectus are offering shares.
Prior to the offering, there has been no public market for our Class B
common stock. We have applied to list our Class B common stock on the New York
Stock Exchange under the symbol " " and on the Frankfurt Stock Exchange under
the symbol " ."
INVESTING IN OUR CLASS B COMMON STOCK INVOLVES MATERIAL RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
-----------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price............................... $ $
Underwriting discount............................... $ $
Proceeds, before expenses, to Infonet Services
Corporation........................................ $ $
Proceeds, before expenses, to the selling
stockholders....................................... $ $
</TABLE>
The underwriters may also purchase up to an additional shares
from the selling stockholders at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. See "Underwriting."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of Class B common stock will be ready for delivery in New York,
New York on or about , 1999.
-----------
JOINT GLOBAL COORDINATORS
MERRILL LYNCH & CO. WARBURG DILLON READ LLC
-----------
MERRILL LYNCH & CO. IS THE SOLE BOOKRUNNER FOR THE OFFERING.
The date of this prospectus is , 1999.
<PAGE>
[ARTWORK TO COME]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Industry................................................................. 38
Business................................................................. 41
Management............................................................... 57
Related Party Transactions............................................... 63
Principal and Selling Stockholders....................................... 64
Description of Capital Stock............................................. 66
Description of Credit Facility........................................... 69
Shares Eligible for Future Sale.......................................... 71
Material United States Income Tax Consequences for Non-U.S. Holders...... 73
Underwriting............................................................. 76
Legal Matters............................................................ 79
Experts.................................................................. 79
Where You Can Find Additional Information................................ 79
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where an offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
In this prospectus, we rely on and refer to information regarding our
industry and its segments and competitors from market research reports and
other publicly available information. Although we believe this information is
reliable, we cannot guarantee the accuracy and completeness of the information
and have not independently verified it.
References in this prospectus to "Infonet," "we," "our" and "us" are to
Infonet Services Corporation, a Delaware corporation, and its consolidated
subsidiaries. "Infonet" is a trademark of Infonet Services Corporation. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information contained elsewhere in
this prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in our Class B common
stock. You should read the entire prospectus carefully, especially the risks of
investing in our Class B common stock discussed under "Risk Factors." Some
technical terms used in this prospectus are more fully explained in the
sections entitled "Industry" and "Business."
INFONET
OVERVIEW
We are a leading provider of cross-border managed data communications
services to more than 1,150 corporations worldwide, including 29% of the top
500 corporations in Business Week's 1998 Global 1000. We own and operate The
World Network, a seamless and versatile Asynchronous Transfer Mode, or ATM,
network that can be accessed from over 180 countries, making it one of the
world's largest data networks in terms of geographic coverage. Through The
World Network, we offer end-to-end seamless connectivity, an advantage over
other service providers that rely on third-party networks. We provide services
directly through our country representatives and indirectly through major
international telecommunications carriers. Our diverse client base includes
multinational corporations such as Allergan, Baan, Microsoft, Nestle, Nokia,
Pharmacia/Upjohn and Volkswagen. For the year ended March 31, 1999, we had
revenues of $303.0 million and EBITDA of $20.6 million.
Our broad range of integrated service solutions includes Frame Relay,
remote access, intranet, multimedia, Internet and Internet Protocol, or IP,
services; consulting, design, and implementation; sale and installation of
customer premise equipment; e-mail, messaging, collaboration, Web hosting and
other value-added services.
Our country representatives give us a significant local presence in more
than 60 countries and strong working relationships with leading local
telecommunications providers in those countries. We believe this structure also
provides us with a competitive advantage over other data service providers who
do not have comparable levels of expertise on local operating, regulatory and
market conditions. Our country representative structure emerged from our
historical relationships with major telecommunications companies, such as
Deutsche Telecom, France Telecom, Korea Telecom, Singapore Telecom and Telekom
Malaysia.
We began operations in 1969 as a part of Computer Sciences Corporation,
or CSC. Today, our stockholders include six of the world's largest
telecommunications companies:
.KDD--KDD Corporation (Japan);
.KPN--KPN Telecom B.V. (The Netherlands);
.Swisscom--Swisscom AG (Switzerland);
.Telefonica --Telefonica International Holding B.V. (Spain);
.Telia--Telia AB (Sweden); and
.Telstra--Telstra Corporation Limited (Australia).
1
<PAGE>
BUSINESS STRATEGY
Our goal is to be the leading provider of global data communications
services to multinational corporations. To accomplish this objective, we will
continue to:
. Focus on multinational clients that require data communications
solutions;
. Upgrade and expand our seamless global network;
. Develop innovative, value-added solutions;
. Strengthen our sales and customer support structure; and
. Provide the highest level of quality, security and reliability for our
services.
RECENT DEVELOPMENTS
Access to AUCS Clients
AT&T-Unisource Communications Services N.V., which we refer to as AUCS,
was a joint venture between AT&T Corp. and Unisource N.V. providing
international voice, data, Internet and messaging services to a broad array of
multinational corporations located primarily in Europe and the United States.
Unisource is owned by three of our stockholders, KPN, Swisscom and Telia. See
"Principal and Selling Stockholders." In early 1999, AT&T elected to exit the
AUCS joint venture. As a result, AUCS sought a new partner through which it
could outsource its services beyond the European region and could provide
international networking services previously provided by AT&T. We have agreed
to provide these services.
In our ongoing efforts to sell our services to multinational
corporations, on September 30, 1999, we entered into agreements with AUCS,
Unisource, and KPN, Swisscom and Telia. Our agreements with KPN, Swisscom and
Telia will give us access to their approximately 1,300 multinational corporate
clients currently being served by AUCS as well as additional multinational
clients to which KPN, Swisscom and Telia may provide services in the future. In
exchange for the right to market our services to their clients and $40.0
million in cash, we have issued an aggregate of 1,600 shares of our Class B
common stock to KPN, Swisscom and Telia under stock purchase agreements. Based
on publicly available information, AUCS total consolidated revenues for the
1998 calendar year were 875 million guilders, or approximately $441 million.
The multinational clients to which we will have access represented
approximately 50% of AUCS revenues over the past two years.
Senior Secured Credit Facility
In August 1999, we entered into a credit agreement with Merrill Lynch &
Co., as lead arranger, the Bank of Nova Scotia, as administrative agent,
Societe Generale, as documentation agent, and Merrill Lynch Capital
Corporation, Warburg Dillon Read LLC and various other banks as lenders. This
agreement provides for a $250.0 million senior secured credit facility
comprised of two term loan facilities in an aggregate principal amount of
$150.0 million which mature in June 2006 and a revolving credit facility in an
aggregate principal amount of $100.0 million that matures in August 2005. Our
ability to borrow under the facilities is subject to various conditions. See
"Description of Credit Facility."
----------------
We were incorporated under the laws of the State of Delaware in March
1988 and our executive offices are located at 2160 East Grand Avenue, El
Segundo, California 90245-1022. Our telephone number is (310) 335-2600.
2
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Class B common stock offered by us......... shares
Class B common stock offered by the selling
stockholders.............................. shares
Total...................................... shares
Common stock to be outstanding after the shares of Class A common
offering.................................. stock and shares of Class
B common stock. The number of
shares of our Class B common
stock to be outstanding
immediately after the offering is
based on the number of shares
outstanding on , 1999.
This number does not take into
account shares of our
Class B common stock which may be
issued upon exercise of options
outstanding under our stock
option plan and shares
reserved for future option
grants.
Selling stockholders....................... The stockholders selling shares
in this offering are KDD, KPN,
Swisscom, Telefonica, Telia and
Telstra. Immediately prior to
this offering, selling
stockholders owned approximately
100% of our Class A common stock
and 96% of our Class B common
stock.
After the completion of this
offering, selling stockholders
will own approximately 100% of
our Class A common stock and %
of our Class B common stock.
For more information on the
selling stockholders, please read
the section entitled "Principal
and Selling Stockholders."
Over-allotment option...................... The selling stockholders have
granted the underwriters the
right to purchase up to
additional shares to cover over-
allotments.
Voting rights:
Class A common stock................. Ten votes per share.
Class B common stock................. One vote per share.
Other rights............................... Each class of common stock has
the same dividend and liquidation
rights. The Class A common stock
is convertible into Class B
common stock on a one-for-one
basis. However, the Class A
common stock cannot be sold or
transferred except (1) after
conversion to Class B common
stock or (2) after approval by
our stockholders. The Class A
common stock automatically
converts into Class B common
stock upon the occurrence of
specified events. See
"Description of Capital Stock."
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
Use of proceeds............................ We intend to use the net proceeds
of the offering to develop and
expand our network infrastructure
and for working capital and other
general corporate purposes. We
will not receive any proceeds
from the sale of Class B common
stock by the selling
stockholders. See "Use of
Proceeds."
New York Stock Exchange symbol.............
Frankfurt Stock Exchange symbol............
</TABLE>
----------------
Unless we indicate otherwise, all information in this prospectus
reflects:
. the conversion of all Class C common stock to Class B common stock to
be effected prior to the closing of this offering;
. a for stock split of our common stock to be effected
prior to the closing of this offering; and
. no exercise by the underwriters of their over-allotment option to
purchase up to additional shares of our Class B common stock.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth our summary consolidated financial and
operating data. You should read this information together with our consolidated
financial statements and the related notes to those statements appearing
elsewhere in this prospectus, the information under "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The consolidated statement of operations
data for the years ended March 31, 1997, 1998 and 1999 are derived from our
audited consolidated financial statements which appear elsewhere in this
prospectus. The summary consolidated financial data as of June 30, 1999, and
for the three months ended June 30, 1998 and 1999, are derived from our
unaudited consolidated financial statements which appear elsewhere in this
prospectus. In the opinion of management, the unaudited consolidated financial
statements have been prepared on a basis consistent with our audited
consolidated financial statements and include all adjustments, which are only
normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the unaudited periods. The
historical results are not necessarily indicative of the operating results to
be expected in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,(1) JUNE 30,(1)
---------------------------- ----------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues................. $264,684 $294,244 $302,997 $ 69,004 $ 85,706
Expenses................. 275,071 300,318 299,126 71,296 86,006
Operating income (loss).. (10,387) (6,074) 3,871 (2,292) (300)
Net income (loss)(2)..... (7,481) (5,434) 4,675 (1,871) (1,228)
Basic and diluted earn-
ings (loss) per common
share(2)(3)............. (598.48) (434.72) 374.00 (149.68) (96.61)
Basic and diluted
weighted average number
of common shares out-
standing................ 12,500 12,500 12,500 12,500 12,711
OTHER CONSOLIDATED
FINANCIAL DATA:
Net cash flows provided
by (used in):
Operating activities... $ 1,639 $ 14,393 $ 13,582 $ 2,108 $ 2,069
Investing activities... (4,960) (6,872) (22,350) (959) (24,930)
Financing activities... 13,048 (14,390) 5,828 (412) 49,203
EBITDA(4)................ 9,631 18,075 20,612 1,065 4,683
<CAPTION>
AS OF JUNE 30,
1999(1)
----------------------
PRO FORMA AS
ACTUAL ADJUSTED(5)
-------- ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash equiva-
lents................... $ 34,738
Total current assets..... 111,134
Total assets............. 257,186
Total current liabili-
ties.................... 70,484
Total debt(5)............ 96,937
Total stockholders' equi-
ty...................... 73,799
</TABLE>
5
<PAGE>
- --------
(1) Our fiscal year is the 52- or 53-week period ending on the Friday nearest
to March 31. For simplicity of presentation, we have described the 52-week
period ended March 28, 1997, the 53-week period ended April 3, 1998 and
the 52-week period ended April 2, 1999 as the years ended March 31, 1997,
1998 and 1999, and we have described the 13-week periods ended July 3,
1998 and July 2, 1999 as the three months ended June 30, 1998 and 1999.
(2) In our three month period ending December 31, 1999, we will record a non-
cash compensation charge of $ , resulting from the conversion of our book
value stock options to market value options as a result of the offering
and a charge of $ , resulting from our stock appreciation rights, each of
which is based upon the midpoint of the anticipated price range of this
offering. Had the offering been completed during our three month period
ended June 30, 1999, our net loss would have been $ and our basic and
diluted loss per common share would have been $ .
(3) As of March 31, 1997 and 1998 and June 30, 1998, there were no options,
warrants or other forms of potential common stock issued by us. Our
outstanding common stock purchase rights represent the only form of
potential common stock as of March 31, 1999. All of these rights were
excluded from the computation of diluted earnings per share because their
inclusion would have had an antidilutive effect on earnings per share. Our
outstanding common stock options represent the only form of potential
common stock as of June 30, 1999. All of these options were excluded from
the computation of diluted earnings per share because their inclusion
would have been antidilutive.
(4) EBITDA, which we calculate as income from operations before interest,
other income (expense), provision for income taxes, depreciation,
amortization and compensation charge for stock option plans, is a
supplemental financial measure we use in the evaluation of our business
and is used by many analysts in our industry. However, you should read
EBITDA only in conjunction with our consolidated financial data summarized
above and our consolidated financial statements and the related notes to
those statements prepared in accordance with generally accepted accounting
principles, which appear elsewhere in this prospectus. You should not
construe EBITDA as an alternative to income from operations, as determined
in accordance with generally accepted accounting principles, as an
indicator of our operating performance or as an alternative to cash flows
from operating activities, as determined in accordance with generally
accepted accounting principles, as a measure of our liquidity. Our
definition of EBITDA may not be comparable to similarly titled measures of
other companies.
(5) The consolidated balance sheet data presented on a pro forma as adjusted
basis reflects: (1) the sale of shares of our Class B common stock
in this offering at an assumed public offering price of $ per
share; (2) $59.9 million of outstanding borrowings under our $250.0
million senior secured credit facility as of September 30, 1999 at a
weighted average interest rate of 8.21%; (3) the issuance of 1,600 shares
of our Class B common stock to KPN, Swisscom and Telia; (4) the
termination of the repurchase right on our Class C common stock and its
conversion into our Class B common stock upon the completion of this
offering; and (5) the conversion of our book value stock option plan to a
market value stock option plan.
6
<PAGE>
RISK FACTORS
An investment in our Class B common stock involves risks. You should
consider carefully the following information about these risks, together with
the other information contained in this prospectus, before you decide to buy
our Class B common stock. If any of the following risks actually occur, our
business, results of operations or financial condition would likely suffer. In
that case, the market price of our Class B common stock could decline, and you
might lose all or part of the money you paid to buy our Class B common stock.
OUR ABILITY TO ACHIEVE OUR STRATEGIC OBJECTIVES WILL DEPEND IN LARGE PART UPON
THE SUCCESSFUL, TIMELY AND COST-EFFECTIVE EXPANSION OF OUR NETWORK.
We must continue to develop and expand our network infrastructure as the
number of clients and the amount of information they wish to transport as well
as the number of services we offer increases. The expansion and development of
our network infrastructure will require substantial financial, operational and
management resources. We may not be able to expand our network adequately to
meet the demand for increased usage. If we do not expand our network rapidly
enough, additional stress may be placed on our network hardware, traffic
management and other systems and operating facilities. Our network may be
unable to service a substantial number of additional clients while maintaining
high performance and competitive data transmission speeds.
A variety of factors, uncertainties and contingencies that are beyond our
control such as the availability of transmission capacity, price of
transmission capacity, continued deployment of our ATM-enabled network, local
regulations and availability of country representatives or other third-party
sales and support channels will affect the continued expansion of our network.
Currently, there is substantial volatility in the market price for transmission
capacity. We are investing significant capital in acquiring transmission
capacity at current fixed prices. These prices are anticipated to decline in
the future. We cannot assure you that actual expansion costs or the time
required to complete our network will not substantially exceed current
estimates. A failure to continue to expand our network may have a material
adverse effect on our ability to service our clients and to grow our business.
OUR BUSINESS IS EXPANDING RAPIDLY AND OUR BUSINESS PROSPECTS MAY SUFFER IF WE
ARE NOT ABLE TO MANAGE OUR GROWTH.
We have experienced and are currently experiencing a period of
significant growth. This growth has placed, and our anticipated future growth
in our operations will continue to place, a significant strain on our
management, financial controls, operating and accounting systems, personnel and
other resources. We currently rely on a relatively small core management team.
As we grow, we must not only manage demands on this team but also increase its
management resources, among other things, to continue to expand, train and
manage our employee base and maintain close coordination among our technical,
accounting, finance, marketing and sales staff. We also expect the demands on
our network infrastructure and technical support resources to grow rapidly with
our expanding client base, and we may experience difficulties responding to
client demand for our services and providing technical support in accordance
with clients' expectations. We are upgrading our network infrastructure and
technical support services to address increased client demand. Our network
infrastructure, technical support and other resources may not be sufficient to
facilitate our growth. If we do not successfully manage our growth, we may be
unable to adequately support our clients' communications needs in the future.
WE RELY HEAVILY ON OUR COUNTRY REPRESENTATIVES AND OTHER THIRD-PARTY SALES
CHANNELS.
We are and will continue to be significantly dependent on a number of
third-party relationships, including our non-consolidated country
representatives, to market and support our services. Many of our arrangements
with third-party providers are not exclusive and may be terminated at the
convenience of either party. We cannot assure you that these third parties
regard our relationship with them as important to their own
7
<PAGE>
respective businesses and operations, that they will not reassess their
commitment to us at any time in the future or that they will not develop their
own competitive services.
We may not be able to maintain or form new relationships with third
parties that supply us with clients, software or related products that are
important to our success. Accordingly, we cannot assure you that our existing
or prospective relationships will result in sustained business partnerships,
successful service offerings or the generation of significant revenues.
We rely on our country representatives for some of the support and local
implementation necessary to deliver our services on a global basis. We also
rely on these country representatives for insights into local operating and
market conditions. The failure of these country representatives to perform
their tasks or operate their business effectively could, in turn, adversely
affect our business. In addition, we sometimes provide our country
representatives with equipment and installation services to facilitate our
market participation. We may have limited recourse, or potentially no recourse,
if they do not perform the services that we expect them to perform, and we may
not be able to recover our equipment. Our recourse may be limited because the
local laws and judicial system may not be effective in enforcing our rights.
Also, our country representatives are parties to the legal contracts with
clients. If these agreements are terminated, the clients have no obligation to
purchase our services.
In addition, we frequently depend on our country representatives to
obtain the regulatory approvals and licenses that we need to offer our
communications services in other countries. In some cases, we cannot determine
whether they are complying with local regulatory laws or taking the steps
necessary to maintain proper licenses and permits. If any of our country
representatives lose their telecommunications licenses, whether by violating
local laws or otherwise, our business could suffer.
WE MAY NOT BE ABLE TO TRANSITION THE MULTINATIONAL CLIENTS OF KPN, SWISSCOM AND
TELIA EFFECTIVELY.
The multinational corporate clients of KPN, Swisscom and Telia, currently
using AUCS services, have no obligation to use our services. As a result, we
cannot assure you that any significant number of these clients will continue to
use the AUCS services we will provide or transition to The World Network during
the next 12 to 18 months or at all. We cannot assure you that the clients which
do transition to our network will continue to purchase our services or, if they
continue to use our services after the transition, that they will purchase as
many or more services from us than they did from AUCS. Thus, our access to this
additional client base may not yield substantial additional revenue.
WE MAY NOT BE ABLE TO REDUCE AUCS LOSSES AND THEREFORE MAY NOT RECEIVE
MANAGEMENT FEES.
AUCS has a history of operating losses. If we are unable to reduce the
losses of AUCS, we may not earn the incentive payments provided for in the
management agreement and may be required to rebate our entire management fee.
If this occurs, we will have expended significant amounts of management time
and operational capacity which could have been more profitably spent on other
matters.
In addition, either party may terminate the management agreement upon 180
days' written notice, or upon 30 days' notice if agreed-upon funding
requirements of Unisource are exceeded. For additional information, please read
the section entitled "Business--AUCS Management Agreement."
DELAYS IN RECEIVING TRANSMISSION CAPACITY FROM SUPPLIERS COULD IMPAIR SERVICE
LEVELS AND OUR GROWTH.
We lease transmission capacity from a wide range of suppliers, both to
connect client premises to our network and for other network connections. We
have from time to time experienced short-term delays in receiving the requisite
transmission capacity from suppliers. We cannot assure you that we will be able
to obtain these services in the future within the time frames required by us
and at a reasonable cost. Any failure to obtain transmission capacity on a
timely basis and at a reasonable cost in a particular jurisdiction, or any
interruption of local access services, could have an adverse effect on our
service levels and our growth.
8
<PAGE>
DELAYS IN EQUIPMENT DELIVERY OR LOSS OF OUR EQUIPMENT SUPPLIERS COULD ADVERSELY
AFFECT OUR NETWORK.
The switches and routers used in our network are provided primarily by
Nortel Networks Corp. and Cisco Systems Inc. These suppliers also sell products
to our competitors and may become competitors themselves. We may experience
delays in receiving components from our suppliers or difficulties in obtaining
their products at commercially reasonable terms. If we are required to seek
alternate sources of switches and routers, we are likely to experience delays
in obtaining the requisite equipment we need and may be required to pay higher
prices for that equipment, increasing the cost of expanding and maintaining our
network.
OUR NETWORK INFRASTRUCTURE IS VULNERABLE TO DISRUPTIONS AND SECURITY BREACHES.
We and other network services providers may in the future experience
interruptions in service as a result of fire, natural disasters, power loss, or
the accidental or intentional actions of service users, current and former
employees and others. Although we continue to implement industry-standard
disaster recovery, security and service continuity protection measures,
including the physical protection of our plant and equipment, similar measures
taken by us or by others have been insufficient or circumvented in the past. We
cannot assure you that these measures will be sufficient or that they will not
be circumvented in the future. Unauthorized use of our network could
potentially jeopardize the security of confidential information stored in the
computer systems of or transmitted by our clients. Furthermore, addressing
security problems may result in interruptions, delays or cessation of services
to our clients. These factors may result in liability to us or our clients.
THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE AND OUR COMPETITORS MAY HAVE MUCH
GREATER RESOURCES.
Our current and potential competitors include other companies that
provide data communications services to multinational businesses, systems
integrators, national and regional Internet Service Providers, or ISPs,
wireless, cable television and satellite communications companies, software and
hardware vendors, and global, regional and local telecommunications companies.
In addition, we expect that the predicted growth of the data communications
market will attract other established companies and multinational alliances.
Further, there are established and start-up companies building global networks
and beginning to offer data communications as part of a comprehensive
communications services portfolio. Our competitors, which may operate in one or
more of these areas, include companies such as AT&T, British Telecommunications
PLC, or BT, Equant N.V., Global One, Inc. and MCI WorldCom, Inc. and new
entrants such as Qwest Communications International Inc. and Global Crossing
Ltd. Our country representatives and suppliers could also become competitors
either directly or through strategic relationships with our competitors. We
have in the past and expect in the future to encounter competition as a result
of the formation of global alliances among large telecommunications providers,
such as the newly formed joint venture between AT&T and BT.
Several of our competitors have substantially greater financial,
technical and marketing resources, larger customer bases, greater name
recognition and more established relationships in the telecommunications
industry than we do. We cannot be sure that we will have the resources or
expertise to compete successfully in the future. Our competitors may be able
to:
. develop and expand their network infrastructures and service
offerings more quickly;
. adapt better to new or emerging technologies and changing client
needs;
. take advantage of acquisitions and other opportunities more readily;
. devote greater resources to the marketing and sale of their products;
and
. adopt more aggressive pricing policies.
Some of our competitors may also be able to provide clients with
additional benefits at lower overall costs. We cannot be sure that we will be
able to match cost reductions of our competitors. In addition, we believe it is
likely that there will be consolidation in our market, which could increase
price and other competition in ways that may adversely affect our business,
results of operations and financial condition.
9
<PAGE>
BECAUSE WE HAVE INTERNATIONAL OPERATIONS, WE FACE ADDITIONAL RISKS RELATED TO
GLOBAL POLITICAL AND ECONOMIC CONDITIONS.
We operate in and intend to expand further into international markets. We
cannot be sure that we will be able to obtain or build the necessary global
communications infrastructure in a cost-effective manner or compete effectively
in international markets. There are risks inherent in conducting business
internationally. These include:
. unexpected changes in regulatory requirements;
. export restrictions;
. tariffs and other trade barriers;
. challenges in staffing and managing foreign operations;
. differing technology standards;
. employment laws and practices in foreign countries;
. weaker intellectual property protections;
. political, social and economic instability;
. costs of services tailored to specified markets;
. imposition of currency exchange controls; and
. potentially adverse tax consequences.
Any of these factors could adversely affect our operations. In addition,
if we are able to transition a substantial number of the AUCS multinational
clients to our system, or if we derive significant revenues from the delivery
of AUCS services, then a substantial portion of our revenues will be derived
from European clients. Therefore, a future slowdown or recession in the
European economy in particular could have a material adverse effect on our
revenues and profitability.
CURRENCY FLUCTUATIONS AND FOREIGN EXCHANGE CONTROLS COULD HAVE AN ADVERSE
EFFECT ON OUR INTERNATIONAL OPERATIONS.
We invoice all sales of services to our country representatives and sales
channel partners in U.S. dollars. However, many of our country representatives
and sales channel partners derive their revenues and incur maintenance and
other costs in currencies other than U.S. dollars. The obligations of these
country representatives and sales channel partners whose revenues are largely
in foreign currencies will be subject to unpredictable and indeterminate
fluctuations if those currencies change relative to U.S. dollars. Furthermore,
these country representatives and sales channel partners may be or may become
subject to exchange control regulations which might restrict or prohibit the
conversion of their revenue currencies into U.S. dollars. The occurrence of any
of these factors could have a material adverse effect on our current or future
international operations.
Our exposure to exchange rate fluctuations may increase while we
transition multinational clients of KPN, Swisscom and Telia to The World
Network because our receivables from these clients and our payables to AUCS
under the services agreement for services provided to those clients will be
denominated in different foreign currencies.
OUR BUSINESS PROSPECTS MAY SUFFER IF WE ARE NOT ABLE TO KEEP UP WITH THE RAPID
TECHNOLOGICAL DEVELOPMENTS IN OUR INDUSTRY.
The global communications industry is subject to rapid and significant
technological changes, such as continuing developments of alternative
technologies for providing high-speed data communications. We cannot predict
the effect of technological changes on our business. We may rely in part on
third parties, including some of our competitors and potential competitors, for
the development of and access to communications and networking technologies. We
expect that new services and technologies applicable to our market will emerge.
New products and technologies may be superior and/or render obsolete the
products and technologies that we
10
<PAGE>
currently use to deliver our services. Our future success will depend, in part,
on our ability to anticipate and adapt to technological changes and evolving
industry standards. We may be unable to obtain access to new technologies on
acceptable terms or at all, and we may be unable to obtain access to new
technologies and offer services in a competitive manner. Any new products and
technologies may not be compatible with our technologies and business plan. We
believe that the global communications industry should set standards to allow
for the compatibility of various products and technologies. The industry,
however, may not set standards on a timely basis or at all.
WE DEPEND ON THE SERVICES OF OUR SENIOR MANAGEMENT TEAM.
Our future success depends to a significant extent on the continued
services of our senior management, particularly Jose A. Collazo, President and
Chairman of the Board of Directors, Akbar H. Firdosy, our Chief Financial
Officer, and other members of our executive management team. The loss of the
services of either of Mr. Collazo or Mr. Firdosy, or any other present or
future key employee, could have a material adverse effect on the management of
our business. We have a severance agreement with Mr. Collazo. We do not
maintain "key person" life insurance for any of our personnel.
COMPETITION FOR HIGHLY-SKILLED PERSONNEL IS INTENSE AND THE SUCCESS OF OUR
BUSINESS DEPENDS ON OUR ABILITY TO ATTRACT, RETAIN AND MANAGE KEY PERSONNEL.
Our future success depends on our continuing ability to attract, retain
and motivate highly-skilled employees. As we continue to grow, we will need to
hire additional personnel in all areas. Competition for personnel throughout
the data and voice communications industries is intense. We may be unable to
attract or retain key employees or other highly qualified employees in the
future. We have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and retaining
highly-skilled employees with appropriate qualifications. If we do not succeed
in attracting sufficient new personnel or retaining and motivating our current
personnel, our ability to provide our services could be adversely affected.
OUR EXISTING STOCKHOLDERS WILL CONTROL THE OUTCOME OF STOCKHOLDER VOTES.
Following the offering, our existing stockholders will, in the aggregate,
beneficially own all of our Class A common stock and approximately % of
our Class B common stock, or more than 90% of our voting power. These
stockholders will be able to exercise control over all matters requiring
approval by our stockholders, including the election of directors and approval
of significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of our company,
which could have a material adverse effect on our stock price.
Immediately prior to the consummation of this offering, we expect to
enter into a stockholders agreement with all of our Class A stockholders. This
stockholders agreement will provide that each Class A stockholder holding at
least 400 shares of our Class A common stock will have the right to designate
one of our directors, and each Class A stockholder will agree to vote all of
its shares in favor of the directors designated by the other Class A
stockholders and for our president as a director. Accordingly, seven of the
nine directors on our board will be appointed by our Class A stockholders.
In addition, our revised certificate of incorporation will contain
provisions that require the approval of 95% of the Class A stockholders to take
significant corporate actions such as a merger, consolidation or liquidation.
Based on the current ownership of our Class A common stock, we will not be able
to undertake these actions without the approval of each of our Class A
stockholders.
WE HAVE HAD OPERATING LOSSES.
We incurred operating losses of approximately $10.4 million and $6.1
million for the years ended March 31, 1997 and 1998. We cannot assure you that
we will be able to achieve or sustain profitability from operations in the
future.
11
<PAGE>
THE YEAR 2000 PROBLEM COULD SIGNIFICANTLY DISRUPT OUR OPERATIONS, CAUSING A
DECLINE IN CASH FLOW AND REVENUE AND OTHER DIFFICULTIES.
Many currently installed computer systems and software products are
unable to distinguish between twentieth century dates and twenty-first century
dates. As a result, many companies' software and computer systems may need to
be upgraded or replaced to comply with these Year 2000 requirements. Our
business is dependent on the operations of numerous systems that could
potentially be impacted by Year 2000-related problems. As a result, we may
experience serious, unanticipated negative consequences, including material
costs caused by undetected errors in the technology used in our internal
systems.
We believe that the greatest risk of disruption in our business exists in
less developed countries. The possible consequences of us or our key business
partners not being fully Year 2000 compliant include, among other things,
temporary network closings, delays in the delivery of services, delays in the
receipt of supplies or invoice and collection errors. Based on our assessment
of these risks and after discussions with third parties, including key vendors,
service providers, country representatives and alternate sales channel
partners, we have made an evaluation of our state of readiness, potential risks
and costs, and are preparing a contingency plan. Please read the section in
this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Impact of the Year 2000."
We rely on several telecommunications providers to provide us with
transmission capacity. The Year 2000 compliance of telecommunications carriers
worldwide is beyond our control. There may be no possible alternate
telecommunications company available to us if a major carrier in a large
country breaks down due to Year 2000 problems. Any breakdown could prevent us
from delivering our services in that country, and possibly in other countries
where our service can be routed only through the problem country. Our inability
to deliver a significant portion of our services to our clients would have a
material adverse effect on our business, results of operations and financial
condition.
In addition, we cannot assure you that governmental agencies, utility
companies, ISPs, third-party service providers and others outside our control
will be Year 2000 compliant. The failure of these or other entities to be Year
2000 compliant could result in a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent us from delivering our services.
OUR QUARTERLY OPERATING RESULTS MAY VARY WHICH MAY CAUSE VOLATILITY OR A
DECLINE IN THE PRICE OF OUR CLASS B COMMON STOCK.
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, not all of which are in our control. These
factors include:
. the size and timing of significant equipment and transmission
capacity purchases;
. the timing of new service offerings;
. changes in our pricing policies or those of our competitors;
. the timing and completion of our network expansion;
. market acceptance of data communications generally and of new and
enhanced versions of our services in particular;
. the length of our contract cycles; and
. our success in expanding our sales force and expanding our
distribution channels.
In addition, a relatively large portion of our expenses are fixed in the
short-term, particularly with respect to global communications capacity,
depreciation, real estate and interest expenses and personnel, and therefore
our results of operations are particularly sensitive to fluctuations in
revenues. Due to the factors noted above and the other risks discussed in this
section, you should not rely on period-to-period comparisons of our
12
<PAGE>
results of operations. Quarterly results are not necessarily meaningful and you
should not rely on them as an indication of future performance. It is possible
that in some future periods our operating results may be below the expectations
of public market analysts and investors. In this event, the price of our Class
B common stock may fall. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE FACE UNCERTAIN AND CHANGING REGULATORY RESTRICTIONS.
The Federal Communications Commission, or the FCC, currently does not
regulate "enhanced services" or value-added networks that we operate in the
United States. These services are classified for regulatory purposes as
"information services" and are currently exempt from the common carrier
regulations that apply to entities providing "telecommunications services." As
a result, most of the services we provide are not currently subject to direct
regulation by the FCC or the states. Future changes in legislation or
regulation, however, could result in some aspects of our current operations
becoming subject to regulation by the FCC or a state of the United States. If
the FCC or a state seeks to regulate some segments of our activities as
"telecommunications services," we cannot predict the impact, if any, that
future regulation or regulatory changes may have on our operations.
We currently hold common carrier authorizations to provide international
telecommunications services between the United States and other countries. We
apply for authorization as a common carrier in jurisdictions where we believe
this authorization will decrease our costs. We also hold an international
facilities license in the United Kingdom. Our licenses subject us to the
jurisdiction of the relevant regulatory body which, in turn, may require that
we make specified regulatory filings and pay attendant fees. Future regulatory,
judicial and legislative changes in countries in which we operate may impose
additional costs on us or restrict our activities. In addition, regulators or
third parties may raise material issues with regard to our compliance with
applicable regulations. Failure to comply with applicable laws or regulations
in the United States, or other countries in which we operate, could have a
material adverse effect on our operations.
THE LAW RELATING TO THE LIABILITY OF ONLINE SERVICES COMPANIES AND INTERNET
ACCESS PROVIDERS FOR DATA AND CONTENT CARRIED ON OR DISSEMINATED THROUGH THEIR
NETWORKS IS CURRENTLY UNSETTLED.
It is possible that claims could be made against online services
companies and Internet access providers under United States and/or foreign law
for defamation, negligence, copyright or trademark infringement, or other
theories based on data or content disseminated through their networks, even if
a user independently originated this data or content. Several private lawsuits
seeking to impose liability upon online services companies and Internet access
providers have been filed in U.S. and foreign courts. While the United States
has passed laws protecting Internet access providers from liability for actions
by independent users in limited circumstances, this protection may not apply in
any particular case at issue. In addition, some countries, such as China,
regulate or restrict the transport of voice and data traffic in their
jurisdiction. The risk to us, as an Internet access provider, of potential
liability for data and content carried on or disseminated through our system
could require us to implement measures to reduce our exposure to this
liability. This may require us to expend substantial resources or to
discontinue some of our services. Our ability to monitor, censor or otherwise
restrict the types of data or content distributed through our network is
limited. Failure to comply with any applicable laws or regulations in
particular jurisdictions could result in fines, penalties or the suspension or
termination of our services in these jurisdictions. The negative attention
focused upon liability issues as a result of these lawsuits and legislative
proposals could adversely impact the growth of public Internet use. Our
professional liability insurance may not be adequate to compensate or may not
cover us at all in the event we incur liability for damages due to data and
content carried on or disseminated through our network. Any costs not covered
by insurance that are incurred as a result of this liability or alleged
liability, including any damages awarded and costs of litigation, could harm
our business and prospects.
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<PAGE>
OUR MANAGEMENT HAS BROAD DISCRETION IN SPENDING THE PROCEEDS OF THE OFFERING.
Our management, subject to supervision by our board of directors, will
have broad discretion in spending the proceeds of the offering. Because of the
number and variability of factors that determine our use of the net proceeds of
the offering, future uses may vary from our current intentions and stockholders
may not agree with the uses we have chosen.
IF WE OR OUR EXISTING STOCKHOLDERS SELL ADDITIONAL SHARES OF OUR CLASS B COMMON
STOCK AFTER THE OFFERING, IT COULD CAUSE THE MARKET PRICE OF OUR CLASS B COMMON
STOCK TO DECLINE.
The market price of our Class B common stock could decline as a result of
sales of a large number of shares of Class B common stock in the market after
the offering, the perception that such sales could occur or sales by us, our
management or our stockholders. These sales, or the possibility that these
sales may occur, also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate.
Sales of our common stock are restricted by lock-up agreements that we,
our directors, officers and certain stockholders have entered into with the
underwriters. The lock-up agreements restrict us, our directors and officers
and our existing stockholders, subject to certain exceptions, from selling or
otherwise disposing of any shares for a period of 180 days after the date of
this prospectus without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated. Merrill Lynch, Pierce, Fenner & Smith Incorporated
may, however, in its sole discretion and without notice, release all or any
portion of the shares from the restrictions in the lock-up agreements.
After the offering, we will have shares of Class B common stock
outstanding. Of these shares, the shares we are offering will be freely
tradable. This leaves shares eligible for sale in the public market as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ----
<C> <S>
After the date of this prospectus
Upon the filing of a registration statement to register for
resale shares of Class B common stock issuable upon the ex-
ercise of options granted under our stock option plan
At various times after 90 days from the date of this prospec-
tus (Rule 144)
After 180 days from the date of this prospectus (subject, in
some cases, to volume limitations)
At various times after 180 days from the date of this pro-
spectus (Rule 144)
</TABLE>
We intend to file one or more registration statements to register shares
of Class B common stock subject to outstanding stock options and Class B common
stock reserved for issuance under our stock option plan after the expiration of
the 180-day lockup. We expect the additional registration statements to become
effective immediately upon filing.
VOLATILITY OF OUR STOCK PRICE MAY EXPOSE US TO SECURITIES LITIGATION.
The stock market has experienced significant price and volume
fluctuations, and the market prices of global communications companies have
been extremely volatile. The market price of our Class B common stock could be
affected by:
. quarterly variations in our operating results;
. technological innovations of ours or of our competitors;
. changes in government regulations;
. conditions in the international data communications and
telecommunications industries;
. increased price competition;
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<PAGE>
. changes in earnings estimates by analysts; and
. changes in general economic conditions and volatility in the
financial markets.
In the past, following periods of volatility in the market price of a
public company's securities, securities class action litigation has often been
instituted against that company. This litigation could result in substantial
costs and a diversion of management's attention and resources.
There is no existing market for our Class B common stock.
There has not been a public market for our Class B common stock. We
cannot predict the extent to which investor interest in our company will lead
to the development of a trading market or how liquid that market might become.
The initial public offering price for the shares will be determined by
negotiations between us and the representatives of the underwriters and may not
be indicative of prices that will prevail in the open market.
The book value of shares of Class B common stock purchased in the offering will
be immediately diluted.
Investors who purchase Class B common stock in the offering will suffer
immediate and significant dilution in the net tangible book value per share. We
also have a large number of outstanding stock options to purchase Class B
common stock with exercise prices significantly below the estimated initial
public offering price of the Class B common stock. To the extent that these
options are exercised, there will be further dilution.
We do not intend to pay dividends on our common stock.
We presently intend to retain future earnings, if any, to finance the
expansion of our business, rather than paying any cash dividends on our common
stock in the foreseeable future.
Our certificate of incorporation and bylaws include provisions that may
discourage a takeover attempt.
Provisions contained in our revised certificate of incorporation, our
revised bylaws, Delaware law and our stockholders agreement could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to our stockholders. The provisions of our certificate of incorporation allow
us to issue preferred stock with rights senior to those of the Class B common
stock without any further vote or action by the stockholders. The issuance of
preferred stock also could decrease the amount of earnings and assets available
for distribution to the holders of Class B common stock or could adversely
affect the rights and powers, including voting rights, of the holders of the
Class B common stock. A provision of our certificate of incorporation,
effective upon the offering, also provides that our board of directors will be
divided into three classes, which may have the effect of delaying or preventing
a change in control or a change in our management because less than a majority
of our board of directors will be up for re-election at each annual meeting. In
addition, provisions of our bylaws and certificate of incorporation impose
various procedural and other requirements which could make it more difficult
for stockholders to effect certain corporate actions. These provisions could
limit the price that certain investors might be willing to pay in the future
for shares of our Class B common stock and may have the effect of delaying or
preventing a change in control.
This prospectus contains forward-looking statements that may not be accurate
indicators of our future performance.
Some of the statements contained in this prospectus contain forward-
looking information. These statements are found in the sections entitled
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Industry" and "Business." They include statements concerning:
. our business;
. our strategy;
15
<PAGE>
. liquidity and capital expenditures;
. use of proceeds of the offering;
. future sources of revenues;
. trends in the international data network services and global
communications industries;
. expansion of international network operations; and
. trends in government and international regulations.
You can identify these statements by forward-looking words such as
"expect," "anticipate," "believe," "goal," "plan," "intend," "estimate," "may"
and "will" or similar words. You should be aware that these statements are
subject to known and unknown risks, uncertainties and other factors, including
those discussed in this section, that could cause actual results to differ
materially from those suggested by the forward-looking statements.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares we are offering, after
deducting underwriting discounts and estimated offering expenses, are estimated
to be approximately $ million, assuming an initial public offering price of
$ per share. We will not receive any of the proceeds from the sale of shares
by the selling stockholders in the offering.
We intend to use approximately $ million of the net proceeds of
the offering to develop and expand our network infrastructure, and we intend to
use the remaining net proceeds for working capital and other general corporate
purposes. Expansion of our network infrastructure includes significant
acquisitions of transmission capacity and continued deployment of the ATM-
enabled backbone.
Our management, subject to supervision by our board of directors, will
have significant flexibility in applying the net proceeds of the offering.
Pending any use as described above, we intend to invest the net proceeds in
interest-bearing investment grade instruments. See "Risk Factors--Our
management has broad discretion in spending the proceeds of the offering."
DIVIDEND POLICY
Since 1996, we have paid cash dividends of $500,000 per year on our
capital stock. However, we do not expect to pay any cash dividends for the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business. Any determination to pay cash dividends
in the future will be at the discretion of our board of directors and will
depend upon our results of operations, financial condition, contractual
restrictions and other factors deemed relevant at that time by our board of
directors.
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<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1999 our capitalization on
an actual basis and on a pro forma as adjusted basis. You should read this
information in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes to
those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999 (1)
------------------------
PRO FORMA AS
ACTUAL ADJUSTED (2)
--------- -------------
(Dollars in thousands)
<S> <C> <C>
Cash and cash equivalents.............................. $ 34,738 $
=========
Short-term debt (including current portion of long-term
debt)................................................. 4,476
Long-term debt (excluding current portion)............. 92,461
---------
Total debt......................................... 96,937
Common stock subject to repurchase rights, net:
Class C common stock, $0.01 par value per share:
10,000 shares authorized, 316 shares issued and
outstanding, actual; no shares authorized, as
adjusted............................................ 7,897
Less notes receivable from issuance of common stock
(3)(4).............................................. (7,910)
---------
Total common stock subject to repurchase rights,
net............................................... (13)
Stockholders' equity:
Preferred stock, $0.01 par value per share: no shares
authorized actual; shares authorized as
adjusted, no shares issued and outstanding, as
adjusted............................................ --
Class A common stock, $0.01 par value per share:
12,500 shares authorized, 12,500 shares issued and
5,719 shares outstanding, actual; shares
authorized, issued and outstanding, as adjusted..... 67,819
Class B common stock, $0.01 par value per share:
12,500 shares authorized, 6,781 shares issued and
outstanding, actual; shares authorized,
issued and outstanding, as adjusted ................ 124,074
Treasury stock, at cost, 6,781 shares of Class A
common stock........................................ (121,184)
Retained earnings.................................... 4,972
Accumulated other comprehensive loss................. (1,882)
--------- --------
Total stockholders' equity......................... 73,799
--------- --------
Total capitalization............................. $ 170,723 $
========= ========
</TABLE>
- --------
(1) For consistency of presentation, we have described July 2, 1999 as June 30,
1999.
(2) The consolidated balance sheet data presented on a pro forma as adjusted
basis reflects: (1) the sale of shares of our Class B common stock
in this offering at an assumed public offering price of $ per share; (2)
$59.9 million of outstanding borrowings under our $250.0 million senior
secured credit facility as of September 30, 1999 at a weighted average
interest rate of 8.21%; (3) the issuance of 1,600 shares of our Class B
common stock to KPN, Swisscom and Telia; (4) the termination of the
repurchase right on our Class C common stock and its conversion into our
Class B common stock upon the completion of this offering; and (5) the
conversion of our book value stock option plan to a market value stock
option plan.
(3) Represents recourse notes issued by employees to us upon exercise of stock
purchase rights under our 1998 Stock Purchase Plan.
(4) Excludes 124 shares of our Class B common stock that are reserved for
issuance pursuant to outstanding options and 176 shares of our Class B
common stock that are reserved for issuance upon exercise of options that
may be issued in the future under our stock option plan.
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<PAGE>
DILUTION
Our net tangible book value as of June 30, 1999 was $12.8 million, or
$996.49 per share of outstanding common stock. Net tangible book value per
share is equal to the amount of our total tangible assets (total assets less
intangible assets) less total liabilities, divided by the number of shares of
our common stock outstanding as of June 30, 1999. Assuming the sale of the
shares we are offering by this prospectus at an assumed initial public offering
price of $ per share and after deducting underwriting discounts and the
estimated offering expenses payable, our net tangible book value as of June 30,
1999 would have been $ , or $ per share of common stock. This represents
an immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share..................... $
Net tangible book value per share before this offering.............. $996.49
Increase per share attributable to this offering.................... $
Adjusted net tangible book value per share after the offering....... $
-------
Dilution per share to new investors................................. $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by new investors
purchasing shares in the offering:
<TABLE>
<CAPTION>
SHARES
PURCHASED TOTAL CONSIDERATION AVERAGE
-------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).......... 12,816 % $78,606,000 % $6,133.43
New investors..................... -- -- -- -- --
Total............................. 100% $ 100% $
====== === =========== === =========
</TABLE>
- --------
(1) Net of 6,781 shares of Class A common stock we hold in treasury. We paid
$121.2 million to acquire these shares.
The tables and calculations above assume no exercise of outstanding
options. As of June 30, 1999, there were 124 shares of our Class B common stock
reserved for issuance upon exercise of outstanding options at a weighted
average exercise price of $25,000 per share. To the extent that these options
are exercised, there will be further dilution to new investors. See
"Management--Employee Benefit Plans--1998 Stock Option Plan" and "Description
of Capital Stock."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data.
You should read this information together with our consolidated financial
statements and the related notes to those statements appearing elsewhere in
this prospectus and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected consolidated financial data
as of March 31, 1995, 1996 and 1997 and for each of the years in the two year
period ended March 31, 1996 have been derived from our audited consolidated
financial statements which are not included in this prospectus. The selected
consolidated financial data as of March 31, 1998 and 1999, and for each of the
years in the three year period ended March 31, 1999 have been derived from our
audited consolidated financial statements which appear elsewhere in this
prospectus. The selected consolidated financial data as of June 30, 1999, and
for the three months ended June 30, 1998 and 1999 are derived from our
unaudited consolidated financial statements which appear elsewhere in this
prospectus. In the opinion of management, the unaudited consolidated financial
statements have been prepared on a basis consistent with our audited
consolidated financial statements and include all adjustments, which are only
normal recurring adjustments, necessary for a fair presentation of the
financial position and the results of operations for the unaudited periods. The
historical results are not necessarily indicative of the operating results to
be expected in the future.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31,(1) ENDED JUNE 30,(1)
------------------------------------------------ ------------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated statement of operations
data:
Revenues............................... $213,292 $240,776 $264,684 $294,244 $302,997 $ 69,004 $ 85,706
Expenses:
Country representative compensation.. 36,918 43,232 35,090 41,136 53,766 12,072 15,861
Bandwidth and related costs.......... 33,936 37,407 43,134 48,089 52,700 12,627 14,620
Network operations................... 68,075 75,386 81,106 80,806 52,997 12,416 14,007
Selling, general and administrative.. 78,290 84,948 115,741 130,287 139,663 34,181 41,518
-------- -------- -------- -------- -------- -------- --------
Total expenses....................... 217,219 240,973 275,071 300,318 299,126 71,296 86,006
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)................ (3,927) (197) (10,387) (6,074) 3,871 (2,292) (300)
-------- -------- -------- -------- -------- -------- --------
Other income (expense):
Interest income...................... 1,751 1,847 1,014 1,515 1,881 783 491
Interest expense..................... (627) (477) (874) (868) (689) (197) (652)
Other, net........................... 3,664 (227) 2,591 2,969 382 (83) (15)
-------- -------- -------- -------- -------- -------- --------
Total other income (expense)......... 4,788 1,143 2,731 3,616 1,574 503 (176)
Income (loss) before provision (credit)
for income taxes and minority inter-
est................................... 861 946 (7,656) (2,458) 5,445 (1,789) (476)
Provision (credit) for income taxes.... 426 887 (175) 3,119 638 61 804
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority inter-
est................................... 435 59 (7,481) (5,577) 4,807 (1,850) (1,280)
Minority interest(2)................... -- -- -- (143) 132 21 (52)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)(3)................... $ 435 $ 59 $ (7,481) $ (5,434) $ 4,675 $ (1,871) $ (1,228)
======== ======== ======== ======== ======== ======== ========
Basic and diluted earnings (loss) per
common share(3)(4).................... $ 36.63 $ 4.72 $(598.48) $(434.72) $ 374.00 $(149.68) $ (96.61)
Basic and diluted weighted average num-
ber of common shares outstanding...... 11,875 12,500 12,500 12,500 12,500 12,500 12,711
OTHER CONSOLIDATED FINANCIAL DATA:
Net cash flows provided by (used in):
Operating activities................. $ 12,130 $ 13,327 $ 1,639 $ 14,393 $ 13,582 $ 2,108 $ 2,069
Investing activities................. (37,761) (22,332) (4,960) (6,872) (22,350) (959) (24,930)
Financing activities................. 36,505 (3,577) 13,048 (14,390) 5,828 (412) 49,203
EBITDA(5).............................. 8,724 15,201 9,631 18,075 20,612 1,065 4,683
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31,(1) AS OF JUNE 30, 1999(1)
-------------------------------------------- ----------------------
PRO FORMA
1995 1996 1997 1998 1999 ACTUAL AS ADJUSTED(6)
-------- -------- -------- -------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash equiva-
lents.................. $ 22,030 $ 9,448 $ 18,906 $ 11,449 $ 8,681 $ 34,738
Total current assets.... 86,273 75,709 92,296 90,757 90,277 111,134
Total assets............ 146,985 143,868 159,439 150,482 180,990 257,186
Current liabilities..... 41,706 42,744 60,286 61,487 72,762 70,484
Total debt(6)........... 8,003 5,112 15,373 2,066 15,837 96,937
Total stockholders' eq-
uity................... 83,869 83,347 78,711 72,141 75,953 73,799
OTHER OPERATING DATA:
Number of ports......... 5,143 5,814 7,914 9,205 10,590 11,142
Number of country repre-
sentatives............. 48 49 51 52 56 56
Number of dedicated per-
sonnel:
U.S................... 660 728 764 580 592 614
Non-U.S.(7)........... 570 535 556 585 659 670
</TABLE>
- --------
(1) Our fiscal year is the 52- or 53-week period ending on the Friday nearest
to March 31. For simplicity of presentation, we have described the 52-week
periods ended April 1, 1995, March 29, 1996, and March 28, 1997, the 53-
week period ended April 3, 1998 and the 52-week period ended April 2, 1999
as the years ended March 31, 1995, 1996, 1997, 1998 and 1999, and we have
described the 13-week periods ended July 3, 1998 and July 2, 1999 as the
three months ended June 30, 1998 and 1999.
(2) Reflects the acquisition of a 51% interest in Infonet Luxembourg in the
year ended March 31, 1998.
(3) In our three month period ending December 31, 1999, we will record a non-
cash compensation charge of $ , resulting from the conversion of our book
value stock options to market value options as a result of the offering and
a charge of $ , resulting from our stock appreciation rights, each of
which is based upon the midpoint of the anticipated price range of this
offering. Had the offering been completed during our three month period
ended June 30, 1999, our net loss would have been $ and our basic and
diluted loss per common share would have been $ .
(4) As of March 31, 1995, 1996, 1997 and 1998 and June 30, 1998, there were no
options, warrants or other forms of potential common stock issued by us.
Our outstanding common stock purchase rights represent the only form of
potential common stock as of March 31, 1999. All of these rights were
excluded from the computation of diluted earnings per share because their
inclusion would have had an antidilutive effect on earnings per share. Our
outstanding common stock options represent the only form of potential
common stock as of June 30, 1999. All of these options were excluded from
the computation of diluted earnings per share because their inclusion would
have been antidilutive.
(5) EBITDA, which we calculate as income from operations before interest, other
income (expense), provision for income taxes, depreciation, amortization
and compensation charge for stock option plans, is a supplemental financial
measure we use in the evaluation of our business and is used by many
analysts in our industry. However, you should read EBITDA only in
conjunction with our consolidated financial data summarized above and our
consolidated financial statements and the related notes to those financial
statements prepared in accordance with generally accepted accounting
principles, which appear elsewhere in this prospectus. You should not
construe EBITDA as an alternative to income from operations, as determined
in accordance with generally accepted accounting principles, as an
indicator of our operating performance or as an alternative to cash flows
from operating activities, as determined in accordance with generally
accepted accounting principles, as a measure of our liquidity. Our
definition of EBITDA may not be comparable to similarly titled measures of
other companies.
(6) The consolidated balance sheet data presented on a pro forma as adjusted
basis reflects: (1) the sale of shares of our Class B common stock
in this offering at an assumed public offering price of $ per share;
(2) $59.9 million of outstanding borrowings under our $250.0 million senior
secured credit facility as of September 30, 1999 at a weighted average
interest rate of 8.21%; (3) the issuance of 1,600 shares of our Class B
21
<PAGE>
common stock to KPN, Swisscom and Telia; (4) the termination of the
repurchase right on our Class C common stock and its conversion into our
Class B common stock upon the completion of this offering; and (5) the
conversion of our book value stock option plan to a market value stock
option plan.
(7) Includes employees of non-consolidated country representatives.
QUARTERLY REVENUE PERFORMANCE
The following table sets forth quarterly revenue data for the year ended
March 31, 1999 and for the three months ended June 30, 1999. The information
is derived from our unaudited consolidated financial statements, prepared on a
basis consistent with our audited consolidated financial statements which
appear elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1999 1999
-------- ------------- ------------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues............. $69,004 $71,567 $77,108 $85,318 $85,706
</TABLE>
Our revenues vary from quarter to quarter due to a number of factors
including the timing of new client contracts, new service offerings, changes
in our pricing policies or those of our competitors and the timing and
completion of our network expansion. Quarterly results are not necessarily
meaningful and you should not rely on them as an indication of our future
performance.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with the financial
statements and the related notes to those statements appearing elsewhere in
this prospectus. This discussion contains forward-looking statements that
involve risks and uncertainties. Please see "Risk Factors--This prospectus
contains forward-looking statements that may not be accurate indicators of our
future performance."
OVERVIEW
We are a leading provider of cross-border managed data communications
services to more than 1,150 multinational corporations worldwide. We offer our
services to our clients directly through country representatives and indirectly
through alternate sales channels consisting of major international
telecommunications carriers and value-added resellers. We deploy a broad array
of fully managed data communications services over our reliable, secure, and
high quality global network, which we refer to as The World Network. The World
Network is a seamless and versatile ATM-enabled network that can be accessed by
our clients from over 180 countries.
We began operations in 1969 as a part of Computer Sciences Corporation,
or CSC. In a series of transactions from 1988 to 1992, CSC sold its ownership
in Infonet to a group of telecommunications companies. From 1988 through March
31, 1999, we funded the majority of our operations, capital expenditures and
other cash requirements from internally generated funds and from two separate
stock issuances of $40.0 million each to our stockholders, one in 1995 and one
in 1999.
Prior to October 1997, our results included the operations of Government
Systems, Inc., or GSI, a wholly owned subsidiary, and our government accounts
business, which we refer to together as Government Services. In October 1997,
we sold the assets of GSI to a third party for $21.0 million in cash and a
$5.5 million reduction in debt. For the year ended March 31, 1998, results of
operations from GSI included $32.5 million in revenues and $4.0 million in
income before taxes. In addition, we sold our government accounts to the same
third party and entered into an agreement allowing the third party to operate
as a country representative for a total of $7.0 million in cash. These
government accounts contributed $4.3 million in revenues in the year ended
March 31, 1998.
REVENUES BY REGION AND BY COUNTRY
We provide our services throughout the world, with revenues billed and
costs incurred in more than 60 countries. The following tables set forth our
revenues by region and by country based upon the ten largest countries in terms
of revenues for the three months ended June 30, 1999. Due to the multinational
nature of our client base, the table does not reflect the country in which
services are provided, but rather is based on the jurisdiction in which we
invoice for our services.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
---------------------------------------- ------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REGION
Americas................ $104,888 48% $109,049 43% $115,937 38% $26,771 39% $31,529 37%
Europe, Middle East and
Africa (EMEA).......... 90,710 41 116,123 46 158,234 52 35,321 51 45,821 53
Asia Pacific............ 23,320 11 29,004 11 28,826 10 6,912 10 8,356 10
-------- --- -------- --- -------- --- ------- --- ------- ---
Subtotal................ 218,918 100% 254,176 100% 302,997 100% 69,004 100% 85,706 100%
Government Services..... 45,766 40,068 -- -- --
-------- -------- -------- ------- -------
Total revenues.......... $264,684 $294,244 $302,997 $69,004 $85,706
======== ======== ======== ======= =======
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
-------------------------------------------- -------------------------
1997 1998 1999 1998 1999
------------ ------------ --------------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COUNTRY
Australia............... $ 8,375 4% $ 9,206 4% $ 11,781 4% $ 2,702 4% $ 3,325 4%
Belgium................. 10,509 5 7,499 3 8,536 3 1,947 3 2,398 3
France.................. 12,804 6 12,671 5 13,183 4 3,278 5 3,419 4
Germany................. 14,735 7 17,742 7 23,438 8 5,000 7 6,911 8
Japan................... 4,661 2 6,315 2 7,813 3 1,877 3 2,069 2
Netherlands............. 8,449 4 20,091 8 34,944 12 7,495 11 10,146 12
Sweden.................. 7,659 3 10,923 4 13,859 4 3,079 4 4,170 5
Switzerland............. 8,116 4 9,931 4 12,071 4 2,848 4 3,558 4
United Kingdom.......... 11,488 5 12,604 5 19,682 6 4,221 6 6,232 7
United States........... 89,694 41 89,754 35 103,190 34 23,355 34 29,270 34
Other countries......... 42,428 19 57,440 23 54,500 18 13,202 19 14,208 17
-------- --- -------- --- ------------- -------- ------- --- ------- ---
Subtotal............... 218,918 100% 254,176 100% 302,997 100% 69,004 100% 85,706 100%
Government Services..... 45,766 40,068 -- -- --
-------- -------- ------------- ------- -------
Total revenues.......... $264,684 $294,244 $ 302,997 $69,004 $85,706
======== ======== ============= ======= =======
</TABLE>
DISTRIBUTION CHANNELS
We offer our services through country representatives and through
alternate sales channels such as major telecommunication service providers and
value-added resellers. In the year ended March 31, 1999, country
representatives contributed 90% of our total revenues, while alternate sales
channels contributed 10% of our total revenues. The table below shows the
relative contribution to revenues from country representatives, excluding
Government Services, and alternate sales channels.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
---------------------------- ----------------
1997 1998 1999 1998 1999
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Country representatives:
Number of representatives..... 51 52 56 55 56
Number of clients............. 1,152 1,101 1,129 1,114 1,160
Country representatives' reve-
nues......................... $212,421 $239,776 $273,150 $63,342 $76,514
Percent of total revenues..... 97% 94% 90% 92% 89%
Alternate sales channels:
Number of sales channel part-
ners......................... 6 12 17 13 16
Number of sales channel part-
ners' clients................ 63 117 184 145 191
Alternate sales channel reve-
nues......................... $ 6,497 $ 14,400 $ 29,847 $ 5,662 $ 9,192
Percent of total revenues..... 3% 6% 10% 8% 11%
</TABLE>
Country Representatives
We currently have 56 country representatives, nine consolidated and 47
non-consolidated, which together provide services in more than 60 countries.
Our consolidated country representatives are those in which we own, directly or
indirectly, greater than a 50% equity interest. Our consolidated country
representatives provide services in 14 countries and accounted for
approximately $152.4 million, or approximately 50% of our total revenues, in
the year ended March 31, 1999.
24
<PAGE>
Our service agreements with our country representatives give us the right
to recommend prices for services, set revenue targets jointly, determine
staffing jointly, appoint one of the three members of the advisory review
board, and terminate the agreement if the country representative fails to meet
the revenue targets or if we cannot agree on revenue targets for two
consecutive years. In addition, each agreement outlines the compensation and
pricing arrangements with the country representatives. Established rates and
support charges are generally the same for all country representatives
throughout the world.
Our country representatives determine the prices they charge clients, in
accordance with our recommended prices and standard discounts, and enter into
contracts with clients to provide services using The World Network. We bill our
country representatives and recognize the full amount of revenues for all of
our services delivered to the clients. The country representatives bill us for
the sales and support services they provide, which we account for as country
representative compensation. The country representative bears the risk of
collection from the client as well as the exchange rate risk.
Alternate Sales Channels
Our alternate sales channel partners sell all or a portion of our suite of
services in their territories to clients that require one or more of our global
communications services that the sales channel partners cannot supply
independently. These sales channel partners include, among others, AT&T and MCI
WorldCom. Our relationships are governed by multi-year contracts, under which
we provide services to our sales channel partners who then resell our services
to clients on terms our sales channel partners determine.
COMPONENTS OF REVENUES
Our revenues are derived from providing the following global data
communications services to our multinational clients worldwide:
. Network Services--includes Frame Relay, remote access, intranet,
multimedia, Internet and IP services;
. Consulting, Integration and Provisioning Services--includes consulting,
design, and implementation; sale and installation of customer premise
equipment associated with the client's access to The World Network and
use of our Network Services;
. Applications Services--includes e-mail, messaging, collaboration, Web
hosting and other value-added services; and
. Other Communications Services--includes X.25 transport services,
service access fees and other communications services.
REVENUES BY SERVICES
We currently derive a majority of our revenues from the sale of Network
Services, specifically Frame Relay, remote access and IP services, as shown
below. We expect that Network Services will continue to constitute the largest
component of our revenue base going forward. We also anticipate that a
significant portion of our future revenue growth will continue to come from
Network Services and Consulting, Integration and Provisioning Services.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
-------------------------------------------- --------------------------------
1997 1998 1999 1998 1999
------------ ------------ --------------- ---------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Network Services........ $ 66,153 30% $100,337 39% $ 144,642 48% $32,240 47% $45,599 53%
Consulting, Integration
and Provisioning Serv-
ices................... 48,264 22 58,637 23 78,777 26 17,178 25 25,681 30
Applications Services... 16,604 8 22,433 9 20,068 6 5,394 8 4,291 5
Other Communications
Services............... 87,897 40 72,769 29 59,510 20 14,192 20 10,135 12
-------- --- -------- --- ------------- -------- ------- --- ------- ---
Subtotal................ 218,918 100% 254,176 100% 302,997 100% 69,004 100% 85,706 100%
Government Services..... 45,766 40,068 -- -- --
-------- -------- ------------- ------- -------
Total revenues.......... $264,684 $294,244 $ 302,997 $69,004 $85,706
======== ======== ============= ======= =======
</TABLE>
25
<PAGE>
PRICING POLICIES
The pricing for our services differs depending on the services provided,
the speed of service, geographic location and capacity utilization. In the case
of services permitting dedicated client access to the network by leased
circuit, pricing is generally dependent more on the nature and capacity of the
service provided than on actual usage. For example, the pricing for a
connection to be used for Frame Relay services generally consists of a monthly
charge for the connection and the bandwidth access provided through the
connection. Pricing for dedicated access services is therefore largely based on
access equipment and bandwidth. In the case of remote access services, actual
usage and geographic location are more relevant to the pricing determination,
as the client is generally charged based on the duration of each connected
session. Once a base service is set, additional factors are taken into account
such as charges for additional network services, breadth of the service, and
discounts for larger volume clients that are prepared to guarantee specific
revenue levels.
CLIENT CONTRACTS
The client contracts generally include an agreed-upon price schedule that
details both fixed and variable prices for contracted services. The client
contracts generally have a term of one to three years, however, when clients
implement a number of our services, they may choose to extend the contracts for
a longer period of time. Our country representatives can easily add additional
services to existing contracts, enabling clients to increase the number of
locations through which they access our network, increase the speed of that
access, increase the sophistication of the services they use, or extend the
term for existing services.
COMPONENTS OF COSTS AND EXPENSES
Country Representative Compensation
Country representative compensation reflects the amounts paid to the
country representatives for the sales and support services our country
representatives provide to clients. These expenses are variable and increase as
the revenues from country representatives increase.
Bandwidth and Related Costs
Our bandwidth and related costs are primarily comprised of leasing and
amortization expenses associated with the leasing or purchasing of network
circuits. Currently, the majority of our network backbone infrastructure is
obtained from various providers from whom we lease bandwidth primarily under
short-term cancellable agreements. We bear these leasing expenses regardless of
whether we lease directly or indirectly through another entity that may lease
communications lines locally on our behalf. In the future, as we move towards
establishing a facilities-based network, we intend to migrate from leasing
bandwidth to purchasing bandwidth. Management believes that these purchases
will ultimately result in a lower unit cost for network infrastructure.
Bandwidth and related costs also include related equipment, maintenance and
personnel costs.
Network Operations
Our network operations expenses include costs associated with our network
management, operations and support activities. These costs include personnel,
occupancy, maintenance, equipment depreciation, outsourcing costs and other
network related costs.
Selling, General and Administrative
Selling expenses consist primarily of personnel costs and incentive
compensation related to our consolidated country representative sales force, as
well as costs related to providing centralized sales and marketing support for
our non-consolidated country representatives. Our selling expenses also include
26
<PAGE>
promotion, advertising, travel and entertainment. In 1998, we began a global
advertising campaign to increase awareness of the Infonet brand name and our
service offerings. This campaign includes substantial increased spending on
advertising. General and administrative expenses consist primarily of salaries
and other compensation, and occupancy costs for executive, financial and
accounting, human resources, legal and other administrative personnel, as well
as company-wide management incentive related costs.
Future Compensation Charges Related to Stock Option and Stock Appreciation
Rights Grants
In April 1999, we granted options to employees for the purchase of 124
shares of our Class B common stock at an exercise price of $25,000 per share
pursuant to our 1998 Stock Option Plan. The 1998 Stock Option Plan is a book
value plan which will convert to a market value plan upon the close of this
offering, creating a new measurement date for the stock options. Since the
exercise price of these options is substantially below the anticipated price to
the public in the offering, we will record a non-cash compensation charge in
our three months ended December 31, 1999. The amount of this charge is a
function of the public offering price. Based upon the midpoint of the
anticipated price range in the offering, these charges would total
approximately $ .
During December 1998, we issued 40 stock appreciation rights, or SARs,
and during April 1999 we issued 13 SARs to employees pursuant to our SARs Plan.
The SARs vest 25% per year and are indexed to our Class B common stock at a
base price of $25,000 per share. We will record a compensation charge in each
quarter of the vesting period based upon the difference between the exercise
price and market value of our Class B common stock during the vesting period.
The total amount of this charge is a function of the price of our Class B
common stock during the vesting period. Based upon the midpoint of the
anticipated price range in the offering, these charges would total
approximately $ over the next three years. However, the aggregate amount
of these charges will differ due to fluctuations in our stock price during the
vesting period and those differences could be material.
Results of Operations
The following table sets forth certain financial data from our
consolidated statements of operations for the years ended March 31, 1997, 1998
and 1999 and for the three months ended June 30, 1998 and 1999 expressed in
each case as a percentage of revenues.
<TABLE>
<CAPTION>
Year Ended Three Months
March 31, Ended June 30,
------------------ ------------------
1997 1998 1999 1998 1999
---- ---- ---- ------- -------
(As a percentage of revenues)
<S> <C> <C> <C> <C> <C>
Revenues.............................. 100% 100% 100% 100% 100%
Expenses:
Country representative
compensation....................... 13 15 18 17 19
Bandwidth and related costs......... 16 16 17 18 17
Network operations.................. 31 27 18 18 16
Selling, general and
administrative..................... 44 44 46 50 48
--- --- --- ------- -------
Total expenses...................... 104 102 99 103 100
Operating income (loss)............... (4) (2) 1 (3) 0
Other income (expense)
Interest income..................... 0 0 1 0 1
Interest expense.................... 0 0 0 0 (1)
Other, net.......................... 1 1 0 0 0
Provision for income taxes.......... 0 1 0 0 1
Minority interest................... 0 0 0 0 0
--- --- --- ------- -------
Net income (loss)..................... (3)% (2)% 2% (3)% (1)%
=== === === ======= =======
</TABLE>
27
<PAGE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues increased $16.7 million, or 24%, from $69.0 million for the
three months ended June 30, 1998 to $85.7 million for the three months ended
June 30, 1999. This increase was primarily due to a $13.4 million increase, or
41%, growth in sales of Network Services over the period, from $32.2 million to
$45.6 million. The majority of the Network Services growth came from increased
sales of Frame Relay and remote access services. Frame Relay sales increased
$11.6 million, or 73%, from $16.0 million to $27.6 million and remote access
sales increased $3.6 million, or 72%, from $5.0 million to $8.6 million, over
the period. In addition, Consulting, Integration and Provisioning Services,
comprised primarily of our Global Connect services increased $8.5 million, or
49%, from $17.2 million to $25.7 million. Our Applications Services and our
Other Communications Services declined over the period, largely due to an
expected decline in our mature messaging product line and our X.25 transport
services as our clients are migrating to more advanced messaging applications
and non-X.25 based transport services.
Revenues from our country representatives increased $13.2 million, or
21%, from $63.3 million for the three months ended June 30, 1998 to $76.5
million for the three months ended June 30, 1999. While we increased the number
of our country representatives from 55 to 56 over the period, the majority of
our revenue growth was derived from existing country representatives. While the
number of our clients increased only 4% from 1,114 clients as of June 30, 1998
to 1,160 as of June 30, 1999, revenues increased as clients that used mostly
lower revenue generating messaging and X.25 based transport services were
replaced by clients that purchased higher revenue yielding Network Services.
Revenues from our alternate sales channels also grew $3.5 million, or 62%, from
$5.7 million to $9.2 million. Our alternate sales channel partners resold our
suite of services to a net additional 46 clients, or 32% more clients during
the period, from 145 clients as of June 30, 1998 to 191 clients as of June 30,
1999.
In terms of revenues billed on a regional basis, the largest portion of
our growth was in the EMEA region, which grew $10.5 million, or 30%, from $35.3
million for the three months ended June 30, 1998 to $45.8 million for the three
months ended June 30, 1999. The majority of this revenue growth was derived
from strong alternate sales channel revenue growth in The Netherlands and
strong country representative activities in the United Kingdom and Germany.
Revenues billed in the Americas increased $4.8 million, or 18%, from $26.8
million to $31.5 million over the period. Asia Pacific revenues also increased
$1.4 million, or 21%, from $6.9 million to $8.4 million.
Country Representative Compensation increased $3.8 million, or 31%, from
$12.1 million for the three months ended June 30, 1998 to $15.9 million for the
three months ended June 30, 1999. This increase was due primarily to the
increase in the services provided by our non-consolidated country
representatives during the period. While we added one new country
representative, nearly all of the growth in these expenses came from increased
payments for services provided by our existing country representatives. These
payments are variable expenses, based on the amount and nature of services
provided by our country representatives. As such, we expect these expenses to
increase in the future as revenues generated by our country representatives
increase.
Bandwidth and Related Costs increased $2.0 million, or 16%, from $12.6
million for the three months ended June 30, 1998 to $14.6 million for the three
months ended June 30, 1999. This increase was directly related to higher
network leasing costs associated with the increased usage on our network. The
usage growth reflects additional client port growth and increased capacity per
port. While bandwidth costs have been declining over time, clients are
demanding greater bandwidth capacity at the same price. Lease expense, the
largest component of Bandwidth and Related Costs, increased $1.7 million, or
19%, from $9.0 million to $10.7 million over the period. Amortization of
purchased capacity of $245,000 was included in the three months ended June 30,
1999, reflecting the $9.8 million purchase of new capacity in November 1998
that will be amortized over 10 years.
Network Operations increased $1.6 million, or 13%, from $12.4 million for
the three months ended June 30, 1998 to $14.0 million for the three months
ended June 30, 1999. This increase was related to the
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increased costs associated with our network management, operations and support
activities, personnel costs, depreciation and other network operations
expenses. Depreciation expense related to network equipment increased $512,000,
or 32%, from $1.5 million to $2.1 million over the period.
Selling, General and Administrative increased $7.3 million, or 21%, from
$34.2 million for the three months ended June 30, 1998 to $41.5 million for the
three months ended June 30, 1999. The increase was due, in part, to sales
support expenses for multinational support activities which increased $3.1
million from $14.0 million for the three months ended June 30, 1998 to $17.1
million for the three months ended June 30, 1999. This increase was directly
related to revenue growth. In addition, personnel-related expenses increased by
$1.0 million from $13.7 million for the three months ended June 30, 1998 to
$14.6 million for the three months ended June 30, 1999, due to sales and
marketing efforts to grow our business. Administrative expenses increased by
$1.6 million from $3.2 million for the three months ended June 30, 1998 to $4.8
million for the three months ended June 30, 1999, primarily due to legal and
accounting fees incidental to the AUCS transactions. Depreciation expenses
increased by $582,000 from $1.4 million for the three months ended June 30,
1998 to $2.0 million for the three months ended June 30, 1999, due to the
placement of additional equipment at client premises.
Operating Income (Loss) narrowed by $2.0 million, or 87%, from $(2.3)
million to $(300,000). This reduction in the loss was due to increased revenues
offset by a slower growth in expenses as described above.
Other Income (Expense) decreased from income of $503,000 for the three
months ended June 30, 1998 to expense of $(176,000) for the three months ended
June 30, 1999. This decrease was due to an increase in interest expense over
the period of $455,000, or 231%, from $197,000 to $652,000. The increased
interest expense resulted from the $50.0 million bridge loan facility entered
into in May 1999. The decrease in Other Income (Expense) was also impacted by a
decline in interest income of $292,000, or 37%, from $783,000 to $491,000 over
the period.
Provision (Credit) for Income Taxes increased $743,000, from $61,000 for
the three months ended June 30, 1998 to $804,000 for the three months ended
June 30, 1999. This increase in income taxes was due primarily to an increase
in losses during the period from a subsidiary that we were not able to
consolidate for income tax purposes.
Net Income (Loss) decreased $643,000, or 34%, from $(1.9) million for the
three months ended June 30, 1998 to $(1.2) million for the three months ended
June 30, 1999, as a result of the factors described above.
Year Ended March 31, 1999 Compared to Year Ended March 31, 1998
Revenues increased $8.8 million, or 3%, from $294.2 million in the year
ended March 31, 1998 to $303.0 million in the year ended March 31, 1999.
Revenues in the year ended March 31, 1998 included $40.1 million related to
Government Services, which were sold in the year ended March 31, 1998 and thus
did not contribute to our revenues in the year ended March 31, 1999. Excluding
the contribution in 1998 from this business, our revenues would have grown
$48.8 million, or 19%, over the period from $254.2 million to $303.0 million.
This increase was primarily due to a $44.3 million increase, or 44%, in sales
of Network Services over the period, from $100.3 million to $144.6 million. The
majority of the Network Services growth came from increased sales of Frame
Relay and remote access services. Frame Relay sales increased $37.2 million, or
85%, from $43.7 million to $80.9 million and remote access sales increased
$9.8 million, or 76%, from $12.9 million to $22.7 million, over the period. In
addition, Consulting, Integration and Provisioning Services, comprised
primarily of our Global Connect services, increased $20.1 million, or 34%, from
$58.6 million to $78.8 million over the period. Our Applications Services
declined $2.4 million, or 11%, from $22.4 million to $20.1 million, and our
Other Communications Services declined $13.3 million, or 18%, from $72.8
million to $59.5 million. Our Other Communications Services decreased over the
period largely due to an expected decline in our mature messaging product line
and our X.25 transport services, as our clients are migrating to more advanced
messaging applications and non-X.25 based transport services.
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Revenues from our country representatives excluding amounts generated by
Government Services increased $33.4 million, or 14%, from $239.8 million in the
year ended March 31, 1998 to $273.2 million in the year ended March 31, 1999.
While we increased the number of our country representatives from 52 to 56 over
the period, the largest portion of our revenue growth was derived through
existing country representatives. While the number of our clients increased
only 3%, from 1,101 clients as of March 31, 1998 to 1,129 clients as of March
31, 1999, revenues increased as clients that used mostly lower revenue
generating messaging and X.25 based transport services were replaced by clients
that purchased higher revenue yielding Network Services. Revenues from our
alternate sales channels grew $15.4 million, or 107%, from $14.4 million to
$29.8 million over the period primarily due to increased revenues from
Unisource Business Network, an alternate sales channel partner operating in The
Netherlands. In total, our alternate sales channel partners resold our suite of
services to a net additional 67 clients, or 57% more clients, during the
period, from 117 clients at the year ended March 31, 1998 to 184 clients at the
year ended March 31, 1999.
In terms of revenues billed on a regional basis, the majority of our
growth was in the EMEA region, which increased $42.1 million, or 36%, from
$116.1 million in the year ended March 31, 1998 to $158.2 million in the year
ended March 31, 1999. More than half of the growth in the EMEA region came from
strong alternate sales channel revenue growth in The Netherlands and strong
country representative activities in the United Kingdom and Germany. Revenues
billed in the Americas grew $6.9 million, or 6%, from $109.0 million to $115.9
million over the period. Revenues billed in Asia Pacific decreased by $178,000
from $29.0 million in the year ended March 31, 1998 to $28.8 million in the
year ended March 31, 1999, reflecting a slowdown in the Asian economy.
Country Representative Compensation increased $12.6 million, or 31%, from
$41.1 million in the year ended March 31, 1998 to $53.8 million in the year
ended March 31, 1999. This increase was due primarily to the increase in the
services provided by our non-consolidated country representatives during the
period. While we added four new country representatives, nearly all of the
growth in these expenses came from increased payments for services provided by
our existing country representatives.
Bandwidth and Related Costs increased $4.6 million, or 10%, from $48.1
million in the year ended March 31, 1998 to $52.7 million in the year ended
March 31, 1999. This increase was directly related to the increased traffic on
our network associated with higher usage of our services by our clients. The
usage growth reflects 15% client port growth and increased capacity per port.
This increase was directly related to higher network leasing costs associated
with the increased traffic on our network.
Network Operations decreased $27.8 million or 34%, from $80.8 million in
the year ended March 31, 1998 to $53.0 million in the year ended March 31,
1999. The majority of this decrease was due to the inclusion of $24.0 million
of network operations expense related to Government Services in the year ended
March 31, 1998 and the absence of those costs in the year ended March 31, 1999
because we sold those businesses in the year ended March 31, 1998. In addition,
in the year ended March 31, 1998 we took a one-time write-off of $5.2 million
for obsolete node equipment. Excluding these factors, network operations would
have increased $1.4 million or, 3%, from $51.6 million to $53.0 million over
the period.
Selling, General and Administrative increased $9.4 million, or 7%, from
$130.3 million in the year ended March 31, 1998 to $139.7 million in the year
ended March 31, 1999. The year ended March 31, 1998 expenses included $4.6
million in selling and administrative costs associated with GSI. Excluding this
factor, Selling, General and Administrative would have increased $14.0 million,
or 11%, from $125.7 million to $139.7 million over the period. Our sales
support expenses for multinational activities increased $7.0 million from $50.4
million in the year ended March 31, 1998 to $57.4 million in the year ended
March 31, 1999 which was directly related to revenue growth. In addition, sales
and marketing personnel related expenses increased $5.7 million for our
business while the GSI related expenses decreased $4.4 million resulting in a
net increase in these expenses of $1.3 million from $54.3 million in the year
ended March 31, 1998 to $55.6 million in the year ended March 31, 1999. The
decrease in GSI expense was due to the sale of that business and the increase
in our other business expenses was related to increased sales and marketing
efforts. Administrative expenses decreased by $2.4 million from $14.8 million
in the year ended March 31, 1998 to $12.4 million in the year
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ended March 31, 1999, primarily due to changes in our management incentive
program, which was replaced by a stock incentive program to better retain key
personnel. Depreciation expenses increased by $2.3 million from $4.4 million in
the year ended March 31, 1998 to $6.7 million in the year ended March 31, 1999.
This was due primarily to increased client premise equipment not associated
with our network.
Operating Income (Loss) increased by $9.9 million, from a loss of $(6.1)
million in the year ended March 31, 1998 to income of $3.9 million in the year
ended March 31, 1999 due to the factors described above. The year ended March
31, 1998 included $10.9 million in operating income related to Government
Services.
Other Income (Expense) decreased from $3.6 million in the year ended
March 31, 1998 to $1.6 million in the year ended March 31, 1999. This decrease
was due to a one-time pretax gain of $3.7 million on the sale of GSI's assets
in the year ended March 31, 1998. Excluding this one-time gain, Other Income
(Expense) would have increased from $(100,000) in the year ended March 31, 1998
to $1.6 million in the year ended March 31, 1999. This increase reflects growth
in interest income of $366,000, or 24%, from $1.5 million to $1.9 million due
to higher cash balances provided by the investment of the proceeds from the
sale of Government Services. In addition, the increase reflects a slight
decrease in interest expense of $179,000, or 21%, from $868,000 to $689,000
over the period.
Provision (Credit) for Income Taxes decreased $2.5 million, or 80%, from
$3.1 million in the year ended March 31, 1998 to $638,000 in the year ended
March 31, 1999. The unusually high tax provision in the year ended March 31,
1998, was primarily due to our inability to realize tax benefits related to
certain U.S. and foreign subsidiary losses. In the year ended March 31, 1999,
changes in circumstances allowed the U.S. tax losses from the year ended March
31, 1998 to be carried forward and included in our tax returns, resulting in a
lower than normal tax provision in the year ended March 31, 1999.
Net Income (Loss) increased from $(5.4) million in the year ended March
31, 1998 to $4.7 million in the year ended March 31, 1999 due to the factors
described above.
Year Ended March 31, 1998 Compared to Year Ended March 31, 1997
Revenues increased $29.6 million, or 11%, from $264.7 million in the year
ended March 31, 1997 to $294.2 million in the year ended March 31, 1998.
Revenues in the year ended March 31, 1998 included $40.1 million related to
Government Services, which were sold in the year ended March 31, 1998.
Similarly, revenues in the year ended March 31, 1997 included $45.8 million
related to Government Services. Excluding the contribution from these
businesses, our revenues would have grown $35.3 million, or 16%, over the
period from $218.9 million to $254.2 million. This increase was primarily due
to a $34.2 million increase, or 52%, growth in sales of Network Services over
the period, from $66.2 million in the year ended March 31, 1997 to $100.3
million in the year ended March 31, 1998. The majority of Network Services
growth came from increased sales of Frame Relay and remote access services.
Frame Relay sales increased $24.1 million, or 123%, from $19.6 million to $43.7
million and remote access sales increased $8.1 million, or 169% from
$4.8 million to $12.9 million, over the period. In addition, Consulting,
Integration and Provision Services, comprised primarily of our Global Connect
services increased $10.4 million, or 21%, from $48.3 million to $58.6 million
over the period. Our Applications Services revenues increased $5.8 million, or
35%, from $16.6 million to $22.4 million, and our Other Communications Services
declined $15.1 million, or 17%, from $87.9 million to $72.8 million. Our
Applications Services and Other Communications Services decreased over the
period largely due to an expected decline in our mature messaging product line
and our X.25 transport services, as our clients are migrating to more advanced
messaging applications and non-X.25 based transport services.
Revenues from our country representatives increased $27.4 million, or
13%, from $212.4 million in the year ended March 31, 1997 to $239.8 million in
the year ended March 31, 1998. While we increased the number of our country
representatives from 51 to 52 over the period, the largest portion of our
revenue growth
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was derived through existing country representatives. While the number of our
clients decreased by 4% from 1,152 clients as of March 31, 1997 to
1,101 clients as of March 31, 1998, revenue increased as clients that used
mostly lower revenue generating messaging and X.25 based transport services
were replaced by clients that purchased higher revenue yielding Network
Services. Revenues from our alternate sales channels grew $7.9 million, or
122%, from $6.5 million to $14.4 million over the period primarily due to
increased revenues from Unisource Business Network, an alternate sales channel
partner operating in The Netherlands. In total, our alternate sales channel
partners resold our suite of services to a net additional 54 customers, or 86%
more customers during the period, from 63 customers at the year ended March 31,
1997 to 117 customers at the year ended March 31, 1998.
In terms of revenues billed on a regional basis, the majority of our
growth was in the EMEA region, which increased $25.4 million, or 28%, from
$90.7 million in the year ended March 31, 1997 to $116.1 million in the year
ended March 31, 1998 primarily due to strong alternate sales channel revenue
growth in The Netherlands, and strong country representative activities in
Germany and Sweden, partially offset by a decline in revenues in Belgium.
Revenues billed in the Americas, grew $4.2 million, or 4%, from $104.9 million
to $109.0 million over the period. Revenues billed from Asia Pacific increased
$5.7 million, or 24%, from $23.3 million in the year ended March 31, 1997 to
$29.0 million in the year ended March 31, 1998, reflecting a strong Asian
economy during the year ended March 31, 1998.
Country Representative Compensation increased $6.0 million, or 17%, from
$35.1 million in the year ended March 31, 1997 to $41.1 million in the year
ended March 31, 1998. This increase was due primarily to the increase in the
services provided by our non-consolidated country representatives during the
period. As we added only one new country representative over the period,
effectively all of the growth in these expenses came from the growth in
payments for services provided by our existing country representatives.
Bandwidth and Related Costs increased $5.0 million, or 11%, from $43.1
million in the year ended March 31, 1997 to $48.1 million in the year ended
March 31, 1998. This network leasing cost increase was directly related to the
increased traffic on our network associated with higher usage of our services
by our clients. The usage growth reflects 16% client port growth and increased
capacity per port.
Network Operations decreased $300,000, from $81.1 million in the year
ended March 31, 1997 to $80.8 million in the year ended March 31, 1998. These
expenses included network operations expense related to Government Services of
$24.0 million in the year ended March 31, 1998 and $30.7 million in the year
ended March 31, 1997. In addition, in the year ended March 31, 1998 we took a
one-time write-off of $5.2 million for certain obsolete node equipment.
Excluding these factors, network operations would have increased $1.2 million,
or 2%, from $50.4 million in the year ended March 31, 1997 to $51.6 million in
the year ended March 31, 1998. This increase was related to the increased costs
associated with our network management, operations and support activities,
including depreciation and personnel costs.
Selling, General and Administrative increased $14.5 million, or 13%, from
$115.7 million in the year ended March 31, 1997 to $130.3 million in the year
ended March 31, 1998. These expenses included selling and administrative costs
associated with GSI of $6.8 million in the year ended March 31, 1997 and $4.6
million in the year ended March 31, 1998. Excluding GSI, these expenses would
have increased $16.8 million, or 15%, from $108.9 million to $125.7 million
over the period. Our sales support expenses for multinational support
activities increased $8.3 million from $42.1 million in the year ended March
31, 1997 to $50.4 million in the year ended March 31, 1998. The increases were
directly related to revenue growth. Sales and marketing personnel and related
expenses increased $2.1 million for our business while expenses related to GSI
decreased $2.2 million, resulting in a net decrease of these expenses of
$100,000 from $54.4 million in the year ended March 31, 1997 to $54.3 million
in the year ended March 31, 1998. The decrease in GSI expense was due to a
change in business strategy and the increase in our other business expenses was
related to increased sales and marketing efforts to grow the business.
Administrative expenses increased $3.4 million from $11.4 million in the year
ended March 31, 1997 to $14.8 million in the year ended March 31, 1998, due to
changes in our management incentive program. Depreciation expenses decreased by
$400,000 from $4.8 million in the year
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ended March 31, 1997 to $4.4 million in the year ended March 31, 1998. This was
due primarily to increased customer premise equipment, offset by a one time
adjustment in the year ended March 31, 1997.
Operating Income (Loss) narrowed by $4.3 million, or 42%, from a loss of
$(10.4) million in the year ended March 31, 1997 to a loss of $(6.1) million in
the year ended March 31, 1998 due to the factors described above.
Other Income (Expense) increased from $2.7 million in the year ended
March 31, 1997 to $3.6 million in the year ended March 31, 1998. This reflects
growth in interest income of $501,000, or 49%, from $1.0 million to $1.5
million due to higher cash balances provided by the investment of the proceeds
from the sale of Government Services. In addition, Other, net increased by
$378,000 for the year ended March 31, 1998 primarily related to lower foreign
exchange losses during the period. The year ended March 31, 1998 included a
one-time pretax gain of $3.7 million related to the sale of GSI's assets.
Similarly, the year ended March 31, 1997 included a one-time pretax gain of
$3.7 million related to the sale of an Internet business in Belgium.
Provision (Credit) for Income Taxes increased $3.3 million, from
$(175,000) in the year ended March 31, 1997 to $3.1 million in the year ended
March 31, 1998. The unusually high tax provision in the year ended March 31,
1998, was primarily due to our inability to realize tax benefits related to net
operating losses of U.S. and foreign subsidiaries.
Net Income (Loss) narrowed from $(7.5) million in the year ended March
31, 1997 to $(5.4) million in the year ended March 31, 1998 due to the factors
described above.
Liquidity and Capital Resources
Net cash provided by operating activities was $2.1 million in each of the
three month periods ended June 30, 1998 and 1999. Net cash used in investing
activities for the three months ended June 30, 1999 was $24.9 million compared
to $1.0 million for the three months ended June 30, 1998. The increased cash
used in investing activities in this period primarily resulted from increased
spending of $23.7 million for property, equipment and communications lines. Net
cash provided by financing activities for the three months ended June 30, 1999
was $49.2 million compared to net cash used in financing activities of $412,000
for the three months ended June 30, 1998. This increased cash provided by
financing activities primarily resulted from borrowings under a bridge loan in
the amount of $50.0 million.
Net cash provided by operating activities during the year ended March 31,
1999 was $13.6 million compared to $14.4 million during the year ended March
31, 1998. The decrease in net cash provided by operating activities in 1999
resulted primarily from a $7.4 million decrease in depreciation and
amortization expense, a $6.7 million increase in deferred income tax assets and
an $11.0 million increase in accounts receivable which were substantially
offset by an increase in net income of $10.1 million and the absence of the
$10.7 million gain from the sale of Government Services in 1999. The decrease
in depreciation and amortization expense was primarily the result of the write-
off of obsolete equipment and the sale of GSI's assets in 1998. We expect
depreciation and amortization expense to increase in the future. Net cash used
in investing activities for 1999 was $22.4 million compared to $6.9 million for
1998. The increase in cash used in investing activities in 1999 primarily
reflects the sale in 1998 of GSI for net proceeds of $22.0 million. Net cash
provided by financing activities for 1999 was $5.8 million compared to net cash
used in financing activities in 1998 of $14.4 million, resulting primarily from
the issuance of $16.0 million of long-term obligations in 1999.
Net cash provided by operating activities during the year ended March 31,
1998 was $14.4 million compared to $1.6 million in the year ended March 31,
1997. The increase in net cash provided by operating activities in 1998 was
primarily attributable to a decrease in net loss of $2.0 million, a $4.1
million increase in depreciation and amortization and increases in most
operating liabilities, partially offset by the gain of $10.7 million from the
sale of Government Services in 1998. Net cash used in investing activities for
1998 was
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$6.9 million compared to $5.0 million for 1997. The increase in cash used for
investing activities during this period primarily resulted from net increased
purchases of short-term investments and other securities of $18.8 million and
increased purchases of property, equipment and communication lines of $6.5
million, partially offset by net proceeds of $22.0 million from the sale of
Government Services. Net cash used in financing activities for 1998 was $14.4
million compared to net cash provided by financing activities of approximately
$13.0 million for the year ended March 31, 1997. The increase in net cash used
in financing activities in the year ended March 31, 1998 primarily reflects the
repayment of $12.0 million of net long-term obligations issued in 1997 and the
absence of $3.3 million of net cash provided by the sale and repurchase of
common stock in 1997.
As of June 30, 1999, we had $34.7 million of cash and cash equivalents
and working capital of $40.7 million.
In May 1999, we entered into a $50.0 million bridge loan facility with
Merrill Lynch Capital Corporation. This facility provided for an interest rate
of LIBOR plus 2.5%. In August 1999, we entered into a senior secured credit
facility with a group of lenders. This $250.0 million senior secured credit
facility consists of a seven year $100.0 million Delayed Draw Term Loan, a
seven year $50.0 million Tranche B Term Loan, and a six year $100.0 million
Revolving Credit Facility. The Tranche B Term Loan was fully funded at closing
and was used to pay down in full all amounts outstanding on August 20, 1999
under the bridge loan and a $9.5 million note payable. The Delayed Draw Term
Loan was partially funded in the amount of $10.0 million at closing.
Availability under the senior secured credit facility is determined by a
number of factors including financial covenants, financial ratios and other
conditions. The term loan facilities mature in June 2006 and the revolving
credit facility matures in August 2005. Amortization and reduced availability
begins September 30, 1999 pursuant to a schedule. Interest on the loans is
payable, at a variable rate based on, at our option, either the base rate or
the eurodollar rate, in each case, plus a margin. The margin for term loans
(and, prior to February 20, 2000, for revolving credit loans) is fixed by
facility and by type of loan at the rates specified in the credit agreement and
ranges from 1.50% to 2.75%. From and after February 20, 2000, the margin for
revolving credit loans varies depending on the ratio of our total indebtedness
to consolidated EBITDA and ranges from 0.50% to 2.50%. Furthermore, we are
required by February 2000 to enter into hedge agreements that fix the interest
rate on at least 50% of the outstanding term loans for a period satisfactory to
our lenders. The senior secured credit facility is secured by substantially all
of our assets and a pledge of the stock of our direct and indirect
subsidiaries, requires us to maintain certain financial covenants and places
restrictions on, among other things, the payment of dividends, the incurrence
of debt and liens, the disposition of assets, transactions with affiliates and
certain investments. Deferred financing fees related to obtaining this senior
secured credit facility and the bridge loan were approximately $4.9 million.
In June 1999, we authorized, and have subsequently issued, 1,600 shares
of our Class B common stock to KPN, Swisscom and Telia in exchange for access
to their multinational clients and $40.0 million in cash. See "Business--Access
to Multinational Corporate Clients of KPN, Swisscom and Telia." We expect to
use the funds from this issuance for continued upgrade and expansion of our
network and for general corporate purposes.
Our principal capital expenditure requirements involve the upgrade and
expansion of The World Network through the purchase or lease of transmission
capacity and the purchase of network related equipment as well as computer
equipment, furniture and fixtures. We have funded these expenditures to date
primarily through cash from operations, borrowings under our bridge loan
facility and operating and capitalized leases. Our capital expenditures for the
year ended March 31, 1999 were approximately $11.7 million for network related
equipment, approximately $9.8 million for the purchase of transmission capacity
and approximately $5.5 million for other capital expenditures. As of March 31,
1999, we had capital lease commitments totaling approximately $8.1 million
payable in various years through 2004.
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In connection with the deployment of our ATM-enabled backbone, we
estimate that we will make at least $100.0 million of capital expenditures
during the year ending March 31, 2000. We expect our capital expenditures for
the year ending March 31, 2000 to include $18.0 million for the purchase of an
indefeasible right of use of capacity in a fiberoptic submarine cable system.
In addition, we will have the option for 90 days from the date of occupancy to
purchase our new headquarters facility for approximately $33.0 million. If we
exercise this option, we may finance this purchase with proceeds of the
offering, cash from operations or a mortgage loan from a commercial lender. We
expect that our capital expenditures will be the same or higher in the year
ending March 31, 2001. These expenditures will include payments of
approximately $27.0 million for the purchase of additional submarine cable
capacity. We expect to use cash from operations together with the proceeds of
the offering and availability under the senior secured credit facility to fund
these capital expenditures. The exact amount of future capital expenditures
will depend on a number of factors, including availability under our senior
secured credit facility, our ability to negotiate contracts to purchase
transmission capacity at favorable prices and the demands of our multinational
clients. If we have exhausted the net proceeds of this offering and borrowings
under the senior secured credit facility are not available, we may be required
to seek additional debt or equity financing. We cannot assure you that any
financing will be available on commercially reasonable terms or at all, or that
any additional debt financing would be permitted by the terms of our existing
indebtedness.
Our ability to make scheduled payments of principal of, or to pay
interest on, our debt obligations, and our ability to refinance any debt
obligations, or to fund planned capital expenditures, will depend on our future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, regulatory and other factors that are beyond our
control. Our business strategy contemplates substantial capital expenditures in
connection with the upgrade and expansion of The World Network. We believe that
cash flow from operations and the proceeds of the offering and available
borrowings under our senior secured credit facility will be sufficient to fund
our anticipated capital expenditures through the year ending March 31, 2002.
INFLATION
The impact of inflation on our operations has not been significant to
date. Over the past two years, rising prices for some of our supplies have been
offset by decreasing prices for other services. In particular, our per unit
costs for leased lines and circuits has generally decreased over this period.
However, we cannot assure you that per unit costs for leased lines and circuits
will continue to decline or that a high rate of inflation in the future will
not adversely affect our operating results.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks, which arise during the normal course of
business from changes in foreign exchange rates and interest rates. A
discussion of our primary market risks associated with our foreign currency
transactions, short-term investments, and long-term debt exposure is presented
below.
Foreign Exchange Risk
We conduct our operations in more than 60 countries around the world in a
number of different currencies. There is exposure to future earnings when
foreign exchange rates change and certain receivables, payables and
intercompany transactions are denominated in foreign currencies. We monitor our
exposure to foreign currencies through our regular operating activities and
have not historically used derivatives to hedge foreign exchange risk.
We bill our country representatives in U.S. dollars and our prices are in
U.S. dollars. However, many of our country representatives derive their
revenues and incur costs in currencies other than U.S. dollars. To the extent
that the local currency used by the country representative fluctuates against
the U.S. dollar, the obligations of the country representative may increase or
decrease significantly and lead to foreign exchange losses or gains. We assume
the exchange rate risk for our consolidated country representatives, although
our
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non-consolidated country representatives assume the exchange rate risk under
our country representative structure. Our exposure to exchange rate
fluctuations may increase while we transition multinational clients of KPN,
Swisscom and Telia to The World Network because our receivables from these
clients and our payables to AUCS under the services agreement for services
provided to those clients will be denominated in different foreign currencies.
As of March 31, 1999 we were primarily exposed to the following
currencies: the Canadian dollar, the British pound, the Belgian franc, the
French franc, and the Spanish peseta. Based upon a hypothetical ten-percent
strengthening of the U.S. dollar across all currencies, the potential losses in
future earnings due to foreign currency exposures would have been approximately
$513,000 as of that date.
Interest Rate Risk
We currently maintain an investment portfolio of high quality marketable
securities. According to our investment policy, we may invest in taxable
instruments including U.S. Treasury bills, obligations issued by government
agencies, certificates of deposit, commercial paper, master notes, corporate
notes and asset-backed securities. In addition, the policy establishes limits
on credit quality, maturity, issuer and type of instrument. All securities are
classified as available for sale, and recorded in the balance sheet at fair
value. Fluctuations in fair value attributable to changes in interest rates are
reported as a separate component of stockholders' equity. We do not use
derivative instruments to hedge our investment portfolio.
All highly liquid investments with a maturity of three months or less at
the date of purchase are considered to be cash equivalents. The remaining
short-term investments have maturities that range between three and 12 months.
The carrying amount, principal maturity and estimated fair value of our
investment portfolio and long-term debt exposure are as follows:
<TABLE>
<CAPTION>
Carrying
Amount Maturity
-------- -------------------------------------- Fair
1999 2000 2001 2002 2003 2004 Value
-------- ------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Investments
Cash equivalents........ $6,354 $ -- $ -- $ -- $ -- $ -- $6,354
Weighted average
interest rate.......... 5.61% -- -- -- -- --
Short term investments.. $8,196 $ -- $ -- $ -- $ -- $ -- $8,196
Weighted average
interest rate.......... 6.40% -- -- -- -- --
Long-Term Debt
Secured bank notes...... $8,915 $1,662 $1,789 $1,925 $2,071 $1,468 $8,878
Average interest rate... 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% --
</TABLE>
We have not historically used derivatives to hedge our interest rate
risk. However, under the terms of our senior secured credit facility entered
into on August 17, 1999, we will be required to enter into hedge agreements to
provide that at least 50% of the outstanding term loans are subject to fixed
interest rates.
Impact of the Year 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems may recognize a date using "00" as the year 1900 rather than the year
2000. As a result, computer systems and/or software that many companies and
governmental agencies use may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
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In August 1996, we began working on our Year 2000 readiness project. As
part of the Year 2000 project, we have reviewed the Year 2000 readiness of all
of our systems, software and equipment, including our messaging systems,
billing systems and network services. Following our review, we conducted
simulation and integration tests of our systems. This testing was for the most
part completed by December 1998.
In our review and testing process we identified several critical and non-
critical systems with Year 2000 problems. To date, most of these systems have
been removed, replaced by compliant systems or transferred to Year 2000
compliant environments, except for one system that requires the cooperation of
multiple third parties in order to migrate to a Year 2000 compliant
environment. We expect this migration to be completed by October 31, 1999.
We have requested that all of our key vendors, service providers and
sales channels provide us with statements of their Year 2000 readiness.
Wherever possible, our final determination as to whether these entities are
Year 2000 compliant has been based on our testing process, rather than their
responses to our requests. We have received responses from over two-thirds of
our key vendors, service providers and sales channels indicating that they are
compliant and are following up with those who have not yet responded.
In order to minimize the risk of operational problems due to the Year
2000 date change, we will avoid making changes to our network, services,
products and processes from the period October 1, 1999 to March 31, 2000. We
will, however, continue to support existing and new clients and make client
modifications, although we will not make structural changes such as node
migrations or formatting network modifications during this period.
To date, almost all of the work associated with our Year 2000 project has
been completed. As of June 30, 1999, we had spent approximately $1.0 million on
our Year 2000 project and do not expect to incur significant additional costs.
Additionally, we have incurred capital expenditures of approximately $2.2
million in upgrading our network to satisfy Year 2000 requirements.
We believe that the greatest risk of disruption in our businesses exists
in less developed countries. The possible consequences of us or our key
business partners not being fully Year 2000 compliant include, among other
things, temporary network closings, delays in the delivery of services, delays
in the receipt of supplies or invoices and collection errors. Based on our
assessment of these risks and after discussions with third parties, including
key vendors, service providers, country representatives and alternate sales
channel partners, we have made an evaluation of our state of readiness,
potential risks and costs, and are preparing a contingency plan. This
contingency plan is intended to prepare us for failures by these parties and
other business partners.
Our business and results of operations could be materially adversely
affected by a temporary inability to conduct our business in the ordinary
course for a period of time after January 1, 2000. We believe, however, that
our Year 2000 readiness program, including the contingency planning discussed
above, should significantly reduce the extent of any disruption. See "Risk
Factors--The Year 2000 problem could significantly disrupt our operations,
causing a decline in cash flow and revenue and other difficulties."
RECENTLY ADOPTED ACCOUNTING STANDARDS
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes new standards for
reporting derivative and hedging information. The standard is effective for
periods beginning after June 15, 2000 and will be adopted by us by April 1,
2001. We have not assessed the impact that the adoption of this standard will
have on our consolidated financial position or results of operations.
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INDUSTRY
The information provided in "Industry" regarding growth in the
communications market was obtained from Data Communications magazine. Although
we believe that this source is reliable, we cannot assure you that these
projections will prove to be correct. See "Risk Factors."
MARKET OPPORTUNITY
With developments in network technology, advances in communications
service offerings and the globalization of business, multinational corporations
are increasingly demanding integrated solutions for their mission-critical
global communications needs. In addition, the rapid expansion and adoption of
the public Internet is creating additional opportunities for corporations to
interact with a large number of geographically distributed offices, employees,
customers, suppliers and partners. However, the public Internet was not
designed with the reliability, consistency, response time and security required
for mission-critical applications. As a result, multinational corporations rely
on service providers to enhance the quality, reliability and security of their
data communications and to provide global access equivalent to the public
Internet. These corporations require integrated solutions that span multiple
countries, have guaranteed network availability, can deliver continuous
increases in speed and capacity and provide local service and support. The
demand for these managed data services has dramatically increased the size and
growth rate of the communications marketplace.
The size of the global communications market reached approximately $800
billion in 1998, according to the International Telecommunications Union. The
market for data communications is one of the fastest growing segments of this
market. According to Data Communications, a leading magazine covering
enterprise networking, the global data communications services market, which
includes Frame Relay, ATM, Intranet services, commercial Internet services and
Web hosting, was approximately $22 billion in 1998, or 2.8% of the global
communications market and had a compound annual growth rate of 55% from 1996 to
1998. Within this market, we focus on cross-border managed data communications
services for multinational corporations.
Industry Drivers
We believe that there is an attractive opportunity for marketing managed
data communications services to multinational corporations which results from
the following factors:
. globalization of business and increased need for connecting
international locations;
. rapid expansion of Internet-based applications;
. rising importance of data communications as a service critical to a
corporation's success; and
. increased outsourcing of corporate data communications.
Globalization of business and increased need for connecting international
locations. Over the past several decades, corporations have significantly
increased the international scope of their businesses. These corporations have
opened and made direct investments in branch offices, factories, and other
local representative facilities around the globe. It is critical for these
corporations to share information accurately and expediently between their
geographically dispersed locations, as well as with travelling and
telecommuting employees. New technologies and advanced remote access
alternatives are enabling these geographically dispersed employees to connect
to corporate and public networks at greater speeds, as well as from more varied
locations.
Rapid expansion of Internet-based applications. Internet-based
applications are rapidly expanding as an important medium for global
communications and e-commerce with the potential to connect a large number of
geographically dispersed offices, employees, customers, suppliers and partners.
Internet-based applications
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have emerged as a strategic component of business, and investment in Internet
services has increased dramatically. The public Internet's lack of reliability
and security for mission-critical data communications, however, has forced many
corporations to seek assistance from service providers and data network
companies to enhance the quality of their Internet communications or to design
and implement high performance private networks.
Rising importance of data communications as a service critical to a
corporation's success. An increasing number of businesses are investing in data
networks to achieve higher levels of productivity and lower operating expenses.
Increasingly, corporate intranets, public Internet Web sites, extranets and
other managed data networks are creating competitive advantages for companies
that use them to foster internal communications, e-commerce, source supplies,
recruit new employees, communicate with customers, penetrate new market
segments and collect market information. Corporations are demanding that their
networks deliver data quickly, consistently and globally and that these
networks can be upgraded as the complexity of the applications grows and
technologies change. Corporations also require networks that operate 24-hours a
day, seven days a week, and offer application support and a broad range of
functions, such as security, remote access and reliability.
Increased outsourcing of corporate data communications. Corporations are
focusing their resources on their core competencies. Investing in resources and
personnel required to maintain in-house private corporate networks is costly
and difficult, especially given the shortage of technical talent and risk of
technological change. The ongoing expansion of multinational businesses and
developments in technology, have made it difficult for in-house solutions to
keep pace with corporate needs. Therefore, corporations have sought third
parties to provide managed data communications services. Given the costs and
difficulties involved in implementing international network solutions, we
believe that multinational corporations are even more likely to outsource their
cross-border data communications needs.
TECHNOLOGY OVERVIEW
The evolution of computing and data network services has had a major
impact on the ways companies function. Most multinational corporations now
depend upon the efficient transmission of information through effective
communications networks. At particular sites, organizations employ localized
data networks known as local area networks, or LANs, to connect personal
computers. These LANs can be used to promote collaborative work practices
through data and directory sharing, facilitate communications through e-mail
and voice messaging, and simplify administrative procedures through services
such as direct facsimile transmission from a desktop computer. When LANs are
connected through a larger network, commonly referred to as a wide area
network, or WAN, an organization is able to replicate the services that can be
provided by a LAN seamlessly throughout the organization's various sites,
enabling personnel in diverse locations to share information.
A WAN which is designed to connect to and provide information from
diverse locations within a corporate organization is often referred to as an
intranet. An intranet operates like the public Internet but with more
consistent performance and better security. Intranets can also be used to
transmit information to and receive information from outside an organization,
enabling a company to engage in e-commerce. When a WAN or intranet is able to
transmit and receive information from outside an organization via the public
Internet, it is often referred to as an extranet.
Data protocols enable computers to exchange information by using a
commonly understood language and set of rules. Protocols are critical in data
communications because they dictate the speed and flexibility with which data
can be exchanged between computers. The following are the most commonly used
protocols:
. X.25 is a protocol that allows dial-up or permanent access to a
network from the user's premises at low to medium speeds from 9.6 to
64 kilobits per second, or Kbps. X.25 is suitable for most lower
performance applications and for users in developing countries that
lack the communications infrastructure to deliver high speed
services;
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. Frame Relay is a wide area protocol designed for transporting data at
higher speeds of up to 2 megabits per second, or Mbps. Frame Relay is
particularly suited for users who transmit high volumes of data. As
such, Frame Relay is a cost-effective means of connecting
geographically dispersed LANs;
. ATM is a high speed protocol that is capable of very high
transmission rates, primarily 45 Mbps or greater. ATM can be deployed
both as a protocol to transport data within core networks and as a
technology that enables high volume users to access a network. Both
LANs and WANs can use ATM to support broadband services such as
voice, video and data services; and
. Internet Protocol, or IP, is the protocol used for the Internet and
on many LANs and WANs that enables efficient communications across
data networks regardless of the hardware, software and protocols
used. IP permits WANs and LANs to operate seamlessly with one another
and permits varied networking and computer platforms to exchange
information. IP standards can be used to create intranets that link
IP-based corporate networks and to create extranets to connect
corporate networks to the public Internet.
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BUSINESS
OVERVIEW
We are a leading provider of cross-border managed data communications
services to more than 1,150 corporations worldwide, including 29% of the top
500 corporations in Business Week's 1998 Global 1000. Our network, which we
refer to as The World Network, can be accessed from over 180 countries, making
it one of the world's largest data networks in terms of geographic coverage. We
own and operate our network on an end-to-end basis giving us seamless
connectivity, an advantage over other service providers that rely on third-
party networks. We provide services directly through our country
representatives and indirectly through major international telecommunications
carriers, such as AT&T and MCI WorldCom, and value-added resellers. Our country
representatives give us a significant local presence in more than 60 countries
and strong working relationships with leading local telecommunications
providers in these countries. Our diverse client base includes multinational
corporations such as Allergan, Baan, Microsoft, Nestle, Nokia, Pharmacia/Upjohn
and Volkswagen.
We offer a broad range of integrated service solutions to our clients,
such as:
. Network Services--includes Frame Relay, remote access, intranet,
multimedia, Internet and IP services;
. Consulting, Integration and Provisioning Services--includes
consulting, design, and implementation; sale and installation of
customer premise equipment associated with the client's access to The
World Network and use of our Network Services;
. Applications Services--includes e-mail, messaging, collaboration, Web
hosting and other value-added services; and
. Other Communications Services--includes X.25 transport services,
service access fees and other communications services.
We take a consultative, applications-oriented approach to identifying
client needs and developing customized solutions. In addition, we offer a
consolidated billing, management and support system which provides a complete
solution for all the external and internal data communications services our
multinational clients require. Our approach is to integrate our full range of
services with the data communications and network operations of our clients. We
believe our ability to provide a comprehensive solution to our clients gives us
a key competitive advantage because our solutions are costly to develop and
difficult to replicate.
We own and operate The World Network, a seamless and versatile ATM-
enabled network that provides the delivery platform for our integrated,
enterprise-wide communications solutions. The World Network has approximately
11,142 ports comprised of over 6,000 IP, Frame Relay and X.25 access and
customer premise devices which are connected by over 950,000 route-kilometers
of data transmission circuits, most of which are over fiberoptic routes. This
global private network enables our clients to deploy and manage applications
effectively by combining reliability, security, high performance and a broad
range of functions using a variety of network protocols.
Our global sales and support structure, based on partnerships with local
telecommunications and other service providers, gives us a strong presence in
each of our markets. We believe this structure also provides us with a
competitive advantage over other data service providers who do not have
comparable levels of expertise as to local operating, regulatory and market
conditions. Our country representative structure emerged from our historical
relationships with major telecommunications companies, such as Deutsche
Telecom, France Telecom, Korea Telecom, Singapore Telecom and Telekom Malaysia.
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We began operations in 1969 as a part of Computer Sciences Corporation,
or CSC. In a series of transactions from 1988 to 1992, CSC sold its ownership
in Infonet to a group of telecommunications companies. Our current stockholders
include six of the world's largest telecommunications companies:
. KDD--KDD Corporation (Japan);
. KPN--KPN Telecom B.V. (The Netherlands);
. Swisscom--Swisscom AG (Switzerland);
. Telefonica--Telefonica International Holding B.V. (Spain);
. Telia--Telia AB (Sweden); and
. Telstra--Telstra Corporation Limited (Australia).
BUSINESS STRATEGY
Our goal is to be the leading provider of global data communications
services to multinational corporations. We will continue to:
Focus on multinational clients that require data communications solutions
We will continue to focus on multinational corporations with cross-border
managed data communications needs. We believe that the rapid pace of
technological change, and the resultant complexity and cost of network
communications services, are causing large multinational corporations to
outsource their data communications services to focus on their core
competencies. Our flexible network architecture, local presence in more than 60
countries and consultative sales approach allow us to tailor our data
communications solutions to meet our clients' needs. Given the global reach of
our network, our local support services and our reputation for reliable and
innovative services, we believe we can further penetrate the market for global
data services. Between 1996 and 1998, we increased our penetration of the top
500 corporations in Business Week's Global 1000 from 21% to 29%. As part of
this strategy, we have launched a global branding program to increase awareness
of our services and the Infonet brand.
Upgrade and expand our seamless global network
We intend to invest significant capital resources to upgrade and expand
further The World Network to maintain our competitive advantage. Currently, the
majority of our backbone is comprised of circuits leased on a short-term basis.
We are in the process of making significant purchases of transmission capacity
on major terrestrial and undersea routes. We believe that these investments
will enable us to exploit economies of scale associated with high volume
transmission capacity and better meet our clients' requirements for higher
speed connections. Also, as part of this strategy, we are currently expanding
the deployment of ATM backbone switches that will connect our core network
nodes around the world. We believe this ATM-enabled network will provide
greater capacity and improved functionality. We expect to use our ATM-enabled
network as a platform to offer a broader range of value-added services that
combine voice, video and data.
Develop innovative, value-added solutions
We are continually developing new solutions to meet our clients' rapidly
changing needs due to technological advances and the globalization of their
businesses. For example, we were the first to offer multiple levels of Frame
Relay service to our clients, providing them the flexibility to manage
standard, as well as mission-critical operations effectively through one
service. In 1998, we were awarded the Data Communications magazine "Hot Product
of the Year" award for our Frame Relay service, marking the sixth time in seven
years we have won this award for innovative services. With the expansion of our
ATM backbone we will begin to offer to our clients a broader range of
innovative, value-added services, including voice, video and data. We intend to
continue developing these services to allow us to derive additional revenue
from our existing client base and to attract new clients.
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Strengthen our sales and customer support structure
Our country representatives play a major role in the sales and marketing,
local client support and implementation of our services on a global basis. Our
country representative strategy has allowed us to expand geographically without
the related financial and managerial costs associated with building large
numbers of wholly-owned multinational sales and support operations. We are
constantly evaluating new opportunities to expand our sales channels through
the addition of new country representatives and alternate sales channel
partners. In the last three years, we have expanded into seven new countries
and have added 11 new alternate sales channel partners. Our strategy is to
capitalize on the strength of our country representatives and alternate sales
channel partners to build market share among multinational corporations.
Provide the highest level of quality, security and reliability for our
services
We are committed to maintaining the highest level of quality, security
and reliability in delivering data communications services over our network.
Using our network management tools and systems, we are able to proactively
monitor our global network operations and respond quickly to client problems,
24-hours a day, seven days a week. We consistently meet or exceed our 99.7%
quality standard, reflecting our guarantee of network availability. In
addition, we support our clients through our extensive local operations. To
ensure this quality, we continue to make investments in client service and
support, and continually evaluate our performance in order to retain our valued
clients. We also continually hire and train experienced and technically
sophisticated network support and services personnel. We are committed to
adhering to these quality standards, in part by maintaining our ISO 9001
certification.
OUR SERVICE SOLUTIONS
We provide services to meet clients' global data communications needs. We
offer clients either individual services that they can use as part of their own
networks or more integrated solutions that combine several of our services.
Examples of how our services and solutions meet our clients' needs include:
. For one of the world's oldest and largest luxury hotel companies, we
connect the reservation systems of 300 hotels in 66 countries;
. For a global health care company, we manage data communications
between 40 offices, 4,500 desktop computers and 6,000 employees
around the world;
. For a major European commercial bank, we provide managed data
communications services to branch offices in 66 cities located in
Europe and Asia; and
. For a German freight services company, we connect offices in 40
countries and integrate their different e-mail and messaging systems.
Our services are organized into four categories: Network Services;
Consulting Integration and Provisioning Services; Application Services; and
Other Communications Services.
Network Services
We offer multinational corporations and our sales channel partners
private managed data services. Our clients use these services to manage
information among their worldwide locations. For example, manufacturing
companies use our services to integrate production and inventory schedules,
technology companies use our services to transmit design files and financial
institutions use our services to connect their trading desks. Typically,
clients employ these services to transmit information that is critical to their
daily operations. Within Network Services, we offer Frame Relay, ATM, Private
Internet, Global Internet, MultiMedia and Remote Access.
Frame Relay Services. Our Global Frame Relay service is the largest
component of our Network Services. We offer three levels of Frame Relay service
to meet the specific performance characteristics of our
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clients' applications. A premium level Frame Relay service is available for our
clients' mission-critical, interactive applications requiring the highest level
of performance and network availability. For example, clients use this service
to enhance the performance of and maximize their investment in enterprise
resource planning software. Clients use our second level Frame Relay service
for multi-protocol applications with less stringent response time requirements
such as remote printing, intranet browsing, collaborative software and large
file transfers. Our third level Frame Relay service is most suitable for
clients using applications with lower performance requirements which are less
sensitive to longer response times such as Internet browsing, e-mail and small
file transfers.
ATM Services. We are in the process of commercializing our ATM service.
More advanced than Frame Relay and X.25 technology, ATM enables us to address
the rapidly emerging requirements for high speed integrated voice, video and
data services, as well as the delivery of bandwidth-intensive applications,
such as video conferencing and advanced voice, video and data services.
Private Internet Services. As part of our Network Services, we offer our
clients a private Internet solution. Our Private Internet Services use IP to
provide corporate networks functionality similar to the public Internet but
with the performance characteristics of The World Network. This means that
clients can effectively run mission-critical applications using cost effective
Internet development tools on our high performance private network. Our Private
Internet Services are ideal for corporations seeking to establish extranets or
to engage in e-commerce.
Global Internet Services. Global Internet Services provide dedicated and
dial-up connectivity to the public Internet. We offer our multinational clients
dedicated and dial-up public Internet access from our locations through a
series of peering agreements and transit relationships with other global ISPs.
This service is attractive because clients can deal with a single provider
instead of a different ISP in each country. We provide a completely managed
service with local support, network management and 24-hour operations. We also
produce one consolidated invoice for all services.
MultiMedia Services. We provide high quality voice services, referred to
as our MultiMedia Services, which can be used independently or in combination
with our managed data services. We deliver high quality, cost-effective voice
services by using a technology that we developed with Nortel. We can easily add
office-to-office voice communications for clients that are using our managed
data services by connecting their voice telecommunications systems to The World
Network. We can also offer single-site companies such as shippers,
importers/exporters and telemarketers connections to the local public
telecommunications network. We can offer all of these voice services on a
single global invoice with location and call detail as well as customized dial-
plan capability. We expect to expand our MultiMedia Services to include video
services in the future.
Remote Access Services. We offer our clients a variety of remote access
services on a wireline and wireless basis. Our remote access services provide
our clients' employees, who are travelling or who are located remotely, with
access to the same network applications that would be available if they were at
their primary office. Using our services, applications such as enterprise
resource planning, file sharing, Internet access and e-mail are accessible with
higher levels of security and performance than would normally be provided by
accessing these networks via the public Internet. We contract with one of the
industry's leading suppliers of enhanced security products to offer these
security products to provide greater security than traditional password
systems. As a result, our remote access service provides connectivity for
"virtual offices" anywhere in the world, quickly, securely and cost
effectively. We provide dial-up connectivity through The World Network to
insure secure access for our clients' employees, business partners and
customers. We also provide worldwide virtual private network connectivity for
remote offices and LANs that support small office/home office, business
partner/client support networks and basic Internet access requirements. We can
offer this service through telecommuters' home computers, through toll free
dial-up service or via mobile phones connecting to our network via the local
public telecommunications network or via access methods appropriate to wireless
data telephony.
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Consulting, Integration and Provisioning
We offer integration, provisioning and implementation services to our
clients to implement the "last-mile" part of the solution. Our country
representatives provide the on-the-ground support and local implementation
necessary to deliver these services on a global basis. As part of the
integrated solution, the country representatives provision leased lines to
connect our clients' sites to The World Network. In addition, they procure,
install and maintain the appropriate customer premises equipment. We believe
few other global data communications service providers can provide these
localized services on a global scale and our local presence is a significant
competitive advantage. As part of the comprehensive solutions we offer, we also
provide consulting services to assist our clients in integrating our data
communications services into their operations.
Application Services
Our Application Services include messaging and collaboration services
that provide an attractive alternative for businesses that prefer to outsource
all of their "non-core" business messaging activities. We provide three types
of messaging and collaboration services. First, we host e-mail services for our
clients using Microsoft Exchange and Lotus Notes software. Our e-mail hosting
activities include management of the client servers, software support and
service, and e-mail translations to telex and fax. Second, we have developed a
proprietary global unified messaging and collaboration service and software
solution called MailMail. MailMail enables voicemail, fax, telex, paging and e-
mail messages to be aggregated and forwarded to a single e-mail location,
accessible via the public Internet. We offer MailMail as an alternate
enterprise wide e-mail service to our multinational clients, and we license it
to other ISPs. Third, our X.400 service enables our clients to exchange
information between different e-mail systems in a seamless and secure manner.
We offer hosting of Web sites, referred to as Web hosting services, to
clients who wish to outsource their Web sites and other Internet applications.
We run clients' servers for them at an operations center with high bandwidth
Internet connectivity, redundant power and disaster recovery provisioning. We
can connect hosting centers to the clients' private network via Frame Relay
with guaranteed secure access using firewall security services.
Other Communications Services
Our highly reliable, widely available and cost-efficient X.25 service is
typically used for lower performance applications requiring secure
connectivity. X.25 is a widely deployed and proven technology frequently used
in developing countries where high speed transmission capacity is not
available.
GLOBAL NETWORK MANAGEMENT/LOCAL SUPPORT
The World Network is the physical platform across which we deliver all of
our services. Our Global Network Management/Local Support infrastructure is the
combination of support, billing, management and personnel, which allows us to
offer our solutions seamlessly throughout the world.
We deliver our services through an infrastructure comprised of
technology, connectivity, tools, processes and personnel. We provide seamless
global performance through our network of nodes, switches, circuits and
terminating devices, combined with the management systems and processes for
change, configuration, security, billing and accounting. Changes, upgrades and
enhancements to our network are possible given our common information,
management and tracking infrastructure.
We develop client solutions through a collaborative effort among the
country representatives responsible for serving each client location. To ensure
the quality of the solution provided, an experienced global project management
team overseas the deployment of the client solution, using a highly-developed
set of systems, processes and infrastructure, which have been developed, tested
and improved over the last 30 years.
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After installation, our integrated global billing system allows clients to
receive a single invoice for all services. We believe the time and capital
required to duplicate our global capabilities provides us with a significant
competitive advantage.
DEVELOPMENT OF INNOVATIVE SERVICES
We are recognized in the industry as an innovative developer of products
and services. For example, Data Communications, a leading magazine covering
enterprise networking, has repeatedly recognized our achievements. In January
1998, it awarded us a "Hot Product of the Year" award for our innovative Frame
Relay technology. This marked the sixth time in seven years that an Infonet
service earned this distinguished award. In addition, we released multiple
levels of Frame Relay service in 1998 and IP service in 1991, in each case,
more than one year before our competitors. Designing solutions for our clients
keeps us closely involved with new market requirements, the most promising of
which are added to our ongoing service development programs.
CLIENT BASE
We have more than 1,150 multinational clients which typically have
between 15 and 25 locations and are diversified across both industry groups and
geographic regions. We provide our services to many of the world's largest
multinationals including Allergan, Baan, Microsoft, Nestle, Nokia,
Pharmacia/Upjohn and Volkswagen. Our 29% share of the top 500 corporations in
Business Week's 1998 Global 1000, an annual list of the world's largest
corporations, is evidence of the central role that we play in the global data
communications industry. No single client comprised more than 2% of our
revenues in fiscal year 1999.
A substantial portion of our revenues are under contract for one to three
years. The act of switching service providers not only has the potential to
compromise the security and performance of the client's network, but also
presents a significant inconvenience, particularly to larger clients using a
number of our services. Therefore, we believe that our larger clients typically
are reluctant to terminate their contracts with us.
COUNTRY REPRESENTATIVES
Our country representative structure gives us global reach and strong
local presence in the countries in which we operate. The country representative
structure emerged from our historical relationship with major
telecommunications companies, such as Deutsche Telecom, Embratel (Brazil),
France Telecom, Korea Telecom, Singapore Telecom and Telekom Malaysia. We have
enjoyed strong relationships with our 56 country representatives. A total of 14
country representatives have been with us for more than ten years and 29 have
been with us for more than five years.
Our consolidated country representatives consist of nine separate country
representatives that provide service in 14 countries. Our consolidated country
representatives accounted for approximately $152.4 million of our revenues in
fiscal year 1999, representing about 50% of total revenues. In addition to our
consolidated country representatives, we have 47 non-consolidated country
representatives which, together with our consolidated country representatives,
provide service in more than 60 countries. In the aggregate, our country
representatives accounted for approximately 90% of our revenues in fiscal year
1999.
We are the principal service provider to our clients and control the
delivery of all services to them on an end-to-end basis. We centrally control
and configure our network and rely on our country representatives to deliver
our services and maintain The World Network locally. We rely on our country
representatives for insights into local operating, regulatory and market
conditions. They are involved in sales and marketing, operations, network
management and client support. Depending on the geographic location and needs
of a client, country representatives from different countries will collaborate
with each other when making sales presentations. Country representatives manage
accounts on a daily basis and are the first point of contact for clients,
generally providing service in the local language. To minimize our regulatory
hurdles, each country
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representative is a party to a legal contract with the client. Once a new
client has signed a contract, we configure the network for the service and
coordinate with other country representatives to implement the solution for the
client. Our country representatives take a lead role in implementing the last-
mile part of the solution by provisioning leased lines and installing equipment
at the client site. In addition, the country representatives provide local
support for our services, operating our local network nodes and, in some cases,
housing and operating components of the infrastructure for specific services on
our behalf.
Governance and Controls
We have service agreements with all of our country representatives that
govern our relationships. The agreements are generally non-exclusive and are
essentially the same for all country representatives and generally have five
year terms. These agreements provide the country representatives with:
. the right to market and sell our services;
. the right to use our trademarks and service marks;
. access to operational and marketing documentation; and
. training materials and sessions.
The agreements give us:
. the right to recommend prices;
. the right to jointly set revenue targets with the country
representatives;
. the ability to terminate the agreement if the country representative
fails to meet the revenue targets or if targets cannot be agreed upon
for two consecutive years;
. the ability to determine staffing of the local office jointly with
the country representatives; and
. in many cases, the right to appoint one of the three members of the
Advisory Review Board, which governs the relationship between us and
the country representative.
The agreements outline the fees that the country representatives are
required to pay us for access to our network. In addition, the agreements
outline our compensation and pricing arrangements with the country
representatives.
THE WORLD NETWORK
Overview
We own and operate The World Network, one of the world's largest
commercial global data networks in terms of geographic coverage accessible from
over 180 countries. Our network supports several major protocols that allow us
to offer a broad range of services. Our network structure allows us to respond
quickly to our clients' changing needs for increased bandwidth, reliability and
security while enabling us to manage data traffic patterns efficiently. Because
we manage our network on an end-to-end basis, we are better able to control and
customize the services delivered to our clients. The World Network has 11,142
ports comprised of over 6,000 IP, Frame Relay and X.25 access and customer
premise devices which are connected by over 950,000 route-kilometers of data
transmission circuits, most of which are over fiberoptic routes.
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The World Network is based upon a three-tier hierarchical structure which
we believe provides a competitive advantage because it allows for efficient
traffic management, higher performance and reduced cost. This three-tiered
hierarchical structure is comprised of Global Switching Nodes, Regional
Switching/Access Nodes and Local Access Nodes as diagrammed below:
[CHART APPEARS HERE]
Global Switching Nodes: We use our Global Switching Nodes cost
effectively to aggregate and distribute interregional network traffic flows.
Equipped with FORE Systems' high capacity ATM switches, these Global Switching
Nodes are capable of accepting multiple channel inputs of data in excess of 45
Mbps. Our Global Switching Nodes are connected by fiberoptic transmission
capacity and are currently located in the following ten locations: Amsterdam,
Dallas, Kuala Lumpur, London, London-Docklands, Los Angeles, New Jersey, New
York, Stockholm and Tokyo. We plan to add more additional Global Switching
Nodes to further expand and enhance our ATM-enabled network around the world
and to increase our transmission capacity to as high as 2.5 gigabits per
second, or Gbps.
Regional Switching/Access Nodes: We use our Regional Switching/Access
Nodes to aggregate regional traffic and provide access to The World Network for
clients with bandwidth-intensive applications. These nodes are equipped with
Nortel Passport switches and Cisco hub and access routers. The Nortel Passport
switches provide Frame Relay capability as well as high capacity access (at
speeds of 2 Mbps to 45 Mbps) to the Global Switching Nodes through our
backbone. The Cisco hub and access routers provide high capacity
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local access for our clients and aggregation services for regional IP traffic.
The Cisco hub routers can also use the Nortel Passport switches for connection
to the Global Switching Nodes to exchange data interregionally. Our 114
Regional Switching/Access Nodes are located in 48 countries around the world.
Local Access Nodes: Our Local Access Nodes connect clients to The World
Network at speeds generally less than 2 Mbps. These nodes enable our clients to
connect to and use IP, X.25 and Frame Relay applications through dedicated and
dial-up access. The Local Access Nodes are equipped with Cisco access routers,
Nortel and Siemens X.25 devices and Ascend Dial Access devices. The Cisco
routers provide dedicated IP access, the Nortel and Siemens devices provide
dedicated access using X.25 and the Ascend devices provide dial-up access.
Local access is available in 125 locations in over 60 countries. We are also
able to extend our network reach to countries where the communications
infrastructure is not available by using satellite services, which are
integrated as part of The World Network.
Local Access
Clients can access The World Network either directly using a dedicated
line or through dial-up services by connecting through Local Access Nodes,
Regional Switching/Access Nodes, or via our interconnection with the national
data network of our local telecommunications partners. A country representative
arranges dedicated access through a leased line or via the national data
network of the local telecommunications partner. Dial-up services offer local
and remote access to The World Network through the local public
telecommunications network. We plan to offer additional access methods and
adapt them to our backbone for increased efficiency. Among those services
planned or under review for clients that require higher speed access are ATM,
digital subscriber line or DSL, and broadband wireless remote access. In remote
locations clients can access The World Network via satellite services. Clients
can choose to have us manage their entire provisioning and support at and
between each client location.
Backbone Capacity
Our backbone connects all nodes on The World Network. Traditionally, we
have obtained backbone capacity from major telecommunications carriers through
short-term leases. We have begun, and expect to continue, to purchase capacity
on major international and regional routes where it is economical to do so and
where capacity is available for purchase or long-term lease. We intend to
invest significant capital resources to expand and upgrade our network in order
to maintain our competitive advantage. We are currently in discussions with
several suppliers of terrestrial and intercontinental undersea cable. In
collaboration with Hughes Electronics, we are also using satellite technology
as a fill-in strategy to provide satellite links to The World Network where
terrestrial connections or alternative paths for specific high availability
applications may not be available. We increased our network capacity by more
than 500% in 1999, and we expect to continue to expand capacity as our clients
require.
Network Protocols
Our network strategy is to support a wide range of managed data
communications services over a common infrastructure. As such, our global
network infrastructure supports a variety of protocols including X.25, Frame
Relay, IP and ATM. Our existing Frame Relay network is the basis for our
delivery of seamless managed data communications services on a worldwide basis.
Moreover, by using Frame Relay technology we are able to capitalize efficiently
on The World Network's bandwidth to transport a variety of data traffic. We are
implementing the new industry-standard IP versions and extensions to
differentiate our network from other competitive networks. We intend to
introduce IP Version 6 into the network as it becomes commercially available.
Our ATM-enabled network is able to support broadband services that
require asynchronous networking capabilities (for example, video services), as
well as provide transport for aggregated data between our Regional
Switching/Access Nodes and our Global Switching Nodes. We believe our ATM-
enabled network will be the transport platform for our managed data
communications services in the future. We expect our ATM-enabled network will
allow for the efficient and high-speed transport of voice, video and data
traffic over
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a single network. This capability will not only enable us to further leverage
our network assets, but also allow us to capitalize on the demand for
anticipated new service offerings that combine voice, video and data.
Furthermore, as client demand for additional bandwidth, faster transmission
speeds and enhanced service quality increases for applications such as desktop
videoconferencing, we believe our investment in ATM technology will position us
as a leading provider of these services.
Network Management
We manage our network and monitor its operation 24-hours a day, seven
days a week through two network control centers located in Los Angeles and
Brussels and three global customer assistance centers in Los Angeles, London
and Tokyo. The customer support operations consist of multilingual,
technologically experienced staff in over 60 countries.
Our network management infrastructure is an integral component of the
seamless delivery and management of our suite of services. We proactively
monitor the "real-time" status of over 10,000 network components that provide
performance feedback on a daily basis. Consistent information is available to
all global support entities using trouble tracking services, network alerts and
alarms, change configuration and security management processes. We continue to
enhance these capabilities by adding automation tools and providing on-going
training.
Network Security
We have built and maintain an advanced security and control structure.
Because we manage our global network from end-to-end, we maintain central
control of network access, operations and maintenance. We protect our network
through various means including firewalls, intrusion detection platforms,
network address translation, filtering, and network architecture structures, as
well as various dedicated network and remote access authentication processes.
Backup Network Control Centers and Nodes
We also have backup network control centers in Sacramento, California and
Chantilly, Virginia, which we created to assume network control center
operations in the event of a disaster or similar emergency. In addition, in
order to lower the potential exposure from major failures or disasters
affecting a node, we have implemented second nodes capable of assuming the
traffic of our primary nodes. The fiber connections in the area and, where
feasible, client access lines are split between the two nodes. Thus, transit
traffic through a city can continue to flow in the event of a major failure or
disaster affecting one of the nodes. We have implemented second nodes in the
London-Docklands, Los Angeles, New York, New Jersey, San Francisco and
Sacramento metropolitan areas.
Circuit Diversity
Nodes are connected with other nodes with at least two redundant
connections, so that no single connection failure will result in the isolation
of the node. The failure of a connection results in the automatic rerouting of
traffic to one or more alternate network paths. In the event of a node outage,
transit traffic is automatically rerouted to paths around the failed node. In
addition, we have, over our operating history, sought to ensure that our
circuits are, as much as possible, diversely routed so that a major failure by
a carrier in a given route does not result in a total network outage to our
clients.
Disaster Recovery
Under our Disaster Recovery Plan, we distribute our critical operations
over two to three global regions which constantly share information with one
another. These network control centers and customer
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assistance centers are essentially self-contained units located in diverse
geographic regions, and thus provide natural disaster backup for each other as
described below:
. Network Control Centers in Los Angeles and Brussels;
. Global Customer Assistance Centers in Los Angeles, London and Tokyo;
. Second Level Customer Assistance in Los Angeles, Brussels and Tokyo;
and
. Third Level Customer Assistance in Los Angeles and Brussels.
Within the backbone, we have attempted to minimize the risk of node
outages by placing our nodes in highly secure facilities, and by requiring dual
cable entrances, diversely routed circuits and uninterruptable power supplies.
However, clients who need quick recovery from disasters or failures affecting a
node can supplement their service with our Failure Recovery Service option,
which provides access to an alternate Infonet node via a leased line, dial-up
access backup or satellite services. We provide this service on an automatic or
manual backup basis.
Quality Standards
We perform ongoing quality system audits and conduct client satisfaction
surveys. As a result, we receive constant performance feedback to ensure that
our quality systems meet client needs and our guarantee of 99.7% network
availability. We have been awarded ISO 9001 certification for several of our
services.
SALES AND MARKETING
Direct Sales Channels
Our country representatives are responsible for all of our sales
activities in their respective territories. Each country representative
maintains a sales force which directly calls on clients, coordinates the
contract signing process and manages accounts on a daily basis. We begin our
sales process by working with the client to gain an understanding of its
business needs so we can tailor a solution to meet its specific requirements.
The sales force for each country representative applies its knowledge of the
local operating, regulatory and market conditions to market our service
offerings effectively to best meet the needs of the local client base. In
addition, we provide centralized sales and marketing support for our country
representatives. We conduct sales training centrally and within each sales
region and use computerized training to reinforce classroom training. Direct
sales channels accounted for approximately 90% of our revenues in the year
ended March 31, 1999.
Alternate Sales Channels
Our global alternate sales structure is typically comprised of major
telecommunications companies and other value-added resellers. These sales
channel partners sell all or a portion of our suite of services in their
territories to clients that require one or more of our global network
communications services that the sales channel partners cannot supply
independently. Our sales channel partners often market these services under
their own brand names. We act as the "carrier's carrier" and/or as the product
development resource, providing global services to meet the sales channel
partners' specific needs. Multi-year contracts govern these relationships.
Alternate sales channels accounted for approximately 10% of our revenues in the
year ended March 31, 1999. The following are examples of our alternate sales
channel relationships:
. AT&T offers our services outside the U.S. to its U.S.-based clients.
AT&T also offers global access to the AT&T InterSpan Frame Relay
service using our Frame Relay dial-up and dedicated connectivity;
. MCI WorldCom has an agreement that allows it to offer global services
to its U.S. customers in those countries where MCI WorldCom has no
coverage; and
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. Telstra, one of our stockholders and a leading telecommunications
provider, has entered into an agreement with us which allows it to
extend its global reach beyond Australia through The World Network.
Promotion and Advertising
We recognize that strong brand development and awareness is crucial in
obtaining and maintaining market share. Our promotional and advertising
programs include participation in business seminars and information technology
information/training sessions as well as advertising in selected network
computer publications.
In 1999, we began a new global campaign to increase awareness of the
Infonet brand name and our service offerings. This campaign includes increased
spending on direct advertising, advertising in airports, major U.S. and
European newspapers, business magazines, trade magazines and inflight
magazines, as well as participation in trade shows and Internet marketing
campaigns.
ACCESS TO MULTINATIONAL CORPORATE CLIENTS OF KPN, SWISSCOM AND TELIA
In our ongoing efforts to sell our services to multinational
corporations, on September 30, 1999, we entered into agreements with AUCS
Communications Services N.V., Unisource, the owner of AUCS, and the three
companies that own Unisource, KPN, Swisscom and Telia. KPN, Swisscom and Telia
are also our stockholders. See "Principal and Selling Stockholders."
Our agreements with KPN, Swisscom and Telia will give us access to their
approximately 1,300 multinational corporate clients currently being served by
AUCS as well as additional multinational clients to which KPN, Swisscom and
Telia may provide services in the future. In exchange for the right to market
our services to their clients and $40.0 million in cash, we have issued an
aggregate of 1,600 shares of our Class B common stock to KPN, Swisscom and
Telia under stock purchase agreements.
These multinational clients represented approximately 50% of AUCS
revenues over the past two years. We understand that no single multinational
client accounted for more than approximately 3% of AUCS revenues in 1998 and
that the top ten multinational clients accounted for approximately 15% of AUCS
revenues in 1998. Based on publicly available information, AUCS total
consolidated revenues for the 1998 calendar year were 875 million guilders, or
approximately $441 million according to the exchange rate on October 1, 1999.
AUCS total revenues include amounts derived from AT&T customers serviced by
AUCS, but we will not obtain access to these clients. In addition, AUCS
revenues include voice and other services that we provide on a limited basis or
not at all. Because it is not possible to predict the multinational clients'
future needs, the multinational clients' contribution to AUCS total revenue is
not indicative of any contribution they may make to our revenues.
We have assumed the obligation to provide the multinational clients with
the services currently provided to them by AUCS under the terms of an agreement
that assigns existing distribution agreements to us. We also intend to sell
these multinational clients our services as a supplement or replacement for
services previously provided by AUCS and, over time, we expect to transition
the multinational clients onto The World Network. During the transition period,
we will continue to use the AUCS platform to deliver all or some of the
services provided to the multinational clients, which for convenience we refer
to as the AUCS services.
We will obtain the AUCS services to be provided to the multinational
clients under the terms of a services agreement with AUCS, which is based on
our standard services agreement. The pricing of the AUCS services provides us
with an agreed-upon approximately 20% gross margin on the provision of these
services. The services agreement is terminable upon 180 days' notice by any
party.
We also entered into a call option for the underlying tangible assets of
AUCS. Until September 2002, the option allows us to purchase any and all of the
AUCS tangible assets at fair market value not to exceed
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$130 million. The call right allows us to purchase the assets of AUCS so that
we can continue to offer the AUCS services to our clients if the services
agreement is terminated. The call option may be subject to regulatory approval
and is conditioned upon AUCS ability to continue to fulfill its contractual
obligations to third parties.
While we will attempt to transition the multinational clients to The
World Network as soon as possible, we expect the transition will be implemented
over a period of 12 to 18 months. Since we already have The World Network, an
existing sales and marketing force and other elements necessary to service
these multinational clients, we believe our infrastructure will be sufficient
to transition these clients. We have not purchased any assets from AUCS, and we
will not obtain the right to use the AUCS sales force or employees.
The percentage of total revenues from the multinational clients
attributable to AUCS services and to our services is expected to vary depending
on the degree of the transition's success and the time necessary to transition
the multinational clients to The World Network. If the transition is not
effected quickly, the revenues attributable to AUCS services will remain a
larger percentage of our total revenues from the multinational clients than
that attributable to our services. As the transition is completed, and assuming
that the multinational clients continue as our clients after the transition,
the percentage of our total revenues attributable to our services, as compared
to that attributable to AUCS services, will correspondingly increase. Since the
multinational clients have no obligation to use our services, we cannot assure
you that all of the multinational clients will transition to our network, that
the multinational clients which do transition to our network will continue to
purchase our services or, if they continue to use our services after the
transition, that the multinational clients will purchase as many or more
services from us than they did from AUCS.
AUCS MANAGEMENT AGREEMENT
We also entered into a three-year management agreement with AUCS on
September 30, 1999. For our management services, we will receive a quarterly
management fee equal to 1.5% of the total consolidated revenues of AUCS, up to
an aggregate maximum of (Euro)17.1 million, or $18.3 million as of October 7,
1999, over the term of the agreement. In addition, we will receive an incentive
payment equal to 100% of the amount by which the cumulative sum of AUCS EBITDA
losses during the initial three-year term is less than approximately
(Euro)295.3 million, or $316.9 million, or we must rebate to AUCS 25% of the
aggregate amount by which the cumulative sum of AUCS EBITDA losses during the
initial three-year term exceeds (Euro)295.3 million, or $316.9 million, subject
to a cap equal to the aggregate management fee. AUCS owner, Unisource, has the
right to terminate the agreement on 180 days' notice generally and 30 days'
notice if the cumulative EBITDA losses of AUCS exceed approximately
(Euro)368.3 million or $395.2 million during the three-year term of the
management agreement. From its formation in 1996 to December 31, 1998, AUCS
cumulative EBITDA losses were approximately $409 million. While we expect that
our management will improve the performance of AUCS during the three-year term
of the management agreement, we cannot assure you that AUCS losses will
decrease, that we will receive any incentive fee or that we will not have to
rebate all or part of our management fee.
INDUSTRY PARTICIPANTS AND COMPETITION
The growth and potential size of the data communications industry has
attracted many new entrants as well as existing businesses from several
industries. Current and prospective industry participants include multinational
alliances, long distance and local telecommunications providers, systems
integrators, cable television and satellite communications companies, software
and hardware vendors, wireless telecommunications providers and national, local
and regional ISPs. In addition, we expect that the predicted growth of the data
communications market will attract other established companies and
multinational alliances. Further, there are established and start-up companies
building global networks and beginning to offer data communications as part of
a comprehensive communications services portfolio. Our competitors include
AT&T, BT, Equant, GlobalOne and MCI WorldCom and new entrants such as Global
Crossing and Qwest. We compete in highly fragmented markets. Most participants
specialize in specific segments of the market, such as
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access and/or backbone provision, managed access, such as intranets and
extranets, application services such as Web hosting; security services, and
communication services, such as IP-based voice, fax and video services and
commercial e-mail. Many of these existing and potential competitors have
greater financial resources than we do.
We believe that competition in the data communication market is mainly a
function of the ability to offer a broad variety of innovative services
available on a reliable network supported by an effective service organization.
We believe that the key factors to our competitive position in this market are:
. our global reach;
. our full range of value-added services;
. the reliability of our seamless global network; and
. our extensive country representative structure and the support it
provides to our clients.
EMPLOYEES
As of June 30, 1999, including our consolidated country representatives,
we had a total of approximately 824 employees, 210 of which are located
internationally. There are approximately 460 additional dedicated Infonet
personnel who are employed by our non-consolidated country representatives, all
of whom are based internationally. We have not experienced any work stoppages
and consider our relations with employees to be good. None of our employees is
represented by a labor union.
FACILITIES
Our principal offices currently occupy over 107,000 square feet in El
Segundo, California pursuant to a long term lease which expires in November
1999 and then continues on a month-to-month basis at our option. We have
entered into a lease for approximately 150,000 square feet of new office space
in an adjacent building currently under construction. This new building is
being constructed to our specifications and is expected to be completed in
November 1999. We have a 90-day option beginning on the occupancy date to
purchase the building for approximately $33.0 million. Any purchase would be
funded from general corporate funds and may be augmented by a mortgage. Once
complete, this new building will also house our Los Angeles Network Control
Center.
In addition, we lease sales offices domestically and internationally in a
variety of locations. These leases generally have terms of three to five years.
None of these offices is critical to our success, and we believe that suitable
additional or alternative space is available on commercially reasonable terms
as needed.
We also lease facilities for our network control centers, global customer
assistance centers and engineering offices around the world. We lease these
facilities at commercial rates under standard commercial leases. We believe
that suitable space for these operations is generally available on commercially
reasonable terms as needed.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation that arises in the
normal course of our business operations. As of the date of this prospectus, we
are not a party to any litigation that we believe could reasonably be expected
to have a material adverse effect on our business, financial condition or
results of operations.
REGULATION IN THE UNITED STATES
Overview
We operate as an unregulated provider of information services, as that
term is defined in the Communications Act of 1934, as amended, and as an
enhanced service provider, as that term is defined in the
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Federal Communications Commission ("FCC") rules. In most foreign jurisdictions
we operate as a value-added network provider. Our operations currently are not
regulated by the FCC, the states or the governments in the other countries
where we operate. Although we do not operate as a common carrier, we hold
authorizations to provide international services in some countries on a common
carrier basis. We have obtained common carrier authorizations only in those
countries in which such authorizations are useful in securing more favorable
terms in our capacity or facilities leases or interconnection arrangements.
These authorizations require us to comply with specified regulatory filing and
reporting requirements. To the extent that we begin to offer regulated
telecommunications services as a common carrier, we will become subject to
additional rules and policies.
Various existing U.S. federal and state regulations are currently the
subject of judicial proceedings, legislative hearings and administrative
proposals which could change, in varying degrees, the manner in which the
telecommunications industry operates. In addition, some foreign governments are
actively considering regulation of some of the services we offer. We cannot
predict the outcome of these proceedings, or the impact they may have on the
telecommunications or information services industries generally, or on us
particularly. In addition, we cannot assure you that future legislative,
regulatory or judicial changes in the United States or in other countries in
which we operate will not have a material adverse impact on our business.
FCC Policy on Enhanced Services
In 1980, the FCC created a distinction between "basic" services, which it
regulates as common carrier services, and "enhanced services," which remain
unregulated. The FCC exempted enhanced service providers from federal
regulations governing common carriers, including the obligation to pay access
charges and contribute to universal service. The Telecommunications Act of 1996
established a similar distinction between "telecommunications services" and
"information services." Changing technology and changing market conditions,
however, have made it increasingly difficult to discern the boundary between
unregulated and regulated services.
In general, information services are value-added services that provide
access to regulated transmission facilities only as part of a services package
which also uses network or computer software to change or enhance the
information transmitted. We believe the services we provide come within this
definition. Because the regulatory boundaries in this area are unclear and
subject to dispute, however, the FCC could seek to characterize some or all of
our services as "telecommunications services." If that happens, our services
would become subject to FCC regulation, although the impact of that
reclassification is difficult to predict. In general, the FCC does not regulate
the rates, services, and market entry and exit of non-dominant carriers, but
does require them to contribute to universal service and comply with other
regulatory requirements.
U.S. Licenses
Although we do not currently provide regulated telecommunications
services, we are authorized under Section 214 of the Communications Act of
1934, as amended, to provide global switched, data, voice, value-added and
private line services on a common carrier basis. We received authorization to
provide these services as a facilities-based common carrier in January 1999 and
to provide these services as a reseller in July 1999. We obtained these
licenses because we believe they allow us to procure the facilities and
capacity we need between the U.S. and foreign points under more favorable terms
and at lower cost than we could otherwise obtain. Although we do not currently
provide regulated telecommunications services, our FCC licenses subject us to
certain reporting and filing requirements.
FCC Regulatory Requirements
As noted above, our operation of networks does not currently subject us
to regulation in the U.S. either at the federal or state level. As an
authorized international common carrier, however, we are regulated by the FCC.
In the United States, authorized international carriers are subject to various
annual reporting
55
<PAGE>
requirements as a condition of their licenses. Each year, we must submit data
to the FCC concerning our international traffic as well as the status of our
international circuits. We must also file an annual employment report to comply
with the Commission's Equal Employment Opportunity policies. International
common carriers are also required to file a tariff containing the rates, terms
and conditions applicable to their services before initiating international
telecommunications services. If we fail to maintain proper federal tariffs or
certifications, or if there is any finding by the FCC that we are not operating
under permissible terms and conditions, this may result in an enforcement
action against us or an investigation, either of which could impose upon us
substantial penalties, including the loss of our licenses to provide
telecommunications services.
If we begin providing interstate, international telecommunications
services on a common carrier basis, we will be required to file additional
reports concerning our interstate and international traffic revenues. We also
may be required to contribute a percentage of these revenues to governmental
funds including Universal Service, Telecommunications Relay Service, Number
Portability, and the administration of the North American Numbering Plan. We
will also be subject to annual regulatory fees assessed by the FCC.
FCC Policies Applicable to Regulated International Traffic
If we begin to operate as a common carrier, we will be required to comply
with additional FCC policies governing international common carriers. For
example, the FCC requires carriers such as us to report "significant
affiliations," as defined by the FCC, with global carriers that have market
power in the countries in which we operate. In addition, the FCC administers a
variety of international service regulations, including the international
settlements policy. The international settlements policy governs the
settlements between U.S. carriers and their foreign correspondents of the cost
of terminating traffic over each other's networks, as well as the accounting
rates for settlement. The FCC has considerably relaxed this policy in its
implementation of the 1997 World Trade Organization Agreement on Basic
Telecommunications ("WTO Agreement"), which went into effect in January 1998.
Representing 90% of worldwide telecommunications traffic, the 72 signatory
countries to the WTO Agreement agreed to open their telecommunications markets
to competition and foreign ownership. We believe that this agreement, and its
implementation by the signatory countries, will provide us with significant
opportunities to compete in markets in which we did not previously have access,
and to provide end-to-end facilities-based services to and from these
countries.
The regulatory requirements that may affect our operations continue to
evolve as a result of the WTO Agreement, federal legislation, court decisions
and new and revised policies of the FCC. In particular, the FCC continues to
refine its international service regulations in order to promote competition,
to reflect and encourage deregulation in foreign countries and to reduce
international accounting rates toward cost. Among other things, these changes
may increase competition and alter our ability to compete with other similar
service providers or to introduce new services. Any change in applicable
regulatory requirements may have an impact on our operations in a way that we
cannot predict.
REGULATION IN NON-U.S. MARKETS
Although most countries impose little or no regulation on our network
operations, the laws and regulations governing our services are under review in
many countries outside the U.S. and are subject to change. Consistent with our
strategy of obtaining licenses or authorizations to provide regulated services
when we are able to obtain more favorable facilities or capacity lease terms or
interconnection arrangements, we have obtained facilities-based authorization
to provide telecommunications services in the United Kingdom. We anticipate
filing requests for authorization in several other countries as well. In some
countries we are able to obtain the more favorable arrangements we seek simply
by notifying the relevant government authority that we intend to operate on a
common carrier basis. In other countries, we are engaging in discussions with
foreign regulators to determine whether we must apply for authorization in
order to acquire or lease facilities or interconnect with other carriers.
56
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth, as of June 30, 1999, the name, age and
position of our directors, executive officers and other key employees.
<TABLE>
<CAPTION>
<C> <C> <S>
NAME AGE POSITION
---- --- --------
Jose A. Collazo 55 President, Chairman of the Board of
Directors
Ernest U. Gambaro 61 Senior Vice President and Secretary,
General Counsel
Akbar H. Firdosy 52 Vice President and Chief Financial
Officer
John C. Hoffman 52 Executive Vice President of
Communications Sales & Service
Michael J. Timmins 47 Executive Vice President of Global
Business Development
Thomas E. Whidden 53 Vice President of Marketing
John M. Williams 52 Vice President of Network Services
Douglas Campbell(3) 60 Director
Eric M. de Jong(2) 50 Director
Morgan Ekberg(1) 54 Director
Masao Kojima(2) 51 Director
Joseph Nancoz(1) 51 Director
Rafael Sagrario(3) 55 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit and Finance Committee.
(3) Member of the Quality Assurance Committee.
JOSE A. COLLAZO has served as our President and Chairman of the Board of
Directors since our founding in 1988. From 1967 to 1988, Mr. Collazo held
several management positions at Computer Sciences Corporation, or CSC,
including President of the International Division and head of global network
services. Mr. Collazo is on the Pepperdine University Board of Regents.
DR. ERNEST U. GAMBARO is a Senior Vice President and has served as our
General Counsel and Secretary since our founding in 1988. From 1980 to 1988,
Dr. Gambaro was Assistant General Counsel of CSC. Dr. Gambaro also is a
director of STM Wireless, Inc., a satellite networking equipment and services
company.
AKBAR H. FIRDOSY has served as our Vice President and Chief Financial
Officer since 1995. During 1994 and 1995, Mr. Firdosy served as our Controller.
Mr. Firdosy has been with us since our founding in 1988.
JOHN C. HOFFMAN has served as our Executive Vice President Communications
Sales & Service since 1991. Mr. Hoffman also serves as president of our wholly
owned subsidiary, ESG Communications. Mr. Hoffman has been with us since our
founding in 1988 and from 1983 to 1988 held several positions at CSC.
MICHAEL J. TIMMINS has served as our Executive Vice President of Global
Business Development since 1995. From 1993 to 1995, he served as our Vice
President of Global Business Development. Mr. Timmins has been with us since
our founding in 1988.
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<PAGE>
THOMAS E. WHIDDEN has served as our Vice President of Marketing since
December 1997. From July 1994 to December 1997 he served as our President of
International Sales. Prior to that time, he held various positions in our
European operations and Network Services.
JOHN M. WILLIAMS has served as our Vice President of Network Services
since 1999. From 1992 to 1998, Mr. Williams was our Director of Network
Operations, the Vice President of Services Integration and Management for our
subsidiary, Government Systems, Inc., and from 1998 to 1999 was Senior Vice
President of the Communication Systems Division of our country representative,
CACI, Inc.
DOUGLAS CAMPBELL has been a member of our board of directors since 1999.
He is currently the Group Managing Director--Wholesale & International of
Telstra Corporation, a position he has held since 1998. From 1993 to 1998, he
served as Group Managing Director--Network & Technology of Telstra.
ERIC M. DE JONG has been a member of our board of directors since 1999.
Since 1996, he has served as the Director--Partnership Management of KPN
International. Prior to this time, he was Director of Strategy and a Project
Director of KPN in charge of the telecommunications development of the
Amsterdam airport area.
MORGAN EKBERG has been a member of our board of directors since 1990. He
is currently a senior executive with Telia.
MASAO KOJIMA has been a member of our board of directors since 1998. He
is currently a Senior Deputy Director, Network Business Department, of KDD, a
position he has held since 1999. From 1997 to 1999, Mr. Kojima served as Deputy
Director, Telecommunications Business Department, of KDD. From 1996 to 1997,
Mr. Kojima served as General Manager, Network Division of KDD. From 1995 to
1996, Mr. Kojima served as Deputy Director, Network System Development
Department of KDD. From 1993 to 1995, Mr. Kojima served as Manager, Network
Quality, Network Operations & Administration Department, of KDD.
JOSEPH NANCOZ has been a member of our board of directors since 1989.
Since 1994, he has been the Chairman of the Board of Directors of Infonet
Switzerland, our country representative for Switzerland and a subsidiary of
Swisscom. He is currently Head of Global Service Development of the Products
and Services division of Swisscom. He was director of Swisscom's Key Accounts
and Multinational Corporations division from 1993 to 1998. From 1998 to the
present, he has served as Swisscom's Senior Vice President in charge of
international service in the Product and Service division.
RAFAEL SAGRARIO has been a member of our board of directors since January
1999. He is currently the President of Telefonica International Holding B.V.
From 1995 to 1997, he served as the President of Telefonica Transmision de
Datos. From 1998 to February 1999, he served as Sole Administrator of
Telefonica Transmision de Datos. From March 1999 to the present, he has served
as Operations General Manager of Telefonica Data.
DIRECTORS' TERMS
Members of our board of directors currently hold office and serve until
our next annual meeting of stockholders, or until their respective successors
have been elected. Our board of directors is currently comprised of seven
directors and we expect to add two additional independent members to our board
of directors within 90 days after the consummation of this offering. In
accordance with the terms of our restated certificate of incorporation,
effective upon the closing of this offering, the terms of office of the board
of directors will be divided into three classes: the Class I term will expire
at the annual meeting of stockholders to be held in ; the Class II term
will expire at the annual meeting of stockholders to be held in ; and
the Class III term will expire at the annual meeting of stockholders to be held
in . The Class I directors will be , and , the
Class II directors will be and and the Class III directors will
be , and . At each annual meeting of stockholders after
the
58
<PAGE>
initial classification, the successors to directors whose term will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following election. In addition, our restated certificate
of incorporation provides that the authorized number of directors will be
designated by our bylaws. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of one-third of the
directors. This classification of the board of directors may have the effect of
delaying or preventing a change in control or change in management. Our
directors may be removed, with or without cause, by the affirmative vote of the
holders of a majority of the shares entitled to vote at an election of
directors. There are no family relationships among any of our directors and
executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit and Finance Committee of our board of directors was established
in 1988 and reviews, acts on and reports to our board of directors with respect
to various auditing and accounting matters, including the recommendation of our
independent auditors, the scope of the annual audits, fees to be paid to the
independent auditors, the performance of our independent auditors and our
accounting practices. The members of the Audit and Finance Committee are
Messrs. de Jong and Kojima.
The Compensation Committee of our board of directors was established in
1988 and determines the salaries, benefits and stock option grants for our
employees, consultants and directors. The members of the Compensation Committee
are Messrs. Ekberg and Nancoz. The members of the Compensation Committee also
serve as our Stock Plans Committee. The Stock Plans Committee oversees the
administration of our employee stock option plans.
The Quality Assurance Committee of our board of directors was established
in 1994 and reviews, acts on and reports to our board of directors with respect
to the operation of our systems and the provision of services to our clients.
The members of the Quality Assurance Committee are Messrs. Campbell and
Sagrario.
DIRECTOR COMPENSATION
Directors receive approximately $1,500 per board of directors meeting for
services provided and approximately $750 per meeting of committees of the board
of directors. All directors are reimbursed for their out-of-pocket expenses in
serving on the board of directors or any committee thereof. In addition, we
plan to provide our directors with stock options under a new stock option plan
that we intend to adopt prior to the offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the compensation committee serves as a member of the board
of directors or the compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors or
compensation committee. See "Related Party Transactions" for a description of
transactions between Infonet and entities affiliated with members of the
compensation committee.
SEVERANCE AND OTHER AGREEMENTS
All of our executive officers are appointed annually and serve at the
discretion of the board of directors. We have severance agreements with Mr.
Collazo and Dr. Gambaro that provide for two years severance in the event of
termination.
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<PAGE>
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to our chief executive officer and our four other most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 in 1999 (the
"Named Executive Officers") for services rendered in all capacities to us
during our 1999 fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
------------
Annual Compensation Securities
Name and Principal Fiscal ------------------- Underlying All Other
Position Year Salary Bonus Options Compensation (1)
- ------------------ ------ ------------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Jose A. Collazo,
President
and Chairman of the
Board................. 1999 $ 353,998 $ 297,358 -- $378,710
Ernest U. Gambaro,
Senior Vice
President, Secretary
and
General Counsel....... 1999 199,222 167,346 -- 188,813
Akbar H. Firdosy, Vice
President and
Chief Financial
Officer............... 1999 162,048 136,120 9 3,531
John C. Hoffman,
Executive Vice
President of
Communications Sales &
Service............... 1999 194,365 147,450 -- 75,486
Michael J. Timmins,
Executive Vice
President of Global
Business Development.. 1999 127,957 252,878 -- 58,831
</TABLE>
- --------
(1) All other compensation includes imputed income in connection with payments
under auto allowances, financial planning services, club expenses, life
insurance and executive retirement plan values for the named executive
officers.
Option/SAR Grants In Last Year
We granted the following stock options to Mr. Firdosy in the year ended
March 31, 1999. We did not grant any stock appreciation rights to the Named
Executive Officers in the year ended March 31, 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
% of Total Stock Option Appreciation
Number of Shares Options Granted Exercise for Option Term
Underlying Options to Employees Price Expiration --------------------------
Name Granted in Fiscal Year ($/share) Date 5% 10%
- ---- ------------------ --------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Jose A. Collazo......... -- -- --
Ernest U. Gambaro....... -- -- --
Akbar H. Firdosy........ 9 7.26% $25,000
John C. Hoffman......... -- -- --
Michael J. Timmins...... -- -- --
</TABLE>
There was no public trading market for our Class B common stock as of
March 31, 1999. Accordingly, these values have been calculated on the basis of
the assumed initial public offering price of $ per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying these options.
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<PAGE>
EMPLOYEE BENEFIT PLANS
1998 Stock Purchase Plan
Our board of directors adopted a stock purchase plan, effective as of
October 20, 1998. The plan provides all employees designated by our board of
directors the ability to purchase shares of our Class C common stock. Our Class
C common stock is non-voting, but shares ratably with our Class A and Class B
common stock in any dividends. The plan is administered by the compensation
committee of our board of directors. We may issue up to 600 shares of Class C
stock under the plan. No shares of stock purchased under the plan are
transferable until we have effected an initial public offering.
In April 1999, we sold 315.87 shares of our Class C common stock to our
key employees pursuant to our 1998 Stock Purchase Plan. In accordance with the
provisions of the Stock Purchase Plan, some employees purchased their shares
for cash and other employees received their shares in exchange for a secured,
recourse promissory note held by us. Each share was sold for $25,000, which
price was set by the pricing formula at the time of the sales. All shares of
our Class C common stock will convert into Class B common stock prior to the
consummation of this offering.
1998 Stock Option Plan
In October 1998, we adopted our 1998 Stock Option Plan. We may issue up
to 300 shares of our Class C common stock under the plan. The specific terms of
the options issued is to be determined at the time of issuance by the
compensation committee of our board of directors. The exercise price for shares
issued under the plan may be no less than the value of the shares determined by
a pricing formula based on a multiple of our consolidated historic revenues.
Shares of stock purchased under the plan may not be traded or exchanged prior
to our initial public offering. The plan terminates on October 20, 2008, unless
terminated earlier pursuant to its terms.
In April 1999, we issued options to purchase 124 shares of our Class C
common stock to 29 employees under our 1998 Stock Option Plan. Each option was
evidenced by an option agreement. The exercise price for each option is $25,000
per share. Each option award vests in 20% portions on December 31 of each year
from 1999 to 2004. All shares of our Class C common stock will convert into
Class B common stock prior to the consummation of this offering.
1999 Stock Option Plan
We intend to adopt a new stock option plan prior to the consummation of
this offering.
Pension Plan
Our pension plan is a contributory defined pension plan in which
substantially all of our domestic employees are eligible to participate. The
pension benefits received by a retiring employee are calculated by multiplying
the employee's total eligible compensation by 2.25%. Eligible compensation
consists of base compensation plus nondiscretionary bonuses and commissions.
Compensation deferred under the Infonet Deferred Income Plan, income related to
the 1998 Stock Option Plan, reimbursements, fringe benefits or other forms of
special pay are not eligible compensation.
As of March 31, 1999, Jose A. Collazo, Ernest U. Gambaro, Akbar H.
Firdosy, John C. Hoffman and Michael J. Timmins, upon retirement at age 65,
would be entitled to annual retirement benefits of $46,621, $46,384, $15,547,
$18,762, and $20,924.
Supplemental Executive Retirement Plan
We also have a Supplemental Executive Retirement Plan, or SERP, which is
a non-qualified, non-contributory pension plan. Our SERP is a defined benefit
retirement plan for specified key officers and executives and provides for
benefits based on years of service, the age of the participant, and the
participant's average compensation during his or her final period of employment
under the SERP.
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<PAGE>
Stock Appreciation Rights Plan
The stock referred to in the SARs Plan is our Class B common stock. The
SARs vest at 25% per year over four years with the first quartile vesting on
January 1, 2001. The SARs Plan terminates on October 20, 2004 or earlier if
specified conditions of the SARs Plan have been fully met.
Deferred Income Plan
The Infonet Deferred Income Plan, or IDIP, is a nonqualified deferred
income plan for employees earning over a prescribed amount. Participants may
defer receipt of compensation, which is held by us in trust and is invested in
accordance with the participants' directions.
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<PAGE>
RELATED PARTY TRANSACTIONS
STOCKHOLDERS AGREEMENT
Immediately prior to the consummation of this offering, we expect to
enter into a stockholders agreement with all of our Class A stockholders. This
stockholders agreement provides that each Class A stockholder holding at least
400 shares of our Class A common stock will have the right to designate one of
our directors, and each Class A stockholder will agree to vote all of its
shares of common stock in favor of the directors designated by the other Class
A stockholders and for our president as a director. Accordingly, seven of the
nine directors on our board will be appointed by our Class A stockholders. Each
Class A stockholder will have a right of first refusal to acquire Class A
common stock proposed to be sold by another Class A stockholder. We will agree
in the stockholders agreement to include the Class A stockholders' stock in a
registered offering of stock by us commonly referred to as piggyback
registration and to undertake a registered offering of Class B common stock
upon demand by any Class A stockholder. Each Class A stockholder will agree to
maintain a country representative to support our marketing efforts and our
clients in that stockholder's home country.
COMMERCIAL CONTRACTS WITH RELATED PARTIES
Some of our country representatives are related parties where either
(1) we hold more than twenty but less than fifty percent ownership interest or
(2) a country representative is owned, directly or indirectly, by one of our
stockholders. In each such case, our agreement with the related party acting as
our country representative is our standard service agreement. Each service
agreement has a term of four or five years, and gives the country
representative the right to sell our services and use our trademarks, marketing
and operating documentation and our training materials and services. In the
agreements, we receive the right to set revenue targets, terminate the
agreement if the revenue targets are not met, jointly determine staffing of the
country office with the country representative and appoint members of the
country representative's advisory review board. The agreements outline monthly
fees the country representatives pay us for access to our network and the fees
we pay the country representatives for the service and customer support.
Additionally, we have alternate sales channel agreements with some of our
stockholders that allow these stockholders to resell our services under their
brand names or to package them with other services they provide to their
customers. These alternate sales channel agreements are generally under the
same terms as alternate sales channel agreements we enter into with other
communications providers. In 1999, $88.3 million of total revenues were
generated by all of these related parties and $40.0 million of total country
representative compensation resulted from a related party acting as our country
representative.
From time to time we lease transmission capacity from our stockholders
where they are existing local carriers. These leases are short term and at
tariff rates in regulated markets and at standard market rates in unregulated
markets.
RECENT CONTRACTS WITH OUR STOCKHOLDERS
We recently entered into a number of agreements with our stockholders,
KPN, Swisscom and Telia, as well as a number of their affiliates. As part of
the agreements, our stockholders have agreed to indemnify us and we have agreed
to indemnify them for certain breaches of representations and warranties. For
additional information, please read the sections entitled "Business--Access to
Multinational Corporate Clients of KPN, Swisscom and Telia" and "Business--AUCS
Management Agreement," as well as the applicable risks disclosed in our "Risk
Factors."
LOANS TO OUR SENIOR MANAGEMENT
In connection with our 1998 Stock Purchase Plan, several members of our
management team borrowed the purchase price for their stock pursuant to terms
of the plan. Persons borrowing from us entered into loan, pledge and security
agreements. In addition, the loan is full recourse to the borrower. Each loan
is at an annual interest rate of five percent. The amounts loaned to each
officer were: Jose A. Collazo, $3,325,000; Ernest U. Gambaro, $1,400,000; Akbar
H. Firdosy, $450,000; John C. Hoffman, $750,000; Michael J. Timmins, $750,000;
Thomas E. Whidden, $475,000; and John M. Williams, $75,000.
We have loaned $100,000 to John C. Hoffman in connection with Mr.
Hoffman's purchase of a club membership which he uses for business-related
facilities and entertainment. Mr. Hoffman has executed a promissory note for
the full amount of the loan. The note is payable on demand and is secured by
some of Mr. Hoffman's assets.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as of September 30, 1999 with
respect to the beneficial ownership of our common stock, and as adjusted to
reflect the sale of the shares of Class B common stock in the offering, by (1)
each person (or group of affiliated persons) known by us to beneficially own 5%
or more of our common stock, (2) each of our directors and Named Executive
Officers and (3) all of our directors and executive officers as a group. Unless
otherwise set forth herein, the street address of the named beneficial owner is
2160 East Grand Avenue, El Segundo, California 90245-1022.
<TABLE>
<CAPTION>
Prior to this Offering (1) After this Offering
-----------------------------------------------------------------------------------
Shares of Class A Shares of Class B Shares of Class A and Shares of Class A and
Common Stock Common Stock Class B Common Stock Class B Common Stock
----------------- ----------------- -----------------------------------------------
Percent Percent
of Total of Total
Voting Voting
Beneficial Owner Number Number Number Power Number Power
---------------- ----------------- ----------------- ------------ --------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
KDD Corporation......... 898.92 1,278.58 2,177.50 15.7
KDD Bldg. P.O. No. 1
3-2, Nishishinjuku 2
Chome
Shinjuku-Ku, Tokyo 163,
Japan
KPN Telecom B.V......... 967.17 1,908.98 2,876.15 16.9
Princes Beatrixlaan 23
2595 AK The Hague
The Netherlands
Swisscom AG............. 967.17 1,908.98 2,876.15 16.9
Alte Tiefenaustrasse 6
CH-3048 Worblaufen
Switzerland
Telefonica International
Holding B.V............ 967.17 1,375.65 2,342.82 16.9
Beatriz de Bobadilla, 18
28040 Madrid
Spain
Telia AB................ 967.17 1,908.98 2,876.15 16.9
Vitsandsgatan 9, House D
S-123 86 Farsta
Sweden
Telstra Corporation
Limited................ 951.25 -- 951.25 16.6
Level 14
231 Elizabeth Street
Sydney NSW 2000
Australia
Jose A. Collazo......... -- 133.00 133.00 --
Ernest U. Gambaro....... -- 56.00 56.00 --
Akbar H. Firdosy........ -- 18.00 18.00 --
John C. Hoffman......... -- 30.00 30.00 --
Michael J. Timmins...... -- 30.00 30.00 --
Thomas G. Whidden....... -- 19.00 19.00 --
John M. Williams........ -- 3.00 3.00 --
Douglas Campbell........ -- -- -- --
Eric M. de Jong......... -- -- -- --
Morgan Ekberg........... -- -- -- --
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRIOR TO THIS OFFERING (1) AFTER THIS OFFERING
------------------------------------------------------------ -----------------------
SHARES OF CLASS A SHARES OF CLASS B SHARES OF CLASS A AND SHARES OF CLASS A AND
COMMON STOCK COMMON STOCK CLASS B COMMON STOCK CLASS B COMMON STOCK
----------------- ----------------- ------------------------ -----------------------
PERCENT OF PERCENT
TOTAL OF TOTAL
VOTING VOTING
BENEFICIAL OWNER NUMBER NUMBER NUMBER POWER NUMBER POWER
---------------- ----------------- ----------------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Masao Kojima............ -- -- -- --
Joseph Nancoz........... -- -- -- --
Rafael Sagrario......... -- -- -- --
All directors and execu-
tive officers as a
group (13 persons)..... -- 289.00 289.00 --
</TABLE>
- --------
* Less than 1% of total.
(1) Gives effect to the shares of Class B common stock issuable within 60 days
of the closing of this offering upon the exercise of all options and other
rights beneficially owned by the indicated stockholders on that date.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, or SEC, and includes voting and
investment power with respect to shares. Unless otherwise indicated, the
persons named in the table have sole voting and sole investment control
with respect to all shares beneficially owned.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and provisions of our
certificate of incorporation and our bylaws are summaries and are qualified by
reference to the provisions of our certificate and our bylaws. Copies of these
documents have been or will be filed with the SEC as exhibits to our
registration statement, of which this prospectus forms a part. The description
of our capital stock reflects changes to our capital structure that will occur
upon the closing of this offering in accordance with the terms of our
certificate.
Our authorized capital stock consists of 250 million shares of Class A
common stock, par value $0.01 per share, 500 million shares of Class B common
stock, par value $0.01 per share, and 50 million shares of preferred stock, the
rights and preferences which may be established upon issuance by the Board of
Directors. As of June 30, 1999, there were 5,718.83 shares of Class A common
stock, 6,781.17 shares of Class B common stock, and 315.87 shares of Class C
common stock outstanding and held of record by an aggregate of 36 stockholders.
Prior to the closing of this offering, the Class C common stock will
automatically convert to Class B common stock.
COMMON STOCK
Holders of Class B common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders and they do not have
cumulative voting rights. Holders of Class A common stock are entitled to ten
votes for each share on all matters submitted to a vote of stockholders and
they do not have cumulative voting rights. Accordingly, holders of a majority
of the shares of Class A common stock entitled to vote in any election of
directors may elect all of the directors standing for election. However, the
holders of the Class B common stock have the exclusive right to elect two
independent directors. Holders of Class A and Class B common stock are entitled
to receive ratably those dividends, if any, as may be declared by our board of
directors out of funds legally available for that purpose, subject to any
preferential dividend rights of any preferred stock. Upon any liquidation,
dissolution or winding up, the holders of Class A and Class B common stock are
entitled to receive ratably our net assets available after the payment of all
debts and other liabilities and any prior rights of any outstanding preferred
stock. Holders of our Class A common stock have pre-emptive rights to acquire
additional shares of Class A common stock that may be issued, as well as a
right of first refusal upon proposed transfers from other Class A stockholders,
but they have no redemption or conversion rights other than from Class A to
Class B common stock on a one-for-one basis. Holders of our Class B common
stock have no preemptive, subscription, redemption or conversion rights. The
rights, preferences and privileges of holders of both Class A and Class B
common stock are junior to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future.
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations
prescribed by Delaware law, to issue shares of preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each series, to establish or alter the voting powers, designations, preferences
and other rights, or the qualifications, limitations or restrictions of the
series, and to increase (but not above the total number of authorized shares of
the class) or decrease (but not below the number of shares of the series then
outstanding) the number of shares of any series without any further vote or
action by our stockholders. Our board of directors is also authorized to issue
preferred stock with voting, conversion and other rights and preferences that
could adversely affect your voting power or other rights, as a holder of common
stock. Although we have no current plans to issue any preferred stock, the
issuance of preferred stock or of rights to purchase preferred stock could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third-party from attempting to acquire us. An issuance could
also dilute your voting power or other incidents of ownership as a holder of
common stock. Upon the closing of this offering, there will be no shares of
preferred stock outstanding.
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REGISTRATION RIGHTS
Pursuant to the terms of the stockholders agreement, after the closing of
this offering the holders of Class A common stock will be entitled to require
us to register some or all of their Class B shares under the Securities Act if
we make a subsequent offering of our common stock or if any holder of Class A
common stock demands registration. We will bear the costs and expenses
attributable to the registration.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to exceptions, Section 203 of the Delaware General
Corporation Law prohibits a publicly-held Delaware corporation from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained that status
with the approval of the board of directors or unless the business combination
is approved in a prescribed manner. A "business combination" includes, among
other things, a merger or consolidation involving us and an interested
stockholder and the sale of more than 10% of our assets. Although there are
limited exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% of our
voting stock. This statute could prohibit or delay the accomplishment of
mergers or other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us. A Delaware corporation may
opt out of the anti-takeover law with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from amendments approved by the holders of at
least a majority of the corporation's outstanding voting shares. We have opted
out of this provision of the anti-takeover law.
In addition, provisions of our certificate and bylaws that will be in
effect upon the closing of this offering and are summarized in the following
paragraphs, may be deemed to have anti-takeover effects and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider in
its best interest, including those attempts that might result in a premium over
the market price for the shares held by stockholders. These provisions may also
have the effect of preventing changes in our management.
Our certificate authorizes our board of directors to fill vacant
directorships or increase the size of our board of directors. This may deter a
stockholder from removing incumbent directors and simultaneously gaining
control of our board of directors by filling the vacancies created by that
removal with its own nominees.
The authorized but unissued shares of preferred stock are available for
future issuance without stockholder approval, subject to limitations imposed by
the New York Stock Exchange or the Frankfurt Stock Exchange. These additional
shares may be used for a variety of corporate purposes, including future
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued and unreserved
preferred stock could render more difficult or discourage an attempt to obtain
control of us by means of a proxy contest, tender offer, merger or otherwise.
Our certificate and bylaws contain other provisions that may be deemed to
have anti-takeover effects, such as the staggering of our board of directors
into three classes, the requirement of a supermajority vote to call special
meetings of our stockholders and a limit on the maximum number of directors.
These provisions could delay, defer or prevent a tender offer or takeover
attempt. In addition, the Class A stockholders will be able to exercise control
over all matters requiring approval by our stockholders, including the approval
of significant corporate transactions.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws,
unless a corporation's certificate of incorporation or bylaws, as the case may
be, requires a greater percentage. Our certificate of incorporation and bylaws
provide that the affirmative vote of 95% of the Class A common stock entitled
to vote is required to amend our certificate of incorporation and bylaws.
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LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that, except to the extent
prohibited by the Delaware General Corporation Law, our directors are not
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as our directors. Under the Delaware General Corporation Law,
our directors have a fiduciary duty to us that is not eliminated by this
provision of our certificate of incorporation and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the Delaware General Corporation Law
for breach of the director's duty of loyalty to us or our stockholders, for
acts or omissions which are found by a court of competent jurisdiction to be
not in good faith or that involve intentional misconduct, or knowing violations
of law, for actions leading to improper personal benefit to the director, and
for payment of dividends or approval of stock repurchases or redemptions that
are prohibited by the Delaware General Corporation Law. This provision also
does not affect the directors' responsibilities under any other laws, such as
the Federal securities laws or state or Federal environmental laws.
The Delaware General Corporation Law provides further that any
indemnification will not be deemed exclusive of any other rights to which the
directors and officers may be entitled under a corporation's bylaws, any
agreement, a vote of stockholders or otherwise. Our certificate of
incorporation eliminates the personal liability of directors to the fullest
extent permitted by the Delaware General Corporation Law and provides that we
may fully indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact that such person is or was a director or officer of ours or is or was
serving at our request as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
the action, suit or proceeding.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. We
believe that these provisions and agreements are necessary to attract and
retain qualified directors and executive officers. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions, regardless of whether the
Delaware General Corporation Law would permit indemnification. We have
liability insurance for our officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under our certificate of incorporation. We are not aware
of any threatened litigation or proceeding that may result in a claim for
indemnification.
TRANSFER AGENT AND REGISTRAR
Upon the closing of this offering, the transfer agent and registrar for
the Class B common stock will be .
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DESCRIPTION OF CREDIT FACILITY
THE SENIOR SECURED CREDIT AGREEMENT
We entered into a senior secured credit agreement with a syndicate of
lenders arranged by Merrill Lynch & Co., which included The Bank of Nova
Scotia, as administrative agent, Societe Generale, as documentation agent and a
number of financial institutions and other entities as lenders. The credit
agreement provides for the following facilities:
. Delayed Draw Term Loan Facility. This is a seven-year delayed-draw
term loan facility in an aggregate principal amount equal to $100.0
million available to be drawn until August 20, 2000. The initial draw
under the facility was used to repay existing indebtedness and fees
and expenses in connection with the bridge loan facility. The
proceeds of future draws can be used for our general working capital
needs as well as those of our subsidiaries, including for capital
expenditures. The delayed draw term loans are required to be repaid
in 20 consecutive quarterly installments, commencing on September 30,
2001. Amounts borrowed and repaid under this facility cannot be
reborrowed.
. Tranche B Term Loan Facility. This is a seven-year term loan facility
in an aggregate principal amount equal to $50.0 million. The tranche
B term loan was drawn in full on August 20, 1999, the closing date of
the credit agreement, and was used to repay our existing indebtedness
under the bridge loan facility. The tranche B term loan is required
to be repaid in 28 consecutive quarterly installments, commencing on
September 30, 1999. Amounts borrowed and repaid under this facility
cannot be reborrowed.
. Revolving Credit Facility. This is a six-year revolving credit
facility in an aggregate principal amount equal to $100.0 million.
Loans made under this facility are to be used for our general working
capital needs as well as those of our subsidiaries, including capital
expenditures. Amounts borrowed and repaid under this facility can be
reborrowed during the six-year availability period. This facility
contains a $10.0 million sub-limit for letters of credit.
OPTIONAL AND MANDATORY PREPAYMENT
The loans under each facility may be prepaid without premium or penalty
at our option. The term loans are also subject to mandatory prepayment with:
. 100% of the net proceeds of specified indebtedness (excluding the
first $100.0 million of senior subordinated indebtedness);
. 50% (reduced to 25% upon satisfaction of a leverage ratio) of the net
proceeds of any equity issuance (excluding the first $750.0 million
realized from an initial public offering by us);
. 100% of the net proceeds of specified asset sales or dispositions (or
payments received in respect of property or casualty insurance
claims); and
. beginning in our 2002 fiscal year, 50% (reduced to 25% upon
satisfaction of a leverage ratio) of excess cash flow.
The revolving credit loans are subject to mandatory prepayment (with an
accompanying permanent reduction of the commitments under the revolving credit
facility) with:
. 100% of the net proceeds of specified indebtedness (excluding the
first $100.0 million of senior subordinated indebtedness); and
. 100% of the net proceeds of specified asset sales or dispositions (or
payments received in respect of property or casualty insurance
claims).
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Mandatory prepayments are applied first to pay down the term loans and
second to pay down the revolving credit loans. As long as any delayed draw term
loans are outstanding, each tranche B term loan lender has the right to refuse
all or any part of any optional or mandatory prepayment that would otherwise be
allocated to its tranche B term loans. Any tranche B prepayment amount refused
will instead be applied to prepay the delayed draw term loans.
INTEREST RATES AND FEES
Interest on the loans is payable, at a variable rate based on, at our
option, either the base rate or the eurodollar rate, in each case, plus a
margin. The margin for term loans (and, prior to February 20, 2000, for
revolving credit loans) is fixed by facility and by type of loan at the rates
specified in the credit agreement and ranges from 1.50% to 2.75%. From and
after February 17, 2000, the margin for revolving credit loans varies depending
on the ratio of our total indebtedness to consolidated EBITDA and ranges from
0.50% to 2.50%. Eurodollar loans are available, at our option, with an interest
period of one, two, three or six months and, if available to all relevant
lenders, twelve months.
Under our credit agreement, we are required, by February 17, 2000, to
enter into hedge agreements to provide that at least 50% of the outstanding
term loans are subject to either a fixed interest rate or interest rate
protection for a period acceptable to the administrative agent.
We are required to pay the lenders under the delayed draw term loan
facility and the revolving credit facility commitment fees, at a variable rate
depending on our level of borrowing under each facility, on the available
undrawn amount under each facility. The commitment fee rate varies from 0.50%
to 1.00%. Commitment fees are payable quarterly in arrears. We are also
required to pay an annual administration fee to the administrative agent and
certain other fees pursuant to a fee letter with Merrill Lynch & Co. and one of
its affiliates.
COLLATERAL
Our obligations under the credit agreement and the other loan documents
are secured by liens granted by us and our domestic subsidiaries on
substantially all of our tangible assets located in the United States and on
all of our intangible assets. The collateral includes intellectual property and
all of the capital stock of each of our direct and indirect domestic
subsidiaries and 65% of the capital stock of any foreign subsidiaries owned
directly by us or any of our domestic subsidiaries, now owned or hereafter
acquired. Various assets and properties, including our new corporate
headquarters and our Maryland data center facility, are expressly excluded from
the collateral.
In addition, the payment and performance of our obligations under the
credit agreement and the other loan documents are guaranteed by our domestic
subsidiaries and a Belgian subsidiary.
RESTRICTIONS
The credit agreement contains representations, warranties, covenants
(including affirmative, negative and financial covenants) and events of
default, including nonpayment of principal and interest, violations of
covenants and the incurrence of material judgments, each of which are customary
for transactions of this type.
The financial covenants require compliance with a minimum consolidated
fixed charge coverage ratio, a maximum consolidated leverage ratio and a
minimum consolidated interest coverage ratio. The credit agreement also
contains limitations on permitted capital expenditures.
Certain other negative covenants restrict our ability and our
subsidiaries' ability to, among other things, incur debt, make investments or
acquisitions, grant liens, dispose of property, pay dividends or make other
restricted payments.
For purposes of the loan documents, Networks Telephony Corporation and
Osiware International S.A. are deemed not to be our subsidiaries.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our
Class B common stock, and no prediction can be made as to the effect, if any,
that market sales of shares of Class B common stock or the availability of
shares of Class B common stock for sale will have on the market price of our
Class B common stock. Nevertheless, sales of substantial amounts of Class B
common stock in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of our Class B
common stock and could impair our future ability to raise capital through the
sale of our equity securities. See "Risk Factors--If we or our existing
stockholders sell additional shares of our Class B common stock after the
offering, it could cause the market price of our Class B common stock to
decline."
Upon the closing of this offering, we will have an aggregate of
shares of Class B common stock outstanding, assuming no exercise of outstanding
options. Of the outstanding shares, the shares sold in this offering will be
freely tradable, except that any shares held by our "affiliates," as that term
is defined under Rule 144 of the Securities Act of 1933, as amended, or the
Act, may be sold only in compliance with the limitations described below. The
remaining shares of Class B common stock will be deemed "restricted
securities" as defined under Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 of the Act, which rules are
summarized below.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares of our Class B common stock will
be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
--------- ----
<C> <S>
After the date of this prospectus
Upon the filing of a registration statement to register for resale
shares of Class B common stock issuable upon the exercise of options
granted under our stock option plan
At various times after 90 days from the date of this prospectus
(Rule 144)
After 180 days from the date of this prospectus (subject, in some
cases, to volume limitations)
At various times after 180 days from the date of this prospectus
(Rule 144)
</TABLE>
Rule 144
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares of our Class B common stock for at least one year is
entitled to sell, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater of
. 1% of the then outstanding shares of Class B common stock
(approximately shares immediately after this offering) or
. the average weekly trading volume in the Class B common stock on the
New York Stock Exchange during the four calendar weeks preceding the
date on which notice of such sale is filed, subject to restrictions.
Such sales under Rule 144 are also subject to manner of sale provisions
and notice requirements and to the availability of current public information
about us.
In addition, a person who is not deemed to have been an affiliate of ours
at any time during the 90 days preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years
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would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of ours, such person's holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from the affiliate.
RULE 701
Our employees, directors, officers or consultants who purchase our shares
in connection with a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 permits non-affiliates to
sell their Rule 701 shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule
144. Affiliates may sell their Rule 701 shares without having to comply with
Rule 144's holding period restrictions. In each of these cases, Rule 701 allows
the stockholders to sell 90 days after the date of the prospectus.
LOCK-UP AGREEMENTS
Our directors, officers and certain stockholders have agreed that they
will not sell, directly or indirectly, subject to certain exceptions, any
shares of our common stock without the prior written consent of Merrill Lynch
Pierce, Fenner & Smith Incorporated for a period of 180 days from the date of
this prospectus. See "Underwriting."
REGISTRATION RIGHTS
Following this offering, under conditions described in the stockholders
agreement, holders of at least 400 shares of our outstanding Class A common
stock will have registration rights with respect to their shares of Class B
common stock (subject to the 180-day lock-up arrangement described above) to
require us to register their shares of Class B common stock under the
Securities Act, and to participate in any future registration of securities by
us. These holders are subject to lock-up periods of not more than 180 days
following the date of this prospectus or any subsequent prospectus. See
"Description of Capital Stock--Registration Rights."
STOCK OPTIONS AND WARRANTS
Options to purchase an aggregate of 124 shares of our common stock will
be fully vested as of the closing of this offering. None of the shares issuable
pursuant to these vested options is subject to the 180-day lock-up agreements
described above. As of September 30, 1999, 176 shares of common stock were
available for future grants under our stock option plan.
Following this offering, we intend to file one or more registration
statements on Form S-8 under the Securities Act to register all shares of
common stock subject to outstanding stock options and options issuable pursuant
to our stock option plan. Subject to the lock-up agreements, shares covered by
these registration statements will be eligible for sale in the public markets,
other than shares owned by our affiliates, which may be sold in the public
market if they qualify for an exemption from registration under Rule 144 or
701.
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MATERIAL UNITED STATES INCOME TAX CONSEQUENCES
FOR NON-U.S. HOLDERS
OVERVIEW
The following general discussion summarizes certain of the material U.S.
federal income and estate tax aspects of the ownership and disposition of Class
B common stock applicable to non-U.S. holders of Class B common stock. In
general, a "non-U.S. holder" is a person other than:
. a citizen or resident of the United States,
. a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any of its political
subdivisions,
. an estate the income of which is subject to U.S. federal income
taxation regardless of its sources,
. a trust if a U.S. court is able to exercise primary supervision over
administration of the trust and one or more U.S. persons have
authority to control all substantial decisions of the trust; or
. a trust that has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a United States person.
The discussion is based upon the Internal Revenue Code of 1986, as
amended, regulations of the Treasury Department, Internal Revenue Service
rulings and pronouncements and judicial decisions now in effect, all of which
are subject to change (possibly on a retroactive basis). The discussion does
not address aspects of U.S. federal taxation other than income and estate
taxation and does not address all aspects of federal income and estate
taxation. The discussion does not consider any specific facts or circumstances
that may apply to a particular non-U.S. holder and does not address all aspects
of U.S. federal income tax law that may be relevant to non-U.S. holders that
may be subject to special treatment under such law, such as insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
certain U.S. expatriates, controlled foreign corporations, passive foreign
investment companies or foreign personal holding companies.
PERSONS CONSIDERING THE PURCHASE OF CLASS B COMMON STOCK SHOULD CONSULT
THEIR TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS,
AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION TO THEIR
PARTICULAR SITUATIONS.
DIVIDENDS
In general, the gross amount of dividends paid to a non-U.S. holder will
be subject to U.S. withholding tax at a 30% rate, or any lower rate prescribed
by an applicable tax treaty, unless the dividends:
. are effectively connected with a trade or business carried on by the
non-U.S. holder within the United States and a Form 4224 is filed
with the withholding agent, or
. if a tax treaty applies, are attributable to a United States
permanent establishment of the non-U.S. holder.
If either exception applies, the dividend will be taxed at ordinary U.S.
federal income tax rates. A non-U.S. holder may be required to satisfy certain
certification requirements in order to claim the benefit of an applicable
treaty rate or otherwise claim a reduction of, or exemption from, the
withholding obligation under the above described rules. In the case of a non-
U.S. holder that is a corporation, effectively connected income may also be
subject to an additional branch profits tax, which is generally imposed on a
foreign corporation at a rate of 30% of the deemed repatriation from the United
States of "effectively connected earnings and profits" or such lower rate as an
applicable tax treaty may provide. To the extent a distribution exceeds our
current or accumulated earnings or profits, it will be treated first as a
return of the holder's tax basis, and then as a gain from the sale of a capital
asset. Any withholding tax on a distribution in excess of our accumulated
earnings or profits is refundable to the non-U.S. holder upon filing an
appropriate claim with the Internal Revenue Service.
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Under current law, dividends paid to an address outside the United States
are presumed to be paid to a resident of such country (unless the payor has
knowledge to the contrary) for purposes of the withholding tax discussed above
and, under the current interpretation of United States Treasury regulations,
for purposes of determining the applicability of a tax treaty rate. Under
recently finalized United States Treasury regulations, a non-U.S. holder of
Class B common stock who wishes to claim the benefit of an applicable treaty
rate (and avoid backup withholding as discussed below) for dividends paid after
December 31, 2000, will be required to satisfy applicable certification and
other requirements.
DISPOSITION OF COMMON STOCK
Generally, a non-U.S. holder will not be subject to U.S. federal income
tax on any gain recognized upon the disposition of Class B common stock unless:
. the gain is effectively connected with a trade or business carried on
by the non-U.S. holder within the United States, or, alternatively,
if a tax treaty applies, attributable to a United States permanent
establishment maintained by the non-U.S. holder, in which case such
gain will be subject to tax at the rates and in the manner applicable
to U.S. persons, and, if the holder is a foreign corporation, the
branch profits tax may also apply,
. the Class B common stock is disposed of by an individual non-U.S.
holder, who holds the Class B common stock as a capital asset and is
present in the United States for 183 days or more in the taxable year
of the disposition and certain other conditions are met, in which
case such gain will be subject to a flat 30% tax, which may be offset
by United States source capital losses even though the individual is
not considered a resident of the United States, or
. (A) we are or have been a "U.S. real property holding corporation"
within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition
or such non-U.S. holder's holding period and (B) assuming that the
Class B common stock is "regularly traded on an established
securities market" for U.S. federal income tax purposes, the non-U.S.
holder held, directly or indirectly, at any time during the
applicable period from clause (A) above, including on the date of
disposition, more than 5% of the outstanding Class B common stock. We
are not and do not anticipate becoming a "U.S. real property holding
corporation."
Non-U.S. holders should consult applicable treaties, which may exempt
from U.S. taxation gains realized upon the disposition of Class B common stock
in certain cases.
ESTATE TAX
Common stock owned, or treated as owned, by an individual non-U.S. holder
at the time of death will be includible in the individual's gross estate for
U.S. federal estate tax purposes, and may be subject to U.S. federal estate
tax, unless an applicable treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
On October 6, 1997, the Internal Revenue Service issued final regulations
relating to withholding, information reporting and backup withholding that
unify current certification procedures and forms and clarify reliance
standards. The final regulations generally will be effective for payments made
after December 31, 2000.
Except as provided below, this section describes rules applicable to
payments made on or before December 31, 2000. Backup withholding, which
generally is a withholding tax imposed at the rate of 31% on certain payments
to persons that fail to furnish the information required under the U.S.
information reporting
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and backup withholding rules, generally will not apply to (1) dividends paid to
non-U.S. holders that are subject to the 30% withholding discussed above, or
that are not so subject because a tax treaty applies that reduces or eliminates
such 30% withholding, or (2) dividends paid on the Class B common stock to a
non-U.S. holder at an address outside the United States, unless the payor has
actual knowledge that the payee is a U.S. person. We will be required to report
annually to the Internal Revenue Service and to each non-U.S. holder the amount
of dividends paid to, and the tax withheld from, such holder, regardless of
whether any tax was actually withheld or whether withholding was required. The
information may also be made available to the tax authorities in the non-U.S.
holder's country of residence.
In the case of a non-U.S. holder that sells Class B common stock to or
through a U.S. office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the Internal Revenue Service, unless the holder
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. In the case of a non-U.S. holder that sells Class B
common stock to or through the foreign office of a U.S. broker, or a foreign
broker with certain types of relationships to the United States, the broker
must report the sale to the Internal Revenue Service (but not backup withhold)
unless the broker has documentary evidence in its files that the seller is a
non-U.S. holder or certain other conditions are met, or the holder otherwise
establishes an exemption. A non-U.S. holder will generally not be subject to
information reporting or backup withholding if such non-U.S. holder sells the
Class B common stock to or through a foreign office of a non-U.S. broker.
Any amount withheld under the backup withholding rules from a payment to
a holder is allowable as a credit against the holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder furnishes
the required information to the Internal Revenue Service. In addition, certain
penalties may be imposed by the Internal Revenue Service on a holder who is
required to supply information but does not do so in the proper manner.
The final regulations eliminate the general, current legal presumption
that dividends paid to an address in a foreign country are paid to a resident
of that country. The final regulations impose certain certification and
documentation requirements on non-U.S. holders claiming the benefit, under a
tax treaty, of a reduced withholding rate on dividends.
Prospective purchasers of the Class B common stock are urged to consult
their own tax advisors as to the effect, if any, of the final regulations on
their purchase, ownership and disposition of the Class B common stock.
75
<PAGE>
UNDERWRITING
GENERAL
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Warburg Dillon
Read LLC, are acting as representatives of each of the underwriters named
below. Subject to the terms and conditions set forth in a purchase agreement
among us, the selling stockholders and the underwriters, we and the selling
stockholders have agreed to sell to the underwriters, and each of the
underwriters severally and not jointly has agreed to purchase from us, the
number of shares of Class B common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
Warburg Dillon Read LLC..........................................
-------
Total.......................................................
=======
</TABLE>
In the purchase agreement, the underwriters have agreed, subject to the
terms and conditions set forth in the agreement, to purchase all of the shares
of Class B common stock being sold pursuant to the agreement if any of the
shares of Class B common stock being sold under the agreement are purchased. If
an underwriter defaults, the purchase agreement provides that, in specified
circumstances, the purchase commitments of the nondefaulting underwriters may
be increased or the purchase agreement may be terminated.
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the securities laws, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
The shares of Class B common stock are being offered by the underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and
certain other conditions. The underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that they propose initially to offer
the shares of Class B common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
that price less a concession not in excess of $ per share of Class B common
stock. The underwriters may allow, and those dealers may reallow, a discount
not in excess of $ per share of Class B common stock to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholders to the
underwriters and the proceeds before expenses to us and the selling
stockholders. This information is presented assuming either no exercise or full
exercise by the underwriters of their over-allotment option with respect to the
selling stockholders' shares.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------- ------
<S> <C> <C> <C>
Public offering price........................... $ $ $
Underwriting discount........................... $ $ $
Proceeds, before expenses, to Infonet Services
Corporation.................................... $ $ $
Proceeds, before expenses, to the selling stock-
holders........................................ $ $ $
</TABLE>
76
<PAGE>
The expenses of the offering (exclusive of the underwriting discount and
commissions) are estimated at $ . The underwriters have agreed to
reimburse us for up to $2.75 million of our expenses incurred in connection
with this offering.
OVER-ALLOTMENT OPTION
The selling stockholders have granted an option to the underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to
additional shares of Class B common stock at the public offering price
set forth on the cover page of this prospectus, less the underwriting discount.
The underwriters may exercise this option solely to cover over-allotments, if
any, made on the sale of the Class B common stock being offered. To the extent
that the underwriters exercise this option, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares of
Class B common stock proportionate to that underwriter's initial amount
reflected in the above table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price up to shares, or five percent, of the shares
offered, to be sold to persons designated by us. The number of shares of Class
B common stock available for sale to the general public will be reduced to the
extent those persons purchase reserved shares. Any reserved shares which are
not orally confirmed for purchase within one day of the pricing of this
offering will be offered by the underwriters to the general public on the same
terms as the other shares offered in this prospectus.
NO SALES OF SIMILAR SECURITIES
For a period of 180 days after the date of this prospectus, we, our
officers, directors and certain stockholders, have agreed not to, directly or
indirectly, subject to certain exceptions, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the several
underwriters:
. offer, pledge, sell, dispose of or transfer any shares of common
stock or securities convertible into common stock; or
. enter into any agreement that transfers any part of the economic
consequence of ownership of the common stock.
LISTING ON THE NEW YORK STOCK EXCHANGE AND THE FRANKFURT STOCK EXCHANGE
In the United States, our Class B common stock will trade on the New York
Stock Exchange under the symbol " ." In Europe, our Class B common stock
will trade on the Frankfurt Stock Exchange under the symbol " ."
Before this offering, there has been no public market for our Class B
common stock. The initial public offering price has been determined through
negotiations between us and the representatives. The principal factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, were the valuation multiples of publicly-traded
companies that the representatives believe to be comparable to us, some of our
financial information, the history of, and the prospects for, our company and
the industry in which we compete, and an assessment of our management, its past
and present operations, the prospects for, and timing of, our future revenues,
the present state of our development and the above factors in relation to
market values and various value measures of other companies engaged in
activities similar to ours. We cannot assure you that an active trading market
will develop for our Class B common stock or that our Class B common stock will
trade in the public market subsequent to this offering at or above the initial
public offering price.
The underwriters do not expect sales of the Class B common stock to be
made to any accounts over which they exercise discretionary authority to exceed
five percent of the number of shares being offered in this offering.
77
<PAGE>
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the Class B common stock is completed, rules of
the SEC may limit the ability of the underwriters and some selling group
members to bid for and purchase our Class B common stock. As an exception to
these rules, the representatives are permitted to engage in transactions that
stabilize the price of our Class B common stock. These transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of our Class B common stock.
If the underwriters create a short position in our Class B common stock
in connection with the offering, that is, if they sell more shares of our Class
B common stock than are set forth on the cover page of this prospectus, the
representatives may reduce that short position by purchasing our Class B common
stock in the open market. The representatives may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
The representatives may also impose a penalty bid on our underwriters and
selling group members. This means that if the representatives purchase shares
of our Class B common stock in the open market to reduce the underwriters'
short position or to stabilize the price of our Class B common stock, they may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold those shares.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of our Class B common stock to the
extent that it discourages resales of our Class B common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class B common stock. In addition,
neither we nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have from time to time
provided, and may in the future provide, investment banking and general
financing and banking services to us and our affiliates. Merrill Lynch Capital
Corporation acted as the lender for our $50.0 million bridge loan facility.
Merrill Lynch & Co. acted as Lead Arranger and Syndication Agent to underwrite
and syndicate our $250.0 million senior secured credit facility for which it
received customary compensation. Merrill Lynch Capital Corporation and Warburg
Dillon Read LLC are also lenders under the credit facility. Warburg Dillon Read
LLC acted as our financial advisor in connection with the AUCS transactions and
received customary fees.
78
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Class B common stock to be
sold in the offering will be passed upon for us by Latham & Watkins, Costa
Mesa, California. Certain legal matters in connection with the issuance of the
Class B common stock to be sold in the offering will be passed upon for the
underwriters by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
Our consolidated financial statements as of March 31, 1998 and 1999 and
for each of the years in the three year period ended March 31, 1999 and the
related financial statement schedule included elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing in this prospectus and elsewhere in the
registration statement, and are included in reliance upon the reports of that
firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Act with respect to the shares of Class B common stock to be sold in the
offering. This prospectus does not contain all the information set forth in the
registration statement. For further information regarding our company and the
shares of Class B common stock to be sold in this offering, please refer to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. In each case you should read the contract, agreement or
other document, a copy of which is filed as an exhibit to the registration
statement.
You may read and copy all or any portion of the registration statement or
any other information that we file at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
SEC located at Seven World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement, are also available to you on the SEC's
Web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and, accordingly, will file periodic reports, proxy statements and
other information with the SEC. In addition to being available at the SEC, upon
approval of the Class B common stock for listing on The New York Stock
Exchange, our reports, proxy and information statements and other information
may also be inspected at the offices of The New York Stock Exchange, 20 Broad
Street, New York, New York.
79
<PAGE>
INFONET SERVICES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of March 31, 1998 and 1999 and (Unaudited)
June 30, 1999............................................................ F-3
Consolidated Statements of Operations and Comprehensive Income (Loss) for
the Years Ended March 31, 1997, 1998 and 1999 and (Unaudited) the Three
Months Ended June 30, 1998 and 1999....................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended March
31, 1997, 1998 and 1999 and (Unaudited) the Three Months Ended June 30,
1999...................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1997,
1998 and 1999 and (Unaudited) the Three Months Ended June 30, 1998 and
1999...................................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Infonet Services Corporation
El Segundo, California:
We have audited the accompanying consolidated balance sheets of Infonet
Services Corporation and its subsidiaries (the "Company") as of March 31, 1998
and 1999, and the related consolidated statements of operations and
comprehensive income (loss), stockholders' equity, and cash flows for each of
the three years in the period ended March 31, 1999. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March 31,
1998 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1999 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Los Angeles, California
June 14, 1999
F-2
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
-------------------- JUNE 30,
1998 1999 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................... $ 11,449 $ 8,681 $ 34,738
Short-term investments...................... 18,533 8,196 3,821
Accounts receivable, net of allowances of
$3,851, $3,876 and (unaudited) $3,506 as of
March 31, 1998 and 1999, and June 30, 1999,
respectively............................... 47,170 58,168 58,198
Deferred income taxes....................... 6,189 5,387 5,548
Prepaid expenses............................ 7,133 9,345 8,396
Other current assets........................ 283 500 433
--------- --------- ---------
Total current assets....................... 90,757 90,277 111,134
--------- --------- ---------
PROPERTY, EQUIPMENT AND COMMUNICATION LINES,
Net......................................... 33,583 51,133 101,629
GOODWILL AND OTHER INTANGIBLE ASSETS, Net.... 5,114 4,573 3,871
OTHER ASSETS................................. 21,028 35,007 40,552
--------- --------- ---------
TOTAL ASSETS................................. $ 150,482 $ 180,990 $ 257,186
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations.... $ -- $ 1,662 $ 2,193
Current portion of capital lease obliga-
tions...................................... 1,961 1,660 2,283
Accounts payable............................ 14,564 20,058 16,681
Network communications...................... 5,339 4,112 4,441
Accrued salaries and related benefits....... 10,603 11,262 10,450
Income taxes payable........................ 5,873 9,851 7,109
Advance billings............................ 12,021 13,999 13,851
Other accrued expenses...................... 11,126 10,158 13,476
--------- --------- ---------
Total current liabilities.................. 61,487 72,762 70,484
DEFERRED INCOME AND COMPENSATION............. 16,373 19,252 19,999
CAPITAL LEASE OBLIGATIONS.................... 105 5,262 6,143
LONG-TERM OBLIGATIONS........................ -- 7,253 86,318
MINORITY INTEREST............................ 376 508 456
COMMON STOCK SUBJECT TO PUT OPTION, Net:
Class C common stock, $0.01 par value per
share:
10,000 shares authorized;
316 shares issued and outstanding........... -- -- 7,897
Less notes receivable from issuance of com-
mon stock.................................. -- -- (7,910)
--------- --------- ---------
Total common stock subject to put option,
net....................................... -- -- (13)
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock, $0.01 par value per
share:
12,500 shares authorized;
12,500 shares issued and 5,719 shares out-
standing................................... 67,819 67,819 67,819
Class B common stock, $0.01 par value per
share:
12,500 shares authorized;
6,781 shares issued and outstanding......... 124,074 124,074 124,074
Treasury stock, at cost, 6,781 shares....... (121,184) (121,184) (121,184)
Retained earnings........................... 2,525 6,700 4,972
Accumulated other comprehensive loss........ (1,093) (1,456) (1,882)
--------- --------- ---------
Total stockholders' equity................ 72,141 75,953 73,799
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $ 150,482 $ 180,990 $ 257,186
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
---------------------------- --------------------
1997 1998 1999 1998 1999
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES, Net.............. $264,684 $294,244 $302,997 $ 69,004 $ 85,706
EXPENSES:
Country representative
compensation............ 35,090 41,136 53,766 12,072 15,861
Bandwidth and related
costs................... 43,134 48,089 52,700 12,627 14,620
Network operations....... 81,106 80,806 52,997 12,416 14,007
Selling, general and ad-
ministrative............ 115,741 130,287 139,663 34,181 41,518
-------- -------- -------- --------- --------
Total expenses......... 275,071 300,318 299,126 71,296 86,006
-------- -------- -------- --------- --------
OPERATING INCOME (LOSS).... (10,387) (6,074) 3,871 (2,292) (300)
OTHER INCOME (EXPENSE):
Interest income.......... 1,014 1,515 1,881 783 491
Interest expense......... (874) (868) (689) (197) (652)
Other, net............... 2,591 2,969 382 (83) (15)
-------- -------- -------- --------- --------
Total other income (ex-
pense), net........... 2,731 3,616 1,574 503 (176)
-------- -------- -------- --------- --------
INCOME (LOSS) BEFORE PROVI-
SION (CREDIT) FOR INCOME
TAXES AND MINORITY INTER-
EST....................... (7,656) (2,458) 5,445 (1,789) (476)
PROVISION (CREDIT) FOR IN-
COME TAXES................ (175) 3,119 638 61 804
-------- -------- -------- --------- --------
INCOME (LOSS) BEFORE MINOR-
ITY INTEREST.............. (7,481) (5,577) 4,807 (1,850) (1,280)
MINORITY INTEREST.......... -- (143) 132 21 (52)
-------- -------- -------- --------- --------
NET INCOME (LOSS).......... (7,481) (5,434) 4,675 (1,871) (1,228)
-------- -------- -------- --------- --------
OTHER COMPREHENSIVE INCOME
(LOSS):
Foreign currency transla-
tion adjustments........ 56 (626) (241) 199 (416)
Unrealized gains (losses)
on securities........... 2 (10) 16 -- (10)
Minimum pension liability
adjustment, net of tax
of $92.................. -- -- (138) -- --
-------- -------- -------- --------- --------
Total other comprehen-
sive income (loss),
net................... 58 (636) (363) 199 (426)
-------- -------- -------- --------- --------
COMPREHENSIVE INCOME
(LOSS).................... $ (7,423) $ (6,070) $ 4,312 $ (1,672) $ (1,654)
======== ======== ======== ========= ========
BASIC AND DILUTED EARNINGS
(LOSS) PER COMMON SHARE... $(598.48) $(434.72) $ 374.00 $ (149.68) $ (96.61)
======== ======== ======== ========= ========
BASIC AND DILUTED WEIGHTED
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING........ 12,500 12,500 12,500 12,500 12,711
======== ======== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1998 AND 1999, AND
(UNAUDITED) THREE MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK TREASURY STOCK COMPREHENSIVE
--------------- ----------------- RETAINED INCOME
SHARES AMOUNT SHARES AMOUNT EARNINGS (LOSS) TOTAL
------ -------- ------ --------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1996.. 18,314 $171,917 (5,814) $(104,495) $16,440 $ (515) $ 83,347
Common stock issued... 967 19,976 -- -- -- -- 19,976
Purchase of treasury
stock................ -- -- (967) (16,689) -- -- (16,689)
Net loss.............. -- -- -- -- (7,481) -- (7,481)
Dividends paid ($40.00
per share)........... -- -- -- -- (500) -- (500)
Foreign currency
translation adjust-
ments................ -- -- -- -- -- 56 56
Unrealized gains on
securities........... -- -- -- -- -- 2 2
------ -------- ------ --------- ------- ------- --------
BALANCE, MARCH 31,
1997................... 19,281 191,893 (6,781) (121,184) 8,459 (457) 78,711
Net loss.............. -- -- -- -- (5,434) -- (5,434)
Dividends paid ($40.00
per share)........... -- -- -- -- (500) -- (500)
Foreign currency
translation adjust-
ments................ -- -- -- -- -- (626) (626)
Unrealized losses on
securities........... -- -- -- -- -- (10) (10)
------ -------- ------ --------- ------- ------- --------
BALANCE, MARCH 31,
1998................... 19,281 191,893 (6,781) (121,184) 2,525 (1,093) 72,141
Net income............ -- -- -- -- 4,675 -- 4,675
Dividends paid ($40.00
per share)........... -- -- -- -- (500) -- (500)
Foreign currency
translation adjust-
ments................ -- -- -- -- -- (241) (241)
Unrealized gains on
securities........... -- -- -- -- -- 16 16
Minimum pension lia-
bility adjustments,
net of tax of $92.... -- -- -- -- -- (138) (138)
------ -------- ------ --------- ------- ------- --------
BALANCE, MARCH 31,
1999................... 19,281 191,893 (6,781) (121,184) 6,700 (1,456) 75,953
Net loss (unaudited).. -- -- -- -- (1,228) -- (1,228)
Dividends declared
($39.01 per share)
(unaudited).......... -- -- -- -- (500) -- (500)
Foreign currency
translation adjust-
ments (unaudited).... -- -- -- -- -- (416) (416)
Unrealized losses on
securities (unau-
dited)............... -- -- -- -- -- (10) (10)
------ -------- ------ --------- ------- ------- --------
BALANCE, JUNE 30, 1999
(UNAUDITED)............ 19,281 191,893 (6,781) $(121,184) $ 4,972 $(1,882) $ 73,799
====== ======== ====== ========= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
---------------------------- ------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ (7,481) $ (5,434) $ 4,675 $ (1,871) $ (1,228)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 20,018 24,149 16,741 3,357 4,983
Gain on sale of business and other.................... (3,730) (10,696) -- -- --
Gain on sale of property, equipment and communication
lines................................................ (453) -- (283) (1) --
Deferred income taxes................................. (7,642) (799) (7,539) (420) 319
Minority interest..................................... -- (143) 132 21 (52)
Changes in assets and liabilities, net of business
sold:
Accounts receivable, net.............................. (3,069) (1,489) (10,974) 779 (343)
Prepaid expenses...................................... (1,730) (3,732) (2,409) 1,441 862
Other current assets.................................. (152) 216 (419) 269 21
Accounts payable...................................... (420) (504) 5,725 (2,107) (3,092)
Network communications................................ (420) 2,412 (1,227) 263 329
Accrued salaries and related benefits................. 1,446 (290) 644 (976) (742)
Income taxes payable.................................. 3,629 599 3,917 (587) (1,932)
Advance billings...................................... 1,566 3,929 1,978 (777) (148)
Other accrued expenses................................ 2,163 2,807 (731) 1,480 2,416
Deferred income and compensation...................... (2,086) 4,743 3,609 1,201 743
Other operating activities............................ -- (1,375) (257) 36 (67)
-------- -------- -------- -------- --------
Net cash provided by operating activities............ 1,639 14,393 13,582 2,108 2,069
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and communication
lines................................................ (16,182) (22,635) (27,033) (2,196) (25,885)
Proceeds from sale of property, equipment and
communication lines.................................. 3,194 12,467 902 -- 2,004
Proceeds from sale of business........................ 3,884 33,522 -- -- --
Costs associated with sale of business................ -- (11,531) -- -- --
Purchases of short-term investments................... (3,958) (29,173) (11,115) (1,945) (1,921)
Proceeds from sale of short-term investments.......... 13,134 6,854 9,922 1,964 5,802
Maturities of short-term investments.................. 980 9,575 11,546 4,299 494
Purchases of trading securities....................... (403) (7,599) (7,628) (1,304) (3,222)
Proceeds from sale of trading securities.............. 147 6,238 5,957 928 1,448
Purchases of held to maturity securities.............. -- (14,194) (4,435) (2,294) (500)
Maturity of held to maturity securities............... -- 9,540 2,205 412 500
Acquisition of businesses, net of cash acquired....... (4,095) 44 -- -- --
Other investing activities............................ (1,661) 20 (2,671) (823) (3,650)
-------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities.......................................... (4,960) (6,872) (22,350) (959) (24,930)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations....... 13,327 -- 16,000 -- 50,000
Payments on long-term obligations..................... (1,298) (12,029) (7,085) -- (404)
Payment of capital lease obligations.................. (1,768) (1,861) (2,587) (412) (434)
Net proceeds from issuance of common stock............ 19,976 -- -- -- 41
Purchase of treasury stock............................ (16,689) -- -- -- --
Dividends paid........................................ (500) (500) (500) -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities.......................................... 13,048 (14,390) 5,828 (412) 49,203
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................ (269) (588) 172 197 (285)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 9,458 (7,457) (2,768) 934 26,057
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........... 9,448 18,906 11,449 11,449 8,681
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR................. $ 18,906 $ 11,449 $ 8,681 $ 12,383 $ 34,738
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes.......................................... $ 3,838 $ 3,319 $ 4,913 $ 1,083 $ 3,060
Interest.............................................. $ 428 $ 903 $ 698 $ 71 $ 413
SUPPLEMENTAL NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisitions of equipment through capital leases...... $ -- $ 584 $ 7,443 $ -- $ 1,938
Dividends declared but not paid....................... $ -- $ -- $ -- 500 $ 500
During the three months ended June 30, 1999, the
Company issued shares of common stock for notes
receivable amounting to $7,856.
During June 1999, the Company acquired a right of use
of capacity in a fiberoptic submarine cable system
for a total commitment of $45.0 million. Of the total
commitment, $18.0 million was settled in cash in
June 1999 (unaudited).
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
1. GENERAL INFORMATION
DESCRIPTION OF BUSINESS--Infonet Services Corporation ("Infonet" or the
"Company") provides cross-border managed data communications services to
multinational corporations worldwide. Infonet's stockholders include six of the
world's major telecommunication companies. Infonet provides services directly
through country representatives and indirectly through major international
telecommunications carrriers and value-added resellers.
FISCAL YEAR--The Company's fiscal year is the 52- or 53-week period
ending on the Friday nearest to March 31. For simplicity of presentation, the
Company has described the 52-week period ended March 28, 1997, the 53-week
period ended April 3, 1998 and the 52-week period ended April 2, 1999 as the
years ended March 31, 1997, 1998 and 1999, respectively, and the 13-week
periods ended July 3, 1998 and July 2, 1999 as the three months ended June 30,
1998 and 1999, respectively.
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS--The
condensed consolidated financial statements as of June 30, 1999 and for the
three months ended June 30, 1998 and 1999 are unaudited. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the financial position and the results of operations as of such date and for
such periods. Results of interim periods are not necessarily indicative of the
results to be expected for the entire fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--All majority-owned subsidiaries and
subsidiaries where the Company exercises economic control are included in the
consolidated financial statements. All significant intercompany accounts and
transactions have been eliminated. The Company's investments in 20% to 50%
owned companies in which it has the ability to exercise significant influence
over operating and financial policies of the investee are accounted for using
the equity method.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. As with any estimates, actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents.
SHORT-TERM INVESTMENTS--Short-term investments are classified as
"available for sale" and are carried at market value.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of cash and
cash equivalents, short-term investments, accounts receivable, and accounts
payable approximate fair value because of the short-term maturities of these
instruments. The carrying amount of the long-term note payable approximates
fair value since the fixed rate charged on the note approximates the current
market rate.
F-7
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
CONCENTRATION OF CREDIT RISK--The Company's financial instruments that
are exposed to concentration of credit risk consist primarily of its cash
equivalents, short-term investments, and accounts receivable. The Company
restricts investments in cash equivalents and short-term investments to
financial institutions with high credit standing. Credit risk on accounts
receivable is minimized as a result of the large and diverse nature of the
Company's worldwide customer base. The Company performs ongoing credit
evaluations of its customers' financial condition and maintains allowances for
potential credit losses.
REVENUE RECOGNITION--The Company records revenues for communications,
data processing, and management services when the services are provided. Such
services are provided under client contracts which generally have a term of 1
to 3 years. Amounts for services billed in advance of the service period and
cash received in advance of revenues earned are recorded as advance billings
and recognized as revenue when earned. Approximately 14%, 8% and 0% of revenues
for fiscal year 1997, 1998 and 1999, respectively, is derived from long-term
fixed priced contracts with various U.S. government agencies. These long-term
contracts are accounted for utilizing the percentage of completion method of
accounting (cost-to-cost and output methods). An allowance for customer credits
is accrued concurrently with the recognition of revenue.
DEPRECIATION AND AMORTIZATION--The cost of property, equipment and
communication lines, less applicable estimated residual values, is depreciated
over their useful lives, on the straight-line method, from the date the
specific asset is complete, installed, and ready for normal use, as follows:
<TABLE>
<S> <C>
Communication, computer and re-
lated equipment.................. 3 to 5 years
Communication lines............... 10 years
Buildings......................... 40 years
Leasehold improvements............ Shorter of lease term or useful lives
Furniture and other equipment..... 5 to 10 years
</TABLE>
GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill arising from the
acquisition of businesses is amortized on a straight-line basis over a period
of 20 years. Intangible assets include customer base and trademarks, which are
amortized over 10 years on a straight-line basis.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company evaluates long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may no longer be recoverable. If the estimated
future cash flows (undiscounted and without interest charges) from the use of
an asset are less than the carrying value, a write-down would be recorded to
reduce the related asset to its estimated fair value. During fiscal 1998, the
Company recorded an impairment charge on certain equipment in the amount of
$5.2 million, in view of its technological obsolescence.
INCOME TAXES--Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income tax bases
of assets and liabilities. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates applicable to periods in
which the differences are expected to reverse. If necessary, a valuation
allowance is established to reduce deferred income tax assets to the amount
expected to be realized. U.S. income taxes have not been provided for the
undistributed earnings of the Company's foreign subsidiaries, since such
earnings are intended to be permanently reinvested in the operations of those
subsidiaries. At March 31, 1999 the cumulative undistributed earnings of the
Company's foreign subsidiaries was approximately $17,154,000 and unrecognized
deferred taxes were not material.
F-8
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
FOREIGN CURRENCY TRANSLATION--For foreign operations, the balance sheet
accounts are translated at the year-end exchange rate, and income statement
items are translated at the average exchange rate for the year. Resulting
translation adjustments are recorded as a separate component of other
comprehensive income. Assets and liabilities denominated in foreign currencies
are remeasured at the balance sheet date. Resulting exchange rate gains or
losses are included as a component of current period earnings. Exchange gains
and losses are not material in amount in any period.
NEW ACCOUNTING PRONOUNCEMENTS--The Financial Accounting Standards Board
("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes new standards for reporting derivative and hedging information.
SFAS 133 is effective for periods beginning after June 15, 2000. Management has
not completed its assessment of the impact of the adoption of SFAS No. 133 on
the Company's financial position or results of operations.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform to current year presentation.
3. SHORT-TERM INVESTMENTS
Short-term investments consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- ------
<S> <C> <C>
U.S. government securities............................... $ 1,097 $ --
Corporate debt instruments............................... 17,436 8,196
------- ------
$18,533 $8,196
======= ======
</TABLE>
Unrealized gains (losses) of $2,000, $(10,000) and $16,000 for the years
ended March 31, 1997, 1998 and 1999, respectively, are included in other
comprehensive income in the accompanying consolidated financial statements.
4. INCOME TAXES
The provision for (benefit from) income taxes is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal........................................ $ 4,018 $ 1,365 $ 4,424
State.......................................... 796 920 1,201
Foreign........................................ 2,653 1,633 2,552
------- ------- -------
7,467 3,918 8,177
------- ------- -------
Deferred:
Federal........................................ (6,656) (180) (6,023)
State.......................................... (986) (619) (1,516)
------- ------- -------
(7,642) (799) (7,539)
------- ------- -------
$ (175) $ 3,119 $ 638
======= ======= =======
</TABLE>
F-9
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
The components of income (loss) before income taxes and minority
interest are (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Federal......................................... $(8,229) $(2,648) $(2,493)
Foreign......................................... 573 190 7,938
------- ------- -------
$(7,656) $(2,458) $ 5,445
======= ======= =======
</TABLE>
The following table reconciles the difference between the U.S. federal
statutory tax rate and the rates used by the Company in the determination of
net income (loss) (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Provision for income taxes, at 34%............... $(2,603) $ (836) $ 1,851
State taxes, net of federal effect............... (125) 198 (208)
Difference in U.S. federal and foreign tax rates,
net............................................. 581 188 282
Effect of foreign losses......................... 1,729 1,283 --
Valuation allowance.............................. -- 1,617 (1,617)
Non-deductable expense items..................... 251 269 233
Other............................................ (8) 400 97
------- ------ -------
$ (175) $3,119 $ 638
======= ====== =======
</TABLE>
The principal components of deferred tax assets and (liabilities) are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Differences between book and tax bases of prop-
erty........................................... $(2,543) $ 601 $ 6,155
Compensation and benefit accruals............... 2,839 4,159 5,933
Billings in excess of revenues.................. 2,563 3,346 3,953
Net operating loss benefit...................... 2,656 1,617 --
Alternative minimum tax credit carryforward..... 662 459 --
Accrued contract costs.......................... 1,532 -- --
Other........................................... 383 326 389
------- ------- -------
8,092 10,508 16,430
Valuation allowance............................. -- (1,617) --
------- ------- -------
$ 8,092 $ 8,891 $16,430
======= ======= =======
</TABLE>
Although realization is not assured, management believes that it is more
likely than not that all deferred income tax assets at March 31, 1999 will be
realized. If, however, estimates of future taxable income were to materially
decline, the carrying value of deferred income tax assets could be reduced.
F-10
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
5. COMMITMENTS AND CONTINGENCIES
LEASES--Minimum fixed payments required for the next five years and
thereafter under capital and operating leases in effect at March 31, 1999 are
as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES
CAPITAL -----------------
LEASES REAL
EQUIPMENT ESTATE EQUIPMENT
--------- ------- ---------
<S> <C> <C> <C>
2000............................................ $ 2,027 $ 3,500 $4,467
2001............................................ 1,932 2,210 2,955
2002............................................ 1,604 1,478 2,204
2003............................................ 1,604 1,046 185
2004............................................ 981 949 34
2005 and thereafter............................. -- 1,604 30
------- ------- ------
8,148 $10,787 $9,875
======= ======
Imputed interest................................ (1,226)
-------
Present value of net minimum lease payments..... $ 6,922
=======
</TABLE>
Rental expense under noncancelable operating leases for the use of real
estate and equipment amounted to approximately $8,480,000, $8,800,000 and
$8,886,000 in 1997, 1998 and 1999, respectively.
The Company leases certain communication lines and related bandwidth for
its backbone network under short-term arrangements which are cancelable by
either party.
Capital leases pertain to amounts due under leases for the use of
communications and related equipment. The net book value at March 31, 1998 and
1999 of the related assets included in property, equipment and communication
lines was $219,000 and $6,733,000, respectively.
During November 1999, the Company's existing headquarters facility lease
with Computer Sciences Corporation will expire and the Company is currently
continuing to lease the facility on a month-to-month basis. The Company has
entered into a 12-year lease agreement for a new facility, which will commence
upon completion of construction. The expected date of the relocation to the new
facility is November 1999. The minimum lease payments disclosure above does not
reflect the new facility lease because the rent has not yet been determined.
However, the annual base rent is expected to approximate $3.0 million with
increases every 30 months. The first increase will be 7%, with additional
increases based on a formula using the Consumer Price Index. The terms of the
lease agreement require the Company to maintain certain financial covenants.
Additionally, the lease agreement includes an option to purchase the building
within 90 days of the commencement of the lease. The Company has not determined
whether it will exercise that option.
LITIGATION--During the normal course of business, the Company may be
subject to litigation involving various business matters. Management believes
that an adverse outcome of any such known matters would not have a material
adverse impact on the Company.
F-11
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
6. PROPERTY, EQUIPMENT AND COMMUNICATION LINES
Property, equipment and communication lines consist of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Communication, computer and related equipment........... $ 96,575 $114,922
Communication lines..................................... -- 9,811
Land, buildings and leasehold improvements.............. 9,927 10,272
Furniture and other equipment........................... 5,621 6,239
-------- --------
112,123 141,244
Less accumulated depreciation and amortization.......... 78,540 90,111
-------- --------
Net property, equipment and communication lines......... $ 33,583 $ 51,133
======== ========
</TABLE>
7. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
SERP minimum pension liability (see Note 9)............... $ 3,232 $ 3,014
SERP assets (see Note 9).................................. 4,654 6,884
IDIP assets (see Note 9).................................. 8,829 9,813
Deferred income taxes..................................... 2,702 11,043
Unconsolidated investments in affiliates.................. 621 863
Other..................................................... 990 3,390
------- -------
$21,028 $35,007
======= =======
</TABLE>
8. LONG-TERM OBLIGATIONS
The Company has a $10.0 million credit agreement (the "Credit Agreement")
with a bank, expiring in July 1999, under which no borrowings were outstanding
as of March 31, 1998 or 1999. Borrowings under the Credit Agreement bear
interest, at the Company's option, at either the prime rate or London Interbank
Offering Rate ("LIBOR") plus 1.25%. The terms of the Credit Agreement contain,
among other provisions, requirements for maintaining defined levels of
profitability, tangible net worth, and various financial ratios. The amount of
credit available under the Credit Agreement is reduced by the amount of
outstanding letters of credit, which totaled $2.5 million at March 31, 1999.
Thus, total available credit under the line was $7.5 million at March 31, 1999.
In December 1998, the Company obtained a $9.5 million note payable with
the same bank. This five-year note accrues interest at a fixed rate of 7.36%
and is collateralized by the leased communication lines.
Maturities of long-term debt for the next five years are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED:
<S> <C>
2000........................................................... $1,662
2001........................................................... 1,789
2002........................................................... 1,925
2003........................................................... 2,071
2004........................................................... 1,468
------
Total........................................................... 8,915
Less current portion............................................ (1,662)
------
$7,253
======
</TABLE>
F-12
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
9. EMPLOYEE BENEFIT PLANS
PENSIONS--The Infonet Pension Plan (the "Plan") is a contributory defined
benefit pension plan in which substantially all domestic employees are eligible
to participate. The benefits for the Plan are based on years of participation
and the employee's compensation over the entire period of participation in the
Plan. In addition, the Company has a Supplemental Executive Retirement Plan
(the "SERP"), which is a nonqualified, noncontributory pension plan. The SERP
is a defined benefit retirement plan for designated key officers and executives
and provides for benefits based on years of service, age of participant, and
the participant's average compensation during his or her final period of
employment under the SERP.
The following tables provide a reconciliation of the changes in the
plans' benefit obligations and fair value of assets over the two years, and a
statement of the funded status as of each year-end (dollars in thousands):
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------ ----------------
1998 1999 1998 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
year.............................. $ 15,784 $ 20,135 $ 690 $ 578
Service cost....................... 835 1,007 -- --
Interest cost...................... 1,199 1,398 51 40
Plan participants' contributions... 494 487 -- --
Amendments......................... 1,309 -- -- --
Actuarial (gain) loss.............. 962 2,418 (140) (37)
Benefits paid...................... (448) (628) (23) (26)
-------- -------- ------- -------
Benefits obligation at end of
year.............................. 20,135 24,817 578 555
-------- -------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at begin-
ning of year...................... 10,689 12,250
Actual return on plan assets....... 1,515 2,009
Plan particpants' contributions.... 494 487
Benefits paid...................... (448) (628)
-------- -------- ------- -------
Fair value of plan assets at end of
year.............................. 12,250 14,118
-------- -------- ------- -------
Funded status...................... (7,885) (10,699) (578) (555)
Unrecognized net actuarial loss
(gain)............................ 806 2,219 (853) (836)
Unrecognized prior service cost.... 3,514 3,035 1,089 1,025
-------- -------- ------- -------
Net amount recognized.............. $ (3,565) $ (5,445) $ (342) $ (366)
======== ======== ======= =======
Amounts recognized in the statement
of financial position consist of:
Accrued benefit liability......... $ (6,797) $ (8,689) $ (578) $ (555)
Intangible asset.................. 3,232 3,014 236 189
Accumulated other comprehensive
income........................... -- 230 -- --
-------- -------- ------- -------
Net amount recognized.............. $ (3,565) $ (5,445) $ (342) $ (366)
======== ======== ======= =======
Weighted-average assumptions as of
year-end:
Discount rate..................... 7.00% 6.50% 7.00% 6.50%
Expected return on plan assets.... 9.00% 9.00% N/A N/A
Rate of compensation increase..... 5.43% 4.93% N/A N/A
</TABLE>
F-13
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
The rate of compensation increase shown is for the qualified pension
plan. For the nonqualified pension plan, compensation is assumed to increase at
a 4% annual rate.
For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered health care benefits was assumed in 1999. The rate was assumed
to decrease gradually to 5% for 2002 and remain at that level thereafter.
Net periodic benefit cost for pension plans include the following
components (in thousands):
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------------ ---------------------
1997 1998 1999 1997 1998 1999
------ ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 822 $ 835 $ 1,007 $ -- $ -- $ --
Interest cost........... 984 1,199 1,398 90 51 40
Expected return on plan
assets................. (866) (1,023) (1,108) -- -- --
Amortization of prior
service cost........... 327 356 478 64 64 64
Recognized actuarial
(gain)loss............. -- (27) 103 -- (45) (54)
------ ------- ------- ------ ------ ------
Net periodic benefit
cost................... $1,267 $ 1,340 $ 1,878 $ 154 $ 70 $ 50
====== ======= ======= ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plan with accumulated benefit
obligations in excess of plan assets were $5,338, $3,451 and $0, respectively
as of March 31, 1997, $7,549, $5,824, and $0, respectively, as of March 31,
1998 and $10,077, $7,251, and $0, respectively as of March 31, 1999 (all
figures are in thousands).
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total service and interest cost compo-
nents.......................................... $ 2 $ (2)
Effect on postretirement benefit obligation..... $22 $(24)
</TABLE>
At March 31, 1998 and 1999, the Company earmarked a total of $4.7 million
and $6.9 million, respectively, and placed these amounts in a rabbi trust to
satisfy future SERP liabilities. These assets are accounted for as "held to
maturity" and included in other assets in the accompanying consolidated
financial statements.
Employees outside the United States are generally enrolled in pension
plans in the country of domicile. These plans are not considered to be
significant individually or in the aggregate to the Company's financial
statements. The pension liabilities and their related costs are computed in
accordance with the laws of the individual countries and appropriate actuarial
practices.
10. STOCK INCENTIVE AND DEFERRED COMPENSATION PLANS
During 1999, the Company's Board of Directors adopted the 1998 Employee
Stock Purchase Plan (the "Purchase Plan"), 1998 Stock Appreciation Rights Plan
(the "SARs Plan"), and 1998 Stock Option Plan (the "Option Plan"). The Company
has elected to account for stock-based compensation in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages a fair value-based method of accounting for stock-
based compensation. As permitted by SFAS No. 123, the Company adopted its
disclosure-only requirements.
F-14
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
Under the Purchase Plan, the Company is authorized to issue up to 600
shares of its newly authorized Class C common stock, $0.01 par value ("Class C
Stock") to 35 participants designated by the Committee which administers the
Purchase Plan. The Purchase Plan is a book value plan whereby participants may
purchase shares of the Company's stock at book value at the date of grant, as
calculated in accordance with the Purchase Plan. The Purchase Plan provides
that book value is determined using a formula based on a multiple of the
Company's consolidated revenue. The Purchase Plan also provides that the
Company has a call right to repurchase the shares from stockholders under the
Purchase Plan who leave the Company's employ, or on or after March 15, 2003,
provided that the stock is not publicly traded. The stockholders under the
Purchase Plan also have a right to put the shares purchased under the Purchase
Plan to the Company, which then has to repurchase the shares at its book value
as of that date, provided that the stock is not publicly traded. During 1999,
the Company granted purchase rights with respect to approximately 318 shares at
$25,000 per share.
Pursuant to the Company's SARs Plan, the maximum number of SARs that may
be offered is 50. The stock referred to in the SARs Plan is the newly
authorized Class C Stock. The SARs vest at 25% per year over four years with
the first quartile vesting on January 1, 2001. The SARs Plan terminates October
20, 2004 or earlier if certain conditions of the SARs Plan have been fully met.
During fiscal 1999, the Company granted approximately 40 SARs which are indexed
to the Company's Class C common stock at a base price of $25,000 per share.
Under the Option Plan, the Company is authorized to issue options to
purchase up to 300 shares of its Class C Stock. Options granted under the
Option Plan vest ratably over five years. All options must be exercised within
ten years from the date of original grant. The Option Plan is a book value plan
whereby participants are granted options to purchase shares of the Company's
stock at book value, as determined at the date of grant and as calculated in
accordance with the Option Plan. The Option Plan provides that book value is
determined using a formula based on a multiple of the Company's consolidated
revenue. The Option Plan also provides that the Company has a call right to
repurchase the shares from stockholders under the Option Plan who leave the
Company's employ, or on or after March 15, 2003, provided that the stock is not
publicly traded. The stockholders under the Option Plan also have a right to
put the shares purchased under the Option Plan to the Company, which then has
to repurchase the shares at its book value as of that date, provided that the
stock is not publicly traded. During 1999, no options were granted.
The Company has a nonqualified deferred income plan (the "IDIP") for
employees earning over a prescribed amount. Participants may defer receipt of
compensation, which is held by the Company in trust and is invested in
accordance with the participants' directions. As of March 31, 1998 and 1999,
the trust assets held by the Company aggregated $8,829,000 and $9,813,000,
respectively; the vested portion of trust assets aggregated $6,875,000 and
$8,528,000, respectively. These assets are accounted for as trading securities
and included in other assets in the accompanying financial statements.
In 1995, the Company created an agreement with the participants of the
Infonet Phantom Stock Option Plan (the "Phantom Stock Plan") whereby the
participants could elect either a cash or deferral option for the vested value
of grants under the Phantom Stock Plan at the end of 1994, effectively
terminating the Phantom Stock Plan. Participants who elected the deferral
option are eligible to receive additional amounts through 1999, based on the
Company's achieving revenue and profit goals and the individuals' continued
employment. Under this arrangement, the expense in 1997, 1998 and 1999 was
$900,000, $803,000 and $830,000, respectively. Participants can elect to have
their annual vested portion contributed to their individual account as part of
the IDIP.
F-15
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
11. STOCKHOLDERS' EQUITY
During 1999, the Company amended its Certificate of Incorporation to
establish a third class of common stock. As of March 31, 1999, the Company has
three classes of common stock as follows:
<TABLE>
<CAPTION>
SHARES SHARES SHARES
AUTHORIZED ISSUED OUTSTANDING
---------- ------ -----------
<S> <C> <C> <C>
Class A, net of 6,781 shares of treasury
stock...................................... 12,500 12,500 5,719
Class B..................................... 12,500 6,781 6,781
Class C..................................... 10,000 -- --
------ ------
19,281 12,500
====== ======
</TABLE>
Class A shares have voting rights. Class B shares are identical in
rights and privileges to Class A, except that Class B does not have voting
rights. Class C shares are identical in rights and privileges to Class B,
except that upon the closing of an underwritten initial public offering, as
defined, each outstanding share of Class C common stock shall automatically
convert into one share of the class of common stock registered in connection
with the initial public offering.
12. RELATED-PARTY TRANSACTIONS
Related parties consist of non-consolidated country representative
organizations in which the Company holds less than a fifty percent ownership
interest and country representative organizations owned directly or indirectly
by the Company's stockholders, and the Company's stockholders.
Related party transactions for the years ended March 31 comprise the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues, net........................................ $39,512 $62,594 $88,278
Country representative compensation.................. 19,322 29,261 40,031
Bandwidth and related costs.......................... 7,166 7,347 9,002
Selling, general and administrative.................. 7,856 8,553 9,181
</TABLE>
Related party balances as of March 31 comprise the following (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Accounts receivable......................................... $10,506 $14,442
Accounts payable............................................ 615 908
Network communications...................................... 1,053 531
</TABLE>
13. ACQUISITIONS AND DIVESTITURES
On January 3, 1997 the Company acquired 95% of the capital stock of
Interpac Belgium S.A. The purchase price was approximately $3,120,000 and the
resulting goodwill recorded was approximately $103,000. Prior to this date the
Company owned a 5% interest in Interpac Belgium S.A. which was accounted for
on the cost basis. In March 1997 the Company acquired an additional 36%
interest in its Luxembourg subsidiary for $330,000 bringing its ownership to
51%.
These acquisitions were accounted for under the purchase method. The
excess of the purchase cost of the acquisitions over the fair value of the net
assets acquired was recorded as goodwill which is being amortized on a
straight-line basis over 20 years.
F-16
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
During fiscal 1997 the Company sold its remaining interest in a foreign
affiliate for a pretax gain of $1,030,000 and Interpac Belgium sold its
Internet business to one of its former shareholders for a net pretax gain of
$2,700,000. These pretax gains are recorded in other income in the statement of
operations and comprehensive income (loss).
In October 1997, the Company sold the net assets of its subsidiary,
Government Systems, Inc. ("GSI"), to a third party for $21.0 million in cash
and received $5.5 million as a working capital adjustment to pay down GSI loans
prior to transfer of the net assets sold. The sale resulted in a pretax gain of
$3.7 million, which is recorded in other income in the statement of operations
and comprehensive income (loss). GSI's results from operations included in the
1998 consolidated statements of operations and comprehensive income (loss) were
revenues of $32.5 million and income before income taxes of $4.0 million.
Additionally, the Company sold its government accounts to the same third party
and entered into an agreement allowing the third party to operate as a country
representative for a total of $7.0 million in cash.
14. EARNINGS PER SHARE
As of March 31, 1997 and 1998, there were no forms of potential common
stock issued by the Company. The Company's outstanding purchase rights
represent the only form of potential common stock at March 31, 1999. All of
these potential common shares were excluded from the computation of diluted
earnings per share ("EPS") because their inclusion would have had an
antidilutive effect on EPS.
Unaudited: As of June 30, 1998, there were no forms of potential common
stock issued by the Company. The Company's outstanding stock options represent
the only form of potential common stock at June 30, 1999. All of these
potential common shares were excluded from the computation of diluted EPS
because their inclusion would have been antidilutive.
15. SEGMENT INFORMATION
The Company conducts business in two operating segments: country
representatives or Direct Sales Channels ("Direct") and Alternate Sales
Channels ("Alternate"). Both these segments generate revenues from providing
customers with a complete global networking solution.
The Company has organized its operating segments around differences in
distribution channels used to deliver its services to customers. These segments
are managed and evaluated separately because each segment possesses different
economic characteristics requiring different marketing strategies.
The accounting policies adopted for each segment are the same as those
described in the summary of significant accounting policies. The Company's
management evaluates performance based on operating contribution, where segment
revenues are reduced by those costs that are allocable to the segments. Costs
relating to operating the Company's core network, and non-allocable general,
administrative, marketing and overhead costs, including income tax expense, are
not charged to the segments. Accordingly, neither assets related to the core
network, nor their associated depreciation expense are allocated to the
segments.
The Company accounts for intersegment transactions on the same terms and
conditions as if the transactions were with third parties.
F-17
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
Summarized financial information concerning the Company's reportable
segments is shown in the following table (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
-------------------------- ---------------
1997 1998 1999 1998 1999
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REPORTABLE SEGMENTS
- -------------------
Revenues from external customers:
Direct............................ $258,187 $279,844 $273,150 $63,342 $76,514
Alternate......................... 6,497 14,400 29,847 5,662 9,192
-------- -------- -------- ------- -------
Totals.......................... $264,684 $294,244 $302,997 $69,004 $85,706
======== ======== ======== ======= =======
Operating Contribution:
Direct............................ $ 93,781 $105,171 $ 97,350 $21,608 $27,777
Alternate......................... 2,316 7,621 16,975 3,280 5,333
-------- -------- -------- ------- -------
Totals.......................... $ 96,097 $112,792 $114,325 $24,888 $33,110
======== ======== ======== ======= =======
Depreciation and amortization of:
Direct............................ $ 4,309 $ 4,039 $ 5,163 $ 1,255 $ 1,718
Alternate......................... 4 5 36 1 1
-------- -------- -------- ------- -------
Totals.......................... $ 4,313 $ 4,044 $ 5,199 $ 1,256 $ 1,719
======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------- ------------------
1997 1998 1999 1998 1999
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
RECONCILIATION
- --------------
Operating contribution
from reportable seg-
ments.................. $ 96,097 $ 112,792 $ 114,325 $ 24,888 $ 33,110
Core network, overhead
and other non-allocable
costs.................. (103,753) (115,250) (108,880) (26,677) (33,586)
--------- --------- --------- -------- --------
Income (loss) before in-
come taxes and minority
interest............... $ (7,656) $ (2,458) $ 5,445 $ (1,789) $ (476)
========= ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
-------------------------- ---------------
1997 1998 1999 1998 1999
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
GEOGRAPHIC INFORMATION
- ----------------------
Revenues from external customers
based upon the country in which
invoices are produced are as fol-
lows:
United States.................... $135,460 $129,822 $103,190 $23,355 $29,270
Netherlands...................... 8,449 20,091 34,944 7,495 10,146
Germany.......................... 14,735 17,742 23,438 5,000 6,911
United Kingdom................... 11,488 12,604 19,682 4,221 6,232
Other............................ 94,552 113,985 121,743 28,933 33,147
-------- -------- -------- ------- -------
$264,684 $294,244 $302,997 $69,004 $85,706
======== ======== ======== ======= =======
</TABLE>
F-18
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
-------------------------- ----------------
1997 1998 1999 1998 1999
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
GEOGRAPHIC INFORMATION
- ----------------------
Long-lived assets:
United States.................... $ 46,048 $ 26,560 $ 43,256 $25,423 $ 93,830
United Kingdom................... 2,269 2,604 2,862 2,534 2,823
Other............................ 3,537 4,419 5,015 4,548 4,976
-------- -------- -------- ------- --------
$ 51,854 $ 33,583 $ 51,133 $32,505 $101,629
======== ======== ======== ======= ========
<CAPTION>
<S> <C> <C> <C> <C> <C>
SERVICES INFORMATION
- --------------------
Revenues from external customers:
Network services................. $ 66,153 $100,337 $144,642 $32,240 $ 45,599
Consulting, integration and pro-
visioning services.............. 48,264 58,637 78,777 17,178 25,681
Applications services............ 16,604 22,433 20,068 5,394 4,291
Other communications services.... 87,897 72,769 59,510 14,192 10,135
Government services.............. 45,766 40,068 -- -- --
-------- -------- -------- ------- --------
$264,684 $294,244 $302,997 $69,004 $ 85,706
======== ======== ======== ======= ========
</TABLE>
16. SUBSEQUENT EVENTS
During April 1999, approximately 316 of the approximately 318 rights to
purchase shares of Class C Stock granted under the Purchase Plan were exercised
by employees and the remaining rights expired unexercised. Of the total shares
issued, approximately 314 shares were purchased with full recourse notes in the
amount of $7,856,000, by the employees to the Company. Approximately 2 shares
issued were purchased with cash. The notes bear interest at 5% per year and are
payable on January 1, 2002 (the "Maturity Date"); provided however, that if the
shares of common stock, or a class of securities into which such shares are
convertible, are sold in an IPO after January 1, 2000, but before the Maturity
Date, the Maturity Date shall be extended by the period of time, if any,
between January 1, 2000 and the date of such IPO. During April 1999, the
Company granted options to acquire 124 shares of Class C Stock with an exercise
price of $25,000 per share. These options vest ratably over five years.
In May 1999, the Company obtained a $50.0 million bridge loan facility
(the "Bridge Loan") from Merrill Lynch. The Bridge Loan bears interest at LIBOR
plus 2.5% and expires in November 1999. The Company used a portion of the
proceeds from the Bridge Loan to repay the existing $10.0 million line of
credit.
UNAUDITED
Subsequent to June 14, 1999, the Company amended the SARs Plan by
eliminating the limit on the maximum number of SARs that may be offered and the
termination date of October 20, 2004. The Company also issued approximately 13
additional SARs under the SARs Plan which are indexed to the Company's Class C
common stock at a base price of $25,000 per share. As of June 30, 1999, there
were approximately 53 SARs outstanding.
During June 1999, the Company entered into an agreement for the long-term
right of use of capacity in a fiberoptic submarine cable system (the "Right of
Use"). The Right of Use acquired by the Company is comprised of three units of
capacity at a total commitment of $45.0 million. The first unit of capacity was
F-19
<PAGE>
INFONET SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1997, 1998 AND 1999
activated in June 1999 for a payment of $18.0 million. The second installment
of $12.0 million is due on the earlier of the activation of the second unit of
capacity or June 30, 2000. The third installment of $15.0 million is due on the
earlier of the activation of the third unit of capacity or June 30, 2000. The
Company intends to refinance the second and third installment obligations
through drawdowns on the Senior Secured Credit Facility described below. The
Company has the right to have the capacity activated at any time after the date
of the agreement and has the right to use the capacity to the end of the cable
system's design life which is expected to occur in 2022. The Right of Use was
recorded as communication lines.
On August 17, 1999, the Company entered into a new credit agreement (the
"New Credit Agreement") with a syndicate of lenders to provide credit
facilities to the Company in an aggregate amount of $250.0 million (the "Senior
Secured Credit Facility"). The Senior Secured Credit Facility consists of two
term loan borrowing facilities, in the amount of $100.0 million (the "Delayed
Draw Term Loan") and $50.0 million (the "Tranche B Term Loan"), respectively,
and a revolving credit borrowing facility in the amount of $100.0 million (the
"Revolving Credit Facility"). The Tranche B Term Loan was used to pay down in
full all amounts outstanding on August 20, 1999 under the Bridge Loan and the
$9.5 million note payable. The Tranche B Term Loan bears interest, at the
Company's option, at the Base Rate, as defined below, plus 1.75% or the
eurodollar rate plus 2.75%, and matures in 28 consecutive unequal quarterly
installments, commencing on September 30, 1999. The Delayed Draw Term Loan is
accessible until August 20, 2000, bears interest, at the Company's option, at
the Base Rate, as defined below, plus 1.50% or the eurodollar rate plus 2.50%,
and matures in 20 consecutive unequal quarterly installments, commencing on
September 30, 2001. The Revolving Credit Facility is accessible until August
20, 2005, bears interest, at the Company's option, at the Base Rate, as defined
below, plus 1.50% or the eurodollar rate plus 2.50% (which margin will vary
after February 20, 2000, depending on the Company's leverage ratio), and
matures on August 17, 2005. The Company is also required, by February 17, 2000,
to enter into hedge agreements to provide that at least 50% of the outstanding
term loans are subject to either a fixed interest rate or interest rate
protection for a period acceptable to the administrative agent.
The Base Rate is defined as the greatest of the Prime Rate, the Base CD
Rate plus 1.00% and the Federal Funds Effective Rate plus 0.50% in effect on a
given day. The loans under the Senior Secured Credit Facility are secured by
substantially all of the domestic tangible assets and all intangible assets of
the Company and its domestic subsidiaries, excluding certain specific assets
identified in the New Credit Agreement. Under the terms of the Senior Secured
Credit Facility the Company is required to maintain certain financial ratios
and other financial conditions, and there are restrictions imposed on certain
transactions of the Company. The Senior Secured Credit Facility also provides
for letters of credit to be available to the Company. Furthermore, the New
Credit Agreement requires the Company to pay commitment fees of between 0.50%
and 1.00% per year calculated quarterly on the average daily amount of
available credit, dependent on the amount of the aggregate principle amounts
outstanding under the Senior Secured Credit Facility. These commitment fees are
payable quarterly in arrears.
On September 30, 1999, the Company entered into agreements with three of
its stockholders and affiliates of these stockholders which, among other
things, give the Company access to additional multinational corporate clients
currently served by the affiliates of the stockholders. In consideration of the
execution of these agreements and the receipt of $40.0 million of cash, the
Company issued 1,600 shares of the Class B common stock to these stockholders.
F-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[ ] SHARES
[LOGO APPEARS HERE]
CLASS B COMMON STOCK
-----------------
PROSPECTUS
-----------------
JOINT GLOBAL COORDINATORS
MERRILL LYNCH & CO.
WARBURG DILLON READ LLC
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
the Class B common stock being registered. All amounts are estimates except the
SEC registration fee, the NASD filing fee and The New York Stock Exchange
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
SEC Registration Fee............................................. $278,000
NASD Filing Fee.................................................. 30,500
New York Stock Exchange Listing Fee..............................
Frankfurt Stock Exchange Listing Fee.............................
Legal Fees and Expenses..........................................
Accounting Fees and Expenses.....................................
Printing and Engraving...........................................
Blue Sky Fees and Expenses (including Legal Fees)................ 5,000
Transfer Agent Fees..............................................
Miscellaneous....................................................
--------
Total..........................................................
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation in
effect as of the date hereof, and the Registrant's Second Amended and Restated
Certificate of Incorporation to be in effect upon the closing of this offering
(collectively, the "Certificate") provides that, except to the extent
prohibited by the Delaware General Corporation Law, as amended (the "DGCL"),
the Registrant's directors shall not be personally liable to the Registrant or
its stockholders for monetary damages for any breach of fiduciary duty as
directors of the Registrant. Under the DGCL, the directors have a fiduciary
duty to the Registrant which is not eliminated by this provision of the
Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the DGCL
for breach of the director's duty of loyalty to the Registrant, for acts or
omissions which are found by a court of competent jurisdiction to be not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by the DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws. The Registrant has applied for liability
insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that the
Registrant may fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative)
by reason of the fact that such person is
II-1
<PAGE>
or was a director or officer of the Registrant, or is or was serving at the
request of the Registrant as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
Item 15. Recent Sales of Unregistered Securities
Pursuant to Rule 701 of the Act, in April 1999, we sold 315.87 shares of
our Class C common stock to our key employees pursuant to our 1998 Stock
Purchase Plan. In accordance with the provisions of the Stock Purchase Plan,
some employees purchased their shares for cash and other employees received
their shares in exchange for a secured, recourse promissory note held by us.
Part of the security for the promissory notes are the shares sold to each
purchaser. Each share was sold for $25,000, which price was set by the pricing
formula at the time of the sales. Immediately prior to the closing of this
offering, our Class C common stock will be converted to Class B common stock.
During the three months ended September 30, 1999, in exchange for the
right to market our services to their clients and $40.0 million in cash, we
issued an aggregate of 1,600 shares of our Class B common stock to KPN,
Swisscom and Telia in reliance on Rule 506 of Regulation D under the Act.
In reliance on Rule 506 of Regulation D of the Act, in November 1996, we
sold an aggregate of 967.13 shares of our Class B common stock to KDD, KPN,
Swisscom, Telefonica and Telia for approximately $19.0 million. Part of the
proceeds of the sale were used to repurchase our Class A common stock from
Belgacom S.A. As a result of this transaction, Belgacom was no longer one of
our stockholders.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Purchase Agreement*
3.1 Form of Restated Certificate of Incorporation to be in effect upon the
closing of this offering*
3.2 Form of Amended and Restated Bylaws to be in effect upon the closing of
this offering*
4.1 Specimen Common Stock certificate*
5.1 Opinion of Latham & Watkins*
9.1 Form of Amended and Restated Stockholders Agreement to be in effect
upon the closing of this offering*
10.1 1998 Stock Option Plan
10.2 1998 Stock Purchase Plan
10.3 1999 Stock Option Plan*
10.4 Infonet Deferred Income Plan
10.5 1998 Stock Appreciation Rights Plan
10.6 Supplemental Executive Retirement Plan*
10.7 Senior Secured Credit Agreement, dated as of August 17, 1999
10.8 Severance Agreement of Jose A. Collazo*
10.9 Severance Agreement of Dr. Ernest U. Gambaro*
10.10 Standard Infonet Services Agreement
10.11 Capacity Right of Use Agreement with FLAG Limited dated as of June 25,
1999+
10.12 AUCS Services Agreement, dated as of September 30, 1999
10.13 AUCS Call Option Deed, dated as of September 30, 1999
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.14 AUCS Management Agreement, dated as of September 30, 1999
10.15 AUCS Assignment Agreement, dated as of September 30, 1999
10.16 Lease for Grand Avenue Corporate Center at 2160 Grand Avenue, El Segundo
California*
21.1 List of Subsidiaries
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Latham & Watkins (included in Exhibit 5.1)*
24.1 Powers of Attorney (See Signature Page on Page II-6)
27.1 Financial Data Schedule
99.1 Schedule II-Valuation and Qualifying Accounts
</TABLE>
- --------
* To be supplied by amendment.
+ Confidential treatment will be requested with respect to certain portions
of this exhibit. Omitted portions will be filed separately with the SEC.
(b) Financial Statement Schedules.
Schedule II-Valuation and Qualifying Accounts, filed as Exhibit 99.1.
All other schedules are omitted because they are not required, are not
applicable or the information is included in our financial statements or the
related notes to those financial statements.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Purchase Agreement, certificates in
such denominations and registered in such names as required by the Underwriter
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424
(b)(1) or (4), or 497(h) under the Act, shall be deemed to be part
of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of El Segundo, State of California, on
this twelfth day of October, 1999.
INFONET SERVICES CORPORATION
/s/ Jose A. Collazo
By: _________________________________
Jose A. Collazo
President and Chairman of the
Board of Directors
Power of Attorney
Each person whose signature appears below constitutes and appoints Jose
A. Collazo and Akbar H. Firdosy, and each of them individually, as attorney-in-
fact, with the power of substitution, for him or her in any and all capacities,
to sign any amendment to this Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 of the Act
and otherwise), and to file the same, with exhibits thereto and other documents
in connection therewith, with the SEC, granting to said attorneys-in-fact, and
each of them individually, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact or each of them
individually, or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons on October 12, 1999, in the capacities
indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Jose A. Collazo President and Chairman of the
____________________________________ Board of Directors (Principal
Jose A. Collazo Executive Officer)
/s/ Akbar H. Firdosy Chief Financial Officer
____________________________________ (Principal Financial and
Akbar H. Firdosy Accounting Officer)
/s/ Douglas Campbell Director
____________________________________
Douglas Campbell
/s/ Eric M. de Jong Director
____________________________________
Eric M. de Jong
/s/ Morgan Ekberg Director
____________________________________
Morgan Ekberg
/s/ Masao Kojima Director
____________________________________
Masao Kojima
/s/ Joseph Nancoz Director
____________________________________
Joseph Nancoz
/s/ Rafael Sagrario Director
____________________________________
Rafael Sagrario
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Purchase Agreement*
3.1 Form of Restated Certificate of Incorporation to be in effect upon the
closing of this offering*
3.2 Form of Amended and Restated Bylaws to be in effect upon the closing of
this offering*
4.1 Specimen Common Stock certificate*
5.1 Opinion of Latham & Watkins*
9.1 Form of Amended and Restated Stockholders Agreement to be in effect
upon the closing of this offering*
10.1 1998 Stock Option Plan
10.2 1998 Stock Purchase Plan
10.3 1999 Stock Option Plan*
10.4 Infonet Deferred Income Plan
10.5 1998 Stock Appreciation Rights Plan
10.6 Supplemental Executive Retirement Plan*
10.7 Senior Secured Credit Agreement, dated as of August 17, 1999
10.8 Severance Agreement of Jose A. Collazo*
10.9 Severance Agreement of Dr. Ernest U. Gambaro*
10.10 Standard Infonet Services Agreement
10.11 Capacity Right of Use Agreement with FLAG Limited dated as of June 25,
1999+
10.12 AUCS Services Agreement, dated as of September 30, 1999
10.13 AUCS Call Option Deed, dated as of September 30, 1999
10.14 AUCS Management Agreement, dated as of September 30, 1999
10.15 AUCS Assignment Agreement, dated as of September 30, 1999
10.16 Lease for Grand Avenue Corporate Center at 2160 Grand Avenue, El
Segundo California*
21.1 List of Subsidiaries
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Latham & Watkins (included in Exhibit 5.1)*
24.1 Powers of Attorney (See Signature Page on Page II-6)
27.1 Financial Data Schedule
99.1 Schedule II--Valuation and Qualifying Accounts
</TABLE>
- --------
* To be supplied by amendment.
+ Confidential treatment will be requested with respect to certain portions of
this exhibit. Omitted portions will be filed separately with the SEC.
<PAGE>
Exhibit 10.1
INFONET SERVICES CORPORATION
1998 STOCK OPTION PLAN
----------------------
1. Purposes. The purposes of the Infonet Services Corporation 1998
--------
Stock Option Plan are:
(a) To further the growth, development and success of the Company and
its Affiliates by enabling the executive and other employees and directors of,
and consultants to, the Company and its Affiliates to acquire a continuing
equity interest in the Company, thereby increasing their personal interests in
such growth, development and success and motivating such employees, directors
and consultants to exert their best efforts on behalf of the Company and its
Affiliates; and
(b) To maintain the ability of the Company and its Affiliates to
attract and retain employees, directors and consultants of outstanding ability
by offering them an opportunity to acquire a continuing equity interest in the
Company and its Affiliates which will reflect the growth, development and
success of the Company and its Affiliates.
Toward these objectives, the Committee may grant Options to such
employees, directors and consultants, all pursuant to the terms and conditions
of the Plan.
2. Definitions. As used in the Plan, the following capitalized terms
-----------
shall have the meanings set forth below:
(a) "Affiliate" - other than the Company, any organization, regardless
of legal form, (a) in which the Company owns a substantial equity or profits
interest or over which the Company has the right to exercise significant
management control or influence and (b) which is designated in writing by the
Committee as an Affiliate for purposes of the Plan.
(b) "Agreement" - a stock option award agreement evidencing an Option.
(c) "Board" - the Board of Directors of the Company.
(d) "Book Value" shall mean the book value of a share of Stock
determined by the formula of one times revenues of the Company for the
immediately preceding four completed fiscal quarters of the Company.
(e) "Call Closing" - defined in Section 4(f).
(f) "Call Right" - defined in Section 4(f).
(g) "Code" - the Internal Revenue Code of 1986, as it may be amended
from time to time, including regulations and rules thereunder and successor
provisions and regulations and rules thereto.
<PAGE>
(h) "Committee" - the President of the Company and the members of the
Compensation Committee of the Board, or such other committee as may be
established by the Board to administer the Plan.
(i) "Company" - Infonet Services Corporation, a Delaware corporation,
or any successor entity.
(j) "Exchange Act" - shall mean the Securities Exchange Act of 1934,
as amended.
(k) "Fair Market Value" of a share of Stock as of a given date means:
(i) if shares of Stock are Publicly Traded, the mean of the high
and low prices at which they are reported to have traded on
the relevant date in all markets on which trading in the
Stock is reported, or if there is no reported sale of the
Stock on the relevant date, the mean of the highest reported
bid price and lowest reported asked price for the Stock on
the relevant date;
(ii) if no shares of Stock are Publicly Traded, the Book Value of
the Stock.
(l) "ISO" or "Incentive Stock Option" - an option to purchase Stock
granted to an Optionee under the Plan in accordance with the terms and
conditions set forth in Section 6 and which conforms to the applicable
provisions of Section 422 of the Code.
(m) "Notice" - written notice actually received by the Company at its
executive offices on the day of such receipt, if received on or before 1:30
p.m., on a day when the Company's executive offices are open for business, or,
if received after such time, such notice shall be deemed received on the next
such day, which notice may be sent by facsimile to the Company or sent by
certified or registered mail or overnight courier, prepaid, addressed to the
Company at 2100 East Grand Avenue, El Segundo, California 90245, Facsimile:
(310) 335-2876, Attention: Mr. Ernest U. Gambaro.
(n) "Option" - an option to purchase Stock granted to an Optionee
under the Plan in accordance with the terms and conditions set forth in Section
6. Options may be either ISOs or stock options other than ISOs.
(o) "Optionee"- an individual who is eligible, pursuant to Section 5,
and who has been selected, pursuant to Section 3(c), to participate in the Plan,
and who has been granted an Option under the Plan in accordance with the terms
and conditions set forth in Section 6.
(p) "Plan" - this Infonet Services Corporation 1998 Stock Option Plan.
-2-
<PAGE>
(q) "Publicly Traded" - means that a class of stock (or equity
interest) is required to be registered under Section 12 of the Exchange Act or
that stock (or equity interest) of that class has been sold within the preceding
twelve months in an underwritten public offering.
(r) "Put Closing" - defined in Section 4(g)
(s) "Put Right" - defined in Section 4(g).
(t) "Securities Act" - the Securities Act of 1933, as it may be
amended from time to time, including regulations and rules thereunder and
successor provisions and regulations and rules thereto.
(u) "Stock" - the Class C, $.01 par value, stock of the Company.
(v) "Subsidiary" - any present or future corporation which is or would
be a "subsidiary corporation" of the Company as the term is defined in Section
424(f) of the Code.
3. Administration of the Plan. (a) The Committee shall have
--------------------------
exclusive authority to operate, manage and administer the Plan in accordance
with its terms and conditions. Notwithstanding the foregoing, in its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights, duties and responsibilities of the Committee under the Plan, including,
but not limited to, establishing procedures to be followed by the Committee,
except with respect to matters which under any applicable law, regulation or
rule, are required to be determined in the sole discretion of the Committee. If
and to the extent that no Committee exists which has the authority to administer
the Plan, the functions of the Committee shall be exercised by the Board.
(b) The Committee shall be appointed from time to time by the Board
and the Committee shall consist of not less than two (2) members. Committee
members may be removed by the Board at any time either with or without cause,
and such members may resign at any time by delivering notice thereof to the
Board. Any vacancy on the Committee, whether due to action of the Board or any
other reason, shall be filled by the Board.
(c) The Committee shall have full authority to grant, pursuant to the
terms of the Plan, Options to those individuals who are eligible to receive
Options under the Plan. In particular, the Committee shall have discretionary
authority to, in accordance with the terms of the Plan: determine eligibility
for participation in the Plan; select, from time to time, from among those
eligible, the employees, directors and consultants to whom Options shall be
granted under the Plan, which selection may be based upon information furnished
to the Committee by the Company's management; determine whether an Option shall
take the form of an ISO or Option other than an ISO; determine the number of
shares of Stock to be included in any Option or to which any Option shall
otherwise relate and the periods for which Options will be outstanding;
establish and administer any terms, conditions, performance goals, performance
targets, restrictions, limitations, forfeiture, vesting or exercise schedule,
and other provisions of or relating to any Options; to the extent permitted
under the applicable Agreement, grant waivers
-3-
<PAGE>
of terms, conditions, restrictions and limitations under the Plan or applicable
to any Option, or accelerate the vesting or exercisability of any Option; amend
or adjust the terms and conditions of any outstanding Option and/or adjust the
number and/or class of shares of Stock subject to any outstanding Option; at any
time and from time to time after the granting of an Option, specify such
additional terms, conditions and restrictions with respect to any such Option as
may be deemed necessary or appropriate to ensure compliance with any and all
applicable laws or rules, including, but not limited to, terms, restrictions and
conditions for compliance with applicable securities laws, regarding an
Optionee's exercise of Options by tendering shares of Stock or under a "cashless
exercise" program established by the Committee, and methods of withholding or
providing for the payment of required taxes; offer to buy out an Option
previously granted, based on such terms and conditions as the Committee shall
establish and communicate to the Optionee at the time such offer is made; and,
to the extent permitted under the applicable Agreement, permit the transfer of
an Option or the exercise of an Option by one other than the Optionee who
received the grant of such Option (other than any such a transfer or exercise
which would cause any ISO to fail to qualify as an "incentive stock option"
under Section 422 of the Code).
(d) The Committee shall have all authority that may be necessary or
helpful to enable it to discharge its responsibilities with respect to the Plan.
Without limiting the generality of the foregoing sentence or paragraph (a) of
this Section 3, and in addition to the powers otherwise expressly designated to
the Committee in the Plan, the Committee shall have the exclusive right and
discretionary authority to interpret the Plan and the Agreements; construe any
ambiguous provision of the Plan and/or the Agreements and decide all questions
concerning eligibility for and the amount of Options granted under the Plan.
The Committee may establish, amend, waive and/or rescind rules and regulations
and administrative guidelines for carrying out the Plan and may correct any
errors, supply any omissions or reconcile any inconsistencies in the Plan and/or
any Agreement or any other instrument relating to any Options. The Committee
shall have the authority to adopt such procedures and subplans and grant Options
on such terms and conditions as the Committee determines necessary or
appropriate to permit participation in the Plan by individuals otherwise
eligible to so participate who are foreign nationals or employed outside of the
United States, or otherwise to conform to applicable requirements or practices
of jurisdictions outside of the United States; and take any and all such other
actions it deems necessary or advisable for the proper operation and/or
administration of the Plan. The Committee shall have full discretionary
authority in all matters related to the discharge of its responsibilities and
the exercise of its authority under the Plan. Decisions and actions by the
Committee with respect to the Plan and any Agreement shall be final, conclusive
and binding on all persons having or claiming to have any right or interest in
or under the Plan and/or any Agreement.
(e) Each Option shall be evidenced by an Agreement, which shall be
executed by the Company and the Optionee to whom such Option has been granted,
unless the Agreement provides otherwise; however, two or more Options to a
single Optionee may be combined in a single Agreement. An Agreement shall not
be a precondition to the granting of an Option; however, no person shall have
any rights under any Option unless and until the Optionee to whom the Option
shall have been granted (i) shall have executed and delivered to the
-4-
<PAGE>
Company an Agreement or other instrument evidencing the Option, unless such
Agreement provides otherwise, and (ii) has otherwise complied with the
applicable terms and conditions of the Option. The Committee shall prescribe the
form of all Agreements, and, subject to the terms and conditions of the Plan,
shall determine the content of all Agreements. Any Agreement may be supplemented
or amended in writing from time to time as approved by the Committee; provided
that the terms and conditions of any such Agreement as supplemented or amended
are not inconsistent with the provisions of the Plan.
(f) A majority of the members of the entire Committee shall constitute
a quorum and the actions of a majority of the members of the Committee in
attendance at a meeting at which a quorum is present, or actions by a written
instrument signed by all members of the Committee, shall be the actions of the
Committee.
(g) The Committee may consult with counsel who may be counsel to the
Company. The Committee may employ such other attorneys or consultants,
accountants, appraisers, brokers or other persons as it deems necessary or
appropriate. In accordance with Section 12, the Committee shall not incur any
liability for any action taken in good faith in reliance upon the advice of such
counsel or such other persons.
(h) In serving on the Committee, the members thereof shall be entitled
to indemnification as directors of the Company, and to any limitation of
liability and reimbursement as directors with respect to their services as
members of the Committee.
(i) Except to the extent prohibited by applicable law or the
applicable rules of a stock exchange, the Committee may, in its discretion,
allocate all or any portion of its responsibilities and powers under this
Section 3 to any one or more of its members and/or delegate all or any part of
its responsibilities and powers under this Section 3 to any person or persons
selected by it; provided, however, the Committee may not delegate its authority
to correct errors, omissions or inconsistencies in the Plan. Any such authority
delegated or allocated by the Committee under this paragraph (i) of Section 3
shall be exercised in accordance with the terms and conditions of the Plan and
any rules, regulations or administrative guidelines that may from time to time
be established by the Committee, and any such allocation or delegation may be
revoked by the Committee at any time.
4. Shares of Stock Subject to the Plan. (a) The shares of stock
-----------------------------------
subject to Options granted under the Plan shall be shares of Stock. Such shares
of Stock subject to the Plan may be either authorized and unissued shares (which
will not be subject to preemptive rights) or previously issued shares acquired
by the Company or any Subsidiary. The total number of shares of Stock that may
be delivered pursuant to Options granted under the Plan is 300.
(b) Notwithstanding any of the foregoing limitations set forth in this
Section 4, the numbers of shares of Stock specified in this Section 4 shall be
adjusted as provided in Section 10.
-5-
<PAGE>
(c) Any shares of Stock subject to an Option which for any reason
expires or is terminated without having been fully exercised may again be
granted pursuant to an Option under the Plan, subject to the limitations of this
Section 4.
(d) Any shares of Stock delivered under the Plan in assumption or
substitution of outstanding stock options, or obligations to grant future stock
options, under plans or arrangements of an entity other than the Company or an
Affiliate in connection with the Company or an Affiliate acquiring such another
entity, or an interest in such an entity, or a transaction otherwise described
in Section 6(i), shall not reduce the maximum number of shares of Stock
available for delivery under the Plan.
(e) While the Stock is not Publicly Traded, an Optionee may not sell,
transfer, pledge, assign or otherwise alienate or hypothecate, any share of
Stock delivered under the Plan without the prior written consent of the
Committee, which consent may be granted or withheld at the Committee's sole
discretion.
(f) In the event that an Optionee shall cease to be employed by the
Company for any reason, including, without limitation, by reason of the death of
the Optionee, while the Stock is not Publicly Traded, the Company shall have the
right (but not the obligation) ("Call Right") to purchase (and the Optionee
----------
shall have the obligation to sell) all of such Optionee's shares of Stock
delivered under the Plan at an aggregate purchase price equal to the aggregate
Fair Market Value of the shares of Stock which were owned by the Optionee as of
the date of such cessation of employment. The Call Right shall be exercised by
written notice to the Optionee, which notice shall fix the date of settlement of
the payment of the subject shares of Stock (the "Call Closing") at not less than
------------
5 nor more than 30 days after the date such notice is given, provided that the
Call Closing cannot occur in any event until six months after the exercise date.
The purchase price to be paid for the subject shares of Stock, upon delivery to
the Company of all stock certificates representing Optionee's shares of Stock
and corresponding signed stock powers, shall be paid by check of the Company at
the Call Closing. The Call Closing shall take place at the offices of the
Company at 1:00 p.m. on the date fixed in the exercise notice. Such shares of
Stock shall be canceled on the books of Company upon the delivery of the
purchase price therefor.
(g) After the date which is six months after the exercise of an Option
and for so long as the Stock is not Publicly Traded, an Optionee shall have the
right (but not the obligation) ("Put Right"), exercisable by written notice to
---------
the Company, to sell to the Company (and the Company shall have the obligation
to buy) any of such Optionee's shares of Stock delivered upon the exercise of
such Option at an aggregate purchase price equal to the aggregate Fair Market
Value of the shares of Stock which are put to the Company as of the date of the
notice of exercise of the Put Right. The Company shall fix, by written notice
to the Optionee, the date of settlement of the payment of the subject shares of
Stock (the "Put Closing") at not less than 5 nor more than 30 days after the
-----------
date such notice is given. The purchase price to be paid for the subject shares
of Stock, upon delivery to the Company of all stock certificates representing
Optionee's shares of Stock and corresponding signed stock powers, shall be paid
by check of the Company at the Put Closing. The Put Closing shall take place at
the offices of the
-6-
<PAGE>
Company at 1:00 p.m. on the date fixed in the notice. Such shares of Stock shall
be canceled on the books of Company upon the delivery of the purchase price
therefor.
5. Eligibility. Executive and other employees, including officers,
-----------
of the Company and the Affiliates, directors (whether or not also employees) of
the Company or any Affiliate; and consultants to the Company and the Affiliates,
shall be eligible to become Optionees and receive Options in accordance with the
terms and conditions of the Plan, subject to the limitations on the granting of
ISOs set forth in Section 6(g).
6. Terms and Conditions of Stock Options. All Options to purchase
-------------------------------------
Stock granted under the Plan shall be either ISOs or Options other than ISOs.
To the extent that any Option does not qualify as an Incentive Stock Option
(whether because of its provisions or the time or manner of its exercise or
otherwise), such Option, or the portion thereof which does not so qualify, shall
constitute a separate Option other than an Incentive Stock Option. Each Option
shall be subject to all the applicable provisions of the Plan, including the
following terms and conditions, and to such other terms and conditions not
inconsistent therewith as the Committee shall determine and which are set forth
in the applicable Agreement. Options need not be uniform as to all grants and
recipients thereof.
(a) The option exercise price per share of shares of Stock subject to
each Option shall be determined by the Committee and stated in the
Agreement; provided, however, that, subject to paragraphs (g)(C) and/or (i)
of this Section 6, if applicable, such price applicable to any ISO shall
not be less than 100% of the Fair Market Value of a share of Stock at the
time that the Option is granted.
(b) Each Option shall be exercisable in whole or in such installments,
at such times and under such conditions, subject to Section 14, as may be
determined by the Committee in its discretion and stated in the Agreement,
and, in any event, over a period of time ending not later than ten (10)
years from the date such Option was granted, subject to paragraph (g)(C) of
this Section 6.
(c) Each Option may be exercised by giving Notice to the Company
specifying the number of shares of Stock to be purchased, which shall be
accompanied by payment in full including applicable taxes, if any, in
accordance with Section 9. Payment shall be in any manner permitted by
applicable law and prescribed by the Committee, in its discretion, and set
forth in the Agreement, including, in the Committee's discretion, and
subject to such terms, conditions and limitations as the Committee may
prescribe, payment in accordance with a "cashless exercise" program
established by the Committee and/or in Stock owned by the Optionee or by
the Optionee and his or her spouse jointly.
(d) No Optionee or other person shall become the beneficial owner of
any shares of Stock subject to an Option, nor have any rights to dividends
or other rights of a shareholder with respect to any such shares until he
or she has exercised his or her Option in accordance with the provisions of
the Plan and the applicable Agreement.
-7-
<PAGE>
(e) An Option may be exercised only if at all times during the period
beginning with the date of the granting of the Option and ending on the
date of such exercise, the Optionee was an employee, director or consultant
of the Company or an Affiliate. Notwithstanding the preceding sentence, the
Committee may determine in its discretion that an Option may be exercised
prior to expiration of such Option following termination of such continuous
employment, directorship or consultancy, whether or not exercisable at such
time, to the extent provided in the applicable Agreement.
(f) Subject to the terms and conditions and within the limitations of
the Plan, the Committee may modify, extend or renew outstanding Options
granted under the Plan, or accept the surrender of outstanding Options (up
to the extent not theretofore exercised) and authorize the granting of new
Options in substitution therefor (to the extent not theretofore exercised).
(g) (A) Each Agreement relating to an Option shall state whether such
Option will or will not be treated as an ISO. No ISO shall be granted
unless such Option, when granted, qualifies as an "incentive stock option"
under Section 422 of the Code. No ISO shall be granted to any individual
otherwise eligible to participate in the Plan who is not an employee of the
Company or any of its Subsidiaries on the date of granting of such Option.
Any ISO granted under the Plan shall contain such terms and conditions,
consistent with the Plan, as the Committee may determine to be necessary to
qualify such Option as an "incentive stock option" under Section 422 of the
Code. Any ISO granted under the Plan may be modified by the Committee to
disqualify such Option from treatment as an "incentive stock option" under
Section 422 of the Code.
(B) Notwithstanding any intent to grant ISOs, an Option granted
under the Plan will not be considered an ISO to the extent that it,
together with any other "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to subsection (d) of such
Section) under the Plan or any other "incentive stock option" plans of the
Company and any Subsidiary, are exercisable for the first time by any
Optionee during any calendar year with respect to Stock having an aggregate
Fair Market Value in excess of $100,000 (or such other limit as may be
required by the Code) as of the time the Option with respect to such Stock
is granted. The rule set forth in the preceding sentence shall be applied
by taking Options into account in the order in which they were granted.
(C) No ISO shall be granted to an individual otherwise eligible
to participate in the Plan who owns (within the meaning of Section 424(d)
of the Code), at the time the Option is granted, more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or a Subsidiary. This restriction does not apply if at the time
such ISO is granted the Option exercise price per share of Stock subject to
the Option is at least 110% of the Fair Market Value of a share of Stock on
the date such ISO is granted, and the ISO by its terms is not exercisable
after the expiration of five (5) years from such date of grant.
-8-
<PAGE>
(h) An Option and any shares of Stock received upon the exercise of an
Option shall be subject to such other transfer and/or ownership
restrictions and/or legending requirements as the Committee may establish
in its discretion and which are specified in the Agreement and may be
referred to on the certificates evidencing such shares of Stock. The
Committee may require an Optionee to give prompt Notice to the Company
concerning any disposition of shares of Stock received upon the exercise of
an ISO within: (i) two (2) years from the date of granting such ISO to such
Optionee or (ii) one (1) year from the transfer of such shares of Stock to
such Optionee or (iii) such other period as the Committee may from time to
time determine. The Committee may direct that an Optionee with respect to
an ISO undertake in the applicable Agreement to give such notice described
in the preceding sentence, at such time and containing such information as
the Committee may prescribe, and/or that the certificates evidencing shares
of Stock acquired by exercise of an ISO refer to such requirement to give
such notice.
(i) In the event that a transaction described in Section 424(a) of the
Code involving the Company or a Subsidiary is consummated, such as the
acquisition of property or stock from an unrelated corporation, individuals
who become eligible to participate in the Plan in connection with such
transaction, as determined by the Committee, may be granted Options in
substitution for stock options granted by another corporation that is a
party to such transaction. If such substitute Options are granted, the
Committee, in its discretion and consistent with Section 424(a) of the
Code, if applicable, and the terms of the Plan, though notwithstanding
paragraph (a) of this Section 6, shall determine the option exercise price
and other terms and conditions of such substitute Options.
7. Transfer, Leave of Absence. For purposes of the Plan, a transfer
--------------------------
of an employee from the Company to an Affiliate, or vice versa, or from one
Affiliate to another, and a leave of absence, duly authorized in writing by the
Company or an Affiliate, shall not be deemed a termination of employment of the
employee.
8. Rights of Employees and Other Persons. (a) No person shall have
-------------------------------------
any rights or claims under the Plan except in accordance with the provisions of
the Plan and the applicable Agreement.
(b) Nothing contained in the Plan or in any Agreement shall be deemed
to (i) give any employee or director the right to be retained in the service of
the Company or any Affiliate nor restrict in any way the right of the Company or
any Affiliate to terminate any employee's employment or any director's
directorship at any time with or without cause or (ii) confer on any consultant
any right of continued relationship with the Company or any Affiliate, or alter
any relationship between them, including any right of the Company or an
Affiliate to terminate its relationship with such consultant.
-9-
<PAGE>
(c) The adoption of the Plan shall not be deemed to give any employee
of the Company or any Affiliate or any other person any right to be selected to
participate in the Plan or to be granted an Option.
(d) Nothing contained in the Plan or in any Agreement shall be deemed
to give any employee the right to receive any bonus, whether payable in cash or
in Stock, or in any combination thereof, from the Company or any Affiliate, nor
be construed as limiting in any way the right of the Company or any Affiliate to
determine, in its sole discretion, whether or not it shall pay any employee
bonuses, and, if so paid, the amount thereof and the manner of such payment.
9. Tax Withholding Obligations. (a) The Company and/or any Affiliate are
---------------------------
authorized to take whatever actions are necessary and proper to satisfy all
obligations of Optionees (including, for purposes of this Section 9, any other
person entitled to exercise an Option pursuant to the Plan or an Agreement) for
the payment of all Federal, state, local and foreign taxes in connection with
any Options (including, but not limited to, actions pursuant to the following
paragraph (b) of this Section 9).
(b) Each Optionee shall (and in no event shall Stock be delivered to
such Optionee with respect to an Option until), no later than the date as of
which the value of the Option first becomes includible in the gross income of
the Optionee for income tax purposes, pay to the Company in cash, or make
arrangements satisfactory to the Company, as determined in the Committee's
discretion, regarding payment to the Company of, any taxes of any kind required
by law to be withheld with respect to the Stock subject to such Option, and the
Company and any Affiliate shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise due to such
Optionee. Notwithstanding the above, the Committee may, in its discretion and
pursuant to procedures approved by the Committee, permit the Optionee to (i)
elect withholding by the Company of Stock otherwise deliverable to such Optionee
pursuant to such Option (provided, however, that the amount of any Stock so
withheld shall not exceed the minimum required withholding obligation taking
into account the Optionee's effective tax rate and all applicable Federal,
state, local and foreign taxes) and/or (ii) tender to the Company Stock owned by
such Optionee (or by such Optionee and his or her spouse jointly) and acquired
more than six (6) months prior to such tender in full or partial satisfaction of
such tax obligations, based, in each case, on the Fair Market Value of the Stock
on the payment date as determined by the Committee.
10. Changes in Capital. (a) The existence of the Plan and the Options
------------------
granted hereunder shall not affect in any way the right or power of the Board or
the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company or an
Affiliate, any issue of debt, preferred or prior preference stock ahead of or
affecting Stock, the authorization or issuance of additional shares of Stock,
the dissolution or liquidation of the Company or its Affiliates, any sale or
transfer of all or part of its assets or business or any other corporate act or
proceeding.
-10-
<PAGE>
(b)(i) Upon changes in the outstanding Stock by reason of a stock
dividend, stock split, reverse stock split, subdivision, recapitalization,
reclassification, merger, consolidation (whether or not the Company is a
surviving corporation), combination or exchange of shares of Stock, separation,
or reorganization, or in the event of an extraordinary dividend, "spin-off,"
liquidation, other substantial distribution of assets of the Company or
acquisition of property or stock or other change in capital of the Company, or
the issuance by the Company of shares of its capital stock without receipt of
full consideration therefor, or rights or securities exercisable, convertible or
exchangeable for shares of such capital stock, or any similar change affecting
the Company's capital structure the aggregate number, class and kind of shares
of stock available under the Plan as to which Options may be granted and the
number, class and kind of shares under each outstanding Option, the option price
per share and/or the vesting or exercise schedule applicable to any such Options
shall be appropriately adjusted by the Committee in its discretion to preserve
the benefits or potential benefits intended to be made available under the Plan
or with respect to any outstanding Options or otherwise necessary to reflect any
such change.
(ii) Except as set forth in the Agreement, fractional shares of
Stock resulting from any adjustment in Options pursuant to this subsection 10(b)
shall be aggregated until, and eliminated at, the time of exercise of the
affected Options. Notice of any adjustment shall be given by the Committee to
each Optionee whose Option has been adjusted and such adjustment (whether or not
such Notice is given) shall be effective and binding for all purposes of the
Plan.
(c) In the event of (i) a stock sale, merger, consolidation,
combination, reorganization or other transaction (other than through a public
offering of common stock of the Company) resulting in less than fifty percent
(50%) of the combined voting power of the surviving or resulting entity being
owned by the shareholders of the Company immediately prior to such transaction,
(ii) the liquidation or dissolution of the Company or the sale or other
disposition of all or substantially all of the assets or business of the Company
(other than, in the case of either clause (i) or (ii) above, in connection with
any employee benefit plan of the Company or a Subsidiary), or (iii) a public
offering of the Stock (or any class of the Company's stock into which the Stock
may be converted upon any public offering) pursuant to a registration statement
declared effective under the Securities Act:
(1) In its discretion and on such terms and conditions as it deems
appropriate, the Committee may provide, either by the terms of the
Agreement applicable to any Option or by a resolution adopted prior to the
occurrence of such event, that any outstanding Option shall be accelerated
and become immediately exercisable as to all or a portion of the shares of
Stock covered thereby, notwithstanding anything to the contrary in the Plan
or the Agreement.
(2) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide, either by the terms of the
Agreement applicable to any Option or by resolution adopted prior to the
occurrence of such event, that any outstanding Option shall be adjusted by
substituting for Stock subject to such Option
-11-
<PAGE>
stock or other securities of the surviving corporation or any successor
corporation to the Company, or a parent or subsidiary thereof, or that may
be issuable by another corporation that is a party to the transaction
whether or not such stock or other securities are publicly traded, in which
event the aggregate exercise price (as applicable) shall remain the same
and the amount of shares or other securities subject to the Option shall be
the amount of shares or other securities which could have been purchased on
the closing date or expiration date of such transaction with the proceeds
which would have been received by the Optionee if the Option had been
exercised in full (or with respect to a portion of such Option, as
determined by the Committee, in its discretion) prior to such transaction
or expiration date and the Optionee exchanged all of such shares in the
transaction.
(3) In its discretion, and on such terms and conditions as it
deems appropriate, the Committee may provide, either by the terms of the
Agreement applicable to any Option or by resolution adopted prior to the
occurrence of such event, any outstanding Option shall, in each case, be
converted into a right to receive cash following the closing date or
expiration date of the transaction in an amount equal to the highest value
of the consideration to be received in connection with such transaction for
one share of Stock, or, if higher, the highest Fair Market Value of the
Stock during the 30 consecutive business days immediately prior to the
closing date or expiration date of such transaction, less the per share
exercise price of such Option, multiplied by the number of shares of Stock
subject to such Option, or a portion thereof.
(4) The Committee may, in its discretion, provide that an Option
cannot be exercised after such an event, to the extent that such Option
becomes subject to any acceleration, adjustment or conversion in accordance
with the foregoing paragraphs (1), (2) or (3) of this subsection 10(c).
No Optionee shall have any right to prevent the consummation of any of the
foregoing acts affecting the number of shares of Stock available to such
Optionee. Any actions or determinations of the Committee under this Subsection
10(c) need not be uniform as to all outstanding Options, nor treat all Optionees
identically. Notwithstanding the foregoing adjustments, in no event may any
Option be exercised after ten (10) years from the date it was originally
granted, and any changes to ISOs pursuant to this Section 10 shall, unless the
Committee determines otherwise, only be effective to the extent such adjustments
or changes do not cause a "modification" (within the meaning of Section
424(h)(3) of the Code) of such ISOs or adversely affect the tax status of such
ISOs.
11. Miscellaneous Provisions. (a) The Plan shall be unfunded. The
------------------------
Company shall not be required to establish any special or separate fund or to
make any other segregation of assets to assure the issuance of shares of Stock
or the payment of cash upon exercise or payment of any Option. Proceeds from the
sale of shares of Stock pursuant to Options granted under the Plan shall
constitute general funds of the Company. The expenses of the Plan shall be borne
by the Company.
-12-
<PAGE>
(b) Except as otherwise provided in this paragraph (b) of Section 11
or by the Committee, an Option by its terms shall be personal and may not be
sold, transferred, pledged, assigned, encumbered or otherwise alienated or
hypothecated otherwise than by will or by the laws of descent and distribution
and shall be exercisable during the lifetime of an Optionee only by him or her.
At the Committee's discretion, an Agreement may permit the exercise of an
Optionee's Option (or any portion thereof) after his or her death by the
beneficiary most recently named by such Optionee in a written designation
thereof filed with the Company, or, in lieu of any such surviving beneficiary,
as designated by the Optionee by will or by the laws of descent and
distribution. In the event any Option is exercised by the executors,
administrators, heirs or distributees of the estate of a deceased Optionee, or
such an Optionee's beneficiary, or the transferee of an Option, in any such case
pursuant to the terms and conditions of the Plan and the applicable Agreement
and in accordance with such terms and conditions as may be specified from time
to time by the Committee, the Company shall be under no obligation to issue
Stock thereunder unless and until the Committee is satisfied that the person or
persons exercising such Option is the duly appointed legal representative of the
deceased Optionee's estate or the proper legatees or distributees thereof or the
named beneficiary of such Optionee, or the valid transferee of such Option, as
applicable.
(c)(i) If at any time the Committee shall determine, in its
discretion, that the listing, registration and/or qualification of shares of
Stock upon any securities exchange or under any state or Federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
shares of Stock hereunder, no Option may be exercised in whole or in part unless
and until such listing, registration, qualification, consent and/or approval
shall have been effected or obtained, or otherwise provided for, free of any
conditions not acceptable to the Committee.
(ii) If at any time counsel to the Company shall be of the
opinion that any sale or delivery of shares of Stock pursuant to an Option is or
may be in the circumstances unlawful under the statutes, rules or regulations of
any applicable jurisdiction, the Company shall have no obligation to make such
sale or delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act, or otherwise with
respect to shares of Stock or Options, and the right to exercise any Option
shall be suspended until, in the opinion of said counsel, such sale or delivery
shall be lawful or will not result in the imposition of excise taxes on the
Company.
(iii) Upon termination of any period of suspension under this
subsection 11(c), any Option affected by such suspension which shall not then
have expired or terminated shall be reinstated as to all shares available before
such suspension and as to the shares which would otherwise have become available
during the period of such suspension, but no suspension shall extend the term of
any Option.
(d) The Committee may require each person receiving Stock in
connection with any Option under the Plan to represent and agree with the
Company in writing that such person is acquiring the shares of Stock for
investment without a view to the distribution thereof. The Committee, in its
absolute discretion, may impose such restrictions on the
-13-
<PAGE>
ownership and transferability of the shares of Stock purchasable or otherwise
receivable by any person under any Option as it deems appropriate. Any such
restrictions shall be set forth in the applicable Agreement, and the
certificates evidencing such shares may include any legend that the Committee
deems appropriate to reflect any such restrictions.
(e) The Committee may, in its discretion, extend one or more loans to
Optionees who are key employees, directors or consultants of the Company or an
Affiliate in connection with the exercise or receipt of an Option granted to any
such individuals. The terms and conditions of any such loan shall be set by the
Committee.
(f) By accepting any benefit under the Plan, each Optionee and each
person claiming under or through such Optionee shall be conclusively deemed to
have indicated their acceptance and ratification of, and consent to, all of the
terms and conditions of the Plan and any action taken under the Plan by the
Committee, the Company or the Board, in any case in accordance with the terms
and conditions of the Plan.
(g) Neither the adoption of the Plan nor anything contained herein
shall affect any other compensation or incentive plans or arrangements of the
Company or any Affiliate, or prevent or limit the right of the Company or any
Affiliate to establish any other forms of incentives or compensation for their
employees or consultants or directors, or grant or assume options or other
rights otherwise than under the Plan.
(h) The Plan shall be governed by and construed in accordance with
the laws of California, without regard to such state's choice of law provisions,
except as superseded by applicable Federal law.
(i) The words "Section" and "paragraph" shall refer to provisions of
the Plan, unless expressly indicated otherwise. Wherever any words are used in
the Plan or any Agreement in the masculine gender they shall be construed as
though they were also used in the feminine gender in all cases where they would
so apply, and wherever any words are used herein in the singular form they shall
be construed as though they were also used in the plural form in all cases where
they would so apply.
(j) The Company shall bear all costs and expenses incurred in
administering the Plan, including expenses of issuing Stock pursuant to any
Options granted hereunder.
12. Limits of Liability. (a) Any liability of the Company or an Affiliate
-------------------
to any Optionee with respect to any Option shall be based solely upon
contractual obligations created by the Plan and the Agreement.
(b) Neither the Company nor an Affiliate nor any member of the
Committee or the Board, nor any other person participating in any determination
of any question under the Plan, or in the interpretation, administration or
application of the Plan, shall have any liability, in the absence of bad faith,
to any party for any action taken or not taken in connection with the Plan,
except as may expressly be provided by statute.
-14-
<PAGE>
13. Amendments and Termination. The Board may, at any time and with
--------------------------
or without prior notice, amend, alter, suspend, or terminate the Plan,
retroactively or otherwise; provided, however, unless otherwise required by law
or specifically provided herein, no such amendment, alteration, suspension, or
termination shall be made which would impair the previously accrued rights of
any holder of an Option theretofore granted without his or her written consent,
or which, without first obtaining approval of the stockholders of the Company
(where such approval is necessary to satisfy (i) with regard to ISOs, any
requirements under the Code relating to ISOs or (ii) any applicable law,
regulation or rule), would:
(a) except as is provided in Section 10, increase the maximum number
of shares of Stock which may be sold or awarded under the Plan;
(b) except as is provided in Section 10, decrease the minimum option
exercise price requirements of Section 6(a);
(c) change the class of persons eligible to receive Options under the
Plan; or
(d) extend the duration of the Plan or the period during which
Options may be exercised under Section 6(b).
The Committee may amend the terms of any Option theretofore granted,
including any Agreement, retroactively or prospectively, but no such amendment
shall impair the previously accrued rights of any Optionee without his or her
written consent.
14. Duration. Having been duly adopted by the Board of Directors and
--------
subsequently approved and adopted by the stockholders of the Company, the Plan
is effective as of October 20, 1998. The Plan shall terminate upon the earliest
to occur of:
(a) the effective date of a resolution adopted by the Board
terminating the Plan;
(b) the date all shares of Stock subject to the Plan are delivered
pursuant to the Plan's provisions; or
(c) October 20, 2008.
No Option may be granted under the Plan after the earliest to occur of the
events or dates described in the foregoing paragraphs (a) through (c) of this
Section 14; however, Options theretofore granted may extend beyond such date.
No such termination of the Plan shall affect the previously accrued
rights of any Optionee hereunder and all Options previously granted hereunder
shall continue in force and in operation after the termination of the Plan,
except as they may be otherwise terminated in accordance with the terms of the
Plan or the Agreement.
-15-
<PAGE>
Exhibit 10.2
INFONET SERVICES CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
ARTICLE 1
Purpose
-------
The purpose of the Infonet Services Corporation 1998 Employee Stock
Purchase Plan, as set forth herein and as amended from time to time (the
"Plan"), is to provide certain employees of Infonet Services Corporation, a
----
Delaware corporation (the "Company"), and its affiliates with an opportunity to
-------
acquire a proprietary interest in the Company through the purchase of Class C,
$.01 par value, shares of the Company (the "Stock").
-----
ARTICLE 2
Definitions
-----------
The following words and terms as used herein shall have that meaning set
forth therefor in this Article 2 unless a different meaning is clearly required
by the context. Whenever appropriate, words used in the singular shall be deemed
to include the plural and vice versa, and the masculine gender shall be deemed
to include the feminine gender.
2.1 "Affiliate" means any organization, regardless of legal form, (a) in
---------
which the Company owns a substantial equity or profits interest or over which
the Company has the right to exercise significant management control or
influence and (b) which is designated in writing by the Committee as an
Affiliate for purposes of the Plan.
2.2 "Board" or "Board of Directors" shall mean the Board of Directors of
----- ------------------
the Company.
2.3 "Book Value" shall mean the book value of a share of Stock determined
----------
by the formula of one times revenues of the Company for the immediately
preceding four completed fiscal quarters of the Company rounded to the nearest
thousand.
2.4 "Call Closing" is defined in Section 7.2.
------------
2.5 "Call Right" is defined in Section 7.2.
----------
2.6 "Committee" shall mean the committee established by the Board of
---------
Directors to administer the Plan.
2.7 "Company" is defined in Article 1.
-------
<PAGE>
2.8 "Effective Date" is defined in Section 8.9.
--------------
2.9 "Eligible Employee" shall mean any Employee who has been designated
-----------------
by the Committee in writing, by name or position, as being eligible to receive a
Grant under the Plan.
2.10 "Employee" shall mean any employee of the Company or an Affiliate.
--------
2.11 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
2.12 "Exercise Date" is defined in Section 6.2.
-------------
2.13 "Existing Stockholder" shall mean any of Kohusai Denchin Denwa Co.,
--------------------
Ltd., KPN Royal Dutch Telecom, Swiss Telecom, Telefonica Tranmision de Datos,
Telia Telecom AB and Telestra Corporation.
2.14 "Fair Market Value" means:
-----------------
(i) for so long as the shares of Stock, or any security to which
such shares are convertible, are not Publicly Traded, the Book
Value of the Stock; and
(ii) in the event that shares of Stock, or any security to which such
shares are convertible, are Publicly Traded, the mean of the
high and low prices at which they are reported to have traded on
the relevant date in all markets on which trading in the Stock
is reported, or if there is no reported sale of the Stock on the
relevant date, the mean of the highest reported bid price and
lowest reported asked price for the Stock on the relevant date.
2.15 "Grant" shall mean an opportunity to purchase shares of Stock
-----
granted to an Employee under the Plan in accordance with the terms and
conditions hereof.
2.16 "Offering Period" is defined in Section 5.1.
---------------
2.17 "Participant" shall mean an Eligible Employee who has elected to
-----------
participate in the Plan pursuant to Section 6.1 hereof.
2.18 "Plan" is defined in Article 1.
----
2.19 "Publicly Traded" means that a class of stock (or equity interest) is
---------------
required to be registered under Section 12 of the Exchange Act or that stock (or
equity interest) of that class has been sold within the preceding twelve months
in an underwritten public offering.
-2-
<PAGE>
2.20 "Purchase Documents" is defined in Section 6.1.
------------------
2.21 "Purchase Price" is defined in Section 5.2.
--------------
2.22 "Put Closing" is defined in Section 7.3.
-----------
2.23 "Put Right" is defined in Section 7.3.
---------
2.24 "Recent Transaction Value" shall mean, on a per share basis, the
------------------------
amount derived by taking (i) the total consideration (whether cash, in-kind
payments, stock, notes or other securities, assumed debt, leases, royalties,
licenses, minimum purchase contracts, non-compete or consulting arrangements or
any other form of consideration included in a transaction) received or to be
received by the transferring party pursuant to the transaction or transactions
which resulted in the Transfer of Interest occurring most recently prior to the
date of calculation and dividing by (ii) the percentage of the value of the
-----------
Company transferred (expressed as a decimal number) and dividing the result of
--------
such calculation by (iii) the number of then-outstanding shares of Class A,
Class B and Class C shares of the Company. For example, if the Company or a
stockholder transfers assets or stock representing 60% of the value of the
Company for $500 million and there are 13,000 shares of Class A, Class B and
Class C shares of the Company then outstanding (in aggregate), then the "Recent
Transaction Value" would be $64,102.56 per share ($500 million/.60/13,000).
2.25 "Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
2.26 "Stock" is defined in Article 1.
-----
2.27 "Transfer of Interest" shall mean that (a) any person, entity or
--------------------
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended), as if the Company were a public company,
acquires on or after January 1, 1999, as beneficial owner, directly or
indirectly, other than pursuant to the Plan or the Company's 1998 Stock Option
Plan, any securities of the Company (whether then-outstanding or newly-issued),
(b) a sale, lease, exchange or transfer of all or substantially all of the
Company's assets has occurred, (c) the Company directly or indirectly redeems or
otherwise acquires any of its then-outstanding securities or (d) the Company's
directors and/or stockholders approve, implement or attempt to implement a
transaction (including, without limitation, any plan of reorganization, merger,
consolidation or liquidation) which has or may have the effect of transferring
(i) any right to control some or all of the material business operations of the
Company or (ii) any material economic participation right in the business
operations of the Company, in each case to any person or entity other than the
Existing Stockholders, the Participants and/or persons participating in the
Company's 1998 Stock Option Plan.
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<PAGE>
ARTICLE 3
Administration
--------------
3.1 Committee. The Committee shall have exclusive authority to operate,
---------
manage and administer the Plan in accordance with its terms and conditions.
Notwithstanding the foregoing, in its absolute discretion, the Board may at any
time and from time to time exercise any and all rights, duties and
responsibilities of the Committee under the Plan, including, but not limited to,
establishing procedures to be followed by the Committee, except with respect to
matters which under any applicable law, regulation or rule, are required to be
determined in the sole discretion of the Committee. If and to the extent that no
Committee exists which has the authority to administer the Plan, the functions
of the Committee shall be exercised by the Board.
3.2 Organization. The Committee shall be appointed from time to time by
------------
the Board, and the Committee shall consist of not less than two (2) members.
Committee members may be removed by the Board at any time either with or without
cause, and such members may resign at any time by delivering notice thereof to
the Board. Any vacancy on the Committee, whether due to action of the Board or
any other reason, shall be filled by the Board. A majority of the members of the
entire Committee shall constitute a quorum and the actions of a majority of the
members of the Committee in attendance at a meeting at which a quorum is
present, or actions by a written instrument signed by all members of the
Committee, shall be the actions of the Committee.
3.3 Power and Authority. The Committee shall have all authority that may
-------------------
be necessary or helpful to enable it to discharge its responsibilities with
respect to the Plan. Without limiting the generality of the foregoing sentence
or Section 3.1, and in addition to the powers otherwise expressly designated to
the Committee in the Plan, the Committee shall have the exclusive right and
discretionary authority: (a) to determine the Employees of the Company and its
Affiliates who are eligible to participate in the Plan; (b) to apply the formula
for establishing the Book Value of a share of Stock and otherwise establish the
purchase price upon exercise of the Call Right provided for in Section 7.2 or
the Put Right provided for in Section 7.3; (c) to determine the terms, timing
and conditions of the granting of Grants under the Plan; (d) to establish or
alter Offering Periods; and (e) to interpret the Plan; construe any ambiguous
provision of the Plan and decide all questions concerning eligibility for and
the amount of Grants under the Plan. The Committee may establish, amend, waive
and/or rescind rules and regulations and administrative guidelines for carrying
out the Plan and may correct any errors, supply any omissions or reconcile any
inconsistencies in the Plan. The Committee shall have the authority to adopt
such procedures as the Committee determines necessary or appropriate to permit
participation in the Plan by individuals otherwise eligible to so participate
who are foreign nationals or employed outside of the United States, or otherwise
to conform to applicable requirements or practices of jurisdictions outside of
the United States; and take any and all such other actions it deems necessary or
advisable for the proper operation and/or administration of the Plan. The
Committee shall have full discretionary authority in all matters related to the
discharge of its responsibilities and the exercise of its authority under the
Plan. Decisions and
-4-
<PAGE>
actions by the Committee with respect to the Plan shall be final, conclusive and
binding on all persons having or claiming to have any right or interest in or
under the Plan.
3.4 Employment of Counsel and Others. The Committee may consult with
---------------------------------
counsel who may be counsel to the Company. The Committee may also employ such
other attorneys or consultants, accountants, appraisers, brokers or other
persons as it deems necessary or appropriate.
3.5 No Liability. Neither the Committee nor any of the members thereof
-------------
shall incur any liability for any action taken in good faith in reliance upon
the advice of such counsel or such other persons.
3.6 Allocation of Responsibility. Except to the extent prohibited by
----------------------------
applicable law or the applicable rules of a stock exchange, the Committee may,
in its discretion, allocate all or any portion of its responsibilities and
powers under this Article 3 to any one or more of its members and/or delegate
all or any part of its responsibilities and powers under this Article 3 to any
person or persons selected by it; provided, however, the Committee may not
delegate its authority to correct errors, omissions or inconsistencies in the
Plan. Any such authority delegated or allocated by the Committee under this
Section 3.6 shall be exercised in accordance with the terms and conditions of
the Plan and any rules, regulations or administrative guidelines that may from
time to time be established by the Committee, and any such allocation or
delegation may be revoked by the Committee at any time.
ARTICLE 4
Eligibility
-----------
No Employee shall be an Eligible Employee unless such Employee has been
designated as such in a written instrument, by name or position, by the
Committee. The Committee shall have the sole power and discretion to designate
who is and who is not an Eligible Employee.
ARTICLE 5
The Offering Period
-------------------
5.1 Offering Period. The Committee may offer Stock pursuant to the terms
---------------
and conditions of this Plan from time to time, as they may determine in their
sole discretion (each, an "Offering Period").
---------------
5.2 Price. The purchase price per share of Stock shall be its Fair Market
-----
Value on the Exercise Date, as such term is defined in Section 6.2 hereof (the
"Purchase Price").
--------------
5.3 Number of Shares To Be Offered Under Grants.
-------------------------------------------
-5-
<PAGE>
(a) Subject to adjustment pursuant to Section 8.1, the maximum number
of shares of Stock that may be offered under the Plan is 600.
(b) Exercises of Grants shall be allowed for full and fractional
shares of Stock.
ARTICLE 6
Participation and Payment
-------------------------
6.1 Election To Participate. An Eligible Employee may become a
-----------------------
Participant in the Plan: (a) by completing a subscription agreement, indicating
the number of shares of Stock to be purchased, and such other documents as the
Company may require (the "Purchase Documents"); and (b) by tendering the
------------------
Purchase Documents and payment for the full Purchase Price of the shares of
Stock to the Secretary of the Company (or such other person as may be designated
by the Committee) no later than the last day of the applicable Offering Period.
Purchase Documents and Purchase Price received by the Secretary of the Company
(or other designated person) after the last day of the applicable Offering
Period shall be void and shall be given no effect with respect to the Grant; and
the Secretary of the Company shall return such documents and cash or check to
the applicable Employee as soon as practicable after receipt.
6.2 No Revocation of Election. No election to exercise a Grant may be
-------------------------
revoked or canceled by an Eligible Employee once the Purchase Documents and
Purchase Price have been tendered to the Company in accordance with Section 6.1
(the date that the Purchase Documents and Purchase Price are tendered to the
Company pursuant to Section 6.1 is the "Exercise Date"). An election to
-------------
exercise a Grant may be revoked or canceled by an Eligible Employee at any time
prior to the tender of the Purchase Documents and Purchase Price to the Company
in accordance with Section 6.1.
6.3 Interest. No interest shall be payable on the Purchase Price of the
--------
shares of Stock under the Plan or on the funds returned to Eligible Employees as
a result of late delivery of the Purchase Price pursuant to Section 6.1.
6.4 Delivery. As promptly as practicable after the Exercise Date, the
--------
Company shall arrange for the issuance and delivery to each Participant of a
certificate or certificates representing the shares of Stock purchased by such
Participant.
6.5 Rights as Stockholder. No Employee shall have any right as a
---------------------
stockholder until after the date on which he or she becomes a record owner of
the shares of Stock purchased under the Plan; no adjustment shall be made for
dividends (if any) or other rights for which the record date is prior to such
record ownership date.
6.6 Termination of Employment. An Eligible Employee whose employment with
-------------------------
the Company or an Affiliate, as applicable, is terminated for any reason and who
has not yet exercised such Eligible Employee's Grant shall have no right to
participate in the Plan after such termination and such Eligible Employee's
Grant will be automatically terminated.
-6-
<PAGE>
6.7 Rights Not Transferable. No rights with regard to a Grant or to
-----------------------
purchase shares of Stock under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than as provided in Section 8.10 hereof)
by the Eligible Employee. Any such attempt at assignment, transfer, pledge or
other disposition shall be without effect. No right of an Eligible Employee
under this Plan may be exercised after his death, by his personal representative
or anyone else, or during his lifetime by any person other than the Eligible
Employee.
ARTICLE 7
Nontransferability of Stock; Call Right; Put Right
--------------------------------------------------
7.1 Nontransferability. While the Stock or any security to which such
------------------
Stock is convertible is not Publicly Traded, a Participant may not sell,
transfer, pledge, assign or otherwise alienate or hypothecate, any share of
Stock received pursuant to the Plan without the prior written consent of the
Committee, which consent may be granted or withheld at the Committee's sole
discretion; provided, however, that notwithstanding the foregoing, a Participant
may make a one-time transfer of some or all of the shares of Stock received
pursuant to the Plan to a trust, the beneficiary or beneficiaries of which are
the Participant and/or the Participant's immediate family (i.e., the
Participant's mother, father, sisters, brothers, children and grandchildren),
provided that (i) the trustee(s) thereof shall agree on behalf of such trust to
abide by the terms and conditions of the Plan and shall execute and deliver all
such documentation as shall be deemed necessary by the Company in order to
effect such agreement and (ii) the terms of such trust provide that the shares
of Stock received pursuant to the Plan must be held of record by one person only
until such time, if any, as the Stock or any security to which such Stock is
convertible becomes Publicly Traded.
7.2 Call Right of Company Upon Termination of Employment of Participant.
-------------------------------------------------------------------
In the event that (a) a Participant shall cease to be employed by the Company
for any reason, including, without limitation, by reason of the death of the
Participant, while the Stock or any security to which such Stock is convertible
is not Publicly Traded or (b) if at any time on or after March 15, 2003 the
Stock or any security to which such Stock is convertible is not Publicly Traded,
the Company shall have the right (but not the obligation) ("Call Right") to
----------
purchase (and the Participant shall have the obligation to sell) all of such
Participant's shares of Stock received pursuant to the Plan. The per share
purchase price shall be determined by the Committee and shall be not less than
the greater of (a) the Fair Market Value of a share of Stock and (b) in the
event that a Transfer of Interest shall have occurred prior to the exercise of
such Call Right, the Recent Transaction Value of a share of Stock. Such prices
shall be calculated as of the date of such cessation of employment (if the Call
Right is exercised pursuant to (a) hereof) or the date the notice of exercise
described in the next sentence of this Section 7.2 is received by the
Participant pursuant to Section 8.16 (if the Call Right is exercised pursuant to
(b) hereof); provided, however, that, notwithstanding the foregoing, if the Call
Right is exercised within six (6) months of the Participant's purchase of Shares
hereunder, the aggregate purchase price for such Shares shall be not less than
the aggregate Fair Market Value of such shares of Stock as of the date which is
six (6) months after such purchase. The Call Right shall be exercised by written
notice to the Participant, which notice shall fix the date of settlement of the
payment of
-7-
<PAGE>
the subject shares of Stock (the "Call Closing") at not less than 5 nor more
------------
than 30 days after the date such notice is given, provided that the Call Closing
cannot occur in any event until at least six months after the Exercise Date. The
purchase price to be paid for the subject shares of Stock, upon delivery to the
Company of all stock certificates representing Participant's shares of Stock and
corresponding signed stock powers, shall be paid by check of the Company at the
Call Closing. The Call Closing shall take place at the offices of the Company at
1:00 p.m. on the date fixed in the exercise notice. Such shares of Stock shall
be canceled on the books of Company upon the delivery of the purchase price
therefor.
7.3 Put Right to the Company. After the date which is six months after
------------------------
the Exercise Date and for so long as the Stock or any security to which such
Stock is convertible is not Publicly Traded, a Participant shall have the right
(but not the obligation) ("Put Right"), exercisable by written notice to the
---------
Company, to sell to the Company (and the Company shall have the obligation to
buy) any of such Participant's shares of Stock received pursuant to the Plan.
The per share purchase price shall be determined by the Committee and shall be
not less than the greater of (a) the Fair Market Value of a share of Stock and
(b) in the event that a Transfer of Interest shall have occurred prior to the
exercise of such Put Right, the Recent Transaction Value of a share of Stock, in
each case calculated as of the date of the notice of exercise of the Put Right.
The Company shall fix, by written notice to the Participant, the date of
settlement of the payment of the subject shares of Stock (the "Put Closing") at
-----------
not less than 5 nor more than 30 days after the date such notice is given. The
purchase price to be paid for the subject shares of Stock, upon delivery to the
Company of all stock certificates representing Participant's shares of Stock and
corresponding signed stock powers, shall be paid by check of the Company at the
Put Closing. The Put Closing shall take place at the offices of the Company at
1:00 p.m. on the date fixed in the notice. Such shares of Stock shall be
canceled on the books of Company upon the delivery of the purchase price
therefor.
ARTICLE 8
Miscellaneous
-------------
8.1 Stock Adjustments.
-----------------
(a) The existence of the Plan and the Grants granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company or an Affiliate, any issue of debt, preferred or
prior preference stock ahead of or affecting Stock, the authorization or
issuance of additional shares of Stock, the dissolution or liquidation of the
Company or its Affiliate, any sale or transfer of all or part of its assets or
business or any other corporate act or proceeding.
(b) Upon changes in the outstanding Stock by reason of a stock dividend,
stock split, reverse stock split, subdivision, recapitalization,
reclassification, merger, consolidation (whether or not the Company is a
surviving corporation), combination or exchange of shares of Stock, separation,
or reorganization, or in the event of an extraordinary dividend, "spin-off,"
liquidation, other substantial distribution of assets of the Company or
acquisition of property or stock or
-8-
<PAGE>
other change in capital of the Company, or the issuance by the Company of shares
of its capital stock without receipt of full consideration therefor, or rights
or securities exercisable, convertible or exchangeable for shares of such
capital stock, or any similar change affecting the Company's capital structure
the aggregate number, class and kind of shares of stock available under the Plan
and the number, class and kind of shares under each outstanding Grant and the
price per share applicable to any such Grants shall be appropriately adjusted by
the Committee in its discretion to preserve the benefits or potential benefits
intended to be made available under the Plan or with respect to any outstanding
Grants or otherwise necessary to reflect any such change.
8.2 Conditions Upon Issuance of Shares. Shares of Stock shall not be
----------------------------------
issued with respect to a Grant unless the exercise of such Grant and the
issuance and delivery of such shares of Stock pursuant thereto shall comply with
all applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. As a condition to the
exercise of a Grant hereunder, the Company may require the person exercising
such Grant to represent and warrant at the time of any such exercise that the
shares of Stock are being purchased only for investment and without any present
intention to sell or distribute such shares of Stock if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law. The certificates evidencing such
shares of Stock may include a legend that the Committee deems appropriate to
reflect such restrictions.
8.3 Necessity for Delay.
--------------------
(a) If at any time the Committee shall determine, in its discretion, that
the listing, registration and/or qualification of shares of Stock upon any
securities exchange or under any state or Federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the sale or purchase of shares of Stock
hereunder, no Grant may be exercised hereunder in whole or in part unless and
until such listing, registration, qualification, consent and/or approval shall
have been effected or obtained, or otherwise provided for, free of any
conditions not acceptable to the Committee.
(b) If at any time counsel to the Company shall be of the opinion that any
sale or delivery of shares of Stock pursuant to a Grant is or may be in the
circumstances unlawful under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such sale
or delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act, or otherwise with
respect to shares of Stock or Grants, and the right to exercise any Grant shall
be suspended until, in the opinion of said counsel, such sale or delivery shall
be lawful or will not result in the imposition of taxes on the Company.
(c) Notwithstanding anything in the Plan to the contrary, the Company shall
have no obligation under the Plan to cause any shares of Stock to be registered
or qualified under any
-9-
<PAGE>
federal or state law or listed on any stock exchange or admitted to any national
marketing system.
8.4 Amendment and Termination of the Plan. The Committee may at any time
-------------------------------------
for any reason amend or terminate the Plan; provided, however, that in the event
the Plan is terminated pursuant hereto, the Put Right provided for in Section
7.3 shall survive until such right expires according to its terms, if ever.
None of Article 2, Sections 7.2, 7.3 or 8.4 may be amended in any manner without
the prior written approval of Participants holding 51% or more of the Shares
purchased hereunder.
8.5 Application of Funds. The Plan shall be unfunded. The Company shall
--------------------
not be required to establish any special or separate fund or to make any other
segregation of assets to assure the issuance of shares of Stock upon exercise of
any Grant. Proceeds from the sale of shares of Stock pursuant to Grants granted
under the Plan shall constitute general funds of the Company.
8.6 No Obligation to Participate. The offering of any Stock under the
----------------------------
Plan shall impose no obligation upon any Eligible Employee to subscribe to
purchase any such shares.
8.7 No Implied Rights to Employees. The existence of the Plan, and the
------------------------------
offering of shares of Stock under the Plan, shall in no way give any Employee
the right to continued employment, give any Employee the right to receive any
Stock or any additional Stock under the Plan, or otherwise provide any Employee
any rights not specifically set forth in the Plan.
8.8 Withholding.
-----------
(a) The Company shall have the right to withhold from an Eligible
Employee's compensation the amount necessary to meet any applicable federal,
state or local withholding obligation, including any withholding necessary to
make available any tax deductions to the Company due to sale or early
disposition of the Stock issued to the Eligible Employee under the Plan.
(b) Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan, the Company shall have the right to require an
Eligible Employee to remit to the Company an amount sufficient to satisfy any
federal, state or local withholding tax liability prior to the delivery of any
certificate or certificates for such shares. Whenever under the Plan payment is
to be made in cash, such payments shall be made net of an amount sufficient to
satisfy any federal, state or local withholding tax liability.
8.9 Duration. Having been duly adopted by the Board of Directors and
--------
subsequently approved and adopted by the stockholders of the Company, the Plan
is effective as of October 20, 1998 (the "Effective Date"). The Plan, unless
--------------
sooner terminated as provided in Section 8.4, shall terminate on the date the
Stock is Publicly Traded.
8.10 Designation of Beneficiary.
--------------------------
-10-
<PAGE>
(a) An Eligible Employee may file with the Company on a form provided for
such purpose by the Company a written designation of a beneficiary who is to
receive any shares of Stock and/or cash from the Eligible Employee's Account
under the Plan in the event of such Eligible Employee's death subsequent to an
Exercise Date on which a Grant is exercised but prior to delivery to such
Eligible Employee of such shares. In addition, an Eligible Employee may file a
written designation of a beneficiary who is to receive any cash from the
Eligible Employee's Account under the Plan in the event of such Eligible
Employee's death prior to exercise of a Grant.
(b) Such designation of beneficiary may be changed by the Eligible
Employee at any time by written notice to the Company on a form supplied by the
Company for such purpose. In the event of the death of an Eligible Employee and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such Eligible Employee's death, the Company shall deliver such
shares and/or cash to the executor or administrator of the estate of the
Eligible Employee, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the Eligible Employee, or if no spouse, dependent or relative is
known to the Company, then to such other person as the Company may designate.
8.11 Rights of Stock. Each share of Stock offered pursuant to the Plan
---------------
shall have the rights given such Stock in the Certificate of Incorporation of
the Company, as the same may be amended from time to time.
8.12 Governing Law. The Plan shall be governed by and construed in
-------------
accordance with the laws of California, without regard to such state's choice of
law provisions, except as superseded by applicable Federal law.
8.13 Expenses of the Plan. The Company shall bear all costs and expenses
---------------------
incurred in administering the Plan, including expenses of issuing shares of
Stock pursuant to any Grants exercised hereunder.
8.14 Construction. The words "Section," "paragraph" and "clause" shall
-------------
refer to provisions of the Plan, unless expressly indicated otherwise. Wherever
any words are used in the Plan in the masculine gender they shall be construed
as though they were also used in the feminine gender in all cases where they
would so apply, and wherever any words are used herein in the singular form they
shall be construed as though they were also used in the plural form in all cases
where they would so apply.
8.15 Limits of Liability.
-------------------
(a) Any liability of the Company or any Affiliate to any Eligible Employee
with respect to any Grant shall be based solely upon contractual obligations
created by the Plan.
(b) Neither the Company nor any Affiliate nor any member of the Committee
or the Board, nor any other person participating in any determination of any
question under the Plan, or
-11-
<PAGE>
in the interpretation, administration or application of the Plan, shall have any
liability, in the absence of bad faith, to any party for any action taken or not
taken in connection with the Plan, except as may expressly be provided by
statute.
8.16 Notices. All notices or other communications (i) by a Participant to
-------
the Company in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof and (ii) by the
Company to a Participant in connection with the Plan shall be deemed to have
been duly given when received by the participant or, if earlier, five days after
deposit in the United States mail by certified or registered mail, return
receipt requested, first class postage prepaid, addressed to the Participant at
his or her address as shown on the records of the Company or as such participant
may request by written notice to the Company hereunder.
8.17 No Enlargement of Employee Rights. The Plan is purely voluntary on
---------------------------------
the part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employment of the Company, any Affiliate or a successor
corporation, or to interfere with the right of the Company or any such
corporation to discharge or retire any Employee thereof at any time. No Employee
shall have any right to or interest in Grants authorized hereunder prior to the
grant of a Grant to such Employee, and upon such grant he or she shall have only
such rights and interests as are expressly provided herein, subject, however, to
all applicable provisions of the Company's Certificate of Incorporation, as the
same may be amended from time to time.
-12-
<PAGE>
EXHIBIT 10.4
INFONET SERVICES CORPORATION
DEFERRED INCOME PLAN
(Amended and Restated Effective December 1, 1998)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Purpose and Background............................................... 1
1.1 Purpose........................................................ 1
1.2 Effective Date................................................. 1
1.3 Definitions.................................................... 1
ARTICLE II
Eligibility and Participation........................................ 1
2.1 Commencement of Participation.................................. 1
2.2 Cessation of Participation..................................... 2
ARTICLE III
Deferral of Qualified Compensation................................... 2
3.1 Election to Participate........................................ 2
3.2 Change of Election............................................. 2
3.3 Participants in Other Incentive or Supplemental Plans.......... 3
ARTICLE IV
Participants' Accounts and Allocations............................... 4
4.1 Accounts....................................................... 4
4.2 Crediting of Deferrals......................................... 4
4.3 Earnings and Losses............................................ 4
4.4 Immediate Vesting.............................................. 5
ARTICLE V
Distribution of Participants' Accounts............................... 5
5.1 Distribution of Accounts....................................... 5
5.2 Election to Defer Distributions................................ 5
5.3 Involuntary Separation from Service............................ 6
5.4 Death.......................................................... 6
5.5 Hardship Withdrawals........................................... 6
5.6 Change of Control.............................................. 7
5.7 Plan Administrator Discretion.................................. 7
5.8 Valuation of Accounts.......................................... 8
ARTICLE VI
Administration....................................................... 8
6.1 Appointment of Committee....................................... 8
6.2 Delegation of Powers; Reliance on Third Parties................ 8
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.3 Indemnification................................................ 9
ARTICLE VII
Right to Amend, Modify, Suspend or Terminate the IDIP................ 9
7.1 Amendment or Termination....................................... 9
7.2 Change of Control Provisions................................... 10
ARTICLE VIII
Claims Procedure..................................................... 10
8.1 Filing of Claim................................................ 10
8.2 Initial Decision............................................... 10
8.3 Opportunity for Review of Claim................................ 10
8.4 Timing of Request for Review................................... 11
8.5 Decision on Review............................................. 11
8.6 Authority of Claims Official................................... 11
8.7 Authority of Plan Administrator................................ 12
8.8 Arbitration.................................................... 12
ARTICLE IX
Miscellaneous Provisions............................................. 13
9.1 No Assignment of Benefits...................................... 13
9.2 Releases....................................................... 13
9.3 No Waiver...................................................... 13
9.4 No Contract.................................................... 14
9.5 Nature of IDIP Benefits........................................ 14
9.6 Governing Law.................................................. 15
9.7 Pronouns and Plurality......................................... 15
9.8 Titles......................................................... 15
9.9 References..................................................... 15
9.10 Severable Provisions........................................... 15
9.11 Inability to Ascertain Amount of Payment or to Locate Payee.... 16
9.12 Minors and Incompetents........................................ 16
9.13 Payment Not Salary............................................. 16
9.14 Withholding.................................................... 17
9.15 Successors of the Employers.................................... 17
ARTICLE X
Definitions.......................................................... 17
</TABLE>
(ii)
<PAGE>
INFONET SERVICES CORPORATION
DEFERRED INCOME PLAN
(Amended and Restated Effective December 1, 1998)
ARTICLE I
Purpose and Background
----------------------
1.1 Purpose. The purpose of the Infonet Deferred Income Plan (the
-------
"IDIP") is to permit designated Employees of the Employer to defer the receipt
of Qualified Compensation on an elective basis.
1.2 Effective Date. The IDIP was originally effective as of January
--------------
27, 1993 and was subsequently amended and restated as of January 1, 1996. This
Amendment and Restatement of the IDIP shall be effective December 1, 1998.
1.3 Definitions. The capitalized terms used herein shall have the
-----------
meanings set forth in Article X hereof, unless a different meaning is plainly
required by context.
ARTICLE II
Eligibility and Participation
-----------------------------
2.1 Commencement of Participation. An Eligible Employee may become a
-----------------------------
Participant in the IDIP on or after the latest of the Effective Date or the date
he becomes an Eligible Employee by executing and returning to the Plan
Administrator a Participation Form, provided that at the time such person elects
to participate in the IDIP, he is a participant in the Infonet 401(k) Plan and
the Infonet Pension Plan or, in the case of an employee of an Affiliate,
<PAGE>
such other profit sharing, pension or retirement plans as are designated by the
Plan Administrator in the Participation Form.
2.2 Cessation of Participation. A person shall cease to be a
--------------------------
Participant in the IDIP upon the distribution of the Participant's Account under
the IDIP. A Participant who ceases to be a participant in the Infonet 401(k)
Plan or the Infonet Pension Plan, or in the case of an employee of an Affiliate,
such other profit sharing, pension or retirement plans as are designated by the
Plan Administrator in the Participation Form, shall cease deferrals under the
IDIP as of the last day of the Plan Year in which the Participant ceases to
participate in such other plan or plans.
ARTICLE III
Deferral of Qualified Compensation
----------------------------------
3.1 Election to Participate. Each Eligible Employee may elect,
-----------------------
within 30 days after he first becomes an Eligible Employee, to defer for such
Plan Year such amount of his Qualified Compensation earned during such Plan Year
as an Eligible Employee, as is elected by the Participant on his or her
Participation Form, by executing and returning to the Plan Administrator such
Participation Form. An Eligible Employee who does not elect to participate when
first eligible may elect to participate prior to the beginning of any subsequent
Plan Year, effective for the following Plan Year, by executing and returning to
the Plan Administrator a Participation Form.
3.2 Change of Election. A deferral election shall remain in effect
------------------
until the earliest of (a) the beginning of the first Plan Year occurring after
such Participant executes a new Participation Form, (b) the date as of which the
Participant ceases to be an Eligible Employee, or
-2-
<PAGE>
(c) the date the Participant's election is otherwise discontinued under this
Section 3.2. A Participant may change or cease his deferral election prior to
the beginning of any Plan Year, effective for the following Plan Year, by
executing and returning to the Plan Administrator a new Participation Form. A
Participant may discontinue an election to defer Qualified Compensation with
respect to any Plan Year on or after the first day of such Plan Year, only with
the Plan Administrator's written approval in connection with the Plan
Administrator's approval of a Hardship distribution to the Participant pursuant
to Section 5.5 hereof.
3.3 Participants in Other Incentive or Supplemental Plans. (a) A
-----------------------------------------------------
Participant who is a participant in any long-term incentive compensation and/or
supplemental defined benefit plan of an Employer may elect, by executing and
returning the Plan Administrator a Participation Form, which shall be delivered
to the Plan Administrator not later than one calendar year preceding the date
upon which distribution of amounts under the terms of the applicable plan would
have otherwise been made, that if the Participant becomes entitled to payments
or benefits, the Participant (i) defers the receipt of the amount of the long-
term incentive payment and/or (ii) will have the actuarial equivalent of his
supplemental defined benefits converted to a lump sum and credited to his
Account hereunder. No such election shall become effective if the Participant's
Separation from Service occurs within one year of such election.
(b) The amounts deferred and/or converted pursuant to this Section
3.3 shall be credited to the Participant's Account and shall be subject to all
provisions of the IDIP.
(c) Any election to defer the receipt of long-term incentive or
supplemental benefit amounts hereunder may be amended not later than one
calendar year preceding the date
-3-
<PAGE>
distribution of amounts under the terms of the applicable plan would otherwise
have been made by executing and returning to the Plan Administrator a new
Participation Form.
ARTICLE IV
Participants' Accounts and Allocations
--------------------------------------
4.1 Accounts. The Plan Administrator shall establish and maintain
--------
for each Participant an Account to which shall be credited the amounts set forth
below and from which shall be debited any payments made to the Participant or
his Beneficiaries under the IDIP.
4.2 Crediting of Deferrals. At such time as a Participant would
----------------------
otherwise be paid (a) items of Qualified Compensation or (b) amounts under any
long-term incentive compensation and/or supplemental defined benefit plan
referred to in Section 3.3 hereof, which the Participant has elected to defer
under Article III hereof, the amount of such deferred Qualified Compensation or
amount deferred under Section 3.3 hereof shall be credited to the Participant's
Account.
4.3 Earnings and Losses. Earnings or losses shall be credited to or
-------------------
debited from the Participants' Accounts based on the balances of said Accounts
pursuant to such methods as the Plan Administrator shall adopt. Such earnings
or losses shall be allocated at least annually and on such valuation dates as
the Plan Administrator shall determine. The Plan Administrator shall determine
the rate of earnings which shall be credited to the Participants' Accounts,
which rate may be fixed or variable and which may be based upon any index or
benchmark selected by the Plan Administrator or upon the actual earnings or
losses on any real or phantom investment made by Infonet as may be directed by
the Plan Administrator or by the Participants. To the
-4-
<PAGE>
extent that the Participants may be permitted to direct any real or phantom
investment of amounts held in their Accounts, any losses incurred as a result of
any such direction shall be charged to the Accounts of the directing
Participants, and the Employer, the IDIP and the other Participants and their
Accounts shall not be charged with, and shall have no responsibility for, any
such losses.
4.4 Immediate Vesting. Each Participant's interest in his Account
-----------------
shall at all times be fully vested.
ARTICLE V
Distribution of Participants' Accounts
--------------------------------------
5.1 Distribution of Accounts. Except with respect to distributions
------------------------
required to be made pursuant to Section 8.8 hereof, each Participant's Account
shall be distributed to him (a) if the Plan Administrator permits Participants
to designate distribution dates, within 30 days after each distribution date
specified in his Participation Form in the manner specified in such
Participation Form or (b) if Participants are not permitted to or do not
designate distribution dates, within 30 days after the end of the calendar
quarter in which his Separation from Service occurs.
5.2 Election to Defer Distributions. Notwithstanding Section 5.1
-------------------------------
hereof, a Participant who is entitled to receive a distribution only upon his
Separation from Service may make an election, by executing and delivering to the
Plan Administrator, a new Participation Form at least one year prior to the date
of his Separation from Service, to defer the receipt of all or a portion of the
amount credited to his Account for such period of time as is indicated on such
-5-
<PAGE>
Participation Form and is acceptable to the Plan Administrator, in its sole
discretion. No such election shall be given effect if the Participant's
Separation from Service occurs within one year of the date of such election.
5.3 Involuntary Separation from Service. Notwithstanding the
-----------------------------------
foregoing, a Participant who incurs an involuntary Separation from Service shall
receive a distribution of his Account in a lump sum on the earlier of (a) the
date on which the Participant begins receiving retirement benefits under the
Infonet Pension Plan or (b) the date which is five years from the date on which
his Separation from Service occurs; provided, however, that the Participant may
elect to receive his distribution at an earlier date and/or in a form other than
a lump sum. However, all such elections will be subject to the approval of the
Plan Administrator, in its sole discretion, and no distributions shall be made
pursuant to such election until at least one full year has elapsed since the
date of the election.
5.4 Death. Upon the death of a Participant, the amount credited to
-----
his Account shall be paid in one lump sum to such Participant's Beneficiary.
Such payment shall be made not later than 30 days after the calendar quarter in
which the Participant's death occurs.
5.5 Hardship Withdrawals. A Participant may make a withdrawal from
--------------------
his Account on account of his Hardship, subject to the following requirements:
(a) the Participant's Hardship withdrawal shall not exceed the amount
which is necessary to satisfy the Hardship,
-6-
<PAGE>
(b) a hardship withdrawal may not be made to the extent that such
hardship is or may be relieved (i) through reimbursement or compensation
by insurance or otherwise, (ii) by liquidation of the Participant's assets,
to the extent the liquidation of such assets would not itself cause severe
financial hardship, or (iii) by cessation of deferrals under IDIP,
(c) the denial of the Participant's Hardship withdrawal request would
result in severe financial hardship to the Participant, and
(d) the Participant has not received a Hardship withdrawal within the
12 month period preceding the withdrawal.
5.6 Change of Control. Notwithstanding the terms of a Participant's
-----------------
Participation Form or any election to defer under the IDIP, upon the occurrence
of a Change in Control, each Participant's Account shall be distributed to him
in a lump sum, as soon as practicable after such Change in Control; provided,
however that a Participant may make an irrevocable and unamendable election, by
executing and delivering to the Plan Administrator a new Participation Form, at
least one year prior to the date on which the Change in Control occurs to defer
the receipt of the amount credited to his Account until such amount is otherwise
distributable pursuant to the terms of the IDIP; and provided, further, that the
Plan Administrator may, in its sole discretion, upon written notice to the
Participant, within one year before, or 60 days after, such Change of Control,
defer distributions to a Participant who has not incurred a Separation from
Service until such amount is otherwise distributable to such Participant
pursuant to the terms of the IDIP.
-7-
<PAGE>
5.7 Plan Administrator Discretion. Notwithstanding the terms of a
-----------------------------
Participant's Participation Form or any election to defer under the IDIP, the
Plan Administrator may, in its sole discretion, distribute a Participant's
Account or any portion thereof at any time and in any manner.
5.8 Valuation of Accounts. Any Account, or portion thereof,
---------------------
distributed under the IDIP shall be valued as closely as possible to the date of
distribution, but in no event earlier than seven business days prior to the date
of distribution.
ARTICLE VI
Administration
--------------
6.1 Appointment of Committee. The Board of Directors shall appoint a
------------------------
committee to act as the Plan Administrator. The committee shall consist of at
least three, and not more than five, Infonet employees or executives. The Plan
Administrator shall be solely responsible for the operation and administration
of the IDIP and shall have the power in its sole discretion to interpret the
IDIP and all documents relating thereto and to make such determinations as may
be required or appropriate. Any determination of the Plan Administrator under
the IDIP shall be made in a non-discriminatory manner by a majority of all the
members of the committee. Each determination by the Plan Administrator as to
any matter respecting the operation and administration of the IDIP and the other
provisions of the IDIP shall be conclusive and binding on all persons, including
Participants and their Beneficiaries.
6.2 Delegation of Powers; Reliance on Third Parties. The Plan
-----------------------------------------------
Administrator may delegate its powers as appropriate and may engage counsel and
such clerical, financial,
-8-
<PAGE>
investment, accounting, and other specialized services as it may deem necessary
or desirable for the operation and administration of the IDIP. The Plan
Administrator shall be entitled to rely upon any opinions, reports or other
advice furnished by counsel or other specialists engaged for that purpose and,
in so relying, shall be fully protected in any action, determination, or mission
taken or made in good faith.
6.3 Indemnification. The Employers shall defend, indemnify and hold
---------------
harmless the Plan Administrator, and each member thereof, and any other person
or committee to whom such members have delegated any of their responsibilities
hereunder, acting as such and not as Participants hereunder, from and against
any and all claims, losses, damages, expenses (including reasonable attorneys'
fees and expenses) and liabilities (collectively, "Liability") arising from any
action, failure to act, or other conduct in their official capacity under the
IDIP, except with respect to any Liability which results from an individual's
own gross negligence or willful misconduct.
ARTICLE VII
Right to Amend, Modify, Suspend or Terminate the IDIP
-----------------------------------------------------
7.1 Amendment or Termination. By action of the Board of Directors,
------------------------
Infonet may amend, modify, suspend or terminate the IDIP or Participants'
Participation Forms without further liability to any Participant, Employee,
former Employee or any other person. Notwithstanding the preceding sentence,
the IDIP and Participants' Participation Forms may not be amended, modified,
suspended or terminated so as to reduce the value of the Participants' Accounts.
Upon termination of the IDIP, the Plan Administrator in its sole discretion may
pay
-9-
<PAGE>
the Participants the amounts credited to their Accounts, within 30 days after
the termination of the IDIP, or may cause the amounts credited to Participants'
Accounts to remain credited to such Accounts and be distributed as provided in
Article V hereof.
7.2 Change of Control Provisions. During the three year period
----------------------------
immediately following any Change in Control (i) the Board of Directors may not
amend, modify, suspend or terminate the IDIP or, except as provided in Section
5.6 hereof, a Participant's Participation Form in any respect with respect to
any person who was a Participant in the IDIP on the date of the Change in
Control without the express prior written consent of such Participant and (ii)
the Plan Administrator may not change the methods and benchmarks used to credit
earnings to any Participant's Account from those methods and benchmarks which
were in effect immediately prior to the Change in Control without the express
prior written consent of such Participant.
ARTICLE VIII
Claims Procedure
----------------
8.1 Filing of Claim. Any claim for benefits under the IDIP shall be
---------------
filed in writing with the Plan Administrator or any person or committee
designated by the Plan Administrator as the IDIP's claims official (the "Claims
Official").
8.2 Initial Decision. If the Claims Official wholly or partially
----------------
denies the claim, he shall, within a reasonable period of time after receipt of
the claim provide the claimant with written notice of such denial, setting
forth, in a manner calculated to be understood by the claimant: (a) the specific
reason or reasons for such denial, (b) specific reference to the pertinent IDIP
provisions on which the denial is based, (c) a description of any additional
material or
-10-
<PAGE>
information necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary and (d) an explanation of the
IDIP's claims review procedure.
8.3 Opportunity for Review of Claim. The Claims Official shall
-------------------------------
provide each claimant with a reasonable opportunity to appeal a denial of a
claim and an opportunity for a full and fair review of such denial. The
claimant or his duly authorized representative: (i) may request a review upon
written application to the Claims Official, (ii) may review pertinent documents
and (iii) may submit issues and comments to the Claims Official in writing.
8.4 Timing of Request for Review. The Claims Official may establish
----------------------------
such time limits within which a claimant may request review of a denied claim as
are reasonable in relation to the nature of the benefit which is the subject of
the claim and to other attendant circumstances but which, in no event, shall be
less than 60 days after receipt by the claimant of written notice of denial of
his claim.
8.5 Decision on Review. The decision by the Claims Official upon his
------------------
review of a claim shall be made not later than 60 days after receipt by the
Claims Official of the request for review, unless special circumstances require
an extension of time for processing, in which case a decision shall be rendered
as soon as possible, but not later than 120 days after receipt of such request
for review. The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner calculated to be
understood by the claimant with specific references to the pertinent IDIP
provisions on which the decision is based.
-11-
<PAGE>
8.6 Authority of Claims Official. The Claims Official shall have the
----------------------------
full power and authority to decide any questions and settle all controversies
that may arise in connection with the IDIP. The Claims Official's
interpretations and construction thereof, and actions hereunder, made in the
sole discretion of the Claims Official, including any valuation of a
Participant's Account, any determination under this Article VIII or the amount
of the payment to be made hereunder, shall be final, binding and conclusive on
all persons for all persons. No Claims Official shall be liable to any person
for any action taken or omitted in connection with the interpretation of the
IDIP or deciding claims hereunder.
8.7 Authority of Plan Administrator. The Plan Administrator shall
-------------------------------
determine, subject to the provisions of the IDIP: (i) the Eligible Employees
who shall participate in the IDIP from time to time; and (ii) when an Eligible
Employee shall cease to be eligible.
8.8 Arbitration. If a Participant elects, any dispute under the IDIP
-----------
between the Participant and the Participant's Employer shall be submitted to
private and confidential arbitration by a single neutral arbitrator. Subject to
the terms of this Section 8.8, the arbitration proceedings shall be held in Los
Angeles, California and shall be governed by the Commercial Arbitration Rules of
the American Arbitration Association and the arbitrator shall be selected by the
Participant and the Participant's Employer, or, if the Participant and the
Employer cannot agree upon an arbitrator, by the American Arbitration
Association pursuant to its Rules. The decision of the arbitrator shall be
final and binding on the Participant and the Participant's Employer, and
judgment thereon may be entered in any court having jurisdiction. All of the
Participant's and the Participant's Employer's costs of any arbitration
proceeding or litigation to enforce the terms of the IDIP, including attorneys'
fees and costs, shall be paid by the Participant's Employer; provided,
--------
however,if the arbitrator determines that a Participant's claim or defense is
- -------
frivolous or without merit, such Participant shall pay his own costs.
-12-
<PAGE>
ARTICLE IX
Miscellaneous Provisions
------------------------
9.1 No Assignment of Benefits. No benefit payable under, or interest
-------------------------
in, the IDIP shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, garnishment, or charge, and any
attempt to do so shall be void. Any such benefit or interest shall not in any
manner be liable for or subject to the debts, contracts, liabilities,
engagements, or torts of any Participant or his Beneficiaries. If the Plan
Administrator finds that any Participant or Beneficiary has become bankrupt or
that any attempt has been made to anticipate, alienate, sell, transfer, assign,
pledge, encumber, or charge any benefit payable under, or interest in, the IDIP,
the Plan Administrator shall hold or apply such benefit or interest or any part
thereof to or for the benefit of such Participant or Beneficiary.
9.2 Releases. In connection with any benefit or benefit payment
--------
under the IDIP, or the designation of any Beneficiary or any election or other
action taken or to be taken under the IDIP by any Participant or any other
person, the Plan Administrator or its delegate, may require such consents or
releases as the Plan Administrator or its delegate determines to be appropriate,
and further may require any such designation election or other action to be in
writing and in form satisfactory to the Plan Administrator or its delegate.
9.3 No Waiver. The failure of an Employer, the Plan Administrator or
---------
any other person acting on behalf thereof to demand that a Participant or other
person claiming rights with respect to a Participant perform any act which such
Participant or person is or may be required to perform hereunder shall not
constitute a waiver of
-13-
<PAGE>
the right to require such act. The exercise of or failure to exercise any
discretion reserved to an Employer, the Plan Administrator or its delegate, to
grant or deny any benefit to any Participant or other person under the IDIP
shall in no way require the Employer, the Plan Administrator or its delegate to
similarly exercise or fail to exercise such discretion with respect to any other
Participant or person.
9.4 No Contract. The IDIP is strictly a voluntary undertaking on the
-----------
part of the Employers and shall not be deemed to constitute a contract or part
of a contract between an Employer and any Employee or other person, nor shall it
be deemed to give any Employee the right to be retained for any specified period
of time in the employ of an Employer or to interfere with the right of an
Employer to discharge any Employee at any time, with or without cause, nor shall
the IDIP interfere with the right of an Employer to establish the terms and
conditions of employment of any Employee.
9.5 Nature of IDIP Benefits. The IDIP shall not be "funded" for tax
-----------------------
purposes or within the meaning of ERISA. It is intended that the IDIP shall not
be a "pension plan" for purposes of ERISA and, therefore, that the IDIP shall
not be subject to any of the provisions of ERISA. All payments hereunder to
Participants or their Beneficiaries shall be paid from the general assets of the
Employers. The Employers shall not, by virtue of any provisions of the IDIP or
by any action of any person, be deemed to be trustees or other fiduciaries of
any property for any Participant or his Beneficiaries, and the liabilities of an
Employer to any Participant or his Beneficiaries pursuant to the IDIP shall be
those of a debtor pursuant only to such contractual obligations as are created
by the IDIP; no such obligation of an Employer shall be deemed to be secured by
any pledge or other encumbrance on any property of the Employer. Benefits under
-14-
<PAGE>
the IDIP shall be payable from the general assets of the Employer or pursuant to
such other means as the Employer deems appropriate and no Participant or other
person shall be entitled to look to any source for payment of such benefits
other than the general assets of the Employer. No Participant shall have any
interest in any fund used for measuring the rate of Earnings, and the Employer
may, but shall not be obligated to, invest its funds in the same manner as the
measuring factors for the rate of Earnings (as discussed in Section 4.3 hereof)
elected by the Participants. To the extent that any Participant or any of his
beneficiaries acquires a right to receive payment under the IDIP, such right
shall be no greater than the right of an unsecured general creditor of the
Employers.
9.6 Governing Law. The IDIP shall be construed, administered and
-------------
governed in all respects under and by applicable federal laws and, where state
law is applicable, the laws of the State of California.
9.7 Pronouns and Plurality. The masculine pronoun shall include the
----------------------
feminine pronoun, and the singular the plural where the context so indicates.
9.8 Titles. Titles are provided herein for convenience of reference
------
only and are not to serve as a basis for interpretation or construction of the
IDIP.
9.9 References. Unless the context clearly indicates to the
----------
contrary, a reference to a statute, regulation or document shall be construed as
referring to any subsequently enacted, adopted or executed statute, regulation
or document.
-15-
<PAGE>
9.10 Severable Provisions. The provisions of the IDIP are severable
--------------------
and if any one or more articles, sections, subsections, paragraphs, clauses or
provisions of the IDIP is determined to be illegal, indefinite, invalid or
otherwise unenforceable, in whole or in part, the remaining provisions, and any
partially unenforceable provisions to the extent enforceable in any
jurisdiction, shall continue in full force and effect and shall be binding and
enforceable.
9.11 Inability to Ascertain Amount of Payment or to Locate Payee. If
-----------------------------------------------------------
an amount payable under the IDIP cannot be ascertained or the person to whom it
is payable has not been ascertained or located within the stated time limits
under the IDIP and reasonable efforts to do so have been made, then distribution
shall be made not later than 30 days after such amount is determined or such
person is ascertained or located.
9.12 Minors and Incompetents. If the Plan Administrator shall find
-----------------------
that any person to whom payment is payable under the IDIP is unable to care for
his affairs because of illness or accident, or is a minor, any payment due
(unless a prior claim therefore shall have been made by a duly appointed
guardian, committee or other legal representative) may be paid to the spouse, a
child, parent, or brother or sister, or to any person deemed by the Plan
Administrator to have incurred expense for such person otherwise entitled to
payment, in such manner and proportions as the Plan Administrator may determine
it its sole discretion. Any such payment shall be a complete discharge of the
liabilities of the Employers, the Plan Administrator and the Board of Directors
under the IDIP.
9.13 Payment Not Salary. Any deferrals or benefits payable under the
------------------
IDIP shall not be deemed salary or other compensation to the Employee for the
purposes of computing
-16-
<PAGE>
benefits to which he or she may be entitled under any pension plan or other
arrangement of any Employer maintained for the benefit of its Employees, unless
such pension plan or arrangement provides for inclusion of such amounts as
salary or other compensation.
9.14 Withholding. The Employers shall have the right to make such
-----------
provisions as they deem necessary or appropriate to satisfy any obligations they
may have to withhold federal, state or local income or other taxes incurred by
reason of payments or accruals pursuant to the IDIP.
9.15 Successors of the Employers. The IDIP shall be binding upon and
---------------------------
inure to the benefit of the Employers, their successors and assigns and the
Participants and their heirs, executors, administrators and legal
representatives. In the event that the Employers sell all or substantially all
of the assets of their business and the acquiror of such assets assumes the
obligations hereunder, the Employers shall be released from any liability
imposed herein and shall have no obligation to provide any benefits payable
hereunder.
ARTICLE X
Definitions
-----------
For purposes of the Plan, the following definitions apply:
10.1 "Account" means the account established by a Participant's
Employer to record the interest of the Participant in the IDIP pursuant to
Article IV hereof.
10.2 "Affiliate" means (i) any organization, regardless of legal
form, in which Infonet owns a substantial equity or profits interest or over
which Infonet has the right to exercise
-17-
<PAGE>
significant management control or influence and which is designated in writing
by the Plan Administrator as an Affiliate for purposes of the IDIP or (ii) any
other organization approved by the Board of Directors as an Affiliate for
purposes of the IDIP.
10.3 "Beneficiary" means the person or person designated by the
Participant to receive his benefits under the IDIP in the event of the
Participant's death. If the Participant does not designate a Beneficiary or
there is no designated Beneficiary surviving the Participant, the Beneficiary
shall be the Participant's estate.
10.4 "Board of Directors" means the Board of Directors of Infonet.
10.5 A "Change in Control" shall occur (a) in the event of the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"1933 Act")), as if Infonet were a public company, of the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the 1933 Act) of capital
stock of Infonet possessing 51% or more of the combined voting power of
Infonet's outstanding capital stock, (b) if within any two-year period, the
majority of the members of the Board of Directors were to be comprised of
individuals other than those persons who were members at the beginning of such
period, unless the members elected during such period were approved by a
majority of the Board of Directors in office immediately prior to the beginning
of such period, (c) the sale of all or substantially all of Infonet's assets or
(d) the approval by Infonet's shareholders of a plan of reorganization, merger
or consolidation, unless immediately following such transaction 51% or more of
the outstanding shares of capital stock of
-18-
<PAGE>
the corporation resulting from such transaction is then beneficially owned by
persons who were shareholders of Infonet immediately prior to such transaction.
10.6 "Code" means the Internal Revenue Code of 1986, as amended.
10.7 "Earnings" means, for any Plan Year, the earnings credited to a
Participant's Account pursuant to Article IV.
10.8 "Effective Date" means January 27, 1993.
10.9 "Eligible Employee" means an Employee who has been designated by
the Plan Administrator in writing, by name or position, as being eligible to
participate in the IDIP. A person shall cease to be an Eligible Employee upon
the date as of which the Plan Administrator notifies the person in writing that
the person shall not be entitled to future deferrals under the IDIP.
10.10 "Employee" means any person employed by an Employer.
10.11 "Employer" means Infonet and its Affiliates.
10.12 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
10.13 "Hardship" means a severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the Participant or
of his dependent, loss of the Participant's property due to casualty, or other
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant. Examples of what is not
-19-
<PAGE>
considered to be hardship include the need to send a Participant's child to
college or the desire to purchase a home. A financial need shall not constitute
a Hardship unless it is for at least $1,000.00 or the entire principal amount of
the Participant's Account, if less. The existence of Hardship of a Participant
shall be determined by the Plan Administrator in its discretion on the basis of
all relevant facts and circumstances and in accordance with nondiscriminatory
and objective standards, uniformly interpreted and consistently applied.
10.14 "IDIP" means the Infonet Services Corporation Deferred Income
Plan.
10.15 "Infonet" means Infonet Services Corporation and any successor
by merger, consolidation, purchase or otherwise.
10.16 "Infonet 401(k) Plan" means the Infonet Matched Asset Plan, a
contributory, defined contribution 401(k) profit sharing plan which is generally
available to all employees of Infonet and any successor thereto.
10.17 "Infonet Pension Plan" means the Infonet Employee Pension Plan,
a contributory, defined benefit pension plan which is generally available to all
employees of Infonet and any successor thereto.
10.18 "Participant" means any Eligible Employee who has elected to
defer receipt of his Qualified Compensation by completing and executing the
appropriate Participation Form.
10.19 "Participation Form" means the document which extends
participation in the IDIP to an Eligible Employee and which sets forth the
Eligible Employee's election to
-20-
<PAGE>
participate in the IDIP. The Participation Form shall be provided by the
Employer to each Eligible Employee and shall indicate (a) his consent that he,
his Beneficiaries and successors in interest shall be bound by the provisions of
the IDIP, as amended from time to time, (b) the amount, stated in whole
percentages or specified dollar amounts, by which the Participant's Employer is
to reduce his Qualified Compensation and his authorization to his Employer to
reduce his Qualified Compensation by the designated amount, (c) the date on
which amounts deferred by the Participant under the IDIP shall be paid, which
may be within 30 days after the end of the calendar quarter in which the
Participant's Separation from Service occurs, or if permitted by the Plan
Administrator, such other date or dates as shall be selected by the Participant
on the Participation Form and are acceptable to the Plan Administrator in its
sole discretion, and are not earlier than two years from the first day of the
Plan Year with respect to which the deferral election is made, (d) the
Beneficiary designated by the Participant and (e) such other information as may
be required by the Plan Administrator.
10.20 "Plan Administrator" means that committee established by the
Board of Directors pursuant to Article VI hereof which shall be responsible for
the administration of the IDIP. If no such committee is appointed, the Board of
Directors shall be deemed to be the Plan Administrator.
10.21 "Plan Year" means the calendar year, except for the first Plan
Year, which shall be the period from January 27, 1993 through December 31, 1993.
10.22 "Qualified Compensation" means, for any Participant in any
period within a Plan Year, the salary and incentive compensation actually paid
or made available by an
-21-
<PAGE>
Employer to the Participant during such period; provided that the determination
of such compensation shall be prior to any salary reduction pursuant to Code
Section 125 or 401(k), or pursuant to Article III of the IDIP. Except as
provided in the preceding sentence, Qualified Compensation shall not include any
contribution by the Employer to, or benefits paid under, the IDIP or under any
other pension, fringe benefit, group insurance or other employee plan (including
without limitation any severance plan) heretofore or hereafter adopted or any
deferred compensation arrangement.
10.23 "Separation from Service" means a Participant's termination of
employment as an Employee for any reason.
-22-
<PAGE>
Exhibit 10.5
INFONET SERVICES CORPORATION
1998 EMPLOYEE STOCK APPRECIATION RIGHTS PLAN
--------------------------------------------
ARTICLE 1
Purpose
-------
The purpose of the Infonet Services Corporation 1998 Employee Stock
Appreciation Rights Plan, as set forth herein and as amended from time to time
(the "Plan"), is to provide certain employees of Infonet Services Corporation, a
----
Delaware corporation (the "Company"), and its affiliates with an incentive to
-------
promote the welfare of the Company by granting such employees certain stock
appreciation rights ("SARs") under the Plan which are determined by reference to
----
the appreciation of the Company's Class C, $.01 par value, shares of the
Company (the "Stock").
-----
ARTICLE 2
Definitions
-----------
The following words and terms as used herein shall have that meaning set
forth therefor in this Article 2 unless a different meaning is clearly required
by the context. Whenever appropriate, words used in the singular shall be deemed
to include the plural and vice versa, references to a SAR or SARs shall include
fractions of a SAR and the masculine gender shall be deemed to include the
feminine gender.
2.1 "Affiliate" means any organization, regardless of legal form, (a) in
---------
which the Company owns a substantial equity or profits interest or over which
the Company has the right to exercise significant management control or
influence and (b) which is designated in writing by the Committee as an
Affiliate for purposes of the Plan.
2.2 "Board" or "Board of Directors" shall mean the Board of Directors of
----- ------------------
the Company.
2.3 "Book Value" shall mean the book value of a share of Stock determined
----------
by a formula based on a multiple of revenues of the Company for the immediately
preceding four completed fiscal quarters of the Company, as determined from time
to time by the Committee.
2.4 "Committee" shall mean the committee established by the Board of
---------
Directors to administer the Plan.
2.5 "Company" is defined in Article 1.
-------
2.6 "Employee" shall mean any employee of the Company or an Affiliate.
--------
<PAGE>
2.7 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
2.8 "Exercise Closing" is defined in Section 4.4.
----------------
2.9 "Exercise Date" is defined in Section 4.4.
-------------
2.10 "Exercise Price" shall mean, for any SAR granted pursuant the Plan,
--------------
the difference between (a) the Fair Market Value of a share of Stock on the
Grant Date and (b) the Fair Market Value of a share of Stock on the Exercise
Date.
2.11 "Fair Market Value" means:
-----------------
(i) if shares of Stock are Publicly Traded, the mean of the high and
low prices at which they are reported to have traded on the
relevant date in all markets on which trading in the Stock is
reported, or if there is no reported sale of the Stock on the
relevant date, the mean of the highest reported bid price and
lowest reported asked price for the Stock on the relevant date;
(ii) if no shares of Stock are Publicly Traded, the Book Value of the
Stock.
2.12 "Grant" shall mean a grant of SARs to an Employee under the Plan in
-----
accordance with the terms and conditions hereof.
2.13 "Grant Date" means the date on which a SAR is granted to a
----------
Participant pursuant to the Plan.
2.14 "Grant Document" shall mean the document memorializing a Grant in the
--------------
form established by the Company setting forth, without limitation (a) the name
of the Participant receiving the Grant, (b) the Grant Date, (c) the Fair Market
Value of the Stock on the Grant Date and (d) the number of SARs granted pursuant
to the Grant.
2.15 "Participant" shall mean an Employee who has been selected to
-----------
participate in the Plan and has received a grant of SARs pursuant to Section 4.1
hereof.
2.16 "Plan" is defined in Article 1.
----
2.17 "Publicly Traded" means that a class of stock (or equity interest) is
---------------
required to be registered under Section 12 of the Exchange Act or that stock (or
equity interest) of that class has been sold within the preceding twelve months
in an underwritten public offering.
2.18 "Redemption Closing" is defined in Section 5.3.
------------------
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<PAGE>
2.19 "Redemption Date" is defined in Section 5.3.
---------------
2.20 "Redemption Price" shall mean, for any SAR granted pursuant the Plan,
----------------
the difference between (a) the Fair Market Value of a share of Stock on the
Grant Date and (b) the Fair Market Value of a share of Stock on the Redemption
Date.
2.21 "Redemption Right" is defined in Section 5.3.
----------------
2.22 "SAR" is defined in Article 1.
---
2.23 "Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
2.24 "Stock" is defined in Article 1; provided, however, that the
----- -----------------
definition is subject to change by the Committee pursuant to Section 6.1(b).
ARTICLE 3
Administration
--------------
3.1 Committee. The Committee shall have exclusive authority to operate,
---------
manage and administer the Plan in accordance with its terms and conditions.
Notwithstanding the foregoing, in its absolute discretion, the Board may at any
time and from time to time exercise any and all rights, duties and
responsibilities of the Committee under the Plan, including, but not limited to,
establishing procedures to be followed by the Committee, except with respect to
matters which under any applicable law, regulation or rule, are required to be
determined in the sole discretion of the Committee. If and to the extent that no
Committee exists which has the authority to administer the Plan, the functions
of the Committee shall be exercised by the Board.
3.2 Organization. The Committee shall be appointed from time to time by
------------
the Board, and the Committee shall consist of not less than two (2) members.
Committee members may be removed by the Board at any time either with or without
cause, and such members may resign at any time by delivering notice thereof to
the Board. Any vacancy on the Committee, whether due to action of the Board or
any other reason, shall be filled by the Board. A majority of the members of the
entire Committee shall constitute a quorum and the actions of a majority of the
members of the Committee in attendance at a meeting at which a quorum is
present, or actions by a written instrument signed by all members of the
Committee, shall be the actions of the Committee.
3.3 Power and Authority. The Committee shall have all authority that may
-------------------
be necessary or helpful to enable it to discharge its responsibilities with
respect to the Plan. Without limiting the generality of the foregoing sentence
or Section 3.1, and in addition to the powers otherwise expressly designated to
the Committee in the Plan, the Committee shall have the exclusive right and
discretionary authority: (a) to determine the Employees of the Company and
-3-
<PAGE>
its Affiliates who are eligible to participate in the Plan; (b) to determine the
formula for establishing the Book Value of a share of Stock, (c) to determine
the terms, timing and conditions of the granting of Grants under the Plan; and
(d) to interpret the Plan; construe any ambiguous provision of the Plan and
decide all questions concerning eligibility for and the amount of Grants under
the Plan. The Committee may establish, amend, waive and/or rescind rules and
regulations and administrative guidelines for carrying out the Plan and may
correct any errors, supply any omissions or reconcile any inconsistencies in the
Plan. The Committee shall have the authority to adopt such procedures as the
Committee determines necessary or appropriate to permit participation in the
Plan by individuals otherwise eligible to so participate who are foreign
nationals or employed outside of the United States, or otherwise to conform to
applicable requirements or practices of jurisdictions outside of the United
States; and take any and all such other actions it deems necessary or advisable
for the proper operation and/or administration of the Plan. The Committee shall
have full discretionary authority in all matters related to the discharge of its
responsibilities and the exercise of its authority under the Plan. Decisions and
actions by the Committee with respect to the Plan shall be final, conclusive and
binding on all persons having or claiming to have any right or interest in or
under the Plan unless the Committee otherwise determines.
3.4 Employment of Counsel and Others. The Committee may consult with
---------------------------------
counsel who may be counsel to the Company. The Committee may also employ such
other attorneys or consultants, accountants, appraisers, brokers or other
persons as it deems necessary or appropriate.
3.5 No Liability. Neither the Committee nor any of the members thereof
-------------
shall incur any liability for any action taken in good faith in reliance upon
the advice of such counsel or such other persons.
3.6 Allocation of Responsibility. Except to the extent prohibited by
----------------------------
applicable law, the Committee may, in its discretion, allocate all or any
portion of its responsibilities and powers under this Article 3 to any one or
more of its members and/or delegate all or any part of its responsibilities and
powers under this Article 3 to any person or persons selected by it; provided,
however, the Committee may not delegate its authority to correct errors,
omissions or inconsistencies in the Plan. Any such authority delegated or
allocated by the Committee under this Section 3.6 shall be exercised in
accordance with the terms and conditions of the Plan and any rules, regulations
or administrative guidelines that may from time to time be established by the
Committee, and any such allocation or delegation may be revoked by the Committee
at any time.
ARTICLE 4
SAR Grants
----------
4.1 General. The Committee may make, at its sole and absolute discretion,
-------
a Grant to an Employee at any time during the term of the Plan. After such
Grant, the Committee shall send the Participant a Grant Document.
-4-
<PAGE>
4.2 Number of SARs To Be Offered Under Grants. Subject to adjustment
-----------------------------------------
pursuant to Section 6.1(b), the maximum number of shares of SARs that may be
offered under the Plan is fifty (50).
4.3 Vesting. The SARs shall vest on or after the dates indicated below as
-------
to that percentage of the total number of SARs granted to a particular
Participant pursuant to the Plan as set forth below opposite each such date.
Date Percentage
---- ----------
January 1, 2001 25%
January 1, 2002 25%
January 1, 2003 25%
January 1, 2004 25%
4.4 Exercise. A Participant may exercise any vested SARs received
--------
pursuant to a Grant by causing the Company to redeem such SARs for the Exercise
Price at any time and from time to time during the term of the Plan by giving
written notice to the Company (the date this notice is received by the Company,
calculated pursuant to Section 6.12(a), the "Exercise Date") setting forth (a)
-------------
the name of the Participant, (b) the Grant Date of the SARs exercised and (c)
the number of SARs exercised. The Company shall fix, by written notice to the
Participant, the date of settlement of the payment of the subject SARs (the
"Exercise Closing") at not less than 5 nor more than 30 days after the date such
- -----------------
notice of exercise is given. The Exercise Price to be paid for the subject SARs
shall be paid by check of the Company at the Exercise Closing. The Exercise
Closing shall take place at the offices of the Company at the time and on the
date fixed in the Company's notice. Exercised SARs shall be canceled and the
Participant shall have no further rights pursuant thereto upon the delivery of
the Exercise Price therefor.
ARTICLE 5
Nontransferability of SARs
--------------------------
5.1 Nontransferability. A Participant may not sell, transfer, pledge,
------------------
assign or otherwise alienate or hypothecate, any SARs received pursuant to the
Plan.
5.2 Cancellation Upon Cessation of Employment. All SARs received pursuant
-----------------------------------------
to a Grant under the Plan shall be canceled without further action from the
Company upon the termination, for any reason, of the Participant's employment
with the Company or an Affiliate, and the Company shall have no further
obligations with respect to such canceled SARs, except as follows:
(a) Notwithstanding the provisions of Section 5.1, in the event of
the death of the Participant while an employee of the Company or an Affiliate,
the SARs, to the extent exercisable
-5-
<PAGE>
in accordance with Section 4.4 hereof within two (2) years of the date of his
death, may be exercised after the Participant's death by his designated
beneficiary, heir, the legal representative of the Participant's estate or by
the legatee of the Participant under his last will for a period of two (2) years
from the date of his death or until the termination of the Plan, whichever
period is shorter.
(b) If the Participant's employment with the Company or an Affiliate
shall terminate by reason of disability (as defined in the last sentence of this
paragraph (b) of Section 5.2), the SARs, to the extent exercisable in accordance
with Section 4.4 hereof within one (1) year of the date of such termination of
employment, may be exercised after such termination for a period of one (1) year
from the date of such termination or until the termination of the Plan,
whichever period is shorter. For purposes of this Agreement, "disability" shall
mean an inability (as determined by the Committee) to perform duties and
services as an employee of the Company or an Affiliate by reason of a medically
determinable physical or mental impairment, supported by medical evidence, which
can be expected to last for a continuous period of not less than eight (8)
months.
(c) If the Participant's employment with the Company or an Affiliate
terminates by reason of the Participant's retirement on or after attaining sixty
(60) years of age, the SARs, to the extent exercisable in accordance with
Section 4.4 hereof within one (1) year of the date of such retirement, may be
exercised after such termination for a period of one (1) year from the date of
such termination or until the termination of the Plan, whichever period is
shorter.
(d) Notwithstanding the provisions of Section 5.1, if the Participant
dies after termination of his employment with the Company or an Affiliate under
paragraphs (b) or (c) of this Section 5.2 above during the one (1) year period
specified in such paragraphs, the SARs, to the extent they would have been
exercisable in accordance with such applicable paragraph (b) or (c) as of the
date of the Participant's death, may be exercised after the Participant's death
by the Participant's designated beneficiary, heir, the legal representative of
his estate or by the legatee of the Participant under his last will until the
expiration of the period of two (2) years from the date of his death or until
the termination of the Plan, whichever period is shorter.
(e) If the Participant's employment with the Company or an Affiliate
shall terminate under any circumstances not otherwise described in this Section
4.4, the SARs, to the extent exercisable in accordance with Section 4.4 hereof
as of the date of such termination, may be exercised after such termination but
may not be exercised after the expiration of the period of three (3) months from
the date of such termination or until the termination of the Plan, whichever
period is the shorter.
5.3 Redemption by the Company. The Company shall have the right at its
-------------------------
option ("Redemption Right") to redeem any SARs received pursuant to a Grant
----------------
under the Plan at the Redemption Price. The Redemption Right shall be exercised
by written notice to the Participant (the date this notice is given by the
Company, calculated pursuant to Section 6.12(b), the "Redemption Date"), which
---------------
notice shall fix the date of settlement of the payment of the Redemption Price
(the "Redemption Closing") at not less than 5 nor more than 30 days after the
------------------
date such notice is given. The Redemption Price to be paid for the subject SARs
shall be paid by
-6-
<PAGE>
check of the Company at the Redemption Closing. The Redemption Closing shall
take place at the offices of the Company at the time and on the date fixed in
the Company's notice. Redeemed SARs shall be canceled and the Participant shall
have no further rights pursuant thereto upon the delivery of the Redemption
Price therefor.
ARTICLE 6
Miscellaneous
-------------
6.1 SAR Adjustments.
---------------
(a) The existence of the Plan and the SARs granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company or an Affiliate, any issue of debt, preferred or
prior preference stock ahead of or affecting Stock, the authorization or
issuance of additional shares of Stock, the dissolution or liquidation of the
Company or its Affiliate, any sale or transfer of all or part of its assets or
business or any other corporate act or proceeding.
(b) Upon changes in the outstanding Stock by reason of a stock dividend,
stock split, reverse stock split, subdivision, recapitalization,
reclassification, merger, consolidation (whether or not the Company is a
surviving corporation), combination or exchange of shares of Stock, separation,
or reorganization, or in the event of an extraordinary dividend, "spin-off,"
liquidation, other substantial distribution of assets of the Company or
acquisition of property or stock or other change in capital of the Company, or
the issuance by the Company of shares of its capital stock without receipt of
full consideration therefor, or rights or securities exercisable, convertible or
exchangeable for shares of such capital stock, or any similar change affecting
the Company's capital structure the, aggregate number of SARs and the class and
kind of shares of stock defined as "Stock" under the Plan and the number of SARS
under each outstanding Grant shall be appropriately adjusted by the Committee in
its discretion to preserve the benefits or potential benefits intended to be
made available under the Plan or with respect to any outstanding Grants or
otherwise necessary to reflect any such change.
6.2 Conditions Upon Issuance of SARs. SARs shall not be issued pursuant
--------------------------------
to the Plan unless the issuance and delivery of SARs pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
6.3 Necessity for Delay. If at any time counsel to the Company shall be
-------------------
of the opinion that any redemption of SARs pursuant to the Plan is or may be in
the circumstances unlawful under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such
redemption and the Redemption Right, if any, pertaining to the subject SARs
shall be suspended until, in the opinion of said counsel, such redemption shall
be lawful.
-7-
<PAGE>
6.4 No Obligations With Respect to Public Trading of Stock.
------------------------------------------------------
Notwithstanding anything in the Plan to the contrary, the Company shall have no
obligation under the Plan to cause the Stock to be Publicly Traded.
6.5 Amendment and Termination of the Plan. The Committee may at any time
-------------------------------------
for any reason amend or terminate the Plan.
6.6 No Implied Rights to Employees. The existence of the Plan, and the
------------------------------
offering of SARs under the Plan, shall in no way give any Employee the right to
continued employment, give any Employee the right to receive any SARs or any
additional SARs under the Plan, give any Employee any rights with regard to the
Stock or otherwise provide any Employee any rights not specifically set forth in
the Plan.
6.7 Term of Plan. Having been duly adopted by the Board of Directors and
------------
subsequently approved and adopted by the stockholders of the Company, the Plan
is effective as of October 20, 1998. The Plan, unless sooner terminated as
provided in Section 6.5, shall terminate on the earlier of (a) the date which is
three years after the date the Stock is Publicly Traded and (b) October 20,
2004. Upon termination of the Plan, all SARs issued thereunder shall be canceled
without further action of the Company and no Participant shall have any rights
with respect thereto.
6.8 Governing Law. The Plan shall be governed by and construed in
-------------
accordance with the laws of California, without regard to such state's choice of
law provisions, except as superseded by applicable Federal law.
6.9 Expenses of the Plan. The Company shall bear all costs and expenses
---------------------
incurred in administering the Plan.
6.10 Construction. The words "Section," "paragraph" and "clause" shall
-------------
refer to provisions of the Plan, unless expressly indicated otherwise. Wherever
any words are used in the Plan in the masculine gender they shall be construed
as though they were also used in the feminine gender in all cases where they
would so apply, and wherever any words are used herein in the singular form they
shall be construed as though they were also used in the plural form in all cases
where they would so apply.
6.11 Limits of Liability.
-------------------
(a) Any liability of the Company or any Affiliate to any Eligible
Employee with respect to any Grant shall be based solely upon contractual
obligations created by the Plan.
(b) Neither the Company nor any Affiliate nor any member of the Committee
or the Board, nor any other person participating in any determination of any
question under the Plan, or in the interpretation, administration or application
of the Plan, shall have any liability, in the absence of bad faith, to any party
for any action taken or not taken in connection with the Plan, except as may
expressly be provided by statute.
-8-
<PAGE>
6.12 Notices. All notices or other communications (a) by a Participant to
-------
the Company in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof and (b) by the Company
to a Participant in connection with the Plan shall be deemed to have been duly
given five days after deposit in the United States mail by certified or
registered mail, return receipt requested, first class postage prepaid,
addressed to the Participant at his or her address as shown on the records of
the Company or as such participant may request by written notice to the Company
hereunder.
-9-
<PAGE>
EXECUTION COPY
EXHIBIT 10.7
================================================================================
$250,000,000
CREDIT AGREEMENT
among
INFONET SERVICES CORPORATION,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
MERRILL LYNCH & CO.,
as Lead Arranger, Book Manager and Syndication Agent,
THE BANK OF NOVA SCOTIA,
as Administrative Agent,
and
SOCIETE GENERALE,
as Documentation Agent
Dated as of August 17, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS............................................... 1
1.1 Defined Terms............................................... 1
1.2 Other Definitional Provisions............................... 23
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS........................... 24
2.1 Term Loan Commitments....................................... 24
2.2 Procedure for Term Loan Borrowing........................... 24
2.3 Repayment of Term Loans..................................... 25
2.4 Revolving Credit Commitments................................ 26
2.5 Procedure for Revolving Credit Borrowing.................... 27
2.6 Repayment of Loans; Evidence of Debt........................ 27
2.7 Commitment Fees, etc........................................ 28
2.8 Termination or Reduction of Commitments..................... 28
2.9 Optional Prepayments........................................ 29
2.10 Mandatory Prepayments and Commitment Reductions............. 29
2.11 Conversion and Continuation Options......................... 31
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches... 31
2.13 Interest Rates and Payment Dates........................... 31
2.14 Computation of Interest and Fees............................ 32
2.15 Inability to Determine Interest Rate........................ 32
2.16 Pro Rata Treatment and Payments............................. 33
2.17 Requirements of Law......................................... 35
2.18 Taxes....................................................... 36
2.19 Indemnity................................................... 38
2.20 Illegality.................................................. 38
2.21 Change of Lending Office.................................... 39
2.22 Replacement of Lenders under Certain Circumstances.......... 39
SECTION 3. LETTERS OF CREDIT......................................... 39
3.1 L/C Commitment.............................................. 39
3.2 Procedure for Issuance of Letter of Credit.................. 40
3.3 Fees and Other Charges...................................... 40
3.4 L/C Participations.......................................... 41
3.5 Reimbursement Obligation of the Borrower.................... 42
3.6 Obligations Absolute........................................ 42
3.7 Letter of Credit Payments................................... 42
3.8 Applications................................................ 43
SECTION 4. REPRESENTATIONS AND WARRANTIES............................ 43
4.1 Financial Condition......................................... 43
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.2 No Change.................................................. 43
4.3 Corporate Existence; Compliance with Law................... 43
4.4 Corporate Power; Authorization; Enforceable Obligations.... 44
4.5 No Legal Bar............................................... 44
4.6 No Material Litigation..................................... 44
4.7 No Default................................................. 45
4.8 Ownership of Property; Liens............................... 45
4.9 Intellectual Property...................................... 45
4.10 Taxes...................................................... 45
4.11 Federal Regulations........................................ 45
4.12 Labor Matters.............................................. 45
4.13 ERISA...................................................... 46
4.14 Investment Company Act; Other Regulations.................. 46
4.15 Subsidiaries............................................... 46
4.16 Use of Proceeds............................................ 46
4.17 Environmental Matters...................................... 47
4.18 Accuracy of Information, etc............................... 48
4.19 Solvency................................................... 48
4.20 Year 2000 Matters.......................................... 48
4.21 FCC and State Regulatory Compliance........................ 48
4.22 Security Documents......................................... 50
SECTION 5. CONDITIONS PRECEDENT...................................... 50
5.1 Conditions to Initial Extension of Credit.................. 50
5.2 Conditions to Each Extension of Credit..................... 52
SECTION 6. AFFIRMATIVE COVENANTS..................................... 53
6.1 Financial Statements....................................... 53
6.2 Certificates; Other Information............................ 53
6.3 Payment of Obligations..................................... 54
6.4 Conduct of Business and Maintenance of Existence, etc...... 54
6.5 Maintenance of Property; Insurance......................... 55
6.6 Inspection of Property; Books and Records; Discussions..... 55
6.7 Notices.................................................... 55
6.8 Environmental Laws......................................... 56
6.9 Interest Rate Protection................................... 56
6.10 Additional Collateral, etc................................. 56
6.11 Further Assurances......................................... 58
SECTION 7. NEGATIVE COVENANTS........................................ 58
7.1 Financial Condition Covenants.............................. 58
7.2 Limitation on Indebtedness................................. 59
7.3 Limitation on Liens........................................ 60
7.4 Limitation on Fundamental Changes.......................... 61
7.5 Limitation on Disposition of Property...................... 61
7.6 Limitation on Restricted Payments.......................... 62
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.7 Limitation on Capital Expenditures........................ 62
7.8 Limitation on Investments................................. 63
7.9 Limitation on Transactions with Affiliates................ 64
7.10 Limitation on Sales and Leasebacks........................ 64
7.11 Limitation on Changes in Fiscal Periods................... 64
7.12 Limitation on Negative Pledge Clauses..................... 64
7.13 Limitation on Restrictions on Subsidiary Distributions.... 65
7.14 Limitation on Lines of Business........................... 65
7.15 Limitation on Hedge Agreements............................ 65
7.16 Structure of Future Acquisitions.......................... 65
7.17 Limitation on Subsidiary Transactions..................... 65
SECTION 8. EVENTS OF DEFAULT........................................ 65
SECTION 9. THE AGENTS............................................... 69
9.1 Appointment............................................... 69
9.2 Delegation of Duties...................................... 69
9.3 Exculpatory Provisions.................................... 69
9.4 Reliance by Agents........................................ 69
9.5 Notice of Default......................................... 70
9.6 Non-Reliance on Agents and Other Lenders.................. 70
9.7 Indemnification........................................... 71
9.8 Agent in Its Individual Capacity.......................... 71
9.9 Successor Agents.......................................... 71
9.10 Authorization to Release Liens and Guarantees............. 72
9.11 The Arranger; the Documentation Agent..................... 72
SECTION 10. MISCELLANEOUS............................................ 72
10.1 Amendments and Waivers.................................... 72
10.2 Notices................................................... 73
10.3 No Waiver; Cumulative Remedies............................ 74
10.4 Survival of Representations and Warranties................ 74
10.5 Payment of Expenses....................................... 75
10.6 Successors and Assigns; Participations and Assignments.... 76
10.7 Adjustments; Set-off...................................... 78
10.8 Counterparts.............................................. 79
10.9 Severability.............................................. 79
10.10 Integration............................................... 79
10.11 GOVERNING LAW............................................. 79
10.12 Submission To Jurisdiction; Waivers....................... 79
10.13 Acknowledgments........................................... 80
10.14 Confidentiality........................................... 80
10.15 Release of Collateral and Guarantee Obligations........... 81
10.16 Accounting Changes........................................ 81
10.17 WAIVERS OF JURY TRIAL..................................... 82
10.18 Limitation of Interest.................................... 82
</TABLE>
iii
<PAGE>
ANNEXES:
A Lenders and Revolving Credit Commitments
A-1 Pricing Grid
SCHEDULES:
4.4 Consents, Authorizations, Filings and Notices
4.15 Subsidiaries
4.21(b) Existing FCC Authorizations
4.21(c) Investigations and Proceedings
4.21(d) Matters Affecting FCC Authorizations, State and Foreign Permits, etc.
4.22-1 UCC Filing Jurisdictions
4.22-2 UCC Filing Statements To Remain on File
4.22-3 UCC Filing Statements To Be Terminated
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D-1 Form of Term Note
D-2 Form of Revolving Credit Note
E Form of Assignment and Acceptance
F Matters to be Covered by Legal Opinion of
Latham & Watkins
G Form of Exemption Certificate
H Form of Prepayment Option Notice
I Form of Notice of Borrowing
J Form of Notice of Conversion
iv
<PAGE>
Exhibit 10.7
CREDIT AGREEMENT, dated as of August 17, 1999, among INFONET SERVICES
CORPORATION, a Delaware corporation (the "Borrower"), the several banks and
--------
other financial institutions or entities from time to time parties to this
Agreement (the "Lenders"), MERRILL LYNCH & CO., as lead arranger, book manager
-------
and syndication agent (in such capacity, the "Arranger"), THE BANK OF NOVA
--------
SCOTIA, as administrative agent (in such capacity, the "Administrative Agent"),
--------------------
and SOCIETE GENERALE, as documentation agent (in such capacity, the
"Documentation Agent").
-------------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower has requested the Lenders to provide credit
facilities in the aggregate principal amount of $250,000,000 (as hereinafter
defined, the "Facilities") in order (i) to finance capital expenditures and
----------
other general corporate purposes of the Borrower and (ii) to repay in full all
amounts outstanding under the Existing Credit Facilities; and
WHEREAS, the Lenders are willing to make the Facilities available upon
and subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
-------------
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"Administrative Agent": as defined in the preamble hereto.
--------------------
"Adjustment Date": as defined in the Pricing Grid.
---------------
"Affiliate": as to any Person, any other Person that, directly or
---------
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 10% or more of
the securities having ordinary voting power for the election of directors
(or persons performing similar functions) of such Person or (b) direct or
cause the direction of the management and policies of such Person, whether
by contract or otherwise.
"Agents": the collective reference to the Administrative Agent,
------
Documentation Agent and the Arranger.
<PAGE>
2
"Aggregate Exposure": with respect to any Lender at any time, an
------------------
amount equal to (a) until the Closing Date, the aggregate amount of such
Lender's Commitments at such time and (b) thereafter, the sum of (i) the
aggregate then unpaid principal amount of such Lender's Term Loans, (ii)
the amount of such Lender's Available Delayed Draw Term Loan Commitment, if
any, then in effect and (iii) the amount of such Lender's Revolving Credit
Commitment then in effect or, if the Revolving Credit Commitments have been
terminated, the amount of such Lender's Revolving Extensions of Credit then
outstanding.
"Agreement": this Credit Agreement, as amended, supplemented or
---------
otherwise modified from time to time.
"Applicable Margin": for each Type of Loan under each Facility, the
-----------------
rate per annum set forth opposite such Facility under the relevant column
heading below:
Base Rate Eurodollar
Loans Loans
Revolving Credit Loans 1.50% 2.50%
Delayed Draw Term Loans 1.50% 2.50%
Tranche B Term Loans 1.75% 2.75%
provided, that on and after the date which is six months after the Closing
Date, the Applicable Margin with respect to Revolving Credit Loans will be
determined pursuant to the Pricing Grid.
"Asset Sales": any Disposition of Property or series of related
-----------
Dispositions of Property (excluding any such Disposition permitted by
clauses (a)-(g) and (i) of Section 7.5) which yields gross proceeds to the
Borrower or any of its Subsidiaries (valued at the initial principal amount
thereof in the case of non-cash proceeds consisting of notes or other debt
securities and valued at fair market value in the case of other non-cash
proceeds) in excess of $1,000,000.
"Assignee": as defined in Section 10.6(c).
--------
"Assignor": as defined in Section 10.6(c).
--------
"Application": an application, in such form as the relevant Issuing
-----------
Lender may specify from time to time, requesting such Issuing Lender to
issue a Letter of Credit.
"AUCS Transaction": a contractual arrangement between the Borrower or
----------------
a Subsidiary and AUCS N.V. and/or AUCS V.O.F. providing for the Borrower or
a Subsidiary to render certain services that had previously been rendered
by AUCS N.V. and/or AUCS V.O.F.; provided that such arrangement will not
result in (i) a net increase
<PAGE>
3
in indebtedness or net losses of the Borrower or its Subsidiaries or (ii) a
net decrease in Consolidated EBITDA.
"Available Delayed Draw Term Loan Commitment": with respect to any
-------------------------------------------
Delayed Draw Term Loan Lender at any time, an amount equal to the excess,
if any, of (a) such Lender's Delayed Draw Term Loan Commitment then in
effect over (b) the aggregate amount of the Delayed Draw Term Loans made by
----
such Lender (whether or not then outstanding).
"Available Revolving Credit Commitment": with respect to any Lender
-------------------------------------
at any time, an amount equal to the excess, if any, of (a) such Lender's
Revolving Credit Commitment then in effect over (b) the aggregate principal
----
or face amount of such Lender's Revolving Extensions of Credit then
outstanding.
"Base Rate": for any day, a rate per annum (rounded upwards, if
---------
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime
Rate in effect on such day, (b) the Base CD Rate in effect on such day plus
1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest
----------
per annum publicly announced from time to time by the Reference Lender as
its prime or base rate in effect at its principal office in New York City
(the Prime Rate not being intended to be the lowest rate of interest
charged by the Reference Lender in connection with extensions of credit to
debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the
------------
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the C/D Reserve Percentage
and (b) the C/D Assessment Rate; and "Three-Month Secondary CD Rate" shall
-----------------------------
mean, for any day, the secondary market rate for three-month certificates
of deposit reported as being in effect on such day (or, if such day shall
not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank
of New York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the week
following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center
banks in New York City received at approximately 10:00 A.M., New York City
time, on such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Reference Lender from three New York City
negotiable certificate of deposit dealers of recognized standing selected
by it. Any change in the Base Rate due to a change in the Prime Rate, the
Base CD Rate or the Federal Funds Effective Rate shall be effective as of
the opening of business on the effective day of such change in the Prime
Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate, respectively.
"Base Rate Loans": Loans for which the applicable rate of interest is
---------------
based upon the Base Rate.
"Benefitted Lender": as defined in Section 10.7.
-----------------
<PAGE>
4
"Board": the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"Borrower": as defined in the preamble hereto.
--------
"Borrowing Date": any Business Day specified by the Borrower as a
--------------
date on which the Borrower requests the Lenders to make Loans hereunder.
"Business Day": (i) for all purposes other than as covered by clause
------------
(ii) below, a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to
close and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day
which is a Business Day described in clause (i) and which is also a day for
trading by and between banks in Dollar deposits in the interbank eurodollar
market.
"Capital Expenditures": for any period, with respect to any Person,
--------------------
the aggregate of all expenditures by such Person for the acquisition or
leasing (pursuant to a capital lease) of fixed or capital assets or
additions to equipment (including replacements, capitalized repairs and
improvements during such period) which are required to be capitalized under
GAAP on a balance sheet of such Person.
"Capital Lease Obligations": with respect to any Person, the
-------------------------
obligations of such Person to pay rent or other amounts under any lease of
(or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such
Person under GAAP; and, for the purposes of this Agreement, the amount of
such obligations at any time shall be the capitalized amount thereof at
such time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants, rights or options to purchase any of
the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
----------------
unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of acquisition;
(b) certificates of deposit, time deposits, eurodollar time deposits or
overnight bank deposits having maturities of twelve months or less from the
date of acquisition issued by any Lender or by any commercial bank
organized under the laws of the United States of America or any state
thereof having combined capital and surplus of not less than $500,000,000;
(c) commercial paper of an issuer rated at least A-2 by Standard & Poor's
Ratings Services ("S&P") or P-2 by Moody's Investors Service, Inc.
---
("Moody's"), or carrying an equivalent rating by a
-------
<PAGE>
nationally recognized rating agency, if both of the two named rating
agencies cease publishing ratings of commercial paper issuers generally,
and maturing within six months from the date of acquisition; (d) repurchase
obligations of any Lender or of any commercial bank satisfying the
requirements of clause (b) of this definition, having a term of not more
than 30 days with respect to securities issued or fully guaranteed or
insured by the United States government; (e) securities with maturities of
one year or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by
Moody's; (f) securities with maturities of six months or less from the date
of acquisition backed by standby letters of credit issued by any Lender or
any commercial bank satisfying the requirements of clause (b) of this
definition; and (g) shares of money market mutual or similar funds which
invest not less than 95% of their assets in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"C/D Assessment Rate": for any day, the annual assessment rate in
-------------------
effect on such day that is payable by a member of the Bank Insurance Fund
maintained by the Federal Deposit Insurance Corporation (the "FDIC")
----
classified as well-capitalized and within supervisory subgroup "B" (or a
comparable successor assessment risk classification) within the meaning of
12 C.F.R. (S) 327.4 (or any successor provision) to the FDIC (or any
successor) for the FDIC's (or such successor's) insuring time deposits at
offices of such institution in the United States.
"C/D Reserve Percentage": for any day, that percentage (expressed as
----------------------
a decimal) which is in effect on such day, as prescribed by the Board, for
determining the maximum reserve requirement for a Depositary Institution
(as defined in Regulation D of the Board as in effect from time to time) in
respect of new non-personal time deposits in Dollars having a maturity of
30 days or more.
"Closing Date": the date on which the conditions precedent set forth
------------
in Section 5.1 shall have been satisfied, which date shall be not later
than August 20, 1999.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all Property of the Loan Parties constituting Specified
----------
Collateral, now owned or hereafter acquired, upon which a Lien is purported
to be created by any Security Document.
"Commitment": as to any Lender, the sum of the Revolving Credit
----------
Commitment, the Delayed Draw Term Loan Commitment and the Tranche B Term
Loan Commitment of such Lender.
<PAGE>
6
"Commitment Fee Rate": with respect to the Delayed Draw Term Loan
-------------------
Facility and the Revolving Credit Facility, a rate per annum, calculated
daily based upon the amount outstanding on each day under each such
Facility, determined with respect to each such Facility in accordance with
the following grid:
Aggregate Principal Amount Commitment
--------------------------
Outstanding Under Such Facility Fee Rate
------------------------------- ----------
(as a percentage of the Delayed Draw
Term Loan or Revolving Credit
Commitment)
* 33% 1.0%
** 33% .75%
and
* 66%
** 66% .50%
* Less than or equal to
** Greater than
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
that is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group that includes the Borrower and
that is treated as a single employer under Section 414 of the Code.
"Communications Act": the Communications Act of 1934, and any
------------------
successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to
time.
"Compliance Certificate": a certificate duly executed by a
----------------------
Responsible Officer substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential Information
-----------------------------------
Memorandum dated July 1999 and furnished to the initial Lenders in
connection with the syndication of the Facilities.
"Consolidated Current Assets": at any date, all amounts (other than
---------------------------
cash and Cash Equivalents) that would, in conformity with GAAP, be set
forth opposite the caption "total current assets" (or any like caption) on
a consolidated balance sheet of the Borrower and its Subsidiaries at such
date.
"Consolidated Current Liabilities": at any date, all amounts that
--------------------------------
would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet
of the Borrower and its Subsidiaries at such date, but excluding (a) the
current portion of any Funded Debt of the Borrower and its
<PAGE>
7
Subsidiaries and (b), without duplication, all Indebtedness consisting of
Revolving Credit Loans, to the extent otherwise included therein.
"Consolidated EBITDA": of any Person for any period, Consolidated Net
-------------------
Income of such Person and its Subsidiaries for such period plus, without
----
duplication and to the extent reflected as a charge in the statement of
such Consolidated Net Income for such period, the sum of (a) income tax
expense, (b) Consolidated Interest Expense of such Person and its
Subsidiaries, amortization or writeoff of debt discount and debt issuance
costs and commissions, discounts and other fees and charges associated with
Indebtedness, (c) depreciation and amortization expense, (d) amortization
of intangibles (including, but not limited to, goodwill) and organization
costs, (e) any extraordinary, unusual or non-recurring expenses or losses
(including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, losses on sales
of assets outside of the ordinary course of business) and (f) any other
non-cash charges, and minus, to the extent included in the statement of
-----
such Consolidated Net Income for such period, the sum of (x) interest
income (except to the extent deducted in determining Consolidated Interest
Expense), (y) any extraordinary, unusual or non-recurring income or gains
(including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, gains on the
sales of assets outside of the ordinary course of business) and (z) any
other non-cash income, all as determined on a consolidated basis; provided
that for purposes of calculating Consolidated EBITDA of the Borrower and
its Subsidiaries for any period, (i) the Consolidated EBITDA of any Person
acquired by the Borrower or its Subsidiaries during such period shall be
included on a pro forma basis for such period (assuming the consummation of
such acquisition and the incurrence or assumption of any Indebtedness in
connection therewith occurred on the first day of such period) if the
consolidated balance sheet of such acquired Person and its consolidated
Subsidiaries as at the end of the period preceding the acquisition of such
Person and the related consolidated statements of income and stockholders'
equity and of cash flows for the period in respect of which Consolidated
EBITDA is to be calculated (1) have been previously provided to the
Administrative Agent and the Lenders and (2) either (A) have been reported
on without a qualification arising out of the scope of the audit by
independent certified public accountants of nationally recognized standing
or (B) have been found acceptable by the Administrative Agent (such
acceptance not to be unreasonably withheld), (ii) the Consolidated EBITDA
of any Person Disposed of by the Borrower or its Subsidiaries during such
period shall be excluded for such period (assuming the consummation of such
Disposition and the repayment of any Indebtedness in connection therewith
occurred on the first day of such period) and (iii) the components of the
foregoing definition attributable to NTC during the relevant period shall
be excluded.
"Consolidated Fixed Charge Coverage Ratio": for any period, the ratio
----------------------------------------
of (a) Consolidated EBITDA for such period less the aggregate amount
actually paid by the Borrower and its Subsidiaries during such period on
account of Capital Expenditures (excluding the principal amount of
Indebtedness incurred in connection with such expenditures) to (b)
Consolidated Fixed Charges for such period.
<PAGE>
8
"Consolidated Fixed Charges": for any period, the sum (without
--------------------------
duplication) of (a) Consolidated Interest Expense for such period and (b)
scheduled payments made during such period on account of principal of
Indebtedness of the Borrower or any of its Subsidiaries (including
scheduled principal payments in respect of the Term Loans).
"Consolidated Interest Coverage Ratio": for any period, the ratio of
------------------------------------
(a) Consolidated EBITDA of the Borrower and its Subsidiaries for such
period to (b) Consolidated Interest Expense of the Borrower and its
Subsidiaries for such period.
"Consolidated Interest Expense": of any Person for any period, total
-----------------------------
cash interest expense (including that attributable to Capital Lease
Obligations) of such Person and its Subsidiaries for such period with
respect to all outstanding Indebtedness of such Person and its Subsidiaries
(including, without limitation, all commissions, discounts and other fees
and charges owed by such Person with respect to letters of credit and
bankers' acceptance financing and net costs of such Person under Hedge
Agreements in respect of interest rates to the extent such net costs are
allocable to such period in accordance with GAAP).
"Consolidated Leverage Ratio": as at the last day of any period of
---------------------------
four consecutive fiscal quarters of the Borrower, the ratio of (a)
Consolidated Total Debt on such day to (b) the product of Consolidated
EBITDA of the Borrower and its Subsidiaries for such period.
"Consolidated Net Income": of any Person for any period, the
-----------------------
consolidated net income (or loss) of such Person and its Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP;
provided, that in calculating Consolidated Net Income of the Borrower and
--------
its consolidated Subsidiaries for any period, there shall be excluded (a)
the income (or deficit) of any Person accrued prior to the date it becomes
a Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries, (b) the income (or deficit) of any
Person (other than a Subsidiary of the Borrower) in which the Borrower or
any of its Subsidiaries has an ownership interest, except to the extent
that any such income is actually received by the Borrower or such
Subsidiary in the form of dividends or similar distributions and (c) the
undistributed earnings of any Subsidiary of the Borrower to the extent that
the declaration or payment of dividends or similar distributions by such
Subsidiary is not at the time permitted by the terms of any Contractual
Obligation (other than under any Loan Document) or Requirement of Law
applicable to such Subsidiary.
"Consolidated Total Debt": at any date, the aggregate principal
-----------------------
amount of all Indebtedness of the Borrower and its Subsidiaries at such
date, determined on a consolidated basis in accordance with GAAP and
without duplication.
"Consolidated Working Capital": at any date, the difference of (a)
----------------------------
Consolidated Current Assets on such date less (b) Consolidated Current
Liabilities on such date.
<PAGE>
9
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Default": any of the events specified in Section 8, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Delayed Draw Commitment Period": the period from and including the
------------------------------
Closing Date to the Delayed Draw Termination Date.
"Delayed Draw Term Loan": as defined in Section 2.1.
----------------------
"Delayed Draw Term Loan Commitment": as to any Lender, the obligation
---------------------------------
of such Lender, if any, to make Delayed Draw Term Loans to the Borrower
hereunder in an aggregate principal amount not to exceed the amount set
forth under the heading "Delayed Draw Term Loan Commitment" opposite such
Lender's name on Annex A, or, as the case may be, in the Assignment and
Acceptance pursuant to which such Lender became a party hereto, as the same
may be changed from time to time pursuant to the terms hereof. The
original aggregate amount of the Delayed Draw Term Loan Commitments is
$100,000,000.
"Delayed Draw Term Loan Facility": as defined in the definition of
-------------------------------
"Facility" in this Section 1.1.
"Delayed Draw Term Loan Lender": each Lender that has a Delayed Draw
-----------------------------
Term Loan Commitment or is the holder a Delayed Draw Term Loan.
"Delayed Draw Term Loan Percentage": as to any Delayed Draw Term Loan
---------------------------------
Lender at any time, the percentage which such Lender's Delayed Draw Term
Loan Commitment then constitutes of the aggregate Delayed Draw Term Loan
Commitments (or at any time after the Delayed Draw Term Loan Commitments
have terminated, the percentage which the aggregate principal amount of
such Lender's Delayed Draw Term Loans then outstanding constitutes of the
aggregate principal amount of the Delayed Draw Term Loans then
outstanding).
"Delayed Draw Termination Date": the date which is twelve months
-----------------------------
after the Closing Date.
"Derivatives Counterparty": as defined in Section 7.6.
------------------------
"Disposition": with respect to any Property, any sale, lease, sale
-----------
and leaseback, assignment, conveyance, transfer or other disposition
thereof; and the terms "Dispose" and "Disposed of" shall have correlative
------- -----------
meanings.
"Dollars" and "$": lawful currency of the United States of America.
------- -
<PAGE>
10
"Domestic Subsidiary": any Subsidiary of the Borrower organized under
-------------------
the laws of any jurisdiction within the United States of America.
"Environmental Laws": any and all laws, rules, orders, regulations,
------------------
statutes, ordinances, guidelines, codes, decrees, or other legally
enforceable requirements (including, without limitation, common law) of any
international authority, foreign government, the United States, or any
state, local, municipal or other governmental authority, regulating,
relating to or imposing liability or standards of conduct concerning
protection of the environment or of human health, or employee health and
safety, as has been, is now, or may at any time hereafter be, in effect.
"Environmental Permits": any and all permits, licenses, approvals,
---------------------
registrations, notifications, exemptions and other authorizations required
under any Environmental Law.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day, the aggregate
---------------------------------
(without duplication) of the maximum rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves) under any
regulations of the Board or other Governmental Authority having
jurisdiction with respect thereto dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board) maintained by a member bank of
the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period, the rate per annum determined on the basis of the rate for deposits
in Dollars for a period equal to such Interest Period commencing on the
first day of such Interest Period appearing on Page 3750 of the Telerate
screen as of 11:00 A.M., London time, two Business Days prior to the
beginning of such Interest Period. In the event that such rate does not
appear on Page 3750 of the Telerate screen (or otherwise on such screen),
the "Eurodollar Base Rate" for purposes of this definition shall be
--------------------
determined by reference to such other comparable publicly available service
for displaying eurodollar rates as may be selected by the Administrative
Agent.
"Eurodollar Loans": Loans for which the applicable rate of interest is
----------------
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period, a rate per annum determined for such day in accordance with the
following formula (rounded upward to the nearest 1/100th of 1%):
<PAGE>
11
Eurodollar Base Rate
------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans
------------------
the then current Interest Periods with respect to all of which begin on the
same date and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"Event of Default": any of the events specified in Section 8,
----------------
provided that any requirement for the giving of notice, the lapse of time,
--------
or both, has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the
----------------
difference, if any, of (a) the sum, without duplication, of (i)
Consolidated Net Income for such fiscal year, (ii) the amount of all non-
cash charges (including depreciation and amortization) deducted in arriving
at such Consolidated Net Income, (iii) the amount of the decrease, if any,
in Consolidated Working Capital for such fiscal year, (iv) the aggregate
net amount of non-cash loss on the Disposition of Property by the Borrower
and its Subsidiaries during such fiscal year (other than sales of inventory
in the ordinary course of business), to the extent deducted in arriving at
such Consolidated Net Income and (v) the net increase during such fiscal
year (if any) in deferred tax accounts of the Borrower and its Subsidiaries
minus (b) the sum, without duplication, of (i) the amount of all non-cash
-----
credits included in arriving at such Consolidated Net Income, (ii) the
aggregate amount actually paid by the Borrower and its Subsidiaries in cash
or Cash Equivalents during such fiscal year on account of Capital
Expenditures (excluding the principal amount of Indebtedness incurred in
connection with such expenditures and any such expenditures financed with
the proceeds of any Reinvestment Deferred Amount), (iii) the aggregate
amount of all prepayments of Revolving Credit Loans during such fiscal year
to the extent accompanying permanent optional reductions of the Revolving
Credit Commitments and all optional prepayments of the Term Loans and other
Funded Debt (including any prepayment penalties or premiums thereon or in
respect thereof) during such fiscal year, (iv) the aggregate amount of all
regularly scheduled principal payments of Funded Debt (including, without
limitation, the Term Loans) of the Borrower and its Subsidiaries made
during such fiscal year (other than in respect of any revolving credit
facility to the extent there is not an equivalent permanent reduction in
commitments thereunder), (v) the amount of the increase, if any, in
Consolidated Working Capital for such fiscal year, (vi) the aggregate net
amount of non-cash gain on the Disposition of Property by the Borrower and
its Subsidiaries during such fiscal year (other than sales of inventory in
the ordinary course of business), to the extent included in arriving at
such Consolidated Net Income, and (vii) the net decrease during such fiscal
year (if any) in deferred tax accounts of the Borrower and its
Subsidiaries.
"Excluded Foreign Subsidiaries": any Foreign Subsidiary other than a
-----------------------------
Foreign Subsidiary that is and has from its inception been treated as a
pass through entity for United States federal and state income tax purposes
and is already fully subject to United States federal and state income tax
on its operations and investments.
<PAGE>
12
"Existing Credit Facilities": the collective reference to (a) the
--------------------------
$50,000,000 Credit Agreement, dated as of May 19, 1999, among the Borrower,
the several lenders from time to time party thereto and Merrill Lynch &
Co., as Arranger, and Merrill Lynch Capital Corporation, as Administrative
Agent, and all Indebtedness outstanding thereunder and (b) the Loan
Agreement, dated as of December 10, 1998, among the Borrower, Mellon US
Leasing and the several lenders from time to time party thereto and all
Indebtedness outstanding thereunder.
"FCC": the Federal Communications Commission, or any other successor
---
agency of the United States Government administering the Communications
Act.
"Facility": each of (a) the Delayed Draw Term Loan Commitments and
--------
the Delayed Draw Term Loans made thereunder (the "Delayed Draw Term Loan
----------------------
Facility"), (b) the Tranche B Term Loan Commitments and the Tranche B Term
--------
Loans made thereunder (the "Tranche B Term Loan Facility"), and (c) the
----------------------------
Revolving Credit Commitments and the extensions of credit made thereunder
(the "Revolving Credit Facility").
-------------------------
"FCC Authorizations": any license, permit, authorization,
------------------
registration, consent or certification issued by the FCC.
"Federal Funds Effective Rate": for any day, the weighted average of
----------------------------
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by
the Reference Lender from three federal funds brokers of recognized
standing selected by it.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
------------------
Domestic Subsidiary.
"Funded Debt": with respect to any Person, all Indebtedness of such
-----------
Person of the types described in clauses (a) through (e) of the definition
of "Indebtedness" in this Section.
"Funding Office": the office specified from time to time by the
--------------
Administrative Agent as its funding office by notice to the Borrower and
the Lenders.
"GAAP": generally accepted accounting principles in the United States
----
of America as in effect from time to time, except that for purposes of
Section 7.1, GAAP shall be determined on the basis of such principles in
effect on the date hereof and consistent with those used in the preparation
of the most recent audited financial statements referred to in Section 4.1.
<PAGE>
13
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee and Collateral Agreement": the Guarantee and Collateral
----------------------------------
Agreement to be executed and delivered by the Borrower and each Subsidiary
Guarantor, substantially in the form of Exhibit A, as the same may be
amended, supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
-------------------
(the "primary obligor") in any manner, whether directly or indirectly,
---------------
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any Property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase Property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
--------
however, that the term Guarantee Obligation shall not include endorsements
-------
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee
Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in
good faith.
"Hedge Agreements": all interest rate swaps, caps or collar
----------------
agreements or similar arrangements entered into by the Borrower or its
Subsidiaries providing for protection against fluctuations in interest
rates or currency exchange rates or the exchange of nominal interest
obligations, either generally or under specific contingencies.
"Indebtedness": of any Person at any date, without duplication, (a)
------------
all indebtedness of such Person for borrowed money, (b) all obligations of
such Person for
<PAGE>
14
the deferred purchase price of Property or services (other than trade
payables incurred in the ordinary course of such Person's business), (c)
all obligations of such Person evidenced by notes, bonds, debentures or
other similar instruments, (d) all indebtedness created or arising under
any conditional sale or other title retention agreement with respect to
Property acquired by such Person (even though the rights and remedies of
the seller or lender under such agreement in the event of default are
limited to repossession or sale of such Property), (e) all Capital Lease
Obligations of such Person, (f) all obligations of such Person, contingent
or otherwise, as an account party or applicant under acceptance, letter of
credit or similar facilities, (g) all obligations of such Person,
contingent or otherwise, to purchase, redeem, retire or otherwise acquire
for value any Capital Stock of such Person, (h) all Guarantee Obligations
of such Person in respect of obligations of the kind referred to in clauses
(a) through (g) above; (i) all obligations of the kind referred to in
clauses (a) through (h) above secured by (or for which the holder of such
obligation has an existing right, contingent or otherwise, to be secured
by) any Lien on Property (including, without limitation, accounts and
contract rights) owned by such Person, whether or not such Person has
assumed or become liable for the payment of such obligation, (j) for the
purposes of Section 8(e) only, all obligations of such Person in respect of
Hedge Agreements and (k) the liquidation value of any mandatorily
redeemable preferred Capital Stock that (i) has a liquidation preference,
(ii) was issued by such Person or its Subsidiaries and (iii) is held by any
Person other than the issuer thereof and its Wholly Owned Subsidiaries.
"Indemnified Liabilities": as defined in Section 10.5.
-----------------------
"Indemnitee": as defined in Section 10.5.
----------
"Infonet Belgium": Infonet Belgium, S.A., a Belgian company, wholly
---------------
owned by the Borrower.
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, copyrights, copyright licenses, patents,
patent licenses, trademarks, trademark licenses, technology, know-how and
processes, and all rights to sue at law or in equity for any infringement
or other impairment thereof, including the right to receive all proceeds
and damages therefrom.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day
---------------------
of each March, June, September and December to occur while such Loan is
outstanding and the final maturity date of such Loan, (b) as to any
Eurodollar Loan having an Interest Period
<PAGE>
15
of three months or shorter, the last day of such Interest Period, (c) as to
any Eurodollar Loan having an Interest Period longer than three months,
each day that is three months, or a whole multiple thereof, after the first
day of such Interest Period and the last day of such Interest Period and
(d) as to any Eurodollar Loan, the date of any repayment or prepayment made
in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
---------------
period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three, six or (if
available to all relevant Lenders) twelve months thereafter, as selected by
the Borrower in its notice of borrowing or notice of conversion, as the
case may be, given with respect thereto; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable
to such Eurodollar Loan and ending one, two, three, six or (if available to
all relevant Lenders) twelve months thereafter, as selected by the Borrower
by irrevocable notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current Interest Period
with respect thereto; provided that, all of the foregoing provisions
--------
relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, such Interest Period shall be extended to
the next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period that would otherwise extend
beyond the Revolving Credit Termination Date or beyond the date final
payment is due on such Loan, as the case may be, shall end on the
Revolving Credit Termination Date or such due date, as applicable; and
(iii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar
month at the end of such Interest Period.
"Investments": as defined in Section 7.8.
-----------
"IPO": the issuance by the Borrower of shares of its common stock to
---
the public pursuant to a bona fide underwritten public offering, pursuant
to which the Borrower receives gross proceeds of at least $250,000,000.
"Issuing Lender": The Bank of Nova Scotia, or any other Revolving
--------------
Credit Lender from time to time designated by the Borrower as an Issuing
Lender with the consent of such Revolving Credit Lender and the
Administrative Agent (which consent of the Administrative Agent shall not
be unreasonably withheld).
<PAGE>
16
"L/C Commitment": $10,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June, September
--------------------
and December and the last day of the Revolving Credit Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters
of Credit and (b) the aggregate amount of drawings under Letters of Credit
that have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": with respect to any Letter of Credit, the
----------------
collective reference to all the Revolving Credit Lenders other than the
Issuing Lender that issued such letter of Credit.
"Lenders": as defined in the preamble hereto.
-------
"Letters of Credit": as defined in Section 3.1(a).
-----------------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement
and any capital lease having substantially the same economic effect as any
of the foregoing).
"Loan Documents": this Agreement, the Security Documents and the
--------------
Notes.
"Loan Parties": the Borrower and each Subsidiary of the Borrower
------------
that is a party to a Loan Document.
"Majority Facility Lenders": with respect to any Facility, the
-------------------------
holders of more than 50% of the aggregate unpaid principal amount of the
Term Loans or the Total Revolving Extensions of Credit, as the case may be,
outstanding under such Facility (or, (a) in the case of the Revolving
Credit Facility, prior to any termination of the Revolving Credit
Commitments, the holders of more than 50% of the Total Revolving Credit
Commitments, and (b) in the case of the Delayed Draw Term Loan Facility,
prior to any termination of the Delayed Draw Term Loan Commitments, the
holders of more than 50% of the sum of the Delayed Draw Term Loans then
outstanding plus the Available Delayed Draw Term Loan Commitments).
"Majority Revolving Credit Facility Lenders": the Majority Facility
------------------------------------------
Lenders in respect of the Revolving Credit Facility.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, assets, property or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement or any of the other Loan
<PAGE>
17
Documents or the rights or remedies of the Agents or the Lenders hereunder
or thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos,
pollutants, contaminants, radioactivity, and any other substances or forces
of any kind, whether or not any such substance or force is defined as
hazardous or toxic under any Environmental Law, that is regulated pursuant
to or could give rise to liability under any Environmental Law.
"Maximum Rate": as defined in Section 10.18.
------------
"Multiemployer Plan": a Plan that is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
-----------------
Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred
payment of principal pursuant to a note or installment receivable or
purchase price adjustment receivable or otherwise, but only as and when
received) of such Asset Sale or Recovery Event, net of attorneys' fees,
accountants' fees, investment banking fees, amounts required to be applied
to the repayment of Indebtedness secured by a Lien expressly permitted
hereunder on any asset which is the subject of such Asset Sale or Recovery
Event (other than any Lien pursuant to a Security Document) and other
customary fees and expenses actually incurred in connection therewith and
net of taxes paid or reasonably estimated to be payable as a result thereof
(after taking into account any available tax credits or deductions and any
tax sharing arrangements) and (b) in connection with any issuance or sale
of equity securities by the Borrower or debt securities or instruments or
the incurrence of loans, the cash proceeds received from such issuance or
incurrence, net of attorneys' fees, investment banking fees, accountants'
fees, underwriting discounts and commissions and other customary fees and
expenses actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.18(a).
------------------
"Non-U.S. Lender": as defined in Section 2.18(d).
---------------
"Note": any promissory note evidencing any Loan.
----
"NTC": Networks Telephony Corporation, of which the Borrower owns
---
approximately 45% of the capital stock on a fully diluted basis as of the
Closing Date.
"Obligations": the unpaid principal of and interest on (including,
-----------
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the
<PAGE>
18
Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) the Loans, the Reimbursement Obligations and
all other obligations and liabilities of the Borrower to the Administrative
Agent or to any Lender (or, in the case of Specified Hedge Agreements, any
affiliate of any Lender), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, this Agreement, any
other Loan Document, any Specified Hedge Agreement or any other document
made, delivered or given in connection herewith or therewith, whether on
account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all fees,
charges and disbursements of counsel to the Administrative Agent or to any
Lender that are required to be paid by the Borrower pursuant hereto) or
otherwise; provided, that (i) obligations of the Borrower or any Subsidiary
--------
under any Specified Hedge Agreement shall be secured and guaranteed
pursuant to the Security Documents only to the extent that, and for so long
as, the other Obligations are so secured and guaranteed and (ii) any
release of Collateral or Guarantors effected in the manner permitted by
this Agreement shall not require the consent of holders of obligations
under Specified Hedge Agreements..
"Original Investors": the collective reference to the six holders of
------------------
the Borrower's Class A common stock as of the Closing Date.
"Other Agreement": as defined in Section 10.18.
---------------
"Other Taxes": any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies
arising from any payment made hereunder or from the execution, delivery or
enforcement of, or otherwise with respect to, this Agreement or any other
Loan Document.
"Participant": as defined in Section 10.6(b).
-----------
"Payment Office": the office specified from time to time by the
--------------
Administrative Agent as its payment office by notice to the Borrower and
the Lenders.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA (or any successor).
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan that is
----
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
<PAGE>
19
"Pricing Grid": the pricing grid attached hereto as Annex A-1.
------------
"Projections": as defined in Section 6.2(c).
-----------
"Property": any right or interest in or to property of any kind
--------
whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, Capital Stock.
"Recovery Event": the receipt by the Borrower or any Subsidiary of
--------------
any settlement of or payment in respect of any property or casualty
insurance claim or any condemnation proceeding relating to any asset of the
Borrower or any of its Subsidiaries.
"Reference Lender": The Bank of Nova Scotia.
----------------
"Register": as defined in Section 10.6(d).
--------
"Regulation U": Regulation U of the Board as in effect from time to
------------
time.
"Reimbursement Obligation": the obligation of the Borrower to
------------------------
reimburse each Issuing Lender pursuant to Section 3.5 for amounts drawn
under Letters of Credit issued by such Issuing Lender.
"Reinvestment Deferred Amount": with respect to any Reinvestment
----------------------------
Event, the aggregate Net Cash Proceeds received by the Borrower or any of
its Subsidiaries in connection therewith that are not applied to prepay the
Term Loans or reduce the Revolving Credit Commitments pursuant to Section
2.10(c) as a result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
------------------
which the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
-------------------
Officer stating that no Default or Event of Default has occurred and is
continuing and that the Borrower (directly or indirectly through a
Subsidiary) intends and expects to use all or a specified portion of the
Net Cash Proceeds of an Asset Sale or Recovery Event to acquire assets
useful in its or such Subsidiary's business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
------------------------------
Event, the Reinvestment Deferred Amount relating thereto less any amount
----
expended prior to the relevant Reinvestment Prepayment Date to acquire
assets useful in the Borrower's or the applicable Subsidiary's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment
----------------------------
Event, the earlier of (a) the date occurring 12 months after such
Reinvestment Event and (b) the date on which the Borrower shall have
determined not to, or shall have otherwise ceased to,
<PAGE>
20
acquire assets useful in the Borrower's or the applicable Subsidiary's
business with all or any portion of the relevant Reinvestment Deferred
Amount.
"Related Fund": with respect to any Lender that is a fund that
------------
invests in bank loans, any other fund that invests in bank loans and is
advised or managed by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC
Reg. (S) 4043.
"Required Lenders": at any time, the holders of more than 50% of (a)
----------------
until the Closing Date, the Commitments then in effect and (b) thereafter,
the sum of (i) the aggregate unpaid principal amount of the Tranche B Term
Loans then outstanding, (ii) the aggregate undrawn amount of the Delayed
Draw Term Loan Commitments then in effect or, if the Delayed Draw Term Loan
Commitments have been terminated, the aggregate unpaid principal amount of
the Delayed Draw Term Loans then outstanding and (iii) the Total Revolving
Credit Commitments then in effect or, if the Revolving Credit Commitments
have been terminated, the aggregate principal amount of Total Revolving
Extensions of Credit then outstanding.
"Required Prepayment Lenders": the Majority Facility Lenders in
---------------------------
respect of each Facility.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
"Responsible Officer": the chief executive officer, president, any
-------------------
vice president or chief financial officer of the Borrower, but in any
event, with respect to financial matters, the chief financial officer or
treasurer of the Borrower.
"Restricted Payments": as defined in Section 7.6.
-------------------
"Revolving Credit Commitment": as to any Lender, the obligation of
---------------------------
such Lender, if any, to make Revolving Credit Loans and participate in
Letters of Credit in an aggregate principal amount not to exceed the amount
set forth under the heading "Revolving Credit Commitment" opposite such
Lender's name on Annex A, or, as the case may be, in the Assignment and
Acceptance pursuant to which such Lender became a party hereto, as the same
may be changed from time to time pursuant to the terms hereof.
<PAGE>
21
The original aggregate amount of the Total Revolving Credit Commitments is
$100,000,000.
"Revolving Credit Commitment Period": the period from and including
----------------------------------
the Closing Date to the Revolving Credit Termination Date.
"Revolving Credit Facility": as defined in the definition of
-------------------------
"Facility" in this Section 1.1.
"Revolving Credit Lender": each Lender that has a Revolving Credit
-----------------------
Commitment or that is the holder of Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.4.
----------------------
"Revolving Credit Percentage": as to any Revolving Credit Lender at
---------------------------
any time, the percentage which such Lender's Revolving Credit Commitment
then constitutes of the Total Revolving Credit Commitments (or, at any time
after the Revolving Credit Commitments shall have expired or terminated,
the percentage which the aggregate principal or face amount of such
Lender's Revolving Extensions of Credit then outstanding constitutes of the
amount of the principal or face amount of Total Revolving Extensions of
Credit then outstanding).
"Revolving Credit Termination Date": the date which is six years
---------------------------------
after the Closing Date.
"Revolving Extensions of Credit": as to any Revolving Credit Lender
------------------------------
at any time, an amount equal to the sum of (a) the aggregate principal
amount of all Revolving Credit Loans made by such Lender then outstanding
and (b) such Lender's Revolving Credit Percentage of the L/C Obligations
then outstanding.
"SEC": the Securities and Exchange Commission (or successors thereto
---
or an analogous Governmental Authority).
"Security Documents": the collective reference to the Guarantee and
------------------
Collateral Agreement and all other security documents hereafter delivered
to the Administrative Agent granting a Lien on any Property of any Person
to secure the obligations and liabilities of any Loan Party under any Loan
Document.
"Single Employer Plan": any Plan that is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"Solvent": with respect to any Person, as of any date of
-------
determination, (a) the amount of the "present fair saleable value" of the
assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as
such quoted terms are determined in accordance with applicable federal and
<PAGE>
22
state laws governing determinations of the insolvency of debtors, (b) the
present fair saleable value of the assets of such Person will, as of such
date, be greater than the amount that will be required to pay the liability
of such Person on its debts as such debts become absolute and matured, (c)
such Person will not have, as of such date, an unreasonably small amount of
capital with which to conduct its business, and (d) such Person will be
able to pay its debts as they mature. For purposes of this definition, (i)
"debt" means liability on a "claim", and (ii) "claim" means any (x) right
to payment, whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured or (y) right to an equitable remedy
for breach of performance if such breach gives rise to a right to payment,
whether or not such right to an equitable remedy is reduced to judgment,
fixed, contingent, matured or unmatured, disputed, undisputed, secured or
unsecured.
"Specified Collateral": collectively, (a) all Capital Stock of all
--------------------
Domestic Subsidiaries and all Foreign Subsidiaries other than Excluded
Foreign Subsidiaries, (b) 65% of the Capital Stock of all Excluded Foreign
Subsidiaries owned directly by the Borrower or any Subsidiary other than an
Excluded Foreign Subsidiary, (c) substantially all tangible personal
property located in the United States, and substantially all intangible
property, of the Borrower and the Domestic Subsidiaries (other than any
such personal property in respect of which the Administrative Agent
determines that the cost of obtaining a perfected first priority (subject
to Liens permitted hereunder) security interest therein would be
disproportionate to the value of such security interest to the Lenders)
and (d) each parcel of real property owned in fee simple by the Borrower or
any Domestic Subsidiary having a book value or market value in excess of
$1,000,000; provided, that Specified Collateral shall exclude (i) the
--------
Borrower's new headquarters building and the furniture and fixtures therein
and thereto and the Borrower's data center facility in Maryland, (ii) the
Capital Stock and assets of NTC and (iii) the Capital Stock and assets of
Infonet Belgium.
"Specified Hedge Agreement": any Hedge Agreement (a) entered into by
-------------------------
(i) the Borrower or any of its Subsidiaries and (ii) any Lender or any
Affiliate thereof or any Person that was a Lender or its Affiliate at the
time of entry thereto, as counterparty and (b) that has been designated by
such Lender and the Borrower, by notice to the Administrative Agent not
later than 90 days after the execution and delivery by the Borrower or its
Subsidiary thereof, as a Specified Hedge Agreement. The designation of any
Hedge Agreement as a Specified Hedge shall not create in favor of the
Lender or Affiliate thereof that is a party thereto any rights in
connection with the management or release of any Collateral or of the
obligations of any Subsidiary Guarantor under the Subsidiary Guarantee.
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board
<PAGE>
23
of directors or other managers of such corporation, partnership or other
entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or
both, by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower, and shall exclude NTC and
Osiware International S.A., unless otherwise expressly indicated.
"Subsidiary Guarantor": each Subsidiary of the Borrower other than
--------------------
any Excluded Foreign Subsidiary.
"Term Loan Facilities": the collective reference to the Delayed Draw
--------------------
Term Loan Facility and the Tranche B Term Loan Facility.
"Term Loan Lenders": the collective reference to the Delayed Draw
-----------------
Term Loan Lenders and the Tranche B Term Loan Lenders.
"Term Loans": the collective reference to the Delayed Draw Term Loans
----------
and Tranche B Term Loans.
"Total Revolving Credit Commitments": at any time, the aggregate
----------------------------------
amount of the Revolving Credit Commitments then in effect.
"Total Revolving Extensions of Credit": at any time, the aggregate
------------------------------------
amount of the Revolving Extensions of Credit of the Revolving Credit
Lenders outstanding at such time.
"Tranche B Prepayment Amount" as defined in Section 2.16(d).
---------------------------
"Tranche B Term Loan": as defined in Section 2.1.
-------------------
"Tranche B Term Loan Commitment": as to Tranche B Term Loan Lender,
------------------------------
the obligation of such Lender, if any, to make a Tranche B Term Loan to the
Borrower hereunder in a principal amount not to exceed the amount set forth
under the heading "Tranche B Term Loan Commitment" opposite such Lender's
name on Annex A, or, as the case may be, in the Assignment and Acceptance
pursuant to which such Lender became a party hereto, as the same may be
changed from time to time pursuant to the terms hereof. The original
aggregate amount of the Tranche B Term Loan Commitments is $50,000,000.
"Tranche B Term Loan Facility": as defined in the definition of
----------------------------
"Facility" in this Section 1.1.
"Tranche B Term Loan Lender": each Lender that has a Tranche B Term
--------------------------
Loan Commitment or is the holder of a Tranche B Term Loan.
<PAGE>
24
"Tranche B Term Loan Percentage": as to any Lender at any time, the
------------------------------
percentage which such Lender's Tranche B Term Loan Commitment then
constitutes of the aggregate Tranche B Term Loan Commitments (or, at any
time after the Closing Date, the percentage which the aggregate principal
amount of such Lender's Tranche B Term Loan then outstanding constitutes of
the aggregate principal amount of the Tranche B Term Loans then
outstanding).
"Transferee": as defined in Section 10.15.
----------
"Type": as to any Loan, its nature as a Base Rate Loan or a
----
Eurodollar Loan.
"Wholly Owned Subsidiary": as to any Person, any other Person all of
-----------------------
the Capital Stock of which (other than directors' qualifying shares
required by law) is owned by such Person directly and/or through other
Wholly Owned Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is
---------------------------------
a Wholly Owned Subsidiary of the Borrower.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
(c The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Loan Commitments. Subject to the terms and conditions
---------------------
hereof, (a) the Delayed Draw Term Loan Lenders severally agree to make term
loans (each, a "Delayed Draw Term Loan") to the Borrower during the Delayed Draw
----------------------
Commitment Period in an aggregate principal amount for each Delayed Draw Term
Loan Lender not to exceed the amount of the Delayed Draw Term Loan Commitment
of such Lender and (b) the Tranche B Term Loan Lenders severally agree to make
term loans (each, a "Tranche B Term Loan") to the Borrower on the Closing Date
-------------------
in an amount for each Tranche B Term Loan Lender not to exceed the amount
<PAGE>
25
of the Tranche B Term Loan Commitment of such Lender. The Term Loans may from
time to time be Eurodollar Loans or Base Rate Loans, as determined by the
Borrower and notified to the Administrative Agent in accordance with Sections
2.2 and 2.11.
2.2 Procedure for Term Loan Borrowing. (a) The Borrower may borrow
---------------------------------
under the Delayed Draw Term Loan Commitments on any Business Day during the
Delayed Draw Commitment Period, provided that the Borrower shall give the
--------
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 1:00 pm, New York City time, (a) three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or
(b) one Business Day prior to the requested Borrowing Date, in the case of Base
Rate Loans), specifying (i) the amount and Type of Delayed Draw Term Loans to be
borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar
Loans, the length of the initial Interest Period therefor. Each borrowing of
Delayed Draw Term Loans under the Delayed Draw Term Loan Commitments shall be in
an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole
multiple thereof (or, if the then aggregate Available Delayed Draw Term Loan
Commitments are less than $1,000,000, such lesser amount) and (y) in the case of
Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess
thereof. Upon receipt of any such notice from the Borrower, the Administrative
Agent shall promptly notify each Delayed Draw Term Loan Lender thereof. Each
Delayed Draw Term Loan Lender will make its Delayed Draw Term Percentage of the
amount of each borrowing of Delayed Draw Term Loans available to the
Administrative Agent for the account of the Borrower at the Funding Office prior
to 12:00 Noon, New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative Agent. Such
borrowings will then be made available to the Borrower by the Administrative
Agent promptly in like funds as received by the Administrative Agent.
(b The Borrower shall give the Administrative Agent irrevocable
notice (which notice must be received by the Administrative Agent prior to 1:00
pm, New York City time, (a) three Business Days prior to the anticipated Closing
Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the
anticipated Closing Date, in the case of Base Rate Loans), requesting that the
Tranche B Term Loan Lenders make the Tranche B Term Loans on the Closing Date
and specifying (i) the Type of Tranche B Term Loans to be borrowed and (ii) in
the case of Eurodollar Loans, the length of the initial Interest Period
therefor. Upon receipt of such notice the Administrative Agent shall promptly
notify each Tranche B Term Loan Lender thereof. Not later than 12:00 Noon, New
York City time, on the Closing Date each Tranche B Term Loan Lender shall make
available to the Administrative Agent at the Funding Office an amount in
immediately available funds equal to the Tranche B Term Loan or Tranche B Term
Loans to be made by such Lender. The Administrative Agent shall make available
to the Borrower promptly the aggregate of the amounts made available to the
Administrative Agent by the Tranche B Term Loan Lenders, in like funds as
received by the Administrative Agent.
2.3 Repayment of Term Loans. (a) The Delayed Draw Term Loans of
-----------------------
each Delayed Draw Lender shall mature in 20 consecutive quarterly installments,
commencing on September 30, 2001, each of which shall be in an amount equal to
such Lender's Delayed Draw Term Loan Percentage multiplied by the amounts set
forth below opposite such installment:
<PAGE>
26
Year Principal Amount
---- ------------------
September 30, 2001 $1,125,000
December 31, 2001 $1,125,000
March 31, 2002 $1,125,000
June 30, 2002 $1,125,000
September 30, 2002 $2,375,000
December 31, 2002 $2,375,000
March 31, 2003 $2,375,000
June 30, 2003 $2,375,000
September 30, 2003 $9,875,000
December 31, 2003 $9,875,000
March 31, 2004 $9,875,000
June 30, 2004 $9,875,000
September 30, 2004 $2,375,000
December 31, 2004 $2,375,000
March 31, 2005 $2,375,000
June 30, 2005 $2,375,000
September 30, 2005 $9,250,000
December 31, 2005 $9,250,000
March 31, 2006 $9,250,000
June 30, 2006 $9,250,000
; provided, that to the extent that less than $100,000,000 aggregate principal
--------
amount of delayed Draw Term Loans are borrowed, each of the amounts set forth
above shall be proportionately reduced.
(b The Tranche B Term Loan of each Tranche B Lender shall mature in
28 consecutive quarterly installments, commencing on September 30, 1999, each of
which shall be in an amount equal to such Lender's Tranche B Term Loan
Percentage multiplied by the amount set forth below opposite such installment:
Installment Principal Amount
----------- ----------------
September 30, 1999 $125,000
December 31, 1999 $125,000
March 31, 2000 $125,000
June 30, 2000 $125,000
September 30, 2000 $125,000
December 31, 2000 $125,000
March 31, 2001 $125,000
June 30, 2001 $125,000
September 30, 2001 $125,000
December 31, 2001 $125,000
March 31, 2002 $125,000
<PAGE>
27
June 30, 2002 $ 125,000
September 30, 2002 $ 125,000
December 31, 2002 $ 125,000
March 31, 2003 $ 125,000
June 30, 2003 $ 125,000
September 30, 2003 $ 125,000
December 31, 2003 $ 125,000
March 31, 2004 $ 125,000
June 30, 2004 $ 125,000
September 30, 2004 $ 125,000
December 31, 2004 $ 125,000
March 31, 2005 $ 125,000
June 30, 2005 $ 125,000
September 30, 2005 $11,750,000
December 31, 2005 $11,750,000
March 31, 2006 $11,750,000
June 30, 2006 $11,750,000
2.4 Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof, the Revolving Credit Lenders severally agree to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
----------------------
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding for each Revolving Credit Lender which, when
added to such Lender's Revolving Credit Percentage of the L/C Obligations then
outstanding, does not exceed the amount of such Lender's Revolving Credit
Commitment. During the Revolving Credit Commitment Period the Borrower may use
the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof. The Revolving Credit Loans may from time to time be
Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified
to the Administrative Agent in accordance with Sections 2.5 and 2.11, provided
--------
that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day
that is one month prior to the Scheduled Revolving Credit Termination Date.
(b The Borrower shall repay all outstanding Revolving Credit Loans
on the Revolving Credit Termination Date.
2.5 Procedure for Revolving Credit Borrowing. The Borrower may
----------------------------------------
borrow under the Revolving Credit Commitments on any Business Day during the
Revolving Credit Commitment Period, provided that the Borrower shall give the
--------
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 1:00 pm, New York City time, (a) three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or
(b) one Business Day prior to the requested Borrowing Date, in the case of
<PAGE>
28
Base Rate Loans), specifying (i) the amount and Type of Revolving Credit Loans
to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of
Eurodollar Loans, the length of the initial Interest Period therefor. Each
borrowing of Revolving Credit Loans under the Revolving Credit Commitments shall
be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a
whole multiple thereof (or, if the then aggregate Available Revolving Credit
Commitments are less than $1,000,000, such lesser amount) and (y) in the case of
Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess
thereof. Upon receipt of any such notice from the Borrower, the Administrative
Agent shall promptly notify each Revolving Credit Lender thereof. Each Revolving
Credit Lender will make its Revolving Credit Percentage of the amount of each
borrowing of Revolving Credit Loans available to the Administrative Agent for
the account of the Borrower at the Funding Office prior to 12:00 Noon, New York
City time, on the Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. Such borrowing will then be made
available to the Borrower promptly by the Administrative Agent in like funds as
received by the Administrative Agent.
2.6 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
------------------------------------
unconditionally promises to pay to the Administrative Agent for the account of
the appropriate Revolving Credit Lender or Term Loan Lender, as the case may be,
(i) the then unpaid principal amount of each Revolving Credit Loan of such
Revolving Credit Lender on the Revolving Credit Termination Date (or on such
earlier date on which the Loans become due and payable pursuant to Section 8),
and (ii) the principal amount of each Term Loan of such Term Loan Lender in
installments according to the amortization schedule set forth in Section 2.3 (or
on such earlier date on which the Loans become due and payable pursuant to
Section 8). The Borrower hereby further agrees to pay interest on the unpaid
principal amount of the Loans from time to time outstanding from the date hereof
until payment in full thereof at the rates per annum, and on the dates, set
forth in Section 2.13.
(b Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c The Administrative Agent, on behalf of the Borrower, shall
maintain the Register pursuant to Section 10.6(e), and a subaccount therein for
each Lender, in which shall be recorded (i) the amount of each Loan made
hereunder and any Note evidencing such Loan, the Type of such Loan and each
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) both the amount of any sum received by the Administrative
Agent hereunder from the Borrower and each Lender's share thereof.
(d The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.6(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrower therein recorded; provided, however, that the
-------- -------
failure of any Lender or the Administrative Agent to maintain the
<PAGE>
29
Register or any such account, or any error therein, shall not in any manner
affect the obligation of the Borrower to repay (with applicable interest) the
Loans made to the Borrower by such Lender in accordance with the terms of this
Agreement.
(e The Borrower agrees that, upon the request to the Administrative
Agent by any Lender, the Borrower will execute and deliver to such Lender a
promissory note of the Borrower evidencing any Term Loans or Revolving Credit
Loans, as the case may be, of such Lender, substantially in the forms of Exhibit
D-1 or D-2, respectively, with appropriate insertions as to date and principal
amount.
2.7 Commitment Fees, etc. (a) The Borrower agrees to pay to the
---------------------
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the date hereof to and
including the Revolving Credit Termination Date, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Revolving Credit Termination Date, commencing on the first of such dates to
occur after the date hereof.
(b The Borrower agrees to pay to the Administrative Agent for the
account of each Delayed Draw Term Loan Lender a commitment fee for the period
from and including the date hereof to and including the Delayed Draw Termination
Date, computed at the Commitment Fee Rate on the average daily amount of the
Available Delayed Draw Term Loan Commitment of such Lender during the period for
which payment is made, payable quarterly in arrears on the last day of each
March, June, September and December and on the Delayed Draw Termination Date,
commencing on the first of such dates to occur after the date hereof.
2.8 Termination or Reduction of Commitments. (a) The Borrower shall
---------------------------------------
have the right, upon not less than three Business Days' notice to the
Administrative Agent, to terminate the Revolving Credit Commitments or, from
time to time, to reduce the aggregate amount of the Revolving Credit
Commitments; provided that no such termination or reduction of Revolving Credit
--------
Commitments shall be permitted if, after giving effect thereto and to any
prepayments of the Revolving Credit Loans made on the effective date thereof,
the Total Revolving Extensions of Credit would exceed the Total Revolving Credit
Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a
whole multiple thereof (or, if the Revolving Credit Commitments are less than
$1,000,000, such lesser amount), and shall reduce permanently the Revolving
Credit Commitments then in effect.
(b The Borrower shall have the right, upon not less than three
Business Days' notice to the Administrative Agent, to terminate the Delayed Draw
Term Loan Commitments, or, from time to time, reduce the aggregate amount of
Delayed Draw Term Loan Commitments. Any such reduction shall be in an amount
equal to $1,000,000, or a whole multiple thereof (or, if the Delayed Draw Term
Loan Commitments are less than $1,000,000, such lesser amount), and shall reduce
permanently the Delayed Draw Term Loan Commitments then in effect.
<PAGE>
30
2.9 Optional Prepayments. The Borrower may at any time and from time
--------------------
to time prepay the Loans, in whole or in part, without premium or penalty
(except as otherwise provided herein), upon irrevocable notice delivered to the
Administrative Agent at least three Business Days prior thereto in the case of
Eurodollar Loans and at least one Business Day prior thereto in the case of Base
Rate Loans, which notice shall specify the date and amount of prepayment and
whether the prepayment is of Eurodollar Loans or Base Rate Loans; provided, that
--------
if a Eurodollar Loan is prepaid on any day other than the last day of the
Interest Period applicable thereto, the Borrower shall also pay any amounts
owing pursuant to Section 2.19. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof. If any
such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with (except in the case of
Revolving Credit Loans that are Base Rate Loans) accrued interest to such date
on the amount prepaid. Partial prepayments of Loans shall be in an aggregate
principal amount of $1,000,000 or a whole multiple thereof.
2.10 Mandatory Prepayments and Commitment Reductions. (a) Unless
-----------------------------------------------
the Required Prepayment Lenders shall otherwise agree, subject to Section
2.16(d), if any Capital Stock shall be issued by the Borrower or any of its
Subsidiaries, on the date of such issuance an amount equal to 50% (or, if the
Consolidated Leverage Ratio, determined as at the end of the most recent period
of four consecutive fiscal quarters ended prior to the required date of
prepayment for which the relevant financial information is available on a pro
---
forma basis as if such issuance had occurred on the first day of such period, is
- -----
less than 4.0 to 1.0, 25%) of the Net Cash Proceeds thereof shall be applied
toward the prepayment of the Term Loans, as set forth in Section 2.10(e);
provided that the first $750,000,000 of Net Cash Proceeds received by the
- --------
Borrower of an IPO of Capital Stock of the Borrower shall be excluded from the
foregoing requirement.
(b Unless the Required Prepayment Lenders shall otherwise agree,
subject to Section 2.16(d), if any Indebtedness (in respect of which the
Borrower or any Subsidiary received Net Cash Proceeds) shall be incurred by the
Borrower or any of its Subsidiaries (excluding any Indebtedness incurred in
accordance with Section 7.2), an amount equal to 100% of the Net Cash Proceeds
thereof shall be applied on the date of such incurrence toward the prepayment of
the Term Loans and/or the reduction of the Revolving Credit Commitments, as set
forth in Section 2.10(e); provided that the first $100,000,000 of Net Cash
--------
Proceeds of such Indebtedness constituting senior subordinated Indebtedness (if
such Indebtedness is permitted to be incurred hereunder) shall be excluded from
the foregoing requirement.
(c Unless the Required Prepayment Lenders shall otherwise agree,
subject to Section 2.16(d), if on any date the Borrower or any of its
Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery
Event then, unless a Reinvestment Notice shall be delivered in respect thereof,
on such date the Term Loans shall be prepaid, and/or the Revolving Credit
Commitments shall be reduced, by an amount equal to 100% of the amount of such
Net Cash Proceeds, as set forth in Section 2.10(e); provided, that,
--------
notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset
Sales and Recovery Events that may be excluded from the foregoing requirement
pursuant to a Reinvestment Notice shall not exceed $10,000,000 in any fiscal
year of the Borrower and (ii) on each Reinvestment Prepayment Date the Term
Loans
<PAGE>
31
shall be prepaid, and/or the Revolving Credit Commitments shall be
reduced, by an amount equal to the Reinvestment Prepayment Amount with respect
to the relevant Reinvestment Event, as set forth in Section 2.10(e).
(d) Unless the Required Prepayment Lenders shall otherwise agree,
subject to Section 2.16(d), if, for any fiscal year of the Borrower commencing
with the fiscal year beginning in 2002, there shall be Excess Cash Flow, on the
relevant Excess Cash Flow Application Date the Term Loans shall be prepaid by an
amount equal to 50% (or, if the Consolidated Leverage Ratio as of the last day
of such fiscal year is less than 4.0 to 1.0, 25%) of such Excess Cash Flow, as
set forth in Section 2.10(e). Each such prepayment and commitment reduction
shall be made on a date (an "Excess Cash Flow Application Date") no later than
---------------------------------
five days after the earlier of (i) the date on which the financial statements of
the Borrower referred to in Section 6.1(a), for the fiscal year with respect to
which such prepayment is made, are required to be delivered to the Lenders and
(ii) the date such financial statements are actually delivered.
(e) Subject to Section 2.16, amounts to be applied in connection with
prepayments and Commitment reductions made pursuant to this Section shall be
applied, first, to the prepayment of the Term Loans and, second, if required
----- ------
above and after the Term Loans are paid in full, to reduce permanently the
Revolving Credit Commitments. Any such reduction of the Revolving Credit
Commitments shall be accompanied by prepayment of the Revolving Credit Loans to
the extent, if any, that the Total Revolving Extensions of Credit exceed the
amount of the Total Revolving Credit Commitments as so reduced, provided that if
--------
the aggregate principal amount of Revolving Credit Loans then outstanding is
less than the amount of such excess (because L/C Obligations constitute a
portion thereof), the Borrower shall, to the extent of the balance of such
excess, replace outstanding Letters of Credit and/or deposit an amount in cash
or Cash Equivalents in an interest bearing cash collateral account established
with the Administrative Agent for the benefit of the Lenders on terms and
conditions reasonably satisfactory to the Administrative Agent. The application
of any prepayment of Loans under any Facility pursuant to this Section shall be
made, first, to Base Rate Loans under such Facility and, second, to Eurodollar
----- ------
Loans under such Facility. Each prepayment of the Loans under this Section
(except in the case of Revolving Credit Loans that are Base Rate Loans) shall be
accompanied by accrued interest to the date of such prepayment on the amount
prepaid.
2.11 Conversion and Continuation Options. (a) The Borrower may elect
-----------------------------------
from time to time to convert Eurodollar Loans to Base Rate Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may be made
--------
only on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert Base Rate Loans to Eurodollar Loans by
giving the Administrative Agent at least three Business Days' prior irrevocable
notice of such election (which notice shall specify the length of the initial
Interest Period therefor), provided that no Base Rate Loan under a particular
--------
Facility may be converted into a Eurodollar Loan (i) when any Event of Default
has occurred and is continuing and the Administrative Agent has, or the Majority
Facility Lenders in respect of such Facility have, determined in its or their
sole discretion not to permit such conversions or (ii) after the date that is
one month prior to the final scheduled termination or maturity date of such
Facility. Upon
<PAGE>
32
receipt of any such notice the Administrative Agent shall promptly notify each
relevant Lender thereof.
(b) The Borrower may elect to continue any Eurodollar Loan as such
upon the expiration of the then current Interest Period with respect thereto by
giving irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
--------
that no Eurodollar Loan under a particular Facility may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent has, or the Majority Facility Lenders in respect of such Facility have,
determined in its or their sole discretion not to permit such continuations or
(ii) after the date that is one month prior to the final scheduled termination
or maturity date of such Facility, and provided, further, that if the Borrower
-------- -------
shall fail to give any required notice as described above in this paragraph or
if such continuation is not permitted pursuant to the preceding proviso, such
Loans shall be converted automatically to Base Rate Loans on the last day of
such then expiring Interest Period. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof.
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches.
---------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans and all
selections of Interest Periods shall be in such amounts and be made pursuant to
such elections so that, (a) after giving effect thereto, the aggregate principal
amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal
to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no
more than ten Eurodollar Tranches shall be outstanding at any one time.
2.13 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum
equal to the Base Rate plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), all outstanding Loans and Reimbursement Obligations (whether or not
overdue) shall bear interest at a rate per annum that is equal to (x) in the
case of the Loans, the rate that would otherwise be applicable thereto pursuant
to the foregoing provisions of this Section plus 2% or (y) in the case of
----
Reimbursement Obligations, the rate applicable to Base Rate Loans under the
Revolving Credit Facility plus 2%, and (ii) if all or a portion of any interest
----
payable on any Loan or Reimbursement Obligation or any commitment fee or other
amount payable hereunder shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum equal to the rate then applicable to Base Rate Loans under
the relevant Facility plus 2% (or, in the case of any such other amounts that do
----
not relate to a particular Facility, the rate then applicable to Base Rate Loans
under the Revolving Credit Facility plus 2%), in each
----
<PAGE>
33
case, with respect to clauses (i) and (ii) above, from the date of such non-
payment until such amount is paid in full (after as well as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
--------
shall be payable from time to time on demand.
2.14 Computation of Interest and Fees. (a) Interest, fees,
--------------------------------
commissions payable pursuant hereto shall be calculated on the basis of a 360-
day year for the actual days elapsed, except that, with respect to Base Rate
Loans on which interest is calculated on the basis of the Prime Rate, the
interest thereon shall be calculated on the basis of a 365- (or 366-, as the
case may be) day year for the actual days elapsed. The Administrative Agent
shall as soon as practicable notify the Borrower and the relevant Lenders of
each determination of a Eurodollar Rate. Any change in the interest rate on a
Loan resulting from a change in the Base Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of the effective date
and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.13(a).
2.15 Inability to Determine Interest Rate. If prior to the first day
------------------------------------
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as Base Rate
Loans, (y) any Loans under the relevant Facility that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as Base Rate Loans and (z) any outstanding Eurodollar Loans under the
relevant Facility shall be
<PAGE>
34
converted, on the last day of the then current Interest Period with respect
thereto, to Base Rate Loans. Until such notice has been withdrawn by the
Administrative Agent, no further Eurodollar Loans under the relevant Facility
shall be made or continued as such, nor shall the Borrower have the right to
convert Loans under the relevant Facility to Eurodollar Loans.
2.16 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee or Letter of Credit fee, and any reduction of the Commitments
of the Lenders, shall be made pro rata according to the respective Delayed Draw
--- ----
Term Loan Percentages, Tranche B Term Loan Percentages or Revolving Credit
Percentages, as the case may be, of the relevant Lenders. Each payment (other
than prepayments) in respect of principal or interest in respect of the Loans
and each payment in respect of fees payable hereunder shall be applied to the
amounts of such obligations owing to the Lenders pro rata according to the
--- ----
respective amounts then due and owing to the Lenders.
(b) Each mandatory prepayment required by Section 2.10 to be applied
to Term Loans shall be allocated between the Term Loan Facilities pro rata
--- ----
according to the respective outstanding principal amounts of Term Loans under
such Facilities. Each optional prepayment in respect of the Term Loans shall be
allocated between the Term Loan Facilities pro rata according to the respective
--- ----
outstanding principal amounts of Term Loans under such Facilities. Each payment
(including each prepayment) of the Term Loans outstanding under any Term Loan
Facility shall be allocated among the Term Loan Lenders holding such Term Loans
pro rata based on the principal amount of such Term Loans held by such Term Loan
- --- ----
Lenders, and shall be applied to the installments of such Term Loans pro rata
--- ----
based on the remaining outstanding principal amount of such installments.
Amounts prepaid on account of the Term Loans may not be reborrowed.
(c) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Revolving Credit Loans shall be made
pro rata according to the respective outstanding principal amounts of the
- --- ----
Revolving Credit Loans then held by the Revolving Credit Lenders. Each payment
in respect of outstanding Reimbursement Obligations in respect of any Letter of
Credit shall be made to the Issuing Lender that issued such Letters of Credit.
(d) Notwithstanding anything to the contrary in Sections 2.9, 2.10 or
2.16, so long as any Delayed Draw Term Loans are outstanding, each Tranche B
Term Loan Lender may, at its option, decline up to all or a portion of any
optional prepayment or mandatory payment applicable to the Tranche B Term Loans
of such Lender; accordingly, with respect to the amount of any optional
prepayment described in Section 2.9 or mandatory prepayment described in
Section 2.10, in each case that is allocated to Tranche B Term Loans (such
amounts, the "Tranche B Prepayment Amount"), at any time when Delayed Draw Term
---------------------------
Loans remain outstanding, the Borrower will, (i) in the case of any optional
prepayment which the Borrower wishes to make, not later than 10 Business Days
prior to the date on which the Borrower wishes to make such optional prepayment,
and (ii) in the case of any mandatory prepayment required to be made pursuant to
Section 2.10, in lieu of applying such amount to the prepayment of Tranche
<PAGE>
35
B Term Loans as provided in Section 2.10(e) and 2.16(b), on the date specified
in Section 2.10 for such prepayment, give the Administrative Agent telephonic
notice (promptly confirmed in writing) requesting that the Administrative Agent
prepare and provide to each Tranche B Term Loan Lender a notice (each, a
"Prepayment Option Notice") as described below. As promptly as practicable
------------------------
after receiving such notice from the Borrower, the Administrative Agent will
send to each Tranche B Term Loan Lender (with a copy to the Borrower) a
Prepayment Option Notice, which shall be in the form of Exhibit H, and shall
include an offer by the Borrower to prepay on the date (each a "Prepayment
----------
Date") that is 3 Business Days after the date of the Prepayment Option Notice,
- ----
the relevant Tranche B Term Loans of such Lender by an amount equal to the
portion of the Prepayment Amount indicated in such Lender's Prepayment Option
Notice as being applicable to such Lender's Tranche B Term Loans. On the
Prepayment Date, (i) the Borrower shall pay to the Administrative Agent the
aggregate amount necessary to prepay that portion of the outstanding relevant
Tranche B Term Loans in respect of which Tranche B Term Loan Lenders have
accepted prepayment as described above (such Lenders, the "Accepting Lenders"),
-----------------
and such amount shall be applied toward prepayment of the Tranche B Term Loans
with respect to each Accepting Lender and (ii) the Borrower shall pay to the
Administrative Agent an amount equal to the portion of the Tranche B Prepayment
Amount not accepted by the Tranche B Term Loan Lenders, and such amount shall be
applied to the prepayment of the Delayed Draw Term Loans.
(e) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 1:00 pm, New
York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Payment Office, in Dollars and in immediately
available funds. Any payment made by the Borrower after 1:00 pm, New York City
time, on any Business Day shall be deemed to have been on the next following
Business Day. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension of any payment of principal pursuant to the preceding two
sentences, interest thereon shall be payable at the then applicable rate during
such extension.
(f) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal
<PAGE>
36
Funds Effective Rate for the period until such Lender makes such amount
immediately available to the Administrative Agent. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this paragraph shall be conclusive in the absence of manifest error. If
such Lender's share of such borrowing is not made available to the
Administrative Agent by such Lender within three Business Days after such
Borrowing Date, the Administrative Agent shall also be entitled to recover such
amount with interest thereon at the rate per annum applicable to Base Rate Loans
under the relevant Facility, on demand, from the Borrower.
(g) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment due to be made by the
Borrower hereunder that the Borrower will not make such payment to the
Administrative Agent, the Administrative Agent may assume that the Borrower is
making such payment, and the Administrative Agent may, but shall not be required
to, in reliance upon such assumption, make available to the Lenders their
respective pro rata shares of a corresponding amount. If such payment is not
--- ----
made to the Administrative Agent by the Borrower within three Business Days
after such due date, the Administrative Agent shall be entitled to recover, on
demand, from each Lender to which any amount which was made available pursuant
to the preceding sentence, such amount with interest thereon at the rate per
annum equal to the daily average Federal Funds Effective Rate. Nothing herein
shall be deemed to limit the rights of the Administrative Agent or any Lender
against the Borrower.
2.17 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Letter of Credit, any Application or
any Eurodollar Loan made by it, or change the basis of taxation of payments
to such Lender in respect thereof (except for Non-Excluded Taxes covered by
Section 2.18 and changes in the rate of tax on the overall net income of
such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender that is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall pay such
<PAGE>
37
Lender, within 30 days following its demand, any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount receivable. If
any Lender becomes entitled to claim any additional amounts pursuant to this
Section, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time,
within 30 days following submission by such Lender to the Borrower (with a copy
to the Administrative Agent) of a written request therefor, the Borrower shall
pay to such Lender such additional amount or amounts as will compensate such
Lender or such corporation for such reduction.
(c) A certificate as to any additional amounts payable pursuant to
this Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent), together with an explanation and accompanying
calculations in reasonable detail, shall be conclusive in the absence of
manifest error. The obligations of the Borrower pursuant to this Section shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
2.18 Taxes. (a) All payments made by the Borrower under this
-----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on any Agent or any Lender as a result of a present or
former connection between such Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
such Agent's or such Lender's having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
other Loan Document). If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") or any Other
------------------
Taxes are required to be withheld from any amounts payable to any Agent or any
Lender hereunder, the amounts so payable to such Agent or such Lender shall be
increased to the extent necessary to yield to such Agent or such Lender (after
payment of all Non-Excluded Taxes and Other Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement; provided, however, that the Borrower shall not be required to
-------- -------
increase any such amounts payable to any Lender with respect to any Non-Excluded
Taxes (i) that are attributable to such Lender's
<PAGE>
38
failure to comply with the requirements of paragraph (d) or (e) of this Section
or (ii) that are United States withholding taxes imposed on amounts payable to
such Lender at the time such Lender becomes a party to this Agreement, except to
the extent that such Lender's assignor (if any) was entitled, at the time of
assignment, to receive additional amounts from the Borrower with respect to such
Non-Excluded Taxes pursuant to Section 2.18(a).
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for the account of the relevant Agent or Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes or Other Taxes when due to the appropriate taxing authority or fails to
remit to the Administrative Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agents and the Lenders
for any incremental taxes, interest or penalties that become payable by any
Agent or any Lender as a result of any such failure. The agreements in this
Section 2.18 shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
---------------
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224 (or, if required, Form W-8BEN or Form W-8ECI), or, in the case of a Non-
U.S. Lender claiming exemption from U.S. federal withholding tax under Section
871(h) or 881(c) of the Code with respect to payments of "portfolio interest" a
statement substantially in the form of Exhibit G and a Form W-8, or any
subsequent versions thereof or successors thereto properly completed and duly
executed by such Non-U.S. Lender claiming complete exemption from U.S. federal
withholding tax on all payments by the Borrower under this Agreement and the
other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on
or before the date it becomes a party to this Agreement (or, in the case of any
Participant, on or before the date such Participant purchases the related
participation). In addition, each Non-U.S. Lender shall deliver such forms
promptly upon the obsolescence or invalidity of any form previously delivered by
such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower
at any time it determines that it is no longer in a position to provide any
previously delivered certificate to the Borrower (or any other form of
certification adopted by the U.S. taxing authorities for such purpose).
Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall
not be required to deliver any form pursuant to this paragraph that such Non-
U.S. Lender is not legally able to deliver.
(e) A Lender that is entitled to an exemption from non-U.S.
withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such
<PAGE>
39
jurisdiction is a party, with respect to payments under this Agreement shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times prescribed by applicable law or reasonably requested by the Borrower,
such properly completed and executed documentation prescribed by applicable law
as will permit such payments to be made without withholding, provided that such
--------
Lender is legally entitled to complete, execute and deliver such documentation
and in such Lender's reasonable judgment such completion, execution or
submission would not materially prejudice the legal position of such Lender.
(f) No Lender shall be subject to U.S withholding tax or non-U.S.
withholding tax on the date it becomes a party to this Agreement (or, in the
case of any Participant, on the date such Participant purchases the related
participation).
2.19 Indemnity. The Borrower agrees to indemnify each Lender for,
---------
and to hold each Lender harmless from, any loss or expense that such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) subject to Section 2.16(d), default by the
Borrower in making any prepayment after the Borrower has given a notice thereof
in accordance with the provisions of this Agreement or (c) subject to Section
2.16(d), the making of a prepayment or conversion of Eurodollar Loans on a day
that is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest that would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) that
- ----
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank Eurodollar
market. A certificate as to any amounts payable pursuant to this Section
submitted to the Borrower by any Lender shall be conclusive in the absence of
manifest error. This covenant shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
2.20 Illegality. Notwithstanding any other provision herein, if
----------
after the date hereof the adoption of or any change in any Requirement of Law or
in the interpretation or application thereof shall make it unlawful for any
Lender to make or maintain Eurodollar Loans as contemplated by this Agreement,
(a) the commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall
forthwith be canceled and (b) such Lender's Loans then outstanding as Eurodollar
Loans, if any, shall be converted automatically to Base Rate Loans on the
respective last days of the then current Interest Periods with respect to such
Loans or within such earlier period as required by law. If any such conversion
of a Eurodollar Loan occurs on a day which is not the last day of the then
current Interest Period with respect thereto, the Borrower shall pay to such
Lender such amounts, if any, as may be required pursuant to Section 2.19.
<PAGE>
40
2.21 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 2.17, 2.18(a) or
2.20 with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
--------
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
-------- -------
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.17, 2.18(a) or 2.20.
2.22 Replacement of Lenders under Certain Circumstances. The
--------------------------------------------------
Borrower shall be permitted to replace any Lender that (a) requests
reimbursement for amounts owing pursuant to Section 2.17 or 2.18 or (b) defaults
in its obligation to make Loans hereunder, with a replacement financial
institution; provided that (i) such replacement does not conflict with any
--------
Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time of such replacement, (iii) prior to any such replacement,
such Lender shall have taken each required action under Section 2.21 so as to
eliminate the continued need for payment of amounts owing pursuant to Section
2.17 or 2.18, (iv) the replacement financial institution shall purchase, at par,
all Loans and other amounts owing to such replaced Lender on or prior to the
date of replacement, (v) the Borrower shall be liable to such replaced Lender
under Section 2.19 (as though Section 2.19 were applicable) if any Eurodollar
Loan owing to such replaced Lender shall be purchased other than on the last day
of the Interest Period relating thereto, (vi) the replacement financial
institution, if not already a Lender, shall be reasonably satisfactory to the
Administrative Agent, (vii) the replaced Lender shall be obligated to make such
replacement in accordance with the provisions of Section 10.6 (provided that the
Borrower or such replacement financial institution shall be obligated to pay the
registration and processing fee referred to therein), (viii) the Borrower shall
pay all additional amounts (if any) required pursuant to Section 2.17 or 2.18,
as the case may be, in respect of any period prior to the date on which such
replacement shall be consummated, and (ix) any such replacement shall not be
deemed to be a waiver of any rights that the Borrower, any Agent or any other
Lender shall have against the replaced Lender.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
--------------
each Issuing Lender, in reliance on the agreements of the other Revolving Credit
Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters
-------
of Credit") for the account of the Borrower (or for the joint and several
- ---------
account of the Borrower and any Domestic Subsidiary thereof, if so requested by
the Borrower) on any Business Day during the Revolving Credit Commitment Period
in such form as may be approved from time to time by such Issuing Lender;
provided, that no Issuing Lender shall have any obligation to issue any Letter
- --------
of Credit if, after giving effect to such issuance, (i) the L/C Obligations
would exceed the L/C Commitment or (ii) the aggregate amount of the Available
Revolving Credit Commitments would be less than zero.
<PAGE>
41
Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no
later than the earlier of (x) the first anniversary of its date of issuance and
(y) the date which is five Business Days prior to the Scheduled Revolving Credit
Termination Date, provided that any Letter of Credit with a one-year term may
--------
provide for the renewal thereof for additional one-year periods (which shall in
no event extend beyond the date referred to in clause (y) above).
(b) No Issuing Lender shall at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause such
Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may
------------------------------------------
from time to time request that an Issuing Lender issue a Letter of Credit by
delivering to such Issuing Lender at its address for notices specified herein an
Application therefor, completed to the reasonable satisfaction of such Issuing
Lender, and such other certificates, documents and other papers and information
as such Issuing Lender may reasonably request. Upon receipt of any Application,
an Issuing Lender will process such Application and the certificates, documents
and other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby by issuing the original of such Letter of Credit to the
beneficiary thereof or as otherwise may be agreed to by such Issuing Lender and
the Borrower (but in no event shall any Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto). Promptly after issuance by an Issuing Lender
of a Letter of Credit, such Issuing Lender shall furnish a copy of such Letter
of Credit to the Borrower. Each Issuing Lender shall promptly furnish to the
Administrative Agent, notice of the issuance of each Letter of Credit issued by
it (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on the
----------------------
aggregate drawable amount of each outstanding Letter of Credit at a per annum
rate equal to the Applicable Margin then in effect with respect to Eurodollar
Loans under the Revolving Credit Facility, shared ratably among the Revolving
Credit Lenders in accordance with their respective Revolving Credit Percentages
and payable quarterly in arrears on each L/C Fee Payment Date after the issuance
date of such Letter of Credit. In addition, the Borrower shall pay to the
relevant Issuing Lender for its own account a fronting fee on the aggregate
drawable amount of each outstanding Letter of Credit issued by it at a rate per
annum to be agreed upon by the Borrower and the Issuing Lender, payable
quarterly in arrears on each L/C Fee Payment Date after the issuance date of
such Letter of Credit.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse each Issuing Lender for such normal and customary costs and expenses
as are incurred or charged by the Issuing Lender in issuing, negotiating,
effecting payment under, amending or otherwise administering any Letter of
Credit.
3.4 L/C Participations. (a) Each Issuing Lender irrevocably agrees
------------------
to grant and hereby grants to each L/C Participant, and, to induce each Issuing
Lender to issue Letters of
<PAGE>
42
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby accepts and purchases from each Issuing Lender, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Revolving Credit
Percentage in each Issuing Lender's obligations and rights under each Letter of
Credit issued by such Issuing Lender hereunder and the amount of each draft paid
by such Issuing Lender thereunder. Each L/C Participant unconditionally and
irrevocably agrees with each Issuing Lender that, if a draft is paid under any
Letter of Credit issued by such Issuing Lender for which such Issuing Lender is
not reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to such Issuing Lender upon demand at
such Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Revolving Credit Percentage of the amount of such draft,
or any part thereof, that is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to an
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by such Issuing Lender under any Letter of Credit is paid to
such Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to such Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to such
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to such Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, such Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to Base Rate Loans under the Revolving Credit Facility. A
certificate of such Issuing Lender submitted to any L/C Participant with respect
to any such amounts owing under this Section shall be conclusive in the absence
of manifest error.
(c) Whenever, at any time after an Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
---
rata share of such payment in accordance with Section 3.4(a), such Issuing
- ----
Lender receives any payment related to such Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of collateral applied thereto
by such Issuing Lender), or any payment of interest on account thereof, such
Issuing Lender will distribute to such L/C Participant its pro rata share
--- ----
thereof; provided, however, that in the event that any such payment received by
-------- -------
such Issuing Lender shall be required to be returned by such Issuing Lender,
such L/C Participant shall return to such Issuing Lender the portion thereof
previously distributed by such Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
----------------------------------------
reimburse each Issuing Lender on the next Business Day after each date on which
such Issuing Lender notifies the Borrower of the date and amount of a draft
presented under any Letter of Credit and paid by such Issuing Lender for the
amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs
or expenses incurred by such Issuing Lender in connection with such
<PAGE>
43
payment (the amounts described in the foregoing clauses (a) and (b) in respect
of any drawing, collectively, the "Payment Amount"). Each such payment shall be
--------------
made to such Issuing Lender at its address for notices specified herein in
lawful money of the United States of America and in immediately available funds.
Interest shall be payable on each Payment Amount from the date of the applicable
drawing until payment in full at the rate set forth in (i) until the second
Business Day following the date of the applicable drawing, Section 2.13(b) and
(ii) thereafter, Section 2.13(c). Each drawing under any Letter of Credit shall
(unless an event of the type described in clause (i) or (ii) of Section 8(f)
shall have occurred and be continuing with respect to the Borrower, in which
case the procedures specified in Section 3.4 for funding by L/C Participants
shall apply) constitute a request by the Borrower to the Administrative Agent
for a borrowing pursuant to Section 2.5 of Base Rate Loans in the amount of such
drawing. The Borrowing Date with respect to such borrowing shall be the first
date on which a borrowing of Revolving Credit Loans could be made (without
regard to whether the conditions precedent in Section 5.2 are satisfied),
pursuant to Section 2.5, if the Administrative Agent had received a notice of
such borrowing at the time the Administrative Agent receives notice from the
relevant Issuing Lender of such drawing under such Letter of Credit.
3.6 Obligations Absolute. The Borrower's obligations under this
--------------------
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that the
Borrower may have or have had against any Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with each
Issuing Lender that such Issuing Lender shall not be responsible for, and the
Borrower's Reimbursement Obligations under Section 3.5 shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or any dispute between or among the Borrower and
any beneficiary of any Letter of Credit or any other party to which such Letter
of Credit may be transferred or any claims whatsoever of the Borrower against
any beneficiary of such Letter of Credit or any such transferee. No Issuing
Lender shall be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions resulting from the gross negligence or willful misconduct of such
Issuing Lender. The Borrower agrees that any action taken or omitted by an
Issuing Lender under or in connection with any Letter of Credit issued by it or
the related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in the
Uniform Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of such Issuing Lender to the
Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the relevant Issuing Lender shall promptly
notify the Borrower of the date and amount thereof. The responsibility of the
relevant Issuing Lender to the Borrower in connection with any draft presented
for payment under any Letter of Credit shall, in addition to any payment
obligation expressly provided for in such Letter of Credit issued by such
Issuing Lender, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such presentment
are substantially in conformity with such Letter of Credit.
<PAGE>
44
3.8 Applications. To the extent that any provision of any
------------
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this Agreement and
to make the Loans, the Borrower hereby represents and warrants to each Agent and
each Lender that:
4.1 Financial Condition. (a) The audited consolidated balance
-------------------
sheets of the Borrower as at April 2, 1999 and the related consolidated
statements of income and of cash flows for the fiscal year ended on such dates,
reported on by and accompanied by an unqualified report from Deloitte & Touche,
present fairly the consolidated financial condition of the Borrower as at such
date, and the consolidated results of its operations and its consolidated cash
flows for the fiscal year then ended. The pro forma unaudited consolidated
balance sheet of the Borrower (excluding NTC) as at April 2, 1999, and the
related unaudited consolidated statements of income and cash flows for the
twelve-month period ended on such date, present fairly the consolidated
financial condition of the Borrower as at such date, and the consolidated
results of its operations and its consolidated cash flows for the twelve-month
period then ended (subject to normal year-end audit adjustments)(excluding NTC).
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by the aforementioned firm
of accountants and disclosed therein). The Borrower and its Subsidiaries do not
have any material Guarantee Obligations, contingent liabilities and liabilities
for taxes, or any long-term leases or unusual forward or long-term commitments,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction or other obligation in respect of derivatives, that are not
reflected in the most recent financial statements referred to in this paragraph.
During the period from April 2, 1999 to and including the date hereof there has
been no Disposition by the Borrower or any of its Subsidiaries of any material
part of their business or Property.
4.2 No Change. Since April 2, 1999 there has been no development or
---------
event that has had or could reasonably be expected to have a Material Adverse
Effect.
4.3 Corporate Existence; Compliance with Law. Each of the Borrower
----------------------------------------
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification except where failure to be so qualified or in good
standing could not reasonably be expected to have a Material Adverse Effect
<PAGE>
45
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each
-------------------------------------------------------
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate or other action to authorize the execution, delivery and performance
of the Loan Documents to which it is a party and, in the case of the Borrower,
to authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or the execution, delivery,
performance, validity or enforceability of this Agreement or any of the other
Loan Documents, except (i) approvals by the board of directors or other
governing body and such consents, authorizations, filings and notices described
in Schedule 4.4, which approvals, consents, authorizations, filings and notices
have been obtained or made and are in full force and effect, (ii) the filings
referred to in Section 4.22 and (iii) such approvals, consents, authorizations,
filings and notices the absence of which could not reasonably be expected to
have a Material Adverse Effect. This Agreement has been, and each other Loan
Document when executed and delivered pursuant hereto will have been, duly
executed and delivered on behalf of each Loan Party that is a party thereto.
This Agreement constitutes, and each other Loan Document upon execution will
constitute, a legal, valid and binding obligation of each Loan Party that is a
party thereto, enforceable against each such Loan Party in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or any Contractual Obligation of the Borrower or any of its
Subsidiaries in any respect that could reasonably be expected to have a Material
Adverse Effect and will not result in, or require, the creation or imposition of
any Lien on any of their respective properties or revenues pursuant to any
Requirement of Law or any such Contractual Obligation (other than the Liens
created by the Security Documents).
4.6 No Material Litigation. No litigation, investigation or
----------------------
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Subsidiaries or against any of their respective properties or revenues
(a) with respect to any of the Loan Documents or any of the transactions
contemplated hereby or thereby, or (b) that could reasonably be expected to have
a Material Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its Subsidiaries is
----------
in default under or with respect to any of its Contractual Obligations in any
respect that could reasonably
<PAGE>
46
be expected to have a Material Adverse Effect. No Default or Event of Default
has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Borrower and its
----------------------------
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other Property, and none of such Property is subject to any Lien except as
permitted by Section 7.3. The Borrower and its Subsidiaries have all material
rights of way and permits required to use communications lines or facilities
required for the conduct of their business.
4.9 Intellectual Property. The Borrower and each of its
---------------------
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted. No material claim has
been asserted and is pending by any Person challenging or questioning the use by
the Borrower or any of its Subsidiaries of any material Intellectual Property or
the validity or effectiveness of any material Intellectual Property owned by the
Borrower or any of its Subsidiaries, nor does the Borrower know of any valid
basis for any such claim. The use of material Intellectual Property by the
Borrower and its Subsidiaries does not infringe on the rights of any Person in
any material respect.
4.10 Taxes. Each of the Borrower and each of its Subsidiaries has
-----
filed or caused to be filed all Federal, state and other material tax returns
that are required to be filed and has paid all taxes shown to be due and payable
on said returns or on any assessments made against it or any of its Property and
all other material taxes, fees or other charges imposed on it or any of its
Property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); and no tax Lien
has been filed, and, to the knowledge of the Borrower, no claim is being
asserted, with respect to any such material tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Revolving
-------------------
Credit Loans will be used for "purchasing" or "carrying" any "margin stock"
within the respective meanings of each of the quoted terms under Regulation U as
now and from time to time hereafter in effect or for any purpose that violates
the provisions of the Regulations of the Board. If requested by any Lender or
the Administrative Agent, the Borrower will furnish to the Administrative Agent
and each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1 referred to in Regulation U.
4.12 Labor Matters. There are no strikes or other labor disputes
-------------
against the Borrower or any of its Subsidiaries pending or, to the knowledge of
the Borrower, threatened that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. Hours worked by and
payment made to employees of the Borrower and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. All payments due from
the Borrower or any of its Subsidiaries on account of employee health and
welfare insurance that (individually or in the
<PAGE>
47
aggregate) could reasonably be expected to have a Material Adverse Effect if not
paid have been paid or accrued as a liability on the books of the Borrower or
the relevant Subsidiary.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan that
has resulted or could reasonably be expected to result in a material liability
under ERISA, and neither the Borrower nor any Commonly Controlled Entity would
become subject to any material liability under ERISA if the Borrower or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
4.15 Subsidiaries. (a) The Subsidiaries listed on Schedule 4.15
------------
constitute all the Subsidiaries of the Borrower at the date hereof. Schedule
4.15 sets forth as of the Closing Date the name and jurisdiction of
incorporation of each Subsidiary and, as to each Subsidiary, the percentage of
each class of Capital Stock owned by each Loan Party.
(b) As of the Closing Date, there are no outstanding subscriptions,
options, warrants, calls, rights or other agreements or commitments (other than
stock options granted to employees or directors and directors' qualifying
shares) of any nature relating to any Capital Stock of any Subsidiary, except
as disclosed on Schedule 4.15.
4.16 Use of Proceeds. The proceeds of the Tranche B Term Loans and
---------------
a portion of the proceeds of the Delayed Draw Term Loans shall be used to repay
the Existing Credit Facilities. The proceeds of the Delayed Draw Term Loans and
the Revolving Credit Loans shall be used for the general working capital needs
of the Borrower and its Subsidiaries, including Capital Expenditures and a loan
from the Borrower to NTC in an aggregate principal amount not to exceed
$5,000,000.
<PAGE>
48
4.17 Environmental Matters. Other than exceptions to any of the
---------------------
following that could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect:
(a) the Borrower and its Subsidiaries: (i) are, and within the
period of all applicable statutes of limitation have been, in compliance
with all applicable Environmental Laws; (ii) hold all Environmental Permits
(each of which is in full force and effect) required for any of their
current or intended operations or for any property owned, leased, or
otherwise operated by any of them; (iii) are, and within the period of all
applicable statutes of limitation have been, in compliance with all of
their Environmental Permits; and (iv) reasonably believe that: each of
their Environmental Permits will be timely renewed and complied with,
without material expense; any additional Environmental Permits that may be
required of any of them will be timely obtained and complied with, without
material expense; and compliance with any Environmental Law that is or is
expected to become applicable to any of them will be timely attained and
maintained, without material expense.
(b) Materials of Environmental Concern are not present at, on, under,
in, or about any real property now or formerly owned, leased or operated by
the Borrower or any of its Subsidiaries, or at any other location
(including, without limitation, any location to which Materials of
Environmental Concern have been sent for re-use or recycling or for
treatment, storage, or disposal) which could reasonably be expected to (i)
give rise to liability of the Borrower or any of its Subsidiaries under any
applicable Environmental Law or otherwise result in costs to the Borrower
or any of its Subsidiaries, or (ii) interfere with the Borrower's or any of
its Subsidiaries' continued operations, or (iii) impair the fair saleable
value of any real property owned by the Borrower or any of its
Subsidiaries.
(c) There is no judicial, administrative, or arbitral proceeding
(including any notice of violation or alleged violation) under or relating
to any Environmental Law to which the Borrower or any of its Subsidiaries
is, or to the knowledge of the Borrower or will be, named as a party that
is pending or, to the knowledge of the Borrower, threatened.
(d) Neither the Borrower nor any of its Subsidiaries has received any
written request for information, or been notified that it is a potentially
responsible party under or relating to the federal Comprehensive
Environmental Response, Compensation, and Liability Act or any similar
Environmental Law, or with respect to any Materials of Environmental
Concern.
(e) Neither the Borrower nor any of its Subsidiaries has entered into
or agreed to any consent decree, order, or settlement or other agreement,
or is subject to any judgment, decree, or order or other agreement, in any
judicial, administrative, arbitral, or other forum for dispute resolution,
relating to compliance with or liability under any Environmental Law.
<PAGE>
49
(f) Neither the Borrower nor any of its Subsidiaries has assumed or
retained, by contract or operation of law, any liabilities of any kind,
fixed or contingent, known or unknown, under any Environmental Law or with
respect to any Material of Environmental Concern.
4.18 Accuracy of Information, etc. No factual statement or
-----------------------------
information contained in this Agreement, any other Loan Document, the
Confidential Information Memorandum or any other document, certificate or
statement furnished in writing to the Administrative Agent or the Lenders or any
of them, by or on behalf of any Loan Party for use in connection with the
transactions contemplated by this Agreement or the other Loan Documents,
contained as of the date such statement, information, document or certificate
was so furnished (or, in the case of the Confidential Information Memorandum, as
of the date of this Agreement), any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances when
made. The projections and pro forma financial information contained in the
--- -----
materials referenced above are based upon good faith estimates and assumptions
believed by management of the Borrower to be reasonable at the time made, it
being recognized by the Lenders that such financial information as it relates to
future events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from the
projected results set forth therein by a material amount. There is no fact
known to any Loan Party that could reasonably be expected to have a Material
Adverse Effect that has not been expressly disclosed herein, in the other Loan
Documents, in the Confidential Information Memorandum or in any other documents,
certificates and statements furnished to the Agents and the Lenders for use in
connection with the transactions contemplated hereby and by the other Loan
Documents.
4.19 Solvency. Each Loan Party is, and after giving effect to the
--------
incurrence of all Indebtedness and obligations being incurred in connection
herewith will be and will continue to be, Solvent.
4.20 Year 2000 Matters. Except where the failure to do so could not
-----------------
reasonably be expected to have a Material Adverse Effect, any reprogramming
required to permit the proper functioning, in and following the year 2000, of
(i) the Borrower's computer systems and (ii) the Borrower's equipment containing
embedded microchips and the testing of all such systems and equipment owned by
the Borrower, as so reprogrammed, will be completed by September 30, 1999. To
the knowledge of the Borrower, the cost to the Borrower of such reprogramming
and testing and of the reasonably foreseeable consequences of year 2000 to the
Borrower (including, without limitation, reprogramming errors and the failure of
others' systems or equipment) will not result in a Default or a Material Adverse
Effect. Except for such of the reprogramming referred to in the preceding
sentence as may be necessary, the computer and management information systems of
the Borrower and its Subsidiaries are and, with ordinary course upgrading and
maintenance, will continue for the term of this Agreement to be, sufficient to
permit the Borrower to conduct its business without Material Adverse Effect.
<PAGE>
50
4.21 FCC and State Regulatory Compliance. (a) The Borrower and its
-----------------------------------
Subsidiaries are in compliance with (i) the Communications Act, (ii) all
applicable communications laws and regulations of any state of the United States
(the "States") and (iii), to the knowledge of the Borrower, all applicable
communications laws and regulations of any foreign jurisdiction (the "Foreign
Jurisdictions"), except in the case of the foregoing clauses (i), (ii) and (iii)
taken together to the extent that the failure to be in compliance could not
reasonably be expected to have a Material Adverse Effect. To the knowledge of
the Borrower, there is no license or permit required for the operations of the
business of the Borrower or its Subsidiaries by any State or Foreign
Jurisdiction or by the FCC which is not held by the Borrower and its
Subsidiaries.
(b) The Borrower and its Subsidiaries hold the FCC Authorizations
identified in Schedule 4.21(b). Except as described in Schedule 4.21(b), each
of such FCC Authorizations is in full force and effect and has not been revoked,
suspended, canceled, or modified in any adverse way and, except as may be set
forth on Schedule 4.21(b), is not subject to any conditions or requirements that
are not generally imposed by the FCC upon the holders of such authorizations.
The FCC Authorizations listed in Schedule 4.21(b) are the only FCC
Authorizations required for the conduct of the business of the Borrower and its
Subsidiaries as conducted on the Closing Date. Neither the Borrower nor any of
its Subsidiaries holds any radio license issued by the FCC under Title III of
the Communications Act.
(c) Except as described on Schedule 4.21(c), (i) the Borrower has no
knowledge of any investigation, notice of apparent liability, violation,
forfeiture or other order or complaint issued by or before the FCC or any
governmental body in any State or any Foreign Jurisdiction, or of any other
proceedings of or before the FCC or any governmental body in any State or any
Foreign Jurisdiction, which could reasonably be expected to have a Material
Adverse Effect; and (ii) no proceedings are pending or, to the knowledge of the
Borrower, threatened, to revoke or limit any FCC Authorization, any permits,
certificates, licenses, registrations, tariff filings or approvals or other
authorizations from the States to conduct their current business (collectively
"State Permits") or any permits, certificates, licenses, registrations, tariff
-------------
filings or approvals or other authorizations from the Foreign Jurisdictions to
conduct their current business (collectively "Foreign Permits"), except, in each
---------------
case, those the absence or violation of which do not and could not reasonably be
expected to have a Material Adverse Effect.
(d) Except as described on Schedule 4.21(d), the Borrower has no
knowledge of the occurrence of any event which results in, or after notice or
lapse of time or both would result in, (i) revocation, suspension, adverse
modification, non-renewal, impairment, restriction or termination of, or order
of forfeiture with respect to, any State Permit, Foreign Permit or FCC
Authorization or (ii) any requirement to obtain any FCC Authorization, State
Permit or Foreign Permit which (in the case of (i) and (ii) above), in any
respect, could reasonably be expected in the future to affect any of the rights
of the Borrower or any of its Subsidiaries under any State Permit, Foreign
Permit or FCC Authorization or the qualifications of the Borrower to conduct its
business consistent with the FCC's regulation and the applicable law of any
State or Foreign Jurisdiction in any respect that could reasonably be expected
to have a Material Adverse Effect, except such changes in laws or regulations in
any jurisdiction arising after the date of this
<PAGE>
51
Agreement which are generally applicable in the industry and may affect the
Borrower or its Subsidiaries.
(e) Each of the Borrower and its Subsidiaries has duly filed in a
timely manner all material filings, reports, applications, documents,
instruments and information required to be filed by it under the Communications
Act and all applicable State and Foreign Jurisdiction communications laws and
regulations, and all such filings were when made true, correct and complete in
all material respects, except to the extent that the failure to comply or the
failure of any of the statements made in this paragraph to be true and correct
could not reasonably be expected to have a Material Adverse Effect.
4.22 Security Documents. The Guarantee and Collateral Agreement is
------------------
effective to create in favor of the Administrative Agent, for the benefit of the
Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock
described in the Guarantee and Collateral Agreement, when any stock certificates
representing such Pledged Stock are delivered to the Administrative Agent, and
in the case of the other Collateral described in the Guarantee and Collateral
Agreement, when financing statements in appropriate form are filed in the
offices specified on Schedule 4.22-1 (which financing statements have been duly
completed and executed and delivered to the Administrative Agent) and such other
filings and actions as are specified on Schedule 3 to the Guarantee and
Collateral Agreement have been duly completed, the Guarantee and Collateral
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Loan Parties in such Collateral and the
proceeds thereof, as security for the Obligations (as defined in the Guarantee
and Collateral Agreement), in each case prior and superior in right to any other
Person (except, in the case of Collateral other than Pledged Stock, Liens
permitted by Section 7.3 and, in the case of Pledged Stock, Liens that arise by
operation of law). Schedule 4.22-2 lists each UCC Financing Statement that (i)
names any Loan Party as debtor and (ii) will remain on file after the Closing
Date. Schedule 4.22-3 lists each UCC Financing Statement that (i) names any
Loan Party as debtor and (ii) will be terminated on or prior to the Closing
Date; and on or prior to the Closing Date, the Borrower will have delivered to
the Administrative Agent, or caused to be filed, duly completed UCC termination
statements, signed by the relevant secured party, in respect of each UCC
Financing Statement listed in Schedule 4.22-3.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
-----------------------------------------
Lender to make the initial extension of credit requested to be made by it
hereunder is subject to the satisfaction, prior to or concurrently with the
making of such extension of credit on the Closing Date, of the following
conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
--------------
this Agreement, executed and delivered by a duly authorized officer the
Borrower, (ii) the Guarantee and Collateral Agreement, executed and
delivered by a duly authorized officer of the Borrower and each Subsidiary
Guarantor, and (iii) for the account of each Lender
<PAGE>
52
so requesting, Notes conforming to the requirements hereof and executed and
delivered by a duly authorized officer of the Borrower.
(b) Financial Statements. The Lenders shall have received audited
--------------------
consolidated financial statements of the Borrower for the 1998 and 1999
fiscal years and unaudited interim consolidated financial statements of the
Borrower for each fiscal quarterly period ended subsequent to the date of
the latest applicable financial statements delivered pursuant to this
paragraph as to which such financial statements are available; and such
financial statements shall not, in the reasonable judgment of the Lenders,
reflect any material adverse change in the consolidated financial condition
of the Borrower, as reflected in the Borrower's audited financial
statements for fiscal year 1999 or the projections of the Borrower
contained in the Confidential Information Memorandum.
(c) Approvals. All governmental and third party approvals, if any,
---------
necessary in connection with the transactions contemplated hereby shall
have been obtained and be in full force and effect.
(d) Related Agreements. The Administrative Agent shall have received
------------------
(in a form reasonably satisfactory to the Administration Agent), certified
as to authenticity by the Borrower, of any other debt instrument or
security agreement in each case in respect of indebtedness in excess of
$2,000,000 to which the Loan Parties may be a party.
(e) Termination of Existing Credit Facilities. The Administrative
-----------------------------------------
Agent shall have received evidence reasonably satisfactory to the
Administrative Agent that the Existing Credit Facilities shall be
simultaneously terminated, and all amounts thereunder shall be
simultaneously paid in full.
(f) Fees. The Lenders and the Agents shall have received all fees
----
required to be paid, and all expenses for which invoices have been
presented (including reasonable fees, disbursements and other charges of
counsel to the Arranger), on or before the Closing Date. All such amounts
will be paid with proceeds of Loans made on the Closing Date and will be
reflected in the funding instructions given by the Borrower to the
Administrative Agent on or before the Closing Date.
(g) Business Plan. The Lenders shall have received a satisfactory
-------------
business plan for fiscal years 1999-2006 and a satisfactory written
analysis of the business and prospects of the Borrower and its Subsidiaries
for the period from the Closing Date through the 2006 fiscal year end.
(h) Closing Certificate. The Administrative Agent shall have received
-------------------
a certificate of each Loan Party, dated the Closing Date, substantially in
the form of Exhibit C, with appropriate insertions and attachments.
(i) Legal Opinions. The Administrative Agent shall have received the
--------------
legal opinion of Latham & Watkins, counsel to the Borrower and its
Subsidiaries, which shall cover the matters set forth in Exhibit F. Such
legal opinion shall cover such other matters
<PAGE>
53
incident to the transactions contemplated by this Agreement as the
Administrative Agent may reasonably require.
(j) Lien Searches. The Administrative Agent shall have received the
-------------
results of a recent Lien search in each of the jurisdictions in which
Uniform Commercial Code financing statements or other filings or
recordations should be made to evidence or perfect by the filing of
financing statements security interests in the Collateral, and such search
shall reveal no Liens on any of the Collateral, except for Liens permitted
by Section 7.3, or terminated, or as to which UCC Termination Statements
have been delivered to the Administrative Agent, on or before the Closing
Date.
(k) Pledged Stock; Stock Powers; Acknowledgment and Consent ; Pledged
-----------------------------------------------------------------
Notes. The Administrative Agent shall have received (i) the certificates,
-----
if any, representing the shares of Capital Stock pledged pursuant to the
Guarantee and Collateral Agreement, together with an undated stock power
for each such certificate executed in blank by a duly authorized officer of
the pledgor thereof, (ii) an Acknowledgment and Consent, substantially in
the form of Annex II to the Guarantee and Collateral Agreement, duly
executed by any issuer of Capital Stock pledged pursuant to the Guarantee
and Collateral Agreement that is not itself a party to the Guarantee and
Collateral Agreement and that is controlled by a party to the Guarantee and
Collateral Agreement and (iii) each promissory note pledged pursuant to the
Guarantee and Collateral Agreement endorsed (without recourse) in blank (or
accompanied by an executed transfer form in blank satisfactory to the
Administrative Agent) by the pledgor thereof.
(l) Filings, Registrations and Recordings. Each document (including,
-------------------------------------
without limitation, any Uniform Commercial Code financing statement)
required by the Security Documents or under law or reasonably requested by
the Administrative Agent to be filed, registered or recorded in order to
create in favor of the Administrative Agent, for the benefit of the
Lenders, a perfected Lien on the Collateral described therein, prior and
superior in right to any other Person (other than with respect to Liens
expressly permitted by Section 7.3, or Liens to be released on or before
the Closing Date), shall have been filed, registered or recorded or shall
have been delivered to the Administrative Agent be in proper form for
filing, registration or recordation.
(m) Insurance. The Administrative Agent shall have received insurance
---------
certificates satisfying the requirements of Section 5.3 of the Guarantee
and Collateral Agreement.
5.2 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it hereunder on
any date (including, without limitation, its initial extension of credit) is
subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct
<PAGE>
54
in all material respects on and as of such date as if made on and as of
such date, except for such representations and warranties that are
expressly stated to relate to a specific earlier date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing or request for issuance of a Letter of Credit by the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any Loan or other amount is owing to any Lender or any Agent hereunder
(other than contingent indemnification and reimbursement obligations), the
Borrower shall and shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to each Agent and each Lender:
--------------------
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the audited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at the
end of such year and the related audited consolidated statements of income
and of cash flows for such year, setting forth in each case in comparative
form the figures as of the end of and for the previous year, reported on
without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by Deloitte & Touche
or other independent certified public accountants of nationally recognized
standing; and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and of cash
flows for such quarter and the portion of the fiscal year through the end
of such quarter, setting forth in each case in comparative form the figures
as of the end of and for the corresponding period in the previous year,
certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with
GAAP applied consistently throughout the periods reflected therein and with
prior periods (except as approved by such accountants or officer, as the
case may be, and disclosed therein).
<PAGE>
55
6.2 Certificates; Other Information. Furnish to each Agent and each
-------------------------------
Lender, or, in the case of clause (d), to the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a) (for fiscal years ending after the date of
this Agreement), a certificate of the independent certified public
accountants reporting on such financial statements stating that in making
the examination necessary therefor no knowledge was obtained of any Default
or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
that, to the best of such Responsible Officer's knowledge, each Loan Party
during such period has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement and
the other Loan Documents to which it is a party to be observed, performed
or satisfied by it, and that such Responsible Officer has obtained no
knowledge of any Default or Event of Default except as specified in such
certificate and (ii) in the case of quarterly or annual financial
statements, (x) a Compliance Certificate containing all information and
calculations necessary for determining compliance by the Borrower and its
Subsidiaries with the provisions of this Agreement referred to therein as
of the last day of the fiscal quarter or fiscal year of the Borrower, as
the case may be, and (y) to the extent not previously disclosed to the
Administrative Agent, a listing of any county or state within the United
States where any Loan Party keeps inventory or equipment and of any United
States Intellectual Property acquired by any Loan Party since the date of
the most recent list delivered pursuant to this clause (y) (or, in the case
of the first such list so delivered, since the Closing Date);
(c) within five days after the same are sent, copies of all financial
statements and reports that the Borrower sends to the holders of any class
of its debt securities or public equity securities and, within five days
after the same are filed, copies of all financial statements and reports
that the Borrower may make to, or file with, the SEC; and
(d) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
----------------------
before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be, and provided
that, with respect to any such obligations that constitute Indebtedness, the
failure of the Borrower or any of its Subsidiaries so to pay, discharge or
otherwise satisfy such Indebtedness shall not be deemed to constitute
noncompliance with this Section so long as such failure shall not constitute an
Event of Default under Section 8(e).
<PAGE>
56
6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i)
-----------------------------------------------------
Preserve, renew and keep in full force and effect its corporate or other
existence and (ii) take all reasonable action to maintain all rights, privileges
and franchises necessary or desirable in the normal conduct of its business,
except, in each case, as otherwise permitted by Section 7.4 and except, in the
case of clause (ii) above, to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect; and (b) comply with
all Contractual Obligations and Requirements of Law, except to the extent that
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all Property and
----------------------------------
systems useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted and (b) maintain with financially
sound and reputable insurance companies insurance on all its Property in at
least such amounts and against at least such risks (but including in any event
public liability, product liability and business interruption) as are usually
insured against in the same general area by companies engaged in the same or a
similar business.
6.6 Inspection of Property; Books and Records; Discussions. (a) Keep
------------------------------------------------------
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (b) with
reasonable prior notice, permit representatives of any Lender to visit and
inspect any of its properties and examine and make abstracts (at the expense of
such Lender, unless an Event of Default shall be continuing) from any of its
books and records at any reasonable time and as often as may reasonably be
desired and to discuss the business, operations, properties and financial and
other condition of the Borrower and its Subsidiaries with officers of the
Borrower and its Subsidiaries and with its independent certified public
accountants, provided that so long as no Event of Default has occurred and is
continuing, such visits shall be coordinated with the Administrative Agent so
that in any twelve-month period no more than two such visits shall occur.
6.7 Notices. Promptly give notice to the Administrative Agent and
-------
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any Governmental Authority, that in
either case, if not cured or if adversely determined, as the case may be,
could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of its
Subsidiaries in which the amount involved is $5,000,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
<PAGE>
57
(d) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to
make any required contribution to a Plan, the creation of any Lien in favor
of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
the Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the termination, Reorganization or
Insolvency of, any Plan; and
(e) any development or event that has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a written statement
of a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower or the relevant Subsidiary proposes
to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with, and
------------------
ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws, except, in each case, to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws, except, in each case, to the extent that the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
6.9 Interest Rate Protection. In the case of the Borrower, within 180
------------------------
days after the Closing Date, enter into Hedge Agreements to the extent necessary
to provide that at least 50% of the aggregate principal amount of outstanding
Term Loans is subject to either a fixed interest rate or interest rate
protection for a period satisfactory to the Administrative Agent, which Hedge
Agreements shall have terms and conditions reasonably satisfactory to the
Administrative Agent.
6.10 Additional Collateral, etc. (a) With respect to any Property
--------------------------
constituting Specified Collateral acquired after the Closing Date by the
Borrower or any of its Domestic Subsidiaries (other than any Property described
in paragraph (b), (c) or (d) of this Section) as to which the Administrative
Agent, for the benefit of the Lenders, does not have a perfected Lien, promptly
(i) execute and deliver to the Administrative Agent such amendments to the
Guarantee and Collateral Agreement or such other documents as the Administrative
Agent reasonably deems necessary or advisable to grant to the Administrative
Agent, for the benefit of the Lenders, a security interest in such Property and
(ii) take all actions necessary or advisable to grant to the
<PAGE>
58
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest (subject, however, to Liens permitted by Section 7.3) in such
Property, including without limitation, the filing of Uniform Commercial Code
financing statements in such jurisdictions as may be required by the Guarantee
and Collateral Agreement or by law or as may be reasonably requested by the
Administrative Agent.
(b) With respect to any fee interest in any real property
constituting Specified Collateral acquired after the Closing Date by the
Borrower or any of its Domestic Subsidiaries, promptly (i) execute and deliver a
first priority mortgage or deed of trust, as applicable (subject, however, to
Liens permitted hereunder) in favor of the Administrative Agent, for the benefit
of the Lenders, covering such real property, (ii) if requested by the
Administrative Agent, provide the Lenders with (x) title and extended coverage
insurance covering such real property in an amount at least equal to the
purchase price of such real property (or such other amount as shall be
reasonably specified by the Administrative Agent) as well as a current ALTA
survey thereof, together with a surveyor's certificate and (y) any consents or
estoppels reasonably deemed necessary or advisable by the Administrative Agent
in connection with such mortgage or deed of trust, each of the foregoing in form
and substance reasonably satisfactory to the Administrative Agent and (iii) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date (which, for the
purposes of this paragraph, shall include any existing Subsidiary that ceases to
be an Excluded Foreign Subsidiary), by the Borrower or any of its Subsidiaries,
promptly (i) execute and deliver to the Administrative Agent such amendments to
the Guarantee and Collateral Agreement as the Administrative Agent reasonably
deems necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest (subject to
Liens permitted by Section 7.3 that arise by operation of law) in the Capital
Stock of such new Subsidiary that is owned by the Borrower or any of its
Subsidiaries, (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers, in blank,
executed and delivered by a duly authorized officer of the Borrower or such
Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a
party to the Guarantee and Collateral Agreement and (B) to take such actions
necessary or advisable to grant to the Administrative Agent for the benefit of
the Lenders a perfected first priority security interest (subject, however, to
Liens permitted by Section 7.3) in the Collateral (other than any such personal
property in respect of which the Administrative Agent determines that the cost
of obtaining a first priority security interest therein would be
disproportionate to the value of such security interest to the Lenders)
described in the Guarantee and Collateral Agreement with respect to such new
Subsidiary, including, without limitation, the filing of Uniform Commercial Code
financing statements in such jurisdictions as may be required by the Guarantee
and Collateral Agreement or by law or as may be reasonably requested by the
Administrative Agent, and (iv) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
<PAGE>
59
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by the Borrower or any of its Subsidiaries
(other than any Excluded Foreign Subsidiaries), promptly (i) execute and deliver
to the Administrative Agent such amendments to the Guarantee and Collateral
Agreement or such other documents as the Administrative Agent reasonably deems
necessary or advisable in order to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest (subject to
Liens permitted by Section 7.3 that arise by operation of law) in the Capital
Stock of such new Subsidiary that is owned by the Borrower or any of its
Subsidiaries (other than any Excluded Foreign Subsidiaries), (provided that in
no event shall more than 65% of the total outstanding Capital Stock of any such
new Excluded Foreign Subsidiary be required to be so pledged), (ii) deliver to
the Administrative Agent the certificates, if any, representing such Capital
Stock, together with undated stock powers, in blank, executed and delivered by a
duly authorized officer of the Borrower or such Subsidiary, as the case may be,
and take such other action as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Lien of the Administrative Agent
thereon, and (iii) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
6.11 Further Assurances. From time to time execute and deliver, or
------------------
cause to be executed and delivered, such additional instruments, certificates or
documents, and take all such actions, as the Administrative Agent may reasonably
request for the purposes of (i) implementing or effectuating the provisions of
this Agreement and the other Loan Documents, (ii) more fully perfecting or
renewing the rights of the Administrative Agent and the Lenders with respect to
the Collateral (or with respect to any additions thereto or replacements or
proceeds thereof or with respect to any other property or assets hereafter
acquired by the Borrower or any Subsidiary which may be deemed to be part of the
Collateral) pursuant hereto or thereto, or (iii) obtaining a perfected security
interest in any Capital Stock or Intellectual Property to the extent that the
perfection of such security interest is governed by the laws of a jurisdiction
outside the United States if the Administrative Agent determines that the cost
of obtaining such security interest would not be disproportionate to the value
of such security interest to the Lenders. Upon the exercise by the
Administrative Agent or any Lender of any power, right, privilege or remedy
pursuant to this Agreement or the other Loan Documents which requires any
consent, approval, recording, qualification or authorization of any Governmental
Authority, upon request by the Administrative Agent or such Lender, the Borrower
will execute and deliver, or will cause the execution and delivery of, all
applications, certifications, instruments and other documents and papers that
the Administrative Agent or such Lender may be required to obtain from the
Borrower or any of its Subsidiaries for such governmental consent, approval,
recording, qualification or authorization.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Letter of Credit remains outstanding or any Loan or other amount is
owing to any Lender or
<PAGE>
60
any Agent hereunder (other than contingent indemnification and reimbursement
obligations), the Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
-----------------------------
(a) Consolidated Fixed Charge Ratio. Permit the Consolidated Fixed
-------------------------------
Charge Ratio as at the last day of any period of four consecutive fiscal
quarters of the Borrower ending during any period set forth below to be less
than the ratio set forth opposite such period below:
Period Ratio
------ -----
07/01/03 - 06/30/04 1.50:1.00
thereafter 1.25:1.00
(b) Consolidated Leverage Ratio. Permit the Consolidated Leverage
---------------------------
Ratio as of the last day of any fiscal quarter of the Borrower ending during any
period set forth below to be greater than the ratio set forth opposite such
period below:
Period Ratio
------ -----
Closing Date - 06/30/00 6.50:1.00
07/01/00 - 06/30/01 6.00:1.00
07/01/01 - 06/30/02 5.00:1.00
thereafter 4.00:1.00
(c) Consolidated Interest Coverage Ratio. Permit the Consolidated
------------------------------------
Interest Coverage Ratio as of the last day of any period of four consecutive
fiscal quarters of the Borrower ending during any period set forth below to be
less than ratio set forth opposite such period below:
Period Ratio
------ -----
Closing Date - 06/30/00 1.75:1.00
07/01/00 - 06/30/01 2.25:1.00
thereafter 2.50:1.00
<PAGE>
61
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to
--------------------------
exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly
Owned Subsidiary Guarantor to the Borrower or any other Subsidiary;
(c) Indebtedness of the Borrower in respect of the Borrower's (i) new
headquarters building and fixtures and furnishings located therein or
thereon and (ii) Capital Lease Obligations in an aggregate principal amount
not to exceed $50,000,000 at any one time outstanding;
(d) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(d) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof or any
shortening of the maturity of any principal amount thereof);
(e) Guarantee Obligations made in the ordinary course of business by
the Borrower or any of its Subsidiaries of (i) obligations of the Borrower
or any Wholly Owned Subsidiary Guarantor or (ii) any other Subsidiary,
subject to Section 7.17;
(f) subject to Section 7.17, loans or advances from the Borrower to
Foreign Subsidiaries in an aggregate amount outstanding together with
investments permitted under Section 7.8(i) not to exceed $20,000,000; and
(g) subordinated Indebtedness (having subordination terms reasonably
acceptable to the Required Lenders) in an aggregate principal amount of
$100,000,000.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist
-------------------
any Lien upon any of its Property, whether now owned or hereafter acquired,
except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, broker's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 30 days or that
are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
<PAGE>
62
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the Property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(d), provided that no such
--------
Lien is spread to cover any additional Property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;
(g) Liens on the Borrower's new headquarters building securing
Indebtedness of the Borrower incurred pursuant to Section 7.2(c);
(h) purchase money Liens on Indebtedness incurred pursuant to Section
7.2(c);
(i) Liens created pursuant to the Security Documents;
(j) judgment Liens not giving rise to an Event of Default; and
(k) any interest or title of a lessor under any lease entered into by
the Borrower or any other Subsidiary in the ordinary course of its business
and covering only the assets so leased.
7.4 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of all or substantially all
of its Property or business, except that:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the continuing or
--------
surviving corporation) or with or into any Subsidiary Guarantor (provided
--------
that (i) the Subsidiary Guarantor shall be the continuing or surviving
corporation or (ii) simultaneously with such transaction, the continuing or
surviving corporation shall become a Subsidiary Guarantor and the Borrower
shall comply with Section 6.10 in connection therewith), and any Foreign
Subsidiary may be merged or consolidated into any other Foreign Subsidiary;
and
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any
Subsidiary Guarantor and any Foreign Subsidiary may be liquidated; and
<PAGE>
63
(c) Dispositions permitted under Section 7.5.
7.5 Limitation on Disposition of Property. Dispose of any of its
-------------------------------------
Property (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Wholly-Owned
Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any
Person, except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(a) and (b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor or directors' qualifying
shares;
(e) the Borrower may Dispose of the stock of Infonet Belgium, or
Infonet Belgium may Dispose of any or all of its assets;
(f) any Disposition involving NTC and Infonet Belgium;
(g) the sale by the Borrower of its data center facility in Maryland;
(h) any Recovery Event, provided, that the requirements of Section
--------
2.10(c) are complied with in connection therewith; and
(i) Dispositions of Cash Equivalents.
7.6 Limitation on Restricted Payments. Declare or pay any dividend
---------------------------------
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any Capital Stock of the Borrower or any Subsidiary,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of the Borrower or any Subsidiary, or enter into any derivatives or
other transaction with any financial institution, commodities or stock exchange
or clearinghouse (a "Derivatives Counterparty") obligating the Borrower or any
------------------------
Subsidiary to make payments to such Derivatives Counterparty as a result of any
change in market value of any such Capital Stock (collectively, "Restricted
----------
Payments"), except that (i) if at the time and after giving effect thereto no
- --------
Default or Event of Default shall have occurred or be continuing, the Borrower
or any of its Subsidiaries may make any such Restricted Payment provided that
the sum of such Restricted Payments shall not exceed $500,000 in the aggregate
while this Agreement is in effect and (ii) any Subsidiary may make Restricted
Payments to the Borrower or any Subsidiary Guarantor.
7.7 Limitation on Capital Expenditures. Make or commit to make any
----------------------------------
Capital Expenditure, except (a) for each fiscal period set forth below, Capital
Expenditures of the
<PAGE>
64
Borrower and its Subsidiaries in the ordinary course of business not exceeding
the amount set forth opposite such fiscal period:
Period Capital Expenditures (millions)
------ -------------------------------
Closing Date - 06/30/00 $150
07/01/00 - 06/30/01 $150
07/01/01 - 06/30/02 $100
07/01/02 - 06/30/03 $100
07/01/03 - 06/30/04 $100
07/01/04 - 06/30/05 $100
; provided that (i) up to 100% of any such amount referred to above, if not so
--------
expended in the fiscal year for which it is permitted, may be carried over for
expenditure in the next fiscal year and (ii) Capital Expenditures made pursuant
to this clause (a) during any fiscal year shall be deemed made, first, in
-----
respect of amounts permitted for such fiscal year as provided above, and,
second, in respect of amounts carried over from the prior fiscal year pursuant
- ------
to subclause (i) above and (b) Capital Expenditures made with the proceeds of
any Reinvestment Deferred Amount.
7.8 Limitation on Investments. Make any advance, loan, extension of
-------------------------
credit (by way of guaranty or otherwise) or capital contribution to, or purchase
any Capital Stock, bonds, notes, debentures or other debt securities of, or any
assets constituting an ongoing business from, or make any other investment in,
any other Person (all of the foregoing, "Investments"), except:
-----------
(a) extensions of trade credit in the ordinary course of business;
(b) Investments in Cash Equivalents;
(c) Investments arising in connection with the incurrence of
Indebtedness permitted by Section 7.2(b) and (e);
(d) loans and advances to officers and employees of the Borrower or
any Subsidiaries of the Borrower in the ordinary course of business
(including, without limitation, for travel, entertainment and relocation
expenses) in an aggregate amount for the Borrower and Subsidiaries of the
Borrower not to exceed $3,000,000 at any one time outstanding;
(e) Investments (other than those relating to the incurrence of
Indebtedness permitted by Section 7.8(c)) by the Borrower or any of its
Subsidiaries in the Borrower or any Person that, prior to such Investment,
is a Subsidiary Guarantor;
<PAGE>
65
(f) Investments on the date hereof;
(g) loans to officers and employees of Borrower and its Subsidiaries
for the purchase of shares of Borrower's Capital Stock in an aggregate
amount outstanding not to exceed $10,000,000;
(h) subject to Section 7.17, Investments in NTC in an aggregate
amount not to exceed $5,000,000 after the date hereof;
(i) Investments in Foreign Subsidiaries in an aggregate amount
together with Indebtedness permitted under Section 7.2(f) not to exceed
$20,000,000 after the date hereof;
(j) the Borrower may consummate the AUCS Transaction;
(k) Investments in assets useful in the Borrower's business made by
the Borrower or any of its Subsidiaries with the proceeds of any
Reinvestment Deferred Amount; and
(l) Investments received in respect of any Recovery Event.
7.9 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than the
Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise
permitted or not prohibited under this Agreement, (b) in the ordinary course of
business of the Borrower or such Subsidiary, as the case may be, and (c) upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person that is not an Affiliate; provided, however, that (i)
-------- -------
this Section shall not prohibit transactions otherwise permitted under this
Agreement, including the AUCS Transaction, or customary indemnification
obligations for officers and directors, and (ii) Borrower may enter into a
sale/leaseback transaction to purchase assets of NTC for a principal purchase
price not to exceed $5,000,000 in the aggregate.
7.10 Limitation on Sales and Leasebacks. Enter into any arrangement
----------------------------------
with any Person providing for the leasing by the Borrower or any Subsidiary of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary, other than (subject to
Section 7.17) any such arrangement between the Borrower and NTC involving a
principal amount not to exceed $5,000,000.
7.11 Limitation on Changes in Fiscal Periods. Permit the fiscal year
---------------------------------------
of the Borrower to end on a day other than the Friday nearest to March 31 or
December 31 or change the Borrower's method of determining fiscal quarters.
<PAGE>
66
7.12 Limitation on Negative Pledge Clauses. Enter into or suffer to
-------------------------------------
exist or become effective any agreement that prohibits or limits the ability of
the Borrower or any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, to secure the Obligations or, in the case of any guarantor,
its obligations under the Guarantee and Collateral Agreement, other than (a)
this Agreement and the other Loan Documents, (b) any agreements governing any
purchase money Liens or Capital Lease Obligations otherwise permitted hereby and
operating leases (in which case, any prohibition or limitation shall only be
effective against the assets financed thereby), (c) agreements existing as of
the date hereof and (d) customary anti-assignment clauses.
7.13 Limitation on Restrictions on Subsidiary Distributions. Enter
------------------------------------------------------
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary to (a) make Restricted Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the Borrower or any other Subsidiary, (b) make Investments in the
Borrower or any other Subsidiary or (c) transfer any of its assets to the
Borrower or any other Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents and (ii) any restrictions with respect to a Subsidiary imposed
pursuant to an agreement that has been entered into in connection with the
Disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary.
7.14 Limitation on Lines of Business. Enter into any business, either
-------------------------------
directly or through any Subsidiary, except for those businesses in which the
Borrower and its Subsidiaries are engaged on the date of this Agreement or that
are reasonably related thereto.
7.15 Limitation on Hedge Agreements. Enter into any Hedge Agreement
------------------------------
other than Hedge Agreements entered into in the ordinary course of business, and
not for speculative purposes, to protect against changes in interest rates or
foreign exchange rates.
7.16 Structure of Future Acquisitions. Directly or indirectly,
--------------------------------
acquire, or permit any Subsidiary to acquire, any material tangible asset
located in the United States, unless such asset is acquired by or immediately
transferred to the Borrower or a Wholly Owned Subsidiary Guarantor, and the
Borrower or such Subsidiary complies with the requirements of Section 6.10 in
respect of such assets.
7.17 Limitation on Subsidiary Transactions. Make Investments after
-------------------------------------
the Closing Date in, or enter into Guarantee Obligations in respect of
Indebtedness and other Obligations of, any Subsidiary other than a Subsidiary
Guarantor, in an aggregate principal amount exceeding $5,000,000 while this
Agreement is in effect.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
<PAGE>
67
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within five days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or that is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made or deemed furnished; or
(c) Any Loan Party shall default in the observance or performance of
any agreement contained in clause (i) or (ii) of Section 6.4(a) (with
respect to the Borrower only), Section 6.7(a) or Section 7; or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries shall (i) default in
making any payment of any principal of any Indebtedness (including, without
limitation, any Guarantee Obligation, but excluding the Loans and
Reimbursement Obligations) on the scheduled or original due date with
respect thereto; or (ii) default in making any payment of any interest on
any such Indebtedness beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created; or (iii)
default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or to become
immediately subject to a mandatory offer to purchase by the obligor
thereunder or (in the case of any such Indebtedness constituting a
Guarantee Obligation) to become payable; provided, that a default, event or
--------
condition described in clause (i), (ii) or (iii) of this paragraph (e)
shall not at any time constitute an Event of Default unless, at such time,
one or more defaults, events or conditions of the type described in clauses
(i), (ii) and (iii) of this paragraph (e) shall have occurred and be
continuing with respect to Indebtedness the outstanding principal amount of
which exceeds in the aggregate $5,000,000; or
(f) (i) The Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to
<PAGE>
68
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the Borrower or
any of its Subsidiaries shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Borrower or any
of its Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above that (A) results in the entry of an order
for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against the Borrower or any of its Subsidiaries
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets that results in the entry of an order for
any such relief that shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv) the
Borrower or any of its Subsidiaries shall take any action in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of
the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower
or any of its Subsidiaries shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due;
or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v)the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could, in the sole good faith judgment of the Required Lenders, reasonably
be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving for the Borrower and its
Subsidiaries taken as a whole a liability (to the extent not paid or fully
covered by insurance as to which the relevant insurance company has
acknowledged coverage) of $5,000,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 30 days from the entry thereof; or
<PAGE>
69
(i) Any of the Security Documents shall cease, for any reason (other
than by reason of the express release thereof pursuant to Section 10.15),
to be in full force and effect, or any Loan Party or any Affiliate of any
Loan Party shall so assert in writing, or any Lien created by any of the
Security Documents on any material part of the Specified Collateral shall
cease to be enforceable and of the same effect and priority purported to be
created thereby; or
(j) The guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason (other than by reason of
the express release thereof pursuant to Section 10.15), to be in full force
and effect or any Loan Party or any Affiliate of any Loan Party shall so
assert in writing; or
(k) The failure of any of the Original Investors, or any other
telecommunications company which acquires (whether through a merger, a
purchase of stock or assets, or any other similar transaction) an Original
Investor or any or all of the common stock of the Borrower held by an
Original Investor (so long as such telecommunications company is of a
stature similar to, and other long term senior unsecured debt ratings of
which by Standard & Poors Ratings Services and Moody's Investors Service,
Inc., are equal to or higher than, that of the acquired Original Investor
and so long as at least four of the Original Investors have not been so
acquired or transferred all of the Borrower's common stock owned by it as
of the Closing Date), or any of their respective Affiliates or any
combination thereof to (a) prior to an IPO, (i) own of record and
beneficially an amount of Capital Stock of the Borrower equal to at least
75% of the Capital Stock of the Borrower or (ii) have the ability to elect
a majority of the board of directors of the Borrower or to otherwise
control, directly or indirectly, through one or more intermediaries, the
Borrower and (b) after an IPO, (i) own of record and beneficially an amount
of Capital Stock of the Borrower equal to at least 51% of the Capital Stock
of the Borrower or (ii) have the ability to elect a majority of the board
of directors of the Borrower or to otherwise control, directly or
indirectly, through one or more intermediaries, the Borrower.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Majority Revolving Credit Facility Lenders,
the Administrative Agent may, or upon the request of the Majority Revolving
Credit Facility Lenders, the Administrative Agent shall, by notice to the
Borrower declare the Revolving Credit Commitments to be terminated forthwith,
whereupon the Revolving Credit Commitments shall immediately terminate; and (ii)
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by notice
to the Borrower, declare the Loans hereunder (with
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70
accrued interest thereon) and all other amounts owing under this Agreement and
the other Loan Documents (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) to be due and
payable forthwith, whereupon the same shall immediately become due and payable.
In the case of all Letters of Credit with respect to which presentment for honor
shall not have occurred at the time of an acceleration pursuant to this
paragraph, the Borrower shall at such time deposit in a cash collateral account
opened by the Administrative Agent an amount equal to the aggregate then undrawn
and unexpired amount of such Letters of Credit. Amounts held in such cash
collateral account shall be applied by the Administrative Agent to the payment
of drafts drawn under such Letters of Credit, and the unused portion thereof
after all such Letters of Credit shall have expired or been fully drawn upon, if
any, shall be applied to repay other Obligations of the Borrower hereunder and
under the other Loan Documents. After all such Letters of Credit shall have
expired or been fully drawn upon, all Reimbursement Obligations shall have been
satisfied and all other Obligations of the Borrower hereunder and under the
other Loan Documents (other than contingent indemnification and reimbursement
obligations) shall have been paid in full, the balance, if any, in such cash
collateral account shall be returned to the Borrower (or such other Person as
may be lawfully entitled thereto).
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Agents as the agents of such Lender under this Agreement and the
other Loan Documents, and each Lender irrevocably authorizes each Agent, in such
capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, no Agent shall have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against any Agent.
9.2 Delegation of Duties. Each Agent may execute any of its duties
--------------------
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither any Agent nor any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Loan Document
(except to the extent that any of the foregoing are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of
<PAGE>
71
the Lenders for any recitals, statements, representations or warranties made by
any Loan Party or any officer thereof contained in this Agreement or any other
Loan Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agents under or in connection
with, this Agreement or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document or for any failure of any Loan Party a party thereto to
perform its obligations hereunder or thereunder. The Agents shall not be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of any Loan Party.
9.4 Reliance by Agents. Each Agent shall be entitled to rely, and
------------------
shall be fully protected in relying, upon any instrument, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Loan Parties), independent accountants and other
experts selected by such Agent. The Agents may deem and treat the payee of any
Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with Section 10.6 and all actions required by such
Section in connection with such transfer shall have been taken. Each Agent shall
be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders (or, if so specified by this Agreement,
all Lenders or any other instructing group of Lenders specified by this
Agreement) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense that may
be incurred by it by reason of taking or continuing to take any such action.
Each Agent shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement and the other Loan Documents in accordance
with a request of the Required Lenders (or, if so specified by this Agreement,
all Lenders or any other instructing group of Lenders specified by this
Agreement), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Loans.
9.5 Notice of Default. No Agent shall be deemed to have knowledge or
-----------------
notice of the occurrence of any Default or Event of Default hereunder unless
such Agent shall have received notice from a Lender or the Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Administrative Agent
shall receive such a notice, the Administrative Agent shall give notice thereof
to the Lenders and the Borrower. The Administrative Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Required Lenders (or, if so specified by this Agreement, all Lenders or
any other instructing group of Lenders specified by this Agreement); provided
--------
that unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
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72
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
----------------------------------------
acknowledges that neither any of the Agents nor any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates have
made any representations or warranties to it and that no act by any Agent
hereafter taken, including any review of the affairs of a Loan Party or any
affiliate of a Loan Party, shall be deemed to constitute any representation or
warranty by any Agent to any Lender. Each Lender represents to the Agents that
it has, independently and without reliance upon any Agent or any other Lender,
and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, no Agent shall have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Loan Party or any affiliate of a Loan Party that may
come into the possession of such Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Aggregate Exposure Percentages in effect
on the date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), for,
and to save the Administrative Agent harmless from and against, any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever that may at any time
(including, without limitation, at any time following the payment of the Loans)
be imposed on, incurred by or asserted against the Administrative Agent in any
way relating to or arising out of, the Commitments, this Agreement, any of the
other Loan Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by the Administrative Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
--------
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements that are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from such Agent's gross negligence or willful misconduct. The agreements in this
Section shall survive the payment of the Loans and all other amounts payable
hereunder.
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73
9.8 Agent in Its Individual Capacity. Each Agent and its affiliates
--------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though such Agent were not an Agent. With
respect to its Loans made or renewed by it and with respect to any Letter of
Credit issued or participated in by it, each Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
9.9 Successor Agents. The Administrative Agent may resign as
----------------
Administrative Agent upon 30 days' notice to the Lenders and the Borrower. If
the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor agent
shall (unless an Event of Default under Section 8(a) or Section 8(f) with
respect to the Borrower shall have occurred and be continuing) be subject to
approval by the Borrower (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. If no successor agent has accepted appointment as
Administrative Agent by the date that is 30 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective, and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. After any retiring Agent's resignation as Agent,
the provisions of this Section 9 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement and
the other Loan Documents.
9.10 Authorization to Release Liens and Guarantees. The Administrative
---------------------------------------------
Agent is hereby irrevocably authorized by each of the Lenders to effect any
release of Liens or guarantee obligations contemplated by Section 10.15.
9.11 The Arranger; the Documentation Agent. The Arranger, in its
-------------------------------------
capacity as such, shall have no duties or responsibilities, and shall incur no
liability, under this Agreement and the other Loan Documents. The Documentation
Agent, in its capacity as such, shall have no duties or responsibilities, and
shall incur no liability, under this Agreement and the other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement or any other Loan
----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may, or
(with the written consent of the Required Lenders)
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74
the Agents and each Loan Party party to the relevant Loan Document may, from
time to time, (a) enter into written amendments, supplements or modifications
hereto and to the other Loan Documents (including amendments and restatements
hereof or thereof) for the purpose of adding any provisions to this Agreement or
the other Loan Documents or changing in any manner the rights of the Lenders or
of the Loan Parties hereunder or thereunder or (b) waive, on such terms and
conditions as may be specified in the instrument of waiver, any of the
requirements of this Agreement or the other Loan Documents or any Default or
Event of Default and its consequences; provided, however, that no such waiver
-------- -------
and no such amendment, supplement or modification shall:
(i) forgive the principal amount or extend the final scheduled date of
maturity of any Loan or Reimbursement Obligation, extend the scheduled date
or change the amount of any amortization payment in respect of any Term
Loan, reduce the stated rate of any interest or fee payable hereunder or
extend the scheduled date of any payment thereof, or increase the amount or
extend the expiration date of any Revolving Credit Commitment or Delayed
Draw Term Loans Commitment of any Lender, in each case without the consent
of each Lender directly affected thereby;
(ii) amend, modify or waive any provision of this Section or Section
10.6(a) or reduce any percentage specified in the definition of Required
Lenders or Required Prepayment Lenders, consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement and the other Loan Documents, release all or substantially all of
the Collateral or release all or substantially all of the Subsidiary
Guarantors from their guarantee obligations under the Guarantee and
Collateral Agreement, in each case without the consent of all Lenders;
(iii) amend, modify or waive any condition precedent to any extension of
credit under the Delayed Draw Term Loan Facility or Revolving Credit
Facility set forth in Section 5.2 (including, without limitation, the
waiver of an existing Default or Event of Default required to be waived
solely in order for such extension of credit to be made) without the
consent of any Majority Facility Lenders with respect to the Delayed Draw
Term Loan Facility or any Majority Revolving Credit Facility Lenders, as
the case may be;
(iv) reduce the percentage specified in the definition of Majority Facility
Lenders with respect to any Facility without the written consent of all
Lenders under such Facility;
(v) amend, modify or waive any provision of Section 9 without the consent
of any Agent directly affected thereby;
(vi) amend, modify or waive any provision of Section 2.10 or 2.16 without
the consent of each Lender directly affected thereby; or
(vii) amend, modify or waive any provision of Section 3 without the consent
of each Issuing Lender affected thereby.
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75
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Loan Parties, the
Lenders, the Administrative Agent and all future holders of the Loans. In the
case of any waiver, the Loan Parties, the Lenders and the Administrative Agent
shall be restored to their former position and rights hereunder and under the
other Loan Documents, and any Default or Event of Default waived shall be deemed
to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon. Any such waiver, amendment, supplement or modification shall be
effected by a written instrument signed by the parties required to sign pursuant
to the foregoing provisions of this Section; provided, that delivery of an
--------
executed signature page of any such instrument by facsimile transmission shall
be effective as delivery of a manually executed counterpart thereof.
10.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed (a) in the case of the Borrower and the Agents, as follows
and (b) in the case of the Lenders, as set forth in an administrative
questionnaire delivered to the Administrative Agent or, in the case of a Lender
which becomes a party to this Agreement pursuant to an Assignment and
Acceptance, in such Assignment and Acceptance or (c) in the case of any party,
to such other address as such party may hereafter notify to the other parties
hereto:
The Borrower: Infonet Services Corporation
2100 East Grand Avenue (prior to 12/1/99)
2160 East Grand Avenue (on and after 12/1/99)
El Segundo, CA 90245
Telephone: 310-335-2810
Fax: 310-322-6229
Attention: Chief Financial Officer
The Administrative Agent: The Bank of Nova Scotia
New York Agency
One Liberty Plaza, 26th Floor
New York, New York 10006
Tel: 212-225-5349
Fax: 212-225-5090
Attention: Jose Carlos
with a copy to:
Merrill Lynch Capital Corporation
World Financial Center, North Tower
New York, New York 10281
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76
Telephone: 212-449-5233
Fax: 212-449-1885
Attention: Jack Lucid
The Issuing Lender: As notified by such Issuing Lender to the
Administrative Agent and the Borrower
provided that any notice, request or demand to or upon any Agent, the Issuing
- --------
Lender or any Lender shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of any Agent or any Lender, any right, remedy,
power or privilege hereunder or under the other Loan Documents shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.
10.5 Payment of Expenses. The Borrower agrees (a) to pay or
-------------------
reimburse the Agents for all their reasonable out-of-pocket costs and expenses
incurred in connection with the syndication of the Facilities (other than fees
payable to syndicate members), development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements and other charges of counsel to the Administrative Agent, (b) to
pay or reimburse each Lender and the Agents for all their costs and expenses
incurred in connection with the enforcement or preservation (including pursuant
to a "workout") of any rights under this Agreement, the other Loan Documents and
any such other documents, including, without limitation, the fees and
disbursements of counsel (including the allocated fees and disbursements and
other charges of in-house counsel) to each Lender and of counsel to the Agents,
(c) to pay, indemnify, or reimburse each Lender and the Agents for, and hold
each Lender and the Agents harmless from, any and all recording and filing fees
and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Loan Documents and any such other
documents, and (d) to pay, indemnify or reimburse each Lender, each Agent, their
respective affiliates, and their respective officers, directors, trustees,
employees, advisors, agents and controlling persons (each, an "Indemnitee") for,
----------
and hold each
<PAGE>
77
Indemnitee harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the
other Loan Documents and any such other documents, including, without
limitation, any of the foregoing relating to the use of proceeds of the Loans or
the violation of, noncompliance with or liability under, any Environmental Law
applicable to the operations of the Borrower or any of its Subsidiaries or any
of the Properties and the fees and disbursements and other charges of legal
counsel in connection with claims, actions or proceedings by any Indemnitee
against the Borrower hereunder (all the foregoing in this clause
(d), collectively, the "Indemnified Liabilities"), provided, that the Borrower
----------------------- --------
shall have no obligation hereunder to any Indemnitee with respect to Indemnified
Liabilities to the extent such Indemnified Liabilities resulted from the gross
negligence or willful misconduct of such Indemnitee. Without limiting the
foregoing, and to the extent permitted by applicable law, the Borrower agrees
not to assert and to cause its Subsidiaries not to assert, and hereby waives and
agrees to cause its Subsidiaries so to waive, all rights for contribution or any
other rights of recovery with respect to all claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or
nature, under or related to Environmental Laws, that any of them might have by
statute or otherwise against any Indemnitee, except with respect to any of the
foregoing arising out of the gross negligence or willful misconduct of such
Indemnitee. All amounts due under this Section shall be payable not later than
30 days after written demand therefor. Statements payable by the Borrower
pursuant to this Section shall be submitted to the Borrower in accordance with
Section 10.2, or to such other Person or address as may be hereafter designated
by the Borrower in a written notice to the Administrative Agent. The agreements
in this Section shall survive repayment of the Loans and all other amounts
payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Agents, all future holders of the Loans and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agents and each Lender.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
-----------
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrower and the Agents shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. In no event shall any Participant under
any such participation have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or consent
would require the consent of all Lenders pursuant to Section 10.1. The
<PAGE>
78
Borrower agrees that if amounts outstanding under this Agreement and the Loans
are due or unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall, to
the maximum extent permitted by applicable law, be deemed to have the right of
setoff in respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under this Agreement, provided that, in
--------
purchasing such participating interest, such Participant shall be deemed to have
agreed to share with the Lenders the proceeds thereof as provided in Section
10.7(a) as fully as if such Participant were a Lender hereunder. The Borrower
also agrees that each Participant shall be entitled to the benefits of Sections
2.17, 2.18 and 2.19 with respect to its participation in the Commitments and the
Loans outstanding from time to time as if such Participant were a Lender;
provided that, in the case of Section 2.18, such Participant shall have complied
- --------
with the requirements of said Section, and provided, further, that no
-------- -------
Participant shall be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable law
--------
and upon written notice to the Administrative Agent, at any time and from time
to time assign to any Lender, any affiliate thereof or a Related Fund of any
Lender or, with the consent of the Borrower and the Administrative Agent and, in
the case of any Assignment of the Revolving Credit Commitments, the written
consent of each then Issuing Lender (which, in each case, shall not be
unreasonably withheld or delayed), to an additional bank, financial institution
or other entity (an "Assignee") all or any part of its rights and obligations
--------
under this Agreement pursuant to an Assignment and Acceptance, substantially in
the form of Exhibit E, executed by such Assignee and such Assignor (and, where
the consent of the Borrower, the Administrative Agent or the then Issuing
Lenders is required pursuant to the foregoing provisions, by the Borrower and
such other Persons) and delivered to the Administrative Agent for its acceptance
and recording in the Register; provided that no such assignment to an Assignee
--------
(other than any Lender or any affiliate or a Related Fund thereof) shall be in
an aggregate principal amount of less than $5,000,000 (other than in the case of
an assignment of all of a Lender's interests under this Agreement), unless
otherwise agreed by the Borrower, and the Administrative Agent. Any such
assignment need not be ratable as among the Facilities. Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with Commitments and/or
Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all of an Assignor's rights and obligations under this Agreement, such Assignor
shall cease to be a party hereto, except as to Section 2.17, 2.18 and 10.5 in
respect of the period prior to such effective date). Notwithstanding any
provision of this Section, the consent of the Borrower shall not be required for
any assignment that occurs at any time when any Event of Default shall have
occurred and be continuing.
<PAGE>
79
(d) The Administrative Agent shall, on behalf of the Borrower,
maintain at its address referred to in Section 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
--------
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, each Agent and the Lenders shall treat each Person whose name
is recorded in the Register as the owner of the Loans and any Note evidencing
such Loans recorded therein for all purposes of this Agreement. Any assignment
of any Loan, whether or not evidenced by a Note, shall be effective only upon
appropriate entries with respect thereto being made in the Register (and each
Note shall expressly so provide). Any assignment or transfer of all or part of a
Loan evidenced by a Note shall be registered on the Register only upon surrender
for registration of assignment or transfer of the Note evidencing such Loan,
accompanied by a duly executed Assignment and Acceptance; thereupon one or more
new Notes in the same aggregate principal amount shall be issued to the
designated Assignee, and the old Notes shall be returned by the Administrative
Agent to the Borrower marked "canceled". The Register shall be available for
inspection by the Borrower or any Lender (with respect to any entry relating to
such Lender's Loans) at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor and an Assignee (and, in any case where the consent of any other Person
is required by Section 10.6(c), by each such other Person) together with payment
to the Administrative Agent of a registration and processing fee of $3,500
(except that no such registration and processing fee shall be payable in the
case of (i) an Assignee which is already a Lender or is an affiliate of a
Lender, a Related Fund of a Lender or a Person under common management with a
Lender and (ii) an Assignee of the Arranger), the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) on the effective date
determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the Lenders, the
Agents and the Borrower. On or prior to such effective date, the Borrower, at
its own expense, upon request, shall execute and deliver to the Administrative
Agent (in exchange for the Note of the assigning Lender) a new Note to such
Assignee or its registered assigns in an amount equal to the Revolving Credit
Commitment and/or, prior to the Delayed Draw Termination Date, the Available
Delayed Draw Term Loan Commitment, and/or applicable Term Loans, as the case may
be, assumed or acquired by it pursuant to such Assignment and Acceptance and, if
the Assignor has retained a Revolving Credit Commitment and/or, prior to the
Delayed Draw Termination Date, any Available Delayed Draw Term Loan Commitment,
and/or applicable Term Loans, as the case may be, upon request, a new Note to
the order of the Assignor in an amount equal to the Revolving Credit Commitment
and/or prior to the Delayed Draw Termination Date, the Available Delayed Draw
Term Loan Commitment, and/or applicable Term Loans, as the case may be, retained
by it hereunder. Such new Note or Notes shall be dated the effective date of the
applicable Assignment and Acceptance and shall otherwise be in the form of the
Note or Notes replaced thereby.
(f) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests,
<PAGE>
80
including, without limitation, any pledge or assignment by a Lender of any Loan
or Note to any Federal Reserve Bank in accordance with applicable law. Any
Lender that is a fund that invests in bank loans may pledge all or any portion
of its rights in connection with this Agreement to the trustee for holders of
obligations owed, or securities issued, by such fund as security for such
obligations or securities, provided, that any foreclosure or other exercise of
remedies by such trustee shall be subject to the provisions of this Section 10.6
regarding assignment in all respects. No pledge described in the immediately
preceding clause shall release such Lender from its obligations hereunder.
10.7 Adjustments; Set-off. (a) Except to the extent that this
--------------------
Agreement provides for payments to be allocated to a particular Lender or to the
Lenders under a particular Facility, if any Lender (a "Benefitted Lender") shall
-----------------
at any time receive any payment of all or part of the Obligations owing to it,
or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Obligations, such Benefitted Lender shall purchase for
cash from the other Lenders a participating interest in such portion of each
such other Lender's Obligations, or shall provide such other Lenders with the
benefits of any such collateral, as shall be necessary to cause such Benefitted
Lender to share the excess payment or benefits of such collateral ratably with
each of the Lenders; provided, however, that if all or any portion of such
-------- -------
excess payment or benefits is thereafter recovered from such Benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise), to set
off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify
the Borrower and the Administrative Agent after any such setoff and application
made by such Lender, provided that the failure to give such notice shall not
--------
affect the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
<PAGE>
81
10.9 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
-----------
represent the entire agreement of the Borrower, the Agents, the Arranger and the
Lenders with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Arranger, any Agent
or any Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its Property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in Section 10.2 or at such other address
of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
<PAGE>
82
10.13 Acknowledgments. The Borrower hereby acknowledges that:
---------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Arranger, any Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between the Arranger, the Agents and the Lenders, on one hand,
and the Borrower, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Arranger, the Agents and the Lenders or among the Borrower and the
Lenders.
10.14 Confidentiality. Each of the Agents and the Lenders agrees to
---------------
keep confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement; provided that nothing herein shall prevent any Agent
--------
or any Lender from disclosing any such information (a) to the Arranger, any
Agent, any other Lender or any Affiliate of any thereof which agrees to maintain
confidentiality, (b) to any Participant or Assignee (each, a "Transferee") or
----------
prospective Transferee that agrees to comply with the provisions of this
Section, (c) to any of its employees, directors, agents, attorneys, accountants
and other professional advisors, (d) to any financial institution that is a
direct or indirect contractual counterparty in swap agreements or such
contractual counterparty's professional advisor (so long as such contractual
counterparty or professional advisor to such contractual counterparty agrees to
be bound by the provisions of this Section), (e) upon the request or demand of
any Governmental Authority having jurisdiction over it, (f) in response to any
order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (g) in connection with any
litigation or similar proceeding in respect of the Loan Documents or any
transaction contemplated thereby, (h) that has been publicly disclosed other
than in breach of this Section, (i) to the National Association of Insurance
Commissioners or any similar organization or any nationally recognized rating
agency that requires access to information about a Lender's investment portfolio
in connection with ratings issued with respect to such Lender or (j) in
connection with the exercise of any remedy hereunder or under any other Loan
Document.
10.15 Release of Collateral and Guarantee Obligations.
-----------------------------------------------
(a) Notwithstanding anything to the contrary contained herein or in
any other Loan Document, upon request of the Borrower in connection with
any Disposition of Property permitted by the Loan Documents, the
Administrative Agent shall (without notice to, or vote or consent of, any
Lender, or any affiliate of any Lender that is a party to any Specified
Hedge Agreement) take such actions as shall be required to release its
security interest in any Collateral being Disposed of in such Disposition,
and to release any guarantee obligations under any Loan Document of any
Person being Disposed of in
<PAGE>
83
such Disposition, to the extent necessary to permit consummation of such
Disposition in accordance with the Loan Documents.
(b) Notwithstanding anything to the contrary contained herein or any
other Loan Document, when all principal and interest and all other
Obligations then due and payable (other than Obligations in respect of any
Specified Hedge Agreement and contingent indemnification and reimbursement
obligations) have been paid in full, all Commitments have terminated or
expired and no Letter of Credit shall be outstanding, upon request of the
Borrower, the Administrative Agent shall (without notice to, or vote or
consent of, any Lender, or any affiliate of any Lender that is a party to
any Specified Hedge Agreement) take such actions as shall be required to
release its security interest in all Collateral, and to release all
guarantee obligations under any Loan Document, whether or not on the date
of such release there may be outstanding Obligations in respect of
Specified Hedge Agreements. Any such release of guarantee obligations shall
be deemed subject to the provision that such guarantee obligations shall be
reinstated if after such release any portion of any payment in respect of
the Obligations guaranteed thereby shall be rescinded or must otherwise be
restored or returned upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower or any Subsidiary Guarantor,
or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, the Borrower or any
Subsidiary Guarantor or any substantial part of its property, or otherwise,
all as though such payment had not been made.
10.16 Accounting Changes. In the event that any "Accounting Change"
------------------
(as defined below) shall occur and such change results in a change in the method
of calculation of financial covenants, standards or terms in this Agreement,
then the Borrower and the Administrative Agent shall enter into negotiations in
order to amend such provisions of this Agreement so as to equitably reflect such
Accounting Change with the desired result that the criteria for evaluating the
Borrower's financial condition shall be the same after such Accounting Change as
if such Accounting Change had not been made. Until such time as such an
amendment shall have been executed and delivered by the Borrower, the
Administrative Agent and the Required Lenders, all financial covenants,
standards and terms in this Agreement shall continue to be calculated or
construed as if such Accounting Change had not occurred. "Accounting Change"
refers to changes in accounting principles required by the promulgation of any
rule, regulation, pronouncement or opinion by the Financial Accounting Standards
Board of the American Institute of Certified Public Accountants or, if
applicable, the SEC.
10.17 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE
---------------------
LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN.
10.18 Limitation of Interest. It is the intent of the Borrower and
----------------------
the Lenders in the execution and performance of this Agreement and all matters
incidental and related hereto and the other Loan Documents or any agreement or
instrument executed in connection herewith
<PAGE>
84
or therewith or with any Indebtedness of the Borrower to the Lenders to remain
in strict compliance with all laws applicable to the Lenders from time to time
in effect, including, without Limitation, usury laws. In furtherance hereof, the
Borrower and the Lenders stipulate and agree that none of the terms and
provisions contained in or pertaining to this Agreement or in the other Loan
Documents or any other agreement or instrument ("Other Agreement") executed in
---------------
connection herewith or with any Indebtedness of the Borrower to the Lenders
shall ever be construed to create a contract to pay for the use, forbearance or
detention of money with interest at a rate or in an amount in excess of the
maximum amount of interest permitted to be charged by the Lenders under all laws
in effect and applicable to the Lenders (the "Maximum Rate"). For purposes of
------------
this Agreement and the Notes, "interest" shall include the aggregate of all
amounts which constitute or are deemed to constitute interest under the
respective laws in effect and applicable to the Lenders that are contracted for,
chargeable, receivable (whether received or deemed to have been received) or
taken under this Agreement or the Notes or any Other Agreement. The Borrower
shall not be required to pay interest hereunder or on any Note or any Other
Agreement at a rate or in an amount in excess of the Maximum Rate with respect
to the Lenders or the maximum amount of interest that may be lawfully charged by
the Lenders under any law which is in effect and applicable to the Lenders, and
the provisions of this Section 10.18 shall control over all other provisions of
this Agreement and the Notes or any Other Agreement which may be in apparent
conflict herewith. If the effective rate or amount of interest which would
otherwise be payable under this Agreement or any Note or any Other Agreement, or
all of them, would exceed the Maximum Rate for the Lenders or the maximum amount
of interest the Lenders or any holder of any Note or any Other Agreement is
allowed by the relevant applicable law to charge, contract for, take or receive
or in the event the Lenders or any holder of any Note or any Other Agreement
shall charge, contract for, take or receive monies that are deemed to constitute
interest which could, in the absence of this provision, increase the effective
rate or amount of interest payable under this Agreement or any Note or any Other
Agreement, or all of them, to a rate or amount in excess of that permitted to be
charged, contracted for, taken or received under the applicable laws then in
effect with respect to the Lenders, then the principal amount of the Notes or
the obligations of the Borrower to the Lenders under this Agreement, the Notes
or any Other Agreement or the amount of interest which would otherwise be
payable to or for the account of the Lenders under this Agreement or the Notes
or any Other Agreement or all of them, shall be reduced to the amount allowed
under said laws as now or hereafter construed by the courts having jurisdiction,
and all such monies so charged, contracted for, or received that are deemed to
constitute interest in excess of the Maximum Rate for the Lenders or maximum
amount of interest permitted by the relevant applicable laws shall be
immediately returned to or credited to the account of the Company upon such
determination. In determining whether the interest paid or payable under any
specific contingency exceed the Maximum Rate, the Borrower and the Lenders
shall, to the maximum extent permitted by applicable law, (i) characterize any
non-principal payment as an expense, fee (excluding attorneys' and accountants'
fees) or premium rather than interest and (ii) amortize, prorate, allocate and
spread, in equal parts during the full term of the relevant Note, all interest
at any time contracted for, charged or received in connection with the relevant
Note.
<PAGE>
85
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
INFONET SERVICES CORPORATION
By:___________________________________
Name:
Title:
<PAGE>
86
MERRILL LYNCH & CO., as Lead Arranger,
Book Manager and Syndication Agent
By:___________________________________
Name:
Title:
MERRILL LYNCH CAPITAL CORPORATION,
as Lender
By:___________________________________
Name:
Title:
<PAGE>
87
THE BANK OF NOVA SCOTIA, as a Lender and
as Administrative Agent
By:___________________________________
Name:
Title:
SOCIETE GENERALE, as a Lender and as
Documentation Agent
By:___________________________________
Name:
Title:
<PAGE>
88
ABN AMRO BANK N.V.
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
<PAGE>
89
BANQUE PARIBAS
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
<PAGE>
90
BAYERISCHE HYPO-UND VEREINSBANK AG,
New York Branch
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
<PAGE>
91
FLEET BANK, N.A.
By:___________________________________
Name:
Title:
<PAGE>
92
GOLDMAN SACHS CREDIT PARTNERS L.P.
By:___________________________________
Name:
Title:
<PAGE>
93
THE BANK OF NOVA SCOTIA
By: ____________________________________
Name:
Title:
<PAGE>
94
GALAXY CLO 1999-1, LTD.
By: SAI INVESTMENT ADVISER, Inc., as its
Collateral Manager
By: _____________________________________
Name:
Title:
<PAGE>
95
THE FUJI BANK, Ltd.
By: _____________________________________
Name:
Title:
<PAGE>
96
UBS AG, Stamford Branch
By: _____________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
<PAGE>
97
PILGRIM CAPITAL CORP
By: ______________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
<PAGE>
98
MORGAN STANLEY DEAN WITTER PRIME
INCOME TRUST
By: _____________________________________
Name:
Title:
<PAGE>
99
KZH SOLEIL-2 LLC
By: ____________________________________
Name:
Title:
<PAGE>
100
DE NATIONALE INVESTERINGS BANK NV
By: _____________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
<PAGE>
101
CITICORP USA, INC.
By: ______________________________________
Name:
Title:
<PAGE>
102
SOCIETE GENERALE
By: ______________________________________
Name:
Title:
<PAGE>
103
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors LLC
as Collateral Manager
By: ______________________________________
Name:
Title:
<PAGE>
104
ING HIGH INCOME PRINCIPAL
PRESERVATION FUND HOLDINGS, LDC.,
By: ING Capital Advisors LLC
As Investment Advisor
By: _____________________________________
Name:
Title:
<PAGE>
105
SEQUILS- ING(HBDGM), LTD.
By: ING Capital Advisors LLC,
Collateral Manager and
Authorized Signatory
By: ______________________________________
Name:
Title:
<PAGE>
106
LEHMAN COMMERCIAL PAPER, INC.
By: ______________________________________
Name:
Title:
<PAGE>
ANNEX A
LENDERS AND COMMITMENTS
<TABLE>
<CAPTION>
DELAYED DRAW TRANCHE B TERM REVOLVING
LENDER TERM LOAN LOAN CREDIT
------ COMMITMENT COMMITMENT COMMITMENT
---------- ---------- ----------
<S> <C> <C> <C>
Merrill Lynch Capital Corporation $ 10,750,000 $ 7,000,000 $ 10,750,000
The Bank of Nova Scotia 10,250,000 --0-- 10,250,000
Societe Generale 10,250,000 --0-- 10,250,000
ABN AMRO Bank N.A. 8,500,000 --0-- 8,500,000
Citicorp USA, Inc. 8,500,000 --0-- 8,500,000
Goldman Sachs Credit Partners L.P. 8,500,000 --0-- 8,500,000
Lehman Commercial Paper Inc. 8,500,000 --0-- 8,500,000
UBS AG, Stamford Branch 8,500,000 --0-- 8,500,000
De Nationale Investerings Bank 8,250,000 --0-- 8,250,000
Fleet Bank N.A. 6,000,000 --0-- 6,000,000
Bayerische Hypo- Und Vereinsbank 6,000,000 3,000,000 6,000,000
AG, New York Branch
The Fuji Bank, Ltd. 6,000,000 --0-- 6,000,000
Galaxy CLO 1999-1, Ltd. --0-- 8,500,000 --0--
KZH Soleil-2 LLC --0-- 5,000,000 --0--
Archimedes Funding L.L.C. --0-- 3,500,000 --0--
ING High Income Principal --0-- 5,000,000 --0--
Preservation Fund Holding, LDC
Sequils-ING I (HBDGM), Ltd. --0-- 5,000,000 --0--
Morgan Stanley Dean Witter Prime --0-- 10,000,000 --0--
Income Trust
Pilgrim Prime Rate Trust --0-- 3,000,000 --0--
--------------- -------------- ---------------
Total $100,000,000.00 $50,000,000.00 $100,000,000.00
Total Commitments $250,000,000.00
</TABLE>
<PAGE>
Annex A-1
---------
PRICING GRID FOR REVOLVING CREDIT LOANS
<TABLE>
<CAPTION>
=================================================================================
Consolidated Leverage Applicable Margin Applicable Margin for Base
Ratio for Eurodollar Loans Rate Loans
<S> <C> <C>
**5.00 : 1.00 2.50% 1.50%
**4.50 : 1.00 2.25% 1.25%
**4.00 : 1.00 2.00% 1.00%
**3.50 : 1.00 1.75% .75%
*3.50 : 1.00 1.50% .50%
=================================================================================
</TABLE>
** greater than or equal to
* less than
Changes in the Applicable Margin with respect to Revolving Credit Loans
resulting from changes in the Consolidated Leverage Ratio shall become effective
on the date (the "Adjustment Date") on which financial statements are delivered
---------------
to the Administrative Agent pursuant to Section 6.1 (but in any event not later
than the 45th day after the end of each of the first three quarterly periods of
each fiscal year or the 90th day after the end of each fiscal year, as the case
may be) and shall remain in effect until the next change to be effected pursuant
to this paragraph. If any financial statements referred to above are not
delivered within the time periods specified above, then, until such financial
statements are delivered, the Consolidated Leverage Ratio as at the end of the
fiscal period that would have been covered thereby shall for the purposes of
this definition be deemed to be greater than 5.00 to 1. Each determination of
the Consolidated Leverage Ratio pursuant to this Pricing Grid shall be made for
the periods and in the manner contemplated by Section 7.1(b).
<PAGE>
SCHEDULE 4.15
SUBSIDIARIES
<PAGE>
SCHEDULE 4.21(b)
EXISTING FCC AUTHORIZATIONS, STATE AND FOREIGN PERMITS, ETC .
<PAGE>
SCHEDULE 4.21(c)
INVESTIGATIONS AND PROCEEDINGS
<PAGE>
SCHEDULE 4.21(d)
MATTERS AFFECTING FCC AUTHORIZATIONS, STATE AND FOREIGN PERMITS, ETC.
<PAGE>
SCHEDULE 4.22-1
UCC FILING JURISDICTIONS
<PAGE>
SCHEDULE 4.22-2
UCC FILING STATEMENTS TO REMAIN ON FILE
<PAGE>
SCHEDULE 4.22-3
UCC FILING STATEMENTS TO BE TERMINATED
<PAGE>
SCHEDULE 7.2(d)
EXISTING INDEBTEDNESS
<PAGE>
SCHEDULE 7.3(f)
EXISTING LIENS
<PAGE>
Exhibit 10.10
INFONET SERVICES AGREEMENT
--------------------------
This Agreement is entered into as of the _______ day of ________, 1998 by and
between INFONET SERVICES CORPORATION, a corporation organized and existing under
and by virtue of the laws of the State of Delaware, United States of America,
having its principal place of business in the City of El Segundo, California,
(hereinafter referred to as "ISC"), and __________________, a corporation
organized and existing under and by virtue of the laws of _________________,
having its principal place of business in __________________ (hereinafter
referred to as "Representative").
WHEREAS, ISC is engaged in, among other activities, the business of
developing and operating directly or through distributors an international
telecommunications and information network known as the World Network, and
WHEREAS, Representative and ISC are interested in a cooperative effort in
__________ and in other countries in order to satisfy the telecommunication and
information needs of a wide range of international users, and
WHEREAS, ISC has developed and is owner of certain proprietary services,
software systems, software products, and hardware/software systems which are
described in Appendices attached hereto, and
WHEREAS, ISC has the marketing rights to the certain services, systems, and
products which are described in Appendices attached hereto, and
WHEREAS, ISC is the registered proprietor of certain registered service
marks or trademarks relating to services, systems, and products, and
WHEREAS, Representative is desirous of marketing and reselling the use of
the services, systems, and products, as specified in the Appendices hereto, to
its customers, and
WHEREAS, ISC is willing to grant to Representative the right to market and
resell the use of the services, systems, and products specified in the
Appendices attached hereto, and to grant Representative the right to use said
registered service marks or trademarks in connection therewith, and
Representative is willing to accept same.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing and the mutual covenants,
promises, and conditions set forth herein, the parties hereto agree as follows:
1. DEFINITIONS
-----------
The following definition shall apply whenever the underlined words are used
in the
1
<PAGE>
Agreement.
1.1 Infonet - Infonet is a registered trademark and service mark of, and
-------
identifies and refers to, ISC. As used herein, Infonet sometimes
refers, as context requires, to ISC or to the services made available
by ISC.
1.2 Appendices - The Appendices defined in Article 14, Appendices, and
----------
attached hereto.
1.3 Infonet Services - The services, systems, and products, as described
----------------
in the Appendices.
1.4 Territory - The geographic area described in Article 4, Territory
---------
Defined.
1.5 Trademarks or Service Marks - ISC's trademarks or service marks as
---------------------------
currently set forth in Annex 3 hereto, and as may hereinafter be
registered by ISC.
1.6 Normal Customer Support Service - A generally available service
-------------------------------
provided at no charge to customers encompassing a reasonable level of
service consisting of assistance to a user in matters relating to
communications access, data entry, and data retrieval to and from the
services provided hereunder. Normal Customer Support Service is a
continuing process of interacting with the customer to assure that the
customer is utilizing services, systems, and products in an optimal
manner.
1.7 Global Connect Services - The provisioning of customer premise
-----------------------
equipment ("CPE"), as authorized under Global Connect policies and
procedures, and the local leased circuit to interconnect the CPE at
the customers site to the Infonet node. Such provisioning would be
made available to customers of Representative and to Multi-National
Customers.
1.8 Revenues - All monies or money equivalents, in equivalent U.S.A.
--------
dollars, which Representative invoices its customers in exchange for
providing Infonet Services, less the money or money equivalents for
value added taxes, sales taxes, and use or similar taxes. These monies
are usually described by ISC as suggested End-User prices.
1.9 Representative Compensation - The amount retained by Representative
---------------------------
after deducting Representative Settlement Price and Revenue Share
(Out) from Revenues.
1.10 Representative Settlement Price - Money or money equivalents retained
-------------------------------
by ISC for provisioning to Representative's customers of the Infonet
Services defined in the Appendices attached hereto, and in accordance
with the then current price schedules specified in each Appendix.
These monies may be described by ISC as Transfer prices, and may be
entitled to a discount based on the General Volume Discount
2
<PAGE>
table and conditions as set forth in Annex 2 hereof.
1.11 Revenue Share (Out) - Money or money equivalents paid by
-------------------
Representative for Normal Customer Support Services provided to its
customers, and as defined in Article 7.
1.12 Revenue Share (In) - Money or money equivalents paid to Representative
------------------
for Normal Customer Support Services, provided to users of Infonet
Services in the Territory, and as defined in Article 7.
2. MARKETING RIGHTS
----------------
ISC agrees to and does hereby grant to Representative the right to market
and resell the use of Infonet Services as defined herein, within the
Territory.
3. TRADEMARKS OR SERVICE MARKS
---------------------------
3.1 ISC hereby grants to Representative, during the term and subsequent
renewals of this Agreement, the non-transferable right and
authorization to use within the Territory the Trademarks or Service
Marks.
3.2 Representative shall use the Trademarks or Service Marks only in
respect to providing Infonet Services, the rights to which have been
granted herein, and any services related thereto, so long as this
Agreement remains in effect.
3.3 Representative acknowledges the title of ISC to the Trademarks or
Service Marks in the Territory and elsewhere and the validity of the
registration of ISC as the proprietor in the Register of Trademarks or
Service Marks. Representative shall not claim any ownership or similar
right to the Trademarks or Service Marks by reason of their use
thereof pursuant to this Agreement, and any rights which
Representative should otherwise acquire in or to the Trademarks or
Service Marks shall be deemed for the account and benefit of ISC.
3.4 Representative shall use its best endeavors to preserve the value and
validity of the Trademarks or Service Marks and in particular will:
3.4.1 Endeavor to create, promote, and retain goodwill in the
business of selling the goods and services.
3.4.2 Give to ISC any information as to Representative's use of the
Trademarks or Service Marks which ISC may require and otherwise
render any assistance to ISC in maintaining the Trademarks or
Service Marks duly registered except that ISC shall pay all
renewal fees.
3
<PAGE>
3.4.3 Use the Trademarks or Service Marks correctly spelled as
registered and not as a verb or in the plural.
3.4.4 Not to use the Trademarks or Service Marks unaccompanied by
words describing the nature of the goods and services to which
they relate unless the Trademarks or Service Marks in question
are capitalized or otherwise distinguished from the surrounding
and adjacent text.
3.4.5 In the event that the Trademarks or Service Marks are to be
used with another trademark or service mark or in relation to
the goods and services under the control of Representative,
Representative will use its best efforts to have both
trademarks or service marks represented equally legibly,
equally prominently, and of the same size as each other but
nevertheless separated from the other so that each mark appears
to be a mark in its own right distinct from the other mark.
3.4.6 Representative agrees not to use in its business any other
trademark which is similar to or so nearly resembles the
Trademarks or Service Marks or any of them as to be likely to
cause deception or confusion.
4. TERRITORY DEFINED
-----------------
The grant of rights and authorization of this Agreement shall extend only
within the geographic boundaries of _____________________.
5. ISC OBLIGATIONS
---------------
5.1 ISC will provide access to Infonet Services from communications
gateways made available to Representative pursuant to Article 8,
Network Interconnection, of this Agreement. ISC will also provide upon
request from Representative the products, as defined in Appendix H
hereto.
5.2 ISC agrees to provide to Representative, as appropriate, either two
(2) copies of Infonet marketing and operational documentation in the
English language, F.O.B. El Segundo, California or access to certain
informational data bases. The aforementioned documentation or data
base access will be provided at no cost to Representative. Additional
copies of Infonet user documentation in the English language will be
provided to Representative F.O.B. El Segundo, California at the
standard selling price in effect in the United States at the time of
shipment.
5.3 ISC will provide at Representative's written request training to
Representative personnel through attendance in training classes
regularly conducted by ISC for its
4
<PAGE>
personnel in the United States. The attendance of Representative
personnel shall not exceed two employees per training class. Such
training will be provided in the English language principally in or
near Los Angeles, California, U.S.A. The training to be provided
herein shall be made available without additional cost to
Representative. The costs incurred for Representative personnel for
travel and living expenses shall be at Representative's expense.
5.4 ISC will arrange at Representative's written request the attendance of
Representative's personnel at special training sessions sponsored by
ISC and conducted by third parties. All costs associated with such
sessions shall be at Representative's expense.
5.5 ISC, at its expense, agrees to provide reasonable support for
Representative. ISC shall determine the ISC organization, number of
personnel, and magnitude of effort reasonably required to support the
use of Infonet Services made available to Representative under this
Agreement.
5.6 ISC agrees that Representative may, at its own expense, print copies
of Infonet user documentation furnished hereunder for distribution to
its customers, in any language, provided that all such copies shall
bear any copyright notice contained in the original furnished by ISC.
Any translation made by Representative of documentation supplied by
ISC is the property of Representative, and Representative is solely
responsible as to accuracy and completeness of translation.
Representative agrees to and does hereby grant to ISC a perpetual
exclusive license to use said translated documents outside the
Territory. The printing of said translated documents for ISC's use
shall be at ISC's expense.
5.7 For the support of Infonet Services provided by Representative within
the Territory, ISC will pay Representative Revenue Share (In).
6. REPRESENTATIVE OBLIGATIONS
--------------------------
6.1 Representative shall market and use Infonet Services made available by
ISC in accordance with the terms of this Agreement.
6.2 ISC will invoice, and Representative agrees to pay, Representative
Settlement Price and Revenue Share (Out) corresponding to the total
Revenues generated from provision of Infonet Services to customers
contracting with Representative in the Territory. Invoices will be
issued on a monthly basis.
6.3 Any technology transfer tax, sales or turnover tax, value added tax,
currency export tax, registration tax, or any other taxes as may be
applied to the amounts payable to ISC hereunder shall be borne by
Representative and not deducted from such amounts; except that any
taxes by the national government or any other government
5
<PAGE>
on ISC's income (or a third party's income) hereunder shall be borne
by ISC, or a third party as the case may be and, if required by law,
shall be deducted from any payments made to ISC. If it is required by
law that Representative deduct taxes from ISC's income hereunder then
Representative agrees promptly to provide ISC with the original copy
of each paid tax receipt on any taxes so withheld from payments to
ISC, or a third party.
6.4 Representative shall have, with due and continuing diligence, the
primary responsibility for attending to the necessary filing and
registration requirements with the Government of _____________, so
that all amounts specified herein can be paid to ISC when due, and
shall bear the costs thereof.
6.5 Representative agrees that services utilized hereunder will not be
used in contravention of national or international communications
regulations, laws, or tariffs. Representative further agrees that in
providing Infonet Services it will neither undertake, nor cause nor
permit to be undertaken, any activity which either (a) is illegal
under any laws, decrees, rules, or regulations in effect in the
Territory, or (b) would have the effect of causing ISC to be in
violation of any laws, decrees, rules, or regulations in effect in the
Territory.
6.6 Representative agrees that ISC has the right to approve the prices to
be established by Representative for Infonet Services, the rights to
which are granted hereunder, prior to any such prices being published
and made available to Representative's customers in the Territory.
Such approval shall not be unreasonably withheld.
6.7 Representative and ISC will agree upon revenue targets to be achieved
in the Territory for each calendar year starting with the first
complete calendar year after the date of this Agreement, consistent
with reasonable growth of the revenue in the Territory. In the event
that the parties are not able to reach an agreement by the end of a
calendar year, the revenue target for the following calendar year
shall be two (2) times the revenue for the second and third quarter of
the current calendar year multiplied by the average growth rate
experienced by other Infonet representatives in the same region (as
used herein, regions as defined for Notice Private services).
Representative will make diligent efforts to achieve the targets. If
the agreed revenue targets are not met, or if the parties fail to
reach an agreement on revenue targets for two consecutive calendar
years, ISC may, at its discretion, terminate this Agreement by giving
one hundred eighty (180) days notice in writing to Representative.
6.8 Representative and ISC will agree upon the number of job positions,
the functions of the established positions, the number of employees to
be assigned to the established positions, and the Representative
employees assigned to the established positions required for the
marketing, sales, and support efforts needed in the provision of
Infonet Services, including an appropriately staffed helpdesk pursuant
to the Infonet Customer Support Guidelines. If the parties fail to
reach
6
<PAGE>
an agreement on the foregoing within a six (6) month period, ISC may,
at its discretion, terminate this Agreement by giving one hundred
eighty (180) days notice in writing to Representative.
6.9 Representative agrees to ensure that the employees assigned in
accordance with paragraph 6.8 are properly trained and fully made
aware of Infonet Services, and Infonet policies and procedures. As
part of this commitment, Representative agrees to actively
participate in ISC's regional and global conferences. Further,
Representative and ISC will establish, when appropriate but at least
once a year, specific training programs for each employee assigned to
sell or support Infonet Services, and Representative will ensure that
each employee will attend the specified ISC training courses or
sessions.
6.10 Representative agrees to provide timely Normal Customer Support
Services in accordance with ISC's standard support policies and
procedures, as currently in force and as modified in the future.
Accordingly, Representative agrees to reply to, or acknowledge, all
inquiries received from ISC or Host Lessees, as hereinafter defined,
within twenty-four (24) hours excluding weekends and holidays in
____________. Further, Representative will maintain, or make
arrangements for the maintenance of the site for the Infonet node,
and the test and monitoring equipment, in accordance with the
specifications in the aforementioned standard support policies and
procedures.
6.11 Representative, to the extent permitted by law and regulations,
agrees to provision Global Connect Services in accordance with the
then current Global Connect policies and procedures. ISC reserves the
right to audit Representative's compliance with the Global Connect
policies and procedures.
6.12 Representative shall forward the reports, as requested by ISC,
necessary to monitor and manage the provisioning of Infonet Services
in Representative's Territory.
6.13 If Representative fails to meet its commitments as set forth in
Paragraphs 6.9, 6.10, 6.11, and 6.12 above, ISC may, at its
discretion, terminate this Agreement by giving one hundred eighty
(180) days notice in writing to Representative.
6.14 Representative agrees to subscribe to a white and/or yellow page
listing in the appropriate telephone directories which would
reference that the Representative is an Infonet Services provider,
and would provide the telephone number to be used by an Infonet
Services user to reach Representative.
7. MULTI-NATIONAL SERVICES
-----------------------
7.1 Should Representative acquire a customer with business interests in
the Territory
7
<PAGE>
and such customer operates on a multi-national basis and desires that
its offices and/or personnel outside of the Territory shall have
access to the common data base and/or program library and/or computer
system totally or partially dedicated to the customer's use, then ISC
and Representative agree that Representative shall have the primary
responsibility to furnish the services specified in the Appendices to
such customer (hereafter "Multi-National Customer") outside of the
areas in which Representative is doing business.
7.2 All expenses except as specifically set forth in Paragraph 7.3 arising
from the acceptance of a Multi-National Customer shall be borne by
Representative.
7.3 Whenever Representative provides the Infonet Services to a Multi-
National Customer's offices and/or personnel located in a country or
place where ISC has not assigned, leased, or licensed others to
perform Infonet services, ISC agrees to supply Normal Customer Support
Services at ISC's expense when requested to do so by Representative
provided that ISC is then currently providing such support services
for its own customers in the immediate vicinity.
7.4 Whenever Representative provides Infonet Services to a Multi-National
Customer's offices and/or personnel located in a country or place
where ISC has assigned, leased, or licensed others to perform Infonet
Services, ISC agrees to exercise a diligent effort to bring about an
agreement between Representative and ISC's assignee, lessee, or
licensee (the "Host Lessee") which will require the Host Lessee to
supply Normal Customer Support Services on the same terms as set forth
in Paragraphs 7.3 above and 7.5 below.
7.5 Whenever Representative provides Infonet Services to a Multi-National
Customer, Representative agrees to pay to ISC (or Host Lessee as the
case may be) the revenue share amounts set forth in the Appendices
where ISC (or the Host Lessee) supplies Normal Customer Support
Services.
7.6 At the request and expense of Representative, ISC agrees to conduct an
audit of any entity furnishing Infonet Services for which the
Representative is entitled to receive revenues for the rendition of
Normal Customer Support Services under this Agreement. ISC will submit
to Representative a report of the findings of the audit. Expenses at
any audit so conducted will be calculated based upon ISC's normal and
prevailing labor rates and expenses incurred.
7.7 Should ISC (or a Host Lessee provided that such Host Lessee has agreed
to provide Normal Customer Support Services under Paragraph 7.4)
acquire a customer with principal business interests outside of the
Territory and such customer operates on a multi-national basis and
desires that its offices and/or personnel within the Territory shall
have access to a common data base and/or program library and/or
computer system totally or partially dedicated to the customer's use
located outside of the
8
<PAGE>
Territory, Paragraph 7.1 through 7.5 shall apply mutatis mutandis.
8. NETWORK INTERCONNECTION
-----------------------
Access to Infonet Services as defined in the Appendices hereto, will be
made available to Representative from network nodes configured to ISC
specifications, installed at Representative's site, via an international
leased line or lines from the aforementioned nodes to ISC network gateway
nodes. The costs for the international leased line(s) will be borne by the
parties hereto in accordance with such cost-sharing agreements as may be
agreed to from time-to-time by ISC and Representative. Access to the
aforementioned services will be made available in accordance with the then
current provisions of Annex 1 of this Agreement.
9. PAYMENTS AND START DATE
-----------------------
9.1 Amounts due ISC under this Agreement will be invoiced in U.S. dollars
by ISC at the end of each calendar month. Amounts due Representative
under this Agreement, other than revenue-share or Global Connect
amounts, will be invoiced by Representative at the end of each
calendar month. ISC will match the amounts invoiced and credited
pursuant to the foregoing, and will forward an open item statement
showing the amounts due by either party. The debtor party shall pay
the balance as shown on the open item statement in U.S. dollars within
forty-five (45) days of the date of such statement. Any payment in
arrears for more than forty-five (45) days of presentation of the open
item statement shall be charged interest at a rate of one and one-half
percent (1 1/2%) per month. Notwithstanding the aforementioned both
parties agree to carry over payment balances until such payment
balances are in the amount of one thousand U.S. dollars or greater.
Any payment balances carried over will not be considered in arrears
until such amounts equal or exceed the aforementioned amount.
9.2 All payments to ISC under this Agreement shall be wire transferred to
the below listed bank account:
Wells Fargo Bank (ABA No. 121000248)
Commercial Banking Office
111 West Ocean Boulevard
Long Beach, California 90802
U.S.A.
INFONET General Account No. 4624-063731
or to such other bank and account as ISC may designate in writing.
9.3 All payments to Representative under this Agreement shall be wire
transferred to
9
<PAGE>
the bank and account designated in writing to ISC by Representative.
9.4 In the event that Representative does not meet its payment
requirements specified in Paragraph 9.1, ISC may, in addition to all
other rights and remedies under this Agreement and in law, suspend
any or all services, systems, or products without prior notice to
Representative.
9.5 The obligations and requirements of this Agreement unless otherwise
specified shall start on the date of signing of this Agreement.
10. WARRANTY AND LIABILITY
----------------------
10.1 ISC warrants that the services, systems, and products furnished by
ISC under this Agreement will be substantially similar to the
services, systems, and products made available by ISC in the United
States. THE PARTIES AGREE THAT ISC WILL NOT BE HELD TO ANY OTHER
WARRANTIES DIRECTLY OR INDIRECTLY RELATED TO SERVICES, SYSTEMS, AND
PRODUCTS, WHETHER EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO
THE WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10.2 ISC shall not be liable for, and Representative assumes and will save
harmless, ISC, its directors, officers, employees, and agents in
respect of any loss, claim, damage, liability, or expense, including
reasonable attorney's fees, that may arise through the marketing and
use of the services, systems, and products in the Territory. In no
event shall ISC be liable for any indirect, incidental, special,
exemplary, or consequential damages such as, but not limited to, loss
of anticipated profits or other economic loss, in connection with or
arising out of the furnishing, performance, or use of the services,
systems, and products provided for in this Agreement.
10.3 Except as otherwise provided in this Agreement, neither party shall
be held liable for any failure to perform or delay in performance of
any obligation hereunder for reasons of "force majeure". The term
"force majeure" as employed hereunder shall mean, but not be limited
to, acts of God, acts or omissions of governments, acts or omissions
of military authorities, strikes, lock-outs, or other industrial
disturbances, acts of the public enemy, wars, blockades,
insurrections, riots, epidemics, landslides, earthquakes, fires,
storms, lightning, floods, washouts, civil disturbances, and any
other acts or omissions, not within the control of the affected party
and which by the exercise of due diligence said party is unable to
overcome.
11. TERM OF AGREEMENT AND TERMINATION
---------------------------------
11.1 The duration of this Agreement shall be for a period of three (3)
years from the date
10
<PAGE>
hereof, unless earlier terminated under the provisions of this
Agreement. It is further agreed that this Agreement and the rights
and authorizations granted hereunder shall be renewed automatically
for additional successive one (1) year periods unless either party
notifies the other party in writing of its intention not to have
Agreement and the rights and authorizations renewed at least one
hundred eighty (180) days prior to the expiration date of this
Agreement, or its subsequent renewals.
11.2 Either party may terminate this Agreement on ninety (90) days notice
in writing to the other party upon failure of the other party to
perform any of its obligations hereunder; provided, however, that
during such ninety (90) day period the party in default shall have
fulfilled its obligations, this Agreement shall continue in effect as
if such notice had not been given.
11.3 The right of termination by Representative or ISC under Paragraph
11.2 and Paragraph 11.4 or by ISC under Paragraph 11.5 shall be in
addition to any other rights or remedies permitted by operation of
law or in equity or under any other provision of this Agreement.
11.4 Subject to the rights of termination to ISC by Paragraph 11.5 below,
either party may, upon written notice to the other, terminate and
cancel this Agreement in the event that the other party voluntarily
files a bankruptcy petition, and said petition is not disposed of
within thirty (30) days, or in the event that the other party is
insolvent and unable to pay its debts as they mature, or if such
party shall make an assignment for the benefit of creditors or have a
receiver appointed for it or its property.
11.5 In the event Representative fails to make any payments required under
this Agreement, ISC shall notify Representative of such failure in
writing. ISC may terminate this Agreement and all rights and licenses
hereunder upon thirty (30) days written notice if Representative
fails to make the required payment within thirty (30) days following
the receipt of the payment failure notice. The provisions of this
paragraph shall not apply if Representative's failure to perform or
delay in performance are for reasons of force majeure.
11.6 In the event Representative establishes a business relationship with
a service vendor other than ISC that provides substantially similar
services to the services described herein, ISC reserves the right, at
its discretion to terminate this Agreement by giving one hundred
eighty (180) days notice in writing to Representative.
11.7 ISC reserves the right to take all actions, including termination of
services provided to Representative or Representative's customers
pursuant to this Agreement, which ISC considers necessary to comply
with applicable national or international communications regulations,
laws, or tariffs.
11
<PAGE>
12. EFFECTS OF NONRENEWAL OR TERMINATION
------------------------------------
12.1 In the event of expiration or termination of the Agreement, ISC will
at its option assume responsibility for the Infonet Multi-National
Customers in the Territory. Representative will exercise all
diligence in transferring such customers to ISC's responsibility or
the responsibility of ISC's nominee. Representative will pay the
costs incurred by its own personnel in meeting the obligations of
this paragraph.
12.2 Expiration or termination of this Agreement shall not relieve the
parties of any obligations due at the time of such expiration or
termination, nor shall such expiration or termination prejudice any
claim of either party accrued on account of any default or breach by
the other.
12.3 The non-renewal or termination of this Agreement shall not affect
services in place for Representative's customers which explicitly or
by their nature would continue beyond the non-renewal or termination
of the Agreement unless the parties hereto both agree to have all
such services concluded upon cessation of the Agreement.
12.4 Upon agreement in writing by the parties hereto, ISC shall (i)
support Representative's customers operating under this Agreement
until the end of such customer's contract period; (ii) allow for the
provision of additional circuits [sites], and new or additional
Infonet Services, under an existing customer contract, and (iii)
extend a customer's contract to a date beyond the termination of this
Agreement if both ISC and Representative agree in writing.
12.5 Upon termination or expiration of this Agreement, the Parties
acknowledge that surviving obligations listed in Paragraph 12.4
above, are subject to the following provisions: (i) prices for
services shall be at ISC's then current prices; and (ii) the
discounts offered under this Agreement are not valid after the
completion of the customer's commitment period.
13. POST TERMINATION
----------------
Upon the non-renewal or termination of this Agreement, for any reasons
whatsoever:
(a) Representative shall cease marketing the services, systems, and
products made available hereunder.
(b) Representative shall as soon as reasonably practical cause all entries
in published material such as telephone directories to be removed and
shall cause all stationery, advertisements, promotional materials, and
signs to be changed, removed, or expunged so as to eliminate any
reference to the Trademarks or Service Marks.
12
<PAGE>
(c) Representative shall not thereafter use any trading style, trade
name, trademark, or service mark which is similar to or so nearly
resembles the Trademarks or Service Marks or any of them, as would or
might be likely to cause confusion.
(d) Representative shall return to ISC within sixty (60) days of
termination all copies of internal manuals, all copies of
documentation, papers, and materials marked or stamped with the words
designating such documents, or copies thereof, as proprietary or
confidential to ISC, and all ISC copyrighted materials, and generally
all documentation, papers, and materials referring to or concerning
the provision of the services provided hereunder being in the
possession of Representative at the time of termination.
14. APPENDICES
----------
14.1 The following Appendices are attached hereto: Appendix A, Network
Services; Appendix B, Remote Access Services; Appendix C, Infolan and
Frame Relay Services; Appendix D, Messaging and Collaborative
Services; Appendix E, Global MultiMedia Services; Appendix F,
Administrative Services; Appendix G, Specialized Services; and
Appendix H, Infonet Software. The aforementioned Appendices represent
the current Infonet Services made available by ISC. Each appendix
will reference specific price schedules which are initially provided
to Representative as an attachment to this Agreement. Said price
schedules are also accessible through access to Infonet On-Line
("IOL").
14.2 The Appendices listed in Paragraph 14.1 above will be updated
(additions, deletions, amendments, and modifications) from
time-to-time through the release of Sales Communication Bulletins
("SCBs"), and updates incorporated into the IOL data bases.
14.3 The following general conditions apply to the Appendices:
. The Customer is responsible for compatible remote input and output
devices, modems and appropriate communications services necessary
to communicate with the Infonet network, and for all other
associated charges. In particular, all customer premise equipment
must conform to or be compatible with Infonet's required interface
protocol for call establishment and termination.
. The customer is responsible for all costs associated with the
replacement oflost or stolen equipment.
. Technical Services may be charged to Representative for services
provided by ISC or Host Lessee which are considered to be beyond
the scope of Normal Customer Support Services or IRC Coordination
Services. Such Technical Service charges shall apply for general
communication consulting; service,
13
<PAGE>
equipment, or software certification; and problem resolution
visits to customer's premises when difficulties result from
customer provided equipment, software, and facilities or customer
personnel errors. Technical Services fees will apply for any
installation trip when the customer is not prepared for
installation, unless the scheduled trip is canceled at least 48
hours prior to the scheduled trip. ISC will coordinate requests
for Technical Services with Host Lessees.
. A special business request is required to provide for the
rebilling of PDN charges from Representative to ISC or Host
Lessee, or from ISC or Host Lessee to Representative.
. Surcharges and taxes may not be included in the price schedules
referenced in the Appendices. ISC may invoice the additional costs
incurred by ISC arising from in-country taxes, tariffs and
surcharges including, but not limited to, sales and use taxes,
value added taxes, volume sensitive tariffs and usage surcharges.
These charges are country specific.
. Notwithstanding the terms in the referenced price schedules,
prices charged to Representative are subject to change upon
90-days notice in writing, except for NOTICE Fax and NOTICE Telex
which are subject to change without prior notice.
. Representative will pay ISC for all NOTICE Telex and NOTICE Fax
services including Representative's own internal usage.
15. NOTICES
-------
Any notices provided for herein shall be given in writing and dispatched by
pre-paid first-class registered or certified mail, or by air courier, addressed
as follows:
to: INFONET Services Corporation
2100 E. Grand Avenue
El Segundo, California 90245, USA
Attention: President
to:
Attention:
or to such other addresses or persons as the parties may designate in writing.
16. ADVISORY REVIEW BOARD
---------------------
14
<PAGE>
16.1 The parties hereto agree to establish an Advisory Review Board
(hereinafter referred to as "ARB"), to address issues and
opportunities which may arise during the term of this Agreement.
16.2 The ARB membership will consist of up to three (3) members, two (2)
appointed by Representative and one (1) appointed by ISC. The ARB
meetings will be scheduled at times and locations designated by the
ARB standing members, but in no event will the meetings be scheduled
for less than once each calendar year.
17. GOVERNING LAW
-------------
17.1 This Agreement shall be construed and governed by the substantive
laws of the State of California, U.S.A. without giving effect to
rules regarding choice of laws.
17.2 If ISC and Representative are unable to settle a dispute by mutual
agreement, then any such dispute, controversy, or claim arising out
of or relating to this Agreement, its interpretation, performance, or
breach thereof, shall be finally and exclusively settled in
accordance with the UNCITRAL Arbitration rules as at present in
force, by three arbitrators appointed in accordance with said Rules.
The arbitration, including the rendering of the award, shall take
place in Los Angeles, California, U.S.A., and all arbitration
proceedings shall be in the English language. Any arbitral decision
or award shall be final and enforceable in any court of competent
jurisdiction. ISC and Representative acknowledge that any award
rendered pursuant to this Agreement shall be governed by the U.N.
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards.
18. ASSIGNMENT OF THE AGREEMENT
---------------------------
18.1 Neither party shall assign, pledge, or in any manner delegate,
transfer, convey, alienate, or encumber any right arising from or
interest in the Agreement without obtaining the prior written consent
of the other party, which consent shall not be unreasonably withheld.
Any of the foregoing actions without such prior written consent shall
be a nullity, and of no force nor effect.
18.2 For Purposes of this Agreement, an "assignment", "pledge",
"delegation," transfer", "conveyance", "alienation" or "encumbrance"
shall be deemed to include, and be subject to the prior consent
requirement of Paragraph 18.1, if: (a) Representative is acquired by,
merged or consolidated into another entity; (b) all or substantially
all the assets of Representative or a business unit of Representative
responsible for the sale of INFONET services or products are acquired
by another entity, or (c) Representative experiences a change of
control, where "control" is defined as (i) change in ownership of at
least 50% of the equity or beneficial ownership of
15
<PAGE>
Representative, or (ii) a change in the right to vote for or appoint
a majority of the board of directors (or other governing body) of
Representative, or (iii) the management or operational control of
Representative by any entity (even though such entity may own less
than 50% of the equity of Representative).
19. SEVERABILITY
------------
If one or more of the provisions or part thereof in this Agreement is held
by a court of competent jurisdiction to be invalid, illegal, or
unenforceable in any respect, the validity, legality, or enforceability of
the remaining provisions shall not in any way be affected or impaired
thereby. Notwithstanding the foregoing, ISC and Representative shall
thereupon negotiate in good faith in order to agree to the term of a
mutually satisfactory provision(s) to be substituted for the provision(s)
so found to be void or unenforceable.
20. INDEPENDENT CONTRACTOR
----------------------
Relationship of parties hereunder shall always and only be that of
independent contractors.
21. NON-DISCLOSURE OF PROPRIETARY INFORMATION
-----------------------------------------
During the term of this Agreement it is anticipated that the parties hereto
will disclose, each to the other, certain material and information which
the disclosing party deems to be proprietary and confidential. The parties
hereto agree to accept such information as proprietary and confidential
that is appropriately identified in writing as such, and agree not to
disclose hereafter such information and material to third parties. The
parties hereto further agree to restrict circulation of such proprietary
and confidential material and information within their own organization
except to the extent necessary to fulfill the purposes of this Agreement.
This restriction on the disclosure of proprietary information and materials
will not apply to information which is in the public domain other than as a
result of the acts or omissions of a party which was under an obligation to
maintain the confidentiality of such materials and information.
22. WAIVER
------
No waiver of any remedy or of any default or breach of any covenant by
either party hereunder shall be implied from any omission by either party
to take action on account of such default if such default persists or is
repeated, and no express waiver shall affect any default other than the
default specified in the waiver, and then said waiver shall be operative
only for the time and to the extent therein stated. Waivers of any
covenant, term, or condition contained herein by either party shall not be
construed as a waiver of any subsequent breach of the same covenant, term,
or condition. A waiver of any right or
16
<PAGE>
remedy by a party hereto shall be construed as having been made only if
express written notice of such waiver is delivered to the other party.
23. INFRINGEMENT
------------
23.1 Should Representative learn of any infringement or threatened
infringement of the Trademarks or Service Marks, or any other
registered mark licensed under this Agreement, or any unfair
competition, or that any third party alleges or claims that such
Trademarks or Service Marks are liable to cause deception or
confusion to the public, Representative will forthwith notify ISC
giving any particulars thereof and will provide all information and
assistance to ISC in the event that ISC decides that proceedings
should be commenced or defended. Any such proceedings shall be under
the control of ISC and at ISC's cost.
23.2 Should any third party allege infringement by use of the Registered
Trademarks or Service Marks in the Territory by Representative, ISC
will defend Representative against any such allegation. All such
defenses shall be under ISC's control and at ISC's cost.
Representative undertakes to assist ISC so far as it is within its
power in the defense of such infringement proceedings.
24. CONFIDENTIALITY
---------------
Each of the parties will maintain this Agreement in strict confidence and
will not divulge its contents without agreement of the other party except
insofar as may be necessary to carry out this Agreement or conform to law.
25. ENTIRE AGREEMENT
----------------
This Agreement constitutes the final expression of the agreement of the
parties and is intended as the entire understanding between the parties and
supersedes all prior negotiations, discussions, representations, promises,
or agreements either written or oral, that may have been made in connection
with the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
INFONET SERVICES CORPORATION
By: ___________________________ By:_______________________________
Title:_________________________ Title:____________________________
17
<PAGE>
Exhibit 10.11
EXECUTION COPY
[*] Confidential treatment requested
CAPACITY RIGHT OF USE AGREEMENT
THIS AGREEMENT dated as of the 25th day of June, 1999, between FLAG LIMITED
("FLAG"), a company organized under the laws of Bermuda and having its principal
office at 69 Front Street, Hamilton HM12, Bermuda, and INFONET BROADBAND
SERVICES CORPORATION ("Purchaser"), a company organized under the laws of
Delaware and having its principal office at 2100 East Grand Avenue, El Segundo,
California 90245, USA
WITNESSETH:
WHEREAS, FLAG and other parties have entered into a Construction and
Maintenance Agreement (as amended to date, the "C&MA") to construct, operate and
maintain a fiberoptic submarine cable system known as the Fiberoptic Link Around
the Globe (the "FLAG Cable System"); and
WHEREAS, Purchaser desires to acquire from FLAG, and FLAG is willing to
provide to Purchaser, a right of use in capacity described in Section 1 below on
the FLAG Cable System (the "Capacity"); and
WHEREAS, FLAG and Purchaser (the "Parties") desire to define the terms and
conditions under which the Capacity will be acquired by Purchaser.
NOW, THEREFORE, the Parties hereby agree as follows:
1. PURCHASE OF CAPACITY
a. Purchaser agrees to acquire the right to use a whole STM-1 between the
United Kingdom and Japan between the landing stations at Porthcurno,
United Kingdom and Ninomiya, Japan ("Prime STM-1").
b. [*]
c. [*]
<PAGE>
[*] Confidential treatment requested.
d. [*]
e. [*]
f. [*]
g. The ability of Purchaser to make use of the rights granted to
Purchaser in this Section 1 more than 24 months after the date hereof
shall be subject to Purchaser obtaining access to the FLAG Cable
System through the relevant landing stations.
h. Purchaser shall from time to time provide FLAG with not less than 30
days' prior notice of the date it wishes to activate any of the
Capacity.
i. Subject to payment of the purchase price for the Capacity Purchaser
wishes to activate pursuant hereto, Purchaser shall have the right to
use such Capacity from the date of activation until the end of its
design life (25 years after 8 October 1997) or if earlier until the
FLAG Cable System is decommissioned, which earlier decommissioning
requires the unanimous agreement of FLAG and the FLAG Cable System
landing parties under the C&MA. Purchaser shall not, pursuant to this
Agreement, have any ownership or other rights in the FLAG Cable System
itself. Nevertheless, except as otherwise provided in this Agreement,
as between
2
<PAGE>
[*] Confidential treatment requested
Purchaser and FLAG, Purchaser shall have the rights and remedies under
the C&MA with respect to the use of the Capacity as if Purchaser were
a Non-Landing Party Signatory to the C&MA. FLAG shall have no greater
obligations with regard to the Capacity or the use thereof than it
would have under the C&MA if Purchaser were a Non-Landing Party
Signatory to the C&MA.
2. PAYMENTS
a. Purchaser shall pay to FLAG the purchase price of US$[*] for the
Capacity (which includes standby operation and maintenance charges) as
follows:
(i) [*]
(ii) [*]
(iii) [*]
FLAG shall render invoices for such amounts. For purposes hereof,
activation of Capacity shall be as set forth in the FLAG Operations
and Maintenance Plan.
b. Purchaser shall pay the required charges for each Drop and Insert
prior to its activation. FLAG shall render invoices for such charges.
c. Purchaser shall pay to FLAG all other amounts and at such times as are
set forth in, or determined pursuant to, Schedule 2 hereto.
d. Except for the payment under Section 2a(i), which is payable no later
than 30 June 1999, Purchaser shall pay all invoices rendered by FLAG
within 30 days after receipt by Purchaser. Any amount payable pursuant
to this Agreement which is not paid when due shall accrue interest at
the annual rate of 3% above the U.S. dollar LIBOR for one month as
quoted in The Wall Street Journal on the first business day of the
-----------------------
month in which the payment is due. All such default interest shall
accrue from the day following the date payment of the relevant amount
was due until it is paid in full. Such interest shall be payable on
demand.
e. All amounts payable by Purchaser pursuant hereto shall be paid in full
in U.S. dollars by wire transfer to such account as FLAG may by notice
to Purchaser designate, without setoff or counterclaim and without
reduction for any deduction or withholding for or on account of any
tax, duty or other charge of whatever nature imposed by any taxing
authority of the country of Purchaser. If Purchaser is required by law
to make any deduction or withholding from any payment hereunder,
Purchaser shall gross up the amount payable so that after such
deduction or withholding the net amount received by FLAG will be not
less than the amount FLAG would have received had such deduction or
withholding not been required. Purchaser shall make the required
deduction or withholding, shall pay the amount so deducted or withheld
to the relevant governmental authority and shall promptly provide FLAG
with evidence of such payment.
3
<PAGE>
[*] Confidential treatment requested.
3. PORTABILITY
Purchaser may change the United Kingdom or Japan landing points of the
Prime STM-1 or any Prime DS-3 or the landing points of any Drop and Insert
at any time after it has been fully activated (provided that within the
Prime STM-1 or each Prime DS-3 the STM-1s or DS-3s, as applicable, remain
concatenated). Purchaser shall give FLAG not less than 90 days' notice of
its desire to make any such change, which change will be subject to
availability of the requested capacity on the FLAG Cable System and to
Purchaser obtaining access to the FLAG Cable System through the relevant
landing stations. The new capacity shall be Capacity for all purposes of
this Agreement and the replaced capacity shall cease to be Capacity. Before
the requested capacity is activated, Purchaser shall pay to FLAG a
portability fee of US$[*].
4. DEFAULT
In the event that Purchaser shall have failed to pay any amount payable by
Purchaser pursuant hereto for more than 30 days after its due date, then
FLAG may upon 15 days' notice to Purchaser deactivate all then activated
Capacity until Purchaser has paid in full all amounts overdue together with
applicable default interest.
5. REPRESENTATIONS AND WARRANTIES
a. Purchaser represents and warrants to FLAG as follows:
(i) Purchaser is duly established and in good standing under the
laws of Delaware and has full power and authority to enter into
this Agreement.
(ii) This Agreement constitutes the legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in
accordance with its terms.
(iii) Purchaser is an entity authorized or permitted under the laws
and regulations of its country to acquire and use facilities for
the provision of international telecommunications services.
b. FLAG represents and warrants to Purchaser as follows:
(i) FLAG has full power and authority to enter into this Agreement.
(ii) This Agreement constitutes the legal, valid and binding
obligation of FLAG, enforceable against FLAG in accordance with
its terms.
(iii) FLAG has all permits and authorisations required by it as of the
date of this Agreement for the operation of the FLAG Cable
System in accordance with the C&MA and to provide Purchaser with
the right to use the Capacity as contemplated hereby.
c. EXCEPT AS PROVIDED ABOVE, FLAG DISCLAIMS, AND PURCHASER WAIVES, ALL
REPRESENTATIONS AND WARRANTIES REGARDING THE CAPACITY, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE.
4
<PAGE>
6. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties with
respect to the subject matter hereof and supersedes all prior agreements,
understandings or proposals whether oral or written, with respect solely to
the subject matter hereof.
7. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of New York, United States of America, without regard to the law of New
York governing conflicts of law.
8. ASSIGNMENT
This Agreement and all the provisions hereof shall be binding upon and
inure to the benefit of the Parties hereto and their respective successors
and permitted assigns; provided that, except for the assignment of either
--------
Party's rights (but not such Party's obligations) under this Agreement to
one or more financial institutions, lenders, creditors and export credit
agencies as collateral security for financing provided to such Party or in
connection with a sale of receivables, neither this Agreement nor any of
the rights, interest or obligations hereunder shall be assigned by either
of the Parties hereto without the prior written consent of the other Party,
and any attempted assignment in violation of this section shall be void.
In the event of any enforcement of such collateral security by any creditor
of Purchaser, the transferee of the Capacity shall be an entity authorised
or permitted under the laws and regulations of its country to acquire and
use facilities for the provision of international telecommunications
services.
9. LIABILITY
PURCHASER'S OBLIGATION TO MAKE PAYMENTS AND ITS OTHER OBLIGATIONS HEREUNDER
SHALL NOT BE SUBJECT TO ANY RIGHT OF SET OFF, COUNTERCLAIM, DEDUCTION,
DEFENSE OR OTHER RIGHT WHICH PURCHASER MAY HAVE AGAINST FLAG OR ANY OTHER
PARTY. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, FLAG SHALL NOT BE
LIABLE TO PURCHASER FOR ANY LOSS OR DAMAGE SUSTAINED BY REASON OF ANY
FAILURE IN OR BREAKDOWN OF THE FACILITIES CONSTITUTING THE FLAG CABLE
SYSTEM OR ANY INTERRUPTION OF SERVICE, REGARDLESS OF THE CAUSE OF SUCH
FAILURE, BREAKDOWN OR INTERRUPTION, AND REGARDLESS OF HOW LONG IT SHALL
LAST, PROVIDED THAT SUCH FAILURE, BREAKDOWN OR INTERRUPTION WAS NOT CAUSED
BY FLAG'S GROSS NEGLIGENCE OR WILFUL MISCONDUCT. IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL
DAMAGES, WHETHER OR NOT FORSEEABLE.
10. COUNTERPARTS
This Agreement may be executed in counterparts. Any single counterpart or
set of counterparts signed, in either case, by both Parties hereto shall
constitute a full and original agreement for all purposes.
5
<PAGE>
11. NOTICES
Each notice, demand, certification or other communication given or made
under this Agreement shall be in writing and shall be delivered by hand or
sent by registered mail (airmail if international), recognized courier
service or facsimile transmission to the address of the Party as shown
below:
If to Purchaser:
2100 East Grand Avenue
El Segundo, California 90245, USA
Facsimile: +1-310-335-2699
Attention: Vice President, Contracts and Purchasing
If to FLAG:
4th Floor, The Emporium Building
69 Front Street
Hamilton HM12, Bermuda
Facsimile: +1-441-296-0938
or such other address as such Party may notify in writing to the other.
12. CONFIDENTIALITY
Except in the case of a permitted assignment and except for disclosures
required by law, neither Party shall disclose the terms of this Agreement
to any third party without the prior written consent of the other Party.
Without limiting the generality of the foregoing, neither Party shall issue
any press release or otherwise publicize the existence or terms of this
Agreement without the prior written consent of the other Party.
13. FORCE MAJEURE
Neither Party shall be under any liability for failure to perform any of
its obligations hereunder (except the obligation to make any payments)
where such failure to perform arises from a Force Majeure event, including
acts of God, government control, strikes, insurrection or other civil
disorder, war or military operations, fire, lightning, explosion,
subsidence or any other event beyond the control of such Party.
14. DEFINITIONS
Terms used herein and not otherwise defined shall have the meanings
ascribed to them in the C&MA.
6
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first set forth above.
FLAG TELECOM LIMITED
on behalf of FLAG LIMITED
By_______________________________
Name:
Title:
INFONET BROADBAND SERVICES CORPORATION
By_______________________________
Name:
Title:
7
<PAGE>
Schedule 1
Current Landing Points of the FLAG Cable System
Porthcurno, UK
Estepona, Spain
Palermo, Italy
Alexandria, Egypt
Port Said, Egypt
Fujairah, UAE
Mumbai, India
Penang, Malaysia
Songhkla, Thailand
Hong Kong, China
Shanghai, China
Keoje, Korea
Miura, Japan
Ninomiya, Japan
In addition, Jeddah, Saudi Arabia and Aqaba, Jordan are scheduled to be
operational in June and July 1999, respectively.
8
<PAGE>
Schedule 2
1. Purchaser shall pay to FLAG on activated Capacity Purchaser's pro rata share
of the actual incremental cost (including but not limited to the cost of
spares used) incurred by FLAG in carrying out a repair of the FLAG Cable
System ("Running Costs").
FLAG shall render invoices for Purchaser's share of Running Costs at such
times as it renders invoices for other parties' shares of such Running
Costs.
2. Purchaser shall pay directly to the relevant landing party, or reimburse
FLAG for, the following amounts charged by each landing party that owns a
landing station in which the activated Capacity enters the FLAG Cable
System, in each case with respect to such Capacity:
(a) Landing station access charges; and
(b) Periodic landing station maintenance charges.
If Purchaser is to reimburse FLAG for such charges, FLAG shall render
Purchaser an invoice therefor as and when it is invoiced by the relevant
landing party.
3. Purchaser shall pay each invoice within 30 days after receipt by Purchaser.
4. If Purchaser requires restoration for any of the Capacity, FLAG shall
arrange such restoration and charge Purchaser therefor in accordance with
FLAG's restoration policies and procedures. FLAG shall advise Purchaser when
Purchaser must notify FLAG of Purchaser's restoration requirements.
9
<PAGE>
EXHIBIT 10.12
EXECUTION COPY
SERVICES AGREEMENT
This Services Agreement ("Agreement") is entered into as of September 30,
---------
1999 by and among Infonet Services Corporation, a company organized under the
laws of the State of Delaware, U.S.A. ("ISC"), AUCS Communications Services
---
v.o.f., a general partnership organized under the laws of The Netherlands
("AUCS"), as herein represented by AUCS N.V. (as hereinafter defined), AUCS
----
Communications Services N.V., a company organized under the laws of The
Netherlands, ("AUCS N.V.", and AUCS and AUCS N.V. collectively together with all
of their direct and indirect subsidiaries, the "AUCS Entities" and each an "AUCS
------------- ----
Entity"), Unisource N.V., a company organized under the laws of The Netherlands
- ------
("Unisource"), Unisource Pan-European Services B.V., a company organized under
---------
the laws of the Netherlands ("Unisource Sub"), Briap B.V., a company organized
-------------
under the laws of the Netherlands ("Unisource Nominee"), Telia AB, a company
-----------------
organized under the laws of Sweden ("Telia"), KPN Telecom B.V., a company
-----
organized under the laws of The Netherlands ("KPN"), and Swisscom AG, a company
---
organized under the laws of Switzerland ("Swisscom" and together with Telia and
--------
KPN, the "Indirect AUCS Stockholders") (each a "Party", and collectively the
-------------------------- -----
"Parties").
- --------
WHEREAS, Infonet desires to purchase Services (as defined below) from AUCS;
WHEREAS, AUCS desires to sell to Infonet the Services on the terms and for
the prices set forth in this Agreement;
WHEREAS, in order to induce ISC to enter into this Agreement, the Indirect
AUCS Stockholders desire to guarantee that AUCS will exist and be able to
perform its obligations hereunder; and
WHEREAS, all Exhibits to this Agreement are incorporated herein by
reference.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants set forth herein, the Parties agree as follows:
1. DEFINITIONS
As used throughout this Agreement, the following shall have the meanings
set forth below unless otherwise indicated:
1.1 "Infonet" shall mean, collectively, (i) ISC, (ii) each current or
future corporation or entity owned or under the common control of ISC, (iii) any
of ISC's current or future subsidiaries, and (iv) any current or future
corporate entity (or subsidiary thereof) whose primary business is to conduct
data communications or other related activities, and such entity has entered
into a legal relationship with ISC or any of its affiliates whereby such
corporation has the right to conduct business under the trademark and tradename
of "Infonet", which entities, as of the date of this Agreement, are listed in
Exhibit B, as it may be amended from time to time by ISC upon notice to
Unisource and consent of Unisource which will not be unreasonably withheld or
delayed.
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<PAGE>
1.2 "Services" shall mean the services set forth on Exhibit A.
1.3 "Arbitration Rules" shall mean the rules of the LCIA in accordance
with which any LCIA arbitration will be conducted, or such amended rules as the
LCIA may have adopted hereafter to take effect before the commencement of the
arbitration.
1.4 Other Definitions. In this Agreement, the capitalized terms
------------------
listed below shall have the meanings given to them in the Sections of this
Agreement cross referenced below.
"Agreement" shall have the meaning set forth in the
Introduction;
"Arbitrators" shall have the meaning set forth in
Section 11.4.3;
"Arbitration Rules" shall have the meaning set forth in
Section 1.3;
"AUCS" shall have the meaning set forth in the
Introduction;
"AUCS Entity" and "AUCS Entities" shall have the meaning
set forth in the Introduction;
"AUCS N.V." shall have the meaning set forth in the
Introduction;
"Effective Date" shall have the meaning set forth in
Section 4.1;
"Guarantors" shall have the meaning set forth in
Section 10;
"Indirect AUCS shall have the meaning set forth in the
Stockholders" Introduction;
"Infonet" shall have the meaning set forth in
Section 1.1;
"ISC" shall have the meaning set forth in the
Introduction;
"KPN" shall have the meaning set forth in the
Introduction;
"LCIA" shall have the meaning set forth in
Section 11.4.2;
"Losses" shall have the meaning set forth in Section
7;
"Parties" shall have the meaning set forth in the
Introduction;
"Party" shall have the meaning set forth in the
Introduction;
"Services" shall have the meaning set forth in Section
1.2;
"Swisscom" shall have the meaning set forth in the
Introduction;
2
<PAGE>
"Telia" shall have the meaning set forth in the
Introduction;
"Term" shall have the meaning set forth in
Section 4.1;
"Unisource" shall have the meaning set forth in the
Introduction;
"Unisource Nominee" shall have the meaning set forth in the
Introduction;
"Unisource Sub" shall have the meaning set forth in the
Introduction;
2. SALE OF SERVICES
2.1 AUCS agrees to sell to Infonet and Infonet shall have the
non-transferable right to purchase the Services set forth on Exhibit A.
2.2 A commercially workable ordering procedure for the Parties
concerned will be put in place for processing orders of Services. The Indirect
AUCS Stockholders will respectively cooperate fully using reasonable efforts to
enable completion of the implementation of, and migration of contracts into,
"Project Resolve" as described by AUCS by the end of January 2000.
3. RATES FOR SERVICES
3.1 AUCS shall supply to Infonet all Services requested by Infonet
at the prices and upon the terms and conditions set forth in Exhibit A;
provided, however, that for individually specified, identified and invoiced
items such as (without limitation) leased lines, hardware, or any other items or
service for which AUCS must pay a third party will be provided at prices not to
exceed the cost actually paid by AUCS to the third party provider. AUCS may
charge a mark-up on such services to the extent that such a mark-up is currently
charged to or agreed by the relevant distributor.
3.2 The price for services which are not set forth in Exhibit A shall
be negotiated on a case-by-case basis and on an arm's length basis. Not more
than once in any calendar year, Unisource may, at its own cost and expense,
appoint an independent external auditor to perform a review of the parties'
compliance with the preceding sentence. If the auditor determines that there has
been any material non-compliance with this Section 3.2, the Parties shall
renegotiate the non-complying prices on an arm's length basis in compliance with
this Agreement.
4. TERM AND TERMINATION
4.1 This Agreement shall become effective as of October 01, 1999,
00:01a.m.(the "Effective Date") and shall remain in effect until terminated in
accordance with Section 4.2 and Section 4.3 (the "Term").
----
4.2 Any Party may terminate this Agreement (i) upon 180 days written
notice to the other Parties, or (ii) upon written notice, if an order is made or
a resolution is passed for the winding up of ISC or any AUCS Entity or if an
order is made for the appointment of an administrator to
3
<PAGE>
manage the affairs, business and property of ISC or any AUCS Entity or if a
receiver is appointed over any of ISC's or any AUCS Entity's assets or
undertaking or if circumstances arise which entitle a court or a creditor to
appoint a receiver or manager or which entitle a court to make a winding-up
order or if ISC or any AUCS Entity takes or suffers any similar or analogous
action in consequence of debt.
4.3 AUCS shall have the right to terminate this Agreement on 30 days
written notice to ISC if any payment due under Section 5 is more than 30 days
overdue for payment and there is no bona fide dispute between the Parties as to
the amount payable.
5. BILLING AND PAYMENT PROCESS
On a monthly basis, AUCS shall deliver to ISC a monthly invoice listing the
charges and applicable taxes payable by Infonet for provision of the Services,
rendered in the previous month, provided pursuant to this Agreement. ISC shall
pay the AUCS Invoice within 60 days of receipt provided that, on the first
anniversary of the Effective Date, the payment period shall be reviewed by the
Parties with a view to reducing it to 45 days from receipt of invoices. ISC is
expressly responsible for paying AUCS regardless of whether or not its customers
have paid for their use of the applicable Services.
6. WARRANTIES AND UNDERTAKINGS
6.1 Each Party other than AUCS NV and AUCS represents, warrants, and
undertakes to the other that as of the date of this Agreement and at all times
during the Term, it has the right, power, authority, and ability to execute,
deliver and perform this Agreement, and is under no obligation or restriction,
nor will it assume any such obligation or restriction, that does or would in any
material way interfere or conflict with its expressly stated obligations under
this Agreement.
6.2 Each of AUCS NV and AUCS represent and warrant to ISC that as of
the date of this Agreement, it has the right, power, authority, and ability to
execute, deliver and perform this Agreement, and are under no obligation or
restriction that does or would in any material way interfere or conflict with
their expressly stated obligations under this Agreement.
7. INDEMNIFICATION
AUCS hereby agrees to be solely responsible for the performance of its
acts, duties and responsibilities under this Agreement, and for the acts, duties
and responsibilities of its officers, employees, and agents; and AUCS further
agrees to indemnify Infonet, its officers, employees and agents, and to hold
harmless Infonet, its officers, employees and agents, and at AUCS's expense, to
defend Infonet, its officers, employees, and agents, from and against any third
party claims, demands, causes of action, loss, cost and expense (collectively
"Losses"), arising from, in connection with or based upon the actions or
omissions of AUCS, its officers, employees or agents, under (i) this Agreement
or (ii) any distribution agreements pursuant to which Infonet is reselling any
of the services, provided that AUCS will not be liable to Infonet, its officers,
employees and agents pursuant to this Section 7, (i) unless the amount otherwise
due to Infonet
4
<PAGE>
in a claim exceeds Euro 25,000 and (ii) if, but only to the extent that such
losses are incurred as a result of any willful misconduct or negligence on the
part of ISC.
8. USE OF TRADEMARKS
8.1 AUCS shall grant to Infonet, for the Term, a limited right to use
any and all trademarks identifying AUCS as the provider of Services to
customers. AUCS grants Infonet the right to give authorization to third parties
to use said trademarks in connection with the provision of the Services, if so
required.
8.2 Each Party shall exercise commercially reasonable care in the use
of the trademarks of the other Parties in order to protect such other Party's
ownership and right in the trademarks, including, without limitation, on request
of the Party owning such trademark, identification of such Party as the owner
thereof in an appropriate manner adjacent to the actual description of the mark
on the subject materials.
8.3 The use of the trademarks, and approval thereof, shall in no way
invest any title, right, or other ownership interest in ISC of AUCS's
trademarks.
8.4 The use of the trademarks, and approval thereof, shall in no way
invest any title, right, or other ownership interest in AUCS of ISC's
trademarks.
8.5 No Party shall be entitled to register the mark of another Party
as a trademark, tradename, service mark or domain name in any country or
territory worldwide.
9. DOCUMENTATION AND MARKETING MATERIALS
AUCS shall supply as reasonably requested by Infonet, current end-user
documentation, system specifications, interface specifications, product
descriptions, and any and all other materials furthering the understanding,
selling, marketing, promoting, distributing, and supporting of Services.
Prices for specialized documentation will be negotiated on a case-by-case
basis. Each Party agrees to observe requirements of confidentiality of the other
Parties and third parties and the standards of proper copyright and any other
proprietary notices with respect to the use of materials as referred to in this
Section 9.
10. GUARANTEE
10.1 In consideration of ISC entering into this Agreement, the
Indirect AUCS Stockholders (the "Guarantors") hereby severally unconditionally
guarantee to ISC and its successors, transferees and assigns the due and
punctual performance and observance by the AUCS Entities of all the AUCS
Entities' obligations and the punctual discharge by the AUCS Entities of all the
AUCS Entities' liabilities to Infonet or and/or any other Parties contained in
or arising under this Agreement, arising out of the insolvency of the AUCS
Entities or arising under any other circumstances which cause the AUCS Entities
to be unable to perform their contractual
5
<PAGE>
obligations under this Agreement, provided that such failure by the AUCS
Entities to comply with their obligations under this Agreement shall not have
been a direct result of any action taken by ISC.
10.2 As an independent and primary obligation, without prejudice to
Section 10.1, the Guarantors hereby unconditionally and irrevocably agree to
indemnify and keep indemnified ISC against all and any losses, costs, claims,
liabilities, damages, demands and expenses suffered or incurred by Infonet
arising from failure of any AUCS Entity to comply with any of its material
obligations or discharge any of its liabilities under this Agreement or arising
from the termination of this Agreement or by reason of the AUCS Entities not
being at any time, or ceasing to be, liable in respect of the obligations and
liabilities purported to be assumed by them in accordance with the express terms
of this Agreement, provided that such failure by the AUCS Entities to comply
with their obligations under this Agreement shall not have been a direct result
of any action taken by ISC.
10.3 The guarantee and indemnity contained in this Section 10 shall
be a continuing guarantee and indemnity and shall continue in full force and
effect until all liabilities or purported liabilities of the AUCS Entities
arising under, and all monies owing or payable or purported to be owing or
payable by the AUCS Entities under this Agreement or arising from any
termination of this Agreement, have been paid, discharged or satisfied in full
and notwithstanding any insolvency or winding up of any AUCS Entity or any
change in the status of any AUCS Entity.
10.4 The Guarantors shall not be exonerated or discharged nor shall
their liability be affected by any forbearance, whether as to payment, time,
performance or otherwise howsoever, or by any other indulgence being given to
any AUCS Entity or by any variation of the terms of this Agreement or by any
act, thing, omission or means whatever which, but for this provision, might
operate to exonerate or discharge the Guarantors from their obligations under
the guarantee and indemnity contained in this Section 10.
11. GENERAL PROVISIONS
11.1 Export Control Laws. The Parties agree to comply with all laws and
-------------------
regulations governing or otherwise applicable to the import, export, sale or
marketing of Services, including without limitation all laws and regulations
governing competition, restrictive practices and sales of the Services. Neither
Party shall knowingly combine with, aid or assist anyone to violate any such law
or regulation.
11.2 Assignment. No Party shall assign this Agreement in whole or in
----------
part, nor any interest herein without the written consent of the other Parties,
which consent shall not be unreasonably withheld or delayed.
11.3 Severability. If any term, provision, covenant or condition of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the rest of the Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
6
<PAGE>
11.4 Governing Law.
-------------
11.4.1 This Agreement shall be governed by and construed under
English law, without reference to the choice of law provisions thereof.
Accordingly any dispute arising out of or having any connection with this
Agreement shall be decided exclusively in accordance with English law; provided
--------
that all such disputes shall be referred, in the first instance, to the
respective chief executive officers of respective Parties concerned for
resolution.
11.4.2 If a dispute, after having first been discussed by the
chief executive officers of each of the relevant Parties (provided that if the
--------
dispute is between ISC and an AUCS Entity, the matter shall be discussed between
the chief executive officers of ISC and Unisource), is not resolved by the said
chief executive officers within a maximum of 14 days, the dispute shall be
referred to and finally resolved by arbitration under the London Court of
International Arbitration ("LCIA") Arbitration Rules, which Arbitration Rules
----
are deemed to be incorporated by reference to this Section 11.4.2.
11.4.3 Any arbitration commenced pursuant to Section 11.4.2
shall be administered by the LCIA and the standard LCIA administrative
procedures and schedule of costs shall apply. In any such arbitration, the
appointing authority shall be the LCIA. The number of arbitrators shall be three
and such arbitrators to include persons experienced in European
telecommunications (the "Arbitrators"). The place of arbitration shall be London
------------
and the language used in the arbitral proceedings shall be English. The
governing law of the Agreement shall be the substantive law of England.
11.4.4 The fees of the Arbitrators, the costs of the LCIA and
the cost of the other parties relating to the arbitration (including, but not
limited to, the reasonable costs of professional advisers) shall be borne by
those Parties against whom the Arbitrators make any award in the proportion of
any such award.
11.4.5 The Arbitrators shall have authority to award interest
on any amount awarded by the Arbitrators up to the date of that award at the
rate equal to 1 (one) percentage point above the three month EURIBOR rate for
Euros from time to time. If any amount payable as a result of a decision of the
Arbitrators is not paid within 14 days of publication of that decision, interest
will thereafter accrue on the amount at the rate equal to 2 (two) percentage
points above the three month EURIBOR rate for Euros from time to time.
11.4.6 The referral of a dispute to arbitration under Section
11.4.2 shall not preclude either party from obtaining interim relief on an
urgent basis from a court of competent jurisdiction pending any decision of the
Arbitrators.
11.4.7 Any decision of the Arbitrators shall be final,
conclusive and binding on the parties, and the parties agree to exclude, so far
as lawfully possible to exclude, any right of application or appeal to the
English (or other) courts in connection with any question of law arising in the
arbitration or in connection with any award or decision made by the Arbitrators,
except as may be necessary to enforce such award or decision.
7
<PAGE>
11.4.8 The provisions of this Section are severable from the
rest of this Agreement and shall remain in effect despite the termination of or
invalidity for any reason of this Agreement.
11.5 Notices. The Parties choose the following addresses
-------
as the address at which they will accept service of all documents and notices
relating to this Agreement.
to ISC at:
2100 East Grand Ave
El Segundo CA 90245
USA
Fax: +1 310 322 6229
Attention: The General Counsel
to any Unisource Entity at:
c/o Unisource NV
"Transpolis"
Polarisavenue 97
2137 JH, Hoofddorp
The Netherlands
Fax: +31 23 568 6200
Attention: The General Counsel
to any AUCS Entity at:
Spicalaan 1-59
2132 JG Hoofddorp
The Netherlands
Fax: +31 23 569 7177
Attention: The General Counsel
to Telia at:
Marbackagatan 11
Stockholm
Sweden
Fax: +46 89 46 470
Attention: Director of Legal Affairs
To KPN at:
Maanweg 174
2516 AB, The Hague
The Netherlands
Fax: +31 70 332 3675
Attention: The General Counsel
8
<PAGE>
To Swisscom at:
Lindenpark
Worblaufen
CH-3050
Berne, Switzerland
Fax: +41 31 342 3447
Attention: Chief Legal Counsel
Any notice to be given by a Party to another Party in terms of this
Agreement shall be given by prepaid registered post, facsimile or shall be
delivered by hand; provided that:
--------
(i) any notice given by prepaid registered post for which a
signed receipt is issued shall be deemed to have been received by the addressee,
in the absence of proof to the contrary, ten days after the date of postage;
(ii) any notice delivered by hand during normal business hours
for which a signed receipt is issued shall be deemed to have been received by
the addressee, in the absence of proof to the contrary, at the time of delivery;
and
(iii) any notice given by facsimile shall be deemed to have
been received by the addressee, in the absence of proof to the contrary,
immediately upon the issuance by the transmitting facsimile machine, of a report
confirming correct transmission of all the pages of the document containing the
notice or upon receipt by the transmitting facsimile machine, at the end of the
notice being transmitted, of the automatic answer back of the receiving
facsimile machine.
11.6 Waiver. Neither the exercise nor the failure to exercise any
------
right or remedy herein shall preclude the exercise of same or any other right or
remedy herein in the future.
11.7 No Third Party Beneficiaries. This Agreement is for the sole and
----------------------------
exclusive benefit of the Parties hereto and nothing herein expressed or implied
shall give or be construed to give to any person or entity, other than the
Parties hereto, any legal or equitable rights hereunder.
11.8 Independent Contractors. Both Infonet and AUCS shall be
-----------------------
independent contractors, and this Agreement shall not create in any manner and
for any purpose any other relationship between the Parties, whether as principal
and agent, employer and employee, partners, coventurers, or otherwise. Neither
Infonet nor AUCS is hereby authorized to: (i) enter into any agreements for or
on behalf of the other Party; (ii) create any obligations or responsibilities,
express or implied, for or on behalf of the other Party; or (iii) bind the other
Party in any matter or thing whatsoever. Each Party shall indemnify and defend
the other against any claims by third Parties based on alleged representations
or commitments in violation of this Paragraph.
9
<PAGE>
11.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
11.10 Force Majeure. Any failure or delay in the performance by any
-------------
Party hereto of its obligations hereunder shall not be a breach of this
Agreement if such failure or delay arises out of or results from causes beyond
such Party's control (for the avoidance of doubt, payment obligations will not
be excused by force majeure but force majeure may permit delay in complying with
payment obligations). These causes shall include but not be restricted to fire,
storm, flood, earthquake, explosion, accident, acts of public enemy, war
(declared or undeclared), rebellion, insurrections, sabotage, epidemic,
quarantine restrictions, labor disputes, shortage of labor, materials or
supplies, failures by contractors or subcontractors, transportation embargoes,
or failures or delays in transportations, acts of God, acts, rules, regulations,
orders or directives of any government or any state, subdivision, agency or
instrumentality thereof or the order of any court of competent jurisdiction.
Without prejudice to any other remedies that may then be available to any of
them, in the event of failure or delay arising out of or resulting from such
causes, the Parties will cooperate in an effort to agree upon the establishment
of such alternative arrangements not subject to such failure or delay as will
confer upon benefits comparable in character and substantially equivalent in
amount to those intended to be conferred by this Agreement, on terms and
conditions not materially more burdensome to any Party than those herein
provided.
11.11 Exhibits. Should there be any conflict between the between the
-------
terms and conditions presented in the main body of this Agreement and its
Exhibits attached hereto, the terms and conditions of the main body of this
Agreement shall prevail and control.
11.12 Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding between the Parties, is intended as a complete and
exclusive statement of the terms of their agreement, and supersedes any prior
agreements or understandings, between the Parties relating to its subject
matter. This Agreement may not be amended or supplemented without further
written agreement signed by authorized representatives of all Parties. Each
Party acknowledges that in agreeing to enter into this Agreement it has not
relied on any representations, warranties or promises (except those set out in
this Agreement) made by or on behalf of the other Parties before the signature
of this Agreement. Each Party waives all rights and remedies which, but for this
Section, might otherwise be available to it in respect of any such
representation, warranty or promise, provided that nothing in this Section shall
limit or exclude any liability for fraud.
11.13 Filing. Each Party hereto shall use its reasonable efforts to
------
obtain all authorizations, consents, orders and approvals of, to give all
notices to and make all filings with, all governmental authorities and other
third parties that may be or become necessary (or as otherwise agreed by the
Parties) for its execution and delivery of, and performance of its obligations
pursuant to, this Agreement, and each Party will cooperate fully with the other
Parties in promptly seeking to obtain all such authorizations, consents, orders
and approvals, giving such notices, and making such filings (including any
filings to be submitted to the
10
<PAGE>
European Commission as a result of this Agreement). Each Party will bear its own
costs, expenses and disbursements in relation to any and all such costs,
expenses and disbursements incurred by it under this Section 11.13.
[signature pages follow]
11
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representative as of the date first above
written.
For and on behalf of ISC:
INFONET SERVICES CORPORATION
By:
------------------
Title:
------------------
For and on behalf of AUCS:
AUCS COMMUNICATIONS SERVICES v.o.f., represented by AUCS N.V.
By: ------------------
Title: ------------------
For and on behalf of AUCS N.V.:
AUCS COMMUNICATIONS SERVICES N.V.
By:
------------------
Title:
------------------
For and on behalf of Unisource:
UNISOURCE N.V.
By:
------------------
Title:
------------------
For and on behalf of Unisource Sub.:
UNISOURCE PAN-EUROPEAN SERVICES B.V.
By:
------------------
Title:
------------------
For and on behalf of Unisource Nominee.:
BRIAP B.V.
12
<PAGE>
By:
------------------
Title:
------------------
For and on behalf of Telia:
TELIA AB
By:
------------------
Title:
------------------
For and on behalf of KPN:
KPN TELECOM B.V.
By:
------------------
Title:
__________________
For and on behalf of Swisscom:
SWISSCOM AG
By:
------------------
Title:
------------------
13
<PAGE>
Exhibit A
----------
Services and Pricing of Services
"Services" means the services formerly provided by AUCS to its customers under
--------
its various agreements, including the following:
1. Distributor Agreement entered into between Telia AB and AT&T-Unisource
Communications Services v.o.f., dated 1 July 1996, for Sweden.
2. Distributor Agreement entered into between Telia Norge AS and AT&T-
Unisource Communications Services v.o.f., dated 1 July 1996, for Norway.
3. Distributor Agreement entered into between Telia A/S and AT&T-Unisource
Communications Services v.o.f., dated 1 July 1996, for Denmark.
4. Distributor Agreement entered into between Telia AB and AT&T-Unisource
Communications Services v.o.f., dated 12 August 1997, for Finland.
5. Distributor Agreement entered into between KPN Telecom B.V. and
AT&T-Unisource Communications Services v.o.f., dated 1 July 1996,
for The Netherlands.
6. Distributor Agreement entered into between Swisscom AG and AT&T-Unisource
Communications Services v.o.f., dated 1 July 1996, for Switzerland and
Liechtenstein.
7. Distributor Agreement entered into between Bord Telecom Eireann Plc
and AT&T-Unisource Communications Services v.o.f., dated 6 February
1997, for the Republic of Ireland.
8. Distributor Agreement entered into between Unisource Belgium N.V.
and AT&T-Unisource Communications Services v.o.f., dated 6 February
1997, for Belgium.
9. Distributor Agreement entered into between Unisource Business
Networks Luxembourg S.a.r.l. and AT&T-Unisource Communications
Services v.o.f., dated 30 May 1997, for Luxembourg.
10. Distributor Agreement entered into between SIRIS S.A.S. and AT&T-
Unisource Communications Services v.o.f., dated 30 May 1997, for
France.
11. Distributor Agreement entered into between Unisource Iberia S.A.
and AT&T-Unisource Communications Services v.o.f., dated 17 March
1998, for Spain.
12. Distributor Agreement entered into between Unisource Italia S.p.A.
and AT&T-Unisource Communications Services v.o.f., dated 16 March
1998, for Italy.
14
<PAGE>
13. Distributor Agreement entered into between. Unisource Hellas
Telecommunications Services S.A. and AT&T-Unisource Communications
Services v.o.f., dated 18 September 1996, for Greece.
14. WorldSource Channel Agreements entered into between AUCS and,
respectively, any of the distributors referred to above.
15. Contracts with end customers held directly by AUCS (with or without
a distributor as a party):-
. contracts for WorldSource Services where AUCS is the Support Member
for WorldSource services;
. various contracts for AUCS Internet Transit Services;
. other customers (such as the contract between Whirlpool and AUCS and
Unisource Italia).
Rates for Services
The rates for Services shall be at prices determined by Infonet and AUCS
distributors within 30 days of the date of this Agreement. Infonet and each of
the Indirect AUCS Stockholders will meet to establish such prices on an arms-
length basis immediately after the date of this Agreement. The Parties
acknowledge that such prices shall afford Infonet a gross margin of no less than
20% of the prices charged by Infonet to the AUCS distributors.
15
<PAGE>
Exhibit B
---------
Affiliates
SEDCO
Infonet Australia
Datakom Austria GmbH
Infonet Belgium S.A
Datacom, S.A.
Interpac Telematica Ltda
Infonet Canada
Infonet Software Solutions
Infonet Chile S.A.
Infonet Services Corporation
Infonet/China Ltd
Enterprise Ltda
Tecapro
Aliatel a.s.
Telecom Denmark Erhverv A/S
Codetel
DATCOM LTD.
InTouch Communications Services
Oy Infonet Finland
Infonet France S.A.
France Telecom Interpac S.A.
Infonet Network Services Deutschland GmbH.
OTE SA
Infonet - Hong Kong
BankNet Ltd.
PT Telekominukasi Indonesia
Infonet Ireland Ltd
Infonet Israel, Ltd
Infonet Italia S.p.A
16
<PAGE>
KDD Communications, Inc. (KCOM)
Korea Telecom, Data Division
InfoGlobe Corporation
Infonet Luxembourg SA
Telecom Malaysia Berhard
Infonet/ACASIA program office
Infonet Mexico
Infonet Nederland BV
Infonet TELECOM AS
CCNet S.A.
Philippines Long Distance Telephone
PLDT Marketing Center
Infonet Portugal
Telefonica Large Distancla
INFOCOM
Singapore Telecom Int'l PTE, Ltd
EDS South Africa (Pty) Limited
Telefonica Servicios SA (TSA1)
Lanka Communication Services Pte. Ltd.
Infonet Svenska AB
Infonet (Switzerland) Ltd.
Hong Kong Telecom Ltd
SIAM Infor Tel Co., Ltd
ACCESS A.S
Infonet UK, Ltd
Infonet Software Solutions, Ltd
Infocom GmbH
Setradat C.A.
17
<PAGE>
EXHIBIT 10.13
EXECUTION COPY
CALL OPTION DEED
THIS DEED made this 30th day of September, 1999 is by and among (1)
Infonet Services Corporation, a Delaware Corporation ("ISC"), (2) Unisource Pan-
---
European Services B.V., a company organized under the laws of The Netherlands
("Unisource Sub"), (3) Briap B.V., a company organized under the laws of The
- ---------------
Netherlands ("Unisource Nominee"), (4) Unisource N.V., a company organized under
-----------------
the laws of The Netherlands, ("Unisource") and the stockholder of Unisource Sub,
---------
(5) Telia AB, a company organized under the laws of Sweden ("Telia"), KPN
-----
Telecom B.V., a company organized under the laws of The Netherlands ("KPN"), and
---
Swisscom AG, a company organized under the laws of Switzerland ("Swisscom" and,
--------
together with Telia and KPN, the "Unisource Stockholders"), (6) AUCS
----------------------
Communications Services N.V., a public company organized under the laws of The
Netherlands ("AUCS N.V."), and (7) AUCS Communications Services v.o.f., a
--------
general partnership under the laws of The Netherlands ("AUCS v.o.f.") and herein
-----------
represented by AUCS N.V. (each a "Party" and collectively the "Parties")
----- -------
WHEREAS, Unisource Sub and Unisource Nominee are the sole holders of
the entire issued share capital of AUCS N.V;
WHEREAS, Unisource Sub, Unisource Nominee and AUCS N.V. are the
partners of AUCS v.o.f.; and
WHEREAS, ISC and the Unisource Entities desire to provide for a
potential acquisition of assets of AUCS N.V., AUCS v.o.f. and/or any Subsidiary.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Certain Definitions. In this Deed, the capitalized terms
-------------------
defined in Schedule 1.1 hereto shall have the meanings set forth or referred to
therein.
ARTICLE II.
CALL OPTION
Section 2.1 Call Option. In consideration of the payment of one Euro
-----------
to each of AUCS N.V. and AUCS v.o.f. (the "AUCS Entities") and other good and
-------------
valuable consideration, receipt of which is hereby acknowledged, each of the
AUCS Entities hereby grants to ISC the exclusive right (but not the obligation)
to purchase with full title guarantee, at its sole option (the "Call Option")
-----------
during the Option Period all or any material part of the Assets at the Call
Price (as defined in Section 2.3), free of Encumbrances, from the AUCS Entities
or the relevant Subsidiary which owns such Assets.
1
<PAGE>
Section 2.2 Term of Call Option. The time period (the "Option
------------------- ------
Period") during which ISC may exercise the Call Option shall commence on the day
- ------
following the Commencement Date and shall end at 5.00 pm London time on the
third anniversary of the Commencement Date; provided, however, that the Option
-------- -------
Period shall end on the date of termination of the Management Agreement if
earlier; and provided, further, that if ISC has provided a Valuation Notice in
-------- -------
accordance with Section 2.5 below with respect to a Valuation Date falling
within the Option Period, then ISC shall be entitled to exercise the Call Option
in accordance with Section 2.6(a) below with respect to the Written
Determination delivered pursuant to such Valuation Notice, whether or not the
date of such exercise occurs subsequent to the Option Period. If ISC has not
exercised the Call Option within the Option Period (or subsequent to the Option
Period to the extent set forth in the proviso above), the Call Option will
expire on the third anniversary of the Commencement Date without any further
action by the parties and be of no further force and effect. The Call Option may
be exercised no more than once in a calendar year by ISC during the Option
Period.
Section 2.3 Call Price. The Call Price shall be exclusive of VAT if
----------
payable and shall be equal to the Fair Market Value (as determined pursuant to
the provisions of Section 2.4 below) of the Assets on the Valuation Date (such
Call Price not to exceed Euro 123,246,000 (one hundred and twenty three million,
two hundred and forty six thousand Euro)).
Section 2.4 Fair Market Value. In order to determine from time to
-----------------
time the Fair Market Value of the Assets which are listed in a Valuation Notice
for purposes of permitting ISC to determine whether to exercise the Call Option,
upon receipt of a Valuation Notice, ISC and Unisource (on behalf of itself,
Unisource Nominee, the Unisource Stockholders or the AUCS Entities and
Subsidiaries (as applicable)) shall use their reasonable best efforts to
mutually agree on the Fair Market Value of the Assets, determined as provided in
Section 2.4(b), as of the Valuation Date. A Valuation Notice may only be served
up to two times in any calendar year. In the event they are unable to agree the
Fair Market Value of the Assets within ten business days of the date of the
Valuation Notice (the "Consultation Period"), then the Fair Market Value of the
-------------------
Assets shall be determined by appraisal pursuant to this Section 2.4, as
follows:
(a) The Fair Market Value of the Assets shall be determined for the
relevant Valuation Date by an appraiser mutually acceptable to ISC and
Unisource. If ISC and Unisource are unable to agree on an appraiser within ten
business days following expiration of the Consultation Period, the appraiser
shall be selected by the President for the time being of the Institute of
Chartered Accountants of England and Wales upon application by ISC or Unisource
whose choice of appraiser shall be binding upon the parties. The appraiser shall
conduct an appraisal under Section 2.4(b) and determine the Fair Market Value of
the Assets, which shall be final and binding on the parties to this Deed.
Unisource and ISC will equally share in the payment of the fees and expenses of
any appraiser named pursuant to this Section 2.4(a), unless otherwise determined
by the appraiser or the Arbitrators appointed under Section 9.2.
(b) The Fair Market Value of the Assets as of the Valuation Date
shall be determined on the day before the Valuation Date and after giving due
regard to the principles set forth in Schedule 2.4(b) and any other factors the
appraiser deems relevant, using accepted
2
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valuation practices. In determining the Fair Market Value of the Assets, the
appraiser appointed under this Deed shall set forth its determination in writing
together with its opinions and the consideration upon which the opinions are
based (a "Written Determination"), with a signed counterpart to be delivered to
----------------------
each of ISC and Unisource within thirty days of commencing appraisal. Unisource
Sub, Unisource Nominee, the AUCS Entities and Subsidiaries shall provide access
to the appraiser to all of their records, except as restricted by law, and to
their employees, in order to enable the appraiser to make its determination.
(c) Any appraiser selected pursuant to Section 2.4(a) shall be an
investment bank of recognized international standing with respect to the
valuation of assets similar in nature to the Assets.
Section 2.5 Valuation Notice. At any time no less than thirty days
----------------
and no more than sixty days prior to a Valuation Date ISC shall be entitled to
give notice (the "Valuation Notice") to Unisource requiring that the Fair Market
----------------
Value of the Assets identified in the Valuation Notice be determined as of such
Valuation Date. The term "Valuation Date" shall mean a date within the Option
--------------
Period. For purposes of determining the Call Price, a determination of Fair
Market Value of the Assets, pursuant to Section 2.4 shall be binding if ISC
exercises the Call Option within thirty business days after receipt by ISC and
Unisource of the Written Determination required in Section 2.4 (or thirty
business days after ISC and Unisource mutually agree upon the Fair Market Value,
if applicable).
Section 2.6 Exercise of Call Option.
-----------------------
(a) The Call Option may be exercised during the Option Period (or
subsequent to the Option Period to the extent set forth in the proviso of
section 2.2) at any time within thirty business days after receipt by ISC of the
Written Determination required in Section 2.4 (or thirty business days after ISC
and Unisource mutually agree upon the Fair Market Value, if applicable) by ISC
delivering a written notice of exercise ("Exercise Notice") to Unisource
---------------
specifying the date, which date shall be at least five days after the
date of the Exercise Notice but no later than 75 days after such date, upon
which ISC shall acquire the Assets (the "Option Commencement Date"); provided,
------------------------ --------
however, that the Option Commencement Date may be extended by ISC as reasonably
- -------
necessary in order to obtain any requisite governmental approvals, and if the
Option Commencement Date is so extended, the Option Commencement Date shall be
thirty (30) business days following receipt of such requisite governmental
approvals. Such exercise of the Call Option may be subject to the conditions set
forth in Section 2.6(b) below. If the Assets are not purchased because any of
the conditions in Section 2.6(b) are not met, the right to exercise the Call
Option at a future date in respect of the Assets will not be lost, assuming ISC
could otherwise give a Valuation Notice in such future period or periods.
(b) The completion of ISC's acquisition of the Assets pursuant to the
exercise of the Call Option shall take place at the London office of Latham &
Watkins (or such other place in London or in Amsterdam as is specified by ISC)
at 10:00 a.m. local time on the Option Commencement Date. ISC shall deliver to
Unisource (on behalf of AUCS N.V., AUCS v.o.f. and any Subsidiary which is
selling Assets in respect of which the Call Option is being
3
<PAGE>
exercised) the Call Price payable in Immediately Available Funds and the AUCS
Entities shall deliver or cause delivery to ISC of physical possession of all
the Assets capable of passing by delivery with the intent that title in such
Assets shall pass by and upon such delivery and take such other actions as are
necessary to transfer ownership of the Assets to ISC. The Assets shall be
conveyed to ISC free and clear of all Encumbrances and with full title
guarantee.
Unless waived by ISC, in its discretion, it shall be a condition to ISC's
obligation to purchase the Assets at such completion that customary
representations and warranties will be given by the Unisource Entities as of the
Option Commencement Date. It shall be a condition to the obligation of the
Unisource Entities to consummate the sale of the Assets that all necessary
consents, approvals and authorizations of third parties and governmental
agencies required to be obtained with respect to the acquisition of the Assets
(including compliance with all necessary requirements under competition law)
shall have been obtained as of the Option Commencement Date; provided that each
of the Unisource Entities, the AUCS Entities and ISC shall take whatever steps
are reasonably necessary to obtain such consents, approvals and authorizations
to permit the legal transfer of the Assets to ISC and to ensure that ISC's
consummation of the purchase of the Assets will not create an event of default
under any of the Unisource Entities' or AUCS Entities' credit agreements or give
rise to an acceleration or requirement to make a change of control offer with
respect to any indebtedness of the Unisource Entities' or AUCS Entities;
provided that ISC shall not be obligated to dispose of any assets to obtain any
- --------
such consent, authorization or approval. Each Party shall bear on its own
expenses incurred in connection with obtaining such consents, approvals and
authorizations. Receipt by Unisource of the Call Price shall be full discharge
of all obligations of ISC to Unisource, the AUCS Entities or any Subsidiary to
pay for the Assets provided that ISC may direct that any or all of the Assets
acquired pursuant to this Deed shall be conveyed to any Affiliate. Upon
purchase of the Assets ISC shall assume the related contractual obligations in
respect of such Assets incurred from and after the Option Commencement Date but
only to the extent disclosed by Unisource to ISC at the time of such transfer.
Section 2.7 Exclusive Call Option. This Call Option grants ISC the
---------------------
sole right during the Option Period to acquire the Assets. ISC shall not
exercise the Option in respect of all or any material part of the Assets if such
exercise will leave the AUCS Entities unable to perform in all material respects
their obligations under any agreement between AUCS and any third party unless
reasonably satisfactory arrangements were put in place by the Parties to enable
AUCS Entities to fulfill such contractual objectives.
ARTICLE III.
TAXES
Section 3.1 General. The Party responsible under applicable law will
-------
pay documentary and transfer taxes, sales, use or other taxes for fees imposed
as a result of the execution or delivery of this Deed or the consummation of the
transactions contemplated hereby including all stamp duty, VAT and other taxes,
and notaries' fees.
4
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Section 3.2 VAT. In the event that any tax authorities determine
---
that VAT is chargeable in respect of the sale of Assets pursuant to this Call
Option Deed, Unisource shall deliver a valid VAT invoice therefor to ISC.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Unisource Entities.
--------------------------------------------------------
Each of the Unisource Entities represents and warrants that as at the date of
this Agreement:
(a) each Unisource Entity is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and is in good standing in each jurisdiction where the failure to
be in good standing would have a material adverse effect on its ability to
perform its obligations under this Deed;
(b) AUCS N.V. and each Subsidiary is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and is in good standing in each jurisdiction where the failure to
be in good standing would have a material adverse effect on its ability to
perform its obligations under this Deed;
(c) AUCS v.o.f. is a partnership duly formed, validly existing and in
good standing under Dutch law, and is in good standing in each jurisdiction
where the failure to be in good standing would have a material adverse effect on
its ability to perform its obligations under this Deed;
(d) it and each AUCS Entity has all necessary corporate or
partnership power and authority to enter into this Deed and to perform its
obligations hereunder, and the execution and delivery of this Deed and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate or partnership action on its and each AUCS Entity's
part;
(e) this Deed constitutes the legal, valid and binding obligation of
it and each AUCS Entity, enforceable against it and each AUCS Entity by ISC in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and except to the extent that enforceability is subject to the
application of equitable principles or remedies;
(f) neither it, nor any AUCS Entity nor any Subsidiary, is a party
to, or is bound or affected by or subject to, any instrument, agreement, charter
or by-law provision, law, rule, regulation, judgment or order which would be
contravened or breached as a result of the execution of this Deed and the grant
of the Call Option;
(g) except for the matters set forth in Schedule 4.1(g), no consent,
approval or authorization of, or declaration or filing with, any governmental or
regulatory authority, or any other person or entity, is required to be made or
obtained by it, any AUCS Entity or any
5
<PAGE>
Subsidiary that has not been made or obtained in connection with the execution
and delivery of this Deed and the grant of the Call Option;
(h) neither it, nor any AUCS Entity, nor any Subsidiary, has employed
or made any agreement with any broker, finder or similar agent or any person or
firm which will, as a result of the transactions contemplated hereby, obligate
it, any AUCS Entity or any Subsidiary to pay any finder's fee, brokerage fees,
commission or similar payment in connection with the transactions contemplated
hereby;
(i) the AUCS Entities or one or more of the Subsidiaries have good
and marketable title to, and have in their possession and under their control,
all of the Assets;
(j) (i) no order has been made or petition presented, meeting
convened or resolution passed for the winding up of any of the Unisource
Entities, any AUCS Entities or any of the Subsidiaries nor has any receiver been
appointed or any distress, execution, or other process been levied in respect of
the Assets or any of them; and
(ii) no composition in satisfaction of the debts of any of the
Unisource Entities, any AUCS Entities or any of the Subsidiaries or scheme of
arrangement of its affairs or compromise or arrangement between it and either or
both of its creditors or members or any class of either or both of its creditors
or members has been proposed, sanctioned or approved.
Section 4.2 Representations of ISC. ISC represents and warrants
----------------------
that:
(a) it is a company duly incorporated and validly existing under the
laws of Delaware;
(b) it has all necessary corporate power and authority to enter into
this Deed and to perform its obligations hereunder, and the execution and
delivery of this Deed and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on its part;
and
(c) This Deed constitutes the legal, valid and binding obligation of
ISC, enforceable against it in accordance with its terms
ARTICLE V.
FURTHER ACTIONS
Section 5.1 No Action Required. The exercise of the Call Option
------------------
granted hereby is in the sole and exclusive discretion of ISC, and ISC shall be
under no obligation to exercise this Call Option. ISC shall not be liable for
any loss or damage suffered by the Unisource Entities, the AUCS Entities, the
Subsidiaries, or any third party arising from the non-exercise of the Call
Option.
Section 5.2 No Shop. None of the Unisource Entities or the AUCS
-------
Entities and they severally shall make reasonable efforts to cause their
respective officers, directors,
6
<PAGE>
stockholders or other representatives not to, directly or indirectly, encourage,
solicit, initiate or participate in discussions or negotiations with, or provide
any information or assistance to, any person or group (other than ISC and its
representatives) concerning any merger, sale of securities, sale of substantial
Assets or similar transaction involving the AUCS Entities. In the event that any
Unisource Entity or any AUCS Entity receives a proposal relating to any such
transaction, the Unisource Entity or the AUCS Entity, as the case may be, shall
promptly notify ISC of all terms of such proposal.
Section 5.3 Further Assurance. The Unisource Entities and the AUCS
------------------
Entities shall use all reasonable endeavors to do or procure to be done all such
further acts and things and execute or procure the execution of all such other
documents as ISC may from time to time reasonably require for the purpose of
giving ISC the full benefit of the provisions of this Deed.
Section 5.4 Power of Attorney. Each of the AUCS Entities hereby
-----------------
irrevocably appoints ISC as its attorney to sign, execute and deliver on its
behalf all deeds and documents and to do all acts and things necessary to give
effect to the terms of this Deed.
Section 5.5 No Frustrating Action. From the date of this Deed, the
---------------------
end of the Option Period or the Option Commencement Date (whichever is later to
occur) no Unisource Entity shall, directly or indirectly, take any action which
might cause any of the representations and warranties set forth in Section 4.1
to become untrue as of the Option Commencement Date.
ARTICLE VI.
THE UNISOURCE ENTITIES
Section 6.1 The Unisource Entities shall (in so far as they are able)
cause the AUCS Entities and Subsidiaries to comply with this Deed in all
respects and to perform promptly all of their obligations under this Deed and
the consummation of the transactions contemplated hereby.
Section 6.2 Unless expressly provided otherwise, all representations,
warranties, undertakings, covenants, agreements and obligations made, given or
entered into in this Deed by the Unisource Entities are made, given or entered
into severally by each of the Unisource Entities.
ARTICLE VII.
GUARANTEE
Section 7.1 In consideration of ISC entering into this Deed, the
Unisource Entities (together severally the "Guarantors" for the purposes of this
----------
Article), at the request of the AUCS Entities, hereby unconditionally guarantee
to ISC and its successors, transferees and assigns the due and punctual
performance and observance by the AUCS Entities of all the AUCS Entities'
obligations and the punctual discharge by the AUCS Entities of all the AUCS
Entities' liabilities to ISC and/or any other Parties contained in or arising
under this Deed or arising from any termination of this Deed, unless they are
prevented from doing any of the foregoing as a direct result of any action on
the part of ISC.
7
<PAGE>
Section 7.2 If the AUCS Entities shall make default in the payment
when due of any amount payable to ISC and/or any other party under this Deed or
arising from the termination hereof, the Guarantors shall forthwith on demand by
ISC unconditionally pay to ISC in the manner prescribed in this Deed an amount
equal to the amount payable by the AUCS Entities.
Section 7.3 As an independent and primary obligation, without
prejudice to Section 7.1 the Guarantors hereby unconditionally and irrevocably
agree to indemnify and keep indemnified ISC against all and any losses, costs,
claims, liabilities, damages, demands and expenses suffered or incurred by ISC
and/or any other Party arising from failure of the AUCS Entities to comply with
any of their obligations or discharge any of their liabilities under this Deed
or arising from the termination of this Deed or by reason of the AUCS Entities
not being at any time, or ceasing to be, liable in respect of the obligations
and liabilities purported to be assumed by them in accordance with the express
terms of this Deed.
Section 7.4 The guarantee and indemnity contained in this Article
shall be a continuing guarantee and indemnity and shall continue in full force
and effect until all liabilities or purported liabilities of the AUCS Entities
arising under, and all monies owing or payable or purported to be owing or
payable by the AUCS Entities under this Deed or arising from any termination of
this Deed, have been paid, discharged or satisfied in full and notwithstanding
any insolvency of the AUCS Entities or any change in the status of the AUCS
Entities or Subsidiaries.
Section 7.5 The Guarantors shall not be exonerated or discharged nor
shall their liability be affected by any forbearance, whether as to payment,
time, performance or otherwise howsoever, or by any other indulgence being given
to the AUCS Entities or by any variation of the terms of this Deed or by any
act, thing, omission or means whatever which, but for this provision, might
operate to exonerate or discharge the Guarantors from their obligations under
the guarantee and indemnity continued in this Article.
ARTICLE VIII.
INDEMNITIES
Section 8.1 Indemnity of the Unisource Entities and the AUCS
------------------------------------------------
Entities. The Unisource Entities and the AUCS Entities will, severally, defend,
- --------
indemnify and hold harmless ISC, its Affiliates and partners and their officers,
directors, employees and agents from all liabilities, damages, costs and
expenses (including, without limitation, reasonable counsel fees and expenses)
incurred in connection with (i) any breach by the Unisource Entities and/or the
AUCS Entities of their obligations under this Deed, or (ii) any third party
claim against ISC relating to breaches by the Unisource Entities of any of their
representations or warranties or any of their obligations hereunder provided
that the Unisource Entities and/or the AUCS Entities will not be liable pursuant
to this Section 8.1, (i) unless the aggregate amount otherwise due to ISC, its
Affiliates and partners and their officers, directors, employees and agents
exceeds on a cumulative basis Euro 100,000 and (ii) if such breach of any
representation or warranty or any of
8
<PAGE>
their obligations under this Deed is caused by any willful misconduct or
negligence on the part of ISC.
Section 8.2 Indemnification Procedures: In the case of any claim
---------------------------
asserted by a third party against a party entitled to indemnification under this
Deed (the "Indemnified Party"), notice shall be given by the Indemnified Party
-----------------
to the party required to provide indemnification (the "Indemnifying Party")
------------------
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and the Indemnified Party shall permit the
Indemnifying Party (at the expense of such Indemnifying Party) to assume the
defence of any claim or any litigation resulting therefrom, provided that (i)
the counsel for the Indemnifying Party who shall conduct the defence of such
claim or litigation shall be reasonably satisfactory to the Indemnified Party,
(ii) the Indemnified Party may participate in such defence at such Indemnified
Party's expense, and (iii) the omission by any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
indemnification obligation under this Deed except to the extent that such
omission results in a failure of actual notice to the Indemnifying Party and
such Indemnifying Party is materially damaged as a result of such failure to
give notice. Except with the prior written consent of the Indemnified Party, no
Indemnifying Party, in the defence of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement that provides for
injunctive or other non-monetary relief affecting the Indemnified Party or that
does not include as an unconditional term thereof the giving by each claimant or
plaintiff to such Indemnified Party of a release from all liability with respect
to such claim or litigation. In the event that the Indemnified Party shall in
good faith determine that the conduct of the defence of any claim subject to
indemnification hereunder or any proposed settlement of any such claim by the
Indemnifying Party might be expected to affect adversely the Indemnified Party's
tax liability or the ability of Indemnified Party to conduct its business, or
that the Indemnified Party may have available to it one or more defences or
counterclaims that are inconsistent with one or more of those that may be
available to the Indemnifying Party in respect of such claim or any litigation
relating thereto, the Indemnified Party shall have the right at all times to
take over and assume control over the defence, settlement, negotiations or
litigation relating to any such claim at the sole cost of the Indemnifying
Party, provided that if the Indemnified Party does so take over and assume
--------
control, the Indemnified Party shall not settle such claim or litigation without
the written consent of the Indemnifying Party, such consent not to be
unreasonably withheld. In the event that the Indemnifying Party does not accept
the defence of any matter as above provided, the Indemnified Party shall have
the full right to defend against any such claim or demand and shall be entitled
to settle or agree to pay in full such claim or demand. In any event, the
Indemnifying Party and the Indemnified Party shall cooperate in the defence of
any claim or litigation subject to this Article VIII and the records of each
shall be available to the other with respect to such defence.
ARTICLE IX.
MISCELLANEOUS
Section 9.1 Assignment. No Party may assign, sublicense, transfer or
----------
otherwise dispose of any rights or sub-contract or transfer or otherwise dispose
of any obligations under this Deed, other than in connection with the sale or
transfer of all or substantially all the
9
<PAGE>
assets of the assigning Party, provided that, as a condition of any such
transfer, such transferee shall agree in writing with the other Parties to fully
perform and discharge all of the obligations of the relevant seller or
transferor under this Deed, except with the prior written approval of the other
Parties, which approval shall not be unreasonably withheld or delayed.
Section 9.2 Governing Law and Arbitration.
-----------------------------
(a) This Deed shall be governed by and shall be construed in
accordance with English law, without reference to the choice of law provisions
thereof. Accordingly any dispute arising out of or having any connection with
this Deed shall be decided exclusively in accordance with English law, provided
that all such disputes shall be referred, in the first instance, to the
respective chief executive officers of the Parties for resolution.
(b) If a dispute, after having first been discussed by the chief
executive officers of each of the relevant Parties (provided that if the dispute
--------
is between ISC and an AUCS Entity, the matter shall be discussed between the
chief executive officers of ISC and Unisource), is not resolved by the said
chief executive officers within a maximum of 14 days, the dispute shall be
referred to and finally resolved by arbitration under the London Court of
International Arbitration ("LCIA") Arbitration Rules, which Arbitration Rules
----
are deemed to be incorporated by reference to this Section 9.2.
(c) Any arbitration commenced pursuant to Section 9.2 shall be
administered by the LCIA and the standard LCIA administrative procedures and
schedule of costs shall apply. In any such arbitration, the appointing authority
shall be the LCIA. The number of arbitrators shall be three and such arbitrators
to include persons experienced in European telecommunications (the
"Arbitrators"). The place of arbitration shall be London and the language used
-----------
in the arbitral proceedings shall be English. The governing law of the Agreement
shall be the substantive law of England.
(d) The fees of the Arbitrators, the costs of the LCIA and the cost
of the other parties relating to the arbitration (including, but not limited to,
the reasonable costs of professional advisers) shall be borne by those Parties
against whom the Arbitrators make any award in the proportion of any such award.
(e) The Arbitrators shall have authority to award interest on any
amount awarded by the Arbitrators up to the date of that award at the rate equal
to 1 (one) percentage point above the three month EURIBOR rate for Euros from
time to time. If any amount payable as a result of a decision of the Arbitrators
is not paid within 14 days of publication of that decision, interest will
thereafter accrue on the amount at the rate equal to 2 (two) percentage points
above the three month EURIBOR rate for Euros from time to time.
(f) The referral of a dispute to arbitration under Section 9.2 shall
not preclude any Party from obtaining interim relief on an urgent basis from a
court of competent jurisdiction pending any decision of the Arbitrators.
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<PAGE>
(g) Any decision of the Arbitrators shall be final, conclusive and
binding on the parties, and the parties agree to exclude, so far as lawfully
possible to exclude, any right of application or appeal to the English (or
other) courts in connection with any question of law arising in the arbitration
or in connection with any award or decision made by the Arbitrators, except as
may be necessary to enforce such award or decision.
(h) The provisions of this Section are severable from the rest of
this Deed and shall remain in effect despite the termination of or invalidity
for any reason of this Deed.
Section 9.3 No Partnership. Nothing in this Deed shall be deemed to
--------------
create any joint venture, partnership or principal and agent relationship
between any Unisource Entity, any AUCS Entity or Subsidiary and ISC and no party
shall hold itself out in its advertising or otherwise in any manner which would
indicate or imply any such relationship with the other.
Section 9.4 Validity. If any provision of this Deed is found or held
--------
to be invalid or unenforceable, the validity of all the other provisions hereof
shall not be affected thereby and the parties agree to meet and review the
matter and if any valid and enforceable means is reasonably available to achieve
the same object as the invalid or unenforceable provision, to adopt such means
by way of variation of this Deed.
Section 9.5 Severability. In the event that any of the terms of this
------------
Deed are found to be invalid, unlawful or unenforceable, such terms (provided
that they are not fundamental to the deed) shall be severable from the remaining
terms, which shall continue to be valid and enforceable.
Section 9.6 Variation. No variation of or addition to this Deed
---------
shall be of any force or effect unless reduced to writing, signed by or on
behalf of the Parties and expressed to amend this Deed.
Section 9.7 Entire Agreement. This Deed (including the documents
----------------
referred to in it) replaces all prior agreements and arrangements between the
Parties and constitutes the entire understanding between the Parties relating to
the subject matter of this Deed. Each Party acknowledges that in agreeing to
enter into this Deed it has not relied on any representations, warranties or
promises (except those set out in this Deed) made by or on behalf of the other
Parties before the signature of this Deed. Each Party waives all rights and
remedies which, but for this Section, might otherwise be available to it in
respect of any such representation, warranty or promise, provided that nothing
in this Section shall limit or exclude any liability for fraud.
Section 9.8 Waiver. A waiver by a Party of a breach of any term or
------
condition of this Deed in any one instance shall be in writing and shall not be
deemed as a continuing waiver or a waiver of any other or subsequent breach
unless the written notice so provides.
Section 9.9 Notices.
-------
(a) The Parties choose the following addresses as the address at
which they will accept service of all documents and notices relating to this
Deed.
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<PAGE>
to ISC at: 2100 East Grand Ave
E1 Segundo CA 90245
USA
Fax: +1 310 322 6229
Attention: The General Counsel
to any Unisource Entity at:
c/o Unisource NV
"Transpolis"
Polarisavenue 97
2137 JH, Hoofddorp
The Netherlands
Fax: +31 23 568 6200
Attention: The General Counsel
to any AUCS Entity at:
Spicalaan 1-59
2132 JG Hoofddorp
The Netherlands
Fax: +31 23 569 7177
Attention: The General Counsel
to Telia at:
Marbackagatan 11
Stockholm
Sweden
Fax: +46 89 46 470
Attention: Director of Legal Affairs
To KPN at:
Maanweg 174
2516 AB, The Hague
The Netherlands
Fax: +31 70 332 3675
Attention: The General Counsel
12
<PAGE>
To Swisscom at:
Lindenpark
Worblaufen
CH-3050
Berne, Switzerland
Fax: + 41 31 342 3447
Attention: Chief Legal Counsel
(b) Any notice to be given by a Party to another Party in terms of
this Deed shall be given by prepaid registered post or by facsimile or shall be
delivered by hand, provided that:
(i) any notice given by prepaid registered post for which a
receipt shall have been issued shall be deemed to have been received by the
addressee, in the absence of proof to the contrary, ten days after the date of
postage;
(ii) any notice delivered by hand during normal business hours
for which a receipt shall have been issued shall be deemed to have been received
by the addressee, in the absence of proof to the contrary, at the time of
delivery;
(iii) any notice given by facsimile shall be deemed to have been
received by the addressee, in the absence of proof to the contrary, immediately
upon the issuance by the transmitting facsimile machine, of a report confirming
correct transmission of all the pages of the document containing the notice or
upon receipt by the transmitting facsimile machine, at the end of the notice
being transmitted, of the automatic answerback of the receiving facsimile
machine.
Section 9.10 No Third Party Beneficiaries. This Deed is for the sole
----------------------------
and exclusive benefit of the Parties hereto and nothing herein expressed or
implied shall give or be construed to give to any person or entity, other than
the Parties hereto, any legal or equitable rights hereunder.
Section 9.11 Filing. Except as contemplated in Section 2.6(b), each
------
Party hereto shall use its reasonable efforts to obtain all authorizations,
consents, orders and approvals of, to give all notices to and make all filings
with, all governmental authorities and other third parties that may be or become
necessary (or as otherwise agreed by the Parties) for its execution and delivery
of, and performance of its obligations pursuant to, this Deed, and each Party
will cooperate fully with the other Parties in promptly seeking to obtain all
such authorizations, consents, orders and approvals, giving such notices, and
making such filings (including any filings to be submitted to the European
Commission as a result of this Agreement). Each Party will bear its own costs,
expenses and disbursements in relation to any and all such costs, expenses and
disbursements incurred by it under this Section 9.11.
[Signature Pages Follow]
13
<PAGE>
IN WITNESS WHEREOF this Deed has been executed as a Deed by the
Parties hereto and is intended to be and is hereby delivered on the date first
before written.
SIGNED AND DELIVERED )
AS A DEED by )
ISC acting by a director )
and its secretary or two directors )
--
Director
Director/Secretary
SIGNED AND DELIVERED )
AS A DEED by )
UNISOURCE PAN-EUROPEAN )
SERVICES B.V. a company )
incorporated in The Netherlands )
by _____________________ )
[and ________________] being [a] )
person[s] who, in accordance with )
the laws of that territory, [is or are] )
acting under the authority of )
Unisource Pan-European )
Services B.V. )
SIGNED AND DELIVERED )
AS A DEED by )
UNISOURCE N.V. a company )
incorporated in The Netherlands )
by _____________________ )
[and ________________] being [a] )
person[s] who, in accordance with )
the laws of that territory, [is or are] )
acting under the authority of )
Unisource N.V. )
14
<PAGE>
SIGNED AND DELIVERED )
AS A DEED by )
TELIA AB a company )
incorporated in Sweden )
by _____________________ )
[and ________________] being [a] )
person[s] who, in accordance with )
the laws of that territory, [is or are] )
acting under the authority of )
Telia AB )
SIGNED AND DELIVERED )
AS A DEED by )
KPN TELECOM B.V. )
a company incorporated in )
The Netherlands )
by _____________________ )
[and ________________] being [a] )
person[s] who, in accordance with )
the laws of that territory, [is or are] )
acting under the authority of )
KPN Telecom B.V. )
SIGNED AND DELIVERED )
AS A DEED by )
SWISSCOM AG a company )
incorporated in Switzerland )
by _____________________ )
[and ________________] being [a] )
person[s] who, in accordance with )
the laws of that territory, [is or are] )
acting under the authority of )
Swisscom AG )
15
<PAGE>
SIGNED AND DELIVERED )
AS A DEED by )
AUCS COMMUNICATIONS )
SERVICES N.V. a company )
incorporated in The Netherlands )
by Aad van Waveren )
being a person who, in )
accordance with the laws of that )
territory, is acting under )
the authority of AUCS )
Communications Services N.V. )
SIGNED AND DELIVERED )
AS A DEED by )
AUCS COMMUNICATIONS )
SERVICES v.o.f. a partnership )
formed in The Netherlands )
and represented by AUCS N.V. in )
accordance with Dutch law )
by Aad van Waveren )
being a person who, in )
accordance with the laws of that )
territory, is acting under )
the authority of AUCS )
Communications Services v.o.f. )
SIGNED AND DELIVERED )
AS A DEED by )
BRIAP B.V. )
a company incorporated in )
The Netherlands )
by _____________________ )
[and ________________] being [a] )
person[s] who, in accordance with )
the laws of that territory, [is or are] )
acting under the authority of )
Briap B.V. )
16
<PAGE>
SCHEDULE 1.1
"Affiliate" means (i) ISC, (ii) each current or future
corporation or entity owned or under the
Control of ISC, (iii) any of ISC's current or
future subsidiaries, and (iv) any current or
future corporate entity (or subsidiary
thereof) whose primary business is to conduct
data communications or other related
activities, and such entity has entered into a
legal relationship with ISC or any of its
Affiliates whereby such corporation has the
right to conduct business under the trademark
and tradename of "Infonet" and which entities
as of the Commencement Date are listed in
Schedule 3, as it may be amended from time to
time by ISC upon notice to Unisource and
consent of Unisource which will not be
unreasonably withheld or delayed;
"Arbitration Rules" means the rules of the LCIA in accordance with
which any LCIA arbitration will be conducted,
or such amended rules as the LCIA may have
adopted hereafter to take effect before the
commencement of the arbitration;
"Assets" means the tangible assets of the AUCS Entities
or Subsidiaries as at the date of this Deed
other than assets which the AUCS Entities will
transfer to third parties in compliance with
their obligations under the AT&T Asset
Transfer Agreements but including any tangible
assets of the AUCS Entities or Subsidiaries
thereafter acquired and any assets to be
transferred to the AUCS Entities under the
terms of the AT&T Asset Transfer Agreements;
"AT&T Asset Transfer Agreements" means those AT&T Exit Agreements under which,
in accordance with their terms, assets are to
be transferred either to or from the AUCS
Entities and/or the relevant Subsidiaries.
"AT&T Exit Agreements" means the Framework Agreement entered into
between the AUCS Entities, UPES, Unisource and
various AT&T entities, dated May 29, 1999
including all the various ancillary documents
set out as schedules to that Framework
Agreement, to the extent disclosed to ISC by
Unisource (for the
i
<PAGE>
avoidance of doubt, section 6 and related
schedules of the Framework Agreement and
certain other pricing and financial
information were not disclosed by Unisource to
ISC), true and correct copies of all of which
have been delivered to ISC which documents are
listed at Schedule A.
"Commencement Date" means October 01, 1999, 00:01 a.m.;
"Control" means in relation to a body corporate, the
power of a person to secure that its affairs
are conducted in accordance with the wishes of
that person:
(a) by means of the holding of shares or the
possession of voting power in or in relation
to that or any other body corporate; or
(b) by virtue of any powers conferred by the
articles of association or any other document
regulating that or any other body corporate,
and, in relation to a partnership, means the
right to a share of more than one half the
assets, or of more than one half of the
income, of the partnership;
"Encumbrance" means any interest or equity of any person
(including any right to acquire, option or
right of pre-emption) or any mortgage, charge,
pledge, lien, assignment, hypothecation,
security interest, title retention or any
other security agreement or arrangement;
"Immediately Available Funds" means a wire transfer of immediately available
funds to a deposit account designated by the
recipient or delivery of a certified or bank
cashier's check in same day funds;
"Management Agreement" means the agreement dated September 30, 1999
entered into between the Parties for the
provision of management services by ISC to the
AUCS Entities;
"Subsidiary" means the subsidiaries of AUCS v.o.f. and/or
AUCS N.V. from time to time;
"Unisource Entities" means Unisource Sub, Unisource, Unisource
Nominee and the Unisource Stockholders;
ii
<PAGE>
"VAT" means Value Added Tax or any similar tax from
time to time replacing it or performing a
similar fiscal function;
The capitalized terms listed below shall have the meanings given to them in the
sections of this Agreement cross referenced below:
"Arbitrators" Shall have the meaning set forth in Section 9.2
"AUCS Entities" Shall have the meaning set forth in Section 2.1
"Call Option" Shall have the meaning set forth in Section 2.1
"Consultation Period" Shall have the meaning set forth in Section 2.4
"Exercise Notice" Shall have the meaning set forth in Section 2.6
"Guarantors" Shall have the meaning set forth in Section 7.1
"Indemnified Party" Shall have the meaning set forth in Section 8.2
"Indemnifying Party" Shall have the meaning set forth in Section 8.2
"LCIA" Shall have the meaning set forth in Section 9.2
"Option Commencement Date" Shall have the meaning set forth in Section 2.6
"Option Period" Shall have the meaning set forth in Section 2.2
"Valuation Notice" Shall have the meaning set forth in Section 2.5
"Valuation Date" Shall have the meaning set forth in Section 2.5
"Written Determination" Shall have the meaning set forth in Section 2.4
iii
<PAGE>
SCHEDULE 2.4(b)
NON-EXHAUSTIVE PRINCIPLES OF DEFINING FAIR MARKET VALUE
1. The appraiser shall take into account the terms and conditions upon which
the assets are to be sold.
2. The appraiser shall consider the likely market for the assets.
3. The appraiser shall assume that the price will be paid in cash upon
completion of the purchase.
4. The appraiser shall take into account liabilities associated with the assets
on Euro 1 for Euro 1 basis.
iv
<PAGE>
SCHEDULE 3
----------
Affiliates
SEDCO
Infonet Australia
Datakom Austria GmbH
Infonet Belgium S.A
Datacom, S.A.
Interpac Telematica Ltda
Infonet Canada
Infonet Software Solutions
Infonet Chile S.A.
Infonet Services Corporation
Infonet/China Ltd
Enterprise Ltda
Tecapro
Aliatel a.s.
Telecom Denmark Erhverv A/S
Codetel
DATCOM LTD.
InTouch Communications Services
Oy Infonet Finland
Infonet France S.A.
France Telecom Interpac S.A.
Infonet Network Services Deutschland GmbH.
OTE SA
Infonet - Hong Kong
BankNet Ltd.
PT Telekominukasi Indonesia
Infonet Ireland Ltd
Infonet Israel, Ltd
Infonet Italia S.p.A
v
<PAGE>
KDD Communications, Inc. (KCOM)
Korea Telecom, Data Division
InfoGlobe Corporation
Infonet Luxembourg SA
Telecom Malaysia Berhard
Infonet/ACASIA program office
Infonet Mexico
Infonet Nederland BV
Infonet TELECOM AS
CCNet S.A.
Philippines Long Distance Telephone
PLDT Marketing Center
Infonet Portugal
Telefonica Large Distancla
INFOCOM
Singapore Telecom Int'l PTE, Ltd
EDS South Africa (Pty) Limited
Telefonica Servicios SA (TSA1)
Lanka Communication Services Pte. Ltd.
Infonet Svenska AB
Infonet (Switzerland) Ltd.
Hong Kong Telecom Ltd
SIAM Infor Tel Co., Ltd
ACCESS A.S
Infonet UK, Ltd
Infonet Software Solutions, Ltd
Infocom GmbH
Setradat C.A.
vi
<PAGE>
SCHEDULE 4.1(g)
---------------
Consents, authorizations and approvals
1. Form A/B filing by certain of the Parties to the European Commission in
relation to the transactions contemplated between Infonet and the Parties
under this and other agreements.
vii
<PAGE>
SCHEDULE A: AT&T Exit Agreements
--------------------------------
1. Framework Agreement between AT&T Corp., AT&T Pan-European Services Inc.,
Unisource N.V., Unisource Pan-European Service B.V., AUCS v.o.f., and AUCS
N.V. date 29 May 1999.
2. Easylink Business Transfer Agreement between AUCS v.o.f., AUCS (UK) Limited,
AT&T Easylink Services (UK) Limited and AT&T Global Communications Services
Inc. dated 22 May 1999 and attached to the Framework Agreement as Schedule
4.1.1.
3. Easylink Transition Services Agreement between AUCS v.o.f. and AT&T Easylink
Services (UK) Limited dated 22 May 1999 and attached to the Framework
Agreement as Schedule 4.1.2.
4. Continental Asset Transfer Agreement between AT&T Communications Services
Inc. and AUC v.o.f dated 29 May 1999 and attached to the Framework Agreement
as Schedule 4.2(a).
5. Italian X.25 Transfer Agreement between AT&T Communications Services Italia
SpA and AUCS (Italia) SpA dated 29 May 1999 and attached to the Framework
Agreement as Schedule 4.2(b).
6. Continental Access Circuits Transfer Agreement between AT&T GME and AUCS
v.o.f dated 29 May 1999 and attached to the Framework Agreement as Schedule
4.2(c).
7. UK Stratacom Asset Transfer Agreement between AT&T UK and AUCS v.o.f date 29
May 1999 and attached to the Framework Agreement as Schedule 4.2(d).
8. X.25 Outsourcing Service Agreement between AT&T GME and AUCS v.o.f dated 29
May 1999 and attached to the Frame work Agreement as Schedule 4.2(e).
9. Redditch CDC Lease Agreement between AT&T ISTEL and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(f).
10. Redditch GNMC Telehousing Agreement between AT&T UK and AUCS v.o.f dated 29
May 1999 and attached to the Framework Agreement as Schedule 4.2(g).
11. Summit House Telehousing Agreement between AT&T UK and AUCS v.o.f dated 29
May 1999 and attached to the Framework Agreement as Schedule 4.2(h).
12. Amsterdam Telehousing Agreement between AT&T Communications Services
Nederland B.V. and AUCS v.o.f dated 29 May 1999 and attached to the
Framework Agreement as Schedule 4.2(i).
13. Voice Service Provider Agreement between AT&T UK and AUCS v.o.f dated 29
May 1999 and attached to the Framework Agreement as Schedule 4.2(j).
viii
<PAGE>
14. Data Service Provider Agreement between AT&T UK and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(k).
15. Interconnect Service Amendment Agreement between AT&T UK and AUCS v.o.f
dated 29 May 1999 and attached to the Framework Agreement as Schedule
4.2(l).
16. Wholesale Services Agreement between AT&T GME and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(m).
17. Worldsource Channel Amendment Agreement between AT&T UK, AT&T GME and AUCS
v.o.f dated 29 May 1999 and attached to the Framework Agreement as Schedule
4.2(n).
18. AT&T UK Distribution Agreement between AT&T UK and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(o).
ix
<PAGE>
EXHIBIT 10.14
EXECUTION COPY
MANAGEMENT AGREEMENT
THIS AGREEMENT (the "Agreement") made as of September 30, 1999 by and
---------
among Infonet Services Corporation, a Delaware Corporation ("ISC" and, together
---
with its Affiliates, "Infonet"), AUCS Communications Services v.o.f., a general
-------
partnership organized under the laws of The Netherlands ("AUCS"), and herein
----
represented by AUCS N.V. (as hereinafter defined), AUCS Communications Services
N.V., a company organized under the laws of The Netherlands ("AUCS N.V.", and
---------
AUCS and AUCS N.V. collectively together with all of their direct and indirect
subsidiaries, the "AUCS Entities" and each an "AUCS Entity"), Unisource Pan-
------------- -----------
European Services B.V., a company organized under the laws of The Netherlands
("UPES"), Unisource N.V., a company organized under the laws of The Netherlands
- -------
("Unisource"), Briap B.V., a company organized under the laws of The Netherlands
---------
("Unisource Nominee" and collectively with Unisource and UPES, the "Unisource
----------------- ---------
Entities"), the stockholders of Unisource, Telia AB, a company organized under
- --------
the laws of Sweden ("Telia"), KPN Telecom B.V., a company organized under the
-----
laws of The Netherlands ("KPN"), and Swisscom AG, a company organized under the
---
laws of Switzerland ("Swisscom" and, together with Telia and KPN, the "Indirect
-------- --------
AUCS Stockholders") (each, a "Party" and collectively, the "Parties").
- ----------------- ----- -------
WHEREAS, the AT&T exit from its relationships with the AUCS Entities
pursuant to the AT&T Exit Agreements (the "AT&T Exit") has been consummated
---------
prior to the date hereof;
WHEREAS, Infonet is in the business of providing products and
telecommunications services of a type and nature similar to the products and
services provided by the AUCS Entities (the latter services, the "Contract
--------
Services");
- --------
WHEREAS, the AUCS Entities wish to have ISC assume the sole and
exclusive management of all operations of the AUCS Entities in order to ensure
continuity of service and, in keeping with the commitments of the AUCS Entities
under the AT&T Exit Agreements and the WorldPartners Membership Agreements,
while reducing their operating costs and other expenses as quickly as possible;
WHEREAS, the AUCS Entities and ISC expect that the management of the
operations of the AUCS Entities by ISC will result in economies of scope and
scale, the benefits of which they expect will be passed on to distributors;
WHEREAS, under the terms of this Agreement, the AUCS Entities will not
transfer any personnel or assets to Infonet other than as specifically provided
for in this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1
<PAGE>
ARTICLE I.
DEFINITIONS
Section 1.1 Certain Definitions. In this Agreement, the capitalized
--------------------
terms defined on Schedule 1.1 hereto shall have the meanings set forth or
referred to therein.
ARTICLE II.
TERM
Section 2.1 Term. The term of this Agreement shall begin at 00:01
-----
a.m., Greenwich Mean Time on the Commencement Date and shall end at 11.59pm,
Greenwich Mean Time following the third anniversary of the Commencement Date
(the "Initial Term") unless as otherwise agreed between the Parties in
------- ----
accordance with Section 2.2 below.
Section 2.2 Extension of Term Unisource may request in writing
-----------------
delivered to ISC not less than 180 days and not more than 270 days prior to the
Termination Date that the Term be extended for a further twelve months (and if
the Term is extended once, again for a second twelve months), on substantially
the same terms as set forth in this Agreement, except that:
(a) the Management Fee payable pursuant to Section 5.1 shall be equal to 1.5
percent of the greater of (i) the total consolidated revenues of the AUCS
Entities and (ii) the aggregate losses of all the AUCS Entities (including all
Restructuring Costs and Liquidation Costs) before interest and taxes, in each
case for each quarter during such extended term but shall not, in any event,
exceed in any year following the expiry of the Initial Term the Management Fee
paid in respect of the third year of the Initial Term;
(b) Section 5.2 shall no longer apply; and
(c) Sections 4.1 (b) and (c) shall no longer apply and, accordingly, the
Funding Requirements shall be as agreed between ISC and Unisource.
In no event shall the Term of the Agreement exceed five years from the
Commencement Date. For the avoidance of doubt, ISC shall not be obliged to
extend the Term beyond the Initial Term.
ARTICLE III.
SERVICES TO BE PROVIDED
Section 3.1 Management Services.
--------------------
(a) Except as otherwise expressly provided in this Agreement (including in this
Section 3.1 and Article XII), throughout the Term, ISC shall have the exclusive
right to manage the business, affairs, operations and actions of the AUCS
Entities as determined by ISC in its sole discretion. ISC is hereby empowered to
take any and all actions regarding the operations, strategy, marketing,
services, products, administration and general business of the AUCS Entities, as
determined by it in its sole and exclusive discretion.
2
<PAGE>
(b) The Parties agree that:
(i) the Supervisory Board of AUCS N.V. shall continue in
existence and have only the powers set forth in Section 12.1 of this Agreement;
and
(ii) all other rights of the Unisource Entities under any
governing document or law with respect to the AUCS Entities shall be exercised
as directed by ISC.
(c) In exercising its management powers under Section 3.1(a), ISC will use its
best efforts to act as a responsible manager of the AUCS Entities. In its
management of the AUCS Entities and while seeking over time to reduce the
expenses of the AUCS Entities, ISC will (i) use commercially reasonable efforts
to ensure continuity of Contract Services to customers, (ii) cause the AUCS
Entities to comply with the terms of the AT&T Exit Agreements and the
WorldPartners Membership Agreements, and (iii) cause the AUCS Entities to comply
in all material respects with the laws of all relevant jurisdictions.
(d) The AUCS Entities, the Unisource Entities and the Indirect AUCS
Stockholders shall procure that the management boards of the AUCS Entities shall
appoint additional, changed or new officers (including the management director
and managing directors) as ISC shall recommend from time to time during the
Term, as soon as practicable upon ISC's recommendation, provided that such
appointments shall be subject, only to the extent required by applicable law, to
the advice of any works councils of AUCS. The Unisource Entities and the
Indirect AUCS Stockholders shall procure that the management boards of the AUCS
Entities shall not appoint additional, changed, or new officers (including the
management director and managing directors) or remove any of the foregoing
without the prior consultation and approval of ISC.
(e) In order to effectuate the foregoing provisions of this Article III and to
fully empower ISC, each of the AUCS Entities hereby irrevocably appoints ISC and
any of its executive officers, their true and lawful attorney with full power of
substitution and with power for such person or entity in its own name and
capacity, together or separately, or in the name and capacity of the respective
AUCS Entity to manage the business, affairs, operations and actions of the
respective AUCS Entity as determined by ISC in its sole discretion; provided,
--------
however, that such agency shall not create any fiduciary obligations. The
- -------
foregoing power of attorney is coupled with an interest.
(f) Promptly following the Commencement Date, ISC shall (at AUCS' expense)
commence a review of the business, assets, operations, and prospects of the AUCS
Entities and prepare a proposal for the future operations of the AUCS Entities
(the "Review of Operations"). The Review of Operations shall consider, among
--------------------
other things the profitability or potential profitability of the Contract
Services or other services, and the marketing, products, services,
administration, employee-related matters and general business of the AUCS
Entities. Every month during the preparation of the Review of Operations and
promptly following finalization of the Review of Operations ISC shall (i)
consult with the Indirect AUCS Stockholders as to the contents of the Review of
Operations (or the then current draft thereof) and (ii) inform Unisource to such
an extent which enables it to continue properly informing and consulting with
the Unisource European Works Council. ISC shall complete the Review of
Operations as soon as
3
<PAGE>
practicable and in any event within 90 days following the Commencement Date.
Attached hereto as Exhibit 3.1(f) is a non-binding, preliminary draft
implementation plan and a non-binding outline social plan prepared by ISC and
presented by AUCS to the works council of AUCS.
ARTICLE IV.
FUNDING REQUIREMENTS
Section 4.1 Funding Requirements.
---------------------
(a) The Parties recognize that the AUCS Entities are likely to incur continuing
losses and in order to continue their business, it will be necessary for
Unisource to contribute further funds during the Term (the "Funding
-------
Requirements") to the AUCS Entities. During the Term all Funding Requirements
- ------------
of the AUCS Entities will be paid by Unisource, by way of capital contribution
or loans (as described in Section 5.4), as and when requested by ISC pursuant to
Section 4.1(e) up to the limits set forth in Section 4.1(b). Funding
Requirements arising as a result of each of the categories (i) through (iv) set
forth in the following sentence shall be separately accounted for by AUCS when
made and each category shall be mutually exclusive. The Funding Requirements may
arise as a result of (i) the AUCS Entities' EBITDA Losses; (ii) Restructuring
Costs; (iii) Management Fees (payable pursuant to Section 5.1); and (iv)
Liquidation Costs (if any).
(b) If the aggregate total of the AUCS Entities' Adjusted EBITDA Losses during
the Initial Term reaches Euro 368,316,000 (three hundred and sixty eight million
three hundred and sixteen thousand Euro) the "Review Point" shall have been
------------
reached.
(c) If during the Initial Term, Management Accounts are delivered to Unisource
by AUCS showing that the Review Point has been exceeded, Unisource may
determine, within 30 days of receipt of such Management Accounts to terminate
this Agreement in accordance with Section 7.1(d) and (i) to liquidate the AUCS
Entities or (ii) take any other course of action not in violation of this
Agreement during the period of effectiveness of this Agreement and, if any such
determination to terminate this Agreement is made, Unisource shall so notify ISC
in writing, received by ISC within such 30 day period. Forthwith following such
determination, Unisource shall liquidate the AUCS Entities entirely at its own
cost and expense and in any event the Unisource Entities and the Indirect AUCS
Stockholders shall severally ensure that any and all of the obligations of the
AUCS Entities to Infonet are satisfied, whether by a Unisource Entity or an
Indirect AUCS Stockholder in place of the AUCS Entities or by some other
arrangement acceptable to ISC. In the event of a liquidation on a solvent basis,
Section 12.5 shall apply. If during the Initial Term, Management Accounts are
delivered to ISC by AUCS showing that the Review Point has been exceeded, ISC
may determine within 30 days of delivery of such Management Accounts to ISC to
terminate this Agreement in accordance with Section 7.1(d). If any such
determination is made, ISC shall so notify Unisource in writing, received by
Unisource within such 30 day period. For the avoidance of doubt, both Unisource
and ISC shall always have the right during the Initial Term to make any
determination permitted under this Section 4.1(c) within 30 days of receipt of
any Management Accounts which show that the Review Point has been exceeded.
4
<PAGE>
(d) Unisource shall make any Funding Requirement payments only to AUCS pursuant
to this Section 4.1 as requested by AUCS as directed by ISC and no later than 30
days after Unisource receives a written request therefor from ISC. Funding
Requirements shall be contributed as set forth in Section 5.4.
(e) In order to assist Unisource in meeting such Funding Requirements, ISC
shall cause AUCS to provide Unisource with non-binding cash flow forecasts
setting forth AUCS' best estimates of the anticipated Funding Requirements for
the next calendar month, three months and year, such cash flow forecasts to be
provided not less than 30 days prior to commencement of the relevant period. The
untimely delivery of any such forecasts shall not limit in any way Unisource's
obligations under this Section 4.1 provided that no written request delivered
--------
pursuant to Section 4.1(d) shall be binding on Unisource until the cash flow
forecast for the relevant period has been provided to Unisource. Any cash
surplus or deficit as set forth in the Commencement Date Financial Statements
(defined below) shall be considered an advance payment or an additional amount
due (as the respective case may be) in respect of any Funding Requirement.
(f) ISC shall cause AUCS to prepare and to deliver to ISC and Unisource within
60 days following the Commencement Date, Consolidated Financial Statements,
prepared in accordance with Schedule C (the "Commencement Date Financial
---------------------------
Statements"). In connection with the Commencement Date Financial Statements,
- -----------
the Parties agree that in respect of revenues and costs of the AUCS Entities
represented by full and final settlements with customers and service providers
(rather than normal invoicing procedures) prior to the Commencement Date, such
settlements shall reflect fairly the relative proportion of the volume of the
business with such service provider or customers in the period prior to the
Commencement Date and that the settlement process shall be prepared and executed
with active involvement of Unisource. If within 30 days following the delivery
of the Commencement Date Financial Statements neither ISC nor Unisource has
given notice of its objection to the Commencement Date Financial Statements
(such notice must contain a statement of the basis of the objection) to the
other, then the Commencement Date Financial Statements shall be deemed to be
agreed between the Parties. If either ISC or Unisource gives such notice of
objection, Unisource and ISC will negotiate to resolve the issues in dispute for
14 days (or such longer period as they shall mutually agree) and, if not so
resolved, then the issues in dispute will be submitted to such independent "Big
5" accountants as ISC and Unisource agree and, in default of agreement such
independent "Big 5" firm of accountants as approved by the President for the
time being of the Institute of Chartered Accountants of England and Wales upon
the application of ISC or Unisource (the "Accountants"), for resolution and
-----------
the Accountants shall be instructed to prepare independently audited
Commencement Date Financial Statements. If issues in dispute are submitted to
the Accountants for resolution, (i) each Party to this Agreement will furnish to
the Accountants such workpapers and other documents and information relating to
the AUCS Entities and the disputed issues as the Accountants may request and are
available to that Party or its subsidiaries (or its independent public
accountants), and Unisource and ISC will be afforded the opportunity to present
to the Accountants any material relating to the determination and to discuss the
determination with the Accountants; (ii) the determination by the Accountants,
as set forth in a notice delivered to Unisource and ISC by the Accountants and
the audited Commencement Date Financial Statements prepared by the Accountants,
will be binding and conclusive on the Parties;
5
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and (iii) AUCS will bear the fees of the Accountants for such determination and
the preparation of the audited Commencement Date Financial Statements.
(g) The Commencement Date Financial Statements shall be used to determine the
AUCS Entities' Adjusted EBITDA Losses during the Initial Term.
Section 4.2 Capital Expenditures
--------------------
(a) During the Term, it is anticipated that certain capital expenditures
("Capital Expenditure") shall be required to be made by the AUCS Entities
---------------------
for, amongst other things, maintenance and upgrade of the data transmission
platforms of the AUCS Entities.
(b) Unisource agrees, in addition to the Funding Requirements, to provide such
funding to AUCS , as and when requested by AUCS as directed by Infonet, as will
permit Capital Expenditure by the AUCS Entities of up to Euro 2,844,000 (two
million eight hundred and forty four thousand Euro) over the Initial Term plus
----
any additional Capital Expenditure as is approved by the Supervisory Board, no
later than 30 days after Unisource has received a written request therefor, and
in the case of additional Capital Expenditure no later than 30 days after any
additional Capital Expenditure has been approved by the Supervisory Board.
(c) Unisource shall have no obligation to fund any Capital Expenditure on
Infonet native platforms.
ARTICLE V.
INVOICES AND PAYMENTS
Section 5.1 Management Fee. For each calendar quarter of the
---------------
Initial Term, AUCS will pay to ISC in arrears, a fee in Euro equal to 1.5 per
cent of the total consolidated revenues of the AUCS Entities for such quarter as
set forth in the Management Accounts as a management fee (the "Management Fee")
--------------
up to an aggregate maximum during the Initial Term of Euro 17,065,000 (seventeen
million and sixty five thousand Euro) (plus any applicable VAT and any non
recoverable Dutch withholding taxes or any replacement therefor). AUCS shall pay
the Management Fee to ISC no later than the 30th calendar day of the month
following the last day of the calendar quarter for which the Management Fee is
due. AUCS shall pay the Management Fee by wire transfer of immediately available
funds to an account designated by ISC in writing.
Section 5.2 Incentive Payments.
-------------------
(a) If the cumulative sum of the AUCS Entities' Adjusted EBITDA Losses over the
Initial Term is below Euro 295,317,000 (two hundred and ninety five million
three hundred and seventeen thousand Euro) in the aggregate (the "Incentive
---------
Target"), ISC will receive as an incentive payment 100% of such difference
- ------
below Euro 295,317,000 (two hundred and ninety five million three hundred and
seventeen thousand Euro) from Unisource, such payment to be made by Unisource to
ISC by wire transfer of immediately available funds in Euro to an account
designated by ISC in writing within 30 days of the agreement, deemed agreement
or determination by the Accountant of the Closing Date Financial Statements for
the Initial Term in accordance with Section 5.2(c).
6
<PAGE>
(b) If the cumulative sum of the AUCS Entities' Adjusted EBITDA Losses over the
Initial Term exceeds the Incentive Target, then ISC shall rebate to AUCS (or as
otherwise directed by the Supervisory Board) such part of the Management Fees
paid or payable during the Initial Term as are equal to 25% of the aggregate of
the AUCS Entities' Adjusted EBITDA Losses, during the Initial Term which are in
excess of the Incentive Target, provided that such rebate shall never exceed the
Management Fee received or to be received by ISC.
(c) Within 90 days following the end of the Initial Term, AUCS shall prepare
and deliver to ISC and Unisource Consolidated Financial Statements for the
Initial Term, and as of the Termination Date accompanied by a statement
setting forth the aggregate AUCS Entities' Adjusted EBITDA Losses, for the
Initial Term ("Closing Date Financial Statements") such Consolidated
---------------------------------
Financial Statements shall be subject to the same review, audit and dispute
mechanism resolution procedures set forth in Section 4.1(f) and upon agreement,
deemed agreement or determination by the Accountant shall be conclusive evidence
of (i) the consolidated revenues of the AUCS Entities and (ii) the AUCS
Entities' Adjusted EBITDA Losses, in each case during the Initial Term for the
purposes of calculating the amounts payable pursuant to Sections 5.1 and 5.2.
(d) Unisource intends to propose to ISC a mechanism whereby ISC will be
incentivized to minimize the Restructuring Costs (if any).
Section 5.3 Letters of Credit.
------------------
(a) The Indirect AUCS Stockholders shall establish with a major reputable bank
in the Netherlands reasonably acceptable to ISC letters of credit (unless as
otherwise agreed between the Indirect AUCS Stockholders and ISC that some other
form of facility be provided offering ISC similar comfort) in favor of AUCS for
the duration of this Agreement in a form acceptable to ISC (the "Letters of
----------
Credit"). Each quarter, the Indirect AUCS Stockholders shall adjust the Letters
- -------
of Credit so that the amount of funds available under such Letters of Credit is
at least equal, in the aggregate, to Euro 42,662,000 (forty two million six
hundred and sixty two thousand Euro) during the first year of the Initial Term
and an equal amount in the second and third years of the Initial Term unless, in
respect of the second and third years, the Indirect AUCS Stockholders and ISC
agree to lower such amount or waive the obligation of the Indirect AUCS
Stockholders under this Section 5.3(a) in respect of such period as the Indirect
AUCS Stockholders and ISC may in their discretion agree.
(b) AUCS may draw down funds from the Letters of Credit as required to satisfy
any Funding Requirements or Capital Expenditure which, in each case, has not
been paid by Unisource in a timely manner in accordance with Sections 4.1(d) and
4.2(b) as the case may be.
Section 5.4 Payment of Funding Requirements. The Funding
--------------------------------
Requirements shall be paid to AUCS in the form of loans made available on arm's
length terms by Unisource to AUCS for each quarter to cover the envisaged
Funding Requirements for that quarter. All quarterly loans (including accrued
interest) shall terminate at the end of the calendar year. New loans will be
made immediately following such terminations for an aggregate amount equivalent
to the aggregate amount of the loans so terminated, except to the extent that
any such loans are converted into equity in accordance with the following
sentence. Any outstanding loans made
7
<PAGE>
under this Section 5.4 shall, at the end of a calendar year, be converted into
equity and contributed to the capital of AUCS as required such that the
consolidated interest bearing debt of the AUCS Entities is equal to the equity
in the Consolidated Financial Statements or any higher proportion of equity as
is necessary to ensure that (i) the AUCS Entities are solvent and continue
trading under all relevant laws and rules and (ii) the statutory auditors of the
AUCS Entities are able to deliver an unqualified audit opinion under Dutch GAAP
(or other applicable national GAAP).
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations of the AUCS Entities, Unisource Entities
--------------------------------------------------------
and the Indirect AUCS Stockholders. Each of the AUCS Entities party to this
- -----------------------------------
Agreement, the Unisource Entities and the Indirect AUCS Stockholders severally
represents and warrants to ISC as at the Commencement Date that:
(a) In the case of an Indirect AUCS Stockholder, a Unisource Entity and AUCS
N.V., it is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is in good
standing in each jurisdiction where the failure to be in good standing would
have a material adverse effect on its business or ability to perform its
obligations under this Agreement. In the case of AUCS, it is a general
partnership duly formed, validly existing and in good standing under the laws of
The Netherlands, and is in good standing in each jurisdiction where failure to
be in good standing would have a material adverse effect on its business or
ability to perform its obligations under this Agreement;
(b) In the case of an Indirect AUCS Stockholder, a Unisource Entity and AUCS
N.V., it has all necessary corporate power and authority, and in the case of
AUCS, AUCS has all the necessary partnership power and authority, to own, lease
and operate its assets and to carry on its business;
(c) In the case of an Indirect AUCS Stockholder, a Unisource Entity and AUCS
N.V., it has all necessary corporate power and authority to enter into this
Agreement and to perform its obligations hereunder, and the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on its part.
In the case of AUCS, it has all necessary partnership power and authority to
enter into this Agreement and to perform its obligations hereunder, and the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on its part;
(d) This Agreement constitutes the legal, valid and binding obligation of it,
enforceable against it by ISC in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and except to the extent that
enforceability is subject to the application of equitable principles (including
good faith) or remedies;
(e) It is not a party to, and is not bound or affected by or subject to, any
instrument, agreement, charter or by-law provision, law, rule, regulation,
judgment or order which would be
8
<PAGE>
contravened or breached as a result of the execution of this Agreement, or
consummation of the transactions contemplated hereby, where such contravention
or breach would have a material adverse effect on the business, operations or
financial condition of the AUCS Entities or the transactions contemplated by
this Agreement;
(f) Except for any Form A/B filing by certain of the Parties to the European
Commission in relation to the transactions contemplated between the Parties, no
consent, approval or authorization of, or declaration or filing with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by it that has not been made or obtained in connection
with the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby except where such failure
to make or obtain such consent, approval, authorization, declaration or filing
would not have a material adverse effect on the business, operations or
financial condition of the AUCS Entities or the transactions contemplated by
this Agreement;
(g) It has not employed or made any agreement with any broker, finder or
similar agent or any person or firm which will, as a result of the transactions
contemplated hereby, obligate Infonet or any AUCS Entity to pay any finder's
fee, brokerage fees, commission or similar payment in connection with the
transactions contemplated hereby.
(h) No order has been made or petition presented, meeting convened or
resolution passed for the winding up of any of the Unisource Entities, any AUCS
Entities or any Indirect AUCS Stockholder nor has any receiver been appointed or
any distress, execution, or other process been levied in respect of the assets
or any of them.
(i) No composition in satisfaction of the debts of any of the Unisource
Entities, any AUCS Entities or any of the Subsidiaries or scheme of arrangement
of its affairs or compromise or arrangement between it and either or both of its
creditors or members or any class of either or both of its creditors or members
has been proposed, sanctioned or approved.
(j) The Unisource Entities and the Indirect AUCS Stockholders are not aware of
any fact, matter or circumstance which may have a material adverse effect on the
business, assets or financial condition of the AUCS Entities considered as a
whole which has not been disclosed in writing to ISC during its investigation of
the AUCS Entities or otherwise in writing.
Section 6.2 Representations of ISC. ISC represents and warrants to
-----------------------
AUCS that:
(a) It is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware;
(b) It has all necessary corporate power and authority to own, lease and
operate its assets and to carry on its business as presently conducted and as it
will be conducted pursuant to this Agreement;
(c) It has all necessary corporate power and authority to enter into this
Agreement and to perform its obligations hereunder, and the execution and
delivery of this Agreement and the
9
<PAGE>
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on its part;
(d) This Agreement constitutes the legal, valid and binding obligation of ISC,
enforceable against it in accordance with its terms;
(e) It is not a party to, and is not bound or affected by or subject to, any
instrument, agreement, charter or by-law provision, law, rule, regulation,
judgment or order which would be contravened or breached as a result of the
execution of this Agreement or consummation of the transactions contemplated
hereby;
(f) Except for any Form A/B filing by certain of the Parties to the European
Commission in relation to the transactions contemplated between the Parties, no
consent, approval or authorization of, or declaration or filing with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by it that has not been made or obtained in connection
with the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby;
(g) There are no (i) outstanding orders, writs, injunctions or decrees of any
court, governmental agency or arbitration tribunal against it or (ii) any
actions, suits or legal, administrative or arbitration proceedings or
investigations pending, which if determined adversely to it, could reasonably be
expected to have a material adverse effect on it; and
(h) It has not employed or made any agreement with any broker, finder or
similar agent or any person or firm which will, as a result of the transactions
contemplated hereby, obligate any party hereto, other than ISC, to pay any
finder's fee, brokerage fees, commission or similar payment in connection with
the transactions contemplated hereby.
(i) It has the ability to provide management services in accordance with the
terms of this Agreement.
ARTICLE VII.
TERMINATION
Section 7.1 Termination
-----------
(a) Upon written notice, either of (i) Unisource or (ii) ISC, may immediately
terminate this Agreement, without charge to the terminating Party, in the event
of a material breach of this Agreement by any Party other than the Party seeking
termination (including material failure by ISC to act in accordance with its
obligations specifically set forth in Section 3.1), failure by any Party other
than the Party seeking termination to pay any amount due and payable under this
Agreement when due, subject to the Party seeking termination providing the Party
in default with sufficient, prior written notice of such breach or failure to
pay and allowing the Party in default 60 days to cure the same.
(b) Either of (i) Unisource or (ii) ISC, may terminate this Agreement without
charge to the terminating Party, in the event that any Party (other than the
terminating Party) voluntarily files a bankruptcy petition, or has an
involuntary bankruptcy petition filed against it and such petition is
10
<PAGE>
not dismissed within 30 days, or in the event any Party (other than the
terminating Party) is insolvent and unable to pay its debts as they mature, or
if such Party shall make an assignment for the benefit of creditors or have a
receiver appointed for its property. In the case of termination pursuant to this
Section 7.1(b), termination of this Agreement shall be effective immediately
upon delivery of notice of such termination to Unisource or ISC as applicable.
(c) Upon 180 days prior written notice, either of (i) Unisource or (ii) ISC,
may immediately terminate this Agreement without charge to the terminating
Party.
(d) Unisource or ISC may terminate this Agreement in accordance with Section
4.1(c) on 30 days notice.
(e) The rights of termination provided herein shall be in addition to any other
rights or remedies permitted by operation of law or in equity or under any
other provision of this Agreement.
(f) Notwithstanding termination of this Agreement, Sections 1.1, 4.1(c), 5.2,
8.1, 9.1, 9.2, 9.3, 9.4, 10.2, 10.4, 10.8, Article XI, 12.2, 12.4 and this
Section 7.1(f) shall remain in full force and effect.
Section 7.2 Orderly Handover.
----------------
(a) Following the termination of this Agreement, ISC shall procure that those
persons at Infonet who have been principally involved in providing the
management services to the AUCS Entities set forth in Section 3.1 shall make
themselves available for consultation during normal business hours by Unisource,
at Unisource's expense, for up to 60 days following termination of this
Agreement about the matters within their management control during the Term.
(b) Following termination of this Agreement, ISC shall provide to the AUCS
Entities, for such transitional period as shall be agreed between ISC and AUCS
on arm's length commercial terms, and to the extent that ISC is reasonably able,
such operational services as were provided by Infonet to, or on behalf of, the
AUCS Entities immediately prior to termination as the AUCS Entities may require
in order to continue to provide the services which the AUCS Entities provided
immediately prior to the date of termination of this Agreement. Any such
operational services provided will be provided by ISC shall be in accordance
with an outsourcing agreement to be agreed between the Parties as and when
required.
ARTICLE VIII.
COVENANTS
Section 8.1 Confidential Information. While this Agreement is in
-------------------------
effect and for a period of 36 calendar months thereafter the Parties will hold
in confidence the financial terms and provisions of this Agreement and any
financial and other confidential information relating to the AUCS Entities which
ISC obtains during its management of the business, affairs, operations and
actions of the AUCS Entities (collectively the "Confidential Information"). The
--------------------------
Parties hereby acknowledge and agree that the Confidential Information is
confidential and proprietary and is not to be disclosed to third persons without
the prior written consent of both AUCS and ISC. The Parties shall not disclose
such Confidential Information to any third party
11
<PAGE>
(other than to officers, directors, employees and agents of AUCS and ISC, each
of whom is bound by this Section 8.1) except:
(a) to the extent necessary to comply with applicable law or the valid order of
a governmental agency or court of competent jurisdiction; provided, however,
-------- -------
that the Party making such disclosure shall seek confidential treatment of said
information from such third parties;
(b) as part of its normal reporting or review procedure to regulatory agencies,
its parent company, its auditors and its attorneys; provided that the Party
--------
making such disclosure to any such regulatory agency shall give the other
Party advance written notice of any disclosure, shall seek confidential
treatment of such information and shall use commercially reasonable efforts
to cooperate with the other Party in seeking confidential treatment of such
information; provided that any other third party (not being a regulatory
--------
agency) to whom disclosure is made agrees to the confidential treatment of
such information;
(c) in order to enforce its rights and perform its obligations pursuant to this
Agreement, including obtaining any necessary government authorizations with
respect to this Agreement;
(d) to the extent required by any public offering of securities of ISC in any
jurisdiction;
(e) pursuant to the disclosure requirements of the U.S. Securities Act of 1933
and the U.S. Securities Exchange Act of 1934 and any similar legislation in any
jurisdiction, in each case as amended and the rules and regulations promulgated
thereunder; and
(f) to the extent necessary to obtain appropriate insurance, to its insurance
agent; provided that such agent agrees to the confidential treatment of
--------
such information.
In the event that any Party is requested (the "Disclosing Party")
----------------
pursuant to, or becomes compelled by, applicable law, regulation or legal
process to disclose any Confidential Information, the Disclosing Party will
provide any non-Disclosing Party with prompt written notice so that any non-
Disclosing Party may seek a protective order or other appropriate remedy. In
the event that no such protective order or other remedy is obtained, the
Disclosing Party will furnish only that portion of the Confidential Information
which the Disclosing Party is advised by counsel is legally required and
cooperate, at the Disclosing Party's sole cost and expense, with the other
party's efforts to obtain reliable assurance that confidential treatment will be
accorded the Confidential Information.
Section 8.2 No Litigation. Both Unisource and ISC agree to notify
--------------
each other upon the occurrence of any judgment, threatened or pending litigation
or proceeding involving or affecting the transactions provided for in, or
contemplated by, this Agreement (collectively, "Proceedings"). Each party
-----------
confirms to the other that it is not presently aware of any such Proceedings.
Section 8.3 General Cooperation; Further Assurances. Each Party,
----------------------------------------
at its expense, shall promptly and duly execute and deliver to the other Parties
such further documents and assurances and take such further action as the other
Parties may from time to time reasonably request in writing in order to carry
out more effectively the intent and purpose of this Agreement
12
<PAGE>
(including, without limitation, any applications, documents and reports required
by any governmental authority).
Section 8.4 Regulation. ISC reserves the right to take all actions,
----------
including termination of Contract Services, which is reasonably necessary to
enable Infonet, any Affiliate or any AUCS Entity to comply with applicable
national or international communications regulations, laws or tariffs.
ARTICLE IX.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 9.1 Liability
---------
(a) Liability. THE PARTIES AGREE THAT NO PARTY WILL BE HELD TO ANY WARRANTIES
----------
DIRECTLY OR INDIRECTLY RELATED TO SERVICES, SYSTEMS, PRODUCTS AND CONTRACTS,
WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTY OF
SATISFACTORY QUALITY AND FITNESS FOR A PARTICULAR PURPOSE OTHER THAN THOSE
EXPRESSLY SET FORTH IN THIS AGREEMENT.
(b) Consequential Loss. IN NO EVENT SHALL ANY PARTY BE LIABLE FOR ANY
------------------
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT
LIMITED TO, LOSS OF USE, REVENUE, OR PROFIT, EVEN WHERE THE OTHER PARTY HAD BEEN
ADVISED, KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES. No Party
nor the owner of any computer programs licensed to it shall be responsible for
any application of the results obtained from the use of any computer programs or
equipment or for unintended or unforeseen results obtained by any customer in
the use of such programs.
Section 9.2 Indemnity to Infonet.
---------------------
(a) Subject to Section 9.1 above, each of the AUCS Entities jointly and
severally, the Unisource Entities severally and each of the Indirect AUCS
Stockholders severally indemnifies and holds harmless Infonet and their
respective stockholders, members, officers, directors, employees and agents
(individually, an "ISC Indemnified Party" and, collectively, the "ISC
--------------------- ---
Indemnified Parties") from and against any and all Losses incurred by such
- -------------------
ISC Indemnified Party or ISC Indemnified Parties by reason of, or resulting
from, (i) the breach of any representation, warranty or covenant made by any of
the AUCS Entities, the Unisource Entities or any of the Indirect AUCS
Stockholders in this Agreement, (ii) ISC's management of the AUCS Entities or
right to manage the AUCS Entities during the Term, (iii) any taxes of any AUCS
Entity, (iv) any third party claim against any ISC Indemnified Party relating to
breaches by the AUCS Entities, the Unisource Entities and/or the Indirect AUCS
Stockholders of any of their representations or warranties or any of their
obligations hereunder or any obligations of any of the foregoing to such third
party; (v) any liabilities of any AUCS Entity to any third party, whether
incurred before or after the Review Point and (vi) any liabilities of any ISC
Indemnified Party incurred in connection with the liquidation of any AUCS
Entity; provided that none of the AUCS Entities, the Unisource Entities or the
--------
Indirect AUCS Stockholders will be liable to any
13
<PAGE>
ISC Indemnified Party pursuant to this Section 9.2(a) (i) unless the aggregate
amount otherwise due to the ISC Indemnified Parties exceeds on a cumulative
basis Euro 100,000 (one hundred thousand Euro) and (ii) if, but only to the
extent that, such Losses are incurred as a direct result of any willful
misconduct or negligence on the part of ISC or the breach by ISC of any of its
responsibilities, warranties or covenants expressly set forth in this Agreement.
(b) Each of the Indirect AUCS Stockholders severally indemnifies and holds
harmless the ISC Indemnified Parties for any liabilities arising in connection
with the employment agreements and employment relationships between the AUCS
Entities and their employees, former employees, and/or other persons in any
jurisdiction, including but not limited to any liability under the EC Acquired
Rights Directive (Business Transfer Directive 77(187)) or any domestic
derivative including articles 7:662-666 of the Dutch Civil Code, and for any
fiscal, pension, social security or other liabilities (including but not limited
to liability on account of "inlenersaansprakelijkheid") relating to the
employees, former employees, workers and/or other persons involved with the AUCS
Entities.
Section 9.3 Indemnity to Unisource. Subject to Section 9.1 above,
-----------------------
ISC indemnifies and holds harmless the Unisource Entities, the AUCS Entities and
the Indirect AUCS Stockholders, and their respective officers, directors,
employees and agents (individually, an "AUCS Indemnified Party" and,
----------------------
collectively, the "AUCS Indemnified Parties" and together with the ISC
------------------------
Indemnified Parties, the "Indemnified Parties") from and against any and all
-------------------
Losses incurred by such AUCS Indemnified Party or AUCS Indemnified Parties by
reason of, or resulting from, the breach of any representation, warranty or
covenant made by ISC in this Agreement, provided that ISC will not be liable to
--------
any AUCS Indemnified Party pursuant to this Section 9.3 (i) unless the aggregate
amount otherwise due the AUCS Indemnified Parties exceeds on a cumulative basis
Euro 100,000 (one hundred thousand Euro) and (ii) if, but only to the extent
that such Losses are incurred as a direct result of any willful misconduct or
negligence on the part of any AUCS Entity, any Unisource Entity or any Indirect
AUCS Stockholder or the breach by any of the foregoing of any of their
respective representations, warranties or covenants expressly set forth in this
Agreement.
Section 9.4 Indemnification Procedures. In the case of any claim
---------------------------
asserted by a third party against an Indemnified Party, notice shall be given
by the Indemnified Party to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
- -------------------
of any claim as to which indemnity may be sought, and the Indemnified Party
shall permit the Indemnifying Party (at the expense of such Indemnifying Party)
to assume the defence of any claim or any litigation resulting therefrom;
provided that (i) the counsel for the Indemnifying Party who shall conduct the
- --------
defence of such claim or litigation shall be reasonably satisfactory to the
Indemnified Party, (ii) the Indemnified Party may participate in such defence at
such Indemnified Party's expense, and (iii) the omission by any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its indemnification obligation under this Agreement except to the extent that
such omission results in a failure of actual notice to the Indemnifying Party
and such Indemnifying Party is materially damaged as a result of such failure to
give notice. Except with the prior written consent of the Indemnified Party, no
Indemnifying Party, in the defence of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement that provides for
injunctive or other non-monetary relief affecting the Indemnified Party or that
does not include
14
<PAGE>
as an unconditional term thereof the giving by each claimant or plaintiff to
such Indemnified Party of a release from all liability with respect to such
claim or litigation. In the event that the Indemnified Party shall in good faith
determine that the conduct of the defence of any claim subject to
indemnification hereunder or any proposed settlement of any such claim by the
Indemnifying Party might be expected to affect adversely the Indemnified Party's
tax liability or the ability of Indemnified Party to conduct its business, or
that the Indemnified Party may have available to it one or more defences or
counterclaims that are inconsistent with one or more of those that may be
available to the Indemnifying Party in respect of such claim or any litigation
relating thereto, the Indemnified Party shall have the right at all times to
take over and assume control over the defence, settlement, negotiations or
litigation relating to any such claim at the sole cost of the Indemnifying
Party. In the event that the Indemnifying Party does not accept the defence of
any matter as above provided, the Indemnified Party shall have the full right to
defend against any such claim or demand and shall be entitled to settle or agree
to pay in full such claim or demand. In any event, the Indemnifying Party and
the Indemnified Party shall cooperate in the defence of any claim or litigation
subject to this Section 9.4 and the records of each shall be available to the
other with respect to such defence.
ARTICLE X.
MISCELLANEOUS
Section 10.1 Assignment.
-----------
(a) Except as provided in Section 10.1(b) below, none of the Parties may
assign, sublicense, transfer or otherwise dispose of any rights or sub-contract
or transfer or otherwise dispose of any obligations under this Agreement, other
than in connection with the sale or transfer of all or substantially all the
assets of the assigning Party, except with the prior written approval of
Unisource and ISC, which approval shall not be unreasonably withheld or delayed.
(b) The Unisource Entities and the Indirect AUCS Stockholders may do any of the
following, provided that any such actions do not and will not affect the rights
of ISC under this or any other agreement:
(i) simplify the corporate governance of AUCS and/or AUCS N.V.;
(ii) transfer the interests of the Unisource Entities in (x) AUCS
and AUCS N.V., (y) AUCS and the assets of AUCS N.V., or (z) the assets of AUCS
and AUCS N.V., either directly or indirectly to the Indirect AUCS Stockholders.
(c) The Parties other than ISC shall, from time to time on being requested to
do so by ISC, now or at any time in the future, do or procure the doing of all
such acts and/or execute or procure the execution of all such documents in a
form satisfactory to ISC as ISC may consider necessary for giving full effect to
this Agreement and securing to ISC the full benefit of the rights, powers and
remedies conferred upon ISC in this Agreement at the cost and expense of the
Parties other than ISC.
15
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Section 10.2 Governing Law and Arbitration.
------------------------------
(a) This Agreement shall be governed by and shall be construed in accordance
with English law, without reference to the choice of law provisions thereof.
Accordingly any dispute arising out of or having any connection with this
Agreement shall be decided exclusively in accordance with English law; provided
--------
that all such disputes shall be referred, in the first instance, to the
respective chief executive officers of the Parties for resolution.
(b) If a dispute, after having first been discussed by the chief executive
officers of each of the relevant Parties (provided that if the dispute is
--------
between ISC and an AUCS Entity, the matter shall be discussed between the
chief executive officers of ISC and Unisource), is not resolved by the said
chief executive officers within a maximum of 14 days, the dispute shall be
referred to and finally resolved by arbitration under the London Court of
International Arbitration ("LCIA") Arbitration Rules, which Arbitration
----
Rules are deemed to be incorporated by reference to this Section 10.2(b).
(c) Any arbitration commenced pursuant to Section 10.2(b) shall be administered
by the LCIA and the standard LCIA administrative procedures and schedule of
costs shall apply. In any such arbitration, the appointing authority shall
be the LCIA. The number of arbitrators shall be three and such arbitrators
to include persons experienced in European telecommunications (the
"Arbitrators"). The place of arbitration shall be London and the language
-----------
used in the arbitral proceedings shall be English. The governing law of
the Agreement shall be the substantive law of England.
(d) The fees of the Arbitrators, the costs of the LCIA and the cost of the
other Parties relating to the arbitration (including, but not limited to, the
reasonable costs of professional advisers) shall be borne by those Parties
against whom the Arbitrators make any award in the proportion of any such award.
(e) The Arbitrators shall have authority to award interest on any amount
awarded by the Arbitrators up to the date of that award at the rate equal to 1
(one) percentage point above the three month EURIBOR rate for Euros from time to
time. If any amount payable as a result of a decision of the Arbitrators is not
paid within 14 days of publication of that decision, interest will thereafter
accrue on the amount at the rate equal to 2 (two) percentage points above the
three month EURIBOR rate for Euros from time to time.
(f) The referral of a dispute to arbitration under Section 10.2(b) shall not
preclude any Party from obtaining interim relief on an urgent basis from a
court of competent jurisdiction pending any decision of the Arbitrators.
(g) Any decision of the Arbitrators shall be final, conclusive and binding on
the Parties, and the Parties agree to exclude, so far as lawfully possible
to exclude, any right of application or appeal to the English (or other)
courts in connection with any question of law arising in the arbitration or
in connection with any award or decision made by the Arbitrators, except as
may be necessary to enforce such award or decision.
(h) The provisions of this Section are severable from the rest of this
Agreement and shall remain in effect despite the termination of or invalidity
for any reason of this Agreement.
16
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Section 10.3 No Partnership. ISC shall perform its obligations
---------------
hereunder as an independent contractor of the respective AUCS Entities. Nothing
in this Agreement shall be deemed to create any joint venture, partnership or
principal and agent relationship between any of the AUCS Entities, the Unisource
Entities, and the Indirect AUCS Stockholders on the one hand and Infonet on the
other hand and no Party shall hold itself out in its advertising or otherwise in
any manner which would indicate or imply any such relationship with another.
Section 10.4 No Fiduciary Duties. The AUCS Entities, the Unisource
--------------------
Entities, the Indirect AUCS Stockholders expressly agree that neither this
Agreement nor any actions taken by ISC in its performance of its obligations
hereunder, including but not limited to actions taken in connection with the
management services provided by ISC pursuant to Article III hereof or otherwise,
cause or will cause Infonet to have any fiduciary, trustee or similar
obligations to the AUCS Entities, Unisource, UPES or the Indirect AUCS
Stockholders.
Section 10.5 Validity. If any provision of this Agreement is found
---------
or held to be invalid or unenforceable, the validity of all the other provisions
hereof shall not be affected thereby and the parties agree to meet and review
the matter and if any valid and enforceable means is reasonably available to
achieve the same object as the invalid or unenforceable provision, to adopt such
means by way of variation of this Agreement. However, if any invalid term is
capable of amendment to render it valid, the parties agree to negotiate an
amendment to remove the invalidity.
Section 10.6 Due Diligence. Prior to the date hereof, ISC has,
--------------
directly or through its representatives, reviewed the properties, books and
records of AUCS listed on the Data Room Index initialed by the Parties ISC and
Unisource comprising Exhibit 10.6 and their financial and legal condition to the
extent that it has deemed necessary or advisable to familiarize itself with the
properties and other matters related to the AUCS Entities; such review shall
not, however, affect the representations or warranties made by the AUCS
Entities, the Unisource Entities and the Indirect AUCS Stockholders herein, or
the remedies of ISC for the breach of those representations and warranties.
Section 10.7 Severability. In the event that any of the terms of
-------------
this Agreement are found to be invalid, unlawful or unenforceable, such terms
(provided that they are not fundamental to the agreement) shall be severable
--------
from the remaining terms, which shall continue to be valid and enforceable.
Section 10.8 Variation. No variation of or addition to this
----------
Agreement shall be of any force or effect unless reduced to writing, signed by
or on behalf of Unisource (on behalf of all the Unisource Entities and the
Indirect AUCS Stockholders), AUCS N.V. (on behalf of all the AUCS Entities) and
ISC and expressed to amend this Agreement.
Section 10.9 Entire Agreement. This Agreement (including the
-----------------
documents referred to in it) replaces all prior agreements and arrangements
between the Parties and constitutes the entire understanding between the parties
relating to the subject matter of this Agreement. Each Party acknowledges that
in agreeing to enter into this Agreement it has not relied on any
representations, warranties or promises (except those set out in this Agreement)
made by or on behalf of the other Parties before the signature of this
Agreement. Each Party
17
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waives all rights and remedies which, but for this Section, might otherwise be
available to it in respect of any such representation, warranty or promise,
provided that nothing in this Section shall limit or exclude any liability for
fraud.
Section 10.10 Waiver. A waiver by the Parties of a breach of any
-------
term or condition of this Agreement in any one instance shall be in writing and
shall not be deemed as a continuing waiver or a waiver of any other or
subsequent breach unless the written notice so provides.
Section 10.11 Notices.
-------
(a) The Parties choose the following addresses as the address at which they
will accept service of all documents and notices relating to this Agreement.
to ISC at:
2100 East Grand Ave
El Segundo CA 90245
USA
Fax: +1 310 322 6229
Attention: The General Counsel
to any Unisource Entity at:
c/o Unisource NV
"Transpolis"
Polarisavenue 97
2137 JH, Hoofddorp
The Netherlands
Fax: +31 23 568 6200
Attention: The General Counsel
to any AUCS Entity at:
Spicalaan 1-59
2132 JG Hoofddorp
The Netherlands
Fax: +31 23 569 7177
Attention: The General Counsel
to Telia at:
Marbackagatan 11
Stockholm
Sweden
18
<PAGE>
Fax: +46 89 46 470
Attention: Director of Legal Affairs
To KPN at:
Maanweg 174
2516 AB, The Hague
The Netherlands
Fax: + 31 70 322 3675
Attention: The General Counsel
To Swisscom at:
Lindenpark
Worblaufen
CH-3050
Berne, Switzerland
Fax: + 41 31 342 3447
Attention: Chief Legal Counsel
Any notice to be given by a Party to another Party in terms of this
Agreement shall be given by prepaid registered post, or by facsimile
or shall be delivered by hand; provided that:
--------
(i) any notice given by prepaid registered post for which a
signed receipt is issued shall be deemed to have been received by the addressee,
in the absence of proof to the contrary, ten days after the date of postage;
(ii) any notice delivered by hand during normal business hours
for which a signed receipt is issued shall be deemed to have been received by
the addressee, in the absence of proof to the contrary, at the time of delivery;
and
(iii) any notice given by facsimile shall be deemed to have been
received by the addressee, in the absence of proof to the contrary, immediately
upon the issuance by the transmitting facsimile machine, of a report confirming
correct transmission of all the pages of the document containing the notice or
upon receipt by the transmitting facsimile machine, at the end of the notice
being transmitted, of the automatic answer back of the receiving facsimile
machine.
Section 10.12 Counterparts. This Agreement may be executed in one
-------------
or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same instrument.
Section 10.13 General. Unless expressly provided otherwise, all
-------
representations, warranties, undertakings, covenants, agreements and obligations
made, given or entered into in
19
<PAGE>
this Agreement by the Indirect AUCS Stockholders and/or the Unisource Entities
are each made, given or entered into severally by each such entity.
Section 10.14 Filing. Each Party hereto shall use its reasonable
------
efforts to obtain all authorizations, consents, orders and approvals of, to give
all notices to and make all filings with, all governmental authorities and other
third parties that may be or become necessary (or as otherwise agreed by the
Parties) for its execution and delivery of, and performance of its obligations
pursuant to, this Agreement, and each Party will cooperate fully with the other
Parties in promptly seeking to obtain all such authorizations, consents, orders
and approvals, giving such notices, and making such filings (including any
filings to be submitted to the European Commission as a result of this
Agreement). Each Party will bear its own costs, expenses and disbursements in
relation to any and all such costs, expenses and disbursements incurred by it
under this Section 10.14.
ARTICLE XI.
GUARANTEE
Section 11.1 In consideration of ISC entering into this Agreement,
the Indirect AUCS Stockholders (the "Guarantors") hereby severally
----------
unconditionally guarantee to ISC and its successors, transferees and assigns and
to AUCS N.V. the due and punctual performance and observance by the AUCS
Entities and the Unisource Entities of all the AUCS Entities' and the Unisource
Entities' obligations and the punctual discharge by the AUCS Entities and the
Unisource Entities of all the AUCS Entities' and/or the Unisource Entities'
liabilities to Infonet or AUCS N.V. and/or any other Parties contained in or
arising under this Agreement or arising from any termination of this Agreement.
Section 11.2 If any AUCS Entity or Unisource Entity shall make
default in the payment when due of any amount payable to Infonet and/or any
other Party under this Agreement (including any AUCS Entity) or arising from the
termination thereof, the Guarantors shall forthwith on demand by Infonet
unconditionally pay to ISC in the manner prescribed in this Agreement an amount
equal to the amount payable by such AUCS Entity or Unisource Entity.
Section 11.3 As an independent and primary obligation, without
prejudice to Section 11.1, the Guarantors hereby unconditionally and irrevocably
agree to indemnify and keep indemnified ISC against all and any losses, costs,
claims, liabilities, damages, demands and expenses suffered or incurred by ISC
and/or any other Party arising from failure of any AUCS Entity or Unisource
Entity to comply with any of its material obligations or discharge any of its
liabilities under this Agreement or arising from the termination of this
Agreement or by reason of the AUCS Entities or the Unisource Entities not being
at any time, or ceasing to be, liable in respect of the obligations and
liabilities purported to be assumed by them in accordance with the express terms
of this Agreement.
Section 11.4 The guarantee and indemnity contained in this Article
XI shall be a continuing guarantee and indemnity and shall continue in full
force and effect until all liabilities or purported liabilities of the AUCS
Entities and the Unisource Entities arising under, and all monies owing or
payable or purported to be owing or payable by the AUCS Entities or the
Unisource Entities under this Agreement or arising from any termination of this
Agreement, have
20
<PAGE>
been paid, discharged or satisfied in full and notwithstanding any insolvency or
winding up of any AUCS Entity or Unisource Entity or any change in the status of
any AUCS Entity or any Unisource Entity.
Section 11.5 The Guarantors shall not be exonerated or discharged
nor shall their liability be affected by any forbearance, whether as to payment,
time, performance or otherwise howsoever, or by any other indulgence being given
to any AUCS Entity or any Unisource Entity or by any variation of the terms of
this Agreement or by any act, thing, omission or means whatever which, but for
this provision, might operate to exonerate or discharge the Guarantors from
their obligations under the guarantee and indemnity contained in this Article
XI.
ARTICLE XII.
GOVERNANCE AND REPORTING
Section 12.1 Supervisory Board. The Supervisory Board of AUCS N.V.
------------------
(the "Supervisory Board") will remain in existence and continue to function
-----------------
during the Term. The approval of the Supervisory Board must be obtained prior to
undertaking any of the actions listed in subparagraphs (a) to (m) below. For the
avoidance of doubt, the list below is a definitive list of all actions requiring
the approval of the Supervisory Board and the approval of the Supervisory Board
or Indirect AUCS Stockholders shall not be required in any other matters. All
governing documents of all AUCS Entities shall be modified accordingly and,
pending such modification, shall be construed in accordance with this Section
12.1 and Section 3.1(b):
(a) the issuance or acquisition of shares or stock and debt instruments issued
by an AUCS Entity or by a general or limited partnership in which an AUCS
Entity is a general partner;
(b) the issuance of depository receipts for shares in the capital stock of any
AUCS Entity;
(c) an application for listing or withdrawal of a listing at a stock exchange
of shares, debentures, bonds and depository receipts of any AUCS Entity;
(d) the commencement or termination of a major long-lasting joint venture or
other revenue-sharing arrangement of the AUCS Entities with another corporation
or partnership (other than Infonet), or participation as a general partner in a
general or limited partnership if this joint venture or other revenue-sharing
arrangement or termination is of major significance to an AUCS Entity.
(e) any acquisition by AUCS N.V. or a subsidiary of a material participation in
another corporation and any significant increase or decrease in any such
participation;
(f) any proposal to make a major amendment to the articles of the AUCS
Entities;
(g) any proposal to dissolve any of the AUCS Entities;
(h) the filing of a petition for bankruptcy of any AUCS Entity or for a
suspension of payments by any AUCS Entity;
21
<PAGE>
(i) any proposal to reduce the issued capital of any AUCS Entity;
(j) any proposal to submit the annually-required EU compliance report of AUCS
to the relevant authorities;
(k) any fundamental change in the nature of the business of the AUCS Entities
following the Commencement Date, other than any such changes which contemplated
by the AT&T Exit Obligations, this Agreement or other agreements to which
Infonet and or any AUCS Entity are parties;
(l) the recipient of any payment to be made by ISC in accordance with Section
5.2(b) of this Agreement; and
(m) Capital Expenditures as described in Section 4.2.
Section 12.2 Relationship Management Committee. Unisource and ISC
---------------------------------
shall constitute a committee to act as a forum to discuss issues arising out of
this Agreement and the implementation of its terms (the "Relationship Management
-----------------------
Committee"). For the avoidance of doubt, the Relationship Management Committee
- ---------
shall not be a decision-making body. The Relationship Management Committee
shall meet not less frequently than once every calendar quarter. The meetings
shall be held at Hoofddorp, The Netherlands or at such other place agreed by the
Relationship Management Committee. At each meeting, representatives of ISC
shall report on their general activities arising out of its obligations under
this Agreement and progress towards reducing the losses of the AUCS Entities.
The Relationship Management Committee shall comprise six persons, three of whom
shall be appointed by ISC and one of whom shall be appointed by each Indirect
AUCS Stockholder. The Chairman shall be one of the ISC appointees (selected by
ISC). Any member of the Relationship Management Committee may call meetings of
the Relationship Management Committee. The quorum required for any meeting of
the Relationship Management Committee shall be four persons present, comprising
not less than two ISC appointees and not less than two Indirect AUCS Stockholder
appointees. Each member of the Relationship Management Committee shall have one
vote on any matter voted on. Decisions shall be taken by simple majority vote.
The Chairman shall not have a second or casting vote. No cumulative voting
shall be permitted. Any member may appoint another member as his alternate to
attend and vote in his place. The Chairman shall keep (or appoint someone to
keep) minutes, tallies of votes and all other records of such meetings.
The Relationship Management Committee shall have non-exclusive
jurisdiction to be consulted with regard to the following matters:
(a) compliance with this Agreement (including without limitation, the
continuity and quality of service relations with AT&T and WorldPartners and
compliance with the AT&T Exit Agreements and the WorldPartners Membership
Agreement);
(b) progress towards targeted loss reductions (including Restructuring Costs);
(c) financial relations between Infonet and the AUCS Entities;
(d) monthly, quarterly and annual financial reporting requirements;
22
<PAGE>
(e) tax issues;
(f) liabilities dating from the period prior to the Management Agreement;
(g) services to be provided by the AUCS Entities after mid 2002;
(h) policy on potential termination of loss making services;
(i) branding policies;
(j) regulatory matters;
(k) the Review of Operations and any subsequent material changes to the Review
of Operations;
(l) proposals for the termination of the employment of a significant number of
employees of any AUCS Entity, at the same time or within a short time span;
(m) proposals for a substantial change in the employment conditions of a
significant number of employees of any AUCS Entity;
(n) all other matters which are subject to Supervisory Board approval as set
forth in Section 12.1;
(o) material commitments of the AUCS Entities continuing after June 2002; and
(p) material disputes between AUCS and service providers and with distributors.
Section 12.3 Accounts.
--------
(a) Within 10 working days (or otherwise in accordance with AUCS' historic
practice), following the end of each calendar month during the Term, ISC shall
cause AUCS to prepare and deliver to ISC and Unisource the Management Accounts
for such month and, for information purposes only, budget information, in such
manner and to the same extent as historically provided.
(b) Within 45 working days (or otherwise in accordance with AUCS' historic
practice), following the end of each calendar year, ISC shall cause AUCS to
prepare and deliver to ISC and Unisource Consolidated Financial Statements
audited for Unisource consolidation purposes (to the extent historically done by
AUCS) and a statement of the AUCS Entities' Adjusted EBITDA Losses for such
calendar year. In the event of any dispute between ISC and Unisource as to such
Consolidated Financial Statements or the statement of the AUCS Entities'
Adjusted EBITDA Losses, they shall be subject to the same review, and dispute
resolution procedures set forth in Section 4.1(f).
Section 12.4 Agreements with Infonet. During the Term, Infonet
-----------------------
shall cause the AUCS Entities to implement all agreements with Infonet in
accordance with their terms. Any new agreements entered into between Infonet and
any AUCS Entity during the Term shall be
23
<PAGE>
negotiated and entered into on an arms-length basis. Not more than once in any
calendar year, during the Term, Unisource may, at its own cost and expense,
appoint an independent external auditor to perform a review of Infonet's
compliance with this Section 12.4.
Section 12.5 Assistance with Liquidation. If the Review Point is
---------------------------
exceeded and Unisource determines to liquidate the AUCS Entities or if within 30
days following the termination of this Agreement for any reason Unisource
decides to liquidate the AUCS Entities on a solvent basis, Unisource shall have
the right to request and upon such request ISC shall provide management support
to the AUCS Entities in connection with such liquidation, subject to the Parties
agreeing reasonably acceptable terms, including appropriate payment and
indemnification terms. Infonet shall be not liable for and shall be fully
indemnified against, all costs and expenses of liquidation and all liabilities
of the AUCS Entities and the Unisource Entities and all liabilities of Infonet
incurred in connection therewith.
[signature pages follow]
24
<PAGE>
SIGNED this 30th day of September, 1999.
For and on behalf of ISC
INFONET SERVICES CORPORATION
By: __________________________
Title: __________________________
For and on behalf of AUCS
AUCS COMMUNICATIONS SERVICES v.o.f., represented by AUCS N.V.
By: __________________________
Title: __________________________
For and on behalf of AUCS N.V.
AUCS COMMUNICATIONS SERVICES N.V.
By: __________________________
Title: __________________________
For and on behalf of UPES
UNISOURCE PAN-EUROPEAN SERVICES B.V.
By: __________________________
Title: __________________________
For and on behalf of Unisource N.V.
UNISOURCE N.V.
By: __________________________
Title: __________________________
For and on behalf of Unisource Nominee
BRIAP B.V.
By: __________________________
Title: __________________________
25
<PAGE>
For and on behalf of Telia
TELIA AB
By: __________________________
Title: __________________________
For and on behalf of KPN
KPN TELECOM B.V.
By: __________________________
Title: __________________________
For and on behalf of Swisscom
SWISSCOM AG
By: __________________________
Title: __________________________
26
<PAGE>
Schedule 1.1
------------
"Affiliate" means (i) ISC, (ii) each current or future
corporation or entity owned or under the Control
of ISC, (iii) any of ISC's current or future
subsidiaries, (iv) any current or future
corporate entity (or subsidiary thereof) whose
primary business is to conduct data
communications or other related activities, and
such entity has entered into a legal relationship
with ISC or any of its Affiliates whereby such
corporation has the right to conduct business
under the trademark and tradename of "Infonet"
and which entities as of the Commencement Date
are listed in Schedule B, as it may be amended
from time to time by ISC upon notice to Unisource
and consent of Unisource which will not be
unreasonably withheld or delayed.
"Arbitration Rules" means the rules of the LCIA in accordance with
which any LCIA arbitration will be conducted, or
such amended rules as the LCIA may have adopted
hereafter to take effect before the commencement
of the arbitration
"AT&T" means AT&T Pan-European Services Inc. and, where
the context permits, AT&T Corporation and any of
its subsidiaries.
"AT&T Exit Agreements" means the Framework Agreement entered into
between the AUCS Entities, UPES, Unisource and
various AT&T entities, dated May 29, 1999
including all the various ancillary documents set
out as schedules to that Framework Agreement, to
the extent disclosed to ISC by Unisource (for the
avoidance of doubt, section 6 and related
schedules of the Framework Agreement and certain
other pricing and financial information were not
disclosed by Unisource to ISC), true and correct
copies of all of which have been delivered to ISC
which documents are listed at Schedule A.
"AT&T Exit Obligations" means liabilities, losses, costs and expenses
arising pursuant to the terms of the AT&T Exit
Agreements during the Initial Term only but
excluding, for the avoidance of doubt, any of
such liabilities, losses, costs and expenses
(whether actual or contingent) which have arisen
at any time prior to commencement of the Term,
including those reflected in the Commencement
Date Financial Statements, or, for the avoidance
of doubt, any matters relating to non-disclosed
items in the AT&T Exit Agreements.
i
<PAGE>
"AUCS Entities' EBITDA means the negative consolidated net earnings of
Losses" the AUCS Entities from ordinary activities
(including the AT&T Exit Obligations) before
interest income and expense, taxation,
depreciation and amortization for the relevant
period as presented in the Management Accounts or
the Consolidated Financial Statements but
excluding the Management Fee, any Restructuring
Costs and any Liquidation Costs.
"AUCS Entities' Adjusted means the AUCS Entities' EBITDA Losses plus the
EBITDA Losses" Management Fee. For the avoidance of doubt, any
liabilities of the AUCS Entities arising prior to
the Commencement Date of this Agreement including
those reflected in the Commencement Date
Financial Statements, shall not be included.
"Commencement Date" means October 1, 1999, 00:01am.
"Consolidated Financial means, with respect to any period and as of any
Statements" date, consolidated financial statements of the
AUCS Entities including an income statement, a
statement of source and use of funds and a
balance sheet all prepared in accordance with
Dutch GAAP.
"Control" means in relation to a body corporate, the power
of a person to secure that its affairs are
conducted in accordance with the wishes of that
person:
(a) by means of the holding of shares or the
possession of voting power in or in relation to
that or any other body corporate; or
(b) by virtue of any powers conferred by the
articles of association or any other document
regulating that or any other body corporate, and,
in relation to a partnership, means the right to
a share of more than one half the assets, or of
more than one half of the income, of the
partnership;
"Dutch GAAP" means Netherlands generally accepted accounting
principles as consistently applied by Unisource
in respect of AUCS.
"Encumbrance" means any interest or equity of any person other
than ISC (including any right to acquire, option
or right of pre-emption) or any mortgage, charge,
pledge, lien, assignment, hypothecation, security
interest, title, retention or any other security
agreement or arrangement.
ii
<PAGE>
"Liquidation Costs" means any and all liabilities (whether absolute
or contingent accrued or unaccrued or otherwise)
incurred by any AUCS Entity, or Infonet on its
behalf, during the Initial Term in connection
with the winding up or liquidation of any or all
AUCS Entities including, without limitation,
settlement of all outstanding liabilities,
resulting severance costs, the fees, costs,
disbursements and expenses of any liquidators in
any jurisdiction, court fees, taxes and all
legal, accounting, consulting and other directly
allocable fees, costs, disbursements and expenses
of any AUCS Entity or, Infonet on its behalf.
"Losses" means any and all liabilities, damages, costs and
expenses (including, without limitation, counsel
fees and expenses).
"Management Accounts" means monthly and quarterly consolidated income
statements and a balance sheet and a statement of
the source and use of funds of the AUCS Entities
prepared in accordance with Dutch GAAP, except
for the absence of year-end adjustments and
footnotes and accompanied, during the Initial
Term by AUCS' best estimate of the AUCS Entities'
Adjusted EBITDA Losses as of the date of such
Management Accounts.
iii
<PAGE>
"Restructuring Costs" means any and all costs incurred by AUCS, or by
Infonet on behalf of the AUCS Entities, in
connection with the restructuring of the AUCS
Entities, during the Initial Term for:
(i) the lawful termination of employment of
work or services by workers or employees;
(ii) early termination or related exit costs
related to any consultant contract;
(iii) early termination or related exit costs
related to maintenance contracts;
(iv) early termination or related exit costs
related to RTU/MSE, SA 1.x contracts
(RTU/MSE, SA 1.x as currently defined and
classified in the AUCS accounting records);
(v) early termination or related exit costs
related to facility related contracts;
(vi) early termination or related exit costs of
Direct Backbone related contracts (Direct
Backbone as currently defined and
classified in the AUCS accounting records).
Without limitation such costs include:
leased lines, capacity contracts, dial in
rotaries, and volume or growth commitments.
For the purposes of this definition all of (i)
through (vi) shall:
(a) without limitation include all reasonable
external legal, accounting, consulting
costs and reasonable out-of-pocket
expenses, incurred by any AUCS Entity, or
by Infonet on behalf of AUCS, in connection
with the restructuring of the AUCS
Entities;
(b) be applicable for any AUCS Entity;
(c) in cases where Infonet incurs costs on
behalf of AUCS, require pre-approval by the
AUCS daily management.
"Term" means the period from the Commencement Date
through the Termination Date.
"Termination Date means 11:59p.m., Greenwich Mean Time on the third
anniversary of the Commencement Date or, where
the term of the Agreement has been extended
beyond the Initial Term, 11:59p.m., Greenwich
Mean Time on the date upon which such extension
would otherwise expire.
"VAT" means Value Added Tax or any similar tax from
time to time replacing it or performing a similar
fiscal function.
iv
<PAGE>
"WorldPartners Membership means (i) the WorldPartners Association
Agreements" Membership Agreement between WorldPartners Company
and Unisource N.V. dated 30 September 1994, and
(ii) the WorldPartners Association membership
Agreement between AT&T Communications (UK) Ltd.
and WorldPartners Company dated 21 October 1994,
which membership was transferred to AUCS on or
about 25 October 1996 and whereby AUCS became the
WorldPartners Association Member for Europe, but
only to the extent that true and correct copies of
which have been delivered to ISC.
The capitalized terms listed below shall have the meanings given to them in the
sections of this Agreement cross referenced below:
"Accountants" shall have the meaning set forth in Section
4.1(f);
"Agreement" shall have the meaning set forth in the
Introduction;
"Arbitrators" shall have the meaning set forth in Section
10.2(c);
"AT&T Exit" shall have the meaning set forth in the Recitals;
"AUCS" shall have the meaning set forth in the
Introduction;
"AUCS Entity" and "AUCS Entities" shall have the meanings set
forth in the Introduction;
"AUCS Indemnified Party" or "AUCS Indemnified Parties" shall have the
meaning set forth in Section 9.3;
"AUCS N.V." shall have the meaning set forth in the
Introduction;
"Capital Expenditure" shall have the meaning set forth in Section
4.2(a);
"Closing Date Financial shall have the meaning set forth in Section 5.2;
Statements"
"Commencement Date shall have the meaning set forth in Section
Financial Statements" 4.1(f);
"Confidential Information" shall have the meaning set forth in Section 8.1;
"Contract Services" shall have the meaning set forth in the Recitals;
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"Disclosing Party" shall have the meaning set forth in Section 8.1;
"Funding Requirements" shall have the meaning set forth in Section 4.1;
"Guarantors" shall have the meaning set forth in Section 11.1;
"Incentive Target" shall have the meaning set forth in Section 5.2;
"Indemnifying Party" shall have the meaning set forth in Section 9.4;
"Indirect AUCS shall have the meaning set forth in the
Stockholders" Introduction;
"Infonet" shall have the meaning set forth in the
Introduction;
"Initial Term" shall have the meaning set forth in Section 2.1;
"ISC" shall have the meaning set forth in the
Introduction;
"ISC Indemnified Party" or shall have the meaning set forth in Section
"ISC Indemnified Parties" 9.2(a);
"KPN" shall have the meaning set forth in the
Introduction;
"LCIA" shall have the meaning set forth in Section
10.3(b);
"Letters of Credit" shall have the meaning set forth in Section
5.3(a);
"Management Fee" shall have the meaning set forth in Section 5.1;
"Party" and "Parties" shall have the meanings set forth in the
Introduction;
"Proceedings" shall have the meaning set forth in Section 8.2;
"Relationship Management shall have the meaning set forth in Section 12.2;
Committee"
"Review of Operations" shall have the meaning set forth in Section
3.1(f);
"Review Point" shall have the meaning set forth in Section
4.1(b);
"Supervisory Board" shall have the meaning set forth in Section 12.1;
"Swisscom" shall have the meaning set forth in the
Introduction;
"Telia" shall have the meaning set forth in the
Introduction;
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"Unisource" shall have the meaning set forth in the
Introduction;
"Unisource Entities" shall have the meaning set forth in the
Introduction;
"Unisource Nominee" shall have the meaning set forth in the
Introduction; and
"UPES" shall have the meaning set forth in the
Introduction.
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Schedule A: AT&T Exit Documents
-------------------------------
1. Framework Agreement between AT&T Corp., AT&T Pan-European Services Inc.,
Unisource N.V., Unisource Pan-European Service B.V., AUCS v.o.f., and AUCS
N.V. date 29 May 1999.
2. Easylink Business Transfer Agreement between AUCS v.o.f., AUCS (UK) Limited,
AT&T Easylink Services (UK) Limited and AT&T Global Communications Services
Inc. dated 22 May 1999 and attached to the Framework Agreement as Schedule
4.1.1.
3. Easylink Transition Services Agreement between AUCS v.o.f. and AT&T Easylink
Services (UK) Limited dated 22 May 1999 and attached to the Framework
Agreement as Schedule 4.1.2.
4. Continental Asset Transfer Agreement between AT&T Communications Services
Inc. and AUC v.o.f dated 29 May 1999 and attached to the Framework Agreement
as Schedule 4.2(a).
5. Italian X.25 Transfer Agreement between AT&T Communications Services Italia
SpA and AUCS (Italia) SpA dated 29 May 1999 and attached to the Framework
Agreement as Schedule 4.2(b).
6. Continental Access Circuits Transfer Agreement between AT&T GME and AUCS
v.o.f dated 29 May 1999 and attached to the Framework Agreement as Schedule
4.2(c).
7. UK Stratacom Asset Transfer Agreement between AT&T UK and AUCS v.o.f date 29
May 1999 and attached to the Framework Agreement as Schedule 4.2(d).
8. X.25 Outsourcing Service Agreement between AT&T GME and AUCS v.o.f dated 29
May 1999 and attached to the Frame work Agreement as Schedule 4.2(e).
9. Redditch CDC Lease Agreement between AT&T ISTEL and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(f).
10. Redditch GNMC Telehousing Agreement between AT&T UK and AUCS v.o.f dated 29
May 1999 and attached to the Framework Agreement as Schedule 4.2(g).
11. Summit House Telehousing Agreement between AT&T UK and AUCS v.o.f dated 29
May 1999 and attached to the Framework Agreement as Schedule 4.2(h).
12. Amsterdam Telehousing Agreement between AT&T Communications Services
Nederland B.V. and AUCS v.o.f dated 29 May 1999 and attached to the
Framework Agreement as Schedule 4.2(i).
13. Voice Service Provider Agreement between AT&T UK and AUCS v.o.f dated 29
May 1999 and attached to the Framework Agreement as Schedule 4.2(j).
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14. Data Service Provider Agreement between AT&T UK and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(k).
15. Interconnect Service Amendment Agreement between AT&T UK and AUCS v.o.f
dated 29 May 1999 and attached to the Framework Agreement as Schedule
4.2(l).
16. Wholesale Services Agreement between AT&T GME and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(m).
17. Worldsource Channel Amendment Agreement between AT&T UK, AT&T GME and AUCS
v.o.f dated 29 May 1999 and attached to the Framework Agreement as Schedule
4.2(n).
18. AT&T UK Distribution Agreement between AT&T UK and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(o).
ix
<PAGE>
Schedule B: Affiliates
----------------------
SEDCO
Infonet Australia
Datakom Austria GmbH
Infonet Belgium S.A
Datacom, S.A.
Interpac Telematica Ltda
Infonet Canada
Infonet Software Solutions
Infonet Chile S.A.
Infonet Services Corporation
Infonet/China Ltd
Enterprise Ltda
Tecapro
Aliatel a.s.
Telecom Denmark Erhverv A/S
Codetel
DATCOM LTD.
InTouch Communications Services
Oy Infonet Finland
Infonet France S.A.
France Telecom Interpac S.A.
Infonet Network Services Deutschland GmbH.
OTE SA
Infonet - Hong Kong
BankNet Ltd.
PT Telekominukasi Indonesia
Infonet Ireland Ltd
Infonet Israel, Ltd
Infonet Italia S.p.A
KDD Communications, Inc. (KCOM)
Korea Telecom, Data Division
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InfoGlobe Corporation
Infonet Luxembourg SA
Telecom Malaysia Berhard
Infonet/ACASIA program office
Infonet Mexico
Infonet Nederland BV
Infonet TELECOM AS
CCNet S.A.
Philippines Long Distance Telephone
PLDT Marketing Center
Infonet Portugal
Telefonica Large Distancla
INFOCOM
Singapore Telecom Int'l PTE, Ltd
EDS South Africa (Pty) Limited
Telefonica Servicios SA (TSA1)
Lanka Communication Services Pte. Ltd.
Infonet Svenska AB
Infonet (Switzerland) Ltd.
Hong Kong Telecom Ltd
SIAM Infor Tel Co., Ltd
ACCESS A.S
Infonet UK, Ltd
Infonet Software Solutions, Ltd
Infocom GmbH
Setradat C.A.
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<PAGE>
Schedule C
----------
The Commencement Date Financial Statements will be prepared by AUCS in
accordance with Dutch GAAP and shall take account of the following principles
(providing they are not in conflict with Dutch GAAP, except in the case of
principle 2 below):
1. that the going concern principle will apply;
2. that no provisions will be made for obligations arising out of the AT&T Exit
relating to events occurring after the Commencement Date; provided that the
AT&T Exit is in itself not considered as such an event (if this principle 2
is in conflict with Dutch GAAP, the intent of the Parties expressed in this
Schedule C will prevail with regard to determining the provisions to be
taken into account when calculating the Incentive Target, any incentive
payment payable pursuant to Section 5.2(a), any rebate of the Management Fee
pursuant to Section 5.2(b), and the Review Point);
3. that no accruals or provisions will be made for inter alia, rightsizing,
restructuring and reorganization of the business operations of AUCS not
incurred as of the Commencement Date;
4. Where normal invoicing and payment procedures are not followed by
distributors and service providers of the AUCS Entities, revenues from such
distributors and expenses resulting from payments to such service providers
shall be based on full and final settlements agreed with such distributors
or service providers.
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Exhibit 3.3(f)
--------------
DRAFT AUCS & INFONET IMPLEMENTATION PLAN
----------------------------------------
AND DRAFT AUCS SOCIAL PLAN OUTLINE
----------------------------------
xiii
<PAGE>
AUCS & INFONET IMPLEMENTATION PLAN
DRAFT
1. Summary
-------
Infonet plans to undertake a review of all AUCS operations over the first 90
days in order to formulate a business plan to meet the objectives agreed with
KPN, Swisscom and Telia. During this review period Infonet proposes regular
consultation and meetings with the Works Council so that there will be ongoing
input in the decision process. After this review period Infonet will then
implement the plan.
2. Consulting and Planning Phase
-----------------------------
2.1. General
-------
Although as a result of the due diligence effort and our long standing business
relationship, Infonet has a general understanding of the AUCS organization and
product offering, Infonet also knows that such general knowledge is not a
sufficient base to formulate a sound and detailed enough business plan.
As such Infonet plans to do a detailed on-site review of the total AUCS
organization during Step 1 of the initial phase. This Step 1 is planned to take
up to 60 days.
Step 2 of this initial phase will be the preparation for implementation of the
business plan. This Step 2 is planned to take up to an additional 30 days.
It is planned that during this initial phase there will be a consulting process
with the Works Council at least on a monthly base.
2.2. Step 1 (Day 1 - Day 60)
-----------------------
2.2.1. Initial Staff update and ongoing information
On Day 1 it is planned to call a plenary meeting of all AUCS staff in order to
present Infonet, its senior management and to explain the agreements reached and
the general planning as outlined in this document.
The Infonet management team that will be involved on site during this initial
review will be presented as well as their general areas of responsibility.
It will be announced that after the initial Consulting and Planning Phase a new
plenary meeting will be held where the general vision and outline of the
business plan will be announced.
The name of a contact person will be provided to whom any questions can be
directed during this period that relate to a better understanding of the process
or the agreements made.
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<PAGE>
2.2.2. AUCS management team
As early as possible in the process the onsite Infonet management team will do a
joint planning session with the AUCS management team on how best to understand
the organization, processes, products, current and planned activities.
As part of this process an inventory will be made of the non-standard ongoing
projects and priorities will be assigned taking into account the known synergies
between the companies and the knowledge that Infonet can bring to these
projects.
Also as part of this process it will be clarified in more detail what member of
the Infonet team will review and be involved in what part of the AUCS functional
organization. Once this is defined the members of the respective AUCS
functional teams will be informed.
2.2.3. Functional Organization Review
Once the teams are informed, the Infonet member will work with the staff
involved to understand the way their line of business is currently operating.
During this process it is planned that all staff members will have the
opportunity to meet and explain their current assignments, other interests and
ideas.
2.2.4. Business Plan Preparation
Whilst individual functional business plans will be created as a result of these
reviews there will be a constant feedback to the senior management planning team
that will review this ongoing input and provide a cross functional view leading
to a joint business plan.
It is planned to have a first outline plan ready after 30 days, followed by
weekly revisions afterwards, resulting in a final plan after 60 days.
2.2.5. Works Council Consultation
It is planned to inform and review the first outline plan (i.e. after 30 days)
with the Works Council and get their input as part of the ongoing planning
process.
The Works Council will also be consulted at the end of the week before the final
plan.
Upon finalization of the plan, the Works Council will be informed and planning
will be done for the joint responsibilities during Step 2 of the initial phase.
It is understood that if during this period substantial changes have to be made
to this Implementation Plan the Works Council shall be consulted as soon as
practical possible.
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<PAGE>
2.2.6. Administration and Billing
As a result of the agreements that will be in place, certain changes will be
required with respect to the billing structure as well as some additional
reporting requirements. These will be addressed and start implementation as
soon as possible in the process.
2.3. Step 2 (Day 61 - Day 90)
------------------------
The management teams will during this period start the implementation planning
for the business plan.
In as far as the result of the business plan shows an overstaffing in certain
areas, the management team will work together with the Works Council to prepare
a fair Social Plan - a draft outline was on request of the AUCS senior
management already prepared at this stage.
2.4. Staff Information
-----------------
As announced during the first plenary meeting a new meeting will be organized
and the outline and main ideas of the business plan will be presented to all
staff.
The name of a contact person will also be provided to whom additional questions
can be raised during the days following this meeting.
3. Implementation Phase
--------------------
All staff will now start towards the implementation of the business plan.
Performance against plan will be measured on a monthly base and at least on a
quarterly base be communicated to the staff.
4. Business Plan Review
--------------------
It is planned to review the Business Plan at least every 6 months in order to
update it to the then current situation. The Works Council will be informed of
such updates and consulted in case this should result in major changes.
5. Open Door Policy and Infonet Priorities
---------------------------------------
It will be made clear as of day one that the Infonet management style is a very
similar hands on open door approach. Infonet is always looking for ideas,
suggestions, and comments and will share information as much as possible.
xvi
<PAGE>
The priorities as communicated by Infonet senior management to its staff since
years are:
. Meet financial and operational commitments on a consistent basis.
. Increase pretax margins to the level of profitability to fuel future
growth.
. Provide a customer perceived level of service that is unmatched in our
industry.
. Establish a customer oriented working climate that supports risk taking,
creativity, fairness, team spirit and mutual respect.
. Attract, train and retain top quality personnel.
. Provide the opportunity for stable employment through the steady growth
of the company.
This document has been prepared in connection with a proposed
transaction between Infonet and AUCS. Although it has been prepared in good
faith and is indicative of the current thinking, it is not a legally binding
document and is subject to review and amendment. Accordingly, none of
Unisource, AUCS or Infonet can accept any liability to any person in connection
with this document or its contents.
xvii
<PAGE>
AUCS SOCIAL PLAN OUTLINE
Draft
1. General
-------
Although the business planning as defined in the AUCS & INFONET Implementation
Plan will first need to be conducted, it is acknowledged that the restructuring
as a result of the proposed transaction may result in redundancies.
Although management does not know if and what the redundancies will be, nor the
re-employment possibilities, it does understand the potential concerns and would
like to share its current thinking in order to confirm, that in such case this
will be handled professional and in a spirit of mutual respect.
As indicated in the Implementation Plan there will be regular consultation with
the Works Council and if such case should arise a detailed Social Plan will be
developed and reviewed.
The following represents the basic provisions that are seen at this stage.
2. Basic Provisions
----------------
. If appropriate, staff will be reassigned between AUCS functional
organizations.
. In case this is not appropriate, assignment within KPN, Telia, Swisscom,
Infonet or an affiliated company will be explored.
. In case this is not appropriate an outplacement program will be considered
and developed.
. In case staff is not covered by any of the above, fair redundancy
arrangements will be made in line with the jurisdictions in force.
3. Guidance and Monitoring
-----------------------
Professional local advisor will in such case, in addition to the consultations
with the Works Council, be used to advise management on the correct legal and HR
procedures as well as the content of the social plan.
Management envisages that, during a to be agreed upon time, resources would be
made available to provide guidance and consultancy to staff affected.
This document has been prepared in connection with a proposed
transaction between Infonet and AUCS. Although it has been prepared in good
faith and is indicative of the current thinking, it is not a legally binding
document and is subject to review and amendment. Accordingly, none of
Unisource, AUCS or Infonet can accept any liability to any person in connection
with this document or its contents.
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<PAGE>
EXHIBIT 10.15
EXECUTION COPY
ASSIGNMENT AGREEMENT
THIS AGREEMENT (the "Agreement") made as of September 30, 1999 by and
---------
among Infonet Services Corporation, a Delaware Corporation ("ISC" and, together
---
with its Affiliates, "Infonet"), AUCS Communications Services v.o.f., a general
-------
partnership organized under the laws of The Netherlands ("AUCS"), and herein
----
represented by AUCS N.V. (as hereinafter defined), AUCS Communications Services
N.V., a company organized under the laws of The Netherlands ("AUCS N.V.", and
---------
AUCS and AUCS N.V. collectively together with all of their direct and indirect
subsidiaries, the "AUCS Entities" and each an "AUCS Entity"), Unisource Pan-
------------- -----------
European Services B.V., a company organized under the laws of The Netherlands
("UPES"), Unisource N.V., a company organized under the laws of The Netherlands
- -------
("Unisource"), Briap B.V., a company organized under the laws of The Netherlands
---------
("Unisource Nominee" and collectively with Unisource and UPES, the "Unisource
----------------- ---------
Entities"), the stockholders of Unisource, Telia AB, a company organized under
- --------
the laws of Sweden ("Telia"), KPN Telecom B.V., a company organized under the
-----
laws of The Netherlands ("KPN"), and Swisscom AG, a company organized under the
---
laws of Switzerland ("Swisscom" and, together with Telia and KPN, the "Indirect
-------- --------
AUCS Stockholders") (each, a "Party" and collectively, the "Parties").
- ----------------- ----- -------
WHEREAS, the AT&T exit from its relationships with the AUCS Entities
has been consummated prior to the date hereof;
WHEREAS, the AUCS Entities have entered into a series of contracts
identified on Schedule A hereto for the distribution of certain
telecommunications services, as well as certain contracts directly with end
customers and other distributors (the "Contracts");
---------
WHEREAS, Infonet is in the business of providing products and
telecommunications services of a type and nature similar to the products and
services called for by the Non-AT&T Customers;
WHEREAS, the AUCS Entities wish to have ISC assume the
responsibilities of the AUCS Entities under the Contracts and under any other
contracts with Non-AT&T Customers to enable the AUCS Entities to, among other
things, focus on providing services to their other customers;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions
Certain Definitions. As used herein, the terms below shall have the
--------------------
following meanings:
"Affiliates" shall have the meaning set forth on Schedule C;
1
<PAGE>
"Agreement" shall have the meaning set forth in the Introduction;
"Arbitrators" shall have the meaning set forth in Section 5.1(c);
"Arbitration Rules" means the rules of the LCIA in accordance with which
any LCIA arbitration will be conducted, or such amended rules as the LCIA
may have adopted hereafter to take effect before the commencement of the
arbitration;
"AT&T" shall mean AT&T Corporation and its subsidiaries;
"AT&T Agreements" means those agreements set forth in Schedule B hereto;
"AUCS" shall have the meaning set forth in the Introduction;
"AUCS Entity" and "AUCS Entities" shall have the meanings set forth in the
Introduction;
"AUCS Indemnified Party" shall have the meaning set forth in Section 4.3;
"AUCS N.V." shall have the meaning set forth in the Introduction;
"Confidential Information" shall have the meaning set forth in Section 5.3;
"Contracts" shall have the meaning set forth in the Recitals;
"Contract Services" means the products and services provided by the AUCS
Entities under the Contracts and the New Contracts;
"Disclosing Party" shall have the meaning set forth in Section 5.3;
"Effective Date" shall mean October 01, 1999, 00:001 a.m.;
"Guarantors" shall have the meaning set forth in Section 6.1;
"Indemnifying Party" shall have the meaning set forth in Section 4.4;
"Indirect AUCS Stockholders" shall have the meaning set forth in the
Introduction;
"Infonet" shall have the meaning set forth in the Introduction;
"ISC" shall have the meaning set forth in the Introduction;
"ISC Indemnified Party" shall have the meaning set forth in Section 4.2;
"KPN" shall have the meaning set forth in the Introduction;
"LCIA" shall have the meaning set forth in Section 5.1(b);
2
<PAGE>
"Losses" means any and all liabilities, damages, costs and expenses
(including, without limitation, counsel fees and expenses);
"New Contracts" shall have the meaning set forth in Section 2.2;
"Non-AT&T Customers" means all customers of the AUCS Entities, from time to
time, including for the avoidance of doubt customers party to Contracts and
any New Contracts, except for AT&T and any other customers of the AUCS
Entities which receive Contract Services pursuant to the AT&T Agreements or
which have an agreement with an AUCS Entity for the provision of Contract
Services which has arisen directly under the AT&T Agreements;
"Party" and "Parties" shall have the meanings set forth in the
Introduction;
"Swisscom" shall have the meaning set forth in the Introduction;
"Telia" shall have the meaning set forth in the Introduction;
"Unisource" shall have the meaning set forth in the Introduction;
"Unisource Entities" shall have the meaning set forth in the Introduction;
"Unisource Nominee" shall have the meaning set forth in the Introduction;
and
"UPES" shall have the meaning set forth in the Introduction.
2. SERVICES
2.1 Effective as of the Effective Date, the AUCS Entities, for good and
valuable consideration, assign to and transfer to ISC all of their rights and
obligations under the Contracts and ISC hereby assumes all such rights and
obligations under the Contracts arising after the Effective Date. Each Indirect
AUCS Stockholder hereby consents (for itself and on behalf of its subsidiaries)
to the assignment and transfer to ISC of all of such Contracts to which it or
any of its subsidiaries is a party. Each Party to this Agreement, other than
ISC shall use all reasonable endeavors to obtain all necessary consents from
Non-AT&T Customers (including those set forth in Schedule A) to the assignment
of their respective Contracts to ISC.
2.2 After the Effective Date Infonet shall provide or cause to be provided
Contract Services pursuant to the Contracts, and such other services as from
time-to-time deemed appropriate by Infonet, to the Non-AT&T Customers under the
terms and conditions set forth in the relevant Contracts. For the avoidance of
doubt, Infonet shall provide or cause to be provided Contract Services and such
other services, as from time-to-time deemed appropriate by Infonet, to such
other new customers, distributors and resellers of the AUCS Entities as may be
agreed from time to time between any AUCS Entity and ISC ("New Contracts") under
-------------
the terms and conditions set forth in the relevant contract. Infonet shall
provide or cause to be provided Contract Services, and such other services as
from time to time deemed appropriate by Infonet, under the terms and conditions
of any agreements which Infonet may enter into amending or
3
<PAGE>
replacing any of the Contracts with the Non-AT&T Customers under which Infonet
was to provide or cause to be provided Contract Services.
2.3 ISC will, and the AUCS Entities, the Unisource Entities and the
Indirect AUCS Stockholders will, if requested by ISC, take all reasonable action
to induce the Non-AT&T Customers to enter into contracts with Infonet on
Infonet's customary terms and conditions.
2.4 To the extent practicable, Infonet may provide the Contract Services
and any other services under its name and Infonet shall procure that any
relevant affiliate shall utilize any such trademarks and tradenames chosen by
ISC to brand the Contract Services or any other services provided.
2.5 ISC shall have the right, in its sole discretion, upon 60 days written
notice to AUCS to replace at any time and from time to time any AUCS products,
platform, services, equipment or customer support which are used to provide
Contract Services to Non-AT&T Customers pursuant to Contracts or New Contracts
with Infonet's products, platforms, services, equipment or customer support as
determined by Infonet; provided that the replacement products, platforms,
--------
services, equipment or customer support provided shall be permitted under the
relevant Contract or New Contract or be otherwise satisfactory to such affected
Non-AT&T Customer.
2.6 Infonet shall provide or cause to be provided sufficient resources to
furnish the Contract Services under this Agreement. The Indirect AUCS
Stockholders shall maintain their resources insofar as necessary to satisfy
their obligations under their respective Contracts.
2.7 The Parties hereby consent to Infonet contracting with any Non-AT&T
Customer to provide any services. The Parties acknowledge that this may result
in the termination of existing commercial relationships between the AUCS
Entities and any Non-AT&T Customer and shall raise no objection to any such
termination. The Parties agree that from time to time ISC and Infonet may
terminate or amend any such contracts that they enter into with any Non-AT&T
Customer but always observing the terms of the contract with such Non-AT&T
Customer.
2.8 The Parties shall use all reasonable endeavors to cause the Non-AT&T
Customers to enter into such documents as are necessary to evidence the
assignments and transfers described in this Article 2, including amending the
Contracts with distributors to non-exclusive arrangements.
2.9 After the Effective Date, the AUCS Entities shall hold any payments
received by any of them from any customer as payment for services provided by
Infonet in trust for ISC in a bank account or accounts to be specified by ISC.
No AUCS Entity shall withdraw any monies from such aforementioned accounts
without the prior approval of ISC and shall pay over such monies to ISC at ISC's
request.
3. REPRESENTATIONS AND WARRANTIES
3.1 Representations of the AUCS Entities, Unisource Entities and the
----------------------------------------------------------------
Indirect AUCS Stockholders. Each of the AUCS Entities party to this Agreement,
- --------------------------
the Unisource Entities and
4
<PAGE>
the Indirect AUCS Stockholders severally represents and warrants to ISC as at
the Effective Date that:
(a) All material Contracts currently in force between the AUCS Entities
and its customers, other than the AT&T Agreements, are referred to in Schedule A
and the Contracts referred to in Schedule A are currently in full force and
effect.
(b) In the case of an Indirect AUCS Stockholder, a Unisource Entity and
AUCS N.V., it is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is in good
standing in each jurisdiction where the failure to be in good standing would
have a material adverse effect on its business or ability to perform its
obligations under this Agreement. In the case of AUCS, it is a general
partnership duly formed, validly existing and in good standing under the laws of
The Netherlands, and is in good standing in each jurisdiction where failure to
be in good standing would have a material adverse effect on its business or
ability to perform its obligations under this Agreement;
(c) In the case of an Indirect AUCS Stockholder, a Unisource Entity and
AUCS N.V., it has all necessary corporate power and authority, and in the case
of AUCS, AUCS has all the necessary partnership power and authority, to own,
lease and operate its assets and to carry on its business;
(d) In the case of an Indirect AUCS Stockholder, a Unisource Entity and
AUCS N.V., it has all necessary corporate power and authority to enter into this
Agreement and to perform its obligations hereunder, and the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on its part.
In the case of AUCS, it has all necessary partnership power and authority to
enter into this Agreement and to perform its obligations hereunder, and the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on its part;
(e) This Agreement constitutes the legal, valid and binding obligation of
it, enforceable against it by ISC in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and except to the extent that
enforceability is subject to the application of equitable principles (including
good faith) or remedies;
(f) It is not a party to, and is not bound or affected by or subject to,
any instrument, agreement, charter or by-law provision, law, rule, regulation,
judgment or order which would be contravened or breached as a result of the
execution of this Agreement or consummation of the transactions contemplated
hereby, where such contravention or breach would have a material adverse effect
on the business, operations or financial condition of the AUCS Entities or the
transactions contemplated by this Agreement;
(g) Except for any Form A/B filing by certain of the Parties to the
European Commission in relation to the transactions contemplated between the
Parties and except as provided by Section 2.8 of this Agreement, no consent,
approval or authorization of, or declaration or filing with, any governmental or
regulatory authority, or any other person or
5
<PAGE>
entity, is required to be made or obtained by it that has not been made or
obtained in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby except
where such failure to make or obtain such consent, approval, authorization,
declaration or filing would not have a material adverse effect on the business,
operations or financial condition of the AUCS Entities or the transactions
contemplated by this Agreement;
(h) It has not employed or made any agreement with any broker, finder or
similar agent or any person or firm which will, as a result of the transactions
contemplated hereby, obligate Infonet or any AUCS Entity to pay any finder's
fee, brokerage fees, commission or similar payment in connection with the
transactions contemplated hereby.
3.2 Representations of ISC. ISC represents and warrants to AUCS that:
-----------------------
(a) It is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and is in good standing in each
jurisdiction where failure to be in good standing would have a material adverse
effect on its business or ability to perform its obligations under this
Agreement;
(b) It has all necessary corporate power and authority to enter into this
Agreement and to perform its obligations hereunder, and the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on its part
and it has all the necessary corporate power and authority to own, lease and
operate its assets and to carry on its business;
(c) This Agreement constitutes the legal, valid and binding obligation of
ISC, enforceable against it in accordance with its terms;
(d) It is not a party to, and is not bound or affected by or subject to,
any instrument, agreement, charter or by-law provision, law, rule, regulation,
judgment or order which would be contravened or breached as a result of the
execution of this Agreement or consummation of the transactions contemplated
hereby;
(e) Except for any Form A/B filing by certain of the Parties to the
European Commission in relation to the transactions contemplated between the
Parties and except as provided by Section 2.8 of this Agreement, no consent,
approval or authorization of, or declaration or filing with, any governmental or
regulatory authority, or any other person or entity, is required to be made or
obtained by it that has not been made or obtained in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby;
(f) It has not employed or made any agreement with any broker, finder or
similar agent or any person or firm which will, as a result of the transactions
contemplated hereby, obligate any party hereto, other than ISC, to pay any
finder's fee, brokerage fees, commission or similar payment in connection with
the transactions contemplated hereby.
6
<PAGE>
4. LIMITATION OF LIABILITY AND INDEMNIFICATION
4.1 Liability
---------
(a) Limitation THE PARTIES AGREE THAT NO PARTY WILL BE HELD TO ANY
----------
WARRANTIES DIRECTLY OR INDIRECTLY RELATED TO SERVICES, SYSTEMS, PRODUCTS AND
CONTRACTS, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTY
OF SATISFACTORY QUALITY AND FITNESS FOR A PARTICULAR PURPOSE OTHER THAN THOSE
EXPRESSLY SET FORTH IN THIS AGREEMENT. The liability of ISC for claims arising
from the furnishing of Contract Services or its failure to furnish Contract
Services pursuant to this Agreement or from the interruption or loss of use
thereof shall be limited to, and the AUCS Entities', the Unisource Entities' and
the Indirect AUCS Stockholders' exclusive remedy shall be: (i) correction of
errors of which ISC has received written notice and proof within 30 days of
occurrence; or (ii) where such correction is not practicable, the AUCS Entities,
the Unisource Entities and the Indirect AUCS Stockholders shall be entitled only
to an equitable credit not to exceed the charges invoiced to such customer for
that portion of the Contract Services which produced the erroneous result.
(b) Consequential Loss. IN NO EVENT SHALL ANY PARTY BE LIABLE FOR ANY
------------------
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT
LIMITED TO, LOSS OF USE, REVENUE, OR PROFIT, EVEN WHERE THE OTHER PARTY HAD BEEN
ADVISED, KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES. No Party
nor the owner of any computer programs licensed to it shall be responsible for
any application of the results obtained from the use of any computer programs or
equipment or for unintended or unforeseen results obtained by any customer in
the use of such programs.
4.2 Indemnity to Infonet.
-----------------------
(a) Subject to Section 4.1 above, each of the AUCS Entities jointly and
severally, the Unisource Entities severally and each of the Indirect AUCS
Stockholders severally indemnifies and holds harmless Infonet and their
respective stockholders, members, officers, directors, employees and agents
(individually, an "ISC Indemnified Party" and, collectively, the "ISC
--------------------- ---
Indemnified Parties") from and against any and all Losses incurred by such ISC
- -------------------
Indemnified Party or ISC Indemnified Parties by reason of, or resulting from,
(i) the breach of any representation, warranty or covenant made by any of the
AUCS Entities, the Unisource Entities or any of the Indirect AUCS Stockholders
in this Agreement, (ii) the assignment or transfer of any Contract or New
Contract as contemplated by this Agreement, or (iii) any breach of or failure to
perform or sum owing under any Contract incurred prior to the Effective Date;
provided that none of the AUCS Entities, the Unisource Entities or the Indirect
- --------
AUCS Stockholders will be liable to any ISC Indemnified Party pursuant to this
Section 4.2(a), (i) unless the aggregate amount otherwise due to the ISC
Indemnified Parties exceeds on a cumulative basis Euro 100,000 (one hundred
thousand Euro) and (ii) if, but only to the extent that, such Losses are
incurred as a direct result of any willful misconduct or negligence on the part
of ISC or the breach by ISC of any of its responsibilities, warranties or
covenants expressly set forth in this Agreement.
7
<PAGE>
(b) Each of the Indirect AUCS Stockholders severally indemnifies and holds
harmless the ISC Indemnified Parties for any liabilities arising in connection
with the employment agreements and employment relationships between the AUCS
Entities and their employees, former employees, and/or other persons in any
jurisdiction, including but not limited to any liability under the EC Acquired
Rights Directive (Business Transfer Directive 77(187)) or any domestic
derivative including articles 7:662-666 of the Dutch Civil Code, and for any
fiscal, pension, social security or other liabilities (including but not limited
to liability on account of "inlenersaansprakelijkheid") relating to the
employees, former employees, workers and/or other persons involved with the AUCS
Entities and, similarly, with regard to all and any such liabilities which arise
in connection with or as a result of the assignment or transfer to Infonet of
any Contracts, or arising as a result and/or out of any New Contracts.
4.3 Indemnity to Unisource.
----------------------
(a) Subject to Section 4.1 above, ISC indemnifies and holds harmless the
Unisource Entities, the AUCS Entities and the Indirect AUCS Stockholders, and
their respective officers, directors, employees and agents (individually, an
"AUCS Indemnified Party" and, collectively, the "AUCS Indemnified Parties" and
---------------------- ------------------------
together with the ISC Indemnified Parties, the "Indemnified Parties") from and
-------------------
against any and all Losses incurred by such AUCS Indemnified Party or AUCS
Indemnified Parties by reason of, or resulting from, the breach of any
representation, warranty or covenant made by ISC in this Agreement, provided
--------
that ISC will not be liable to any AUCS Indemnified Party pursuant to this
Section 4.3(a), (i) unless the aggregate amount otherwise due the AUCS
Indemnified Parties exceeds on a cumulative basis Euro 100,000 (one hundred
thousand Euro) and (ii) if, but only to the extent that such Losses are incurred
as a direct result of any willful misconduct or negligence on the part of any
AUCS Entity, any Unisource Entity or any Indirect AUCS Stockholder or the breach
by any of the foregoing of any of their respective representations, warranties
or covenants expressly set forth in this Agreement.
4.4 Indemnification Procedures. In the case of any claim asserted by a
---------------------------
third party against an Indemnified Party, notice shall be given by the
Indemnified Party to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
------------------
of any claim as to which indemnity may be sought, and the Indemnified Party
shall permit the Indemnifying Party (at the expense of such Indemnifying Party)
to assume the defence of any claim or any litigation resulting therefrom;
provided that (i) the counsel for the Indemnifying Party who shall conduct the
- --------
defence of such claim or litigation shall be reasonably satisfactory to the
Indemnified Party, (ii) the Indemnified Party may participate in such defence at
such Indemnified Party's expense, and (iii) the omission by any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its indemnification obligation under this Agreement except to the extent that
such omission results in a failure of actual notice to the Indemnifying Party
and such Indemnifying Party is materially damaged as a result of such failure to
give notice. Except with the prior written consent of the Indemnified Party, no
Indemnifying Party, in the defence of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement that provides for
injunctive or other non-monetary relief affecting the Indemnified Party or that
does not include as an unconditional term thereof the giving by each claimant or
plaintiff to such Indemnified Party of a release from all liability with respect
to such claim or litigation. In the event that the Indemnified Party shall in
good faith determine that the conduct of the defence of any claim subject to
indemnification
8
<PAGE>
hereunder or any proposed settlement of any such claim by the Indemnifying Party
might be expected to affect adversely the Indemnified Party's tax liability or
the ability of Indemnified Party to conduct its business, or that the
Indemnified Party may have available to it one or more defences or counterclaims
that are inconsistent with one or more of those that may be available to the
Indemnifying Party in respect of such claim or any litigation relating thereto,
the Indemnified Party shall have the right at all times to take over and assume
control over the defence, settlement, negotiations or litigation relating to any
such claim at the sole cost of the Indemnifying Party. In the event that the
Indemnifying Party does not accept the defence of any matter as above provided,
the Indemnified Party shall have the full right to defend against any such claim
or demand and shall be entitled to settle or agree to pay in full such claim or
demand. In any event, the Indemnifying Party and the Indemnified Party shall
cooperate in the defence of any claim or litigation subject to this Section 4.4
and the records of each shall be available to the other with respect to such
defence.
5. MISCELLANEOUS
5.1 Governing Law and Arbitration.
------------------------------
(a) This Agreement shall be governed by and shall be construed in
accordance with English law, without reference to the choice of law provisions
thereof. Accordingly any dispute arising out of or having any connection with
this Agreement shall be decided exclusively in accordance with English law;
provided that all such disputes shall be referred, in the first instance, to the
- --------
respective chief executive officers of the Parties for resolution.
(b) If a dispute, after having first been discussed by the chief executive
officers of each of the relevant Parties (provided that if the dispute is
--------
between ISC and an AUCS Entity, the matter shall be discussed between the chief
executive officers of ISC and Unisource), is not resolved by the said chief
executive officers within a maximum of 14 days, the dispute shall be referred to
and finally resolved by arbitration under the London Court of International
Arbitration ("LCIA") Arbitration Rules, which Arbitration Rules are deemed to be
incorporated by reference to this Section 5.1(b).
(c) Any arbitration commenced pursuant to Section 5.1(b) shall be
administered by the LCIA and the standard LCIA administrative procedures and
schedule of costs shall apply. In any such arbitration, the appointing authority
shall be the LCIA. The number of arbitrators shall be three and such arbitrators
to include persons experienced in European telecommunications (the
"Arbitrators"). The place of arbitration shall be London and the language used
-----------
in the arbitral proceedings shall be English. The governing law of the Agreement
shall be the substantive law of England.
(d) The fees of the Arbitrators, the costs of the LCIA and the cost of the
other parties relating to the arbitration (including, but not limited to, the
reasonable costs of professional advisers) shall be borne by those Parties
against whom the Arbitrators make any award in the proportion of any such award.
(e) The Arbitrators shall have authority to award interest on any amount
awarded by the Arbitrators up to the date of that award at the rate equal to 1
(one) percentage point above the
9
<PAGE>
three month EURIBOR rate for Euros from time to time. If any amount payable as a
result of a decision of the Arbitrators is not paid within 14 days of
publication of that decision, interest will thereafter accrue on the amount at
the rate equal to 2 (two) percentage points above the three month EURIBOR rate
for Euros from time to time.
(f) The referral of a dispute to arbitration under Section 5.1(b) shall
not preclude either party from obtaining interim relief on an urgent basis from
a court of competent jurisdiction pending any decision of the Arbitrators.
(g) Any decision of the Arbitrators shall be final, conclusive and binding
on the parties, and the parties agree to exclude, so far as lawfully possible to
exclude, any right of application or appeal to the English (or other) courts in
connection with any question of law arising in the arbitration or in connection
with any award or decision made by the Arbitrators, except as may be necessary
to enforce such award or decision.
(h) The provisions of this Section are severable from the rest of this
Agreement and shall remain in effect despite any invalidity for any reason of
this Agreement.
5.2 General Cooperation; Further Assurances. Each Party, at its expense,
----------------------------------------
shall promptly and duly execute and deliver to the other Parties such further
documents and assurances and take such further action as the other Parties may
from time to time reasonably request in writing in order to carry out more
effectively the intent and purpose of this Agreement (including, without
limitation, any applications, documents and reports required by any governmental
authority).
5.3 Confidential Information. While this Agreement is in effect and for a
-------------------------
period of 36 calendar months thereafter the Parties will hold in confidence the
terms and provisions of this Agreement, the Contracts and the New Contracts
(collectively the "Confidential Information"). The Parties hereby acknowledge
--------------------------
and agree that the Confidential Information is confidential and proprietary and
is not to be disclosed to third persons without the prior written consent of
both AUCS and ISC. The Parties shall not disclose such Confidential Information
to any third party (other than to officers, directors, employees and agents of
AUCS and ISC, each of whom is bound by this Section 5.3) except:
(a) to the extent necessary to comply with applicable law or the valid
order of a governmental agency or court of competent jurisdiction; provided,
--------
however, that the Party making such disclosure shall seek confidential treatment
- -------
of said information from such third parties;
(b) as part of its normal reporting or review procedure to regulatory
agencies, its parent company, its auditors and its attorneys; provided that the
Party making such disclosure to any such regulatory agency shall give the other
party advance written notice of any disclosure, shall seek confidential
treatment of such information and shall use commercially reasonable efforts to
cooperate with the other party in seeking confidential treatment of such
information; provided that any other third party (not being a regulatory agency)
to whom disclosure is made agrees to the confidential treatment of such
information;
10
<PAGE>
(c) in order to enforce its rights and perform its obligations pursuant to
this Agreement, including obtaining any necessary government authorizations with
respect to this Agreement;
(d) to the extent required by any public offering of securities of ISC in
any jurisdiction;
(e) pursuant to the disclosure requirements of the U.S. Securities Act of
1933 and the U.S. Securities Exchange Act of 1934 and any similar legislation in
any jurisdiction, in each case as amended and the rules and regulations
promulgated thereunder; and
(f) to the extent necessary to obtain appropriate insurance, to its
insurance agent; provided that such agent agrees to the confidential treatment
--------
of such information.
In the event that any Party is requested (the "Disclosing Party")
----------------
pursuant to, or becomes compelled by, applicable law, regulation or legal
process to disclose any Confidential Information, the Disclosing Party will
provide any non-Disclosing Party with prompt written notice so that any non-
Disclosing Party may seek a protective order or other appropriate remedy. In
the event that no such protective order or other remedy is obtained, the
Disclosing Party will furnish only that portion of the Confidential Information
which the Disclosing Party is advised by counsel is legally required and
cooperate, at the Disclosing Party's sole cost and expense, with the other
party's efforts to obtain reliable assurance that confidential treatment will be
accorded the Confidential Information.
5.4 Validity. If any provision of this Agreement is found or held to be
---------
invalid or unenforceable, the validity of all the other provisions hereof shall
not be affected thereby and the Parties agree to meet and review the matter and
if any valid and enforceable means is reasonably available to achieve the same
object as the invalid or unenforceable provision, to adopt such means by way of
variation of this Agreement. However, if any invalid term is capable of
amendment to render it valid, the Parties agree to negotiate an amendment to
remove the invalidity.
5.5 Severability. In the event that any of the terms of this Agreement
-------------
are found to be invalid, unlawful or unenforceable, such terms (provided that
--------
they are not fundamental to the agreement) shall be severable from the remaining
terms, which shall continue to be valid and enforceable.
5.6 Variation. No variation of or addition to this Agreement shall be of
----------
any force or effect unless reduced to writing, signed by or on behalf of
Unisource (on behalf of all the Unisource Entities and the Indirect AUCS
Stockholders), AUCS N.V. (on behalf of all the AUCS Entities) and ISC and
expressed to amend this Agreement.
5.7 Entire Agreement. This Agreement (including the documents referred to
-----------------
in it) replaces all prior agreements and arrangements between the Parties and
constitutes the entire understanding between the Parties relating to the subject
matter of this Agreement. Each Party acknowledges that in agreeing to enter into
this Agreement it has not relied on any representations, warranties or promises
(except those set out in this Agreement) made by or on behalf of the other
Parties before the signature of this Agreement. Each Party waives all rights
11
<PAGE>
and remedies which, but for this Section, might otherwise be available to it in
respect of any such representation, warranty or promise, provided that nothing
in this Section shall limit or exclude any liability for fraud.
5.8 Waiver. A waiver by the Parties of a breach of any term or condition
-------
of this Agreement in any one instance shall be in writing and shall not be
deemed as a continuing waiver or a waiver of any other or subsequent breach
unless the written notice so provides.
5.9 Notices.
-------
(a) The Parties choose the following addresses as the address at which
they will accept service of all documents and notices relating to this
Agreement.
to ISC at:
2100 East Grand Ave
El Segundo CA 90245
USA
Fax: +1 310 322 6229
Attention: The General Counsel
to any Unisource Entity at:
c/o Unisource NV
"Transpolis"
Polarisavenue 97
2137 JH, Hoofddorp
The Netherlands
Fax: +31 23 568 6200
Attention: The General Counsel
to any AUCS Entity at:
Spicalaan 1-59
2132 JG Hoofddorp
The Netherlands
Fax: +31 23 569 7177
Attention: The General Counsel
to Telia at:
Marbackagatan 11
Stockholm
Sweden
12
<PAGE>
Fax: +46 89 46 470
Attention: Director of Legal Affairs
To KPN at:
Maanweg 174
2516 AB, The Hague
The Netherlands
Fax: +31 70 332 3675
Attention: The General Counsel
To Swisscom at:
Lindenpark
Worblaufen
CH-3050
Berne, Switzerland
Fax: +41 31 34 23 447
Attention: Chief Legal Counsel
(b) Any notice to be given by a Party to another Party in terms of this
Agreement shall be given by prepaid registered post, or by facsimile or shall be
delivered by hand; provided that:
--------
(i) any notice given by prepaid registered post for which a signed
receipt is issued shall be deemed to have been received by the addressee, in the
absence of proof to the contrary, ten days after the date of postage;
(ii) any notice delivered by hand during normal business hours for
which a signed receipt is issued shall be deemed to have been received by the
addressee, in the absence of proof to the contrary, at the time of delivery; and
(iii) any notice given by facsimile shall be deemed to have been
received by the addressee, in the absence of proof to the contrary, immediately
upon the issuance by the transmitting facsimile machine, of a report confirming
correct transmission of all the pages of the document containing the notice or
upon receipt by the transmitting facsimile machine, at the end of the notice
being transmitted, of the automatic answer back of the receiving facsimile
machine.
5.10 Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
5.11 General. Unless expressly provided otherwise, all representations,
-------
warranties, undertakings, covenants, agreements and obligations made, given or
entered into in this Agreement by the Indirect AUCS Stockholders and/or the
Unisource Entities are each made, given or entered into severally by each such
entity.
13
<PAGE>
5.12 Filing. Each Party hereto shall use its reasonable efforts to obtain
------
all authorizations, consents, orders and approvals of, to give all notices to
and make all filings with, all governmental authorities and other third parties
that may be or become necessary (or as otherwise agreed by the Parties) for its
execution and delivery of, and performance of its obligations pursuant to, this
Agreement, and each Party will cooperate fully with the other Parties in
promptly seeking to obtain all such authorizations, consents, orders and
approvals, giving such notices, and making such filings (including any filings
to be submitted to the European Commission as a result of this Agreement). Each
Party will bear its own costs, expenses and disbursements in relation to any and
all such costs, expenses and disbursements incurred by it under this Section
5.12.
5.13 Assignment.
----------
(a) Except as provided in Section 5.13(b) or (c) below, none of the
Parties may assign, sublicense, transfer or otherwise dispose of any rights or
sub-contract or transfer or otherwise dispose of any obligations under this
Agreement, other than in connection with the sale or transfer of all or
substantially all the assets of the assigning Party, except with the prior
written approval of Unisource and ISC, which approval shall not be unreasonably
withheld or delayed.
(b) The Unisource Entities and the Indirect AUCS Stockholders may,
provided that any such actions do not and will not affect the rights of ISC
under this or any other agreement, transfer the interests of the Unisource
Entities in (x) AUCS and AUCS N.V., (y) AUCS and the assets of AUCS N.V., or (z)
the assets of AUCS and AUCS N.V., either directly or indirectly to the Indirect
AUCS Stockholders.
(c) After the Effective Date, the Contract Services to be provided
pursuant to the Contracts and any New Contracts may be provided by ISC or any of
ISC's Affiliates.
(d) The Parties other than ISC shall, from time to time on being requested
to do so by ISC, now or at any time in the future, do or procure the doing of
all such acts and/or execute or procure the execution of all such documents in a
form satisfactory to ISC as ISC may consider necessary for giving full effect to
this Agreement and securing to ISC the full benefit of the rights, powers and
remedies conferred upon ISC in this Agreement at the cost and expense of the
Parties other than ISC.
6. GUARANTEE
6.1 In consideration of ISC entering into this Agreement, the Indirect
AUCS Stockholders (the "Guarantors") hereby severally unconditionally guarantee
----------
to ISC and its successors, transferees and assigns the due and punctual
performance and observance by the AUCS Entities and the Unisource Entities of
all the AUCS Entities' and the Unisource Entities' obligations and the punctual
discharge by the AUCS Entities and the Unisource Entities of all the AUCS
Entities' and/or the Unisource Entities' liabilities to Infonet and/or any other
Parties contained in or arising under this Agreement.
6.2 As an independent and primary obligation, without prejudice to Section
6.1, the Guarantors hereby unconditionally and irrevocably agree to indemnify
and keep indemnified ISC
14
<PAGE>
against all and any losses, costs, claims, liabilities, damages, demands and
expenses suffered or incurred by ISC and/or any other Party arising from failure
of any AUCS Entity or Unisource Entity to comply with any of its material
obligations or discharge any of its liabilities under this Agreement or by
reason of the AUCS Entities or the Unisource Entities not being at any time, or
ceasing to be, liable in respect of the obligations and liabilities purported to
be assumed by them in accordance with the express terms of this Agreement.
6.3 The guarantee and indemnity contained in this Section 6 shall be a
continuing guarantee and indemnity and shall continue in full force and effect
until all liabilities or purported liabilities of the AUCS Entities and the
Unisource Entities arising under this Agreement, have been paid, discharged or
satisfied in full and notwithstanding any insolvency or winding up of any AUCS
Entity or Unisource Entity or any change in the status of any AUCS Entity or any
Unisource Entity.
6.4 The Guarantors shall not be exonerated or discharged nor shall their
liability be affected by any forbearance, whether as to payment, time,
performance or otherwise howsoever, or by any other indulgence being given to
any AUCS Entity or any Unisource Entity or by any variation of the terms of this
Agreement or by any act, thing, omission or means whatever which, but for this
provision, might operate to exonerate or discharge the Guarantors from their
obligations under the guarantee and indemnity contained in this Section 6.
15
<PAGE>
SIGNED this 30th day of September, 1999.
For and on behalf of ISC
INFONET SERVICES CORPORATION
By: _________________________
Title: ______________________
For and on behalf of AUCS
AUCS COMMUNICATIONS SERVICES v.o.f., represented by AUCS N.V.
By: _________________________
Title: ______________________
For and on behalf of AUCS N.V.
AUCS COMMUNICATIONS SERVICES N.V.
By: _________________________
Title: ______________________
For and on behalf of UPES
UNISOURCE PAN-EUROPEAN SERVICES B.V.
By: _________________________
Title: ______________________
For and on behalf of Unisource N.V.
UNISOURCE N.V.
By: _________________________
Title: ______________________
For and on behalf of Unisource Nominee
BRIAP B.V.
By: _________________________
Title: ______________________
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<PAGE>
For and on behalf of Telia
TELIA AB
By: _________________________
Title: ______________________
For and on behalf of KPN
KPN TELECOM B.V.
By: _________________________
Title: ______________________
For and on behalf of Swisscom
SWISSCOM AG
By: _________________________
Title: ______________________
17
<PAGE>
Schedule A: Contracts
---------------------
1. Distributor Agreement entered into between Telia AB and AT&T-Unisource
Communications Services v.o.f., dated 1 July 1996, for Sweden.
2. Distributor Agreement entered into between Telia Norge AS and AT&T-Unisource
Communications Services v.o.f., dated 1 July 1996, for Norway.
3. Distributor Agreement entered into between Telia A/S and AT&T-Unisource
Communications Services v.o.f., dated 1 July 1996, for Denmark.
4. Distributor Agreement entered into between Telia AB and AT&T-Unisource
Communications Services v.o.f., dated 12 August 1997, for Finland.
5. Distributor Agreement entered into between KPN Telecom B.V. and AT&T-
Unisource Communications Services v.o.f., dated 1 July 1996, for The
Netherlands.
6. Distributor Agreement entered into between Swisscom AG and AT&T-Unisource
Communications Services v.o.f., dated 1 July 1996, for Switzerland and
Liechtenstein.
7. Distributor Agreement entered into between Bord Telecom Eireann Plc and
AT&T-Unisource Communications Services v.o.f., dated 6 February 1997, for
the Republic of Ireland.
8. Distributor Agreement entered into between Unisource Belgium N.V. and AT&T-
Unisource Communications Services v.o.f., dated 6 February 1997, for
Belgium.
9. Distributor Agreement entered into between Unisource Business Networks
Luxembourg S.a.r.l. and AT&T-Unisource Communications Services v.o.f., dated
30 May 1997, for Luxembourg.
10. Distributor Agreement entered into between SIRIS S.A.S. and AT&T-Unisource
Communications Services v.o.f., dated 30 May 1997, for France.
11. Distributor Agreement entered into between Unisource Iberia S.A. and AT&T-
Unisource Communications Services v.o.f., dated 17 March 1998, for Spain.
12. Distributor Agreement entered into between Unisource Italia S.p.A. and
AT&T-Unisource Communications Services v.o.f., dated 16 March 1998, for
Italy.
13. Distributor Agreement entered into between. Unisource Hellas
Telecommunications Services S.A. and AT&T-Unisource Communications Services
v.o.f., dated 18 September 1996, for Greece.
14. Non-exclusive Distribution Agreement entered into between Mannesman Arcor
GmbH and AT&T-Unisource Communications Services v.o.f., dated 1 September
1997 for Germany.
18
<PAGE>
15. WorldSource Channel Agreements entered into between AUCS and, respectively,
any of the distributors referred to above.
16. Contracts with end customers held directly by AUCS (with or without a
distributor as a party):-
. contracts for WorldSource Services where AUCS is the Support Member for
WorldSource services;
. various contracts for AUCS Internet Transit Services;
. other customers (such as the contract between Whirlpool and AUCS and
Unisource Italia).
19
<PAGE>
Schedule B: AT&T Agreements
---------------------------
1. Framework Agreement between AT&T Corp., AT&T Pan-European Services Inc.,
Unisource N.V., Unisource Pan-European Service B.V., AUCS v.o.f., and AUCS
N.V. date 29 May 1999.
2. Voice Service Provider Agreement between AT&T UK and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(j).
3. Data Service Provider Agreement between AT&T UK and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(k).
4. Interconnect Service Amendment Agreement between AT&T UK and AUCS v.o.f
dated 29 May 1999 and attached to the Framework Agreement as Schedule
4.2(l).
5. Wholesale Services Agreement between AT&T GME and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(m).
6. Worldsource Channel Amendment Agreement between AT&T UK, AT&T GME and AUCS
v.o.f dated 29 May 1999 and attached to the Framework Agreement as Schedule
4.2(n).
7. AT&T UK Distribution Agreement between AT&T UK and AUCS v.o.f dated 29 May
1999 and attached to the Framework Agreement as Schedule 4.2(o).
20
<PAGE>
Schedule C: Affiliates
----------------------
SEDCO
Infonet Australia
Datakom Austria GmbH
Infonet Belgium S.A
Datacom, S.A.
Interpac Telematica Ltda
Infonet Canada
Infonet Software Solutions
Infonet Chile S.A.
Infonet Services Corporation
Infonet/China Ltd
Enterprise Ltda
Tecapro
Aliatel a.s.
Telecom Denmark Erhverv A/S
Codetel
DATCOM LTD.
InTouch Communications Services
Oy Infonet Finland
Infonet France S.A.
France Telecom Interpac S.A.
Infonet Network Services Deutschland GmbH.
OTE SA
Infonet - Hong Kong
BankNet Ltd.
PT Telekominukasi Indonesia
Infonet Ireland Ltd
Infonet Israel, Ltd
Infonet Italia S.p.A
KDD Communications, Inc. (KCOM)
Korea Telecom, Data Division
21
<PAGE>
InfoGlobe Corporation
Infonet Luxembourg SA
Telecom Malaysia Berhard
Infonet/ACASIA program office
Infonet Mexico
Infonet Nederland BV
Infonet TELECOM AS
CCNet S.A.
Philippines Long Distance Telephone
PLDT Marketing Center
Infonet Portugal
Telefonica Large Distancla
INFOCOM
Singapore Telecom Int'l PTE, Ltd
EDS South Africa (Pty) Limited
Telefonica Servicios SA (TSA1)
Lanka Communication Services Pte. Ltd.
Infonet Svenska AB
Infonet (Switzerland) Ltd.
Hong Kong Telecom Ltd
SIAM Infor Tel Co., Ltd
ACCESS A.S
Infonet UK, Ltd
Infonet Software Solutions, Ltd
Infocom GmbH
Setradat C.A.
22
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<S> <C>
ESG Communications Incorporated Delaware
IINS, Inc. Delaware
Infonet Broadband Services Corporation Delaware
NetWorks Telephony Corporation Delaware
Infonet N.V./S.A. Belgium
Interpac Belgium S.A. Belgium
Infonet Software Solutions Canada
Infonet China Limited China
Infonet France S.A. France
Osiware International, S.A. France
Infonet Italia S.p.A. Italy
Interpac Luxembourg S.A. Luxembourg
Infonet Servicios de Communicaciones, S.A. de C.V. Mexico
Infonet Taiwan Taiwan
Infonet UK, Ltd. UK
IBSC Limited UK
</TABLE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Infonet Services
Corporation on Form S-1 of our report dated June 14, 1999, appearing in the
Prospectus, which is part of this Registration Statement, and of our report
dated June 14, 1999, relating to the financial statement schedule appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Los Angeles, California
October 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 8,681
<SECURITIES> 8,196
<RECEIVABLES> 62,044
<ALLOWANCES> 3,876
<INVENTORY> 0
<CURRENT-ASSETS> 90,277
<PP&E> 141,244
<DEPRECIATION> 90,111
<TOTAL-ASSETS> 180,990
<CURRENT-LIABILITIES> 72,762
<BONDS> 0
0
0
<COMMON> 70,709
<OTHER-SE> 5,244
<TOTAL-LIABILITY-AND-EQUITY> 180,990
<SALES> 0
<TOTAL-REVENUES> 302,997
<CGS> 0
<TOTAL-COSTS> 299,126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 689
<INCOME-PRETAX> 5,445
<INCOME-TAX> 638
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,675
<EPS-BASIC> 374.00
<EPS-DILUTED> 374.00
</TABLE>
<PAGE>
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Infonet Services Corporation
El Segundo, California
We have audited the consolidated financial statements of Infonet Services
Corporation and its subsidiaries as of March 31, 1998 and 1999, and for each of
the three years in the period ended March 31, 1999, and have issued our report
thereon dated June 14, 1999 (included elsewhere in this Registration
Statement). Our audits also included the financial statements schedule listed
in Item 16 of this Registration Statement. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Los Angeles, California
June 14, 1999
<PAGE>
SCHEDULE II
INFONET SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowances for doubtful
accounts and customer
credits
1997.................... $2,622 $1,013 $228 $244 $3,163
1998.................... 3,163 1,608 203 717 3,851
1999.................... 3,851 1,021 891 105 3,876
</TABLE>
