<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 18, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FLAG TELECOM HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
BERMUDA 4813 NOT REQUIRED
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
EMPORIUM BUILDING FLAG TELECOM USA LTD.
69 FRONT STREET 570 LEXINGTON AVENUE
HAMILTON HM12, BERMUDA NEW YORK, NEW YORK 10020
(441) 296-0909 (212) 319-2121
(Address, including zip code, and telephone (Name and address, including zip code, and
number, including area code, of registrant's telephone number, including area code, of agent
principal executive offices) for service)
</TABLE>
--------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID W. POLLAK, ESQ. ALAN L. BELLER, ESQ.
MORGAN, LEWIS & BOCKIUS LLP DAVID LOPEZ, ESQ.
101 PARK AVENUE CLEARY, GOTTLIEB, STEEN & HAMILTON
NEW YORK, NEW YORK 10178 ONE LIBERTY PLAZA
(212) 309-6058 NEW YORK, NEW YORK 10006
FAX: (212) 309-6273 (212) 225-2000
FAX: (212) 225-3999
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE(2) OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Shares, par value $.0006 per share... 30,360,000 $22.00 $667,920,000 $176,331
</TABLE>
(1) Includes shares to be sold upon exercise of the underwriters' over-allotment
option. See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended.
--------------------------
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>
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. 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 WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED OR LEGAL.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 18, 2000
P R O S P E C T U S
[LOGO]
26,400,000 SHARES
FLAG TELECOM HOLDINGS LIMITED
COMMON STOCK
$ PER SHARE
---------
We are offering 21,100,000 newly-issued common shares and the shareholders
listed on page 63 of this prospectus are offering 5,300,000 of our common shares
to the public. We will not receive any proceeds from common shares sold by the
selling shareholders.
A syndicate of U.S. underwriters will offer of these shares in the
U.S. and Canada, and a syndicate of international underwriters will offer the
remaining shares outside the U.S. and Canada.
No public market currently exists for our common shares. We have applied to
have our common shares approved for listing on the Nasdaq National Market under
the symbol "FTHL" and on the London Stock Exchange under the symbol "FTL." We
estimate that the initial public offering price will be between $20.00 and
$22.00 per share.
We and certain of the selling shareholders have granted the underwriters a
30-day option to purchase a maximum of 3,960,000 additional shares to cover any
over-allotments of shares.
--------------
INVESTING IN OUR COMMON SHARES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.
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.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to FLAG Telecom (before expenses).................. $ $
Proceeds to the selling shareholders (before expenses)...... $ $
</TABLE>
The underwriters expect to deliver the common shares to purchasers on or
about , 2000.
--------------
SALOMON SMITH BARNEY
DEUTSCHE BANC ALEX. BROWN
GOLDMAN, SACHS & CO.
2
<PAGE>
MORGAN STANLEY DEAN WITTER
WARBURG DILLON READ LLC
, 2000.
3
<PAGE>
[INSERT MAP OF WORLD SHOWING EXISTING AND PLANNED NETWORK]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 6
USE OF PROCEEDS............................................. 15
DIVIDEND POLICY............................................. 16
DILUTION.................................................... 16
CAPITALIZATION.............................................. 17
SELECTED CONSOLIDATED FINANCIAL DATA........................ 18
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 24
BUSINESS.................................................... 37
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES........... 56
MANAGEMENT.................................................. 57
PRINCIPAL AND SELLING SHAREHOLDERS.......................... 63
CERTAIN TRANSACTIONS........................................ 64
DESCRIPTION OF CAPITAL STOCK................................ 67
SHARES ELIGIBLE FOR FUTURE SALE............................. 71
TAX CONSIDERATIONS.......................................... 73
UNDERWRITING................................................ 78
LEGAL MATTERS............................................... 80
EXPERTS..................................................... 80
AVAILABLE INFORMATION....................................... 81
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION WHERE AN OFFER IS NOT
PERMITTED.
UNTIL , 2000 ALL DEALERS THAT BUY, SELL OR TRADE THE COMMON SHARES,
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.
------------------------
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SOME INFORMATION FROM THIS PROSPECTUS. IT MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THIS
OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
RISK FACTORS AND THE FINANCIAL STATEMENTS. IN THIS PROSPECTUS, REFERENCES TO:
(1) "FLAG LIMITED" REFER TO FLAG LIMITED, A BERMUDA COMPANY WHICH IS OUR WHOLLY
OWNED SUBSIDIARY, AND (2) "FLAG ATLANTIC LIMITED" REFER TO FLAG ATLANTIC
LIMITED, A BERMUDA CORPORATION IN WHICH WE HOLD A 50% OWNERSHIP INTEREST. THIS
PROSPECTUS CONTAINS SOME MARKS, TRADEMARKS AND TRADE NAMES OF FLAG TELECOM
HOLDINGS LIMITED, INCLUDING OUR NAME AND LOGO. UNLESS OTHERWISE INDICATED,
INFORMATION PRESENTED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION AND GIVES EFFECT TO A REVERSE STOCK SPLIT OF
6:1 BEING CONSUMMATED IN CONNECTION WITH THIS OFFERING.
FLAG TELECOM
We are a global carriers' carrier that develops and offers a broad range of
innovative telecommunications products and services to licensed international
carriers, Internet service providers and other telecommunications companies. We
have an established customer base of approximately 90 customers, many of which
are among the world's leading telecommunications and Internet companies. Our
customers include 17 of the top 20 international carriers based on traffic
volume which, together, accounted for approximately 48% of our sales to date. We
believe we have succeeded in attracting this customer base primarily as the
result of the diversity, flexibility and high quality of our product and service
offerings. Our goal is to establish FLAG Telecom as the leading global carriers'
carrier by offering a wide range of cost-effective capacity use options and
wholesale products and services across our global network. We also plan to
develop an extensive range of innovative products and services which will use a
state-of-the-art Internet Protocol-based network infrastructure.
THE FLAG TELECOM NETWORK
Our network, the FLAG Telecom network, currently consists of:
- the FLAG Europe-Asia cable system, which is the world's longest
independent, privately-owned digital fiberoptic undersea cable system with
a length of 28,000 kilometers;
- the FLAG Atlantic-1 cable system, which we are currently constructing
through a 50/50 joint venture with GTS TransAtlantic and which, when
completed, will connect London and Paris to New York and will have
potential capacity 15 times the maximum capacity of the most advanced
cable system in service on the Atlantic route today; and
- terrestrial connections between our landing stations in the United Kingdom
and Spain to the city centers of London and Madrid and intra-European
connections from London to Paris, Brussels, Frankfurt, Amsterdam, Berlin,
Zurich, Milan and several other major European metropolitan areas which we
have acquired the right to obtain through contractual arrangements with
other facilities-based bandwidth capacity providers.
Where economically feasible, we expect to extend the FLAG Telecom network to
additional countries by developing new cable systems, building extensions from
our existing cable systems or by building additional terrestrial capacity. Where
rapid access to a market is required or where it is not economically feasible to
expand our network on our own, we may enter into arrangements with other parties
to develop network extensions or to acquire rights to use their existing
networks. We may also consider acquiring companies with networks that complement
our own.
<PAGE>
OUR CORPORATE STRUCTURE
We were formed in February 1999 to serve as the holding company for the FLAG
Telecom group of companies, as part of the restructuring of a group of companies
originally organized in 1993. Our corporate structure, without giving effect to
this offering, is as set forth below. For clarity, we have included only our
principal companies in the following chart.
[LOGO]
We are a Bermuda company. Our corporate offices are located at Emporium
Building, 69 Front Street, Hamilton HM12, Bermuda. Our telephone number is
(441) 296-0909. Our web sites are http://www.flagtelecom.com and
http://www.flagatlantic.com. None of the information on our web sites is a part
of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common shares offered by(1):
FLAG Telecom............................. 21,100,000 shares
The Selling Shareholders................. 5,300,000 shares
Total.................................. 26,400,000 shares
Common shares to be outstanding after this
offering................................... 127,066,056 shares(1)(2)
Use of proceeds.............................. We intend to use the net proceeds of this
offering (1) to repay indebtedness under FLAG
Limited's existing credit facility, (2) to
fund (or to set aside funds for) our existing
obligation to contribute capital to FLAG
Atlantic Limited and (3) to fund additional
expansions of the FLAG Telecom network, the
development of additional wholesale and
bundled product and service offerings and for
working capital and general corporate
purposes. We will not receive any proceeds
from the sale of shares by the selling
shareholders in this offering.
Proposed Nasdaq National Market symbol....... FTHL
Proposed London Stock Exchange Symbol........ FTL
</TABLE>
- ------------------------
(1) Excludes up to 1,320,000 additional common shares subject to the portion of
the over-allotment option we have granted to the underwriters.
(2) Excludes 6,763,791 common shares which are reserved for issuance under our
stock option plan. Options to purchase 4,111,040 common shares under our
stock option plan were outstanding or had been approved for grant at
January 1, 2000.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND NOTES)
The following table presents summary consolidated statements of operations and
balance sheet data of FLAG Telecom and FLAG Limited for the periods indicated.
The financial data for the periods ended December 31, 1996, 1997 and 1998 and
for the period from January 1, 1999 to February 26, 1999 has been derived from
FLAG Limited's audited consolidated financial statements included elsewhere in
this prospectus. The financial data as of September 30, 1999 and for the period
from incorporation to September 30, 1999 has been derived from FLAG Telecom's
audited interim consolidated financial statements included elsewhere in this
prospectus. Operating results for the period from incorporation to
September 30, 1999 are not necessarily indicative of the results that may be
expected for the full year ended December 31, 1999.
You should read the summary consolidated financial information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," FLAG Limited's consolidated financial statements and
FLAG Telecom's consolidated financial statements and notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
FLAG LIMITED FLAG TELECOM
-------------------------------------------------------- ----------------
PERIOD FROM PERIOD FROM
YEAR ENDED AS OF DECEMBER 31, JANUARY 1, 1999 INCORPORATION
------------------------------------ TO TO SEPTEMBER 30,
1996(1) 1997 1998 FEBRUARY 26, 1999 1999
---------- ---------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
(AS
RESTATED)
STATEMENT OF OPERATIONS DATA:
Revenues:
Capacity sales, net of
discounts....................... $ -- $ 335,982 $ 182,935 $ 25,554 $ 89,223
Standby maintenance and
restoration revenue............. -- 4,011 25,313 4,458 28,760
---------- ---------- ---------- ---------- ----------
-- 339,993 208,248 30,012 117,983
---------- ---------- ---------- ---------- ----------
Sales and other operating
expenses:
Cost of capacity sold............. -- 196,190 101,288 8,294 43,799
Operations and maintenance........ -- 4,600 37,931 5,114 16,215
Sales and marketing............... 316 6,598 10,680 637 7,335
General and administrative(2)..... 12,345 30,339 21,674 2,870 11,278
Stock compensation................ -- -- -- -- 3,464
Depreciation and amortization..... 121 276 844 233 5,220
---------- ---------- ---------- ---------- ----------
12,782 238,003 172,417 17,148 87,311
---------- ---------- ---------- ---------- ----------
Operating income (loss)........... (12,782) 101,990 35,831 12,864 30,672
---------- ---------- ---------- ---------- ----------
Interest expense.................. -- 20,193 61,128 9,758 31,264
Interest income................... 2,408 6,637 14,875 1,825 4,924
---------- ---------- ---------- ---------- ----------
Income (loss) before minority
interest and income taxes....... (10,374) 88,434 (10,422) 4,931 4,332
Minority interest................. -- -- -- -- 1,919
Provision for income taxes........ -- 8,991 1,260 171 1,098
---------- ---------- ---------- ---------- ----------
Net income (loss) before
extraordinary item.............. (10,374) 79,443 (11,682) 4,760 1,315
Extraordinary item(3)............. -- -- (59,839) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)................. (10,374) 79,443 (71,521) 4,760 1,315
Cumulative pay-in-kind preferred
dividends....................... 14,410 16,324 1,508 -- --
---------- ---------- ---------- ---------- ----------
Redemption premium and write-off
of discount on preferred
shares(4)....................... -- -- 8,500 -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to
common shareholders............. $ (24,784) $ 63,119 $ (81,529) $ 4,760 $ 1,315
========== ========== ========== ========== ==========
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND NOTES)
<TABLE>
<CAPTION>
FLAG LIMITED FLAG TELECOM
-------------------------------------------------------- ----------------
PERIOD FROM PERIOD FROM
YEAR ENDED AS OF DECEMBER 31, JANUARY 1, 1999 INCORPORATION
------------------------------------ TO TO SEPTEMBER 30,
1996(1) 1997 1998 FEBRUARY 26, 1999 1999
---------- ---------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
(AS
RESTATED)
STATEMENT OF CASH FLOW DATA:
Cash flow from operating
activities...................... (12,103) 285,156 88,831 (23,104) 62,113
Cash flow from financing
activities...................... 342,011 245,677 97,818 21,230 41,453
Cash flow from investing
activities...................... (329,886) (528,653) (186,144) 601 (102,636)
</TABLE>
<TABLE>
<CAPTION>
FLAG LIMITED
-------------------------------------------------------- FLAG TELECOM
AS OF DECEMBER 31, ------------------
------------------------------------ AS OF AS OF
1996 1997 1998 FEBRUARY 26, 1999 SEPTEMBER 30, 1999
---------- ---------- ---------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................... 774,447 1,886,937 1,475,766 1,435,369 1,363,904
Shareholders' equity............. 142,297 541,029 458,796 463,734 309,866
</TABLE>
- ------------------------
(1) FLAG Limited restated its 1996 financial statements, as originally issued in
March 1997, to give effect to a $3.1 million discount on FLAG Limited's
issuance of 3,075,816 shares of preferred stock in 1995. For the year ended
December 31, 1996, this restatement had no effect on net loss, but increased
net loss applicable to common shareholders by $0.55 million.
(2) Included in general and administrative expenses for the years ended
December 31, 1996, 1997 and 1998 are program management expenses which
include reimbursements to Bell Atlantic Network Systems Company, a
shareholder of FLAG Telecom, for all costs and out-of-pocket expenses
incurred by Bell Atlantic Network Systems Company in performing project
management services for FLAG Limited. In addition, Bell Atlantic Network
Systems Company received a fee equal to 16% of payroll costs and of certain
outside contractor and consultant costs.
(3) In connection with FLAG Limited's issuance of 8 1/4% Senior Notes due 2008
and its entry into its existing credit facility, FLAG Limited recorded an
extraordinary loss of $59.8 million, representing the write-off of
unamortized deferred financing costs related to its old credit facility.
(4) In connection with FLAG Limited's issuance of 8 1/4% Senior Notes due 2008
and its entry into its existing credit facility, FLAG Limited redeemed its
then outstanding preferred stock at a redemption price of 105% of the
liquidation preference. The excess of the redemption value over the carrying
value of the preferred stock on the date of the redemption of $8.5 million
has been reflected as a decrease in additional paid-in capital.
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE PURCHASING
OUR COMMON SHARES. OUR MATERIAL RISKS AND UNCERTAINTIES ARE DESCRIBED BELOW. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED, THE TRADING PRICE
OF OUR COMMON SHARES COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS
BECAUSE MANY OF OUR PRODUCTS AND SERVICES ARE IN THE EARLY STAGES OF
DEVELOPMENT OR OPERATION, WE CANNOT ASSURE YOU THAT WE WILL SUCCESSFULLY
INTEGRATE THEM WITH OUR EXISTING NETWORK AND, AS A RESULT, WE MAY NOT ACHIEVE
THE REVENUES FROM THESE PRODUCTS AND SERVICES THAT WE EXPECT.
We are at an early stage in the construction of the FLAG Atlantic-1 cable
system and the introduction of a variety of new telecommunications products and
services, such as managed bandwidth services and Internet point-to-point
services. In order to transition from a business primarily involved in the
operation of an undersea cable network with a target market consisting mainly of
large operators to one that also operates the FLAG Atlantic-1 cable system and
markets new products and services to an expanded target market (including
resellers and Internet service providers), we must undergo substantial changes
in our operations. These changes are expected to be a significant challenge to
our managerial, administrative, marketing and operational resources. We are in
the process of developing the management, marketing and operational capabilities
and financial and accounting systems and controls necessary for this transition.
We cannot assure you that we will succeed in developing all or any of these
capabilities.
BECAUSE ACHIEVEMENT OF OUR BUSINESS OBJECTIVES DEPENDS UPON THE SUCCESSFUL
COMPLETION OF THE FLAG ATLANTIC-1 CABLE SYSTEM, WE MUST COMPLETE THE FLAG
ATLANTIC-1 CABLE SYSTEM WITHIN BUDGET AND ON TIME.
We have embarked upon an aggressive plan to build the FLAG Atlantic-1 cable
system, with GTS TransAtlantic, our joint venture partner. We cannot guarantee
completion of the FLAG Atlantic-1 cable system in the time planned, within
budget, or at all. Successful completion of the FLAG Atlantic-1 cable system
will be affected by a variety of factors, many of which we cannot control,
including:
- our ability to acquire satisfactory landing sites, rights-of-way and
permits from governmental authorities and private third parties;
- our management of construction costs and, if cost overruns occur, our
ability to obtain any needed additional financing;
- timely performance by our contractors;
- technical performance of the fiber and equipment used in the FLAG
Atlantic-1 cable system;
- our ability to attract and retain qualified personnel;
- effective management of our relationship with GTS TransAtlantic; and
- GTS TransAtlantic's successful design and development of the terrestrial
portion of the FLAG Atlantic-1 cable system.
Failure to complete the FLAG Atlantic-1 cable system by September 30, 2001
could result in a default under FLAG Atlantic Limited's credit facility and an
acceleration of its indebtedness. If the FLAG Atlantic-1 cable system does not
go into service by March 31, 2002, some of FLAG Atlantic Limited's customers may
cancel their obligation to purchase capacity. While we would not have any direct
liability as a result of FLAG Atlantic Limited's failure to complete the FLAG
Atlantic-1 cable system on time, we could lose our investment in FLAG Atlantic
Limited.
6
<PAGE>
BECAUSE THE SUCCESS OF FLAG ATLANTIC LIMITED DEPENDS UPON THE EFFORTS OF GTS
TRANSATLANTIC AND THE SUCCESSFUL MANAGEMENT OF OUR RELATIONSHIP WITH THEM, WE
CANNOT ASSURE THE SUCCESS OF THE FLAG ATLANTIC-1 PROJECT.
Under the FLAG Atlantic Limited Shareholders Agreement, GTS TransAtlantic
has agreed to manage the construction (or acquisition), installation, operation
and maintenance of most of the terrestrial portion of the FLAG Atlantic-1 cable
system. While GTS TransAtlantic has significant experience in the development of
terrestrial telecommunications systems, we cannot assure you that it will
perform its obligations under the shareholders agreement in a timely fashion, or
at all.
We will need to maintain a cooperative relationship with GTS TransAtlantic,
since we share management and control of FLAG Atlantic Limited with it. Under
the shareholders agreement, disagreements concerning operational matters,
including the selection of suppliers, and pricing issues may be referred to
independent experts for binding determination, while deadlocks concerning other
matters may be referred to binding arbitration under the rules of the
International Chamber of Commerce. Despite these dispute resolution mechanisms,
failure to maintain a cooperative relationship with GTS TransAtlantic could
hamper FLAG Atlantic Limited's operations.
BECAUSE GTS TRANSATLANTIC AND WE MAY ACQUIRE CAPACITY ON THE FLAG ATLANTIC-1
CABLE SYSTEM FOR OUR OWN ACCOUNT AND RESELL THIS CAPACITY FOR OUR SOLE RISK AND
BENEFIT, WE MAY NOT BENEFIT FROM GTS TRANSATLANTIC'S MARKETING EFFORTS AND MAY
FIND OURSELVES IN DIRECT COMPETITION WITH IT.
Under the FLAG Atlantic Limited Shareholders Agreement, we and GTS
TransAtlantic are both entitled to acquire capacity on the FLAG Atlantic-1 cable
system for own account, to bundle this capacity with our respective other
products, and to sell these bundled products for our own account. Because GTS
TransAtlantic has acquired a significant amount of capacity on the FLAG
Atlantic-1 cable system for its own account, it may concentrate its marketing
efforts on making sales from its inventory, rather than sales on behalf of FLAG
Atlantic Limited. While FLAG Atlantic Limited will benefit directly from amounts
paid by GTS TransAtlantic to purchase capacity for its inventory, neither FLAG
Atlantic Limited nor we will otherwise benefit from the sales GTS TransAtlantic
makes out of its inventory. If GTS TransAtlantic elects to focus its marketing
efforts on making sales from its inventory, then the success of our investment
in FLAG Atlantic Limited will solely depend on our own marketing efforts.
Depending on the type of products which GTS TransAtlantic elects to sell, this
may also place us in direct competition with it. In such event, we may actually
be harmed by GTS TransAtlantic's marketing efforts.
IF WE ARE UNABLE TO DEPLOY SOPHISTICATED TECHNOLOGIES ON A GLOBAL BASIS, WE
MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The operation of our systems requires the coordination and integration of
sophisticated and highly specialized hardware and software technologies and
equipment located throughout the world. We cannot assure you that, even if built
to specifications, our systems will function as expected in a cost-effective
manner.
In addition, our business plan calls for the use of state-of-the-art
technology which is currently under development. In particular, the FLAG
Atlantic-1 cable system is designed to employ technology currently under
development by Alcatel Submarine Networks. While Alcatel Submarine Networks has
successfully tested this technology, this technology has not yet been
successfully deployed. Failure to deploy this technology on time could have a
material adverse effect on FLAG Atlantic Limited's operations and on our
financial results.
Our business plan also calls for the upgrade of capacity on the FLAG
Europe-Asia cable system by adding wavelength division multiplexing equipment.
We have received technical evaluations from potential suppliers indicating that
such upgrades can be achieved. However, we cannot assure you that these upgrades
can be successfully implemented. Failure to achieve these upgrades could
materially impact the amount of capacity which we will be able to sell, and the
types of services that we will be able to offer.
7
<PAGE>
BECAUSE WE HAVE SUBSTANTIAL INDEBTEDNESS THAT COULD IMPAIR OUR ABILITY TO
RAISE OR GENERATE REQUIRED CAPITAL AND LIMIT OUR OPERATING FLEXIBILITY, WE MAY
BE MORE VULNERABLE TO CHANGES IN OUR BUSINESS OR THE ECONOMY.
Upon completion of this offering and a contemplated amendment to FLAG
Limited's existing credit facility and after we pay related expenses, we
estimate that we will have approximately $580 million of long-term debt
consisting of the $150 million outstanding under the credit facility and
$430 million of 8 1/4% Senior Notes issued by FLAG Limited. In addition, FLAG
Atlantic Limited has borrowed approximately $62 million under its credit
facility. Under the contemplated amendment, we would be required to utilize the
proceeds of this offering to repay up to $25 million of the outstanding
indebtedness under FLAG Limited's existing credit facility. FLAG Atlantic
Holdings Limited is also obligated to contribute $100 million in equity to the
FLAG Atlantic-1 joint venture no later than October 31, 2000; we will set aside
some of the proceeds from this offering to fund that obligation.
We cannot assure you that the conditions for the amendment can be fulfilled.
In the event we do not complete the amendment by the completion of this offering
we would be required, under the current terms of the FLAG Limited credit
facility, to utilize up to $175 million of the net proceeds of this offering to
repay the facility, which is approximately the entire outstanding amount of the
term loans under this facility.
Our substantial indebtedness may have important consequences for us,
including the following:
- our ability to obtain additional financing for acquisitions, working
capital, investments and capital or other expenditures on terms favorable
to us may be impaired;
- our ability to generate funds for our operations and future business
opportunities may be impaired, since we will use a substantial portion of
our cash flow to make principal and interest payments on our debt;
- our existing debt facilities contain a number of significant limitations
that restrict our ability to conduct our business and to borrow additional
money, pay dividends or other distributions to our shareholders, make
investments, sell assets, and engage in mergers or consolidations;
- a substantial decrease in our net operating cash flows or an increase in
our expenses could make it difficult for us to meet our debt service
requirements and force us to modify our operations;
- we may be more highly leveraged than our competitors, which may place us
at a competitive disadvantage; and
- our high degree of leverage makes us vulnerable to a downturn in our
business or the economy generally.
IF WE FAIL TO OBTAIN THE RESOURCES REQUIRED TO ADAPT, UPGRADE OR EXPAND OUR
NETWORK, WE MAY NOT BE ABLE TO KEEP UP WITH DEMANDS FROM OUR CUSTOMERS OR
CHANGES IN OUR INDUSTRY.
We may need to upgrade, expand or adapt the components of the FLAG
Europe-Asia cable system and the FLAG Atlantic-1 cable system in the future to
respond to the following:
- demand for greater transmission capacity;
- changes in our customers' service requirements;
- technological advances; and
- government regulation.
Any upgrade, expansion or adaptation of these networks could require
substantial additional financial, operational and managerial resources which may
not be available to us.
IF WE FAIL TO MAINTAIN COOPERATIVE RELATIONSHIPS WITH OUR LANDING PARTIES,
OUR OPERATIONS MAY BE IMPAIRED.
We depend upon fifteen different landing parties to provide access to the
origination and termination points for the FLAG Europe-Asia cable system. Our
ability to offer city-to-city services is dependent on our landing parties'
willingness to provide cost-effective terrestrial services, and/or to
8
<PAGE>
agree to connect other terrestrial networks to the FLAG Europe-Asia cable
system. Each of these landing parties has entered into a construction and
maintenance agreement with us and some of our customers under which each of the
landing parties commits to provide access, to charge reasonable and uniform
rates to all customers accessing the FLAG Europe-Asia cable system through the
landing party's landing station and to maintain the terrestrial portion of the
FLAG Europe-Asia cable system in the landing party's country. Despite these
commitments, we cannot assure you that the landing parties will perform their
contractual obligations or that there will not be political events or changes in
relation to the landing parties which have adverse effects on us.
In addition, the construction and maintenance agreement restricts our
ability to install further equipment into cable landing facilities without the
consent of our landing parties. While none of our landing parties has ever
withheld its consent, we cannot assure you that we will be able to obtain the
consent of our landing parties to proposed future modifications of our landing
facilities that may be advantageous to us or necessary to operate the FLAG
Europe-Asia cable system.
IF USE OF THE INTERNET DOES NOT GROW AS EXPECTED, OUR BUSINESS AND FINANCIAL
PERFORMANCE MAY SUFFER.
We believe Internet Protocol is emerging as the platform of choice for the
next generation of communication networks. Therefore, as part of our business
strategy, we have developed and are developing products and services which
target the specific needs of Internet service providers. However, wide-scale
interest in and use of the Internet for commerce and by individuals is a recent
phenomenon. This growth may not continue. If continued acceptance and growth of
the Internet does not occur, demand for telecommunication services may decline
generally, with our products and services tailored to Internet service providers
being particularly affected, and our business and financial performance will
suffer.
IF ADVERSE FOREIGN ECONOMIC OR POLITICAL EVENTS OCCUR, OUR NETWORK AND
CUSTOMER BASE MAY BE ADVERSELY AFFECTED AND OUR FINANCIAL RESULTS COULD SUFFER.
We derive substantially all of our revenues from international operations.
We have substantial physical assets in several jurisdictions along the FLAG
Europe-Asia cable route and expect to have substantial physical assets along the
FLAG Atlantic-1 cable route. International operations are subject to political,
economic and other uncertainties, including, risk of war, revolution,
expropriation, renegotiation or modification of existing contracts, labor
disputes and other uncertainties arising out of foreign government sovereignty
over our international operations. Some regions of the world along our routes
have a history of political and economic instability. This instability could
result in new governments or the adoption of new policies that are hostile to
foreign investment.
BECAUSE MANY OF OUR CUSTOMERS DEAL PREDOMINANTLY IN FOREIGN CURRENCIES, WE
MAY BE EXPOSED TO EXCHANGE RATE RISKS AND OUR NET INCOME MAY SUFFER DUE TO
CURRENCY TRANSLATIONS.
We invoice all capacity sales and maintenance charges in U.S. dollars;
however, most of our customers and many of our prospective customers derive
their revenues in currencies other than U.S. dollars. The obligations of
customers with substantial revenues in foreign currencies may be subject to
unpredictable and indeterminate increases in the event that such currencies
devalue relative to the U.S. dollar. Furthermore, such customers may become
subject to exchange control regulations restricting the conversion of their
revenue currencies into U.S. dollars. In such event, the affected customers may
not be able to pay us in U.S. dollars.
In addition, we derive, and expect to continue to derive, a significant
portion of our revenues from customers located throughout Asia. As a result of
the recent currency and economic crisis in the region, including the imposition
of exchange controls, we may experience collection delays or
9
<PAGE>
nonpayment and we have experienced, and may continue to experience, deferrals of
capacity purchases from our Asian customers.
BECAUSE OUR COMPANY AND OUR INDUSTRY ARE HIGHLY REGULATED, OUR ABILITY TO
COMPETE IN SOME MARKETS IS RESTRICTED.
The telecommunications industry is highly regulated. The regulatory
environment varies substantially from country to country and restricts our
ability to compete in some markets. For example, in jurisdictions where we
desire to extend the FLAG Telecom network or offer new services, we may be
required to obtain landing licenses, operator licenses and other permits. We
cannot assure you that we will be able to obtain the authorizations that we need
to implement our business plan and enter new markets or that these
authorizations, if obtained, will not be later revoked. Regulation of the
telecommunications industry is also changing rapidly, with effects on our
opportunities, competition and other aspects of our business. Our operations may
be subject to risks such as the imposition of governmental controls and changes
in tariffs.
IF THERE IS ANY CHANGE IN OUR TAX STATUS OR INCOME TAX REGULATIONS OF THE
COUNTRIES WHERE WE OPERATE, OUR FINANCIAL RESULTS COULD BE NEGATIVELY AFFECTED.
We believe that a significant portion of our income will not be subject to
tax by Bermuda, which currently has no corporate income tax, or by other
countries in which we conduct activities or in which our customers are located,
including the United States. However, we base this belief upon the anticipated
nature and conduct of our business, which may change, and upon our understanding
of our position under the tax laws of the various countries in which we have
assets or conduct activities. Our tax position is subject to review and possible
challenge by taxing authorities and to possible changes in law which may have
retroactive effect. We cannot determine in advance the extent to which certain
jurisdictions may require us to pay tax or to make payments in lieu of tax. In
addition, payments due to us from our customers may be subject to withholding
tax or other tax claims in amounts that exceed the taxation that we expect based
on our current and anticipated business practices and current tax regimes.
BECAUSE WE FACE SIGNIFICANT COMPETITION IN THE ATTRACTION AND RETENTION OF
SKILLED PERSONNEL, WE MAY NOT BE ABLE TO HIRE AND RETAIN THE PERSONNEL NECESSARY
TO ACHIEVE OUR BUSINESS OBJECTIVES AND OPERATE THE FLAG TELECOM NETWORK
SUCCESSFULLY.
We believe that a critical component for our success will be the attraction
and retention of qualified professional and technical personnel. We expect
further growth in the number of our personnel, particularly in connection with
the FLAG Atlantic-1 cable system and the new wholesale services we are offering.
We face significant competition in the attraction and retention of personnel who
possess the technical skill sets and regional expertise that we seek. If we lose
key personnel or qualified technical staff, or are unable to recruit qualified
personnel, our ability to manage the day-to-day aspects of our complex network
will be weakened.
IF OUR SYSTEMS PROVE NOT TO BE YEAR 2000 COMPLIANT, WE MAY INCUR UNEXPECTED
EXPENSES AND DELAYS IN PAYMENT FOR OUR SERVICES AND IN OUR ABILITY TO CONDUCT
NORMAL OPERATIONS.
The Year 2000 problem arises from the fact that many computer programs
indicate the year by only two digits, rather than four. As a result, computer
systems and software in a wide variety of industries may produce some erroneous
results or fail unless they have been modified or upgraded to process date
information correctly. Prior to December 31, 1999, we conducted an investigation
into Year 2000 compliance covering all network equipment and financial systems
used to provide services to our customers, network operations support systems
used to support the operations of our network, and all administrative support
systems. As of the date of this prospectus, we have not encountered Year 2000
related problems. We continue to monitor developments in this area. We believe
our most significant Year 2000 risk lies with our landing parties, customers and
major suppliers. We have developed a contingency plan to minimize operational
problems if Year 2000 related problems arise. If our network equipment or
financial systems or those of our landing parties, customers and major
10
<PAGE>
suppliers are not Year 2000 compliant, we could experience unexpected expenses
and delays, including delays in our ability to conduct normal business
operations and to sell our products and services.
RISKS RELATED TO OUR INDUSTRY
BECAUSE OUR PRODUCT OFFERINGS ARE EXPANDING AND THE TELECOMMUNICATIONS
INDUSTRY IS CHANGING SIGNFICANTLY, WE FACE COMPETITION AND PRICING PRESSURE FROM
A WIDE VARIETY OF SOURCES.
Along the FLAG Europe-Asia cable route and the FLAG Atlantic-1 cable route,
we face competition and pricing pressure from existing cables, planned cables,
and satellite providers, including existing geosynchronous satellites and
low-earth orbit systems now under construction. As we expand our range of
available products and services, we expect to face competition from various
carriers offering comparable products and services.
Many of our competitors have, and some potential competitors are likely to
enjoy, substantial competitive advantages, including the following:
- greater name recognition;
- greater financial, technical, marketing and other resources;
- larger installed bases of customers; and
- well-established relationships with current and potential customers.
Significant new and potentially larger competitors could also enter our
market as a result of regulatory changes or the establishment of cooperative
relationships. In addition, recent technological advances may greatly expand the
capacity of existing and new fiberoptic cables. Although such technological
advances may enable us to increase our capacity, an increase in the capacity of
our competitors could lead to even greater competition. Increased competition
could lead to price reductions, fewer large-volume sales, under-utilization of
resources, reduced operating margins and loss of market share.
BECAUSE WE FACE RAPID TECHNOLOGICAL CHANGES, OUR INFRASTRUCTURAL INVESTMENTS
AND TECHNOLOGIES COULD BECOME OBSOLETE BEFORE WE CAN ACHIEVE ADEQUATE
UTILIZATION OF THESE ASSETS.
The telecommunications industry is subject to rapid and significant changes
in technology. If we do not replace or upgrade technology and equipment that
becomes obsolete, we will be unable to compete effectively because we will not
be able to meet the expectations of our customers. Additionally, in recent
years, the useful economic life of telecommunications equipment has declined
significantly. Although we believe that, for the foreseeable future,
technological changes will not materially affect the use of our fiberoptic
system, we cannot predict the effect of technological changes on our business.
The FLAG Europe-Asia cable system has a warranted design life of 25 years and
the FLAG Atlantic-1 cable system will have a warranted design life of 25 years;
however, we cannot assure you that technological developments will not render
the infrastructure and technologies in which we invest obsolete before we can
adequately utilize them. The failure of the FLAG Europe-Asia cable system or the
FLAG Atlantic-1 cable system to achieve their warranted design life could have a
material adverse effect on us.
RISKS RELATED TO THIS OFFERING
EVEN AFTER THIS OFFERING OWNERSHIP OF OUR COMMON SHARES WILL REMAIN
RELATIVELY CONCENTRATED, WHICH MAY MAKE OUR COMMON SHARES LESS LIQUID AND
DEPRESS THEIR MARKET PRICE.
After this offering, our officers, directors and existing shareholders will
together own (or have the right to acquire upon the exercise of options granted
under our stock option plan) approximately 80% of our outstanding common shares,
or approximately 77% if the underwriters exercise their over-allotment option in
full. Moreover, a small number of shareholders will own a majority of our common
shares enabling those shareholders, if they act together, to retain significant
influence over the composition of our management and any matters requiring
shareholder approval, including the election
11
<PAGE>
of members of the Board of Directors. This concentration of ownership also may
have the effect of delaying or preventing a change in control of FLAG Telecom
and may make our shares less liquid. This lack of liquidity could depress the
market price of our common shares.
THE ABILITY OF CERTAIN SHAREHOLDERS TO APPOINT MEMBERS OF OUR BOARD OF
DIRECTORS AND CERTAIN PROVISIONS IN OUR BY-LAWS MAY LIMIT OUR ABILITY TO ENTER
INTO CERTAIN TRANSACTIONS.
Our By-laws provide that a shareholder is entitled to elect one member of
our Board of Directors for each 9% of our issued and outstanding common shares
that it holds. Consequently, Bell Atlantic will be entitled to appoint three of
our ten directors. In addition, Bell Atlantic and Rathburn Limited are each
entitled to elect one member of our Board of Directors as long as they hold any
common shares. Marubeni also may elect one member of our Board of Directors as
long as it is required under FLAG Limited's credit facility to directly or
indirectly hold at least 5% of FLAG Limited's common shares. In addition, our
By-laws provide that certain actions required to be approved by our Board of
Directors must be approved by two-thirds of the votes present and entitled to be
cast at a properly convened meeting of our Board of Directors. This voting
requirement may limit our ability to take certain actions, even if such actions
would be deemed beneficial by a simple majority of our Board.
ANTI-TAKEOVER PROVISIONS COULD MAKE A THIRD-PARTY ACQUISITION OF US
DIFFICULT AND COULD PREVENT OR DELAY A TRANSACTION INVOLVING A CHANGE OF
CONTROL, EVEN IF SUCH A TRANSACTION WOULD BE BENEFICIAL TO OUR SHAREHOLDERS.
Our By-laws provide for a classified Board of Directors and contain fair
price provisions. These provisions may have the effect of delaying or preventing
changes of control of the management of our company, even if such transactions
would have significant benefits to our shareholders. As a result, these
provisions could limit the price some investors might be willing to pay for our
common shares in the future.
FUTURE SALES OF OUR COMMON SHARES MAY DEPRESS OUR STOCK PRICE.
If our existing shareholders sell a large number of shares, or if we issue a
large number of our common shares in connection with future acquisitions,
financings, or other circumstances, the market price of our common shares could
decline significantly. Moreover, the perception in the public market that these
shareholders might sell common shares could depress the market price of the
common shares. Immediately after this offering, the public market for our common
shares will include only the 26,400,000 shares that are being sold in this
offering (or 30,360,000 shares if the underwriters exercise their over-allotment
option in full). At that time, there will be an additional 100,666,056 common
shares outstanding. After the offering, we intend to initially register over
6,763,791 common shares which are reserved for issuance under our long term
incentive plan. Once we register these shares, they can be sold in the public
market upon issuance, subject to restrictions under the securities laws
applicable to resales by affiliates. In addition, we may decide to register
additional common shares under the Securities Act after the closing of this
offering for use by us as consideration for future acquisitions. If we so
decide, upon such registration and issuance, these shares generally will be
freely tradable, unless the resale thereof is contractually restricted or unless
the holders thereof are subject to the restrictions on resale provided in
Rule 145 under the Securities Act. We will not be able to issue the shares,
however, without Salomon Smith Barney Inc.'s consent during the 180 days after
the date of this prospectus. See "Shares Eligible for Future Sale."
Approximately 98% of the 100,666,056 additional shares to be held by our
existing shareholders after this offering are subject to lock-up agreements with
the representatives of the underwriters, pursuant to which most of our existing
shareholders have agreed not to offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of any of these shares within the 180-day
period following the date of this prospectus. When the 180-day lock-up period
expires, or earlier with the
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<PAGE>
consent of Salomon Smith Barney Inc., the owners of these shares will be able to
sell them in the public market, subject to limitations of the securities laws.
BECAUSE THE PRICE YOU PAY FOR OUR SHARES EXCEEDS THE AVERAGE PRICE PAID BY
OUR EXISTING SHAREHOLDERS, YOU WILL BE IMMEDIATELY AND SUBSTANTIALLY DILUTED.
If you purchase our common shares in this offering, you will experience
immediate and substantial dilution of $13.00 per share, based upon an estimated
initial public offering price of $21.00 per share (the mid-point of the
estimated offering range), because the price you pay will be substantially
greater than the net tangible book value per share of $8.00 for the shares you
acquire. This dilution is due in large part to the fact that our prior investors
paid an average price of $5.05 per share when they purchased their common
shares, which is substantially less than the initial public offering price.
BECAUSE OUR COMMON SHARES HAVE NEVER BEEN PUBLICLY TRADED, WE CANNOT PREDICT
THE EXTENT TO WHICH A MARKET WILL DEVELOP FOR OUR COMMON SHARES, HOW VOLATILE
THAT MARKET WILL BE OR THE EFFECT THAT SUCH EVENTS MAY HAVE ON THE VALUE OF THE
COMMON SHARES YOU PURCHASE IN THIS OFFERING.
Prior to this offering, there has been no market for our common shares. The
initial public offering price of our common shares will be determined by
negotiations between ourselves and the representatives for the underwriters. The
price of our common shares after this offering may fluctuate widely. The reasons
for such fluctuations may include the business community's perception of our
prospects and of the telecommunications industry in general. Differences between
our actual operating results and those expected by investors and analysts and
changes in analysts' recommendations or projections could also affect the price
of our common shares. Other factors potentially causing volatility in the price
for our common shares may include changes in general economic or market
conditions and broad market fluctuations, particularly those affecting the
prices of the common shares of companies engaged in businesses similar or
related to our business. We have applied to include our common shares for
quotation on the Nasdaq National Market and for listing on the London Stock
Exchange. Such inclusion or listing does not, however, guarantee that an active
and liquid trading market for our common shares will develop.
BECAUSE OF THE CONSTRAINTS IMPOSED BY OUR FINANCING ARRANGEMENTS, WE DO NOT
ANTICIPATE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We do not anticipate paying cash dividends in the foreseeable future. Our
ability to pay dividends is limited by certain of our debt instruments.
SINCE MOST OF OUR ASSETS ARE LOCATED OUTSIDE OF THE UNITED STATES, IT MAY BE
DIFFICULT TO BRING AND ENFORCE SUITS AGAINST US.
We are incorporated in Bermuda. Most of our directors and officers are not
residents of the United States. All or a substantial portion of the assets of
those directors and officers are or may be located outside of the United States.
In addition, a substantial portion of our assets are located outside of the
United States. As a result, it may be difficult for our shareholders to serve
notice of a lawsuit on us or our non-U.S. directors and officers within the
United States. Because most of our assets are located outside of the United
States, it may be difficult for our shareholders to enforce in the United States
judgments of United States courts. Appleby Spurling & Kempe, our counsel in
Bermuda, has advised us that there is some doubt as to the enforcement in
Bermuda, in original actions or in actions for enforcement of judgments of
United States courts, of liabilities predicated upon U.S. federal securities
laws.
BECAUSE WE ARE AT AN EARLY STAGE IN THE DEVELOPMENT OF OUR NETWORK, OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS.
We are at an early stage in the development and expansion of our products
and services. Accordingly, all statements in this prospectus that are not
clearly historical in nature are forward-looking. Discussions containing
forward-looking statements are found in the material set forth under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition
13
<PAGE>
and Results of Operations" and "Business," as well as in this prospectus
generally. When used in this prospectus, the words "anticipate," "believe,"
"expect," "estimate" and similar expressions are generally intended to identify
forward-looking statements. Examples of forward-looking statements include the
statements concerning our operations, prospects, size and growth of world
telecommunications traffic, size and growth of addressable market, technological
and customer support capabilities, pricing, new product and services
development, potential expansions to our network, potential customers and
liquidity and working capital needs, estimated demand forecast, and information
concerning characteristics of competing systems. These forward-looking
statements are inherently predictive and speculative and we cannot assure you
that any of such statements will prove to be correct. Actual results and
developments may be materially different from those expressed or implied by such
statements. You should carefully review the other risk factors set forth in this
section of this prospectus for a discussion of factors which could result in any
of such forward-looking statements proving to be inaccurate.
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<PAGE>
USE OF PROCEEDS
If we sell the common shares offered through this prospectus at a public
offering price of $21.00 per share (the mid-point of the estimated offering
range), we estimate that we will receive net proceeds from the sale of the
common shares offered by FLAG Telecom, after deducting underwriting discounts
and commissions and estimated offering expenses, of $416.8 million, or $443.1
million if the underwriters exercise their over-allotment option in full. FLAG
Telecom will not receive any proceeds from the sale of common shares in this
offering by the selling shareholders.
We intend to use the net proceeds from this offering as follows:
- assuming we can implement the amendment described below to FLAG Limited's
credit facility on or prior to the completion of this offering, to repay
$25 million outstanding under this facility and otherwise to repay up to
$175 million outstanding under this facility; and
- to fund (or to set aside funds for) our existing obligation to contribute
approximately $100 million in capital to FLAG Atlantic Limited.
We intend to use the remainder of the net proceeds:
- to fund additional expansions of the FLAG Telecom network and to develop
additional wholesale and bundled product and service offerings; and
- for working capital and general corporate purposes.
We have not determined how much of the remainder of the net proceeds we will
use for each of the purposes identified above. The occurrence of unforeseen
events or changed business conditions, however, could cause us to use the
proceeds of this offering in a manner other than as described in this
prospectus.
FLAG Limited's existing credit facility provides for borrowing capacity of
up to $370 million, of which approximately $190 million was outstanding as of
January 1, 2000. The existing credit facility consists of a seven year
$320 million term loan facility and a seven year $50 million revolving credit
facility, each bearing interest at a rate of 190 to 212.5 basis points over
LIBOR. At January 1, 2000, all outstanding indebtedness under this credit
facility was outstanding under the term loan facility. On January 14, 2000, we
received an indication of willingness from Dresdner Kleinwort Benson and
Barclays Capital, as co-arrangers, to modify FLAG Limited's existing credit
facility to consist of a $150 million, six-year term loan facility and a $10
million, revolving credit facility. Under the terms of this proposal, these
facilities would bear interest at a rate of 225 basis points over LIBOR for the
first six months and thereafter at a rate of between 150 and 250 basis points
over LIBOR, depending on FLAG Limited's credit rating. In connection with this
amendment, FLAG Limited would be required to pay fees and expenses to the
co-arrangers totalling approximately $3.5 million. The commitments of the co-
arrangers would also be subject to satisfaction of various conditions, including
successful completion of business, engineering and legal due diligence, receipt
of internal credit approvals, conclusion of definitive documentation, successful
completion of this offering and no material adverse changes to FLAG Limited or
to the financial markets generally. The borrowings from FLAG Limited's existing
credit facility were applied, together with the proceeds from FLAG Limited's
issuance of the 8 1/4% Senior Notes:
- to secure payments to contractors in connection with the construction of
the FLAG Europe-Asia cable system;
- to repay $615 million of indebtedness under FLAG Limited's prior credit
facility;
- to redeem all outstanding shares of preferred stock issued by FLAG
Limited; and
- for general corporate purposes.
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<PAGE>
DIVIDEND POLICY
We have never declared or paid any dividends on our common shares. Our Board
of Directors currently intends to retain any earnings for use in the operation
and expansion of our business and does not anticipate paying any dividends on
the common shares for the foreseeable future. In the event we change our policy
on the payment of dividends, declarations will be subject to the discretion of
our Board of Directors. Our Board of Directors will take into account such
matters as general business conditions, our financial results, capital
requirements, contractual, legal and regulatory restrictions on the payment of
dividends by us to our shareholders or by our subsidiaries to us and such other
factors as our Board of Directors may deem relevant.
DILUTION
The net tangible book value of our common shares as of September 30, 1999
was $310 million, or $4.45 per share. Net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the common shares outstanding as of September 30, 1999. After giving effect
to our sale of 21,100,000 common shares offered by FLAG Telecom through this
prospectus at an estimated initial public offering price of $21.00 per share
(the mid-point of the estimated offering range) and application of the estimated
net proceeds therefrom, and after deducting the underwriting discounts and
estimated offering expenses payable by us, our net tangible book value as
adjusted as of September 30, 1999 would have been $727 million, or $8.00 per
share. This represents an immediate increase in net tangible book value as
adjusted of $3.55 per share to existing shareholders, and an immediate dilution
in net tangible book value as adjusted of $13.00 per share to new investors
purchasing common shares in this offering.
The following table illustrates the per share dilution as described above:
<TABLE>
<S> <C> <C>
Estimated initial public offering price...... $ 21.00
Net tangible book value before this
offering............................... $ 4.45
Increase attributable to new investors in
this offering.......................... 3.55
-----------------------
Net tangible book value as adjusted after
this offering.............................. 8.00
-----------------------
Dilution to new investors.................... $ 13.00
=======================
</TABLE>
The following table summarizes, on a pro forma basis, as of September 30,
1999, the number of common shares purchased in this offering, the aggregate cash
consideration paid and the average price per share paid by existing shareholders
for common shares and by new investors purchasing common shares in this
offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- -----------------------
<S> <C> <C> <C> <C> <C>
AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --- ------------ --- ------
Existing shareholders.................. 69,709,935 77% $352,180,336 44% $ 5.05
New investors.......................... 21,100,000 23 443,100,000 56 $21.00
----------- --- ------------ ---
Total................................ 90,809,935 100% $795,280,336 100% $ 8.76
=========== === ============ ===
</TABLE>
These calculations do not include shares reserved for issuance upon the
exercise of stock options or those which were issued on January 4, 2000 to Bell
Atlantic in connection with the exchange of its remaining stock in FLAG Limited
for our common stock.
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<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of FLAG Telecom at
September 30, 1999 and the capitalization of FLAG Telecom at September 30, 1999,
as adjusted. You should read this table in conjunction with FLAG Telecom's
consolidated financial statements and notes which are included elsewhere in this
prospectus. For purposes of this table, the "As Adjusted" column gives effect to
the sale of the common shares offered in this prospectus at an estimated initial
public offering price of $21.00 per share (the mid-point of the estimated
offering range) and the application of estimated net proceeds, after deducting
underwriting discounts and commissions and estimated offering expenses. The "As
Adjusted" column also gives effect to the proposed amendment to FLAG Limited's
existing credit facility described herein but does not give effect to the
January 4, 2000 exchange by Bell Atlantic of its common shares in FLAG Limited
for our common shares.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(1)
---------- ----------
<CAPTION>
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash........................................................ $ 2,836 $ 394,673
Current portion of long-term obligations.................... -- --
Long-term obligations, net:
8 1/4% Senior Notes due 2008............................ $ 425,122 $ 425,122
Other long-term debt........................................ 223,000 198,000
Minority interest........................................... 160,562 160,562
Shareholders' equity:
Common shares 189,833,333 shares authorized; 69,709,935
issued and outstanding actual; 300,000,000 shares
authorized; 90,809,935 shares issued and outstanding
as adjusted........................................... 7 9
Other shareholders' equity.............................. 308,547 725,382
---------- ----------
Foreign currency translation adjustment................. (3) (3)
Retained earnings....................................... 1,315 1,315
---------- ----------
Total shareholders' equity.................................. 309,866 726,703
---------- ----------
Total capitalization........................................ $1,118,550 $1,510,387
========== ==========
</TABLE>
- ------------------------
(1) In the event that FLAG Limited does not amend its existing credit facility
on or prior to completion of this offering in accordance with the terms of a
proposal it has received from two of its existing lenders, other long-term
debt will be $48 million and cash will be $244.7 million.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND NOTES)
The following table presents selected consolidated statements of operations
and balance sheet data of FLAG Telecom and FLAG Limited for the periods
indicated. The financial data for the periods ended December 31, 1996, 1997 and
1998 and for the period from January 1, 1999 to February 26, 1999 has been
derived from FLAG Limited's audited consolidated financial statements included
elsewhere in this prospectus. The financial data as of September 30, 1999 and
for the period from incorporation to September 30, 1999 has been derived from
FLAG Telecom's audited interim consolidated financial statements included
elsewhere in this prospectus. Operating results for the period from
incorporation to September 30, 1999 are not necessarily indicative of the
results that may be expected for the full year ended December 31, 1999.
You should read the selected consolidated financial information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", FLAG Limited's consolidated financial statements and
FLAG Telecom's consolidated financial statements and notes thereto included
elsewhere in this prospectus.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND NOTES)
<TABLE>
FLAG LIMITED
---------------------------------------------------------------------------------
PERIOD FROM
JANUARY 1,
YEAR ENDED AS OF DECEMBER 31, 1999 TO
------------------------------------------------------------------ FEBRUARY 26,
1994(1) 1995(2) 1996(3) 1997 1998 1999
------------ ------------ ------------ --------- --------- ------------
(AS (AS (AS
RESTATED) RESTATED) RESTATED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Capacity sales, net of discounts...... $ -- $ -- $ -- $ 335,982 $ 182,935 $ 25,554
Standby maintenance and restoration
revenue............................. -- -- -- 4,011 25,313 4,458
-------- -------- --------- --------- --------- ---------
-- -- -- 339,993 208,248 30,012
-------- -------- --------- --------- --------- ---------
Sales and other operating expenses:
Cost of capacity sold................. -- -- -- 196,190 101,288 8,294
Operations and maintenance............ -- -- -- 4,600 37,931 5,114
Sales and marketing................... -- 10,253 316 6,598 10,680 637
General and administrative(4)......... 6,621 10,178 12,345 30,339 21,674 2,870
Stock compensation.................... -- -- -- -- -- --
Depreciation and amortization......... 278 381 121 276 844 233
-------- -------- --------- --------- --------- ---------
6,899 20,813 12,782 238,003 172,417 17,148
-------- -------- --------- --------- --------- ---------
Operating income (loss)............... (6,899) (20,813) (12,782) 101,990 35,831 12,864
-------- -------- --------- --------- --------- ---------
Interest expense...................... -- -- -- 20,193 61,128 9,758
Interest income....................... 110 439 2,408 6,637 14,875 1,825
Gulf settlement(1).................... (7,600) -- -- -- -- --
-------- -------- --------- --------- --------- ---------
Income (loss) before minority interest
and income taxes.................... (14,389) (20,374) (10,374) 88,434 (10,422) 4,931
Minority interest..................... -- -- -- -- -- --
Provision for income taxes............ -- -- -- 8,991 1,260 171
-------- -------- --------- --------- --------- ---------
Net income (loss) before extraordinary
item................................ (14,389) (20,374) (10,374) 79,443 (11,682) 4,760
Extraordinary item(5)................. -- -- -- -- (59,839) --
-------- -------- --------- --------- --------- ---------
Net income (loss)..................... (14,389) (20,374) (10,374) 79,443 (71,521) 4,760
Cumulative pay-in-kind preferred
dividends........................... -- 1,787 14,410 16,324 1,508 --
Redemption premium and write-off of
discount on preferred shares(6)..... -- -- -- -- 8,500 --
-------- -------- --------- --------- --------- ---------
Net income (loss) applicable to common
shareholders........................ $(14,389) $(22,161) $ (24,784) $ 63,119 $ (81,529) $ 4,760
======== ======== ========= ========= ========= =========
Net income (loss) per share(7)
Class A............................. $ (0.01) $ (0.02) $ (0.02) $ 0.05 $ (0.07) $ 0.01
Class B............................. $ (0.19) $ (0.30) $ (0.13) $ 0.14 $ (0.13) $ --
STATEMENT OF CASH FLOW DATA:
Cash flow from
operating activities................ -- (14,155) (12,103) 285,156 88,831 (23,104)
Cash flow from
financing activities................ -- 84,206 342,011 245,677 97,818 21,230
Cash flow from
investing activities................ -- (70,635) (329,886) (528,653) (186,144) 601
<S> <C>
FLAG TELECOM
-------------
PERIOD FROM
INCORPORATION
TO
SEPTEMBER 30,
1999
-------------
STATEMENT OF OPERATIONS DATA:
Revenues:
Capacity sales, net of discounts...... $ 89,223
Standby maintenance and restoration
revenue............................. 28,760
---------
117,983
---------
Sales and other operating expenses:
Cost of capacity sold................. 43,799
Operations and maintenance............ 16,215
Sales and marketing................... 7,335
General and administrative(4)......... 11,278
Stock compensation.................... 3,464
Depreciation and amortization......... 5,220
---------
87,311
---------
Operating income (loss)............... 30,672
---------
Interest expense...................... 31,264
Interest income....................... 4,924
Gulf settlement(1).................... --
---------
Income (loss) before minority interest
and income taxes.................... 4,332
Minority interest..................... 1,919
Provision for income taxes............ 1,098
---------
Net income (loss) before extraordinary
item................................ 1,315
Extraordinary item(5)................. --
---------
Net income (loss)..................... 1,315
Cumulative pay-in-kind preferred
dividends........................... --
Redemption premium and write-off of
discount on preferred shares(6)..... --
---------
Net income (loss) applicable to common
shareholders........................ $ 1,315
=========
Net income (loss) per share(7)
Class A............................. $ --
Class B............................. $ 0.02
STATEMENT OF CASH FLOW DATA:
Cash flow from
operating activities................ 62,113
Cash flow from
financing activities................ 41,453
Cash flow from
investing activities................ (102,636)
</TABLE>
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND NOTES)
<TABLE>
FLAG LIMITED FLAG
----------------------------------------------------------------------------- TELECOM
----------
AS OF DECEMBER 31, AS OF AS OF
--------------------------------------------------------------- FEBRUARY SEPTEMBER
1994(1) 1995(2) 1996(3) 1997 1998 26, 1999 30, 1999
---------- ---------- ---------- ----------- ---------- ----------- ----------
(AS (AS (AS
RESTATED) RESTATED) RESTATED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.......... $ 3,529 $ 3,106 $ 3,759 $ 96,677 $ 76,114 $ 73,941 $ 129,596
Funds held by collateral
trustee............... -- 46,537 48,194 425,905 255,366 219,136 144,183
Construction in
progress.............. 31,355 167,281 647,805 389 11,494 18,471 --
Capacity available for
sale.................. -- -- -- 1,208,948 1,095,099 1,086,435 870,181
Total assets............ 38,328 286,476 774,447 1,836,937 1,475,766 1,453,369 1,363,904
Current liabilities..... 16,550 74,453 206,486 370,555 232,814 203,226 130,385
Senior notes............ -- -- -- -- 424,679 424,777 425,122
Long-term debt.......... -- 50,000 312,543 615,087 271,500 256,500 223,000
Minority interest....... -- -- -- -- 160,562
Deferred revenue........ -- -- -- 176,221 84,415 83,570 111,318
Preferred Stock(6)...... -- 98,711 113,121 129,445 -- -- --
Shareholders' equity:
Common shares, $.0001
par value............. -- -- -- -- -- 64 7
Class A common shares,
$.0001 par value.... 13 13 13 13 13 -- --
Class B common shares,
$.0001 par value.... 3 9 22 57 57 -- --
Other shareholders'
equity(6)............. 43,887 99,098 195,135 514,389 504,381 504,387 308,547
Foreign currency
translation
adjustment............ -- -- -- -- (704) (526) (3)
Retained earnings
(accumulated
deficit).............. (22,125) (42,499) (52,873) 26,570 (44,951) (40,191) 1,315
Shareholders' equity.... $ 21,788 $ 56,621 $ 142,297 $ 541,029 $ 458,796 $ 463,734 $ 309,866
======== ======== ========= =========== ========= =========== ==========
</TABLE>
- ------------------------
(1) FLAG Limited restated its 1994 and subsequent financial statements to
reflect the $7.6 million portion of a $9.0 million payable to Gulf
Associates Telecommunications Limited under a settlement agreement as an
expense, as this amount primarily related to Gulf's agreement to discontinue
arbitration proceedings. This restatement increased net loss and net loss
applicable to common shareholders as of December 31, 1994 by $7.6 million.
This restatement had no effect on net loss and net loss applicable to common
shareholders in 1995, 1996, 1997 or 1998.
(2) FLAG Limited restated its 1995 financial statements, as originally issued in
March 1997, to give effect to a $3.1 million discount on FLAG Limited's
issuance of 3,075,816 shares of preferred stock in 1995. For the year ended
December 31, 1995, this restatement had no effect on net loss, increased net
loss applicable to common shareholders by $0.07 million, and had no effect
on basic and diluted loss per common share for Class A and Class B.
(3) FLAG Limited restated its 1996 financial statements, as originally issued to
give effect to a $3.1 million discount on FLAG Limited's issuance of
3,075,816 shares of preferred stock in 1995. For the year ended
December 31, 1996, this restatement had no effect on net loss, but increased
net loss applicable to common shareholders by $0.55 million.
(4) Included in general and administrative expenses for the years ended
December 31, 1996, 1997 and 1998 are program management expenses which
include reimbursements to Bell Atlantic Network Systems Company, a
shareholder of FLAG Telecom, for all costs and out-of-pocket expenses
incurred by Bell Atlantic Network Systems Company in performing project
management services for FLAG Limited. In addition, Bell Atlantic Network
Systems Company received a fee equal to 16% of payroll costs and of certain
outside contractor and consultant costs.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND NOTES)
(5) In connection with FLAG Limited's issuance of 8 1/4% Senior Notes due 2008
and its entry into its existing credit facility, FLAG Limited recorded an
extraordinary loss of $59.8 million, representing the write-off of
unamortized deferred financing costs related to its old credit facility.
(6) In connection with FLAG Limited's issuance of 8 1/4% Senior Notes due 2008
and its entry into its existing credit facility, FLAG Limited redeemed its
then outstanding preferred stock at a redemption price of 105% of the
liquidation preference. The excess of the redemption value over the carrying
value of the preferred stock on the date of the redemption of $8.5 million
has been reflected as a decrease in other shareholders equity.
(7) The net loss per share in 1998, excluding the extraordinary item, was $0.02
and $0.03 for Class A and Class B shares, respectively.
21
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table presents the pro forma consolidated balance sheet of
FLAG Telecom as of September 30, 1999. This pro forma consolidated balance sheet
has been prepared after giving effect to the sale of the common shares offered
by FLAG Telecom in this prospectus at an estimated initial public offering price
of $21.00 per share (the mid-point of the estimated offering range) and the
application of the estimated net proceeds from this offering, as if this
offering had occurred on September 30, 1999.
On the assumption that the offering occurred on February 27, 1999, the only
effect on the pro forma consolidated statement of operations would be a
reduction in interest expense. For the period ended September 30, 1999, the
interest expense would have decreased by $1.1 million on a pro forma basis.
There is no effect on the taxation charge as a result of this reduction in
interest for both these periods.
The pro forma net income per share would have been $0.03.
22
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS, EXCEPT FOR NOTE)
(UNAUDITED)
<TABLE>
<CAPTION>
FLAG TELECOM
PRO FORMA
ACTUAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ----------
<S> <C> <C> <C>
Assets:
Current assets:
Cash................................................ $ 2,836 $416,837 $ 419,673
(25,000) (25,000)
Accounts receivable................................. 116,854 -- 116,854
Due from affiliates................................. 5,000 -- 5,000
Prepaid expenses and other assets................... 4,906 -- 4,906
---------- -------- ----------
129,596 -- 521,433
Funds held by collateral trustee or in escrow......... 144,183 -- 144,183
Capacity available for sale........................... 870,181 -- 870,181
Other assets.......................................... 219,944 -- 219,944
---------- -------- ----------
$1,363,904 $391,837 $1,755,741
========== ======== ==========
Liabilities:
Current liabilities:
Accrued construction costs.......................... $ 75,604 $ -- $ 75,604
Accrued liabilities................................. 27,519 -- 27,519
Deferred revenue.................................... 17,635 -- 17,635
Other current liabilities........................... 9,627 -- 9,627
---------- -------- ----------
130,385 -- 130,385
8 1/4% senior notes, due 2008......................... 425,122 -- 425,122
Long-term debt........................................ 223,000 (25,000) 198,000
Deferred revenue and other............................ 111,318 -- 111,318
Deferred taxes........................................ 3,651 -- 3,651
---------- -------- ----------
893,476 -- 868,476
Minority Interest....................................... 160,562 -- 160,562
Shareholders' Equity.................................... 309,866 416,837 726,703
---------- -------- ----------
$1,363,904 $391,837 $1,755,741
========== ======== ==========
</TABLE>
Note:
(1) The pro forma financial data gives effect to the sale of common shares
offered by FLAG Telecom in this prospectus as if this event occurred on
September 30, 1999. Concurrent with the sale of the common shares, FLAG
Telecom will apply the proceeds to repay up to $25 million outstanding under
FLAG Limited's credit facility (up to $175 million, in the event that FLAG
Limited does not amend its existing credit facility on or prior to
completion of this offering in accordance with the terms of a proposal it
has received from two of its existing lenders).
(2) The pro forma financial data does not give effect to the January 4, 2000
exchange by Bell Atlantic of its common shares in FLAG Limited for our
common shares.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO AND OTHER FINANCIAL INFORMATION INCLUDED
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS" AND THE MATTERS SET
FORTH IN THIS PROSPECTUS GENERALLY.
FLAG TELECOM GROUP OF COMPANIES
FLAG Telecom was formed in February 1999 to be the parent company for the
FLAG Telecom group of companies. The principal companies which comprise the FLAG
Telecom group of companies are FLAG Limited, FLAG Atlantic Limited and FLAG
Wholesale Services Limited. Pursuant to a restructuring on February 26, 1999,
FLAG Limited became our 66% owned subsidiary and the other companies then
comprising the FLAG Telecom group of companies became our wholly owned
subsidiaries, other than FLAG Atlantic Limited in which we have a 50% ownership
interest. On January 4, 2000, we acquired the remaining 34% ownership interest
in FLAG Limited and FLAG Limited became our wholly owned subsidiary. The
financial information presented in this prospectus comprises the consolidated
results of FLAG Limited for the accounting periods to February 26, 1999 and the
FLAG Telecom consolidated results for the period from incorporation to
September 30, 1999.
REVENUE RECOGNITION
Our primary business to date has been to sell capacity on the FLAG
Europe-Asia cable system. The primary method by which we have sold capacity has
been through agreements providing for an outright sale of, or the sale of a
right of use of, the capacity for the lifetime of this system. Each agreement
provides that, in return for payment of the purchase price, the customer
receives beneficial ownership of the relevant capacity. In addition, the
customer becomes responsible for paying the agreed maintenance charges.
We have recognized revenues from capacity sales on the FLAG Europe-Asia
cable system upon the date the risks and rewards of ownership of the relevant
capacity are transferred to the customer, which is the date the capacity is made
available for activation and the customer becomes responsible for maintenance
charges. The Financial Accounting Standards Board issued a recent pronouncement
(FASB Interpretation No. 43) as a result of which, sales of fiber-optic cable
capacity after June 30, 1999 are to be accounted for in the same manner as sales
of real estate with property improvements or integral equipment. The application
of this pronouncement will result in a deferral of revenue recognition for US
GAAP purposes for certain capacity sale contracts that do not satisfy the
necessary requirements of FASB Interpretation No. 43. This accounting treatment
will not affect our cash flows from customers, who will continue to be liable
for payments in accordance with the signed agreements.
As a result of extending our range of products and services, we expect a
greater part of our future sales to be under agreements which will require us to
recognize revenues over the relevant term of these agreements. To the extent
that we enter into contracts in the future that satisfy the requirements for
sales type lease accounting, we will continue to recognize revenues without
deferral.
We recognize revenues from providing maintenance and restoration services in
the period in which we provide these services.
We have previously considered revenues from operating lease transactions to
be incidental. We have therefore recorded these revenues as reductions of the
capacity available for sale. However, the magnitude of these transactions has
been increasing such that they are likely to become more than
24
<PAGE>
incidental. When this is the case, we will recognize revenues from lease
transactions over the term of the leases.
Payments due from purchasers of capacity are generally payable within
30 days; however, we have receivables outstanding greater than 30 days. We have
established an allowance for doubtful accounts based on historical industry
experience with potential uncollectible receivables and our expectations as to
payments. As of September 30, 1999, we had an allowance of $7.5 million which
principally relates to potential uncollectible amounts due from two carriers.
All revenues from capacity sales agreements and billings of standby
maintenance and restoration services are payable in U.S. dollars. All contracts
for the provision by third parties of restoration are invoiced to us in U.S.
dollars. Some vendor contracts for the provision to the FLAG Europe-Asia cable
system of operations and maintenance services are payable in Japanese Yen,
British Pounds, French Francs and Singapore Dollars in addition to U.S. dollars.
Whenever deemed appropriate, we have hedged, and may continue to hedge, our
exposure to foreign currency movements.
ACCOUNTING FOR THE CAPITAL COSTS OF THE FLAG TELECOM NETWORK
We capitalize direct and indirect expenditures incurred in connection with
the construction of the FLAG Telecom network. When a system is ready for
commercial service we transfer such expenditures to capacity available for sale
and charge a proportion of these expenditures to cost of sales as we recognize
revenues from sales of capacity. In the case of the FLAG Europe-Asia cable
system, the amount charged as cost of sales was a function of the allocated
costs of construction for each segment and management's estimate of revenues
from future capacity sales. As a result of the application of FASB
Interpretation No. 43, sales on certain segments of the FLAG Europe-Asia cable
system will not be able to satisfy the requirements for sales type lease
accounting. The costs of these segments have been reclassified at July 1, 1999
from capacity available for sale to fixed assets and are being depreciated over
their remaining useful life.
When we start to provide contracts on particular segments which are to be
accounted for as service contracts, we will reclassify the cost of that
particular segment from capacity available for sale to fixed assets and
depreciate the cost over the remaining useful life. The construction costs of
the FLAG Atlantic-1 cable system will be amortized over its economic life from
the date it is ready for commercial service or will be written off as cost of
sales against revenues from transactions whose terms satisfy the requirements of
sales-type lease accounting. Capital costs associated with development of the
other elements of the FLAG Telecom network will be amortized over their
respective economic lives.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
ADJUSTED CONSOLIDATED RESULTS
The table below shows the significant income statement amounts, in
thousands, for the nine-month period ended September 30, 1999, being a
combination of the results of FLAG Limited for the period from January 1, 1999
to February 26, 1999 and the results of FLAG Telecom for the period from
incorporation to September 30, 1999. These results have been adjusted to
eliminate minority interests
25
<PAGE>
in order to enable a better comparison with the results for the nine-month
period ended September 30, 1998. These adjustments will not be reflected in our
current and future financial statements.
<TABLE>
<CAPTION>
ADJUSTED
NINE MONTHS
ENDED
SEPTEMBER 30,
1999
--------------
<S> <C>
Revenue:
Capacity sales.............................................. $114,777
Standby maintenance and restoration revenues................ 33,218
--------
$147,995
Sales and other operating costs:
Cost of capacity sold....................................... $ 52,093
Operations and maintenance.................................. 21,329
Sales and marketing......................................... 7,972
General and administrative.................................. 14,148
Stock compensation.......................................... 3,464
Depreciation and amortization............................... 5,452
Interest expense............................................ 41,022
Interest income............................................. 6,749
--------
Income before income taxes.................................. $ 9,264
Provision for taxes......................................... 1,269
</TABLE>
REVENUES
We recognized total revenue during the nine months ended September 30, 1999
of $148.0 million compared to $155.6 million in total revenue for the nine
months ended September 30, 1998.
We recognized revenue from the sale of capacity of $114.8 million for the
nine months ended September 30, 1999 compared to $137.0 million during the nine
months ended September 30, 1998. The reduction in revenue is primarily
attributable to our recognizing less revenue during the period as the result of
our adoption of FASB Interpretation No. 43 with effect from July 1, 1999. As of
September 30, 1999, we had entered into sales transactions with 90 international
telecommunication carriers and internet service providers compared to 75 as of
September 30, 1998.
We recognized revenue from standby maintenance and restoration services of
$33.2 million for the nine months ended September 30, 1999 compared to
$18.6 million for the nine months ended September 30, 1998. The increase of
$14.6 million for the nine months ended September 30, 1999 is primarily a result
of the increase in cumulative capacity sales on the FLAG Europe-Asia cable
system combined with an increase in revenue from restoration services.
Restoration services refer to receipts from third party cable systems in respect
of traffic routed on the FLAG Europe-Asia cable system during periods when these
cable systems are temporarily out of service.
OPERATING EXPENSES
For the nine months ended September 30, 1999, we recorded $52.1 million in
respect of the cost of capacity sold compared to $71.9 million recorded in the
nine months ended September 30, 1998. The decrease in the cost of capacity sold
in the nine months ended September 30, 1999 is primarily a result of lower
revenue recognized from capacity sales combined with sales of capacity on
segments having a lower cost of sales percentage, computed as described above
for that segment, compared to the cost of sales for the segments on which
capacity was sold during the nine months ended September 30, 1998.
26
<PAGE>
During the nine months ended September 30, 1999, we incurred $21.3 million
in operations and maintenance costs compared to $28.8 million for the nine
months ended September 30, 1998. Operations and maintenance costs relate
primarily to the provision of standby maintenance under maintenance zone
agreements as well as salaries and overhead expenses directly associated with
operations and maintenance activities. The decrease in operations and
maintenance costs is largely a result of the termination of the program
management services agreement with Bell Atlantic Network Systems in May 1998
combined with lower costs of some maintenance zone agreements.
During the nine months ended September 30, 1999, we incurred $8.0 million in
sales and marketing costs compared to $8.3 million incurred during the nine
months ended September 30, 1998. Sales and marketing costs are comprised of all
sales and marketing activities that are directly undertaken by us.
During the nine months ended September 30, 1999, we incurred $14.1 million
of general and administrative expenses compared to $17.8 million during the nine
months ended September 30, 1998. The decrease in general and administrative
costs in the nine months ended September 30, 1999, is largely due to a recovery
of certain accounts receivable previously provided for combined with a reduction
in costs associated with our transition from a development stage company to an
operating company which were incurred in the nine month period ended
September 30, 1998.
During the nine months ended September 30, 1999, we recorded a charge of
$3.5 million in respect of awards under our long term incentive plan. This
charge is required under US accounting standards and is purely an accounting
charge having no effect on cash flows.
Depreciation expense for the nine months ended September 30, 1999 was
$5.5 million compared to $0.5 million for the nine months ended September 30,
1998. The increase of $4.9 million is primarily a result of us adopting FASB
Interpretation No. 43 with effect from July 1, 1999, pursuant to which the cost
of part of the FLAG Europe-Asia cable system which does not satisfy the
requirements of sales type lease accounting is being depreciated over its
remaining economic life. Prior to July 1, 1999, the cost of the FLAG Europe-Asia
cable system was wholly accounted for as capacity available for sale for which
no depreciation was recorded but which was expensed as cost of capacity sold as
revenues were recognized.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense on borrowings decreased from $46.9 million for the nine
months ended September 30, 1998 to $41.0 million for the nine months ended
September 30, 1999. The decrease in interest expense of $5.9 million is
attributable to a reduction in long term debt facility from $276.4 million as at
September 30, 1998 to $223.0 million as at September 30, 1999 combined with a
$1.7 million reduction in amortized financing costs and a reduction in interest
rates over the same period.
During the nine months ended September 30, 1999 we capitalized $1.3 million
of interest costs as a component of construction in progress.
We earned interest income of $6.7 million during the nine months ended
September 30, 1999 compared to $11.7 million earned during the nine months ended
September 30, 1998. Interest was earned on cash balances and short term
investments held by the collateral trustee for FLAG Limited's credit facility or
in escrow arising from ongoing business operations.
27
<PAGE>
PROVISION FOR TAXES
The provision for taxes was $1.3 million for the nine months ended
September 30, 1999 compared to $1.5 million for the nine months ended
September 30, 1998. The tax provisions for these periods consist of taxes on
income derived from capacity sales and standby maintenance revenue from
customers in certain jurisdictions along the FLAG Europe-Asia cable system route
where we are deemed to have a taxable presence or are otherwise subject to tax.
At the present time, no income, profit, capital or capital gains taxes are
levied in Bermuda. In the event that such taxes are levied, we have received an
undertaking from the Bermuda Government exempting us from all such taxes until
March 28, 2016.
EXTRAORDINARY ITEM
In connection with a refinancing that took place on January 30, 1998, we
recorded an extraordinary loss of $59.8 million in the statement operations for
the nine months ended September 30, 1998. The loss on refinancing represents the
write-off of unamortized deferred financing costs related to FLAG Limited's
prior credit facility. No refinancing occurred in the nine months ended
September 30, 1999.
In addition, in connection with the refinancing in January 1998, FLAG
Limited redeemed its outstanding preferred stock at a redemption price of 105%
of the liquidation preference. We reflected the $8.5 million excess of the
redemption value over the carrying value of the preferred stock on the date of
the redemption as a decrease in additional paid-in capital in the nine-month
period ended September 30, 1998. There were no costs of this nature recorded in
the nine-month period ended September 30, 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
REVENUES
We recognized total revenue during the year ended December 31, 1998 of
$208.2 million compared to $340.0 million in total revenue for the year ended
December 31, 1997.
We recognized revenue from the sale of capacity of $182.9 million for the
year ended December 31, 1998 compared to $336.0 million during the period from
October 8, 1997, the provisional system acceptance date of the FLAG Europe-Asia
cable system, to December 31, 1997. The decrease in revenue recognized from
capacity sales of $153.1 million from the period from provisional system
acceptance to December 31, 1997 compared to the year ended December 31, 1998 is
a result of 1997 revenue including sales of capacity entered into prior to
provisional system acceptance of which we recognized $316 million as revenue. As
of December 31, 1998, we had entered into sales transactions with 80
international telecommunication carriers compared to 66 as of December 31, 1997.
We recognized revenue from standby maintenance fees of $25.3 million for the
year ended December 31, 1998 compared to $4.0 million for the period from
provisional system acceptance to December 31, 1997. The increase in standby
maintenance revenue of $21.3 million in 1998 is due to our recognizing
12 months of standby maintenance revenue in 1998 compared to only three months
in 1997 as a result of our commencing operations in October 1997. We also
generated revenues from restoration services during the year ended December 31,
1998. Revenues from these services, provided to alternate cable systems on a
non-reciprocal basis, were $1.7 million. We had no revenues in respect of
restoration services in 1997.
OPERATING EXPENSES
For the year ended December 31, 1998, we recorded $101.3 million in respect
of the cost of capacity sold compared to $196.2 million recorded in 1997. The
gross profit margin on capacity sales of
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44.60% for the year ended December 31, 1998 compares to a gross profit margin of
41.60% realized in the period from provisional system acceptance to
December 31, 1997. The cost of sales recorded in 1997 included a $28.9 million
provision related to price protection credits, discussed below, compared to no
such provision included in the 1998 cost of sales. The provision for price
protection credits recorded in 1997 contributed to the lower gross profit margin
experienced in 1997 compared to 1998.
In connection with certain sales, we entered into price protection
arrangements entitling the relevant customers to capacity credits if we lower
our list prices prior to December 31, 1999. For periods during which we lower
our prices, we record a provision for cost of sales based on the estimated cost
value of the additional capacity granted. No adjustment was made to our list
prices in 1998, and accordingly no such provision was recorded in the year ended
December 31, 1998. Based on declines in our listed prices through December 31,
1997, we recorded a provision for cost of sales of approximately $28.9 million,
which was included in the total cost of sales of $196.2 million recorded in the
year ended December 31, 1997.
During the year ended December 31, 1998 we incurred $37.9 million in
operations and maintenance costs compared to $4.6 million for the period from
provisional system acceptance to December 31, 1997. Operations and maintenance
expenses relate primarily to the provision of standby maintenance under
maintenance zone agreements, as well as salaries and overhead directly
associated with operations and maintenance activities. Costs recognized in 1997
represent the portion of standby operations and maintenance expenses incurred
from provisional system acceptance to December 31, 1997. We did not incur
maintenance costs during construction. Maintenance zone agreements are
cooperative standby agreements among all cable operators in major ocean areas to
share the expense of assuring constant availability of cable ships capable of
providing repairs to undersea cables. We entered into four zone agreements. We
have also entered into a bilateral agreement for maintenance of the area from
the Red Sea to a point near the southern tip of India to facilitate more rapid
repairs than would be possible under one of our maintenance zone agreements.
During the year ended December 31, 1998, we recognized $10.7 million in
sales and marketing costs compared to $6.6 million recognized during the period
from provisional system acceptance to December 31, 1997. Sales and marketing
costs comprise sales commissions due under agreements with our suppliers and
Bell Atlantic Network Systems, plus costs associated with sales and marketing
activities.
In May 1998, we and Bell Atlantic Network Systems agreed to terminate a
Marketing Services Agreement which appointed them as FLAG Limited's exclusive
sales agent throughout the world. We expense sales commissions that we incurred
under the marketing and services agreement prior to its termination at the time
we recognize the related revenue.
General and administrative expenses decreased from $30.3 million for the
year ended December 31, 1997 to $21.7 million for the year ended December 31,
1998. The decrease is due to the partial reversal of the allowance for doubtful
accounts made in 1997, resulting from collections from customers of amounts
previously provided, partially offset by costs associated with our transition
from a development stage company to an operating company.
INTEREST EXPENSE AND INTEREST INCOME
During the year ended December 31, 1998 we incurred $61.1 million in
interest expense on borrowings compared to $20.2 million incurred during the
period from provisional system acceptance of the FLAG Europe-Asia cable system
to December 31, 1997. Prior to provisional system acceptance, we capitalized
interest costs as a component of construction in progress. We incurred
$42.5 million in interest costs in 1997 prior to provisional system acceptance,
out of total interest payments that year of $62.7 million.
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<PAGE>
We earned interest income of $14.9 million during the year ended
December 31, 1998 compared to $6.6 million earned during the year December 31,
1997. In 1998, we earned interest on cash balances and short-term investments
held by the collateral trustee for FLAG Limited's existing credit facility or in
escrow arising from ongoing business operations. Interest earned in 1997
consisted primarily of interest earned on cash balances received from equity
contributions during the year.
PROVISIONS FOR TAXES
The provision for taxes was $1.3 million for the year ended December 31,
1998 compared to $9.0 million for the period from provisional system acceptance
of the FLAG Europe-Asia cable system to December 31, 1997. The tax provisions
for both years consist of taxes on income derived from capacity sales and
standby maintenance revenue from customers in certain jurisdictions along the
FLAG Europe-Asia cable system route where we are deemed to have a taxable
presence or are otherwise subject to tax. At the present time, no income,
profit, capital or capital gains taxes are levied in Bermuda. In the event that
such taxes are levied, we have received an undertaking from the Bermuda
Government exempting us from all such taxes until March 28, 2016. The decrease
in tax expense of $7.7 million is due to a greater proportion of sales recorded
in 1998 to customers in jurisdictions where we do not have a taxable presence.
EXTRAORDINARY ITEM
In connection with the refinancing that took place on January 30, 1998, we
recorded an extraordinary loss of $59.8 million in the statement of operations.
The loss on refinancing represents the write-off of unamortized deferred
financing costs related to our initial project refinancing.
In addition, in connection with the refinancing of FLAG Limited's original
credit facility, we redeemed preferred shares at a redemption price of 105% of
the liquidation preference. We reflected the excess of the redemption value over
the carrying value of the preferred shares on the date of the redemption of
$8.5 million as a decrease in additional paid-in capital.
NET LOSS AND NET LOSS APPLICABLE TO COMMON SHAREHOLDERS
For the year ended December 31, 1998 we recorded a net loss of
$71.5 million compared to net income of $79.4 million for the year ended
December 31, 1997, a decrease of $150.9 million. This decrease was primarily
attributable to the results for the year ending December 31, 1997, including
$316 million of revenue recognized from sales of capacity entered into prior to
our commencing operations resulting in a reduction in operating income of
$66.2 million. An increase in interest expense of $40.9 million and an
extraordinary loss on refinancing of $59.8 million as discussed above offset by
an $8.2 million increase in interest income and a $7.7 million reduction in tax
expense further contributed to the net loss for the year ended December 31,
1998.
The net loss applicable to common shareholders for the year ended
December 31, 1998 was $81.5 million compared to net income for the year ended
December 31, 1997 of $63.1 million.
Basic and diluted income (loss) per Class A common shares decreased from
income per share of $0.05 in 1997 to a loss of ($0.07) per share in 1998
reflecting the loss applicable to FLAG Limited's common shareholders in 1998.
Basic and diluted income (loss) per Class B common share decreased from income
per share of $0.14 in 1998 to a loss of ($0.13) per share in 1998 reflecting the
loss applicable to FLAG Limited's common shareholders in 1998 and an increase in
the weighted average Class B common shares outstanding during the period from
396,890,512 to 565,858,741.
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YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996
REVENUES
We recognized no revenues prior to October 8, 1997, the date of provisional
system acceptance for the FLAG Europe-Asia cable system. As of December 31,
1997, we had recognized $336.0 million of revenues and had entered into capacity
sales agreements with 66 international telecommunications carriers. Under the
construction and maintenance agreement, customers are responsible for, among
other things, standby maintenance fees. Through December 31, 1997, we recognized
standby maintenance revenues of $4.0 million.
In addition, we entered into capacity credit agreements pursuant to which
customers commit to acquire capacity at a future date. As of December 31, 1997,
we had recorded deferred revenues of approximately $96.8 million related to
signed capacity credit agreements, of which we received in cash or recorded as a
current receivable approximately $59.1 million and we recorded as long-term
accounts receivable approximately $37.7 million.
In exchange for construction costs incurred, we granted approximately
$88.0 million in credits for future capacity acquisition, $77.7 million of which
remained unutilized and was recorded as deferred revenues as of December 31,
1997.
We will recognize capacity credits as revenue in the period the credits are
utilized (when the purchasers notify us regarding the circuits they are
activating and become responsible for standby maintenance fees as owners of the
capacity). Deferred revenues also include approximately $14.0 million of amounts
invoiced for standby maintenance which are applicable to future periods.
OPERATING EXPENSES
For the year ended December 31, 1997, we recorded $196.2 million of cost of
sales on capacity sale revenues of $336.0 million, resulting in a gross profit
margin on capacity sales of 41.6%. We did not recognize sales or costs of sales
in 1996. The $196.2 million of cost of sales recorded in 1997 includes
$28.9 million related to price protection credits discussed below and
$167.3 million related to costs of capacity sold in 1997.
Because capacity sales recognized as revenues in 1997 were generally sold at
a higher price per unit than the price per unit we expect to realize in the
future, we have recognized a higher cost of sales per unit in 1997 than we
expect to recognize in the future based on management's current best estimate
and third party market forecasts of capacity sales.
In connection with some sales, we have entered into price protection
arrangements entitling the relevant customers to capacity credits if we lower
our list prices prior to December 31, 1999. In the period we lower our list
prices, we record a provision for cost of sales based on the number of
additional units of capacity granted. Based on declines in our listed prices
through December 31, 1997, we recorded a provision for cost of sales of
approximately $28.9 million, which was included in the total cost of sales
recorded in 1997.
During the period from provisional system acceptance of the FLAG Europe-Asia
cable system until December 31, 1997, we also recognized $4.6 million in
operations and maintenance costs relating primarily to the provision of standby
maintenance costs under maintenance zone agreements. Of this amount,
approximately $4.0 million was recoverable from customers.
Sales and marketing expenses increased from $0.3 million for the year ended
December 31, 1996 to $6.6 million for the year ended December 31, 1997. Sales
and marketing expenses in 1997 consisted primarily of $3.1 million of
commissions on sales paid or payable to Bell Atlantic Network Systems and
$3.5 million of commission payable to an unrelated party. In 1995 and 1996, we
expensed a total of $10.6 million of commissions ($10.3 million of that in 1995)
representing commissions incurred for
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purchase commitments obtained prior to July 3, 1995 which were not contingent
upon reaching provisional system acceptance. The purchase commitments obtained
prior to July 3, 1995 are included in the capacity sales recognized as revenues
in 1997. Accordingly, we incurred a total of $17.2 million of commissions
through December 31, 1997, representing approximately 5% of revenues of
$336.0 million recognized through December 31, 1997.
General and administrative expenses increased from $12.3 million in 1996 to
$30.3 million in 1997. Most of the increase was due to a $9.1 million provision
for doubtful accounts, a $4.0 million increase in salaries, wages and benefits
reflecting our staffing up for operations and a $2.1 million increase in
recruiting and other professional services costs.
INTEREST EXPENSE AND INTEREST INCOME
Until provisional system acceptance of the FLAG Europe-Asia cable system, we
capitalized interest costs as a component of construction in progress. Of total
interest incurred of $62.7 million in 1997, we incurred $42.5 million prior to
provisional system acceptance and capitalized this amount as a component of
construction in progress. The remaining $20.2 million of interest incurred in
1997 was reflected as interest expense in the statement of operations and was
incurred after provisional system acceptance.
We earned interest income of $6.6 million during the year ended
December 31, 1997 compared to $2.4 million for the year ended December 31, 1996.
Interest income was derived primarily from the short-term investment of our cash
held by the collateral trustee. Since all available funds not held by the
collateral trustee were not needed to fund construction costs and operating
expenses, we maintained minimal cash balances. Funds held by the collateral
trustee increased from $48.2 million as of December 31, 1996 to $425.9 million
as of December 31, 1997 primarily resulting from a lender requirement to deposit
capacity sale proceeds received in the fourth quarter of 1997 into the
collateral trust account.
PROVISION FOR TAXES
The provision for taxes of $9.0 million recorded in the 1997 statement of
operations consists of taxes incurred on income derived from capacity sales and
standby maintenance revenues from customers in certain jurisdictions along the
FLAG Europe-Asia cable system route where we are deemed to have a taxable
presence or are otherwise subject to tax.
NET INCOME (LOSS) AND NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS
Net income increased to $79.4 million for the year ended December 31, 1997
compared to a loss of $10.4 million for the year ended December 31, 1996, an
increase of $89.8 million. This increase was attributable to an increase in
operating income of $114.8 million due to the sale of capacity as discussed
above and the increase in interest income of $4.2 million, offset by
$20.2 million in interest expense and the $9.0 million provision for taxes
discussed above.
The preferred stock issued by FLAG Limited accrued pay-in-kind dividends at
the rate of 13% for the first three years. All dividends recorded during the
relevant period were pay-in-kind dividends. Net income (loss) applicable to
common shareholders increased from a loss of $24.8 million for the year ended
December 31, 1996 to income of $63.1 million for the year ended December 31,
1997, reflecting the $89.8 million increase in net income, offset by an increase
in pay-in-kind dividends of $1.9 million.
Basic and diluted income (loss) per Class A common share increased from a
loss per share of ($0.02) in 1996 to income per share of $0.05 in 1997,
reflecting the increase in net income applicable to FLAG Limited's common
shareholders. Basic and diluted income (loss) per Class B common share increased
from a loss per share of ($0.13) in 1996 to income per share of $0.14 in 1997,
reflecting the
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increase in net income applicable to FLAG Limited's common shareholders and an
increase in the weighted average Class B common shares outstanding during the
period from 164,445,547 shares to 396,890,512 shares.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date through a combination of equity
contributions, shareholder advances, bank debt and the proceeds of a debt
offering. On January 30, 1998, FLAG Limited completed a refinancing which
resulted in the repayment of all outstanding borrowings under its then existing
credit facility and the redemption of its Series A preferred shares. The
refinancing consisted of $370.0 million of bank credit facilities and
$430.0 million of 8 1/4% Senior Notes maturing January 30, 2008.
Upon consummation of the refinancing on January 30, 1998, we wrote off the
remaining amount of unamortized capitalized financing costs related to the prior
credit facility of $59.8 million as a component of the loss on refinancing in
the statement of operations. Also in connection with the refinancing, we
recorded a reduction to additional paid-in capital of $8.5 million representing
the excess of the $139.5 million paid to redeem the preferred stock over the
$131.0 million carrying value of the preferred stock on the date of redemption.
The FLAG Limited bank credit facilities include a seven year $320.0 million
term loan facility and a $50.0 million revolving credit facility. On
January 30, 1998, FLAG Limited borrowed $320.0 million under the term loan
facility. During the year ended December 31, 1998, we repaid $48.5 million of
the term loan facility. During the nine months ended September 30, 1999, we
repaid a further $48.5 million, resulting in a balance remaining of
$223.0 million as of September 30, 1999.
Borrowings under the existing FLAG Limited bank credit facility bear
interest at LIBOR plus 190 to 212.5 basis points. At the end of March 1998, we
entered into two interest rate swap agreements to manage our exposure to
interest rate fluctuations on the bank credit facility. Under the swap
agreements, we pay a fixed rate of 5.6% on a notional amount of $60.0 million
and a fixed rate of 5.79% on a notional amount of $100.0 million and the
counterparty pays the floating rate based on LIBOR. The swap agreements
terminate in January and July 2000 respectively, unless extended an additional
one year and six months respectively at the option of the counterparty.
We recognize the net cash amount received or paid on interest rate hedging
instruments as an adjustment to interest cost on the related debt.
On January 14, 2000, we received an indication of willingness from Dresdner
Kleinwort Benson and Barclays Capital, as co-arrangers, to modify FLAG Limited's
existing credit facility to consist of a $150 million six year term loan
facility and a $10 million revolving credit facility. Under the terms of this
proposal, these facilities would bear interest at a rate of 225 basis points
over LIBOR for the first six months and thereafter at a rate of between 150 and
250 basis points over LIBOR, depending on FLAG Limited's credit rating, and
amortization of the remaining balance of the term loan facility would not begin
until the second half of 2001.
FLAG Limited desires to enter into such an amendment in order to (1) waive
the requirement that it use the proceeds of this offering to pay more than
$25 million of FLAG Limited's long-term indebtedness (under the existing terms
of this facility, FLAG Limited would be required to pay up to $175 million of
its long-term indebtedness with the proceeds of this offering), (2) modify its
existing covenant restrictions, thereby affording it greater operating
flexibility and (3) obtain a more favorable amortization schedule.
In connection with this amendment, FLAG Limited would be required to pay
fees and expenses to the co-arrangers totalling approximately $3.5 million. We
expect the commitments of the co-arrangers to be subject to satisfaction of
various conditions, including successful completion of business, engineering and
legal due diligence, receipt of internal credit approvals, conclusion of
definitive
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documentation, successful completion of this offering and no material adverse
changes to FLAG Limited or to the finanical markets generally.
FLAG Atlantic Limited has financed the $1.1 billion in construction costs
for the FLAG Atlantic-1 cable system through a $600 million bank financing,
$100 million in capital contributions from each of its shareholders and presales
in excess of $750 million. The financing consists of a $575 million
construction/term loan facility and a $25 million revolving credit facility.
These facilities have a term of 7.5 years. FLAG Atlantic Limited does not
anticipate that it will need to draw down the full amount available under the
bank financing.
The loans under these facilities bear interest at LIBOR plus 125 basis
points for that portion of the loans (not to exceed 50% of the outstanding
loans) which are backed by investment grade receivables and LIBOR plus 300 basis
points for the balance of the loans. Commitment fees accrue on the undrawn
balance of the loans at between 37.5 basis points and 75 basis points.
The bank facility is secured by an assignment of all of FLAG Atlantic
Limited's assets, a pledge of all of the stock in FLAG Atlantic Limited and a
commitment by each of its shareholders to contribute $100 million in equity. The
loan agreement contains customary provisions for non-recourse project financings
regarding restrictions on additional indebtedness, the payment of dividends and
other distributions, additional investments and sales of assets.
We intend to finance future operations through proceeds from this offering,
revenues generated from the sale or lease of capacity, revenues generated from
our wholesale product offerings and bundled services, revenues from billings of
standby maintenance charges and restoration services, investment income on cash
and investment balances, borrowings under our existing credit facilities and
vendor financing. FLAG Telecom or its subsidiaries may also make additional debt
or equity offerings, subject to market conditions.
We are in the preliminary stages of evaluating and developing a plan for a
new cable project under the Pacific Ocean. We would arrange the financing of
this project through a new subsidiary. As currently conceived, our equity
contribution could be funded in part from the net proceeds of this offering (or
in full if the amendments to the FLAG Limited credit facility are effected
concurrently with this offering). Funding for this project would also be
required from both project financing debt and presales by the subsidiary. Our
evaluation and development work are expected to continue through the next six
months. We cannot assure you that this project will proceed. The Company is
evaluating various other projects and may need additional funds in order to
proceed. The impact of this project, or any other projects, on our liquidity and
financing needs will depend on the scope of the project and the actual
arrangements we make for financing and ownership.
As of September 30, 1999 and December 31, 1998, we had working capital
deficits of $0.8 million and $156.7 million, respectively. The working capital
deficit was primarily a result of the current accounts payable to the
contractors for the FLAG Europe-Asia cable system which is classified as a
current liability but for which the associated funds held in escrow are
classified as a non-current asset and are hence excluded from the measure of
working capital.
Total cash provided by operating activities and used in investing activities
as of September 30, 1999 was $62.1 million and $102.6 million, respectively. As
of September 30, 1999, cash on deposit with the collateral trustee or in escrow
had decreased to $144.2 million from $255.4 million at December 31, 1998,
primarily as a result of the repayment of a portion of the term loan facility
and payments to the contractors.
Total cash provided by operations and used in investing activities during
the nine months ended September 30, 1998 was $63.1 million and $182.4 million,
respectively. Cash on deposit with the collateral trustee or in escrow at
September 30, 1998 was $240.9 million.
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ASSETS
Our major asset is the telecommunications capacity available for sale on the
FLAG Europe-Asia cable system of $870 million and related fixed assets of
$205 million. As a result of the application of FASB Interpretation No. 43 noted
above, sales on certain parts of the FLAG Europe-Asia cable system will not be
able to satisfy the requirements for sales type lease accounting. Accordingly
the costs of these parts of the system have been reclassified with effect from
July 1, 1999 from capacity available for sale to fixed assets and are being
depreciated over their remaining economic life. Our other fixed assets consist
primarily of office furniture, leasehold improvements, computer equipment and
motor vehicles.
INFLATION
In management's view, inflation in operating, maintenance and general and
administrative costs will not have a material effect on our financial position
over the long term.
IMPACT OF YEAR 2000
Some computer systems or software used by many companies may be unable to
distinguish 21st century dates from 20th century dates. As a result computer
systems and software used by some companies in a wide variety of industries will
produce some erroneous results or fail unless they have been modified or
upgraded to process date information correctly. Prior to December 31, 1999, we
conducted an inventory and issue assessment of the Year 2000 issue for our
computer systems, communications equipment and other potentially date-sensitive
equipment to identify the systems and equipment, if any, that could be affected
by the Year 2000 issue. We obtained certificates of Year 2000 compliance from
our major suppliers for the equipment used in our systems. The live FLAG
Europe-Asia cable system certification was achieved in the third quarter of
1999.
As of the date of this prospectus, we have not encountered Year 2000 related
problems. We continue to monitor developments in this area. In assessing our
exposure to Year 2000 issues, we believe our biggest risks lie with our landing
parties, customers and major suppliers. If these landing parties, customers or
major suppliers experience Year 2000 related problems, we could experience
unanticipated expenses and delays, including delays in our ability to conduct
normal business operations and sell our products and services. We believe,
however, that in the most likely worst case scenario, the effects of Year 2000
issues on our operations would be brief and small relative to our overall
operations. Our costs to date associated with the Year 2000 issue have not
exceeded $1 million, which we have paid out of internally generated funds. If
our landing parties, customers or major suppliers experience Year 2000 related
problems, we will put in place our contingency plan to address operations and
financial disruptions to FLAG Telecom which could be caused by their
non-compliance. This plan includes the following components:
- An increase in staffing at the FLAG Telecom network operations centers;
- Requesting that our landing parties staff the landing stations; and
- Having a task force ready to support both the FLAG Telecom network
operations centers and our landing parties in the landing stations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
CURRENCY RISK. We do not believe that we are exposed to significant risk
from movements in foreign currency exchange rates. All revenues from the
disposition of capacity and billings of standby maintenance and restoration
services are payable in U.S. dollars. All contracts for the provision by third
parties of restoration are invoiced to us in U.S. dollars. Some vendor contracts
for the provision to the FLAG Europe-Asia cable system of operations and
maintenance services and local operating expenses of our subsidiary companies
are payable in currencies other than U.S. dollars. Management believes that
these exposures are not material to our financial position. Whenever deemed
appropriate, we may hedge our exposure to foreign currency movements.
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INTEREST RATE RISK. We are exposed to interest rate risk in our financing
instruments. Our long-term finance is provided by fixed rate senior notes and
floating rate bank debt. We use derivative financial instruments for the purpose
of reducing our exposure to fluctuations in interest rates. We do not utilize
derivative financial instruments for trading or other speculative purposes. The
counterparties to these instruments are major financial institutions with high
credit quality. We are exposed to credit loss in the event of nonperformance by
these counterparties.
LONG-TERM DEBT AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
PRINCIPAL AMOUNT FAIR VALUE FLAG OPTION
TYPE OF INSTRUMENT PAYMENTS DUE MATURITY DATE INTEREST RATE ($, MILLION) ($, MILLION) TO REDEEM
- ------------------ ------------- ------------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Senior Notes......... Semi- January Fixed 8 1/4% 430.0 375.2 Any time after
annually 2008 January 2003
FLAG Limited Credit
Facility........... Quarterly January Floating 223.0 223.0 At any time
2005 three-month
LIBOR + 190
to 212.5
basis points
</TABLE>
INTEREST RATE SWAPS AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NOTIONAL COUNTER-PARTY'S
RATE AMOUNT FAIR VALUE OPTION TO
TYPE OF INSTRUMENT PAYMENTS DUE MATURITY DATE RATE PAYABLE RECEIVABLE ($, MILLION) ($, MILLION) EXTEND UNTIL
- ------------------ ------------- ------------- ------------ ---------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pay fixed, receive
floating........... Quarterly January 2000 5.6% three- 60.0 0.1 January 2001
month
LIBOR
Pay fixed, receive
floating........... Quarterly July 2000 5.79% three- 100.0 0.0 January 2001
month
LIBOR
</TABLE>
The three-month LIBOR rate at September 30, 1999 was 6.08%.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued Interpretation
No. 43, "Real Estate Sales, an interpretation of FASB Statement No. 66." This
interpretation clarifies that sales of real estate with property improvements or
integral equipment that cannot be removed and used separately from the real
estate without incurring significant costs should be accounted for under FASB
Statement No. 66, "Accounting for Sales of Real Estate" ("FAS 66"). The
provisions of this Interpretation are effective for all sales of real estate
with property improvements or integral equipment entered into after June 30,
1999. The application of this statement resulted in a deferral of revenue for
certain capacity sales contracts that do not satisfy the requirements of FAS 66.
To the extent that we enter into contracts in the future that will satisfy the
requirements for sales type lease accounting, we will continue to recognize
revenues without deferral.
The interpretation and application of FASB Interpretation No. 43 and also
the accounting for sales of capacity are evolving within the telecom industry. A
number of questions and issues are being taken to the accounting standard
setting boards and different accounting treatments may ultimately be approved.
We expect further clarification over the next few months but any changes to the
accounting treatment will have no impact on our cash flows.
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BUSINESS
GENERAL
We are a global carriers' carrier that develops and offers a broad range of
innovative telecommunications products and services to licensed international
carriers, Internet service providers and other telecommunications companies. Our
network, the FLAG Telecom network, is currently comprised of (1) the FLAG
Europe-Asia cable system, which is the world's longest independent,
privately-owned digital fiberoptic undersea cable system, (2) the FLAG
Atlantic-1 cable system, which we are currently constructing and, when
completed, will connect London and Paris to New York and (3) terrestrial
connections between our landing stations in the United Kingdom and Spain to the
city centers of London and Madrid and intra-European connections from London to
Paris, Brussels, Frankfurt, Amsterdam, Berlin, Zurich, Milan and several other
major European metropolitan areas, which we have acquired the right to obtain
through contractual arrangements with other facilities-based bandwidth capacity
providers. We have an established customer base of approximately 90 customers,
many of which are the world's leading telecommunications and Internet companies.
Our customers include 17 of the top 20 international carriers based on traffic
volume which, together, accounted for approximately 48% of our sales to date. We
believe we have succeeded in attracting this customer base primarily as the
result of the diversity, flexibility and high quality of our product and service
offerings.
The FLAG Europe-Asia cable system links the telecommunications markets of
Western Europe and Japan through the Middle East, India, Southeast Asia and
China along a route which adjoins countries with approximately 70% of the
world's population. The FLAG Europe-Asia cable system consists of approximately
28,000 kilometers of technologically advanced undersea digital fiberoptic cable
which comes ashore at 16 operational landings in 13 countries. It has an
aggregate capacity of 10 gigabits per second transmitting on two fiber pairs.
The system incorporates synchronous digital hierarchy, which is the current
international standard for digital transmission and management. Expansion of the
transmission capacity of the segments of the FLAG Europe-Asia cable system may
be accomplished by employing additional light sources using the wavelength
division multiplexing technique of operating at more than one wavelength. The
transmission capacity of the segments of the FLAG Europe-Asia cable system is
upgradeable to between 20 and 40 gigabits per second depending on the location
of the segment. The FLAG Europe-Asia cable system cost approximately
$1.6 billion to complete. We placed the FLAG Europe-Asia cable system in
commercial service on November 22, 1997 with an initial group of 62 customers.
FLAG Atlantic Limited has contracted with Alcatel Submarine Networks for the
construction of the subsea portion of a new 12,000 kilometer trans-Atlantic
digital fiberoptic cable system called FLAG Atlantic-1. The FLAG Atlantic-1
cable system will use a six fiber pair configuration with 10 gigabit per second
technology and up to a maximum of 40 wavelengths of light per fiber. The FLAG
Atlantic-1 cable system is designed to have an initial fully redundant capacity
of at least 160 gigabits per second, with potential for future upgrade to 2.4
terabits of fully redundant capacity, more than 15 times the maximum capacity of
the most advanced cable in service on the Atlantic route today. By "redundant
capacity" we mean that there will be two cables, each with the indicated
capacity configured as a self-healing ring. We have designed FLAG Atlantic-1 so
that if one of the cables fails, we can re-route traffic to the other cable in
order to avoid any service failure. One cable will span from Porthcurno in the
United Kingdom to the north shore of Long Island, New York, and the other cable
will be routed from northern France to the south shore of Long Island. The
system's European landing points will be connected to city centers in London and
Paris. The European city centers will be connected to one another via a fiber
ring including two English Channel crossings. The landing points in Long Island
will connect to two telecommunication centers in New York City, which will also
connect to each other via a fiber ring. The system's design is intended to
permit seamless interconnection with the FLAG Europe-Asia cable system (via the
landing station in Porthcurno) and with a range of existing European
city-to-city networks in London and Paris. The FLAG Atlantic-1 cable system will
use company owned landing stations and city-center connection points. Alcatel
Submarine Networks has contracted to
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deliver the first loop of the subsea portion of FLAG Atlantic-1 in operational
service by March 31, 2001 and to complete the full loop system by June 30, 2001.
We expect FLAG Atlantic-1's initial capacity of at least 160 gigabits to cost
approximately $1.1 billion to complete. We are constructing FLAG Atlantic-1
under a 50/50 joint venture between FLAG Atlantic Holdings Limited, our
subsidiary, and GTS TransAtlantic Holdings Limited, a subsidiary of Global
Telesystems Group, Inc.
We intend to extend the reach of the FLAG Telecom network. Where
economically feasible, we expect to extend our network to additional countries
by developing new cable systems, building extensions from our existing cable
systems or by building additional terrestrial capacity. Where rapid access to a
market is required or where it is not economically feasible to expand our
network on our own, we may enter into arrangements with third parties to develop
network extensions or to acquire rights to use their existing networks. We may
also consider acquiring companies with networks that complement our own. We are
in the preliminary stages of evaluating and developing a plan for a new
trans-Pacific cable project that would link the telecommunications markets of
the United States and Japan. Our evaluation and development work are expected to
continue through the next six months. We cannot assure you, however, that we
will determine to pursue the construction of a trans-Pacific cable system.
We maintain the FLAG Telecom network through our network operations centers
in Fujairah, U.A.E. and a location near Heathrow, United Kingdom. These
operations centers provide for system-wide surveillance, maintenance and circuit
activation 24 hours a day, 365 days per year.
We are developing an extensive range of innovative products and services
which will use a state-of-the-art Internet Protocol-based network infrastructure
and are designed to meet the needs of a wide range of licensed international
carriers, Internet service providers and other telecommunications companies. Our
product and service offerings consist of four principal groups:
- Traditional Carrier Services. Our traditional carrier service offerings
include "lifetime of system" right-of-use products, with which operators
have traditionally built their networks, and services designed to assist
carriers in managing their network capacity needs in a flexible way, such
as through our global portability program which permits carriers to move
purchased bandwidth around the FLAG Europe-Asia cable system on an as
needed basis.
- FLAG Atlantic-1 Services. Our FLAG Atlantic-1 services include packages
structured to provide staged delivery of capacity over a period of several
years; optical wavelength services, which are designed to support the next
generation of IP networks by eliminating the need to route traffic through
slower intermediate protocol layers and switches; and fiber pair services,
which are designed to meet the needs of major global carriers that require
substantial amounts of bandwidth at low unit costs. Because the FLAG
Atlantic-1 cable system is still under construction, we are selling the
FLAG Atlantic-1 services on a future delivery basis.
- Wholesale Services. Our wholesale service offerings will include managed
bandwidth services through which customers can lease international
connectivity for one, three or five year terms on a city-to-city or
customer site-to-customer site basis; IP point-to-point services designed
for private use by customers running such applications as voice-over-IP
services; and IP transit services which provide a connection to the
Internet. We recently introduced our first wholesale service, a managed
bandwidth service on the London-to-Madrid route. We expect to extend these
service offerings to other service routes during the next 12 to
18 months.
- Bundled Services. Our bundled services are designed to maximize the
combined benefits of the FLAG Europe-Asia cable system and the FLAG
Atlantic-1 cable system by offering services that combine the two systems
and allow us to package our own network capacity with that of other
providers to extend our network reach. One of our initial bundled products
is "Middle East Direct" which will provide direct connectivity from Middle
Eastern markets to the United States. We have also introduced European
leased capacity services which extend our connectivity into
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key European cities. We are actively evaluating opportunities to add
additional services to our wholesale and bundled service offerings.
OUR MARKET OPPORTUNITY
We developed and are enhancing the FLAG Telecom network and our product and
service offerings to participate in the following important growth and strategic
shifts in the international telecommunications markets:
ADVANCES IN TELECOMMUNICATIONS AND NETWORKING TECHNOLOGY. Recent advances
in telecommunications and networking technology have dramatically lowered the
unit cost of carrying voice, data and video signal traffic. Through dense
wavelength division multiplexing (DWDM), a technology that transmits multiple
light signals through a single optical fiber, the bandwidth of submarine
fiberoptic cables can be increased by up to 40 times that of non-DWDM systems.
Several advances in switching, the process of interconnecting circuits to
form a transmission path between users, and electronics have further increased
the bandwidth, or transmission capacity, of telecommunications networks.
Historically, carriers built telecommunications networks optimized for voice
traffic. These are based on circuit switching, which establishes and keeps open
a dedicated path until a call is terminated. While circuit switching has worked
well for decades, it does not efficiently use transmission capacity, because
once a circuit is dedicated, it is unavailable to transmit any other
information, even when the particular users of that circuit are not speaking or
otherwise transmitting information. Packet switching networks optimized for data
traffic are replacing circuit based networks. Packet switching divides signals
into small "packets" which are then independently transmitted to their
destination via the quickest path. Upon their arrival, the packets are
reassembled. Packet switching provides more efficient use of the capacity in a
network because the network does not establish inefficient dedicated circuits,
which waste unused capacity. Packet switching networks can achieve lower unit
costs than circuit networks. New packet networking technologies include IP,
Asynchronous Transfer Mode (ATM) and frame relay. ATM's quality of service
features support high-quality voice and video signals over packet networks.
Similar quality of service features are being developed for IP.
CONVERGENCE OF VOICE AND DATA SERVICES. Telecommunications network designs
have traditionally created separate networks using separate equipment for voice,
data and video signals. The evolution from circuit switched networks to
packet-switched networks erases the traditional distinctions between voice, data
and video transmission services. High-bandwidth packet-switched networks can
transmit mixed digital voice, data and video signals over the same network with
a high level of frequency. This capability lowers the cost to operators of
building and operating networks providing a strong economic incentive for the
implementation of unified networks. Since the Internet is the major driver of
growth, we believe it is likely that IP will emerge as the network platform of
choice.
RAPID GROWTH OF TELECOMMUNICATIONS TRAFFIC. According to an August 1999
research report published by Ovum Ltd., total world telecommunications traffic
demand is expected to grow more than 50-fold between 1999 and 2005, with
Internet and data traffic accounting for 98% of total traffic by 2005. Several
key factors are expected to drive growth in worldwide telecommunications
traffic, including (1) the worldwide growth in the use of bandwidth-intensive
applications, such as video conferencing, video-on-demand and corporate
intranets which has resulted, in part, due to the convergence of voice and data
services, and (2) increased globalization of commerce, particularly electronic
commerce.
IMPACT OF GLOBAL DEREGULATION. The continued deregulation of the global
telecommunications industry has resulted in a significant increase in the number
of competitors, including traditional carriers, wireless operators, Internet
service providers and new local exchange service providers. This change in the
global competitive landscape is generating significant demand for broadband
telecommunications capacity as carriers seek to secure sufficient capacity for
their expansion plans. As of July 1998, Telegeography estimated that there were
over 1,000 licensed international
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telecommunications operators worldwide, representing a 184% increase since July
1995. In addition, further telecom privatization is expected over the next few
years, which in turn is expected to generate increased global competition.
Global deregulation has also resulted in increased demand for city-to-city
services, as new entrants to the telecommunication industry seek to take
advantage of the economic benefits of controlling facilities on an end-to-end
basis.
INCREASING CHALLENGES FOR CONSORTIA SYSTEMS AND ACCEPTANCE OF PRIVATELY
SPONSORED CABLE SYSTEMS. Historically, the planning and ownership of undersea
cable systems has been conducted through large consortia typically led by the
monopoly telecommunications providers. We believe that the consortium approach
to constructing, owning and operating undersea cable systems is becoming far
less effective as:
- carriers increasingly view significant long term capital investments in
capacity to be a suboptimal utilization of resources;
- deregulation of international telecommunications markets leads to direct
competition among consortia members for customers;
- competition from new entrants makes carriers' market share and capacity
requirements increasingly difficult to predict;
- the rapid pace of technological change creates difficulties in the ability
of carriers to accurately forecast the growth of telecommunications
traffic; and
- the complex management structure of consortia systems renders these
systems increasingly less effective in responding to rapid market changes.
We believe that telecommunications service providers have become
increasingly receptive to the advantages of independent, privately-owned cable
systems. In connection with the marketing of capacity on the FLAG Telecom
network, carriers have responded positively to our ability to offer:
- capacity as and when needed without the incurrence of significant initial
capital investments;
- a wide range of capacity purchasing options appealing to both established
carriers and new market entrants; and
- state-of-the-art system quality combined with cost-effective high quality
operations, administration and maintenance support.
OUR BUSINESS STRATEGY
Our goal is to establish FLAG Telecom as the leading global carriers'
carrier by offering a wide range of cost-effective, capacity use options and
wholesale products and services across our own global network. The principal
elements of our business strategy to achieve these objectives include:
PURSUING A FLEXIBLE APPROACH TO DEVELOPING OUR NETWORK. We have adopted a
flexible approach to the development and expansion of the FLAG Telecom network.
We developed the FLAG Europe-Asia cable system independently, and have joined
with GTS TransAtlantic to construct the FLAG Atlantic-1 cable system. We have
also established alliances with other facilities-based bandwidth capacity
providers that provide us with intra-European connectivity to many of the
largest cities in Europe. We expect that the strong regional ties of our
marketing and sales team will greatly enhance our ability to identify
appropriate opportunities for, and to enter into, other such strategic
alliances. We believe that this flexible approach allows us to benefit from the
strengths of our partners, while also reducing the capital expenditures required
to develop the leading global carriers' carrier network. It also increases the
speed with which we can add new destinations to our network. In the future, we
intend to remain flexible as we seek additional opportunities to expand our
network. We will consider further opportunities for the development of
infrastructure ourselves, for the lease or acquisition of existing
infrastructure from third parties and for the provision of additional services.
We may also consider the acquisition of other companies with networks
complementary to our own. We believe that our approach will enable us to
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expand our network more rapidly than if we were to adopt a build-only strategy,
and to focus on increasing the types and quality of services we offer.
- BUILDING-OUT OUR OWN INFRASTRUCTURE WHEN ECONOMICALLY ATTRACTIVE. As part
of our network expansion strategy, we intend to leverage our experience
in constructing the FLAG Europe-Asia cable system on time and within
budget to build out our network infrastructure to reach as many of the
world's major business destinations as possible when economically
advantageous opportunities exist to do so. We believe owning network
infrastructure offers significant competitive advantages in the global
carriers' carrier market because it (1) secures end-to-end control of
both capacity and cost structure and (2) provides access to low unit
costs. Through our FLAG Europe-Asia cable system, which is the largest
independent privately-owned digital fiberoptic undersea cable system in
the world with approximately 28,000 kilometers of operational fiber, we
have 16 operational landings in 13 countries. Upon completion of our
12,000 kilometer FLAG Atlantic-1 cable system, we will be able to offer
highly reliable, low unit cost city-to-city links between London and
Paris and New York. In 1999, we added two new landing stations, in Saudi
Arabia and Jordan, to our FLAG Telecom network. We also intend to add
additional countries to the FLAG Telecom network over time.
- OFFERING CITY-TO-CITY CONNECTIVITY. We will pursue multiple approaches to
obtaining city-to-city connectivity to increase the attractiveness of the
FLAG Telecom network and to meet increasing customer demand for
connectivity into the cities our customers and prospective customers
serve. We expect to acquire and package terrestrial capacity we obtain
from third parties. We intend to acquire dark fiber capacity on cables
laid by third parties. We also intend to build our own terrestrial
networks in key markets as they deregulate and when cost-effective
opportunities exist. We have designed the FLAG Atlantic-1 cable system
with a city-to-city architecture using terrestrial capacity which FLAG
Atlantic Limited will own and operate. In connection with our
introduction of managed bandwidth services on our London-to-Madrid route,
we have entered into arrangements to lease terrestrial capacity in the
United Kingdom and Spain. We also have entered into collaborative
arrangements with facilities-based managed bandwidth capacity providers
pursuant to which we have acquired access to intra-European capacity and
connectivity. Through this combined approach, we expect to be able to
provide our customers with international city-to-city connectivity
through the FLAG Telecom network at prices significantly lower than if
such customers had attempted to gain connectivity by separately
purchasing required terrestrial capacity.
PROVIDING A DIVERSE SET OF WHOLESALE AND BUNDLED PRODUCTS AND SERVICES TO
MEET THE NEEDS OF OUR CUSTOMERS. We intend to capitalize on the expanding
customer base for telecommunications services resulting from deregulation and
technological advances. We have developed and intend to introduce a diverse set
of traditional carrier, wholesale and bundled products and services designed to
meet the varying needs of a wide range of established and emerging
telecommunications carriers and Internet service providers. Our traditional
carrier service offerings include "lifetime of system" right-of-use products,
with which operators have traditionally built their networks, and services
designed to assist carriers in managing their network capacity needs in a
flexible way, such as through our global portability program which permits
carriers to move purchased bandwidth around the FLAG Europe-Asia cable system on
an as needed basis. We are offering purchasers of capacity on the FLAG
Atlantic-1 cable system a range of staged capacity delivery options and optical
wavelength services. In the area of wholesale services, we initially will offer
our customers managed bandwidth services which will permit them to lease
international connectivity for one, three or five year terms on a fully
redundant, point-to-point basis. This connectivity can be offered either
city-to-city, between our existing points of presence, or from customer
site-to-customer site. We currently offer these services on our London-to-Madrid
route and expect to extend these service offerings to other service routes
during the next 12 to 18 months. We will also offer point-to-point IP services
using high-speed routers and IP transit services to provide a connection to the
Internet. As part of our bundled service offerings, we
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expect to bundle capacity between the FLAG Europe-Asia cable system and the FLAG
Atlantic-1 cable system to provide, for example, connections between the Middle
East and the United States. We also intend to continue to evaluate opportunities
to develop additional value added services within our wholesale product and
service offerings.
FOCUSING ON THE NEEDS OF THE INTERNET COMMUNITY. We intend to capitalize on
the significant growth in the use of the Internet in recent years by focusing on
the specialized needs of Internet service providers, the fastest growing segment
of the telecommunications industry. Internet service providers, which are
subject to demands by their customers to move data from one part of the world to
another extremely quickly, often do not have the resources necessary to manage
the purchase of pure "raw" bandwidth. As a result, they typically seek
telecommunications service providers which are capable of providing end-to-end
services and guaranteed performance levels. We are developing a broad range of
managed, city-to-city services, including a range of IP services, designed to
meet the needs of these customers. We intend to deliver these services over our
own IP-based network infrastructure.
EMPLOYING A FLEXIBLE AND COMPREHENSIVE FINANCING PLAN. We intend to
continue to follow the flexible and successful approach to financing our
infrastructure extension and product development that we have employed in
connection with the FLAG Europe-Asia cable system and the FLAG Atlantic-1 cable
system. We financed the construction of the FLAG Europe-Asia cable system on a
project finance basis through borrowings and equity contributions. We also are
financing the construction of the FLAG Atlantic-1 cable system on a project
finance basis, in collaboration with our joint venture partner, through
borrowings under FLAG Atlantic Limited's existing credit facility, equity
contributions to be made by us and our joint venture partner and advance
capacity sales, in excess of $750 million of which have already been committed.
We expect that a significant portion of our wholesale product development
initiatives will be vendor financed. We anticipate that other extensions of our
infrastructure will be financed on a project finance basis and we may partner
with regional service providers in connection with some of these projects.
OUR PRODUCTS AND SERVICES
We offer a variety of traditional telecommunications capacity products and
services to our existing customers and have taken steps to expand the range of
products and services which we intend to make available in the future.
Originally, our products and services were primarily tailored to the needs of
the traditional carriers which continue to form the bulk of our existing
customer base. We have also begun to offer managed and other value-added
services and intend to expand the range of these services. By doing so, we have
attracted, and intend to continue to attract, an expanded range of customers,
including resellers, Internet service providers and systems integrators. Our
four main product groups are described below.
TRADITIONAL CARRIER SERVICES. Through the FLAG Europe-Asia cable system, we
offer competitively priced, point-to-point connectivity, often purchased on a
lifetime right-of-use basis. Presently, our customers can purchase the right to
connect between any of our sixteen landing points in China, India, Korea, Hong
Kong, Thailand, Malaysia, Japan, Egypt, Saudi Arabia, Jordan, the United Arab
Emirates, Italy, Spain and the United Kingdom. Once FLAG Atlantic-1 begins
commercial operations, our customers will also be able to connect to the points
of presence which FLAG Atlantic-1 is scheduled to maintain in New York, London
and Paris. We have already begun selling capacity on the FLAG Atlantic-1 cable
system, with service expected to commence in the first quarter of 2001. If a
customer requires connectivity between any of our landing points (or points of
presence) and a market not currently on the FLAG Europe-Asia cable system, we
can often arrange connectivity by bundling our network capacity with other
systems. We recently entered into an agreement with a facilities-based bandwidth
capacity provider that allows our customers to connect to city-center locations
in London, Paris, Brussels, Frankfurt, Amsterdam, Berlin, Zurich, Milan and
several other major European metropolitan areas.
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We believe our customers are finding it increasingly difficult to predict
their future needs for bandwidth capacity. We have responded by offering our
customers products that help them manage their network capacity in a flexible
way. For example, our global portability program allows customers to purchase
bandwidth capacity on one segment of the FLAG Europe-Asia cable system and then
to move the purchased capacity to another segment of the FLAG Europe-Asia cable
system on an as needed basis.
Capacity leases are another means by which we offer our customers
flexibility. While most of our customers have tended to purchase capacity for
the entire life of the relevant system, many of our customers and potential
customers have expressed an interest in shorter-term arrangements to help them
manage demand uncertainty. To meet these needs, we offer capacity leases with
terms ranging from a few months to as long as five years. These customers can
convert a capacity lease into a lifetime right-of-use at any time during the
term of the lease on payment of a conversion charge.
Our "drop & insert" product also offers flexibility to the customers of the
FLAG Europe-Asia cable system. This product allows our customers to take a
single STM-1 circuit and drop traffic off at multiple locations along the FLAG
Europe-Asia cable system route. (One STM-1 unit carries 155,500 kilobits per
second of capacity.) By offering a United Kingdom-Japan circuit with drop-off
points in the Middle East and Asia, we can offer a product that cannot be
replicated by routing traffic between the United Kingdom and Japan through the
United States (the most cost-effective way to route traffic between the United
Kingdom and Japan). We believe this flexibility strengthens our market position
in the Europe-Asia long haul market.
FLAG ATLANTIC-1 SERVICES. With an upgradeable capacity of up to 2.4
terabits on a fully redundant basis, the FLAG Atlantic-1 cable system is
designed to have the highest maximum capacity of any transoceanic system ever
constructed. The range of products offered on the FLAG Atlantic-1 cable system
is intended to take advantage of this high capacity. We offer packages of
circuits with delivery staged over time; this allows our customers' capacity to
grow in time with anticipated demand growth. We also offer optical wavelength
services which are designed to support the trend in Internet architecture
towards connecting traffic transmitted on one fiberoptic system to another
fiberoptic system through high speed routers directly over fiber (which is
sometimes referred to as IP over DWDM). This eliminates the need to route the
traffic through slower intermediate protocol layers and switches. This product
is designed to appeal to top tier Internet service providers, as well as
established carriers. We believe that the FLAG Atlantic-1 cable system will be
the first submarine cable network in the world to offer optical wavelength
services. We are also marketing, and have sold, fiber pair services to major
global carriers that seek substantial amounts of bandwidth capacity at low unit
costs. By acquiring all of the capacity on a fiber pair, a customer can obtain
up to 800 gigabits per second (structured as 2 X 400 gigabits per second) of
capacity.
WHOLESALE SERVICES. We have designed our wholesale services with a focus on
the needs of resellers, Internet service providers, systems integrators and
emerging carriers. Our goal is to develop IP capabilities that allow
connectivity on a city-to-city basis. Presently, we are providing managed
bandwidth services between London and Madrid. We intend to provide these
services, as well as IP services between additional major cities (including
Tokyo and New York), over the next 12 to 18 months. Our managed bandwidth
services offer our customers fully protected, point-to-point connectivity
between our own city-center points of presence or from customer site-to-customer
site. We offer service level guarantees as a part of this product. Our IP
point-to-point services are similar to the managed bandwidth services, except
that we will provide the interface through our own high-speed routers. This
product is designed for use by customers that use voice-over-IP services, which
require service quality that is higher than that which typically is possible
over the Internet. Our IP transit services provide high speed connections to the
Internet. We are also evaluating opportunities to launch additional wholesale
services in the next 12 to 24 months. Among the possible services we are
considering is a voice-over-IP service.
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BUNDLED SERVICES. Our bundled services are designed to maximize the
combined benefits of the FLAG Europe-Asia cable system and the FLAG Atlantic-1
cable system by offering services that combine the two systems and allow us to
package our own network capacity with that of other providers to extend our
network reach. One of our initial bundled products is "Middle East Direct" which
will provide direct connectivity from Middle Eastern markets to the United
States. We have also introduced European leased capacity which extends our
connectivity into key European cities.
We offer transmission capacity on the various portions of the FLAG Telecom
network in the units listed below:
<TABLE>
<CAPTION>
AVAILABILITY
TRANSMISSION -----------------------------------------------------------------------------
PRODUCT SPEED EUROPE-ASIA CABLE EUROPEAN TERRESTRIAL CONNECTIONS FLAG ATLANTIC-1 CABLE*
- ------- ------------ ----------------- -------------------------------- ----------------------
<S> <C> <C> <C> <C>
E1 2 Mbps X X
DS3 45 Mbps X X
STM-1 155 Mbps X X X
STM-4 620 Mbps X X X
STM-16 2.5 Gbps X
STM-64 10 Gbps X
Optical wavelength 10 Gbps X
Fiber Pair 10-400 Gbps X
</TABLE>
(*) Currently available for future delivery only.
OUR COMPETITIVE ADVANTAGES.
We believe we have several competitive advantages that will facilitate the
achievement of our business goals. These competitive advantages include:
WE HAVE AN EXTENSIVE EXISTING NETWORK AND CUSTOMER BASE. We currently
operate the largest independent, privately-owned fiberoptic submarine cable
network in the world. We have an established customer base of approximately 90
customers, many of whom are among the world's leading telecommunications and
Internet companies, including 17 of the top 20 international carriers based on
traffic volume. We have established a global organization with coverage in most
of the world's largest telecommunications markets. We have regional sales and
customer support offices in the Americas (New York), Europe (London), the Middle
East (United Arab Emirates) and Asia/Pacific (Hong Kong) and local sales and
customer support offices in Spain, India, China and Japan. We also have network
operations centers in the United Arab Emirates and the United Kingdom through
which we monitor the operations of, and can provide maintenance and repairs to,
the FLAG Telecom network, 365 days per year, 24 hours per day. We believe this
existing network organizational infrastructure and customer base will
significantly facilitate our sales of additional capacity and our introduction
of additional product and service offerings.
WE FOLLOW A FLEXIBLE MARKET-BASED STRATEGY. We have implemented a
market-based pricing strategy for our products and services. In order to
maintain market-based pricing, we analyze, among other things, currently
available alternatives for carriers along segments on our cable and terrestrial
systems. We provide carriers with predictability in standby maintenance and
repair charges by offering fixed prices for standby maintenance over the life of
purchased capacity, subject to certain inflation adjustments. This feature
differs from club cable maintenance charges which vary based on the capacity
share of the actual maintenance expenses incurred in a particular period. We
have also developed flexible payment terms and short-term commitment
arrangements, such as leases and lease to buy contracts, which are attractive to
emerging carriers facing uncertainty with respect to growth patterns of their
traffic and potential regulatory obstacles. We have developed a global
portability program option that allows carriers to change segments within a
cable system as often as they wish. We have also developed a "drop & insert"
feature for our STM-1 product that allows customer to drop-off traffic for
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long haul circuits at various intermediate points on our network. We believe our
flexible market-based approach enables us to be highly responsive to the
individual requirements of our customers.
OUR NETWORK IS SECURE AND RELIABLE. We have made a substantial investment
in protecting our fiberoptic systems with advanced submarine cable burial and
armoring techniques, as well as redundancy at our terrestrial crossings. We have
installed hardware and software and contracted for alternative routes to restore
service to our customers in the event of a break or failure in the FLAG
Europe-Asia cable system and have built similar features into the design of our
FLAG Atlantic-1 cable system. Our restoration plan is a combination of an
in-system restoration plan, where parallel routing is available within the FLAG
Europe-Asia cable system and the FLAG Atlantic-1 cable system, and an
out-of-system restoration plan created in part by reciprocal arrangements with
other providers. We continuously monitor and maintain control of our systems on
a 24-hour basis through the FLAG Telecom network operations centers and our
restoration plans permit prompt alternate routing in the event of a break or
fault.
WE PROVIDE SUPERIOR CUSTOMER SERVICE. We have developed a customer care
approach focused on providing quality, reliability and consistency of customer
support. Through the FLAG Telecom network operations centers, we are able to
provide circuit activation and transmission capacity within hours of a
customer's determination to use our products and services. We have regionally
based sales personnel who are available to provide ongoing support to our
present and prospective customers on operational and product issues. We utilize
marketing studies to track the rapid changes in the telecommunications markets
in order to identify customers' needs and changing preferences. Our marketing
and sales personnel and those of GTS Transatlantic, our joint venture partner in
the FLAG Atlantic-1 cable system, which will co-market products and services for
the FLAG Atlantic-1 cable system, will seek to maintain ongoing communication
with customers and market sources in order to adapt pricing and product
structures to changed conditions and changed competitive pressures. We believe
the fact that over half of our original 62 customers have made multiple
purchases from us is indicative of the success of this approach to customer
service.
OUR MANAGEMENT TEAM HAS SIGNIFICANT INDUSTRY EXPERIENCE AND REGIONAL
EXPERTISE. Our management team has a proven track record. We constructed the
FLAG Europe-Asia cable system on time and within budget. We have assembled and
will continue to build a strong management team comprised of executives and key
employees with extensive operating experience in the global telecommunications
industry and significant project management and international commercial
experience. We have a network of senior executives and senior advisors who are
based in the regions for which they have management responsibility and who have
acquired much of their professional experience in these regions. We believe that
as a result of this emphasis on both industry experience and regional expertise,
our management team:
- has developed a better understanding of customers' needs in the regions it
serves;
- is better able to anticipate and react to developments in these regions,
such as deregulation, that may impact our network and future expansion
plans; and
- can more effectively implement our business initiatives as a result of the
regional contacts it has established and its enhanced understanding of
local cultural, political and legal matters.
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THE FLAG TELECOM NETWORK
We have adopted a flexible approach to the development and expansion of the
FLAG Telecom network. We developed the FLAG Europe-Asia cable system
independently and have joined with GTS TransAtlantic to construct the FLAG
Atlantic-1 cable system. We have also established alliances with other
facilities-based bandwidth capacity providers that provide us with
intra-European connectivity to many of the largest cities in Europe. We believe
that our approach allows us to benefit from the strengths of our partners, while
also reducing the capital expenditures required to develop the leading global
carriers' carrier network. In the future, we intend to remain flexible as we
seek additional opportunities to expand our network. Our present plans call for
the establishment of additional points of presence in major metropolitan areas,
as well as the addition of IP network capabilities that will allow us to offer
high value-added services. We are in the preliminary stages of evaluating and
developing a plan for a new trans-Pacific cable project that would link the
telecommunications markets of the United States and Japan. Our evaluation and
development work are expected to continue through the next six months. We cannot
assure you, however, that we will determine to pursue the construction of a
trans-Pacific cable system. We will consider further opportunities for the
development of infrastructure ourselves, for the lease or acquisition of
existing infrastructure from third parties and for the provision of additional
services. We believe that our flexible approach will significantly facilitate
our efforts to expand our existing network into the leading global private
carriers' carrier network. In contrast to some of our competitors which are
attempting to develop their global networks exclusively on an independent basis,
we believe that our approach will enable us to expand our network more rapidly
and to focus on increasing the types and quality of services we offer.
THE FLAG EUROPE-ASIA CABLE SYSTEM
The FLAG Europe-Asia cable system consists of approximately 28,000
kilometers of undersea digital fiberoptic cable with a 580-kilometer dual land
crossing in Egypt and a 450-kilometer dual land crossing in Thailand. The FLAG
Europe-Asia cable system connects with communication networks in the United
Kingdom, Spain, Italy, Egypt, Jordan, Saudi Arabia, the United Arab Emirates,
India, Malaysia, Thailand, Hong Kong, China, Korea and Japan.
We offer capacity for digital transmission over the FLAG Europe-Asia cable
system. Typically, each party that purchased capacity on the FLAG Europe-Asia
cable system prior to September 1998 became a signatory to the construction and
maintenance agreement relating to the FLAG Europe-Asia cable system. This
agreement sets forth the rights and obligations of FLAG Limited, the landing
parties and these other signatories with respect to the ownership, operation,
maintenance and expansion of the FLAG Europe-Asia cable system. Commencing in
late 1998, we began leasing capacity and selling capacity on a right of use
basis.
The FLAG Europe-Asia cable system employs the most advanced technology
available and proven in commercial installations at the date of construction of
the FLAG Europe-Asia cable system. The aggregate system capacity is 10 gigabits
per second transmitting on two fiber pairs. The FLAG Europe-Asia cable system
incorporates synchronous digital hierarchy, which is the current international
standard for digital transmission and management. Proven designs for an ocean
cable are incorporated into the FLAG Europe-Asia cable system including passive
branching units, non-zero dispersion shifted fibers and fully redundant laser
pumps in the optical amplifiers which are located at intervals of approximately
80 kilometers along the undersea route. Expansion of the transmission capacity
of the segments of the FLAG Europe-Asia cable system can be accomplished by
employing additional light sources using the wavelength division multiplexing
technique of operating at more than one wavelength. This enhancement can be
added by system modifications at one or more landing stations and without
modification of the submerged portion of the FLAG Europe-Asia cable system. The
transmission capacity of the segments of the FLAG Europe-Asia cable system is
upgradeable to between 20 and 40 gigabits per second depending on the location
of the segment.
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<PAGE>
SYSTEM EXPANSIONS. We have expanded the FLAG Europe-Asia cable system from
its original system design to include landing stations in China, Japan, Saudi
Arabia and Jordan. We completed additional landing stations in China and Japan
prior to putting the FLAG Europe-Asia cable system in operation in 1997. We
completed the landing stations in Saudi Arabia and Jordan in July 1999. As part
of our efforts to extend our network, we are actively evaluating a number of
potential expansions to the FLAG Europe-Asia cable system.
LANDING PARTIES. In order for the FLAG Europe-Asia cable system to be
accessible to carriers, it comes ashore in various countries along the FLAG
Europe-Asia route and connects with domestic cable systems and other submarine
cable systems at landing stations in the countries where the cable lands. Our
landing parties have agreed to provide and to maintain in operation the landing
stations and the terrestrial portion of the FLAG Europe-Asia cable system.
Landing parties recover landing station capital and maintenance costs through
"right of use" charges and annual maintenance charges that are borne by carriers
entering the FLAG Europe-Asia cable system at that landing station. We reimburse
each landing party for the cost of maintaining the terrestrial portion of the
FLAG Europe-Asia cable system. Set forth below are the landing parties for the
FLAG Europe-Asia cable system:
<TABLE>
<CAPTION>
COUNTRY LANDING PARTY
- ------- -------------
<S> <C>
United Kingdom....................... Cable & Wireless Communications
Spain................................ Telefonica de Espana
Italy................................ Telecom Italia
Egypt................................ Telecom Egypt
Jordan............................... Jordan Telecommunications
Saudi Arabia......................... Saudi Telecom
United Arab Emirates................. Etisalat
India................................ VSNL
Malaysia............................. Telekom Malaysia
Thailand............................. The Communications Authority of
Thailand
China................................ China Telecom
Cable & Wireless HKT International
Korea................................ Korea Telecom
Japan................................ IDC
KDD
</TABLE>
CAPACITY SALES. Each user of capacity on the FLAG Europe-Asia cable system
enters into an agreement with us to acquire capacity. We entered into agreements
to acquire capacity with 62 carriers prior to commencement of service of the
FLAG Europe-Asia cable system. We now have approximately 90 customers.
CONSTRUCTION AND MAINTENANCE. The construction and maintenance agreement
for the FLAG Europe-Asia cable system governs use of the capacity and the rights
and obligations of the landing parties, purchasers of capacity who have become
signatories to the construction and maintenance agreement and FLAG Limited.
Under the construction and maintenance agreement, we are responsible for
arranging maintenance for the submarine portion of the FLAG Europe-Asia cable
system. The construction and maintenance agreement also restricts us from
selling, leasing or directly providing capacity to any entity which is not
authorized or permitted under the laws of its country to acquire and use
facilities for the provision of international telecommunication services. Each
signatory to the construction and maintenance agreement correspondingly agrees
that it will not sell or transfer capacity to third parties, with certain
exceptions relating to transfers to affiliates, transfers to other carriers in a
signatory's country and transfers to which we consent. The construction and
maintenance agreement gives limited rights to vote to the signatories; for
example, the unanimous vote of the signatories is
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required to add a new landing station to the FLAG Europe-Asia cable system.
System enhancements which are approved by the signatories must be paid for by
the signatories and us in relation to capacity on the affected segment. At
September 30, 1999, there were 78 signatories to the construction and
maintenance agreement.
OPERATION AND MAINTENANCE. The FLAG Europe-Asia cable system is designed to
provide service continuity at a standard of 99.999% availability (exclusive of
cable cuts) and to ensure error-free service throughout a design life of
25 years. During the period from its inception to December 31, 1999 the FLAG
Europe-Asia cable system's actual availability was 99.994%. The FLAG Europe-Asia
cable system performance has met or exceeded relevant International
Telecommunications Union recommendations consistently throughout the entire
system since it went into commercial service. The FLAG Europe-Asia cable system
is controlled by the FLAG Telecom network operations center in Fujairah, U.A.E.,
which is responsible for system-wide surveillance, proactive maintenance,
coordination of maintenance and repair operations, circuit activation and
assignment and configuration of the transmission equipment 24 hours a day,
365 days a year. Most other submarine cable systems maintain monitoring services
at their landing stations and do not maintain full-time, around-the-clock
surveillance. The FLAG Telecom network operations center has the capability of a
system-wide view of all network elements in the FLAG Europe-Asia cable system
through its integrated transport management (ITM2000) system. The ITM2000
performs real-time surveillance and control of the FLAG Europe-Asia cable system
including provisioning and restoration at each of the landing stations. We
believe that the FLAG Telecom network operations center, which is an innovation
in system maintenance of undersea cables, and the hardware and software
installed by FLAG Telecom provide a higher standard of service and continuity
than can be met by other international cable systems. Given the importance of
redundancy within the telecommunications industry, we established a backup FLAG
Telecom network operations center in a location near Heathrow, United Kingdom in
1998.
We have entered into four zone agreements which provide maintenance services
from the United Kingdom to Gibraltar in the Mediterranean; from Gibraltar to
Djibouti at the entry to the Red Sea; from India to a point south of Okinawa;
and in the Pacific Ocean north of 25 DEG. latitude. Maintenance zone agreements
are cooperative standby agreements among all cable operators in major ocean
areas to share the expense of assuring constant availability of cable ships
capable of providing repairs to undersea cables. In addition, we have entered
into a bilateral agreement for maintenance of the area from the Red Sea to a
point south of India. We have entered into this agreement to facilitate more
rapid repairs than would be possible under a zone agreement whose area includes
the area covered by the bilateral agreement.
FACILITY RESTORATION PLAN. We have developed a comprehensive restoration
plan for the entire FLAG Europe-Asia cable system to arrange the availability of
alternative routing of traffic in the event of an outage in transmission.
Although the undersea cable is protected by means of burial and armoring, the
cable is nonetheless susceptible to damage from fishing activities, ships and
the elements. We developed the restoration plan on two levels. In-system
restoration routes traffic around faulty equipment or a system break where
parallel routing is available as part of the FLAG Europe-Asia cable system; for
example, on the dual terrestrial crossings in Egypt and Thailand or the
temporary outage of one fiber pair. Out-of-system restoration routes traffic to
alternative systems in accordance with predetermined plans and arrangements with
operators of other cables, land lines and satellites. All segments of the FLAG
Europe-Asia cable system are covered by restoration alternatives using
fiberoptic cable which is laid undersea or on land except that restoration from
Italy to Malaysia is, in part, currently provided by a satellite link. Since
restoration over another cable is preferable in order to maintain consistency of
service quality, we have arranged with Sea MeWe3 (SMW3) for restoration with
respect to the link from Italy to Malaysia. While we undertake to arrange
restoration capacity for our customers, we have no obligation to provide
restoration to our customers on the FLAG Europe-Asia cable system. Each customer
decides whether to accept the restoration plan offered by us,
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and the customers accepting restoration capacity must share and reimburse us for
the associated charges.
THE FLAG ATLANTIC-1 JOINT VENTURE
We are developing the FLAG Atlantic-1 cable system under a 50/50 joint
venture between GTS TransAtlantic and FLAG Atlantic Holdings. GTS TransAtlantic
is a subsidiary of Global Telesystems Group, Inc. FLAG Atlantic Limited will
not have its own staff for project management in the development stage or for
marketing and operations after completion. Instead, the joint venture is
designed to capitalize on each of its shareholders' strengths by dividing the
responsibility for managing FLAG Atlantic Limited's activities between FLAG
Atlantic Holdings and GTS TransAtlantic.
RESPONSIBILITIES OF FLAG ATLANTIC HOLDINGS. Under the Further Restated
Shareholders Agreement between FLAG Atlantic Holdings and GTS TransAtlantic,
FLAG Atlantic Holdings is responsible for managing the construction and
implementation of the subsea portion of the FLAG Atlantic-1 cable system,
arranging project financing for the project, providing accounting and
administrative services and, jointly with GTS TransAtlantic, marketing FLAG
Atlantic-1's capacity. Following construction, FLAG Atlantic Holdings will also
be responsible for monitoring, maintaining and operating the FLAG Atlantic-1
cable system through our FLAG Telecom network operations center at a location
near Heathrow, United Kingdom. In carrying out these responsibilities, FLAG
Atlantic Holdings successfully arranged for the $600 million financing under the
FLAG Atlantic Limited credit agreement. FLAG Atlantic Holdings was responsible
for negotiating the construction contract for the subsea portion of the FLAG
Atlantic-1 cable system with Alcatel Submarine Networks. Alcatel Submarine
Networks has undertaken to deliver the first loop of the subsea portion of the
project in operational service by no later than March 31, 2001. Failure to
deliver the system by that time may trigger liquidated damages, the payment of
which is to be supported by a bank letter of credit and a performance guarantee
provided by Alcatel S.A., Alcatel Submarine Networks' parent company.
RESPONSIBILITIES OF GTS TRANSATLANTIC. Under the Further Restated
Shareholders Agreement, GTS TransAtlantic is responsible for managing the
construction (or acquisition), installation, operation and maintenance of the
majority of the terrestrial element of the FLAG Atlantic-1 cable system. GTS
TransAtlantic will provide a fully operational back-up network operations center
in addition to its existing facility in Hoeilaart, Belgium. GTS TransAtlantic is
also responsible, jointly with FLAG Atlantic Holdings, for marketing FLAG
Atlantic-1's capacity.
MANAGEMENT OF THE JOINT VENTURE. Control of FLAG Atlantic Limited is evenly
shared between GTS TransAtlantic and FLAG Atlantic Holdings. FLAG Atlantic
Limited is governed by a board of directors consisting of 10 directors, half of
whom are selected by each shareholder. Except as provided in the following
sentences, all board decisions must be supported by a majority of FLAG Atlantic
Limited's directors who are present at a board meeting, including at least two
directors nominated by each shareholder. In the case of litigation between FLAG
Atlantic Limited and a shareholder, however, the directors nominated by the
affected shareholder do not have voting rights. In addition, the Further
Restated Shareholders Agreement provides that certain decisions, such as new
share issues, capital calls, changes to the business plan, and approvals of new
shareholders, must be approved directly by both shareholders. As a result of the
foregoing, each shareholder maintains significant influence over FLAG Atlantic
Limited's operations, activities and strategy, since virtually all actions by
FLAG Atlantic Limited require the endorsement of both shareholders directly or,
where no shareholder approval is required, by at least two directors nominated
by each shareholder. Under the Further Restated Shareholders Agreement,
disagreements concerning operational matters (including the selection of
suppliers) and pricing issues may be referred to independent experts for binding
determination, while deadlocks concerning other matters may be referred to
binding arbitration under the rules of the International Chamber of Commerce.
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TRANSFER OF SHARES. Under the Further Restated Shareholders Agreement, the
transfer of shares to unaffiliated parties is restricted. In such instances, the
non-transferring shareholder enjoys a right of first refusal to acquire the
other shareholder's shares in FLAG Atlantic Limited.
FINANCING. As of December 31, 1999, FLAG Atlantic Limited had incurred
$77 million of construction related expenses which have been funded with
$15 million of proceeds from pre-sales and $62 million of construction loans
provided under a credit facility arranged by Barclays Bank plc under a credit
agreement among FLAG Atlantic Limited, Barclays, as administrative agent, and
the lenders party thereto. An additional $513 million of construction loans and
$25 million of revolving loans remain available to be drawn under this credit
facility. The construction loans convert to term loans once the FLAG Atlantic-1
cable system is ready for service (and certain other conditions are satisfied),
with quarterly principal installments and a final maturity date of April 30,
2007. The revolving credit facility is available to be drawn through
April 2006, and must be repaid by April 30, 2007. This senior debt has been
provided on a project finance basis, with recourse limited to a pledge of the
shares in FLAG Atlantic Limited, a security interest over all of the contract
rights and other assets of FLAG Atlantic Limited and its subsidiaries, a
commitment by each of FLAG Atlantic Holdings and GTS TransAtlantic to provide a
$100 million capital contribution no later than October 31, 2000 (which, in the
case of FLAG Atlantic Holdings, will be financed with a portion of the proceeds
from this offering which will be segregated for these purposes), and a
commitment by each of FLAG Atlantic Holdings and GTS TransAtlantic to purchase
(or arrange for the purchase of) capacity from FLAG Atlantic-1, the proceeds of
which are to be used to fund a portion of FLAG Atlantic Limited's construction
costs. FLAG Atlantic Holdings has fulfilled this commitment by arranging for the
purchase of over $100 million in capacity by various entities. GTS TransAtlantic
has also agreed to purchase capacity from FLAG Atlantic Limited. In the event
that the FLAG Atlantic-1 cable system does not go into service by March 31,
2002, some of FLAG Atlantic Limited's customers may cancel their existing
contracts for the purchase of capacity.
CABLE DESIGN. The FLAG Atlantic-1 cable system will use a six fiber pair
configuration using multiple wavelengths, each with a capacity of 10 gigabits
per second up to a maximum of 40 wavelengths per fiber. The FLAG Atlantic-1
cable system is designed to have an initial fully redundant capacity of at least
160 gigabits per second, with potential for future upgrade to 2.4 terabits of
redundant capacity, more than 15 times the maximum capacity of the most advanced
cable in service on the Atlantic route today. The system will consist of a
self-healing ring comprised of two trans-Atlantic cables, one spanning from
Porthcurno in the United Kingdom to the north shore of Long Island, New York,
the other from northern France to the south shore of Long Island. The system's
European landing points will be connected to city centers in London and Paris.
The European city centers will be connected to one another via a fiber ring
including two English Channel crossings. The landing points in Long Island will
connect to two telecommunication centers in New York City, which will connect to
each other via a fiber ring. The system's design is intended to permit seamless
interconnection with the FLAG Europe-Asia cable system (via the landing station
in Porthcurno) and with the existing European city-to-city networks in London
and Paris of GTS TransAtlantic. The FLAG Atlantic-1 cable system will use
company owned landing stations and city center connection points. Alcatel
Submarine Networks has contracted to complete fully the cable system by
June 30, 2001. The FLAG Atlantic-1 cable system will be controlled by the FLAG
Telecom network operations center in the United Kingdom which will be
responsible for system-wide surveillance, proactive maintenance, coordination of
maintenance and repair operations, circuit activation, assignment and
configuration of the transmission equipment and general network administration
such as legal and billing. The network operations centers of GTS TransAtlantic
located in Hoeilaart and Brussels will provide back-up maintenance and repair
services to the FLAG Atlantic-1 cable system and will manage the terrestrial
DWDM equipment for the system.
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TERRESTRIAL CONNECTIONS
In connection with our introduction of managed bandwidth services on our
London-to-Madrid route, we have entered into arrangements to lease terrestrial
capacity in the United Kingdom and Spain. In order to extend the reach of the
FLAG Telecom network, we have entered into arrangements with other
telecommunications services providers to bundle our network capacity with their
systems. We recently entered into an agreement with a facilities-based bandwidth
capacity provider that allows our customers to connect to city-center locations
in London, Paris, Brussels, Frankfurt, Amsterdam, Berlin, Zurich, Milan and
several other major European metropolitan areas.
MARKETING AND SALES
We market our network capacity and telecommunications products and services
globally through a sales force of 25 people located in the following offices:
- regional sales offices in the United States (New York), the United Kingdom
(London), United Arab Emirates (Dubai) and China (Hong Kong);
- local sales offices in Spain (Madrid), India (Delhi), China (Beijing) and
Japan (Tokyo); and
- representatives in Belgium, Greece, Hungary, Italy and Singapore.
Each of our sales offices is led by a team of senior sales representatives
or advisors who are based locally in the region. Our marketing and sales team
has extensive experience in the telecommunications industry and the carriers'
carrier sector and has very strong ties to the regions in which our offices are
located. Prior to joining us, members of our marketing and sales team held key
management positions within organizations such as Global One, Sprint
International, Ameritech International, IBM Corporation, MCI International
(Japan) Co., Ltd., Telstra, Palestine Telecom Corporation (PALTEL), Emirates
Telecommunications Corporation (Etisalat), o.tel.o Communications/Vebacom,
British Telecom and Singapore Telecom. Our marketing and sales representatives
each have an average of 19 years of telecom experience.
Our regional and local offices are our primary points of customer contact.
The sales representatives in these offices are responsible for promoting
regional sales, providing customer information, facilitating customer purchases
on our network and ensuring customer satisfaction. To enhance this regional
focus to our marketing and sales efforts, and to address the special needs of
our global customers, we have also adopted a global customer support strategy.
This strategy is designed to provide multiple points of contact and support for
our customers in the FLAG Telecom organization, at both the regional and senior
executive level, so that we can efficiently and conveniently meet the global
telecommunications needs of these customers. Our senior management, including
our Chairman and Chief Executive Officer, Chief Financial Officer, General
Counsel and Vice President of Strategy and Marketing participate in such
strategic sales relationships.
We reinforce our brand visibility through a variety of marketing campaigns,
participation in key industry and user group conferences, such as the Pacific
Telecom Conference, the Global Traffic Meeting and the International
Telecommunications Union global telecom conferences, speaking engagements, press
conferences, promotional campaigns and end-user awareness programs. In addition,
we intend to sponsor customer forums on a regional and global basis to meet with
customers and to have customers meet with each other.
We are committed to an ongoing market review in order to determine the
alternative costs and structures available to carriers and other
telecommunications companies for capacity and products and services competitive
to FLAG Telecom with a view to price adjustments and incentive discounts which
will attract carriers and other telecommunications companies to the FLAG Telecom
network.
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OUR CUSTOMERS
Our top 50 customers are the telecommunications and Internet companies
listed below. These customers have accounted for approximately 95% of our
revenues to date.
<TABLE>
<CAPTION>
THE AMERICAS EUROPE ASIA/PACIFIC MIDDLE EAST/AFRICA
- ------------ ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C>
AT&T Belgacom (Belgium) Communications Authority of Batelco (Bahrain)
Axistel British Telecom Thailand Etisalat (UAE)
Infonet C&W (UK) China Telecom General Telecom Org. of Oman
MCI WorldCom Deutsche Telekom Chunghwa Telecom (Taiwan) Golden Lines (Israel)
PSINet Infostrada (Italy) DACOM (Korea) Jordan Telecommunications
Sprint KPN (The Netherlands) Cable & Wireless HKT Ministry of Communications
Teleglobe MATAV (Hungary) International (Kuwait)
Viatel OTE (Greece) IDC (Japan) Office of National Posts &
Rostelcom (Russia) KDD (Japan) Telecoms (Morocco)
Swisscom Korea Telecom Qatar Public Telecom. Corp.
Telecom Italia NTT (Japan) Saudi Telecom
Telefonica de Espana ONSE Telecom (Korea) Syrian Telecommunications
Telia (Sweden) Optus (Australia) Establishment
TPSA (Poland) Telecom Malaysia Telecom Egypt
UKRTELECOM (Ukraine) VSNL (India) Telecommunications Co. of
Iran
Telkom S.A. (South Africa)
Turk Telekomunikayon
</TABLE>
OUR COMPETITION
As a global carriers' carrier, we compete in a wide variety of different
geographic markets, in each of which we face and expect in the future to face
specific regional competitors. We also compete against a small number of other
carriers' carriers that aspire to build global networks. We compete or expect to
compete in six key markets:
- global services;
- trans-Atlantic services;
- intra-European services;
- Middle Eastern services;
- Asia/Pacific regional transit services; and
- Europe-Asia long haul services.
GLOBAL SERVICES COMPETITORS
A number of companies are presently engaged in building global carriers'
carrier networks. We believe that because of the high cost of building truly
global networks this is a market in which there will always be a limited number
of players.
Two other companies at present propose to build global carriers' carrier
networks: Global Crossing and Level 3 Communications. Global Crossing is a
Bermuda based telecommunications company which currently has three operational
cable systems: Atlantic-Crossing-1 (AC-1), Pacific-Crossing (PC-1) and
Pan-European Crossing (PEC). Global Crossing is currently building a number of
other systems covering Asia (Asia Global Crossing) and Latin America (SAC-1,
MAC-1 and PAC-1). We believe we compete with Global Crossing on quality, as well
as on the coverage and cost effectiveness of our network. Level 3 Communications
currently operates a United States city-to-city cable network based on company
owned infrastructure and is building a European city-to-city network. Level 3
Communications has announced the construction of a single, high capacity cable
cross the Atlantic
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Ocean. Level 3 has made investments in a trans-Pacific cable system (US-Japan)
in addition to its own facilities.
Over time, as we develop our wholesale services offerings, we expect to
compete with major global telecommunications operators such as MCI WorldCom and
British Telecom/AT&T. These companies primarily focus on offering services to
multinational corporations, although they also offer carriers' carrier services.
Such companies often participate in consortium cable projects, as well as in
private network systems, such as those we own and operate. We also expect to
face competition from carriers' carriers and incumbent regional
telecommunications providers with respect to our wholesale service offerings.
TRANS-ATLANTIC SERVICES COMPETITORS
We believe our key competitors in the trans-Atlantic services market are as
follows:
- TAT-14--This loop cable system is a consortium system cable sponsored by
British Telecom, AT&T and other incumbent telecommunications operators in
the United States and Europe. It has a maximum design capacity of 640
gigabits per second. TAT-14 is anticipated to be in service in early 2001.
TAT-14 provides services on a coast-to-coast basis. It does not presently
provide city-to-city services.
- LEVEL 3 COMMUNICATIONS--Level 3 Communications is building a single cable
system based on IP only technology, running at 1.28 terabits per second.
The system provides city-to-city service.
- GLOBAL CROSSING AC-1 AND AC-2--AC-1 is a loop system across the Atlantic.
AC-1 runs at 80 gigabits per second and may subsequently be upgraded to
160 gigabits per second. AC-1 is fully operational. AC-2 is a proposed
2.56 terabits per second single cable system that, due to its increased
capacity over AC-1, would only partially restore on AC-1. AC-2 is at an
early stage of development.
- HIBERNIA--This is a proposed 1.92 terabits per second system which is
sponsored by Worldwide Fiber, a subsidiary of Ledcor Industries, a
Canadian mining company. Worldwide Fiber principally offers dark fiber
connectivity on terrestrial networks on a carriers' carrier basis in the
North American markets.
INTRA-EUROPEAN SERVICES COMPETITORS
We believe that the intra-European market will become very competitive in
the next 12-18 months as a result of the large number of proposed pan-European
operators. At least eight pan-European networks have been announced or commenced
operations, including: GTS, BT Farland, MCI WorldCom Ulysses, Alcatel/The
Petabit Network, iaxis, Global Crossing PEC-1, Viatel Circe and KPN/ Qwest.
MIDDLE EASTERN TRANSMISSION SERVICES COMPETITORS
We expect to compete against two primary competitors in this market:
- SEA ME WE 3 (SMW3)--This is a consortium cable system that connects the
Asia/Pacific region via the Middle East to Western Europe along a similar
route to the FLAG Europe-Asia cable system. SMW3 was originally planned to
be in service in late 1997; however, it was significantly delayed and only
recently entered commercial service. SMW3 has an initial capacity of 20
gigabits per second and is upgradeable to 40 gigabits per second. SMW3 has
major investors that include many of the incumbent telecommunications
operators along its route.
- SATELLITE--In addition to the SMW3 cable, carriers have the alternative of
transmission by satellite, including existing geosynchronous satellites
and low earth orbit systems now under
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construction. In general, satellite service is considered to be of
inferior quality, because time delays and echos affect transmission, and
service interruptions are more frequent. Furthermore, satellite systems
are more expensive to launch and to maintain per circuit and generally
have a shorter useful life and less capacity. Nonetheless, there are many
communications satellites in geosynchronous orbit which are available to
provide service.
ASIA/PACIFIC REGIONAL TRANSIT COMPETITORS
At present, two other systems compete in the Asia/Pacific market, SMW3 and
APCN. Both are consortium systems.
- SMW3--In Asia, this system connects from Singapore north through Asia to
Japan, and also south to Australia.
- APCN--This consortium system is an established regional transit system
around Asia. Many of the region's traditional operators are participants.
In addition, several further systems are planned that may come into service
between 2001-2003. These include APCN2, backed by incumbent Asian operators,
PA-1, backed by NTT and US and European operators, and a system proposed by
Global Crossing.
EUROPE-ASIA LONG HAUL SERVICES COMPETITORS
We also participate in the Europe-Asia long haul market through the FLAG
Europe-Asia cable system. SMW3 is the primary direct competitor along this
route. However, we expect the strongest competition in the future to come from
an alternative routing from Europe to Asia across the Atlantic Ocean, trans-US,
and across the Pacific Ocean to Japan.
REGULATION
We will, in the ordinary course of development, construction and operation
of our fiberoptic cable systems, be required to obtain and maintain various
permits, licenses and other authorizations in both the United States and in
foreign jurisdictions where our cables land, and we will be subject to
applicable telecommunications regulations in such jurisdictions.
We will be required to obtain numerous permits in connection with the FLAG
Atlantic-1 cable system. These permits include:
US LANDING LICENSE. Under the Act Relating to the Landing and Operation of
Submarine Cables in the United States of May 27, 1921 (Cable Landing Act), all
submarine cable systems that connect to the United States must obtain a landing
license granted by the President of the United States. Presidential authority
for such licenses has been delegated to the Federal Communications Commission
(FCC). FLAG Atlantic Limited obtained its landing license to land and operate a
private fiber optic submarine cable extending between the United States and the
United Kingdom and France on October 1, 1999.
UK PUBLIC TELECOMMUNICATIONS OPERATOR LICENSE. In November 1999, FLAG
Atlantic Limited received a UK Public Telecommunications Operator License
permitting it to operate a telecommunications network in the United Kingdom.
FRENCH ARTICLE L33.1 LICENSE. FLAG Atlantic Limited must obtain this
license in order to build and operate a telecommunications network in France.
FLAG Atlantic Limited submitted an application in July 1999 and anticipates a
license being awarded by September 2000.
FLAG Atlantic Limited will be required to obtain a substantial number of
other permits, mostly relating to local permission to land at the specific
landing sites chosen and local permissions to build
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those segments of FLAG Atlantic-l's terrestrial networks that cannot be obtained
on dark fiber leases. FLAG Atlantic Limited is in discussions with all the
relevant entities regarding these permits.
In addition, because we intend to offer wholesale services on a city-to-city
basis, we will be required to acquire operator and other licenses and submit
notifications in the various jurisdictions in which we intend to offer such
services.
Consistent with the cable landing license issued by the FCC, we plan to
operate the FLAG Atlantic-1 cable system on a private or non-common carrier
basis. Once the FLAG Atlantic-1 cable system becomes operational, we will be
required to pay annnual regulatory fees to the FCC based on certain
international circuits sold on the FLAG Atlantic-1 cable system. In addition, if
we offer trans-Atlantic services to or from the United States on a common
carrier basis we will be subject to additional regulatory and licensing
requirements.
As a result of the January 4, 2000 exchange by Bell Atlantic of its common
shares in FLAG Limited for our common shares, we will be deemed an affiliate of
Bell Atlantic under the Communications Act of 1934, as amended. As an affiliate
of Bell Atlantic, we may be subject to increased regulation by the FCC.
Specifically, under Section 271 of the Communications Act, neither Bell
Atlantic nor any of its affiliates may provide or market long distance
telecommunications services originating in a state (in-region state) in which
Bell Atlantic is an incumbent provider of local telephone service until the FCC
approves an application of Bell Atlantic to provide long distance services
originating in that state. Once constructed, the FLAG Atlantic-1 cable system
will carry trans-Atlantic long distance traffic that originates in New York,
which is a Bell Atlantic in-region state. Bell Atlantic has obtained the
necessary regulatory approval from the FCC to provide long distance services
originating in New York, effective as of January 3, 2000. As an affiliate of
Bell Atlantic, we will be subject to additional regulatory prohibitions on the
provision and marketing of trans-Atlantic services via the FLAG Atlantic-1 cable
system to prospective cutomers located in the in-region states for which
Bell-Atlantic has not obtained necessary regulatory approvals.
PROPERTIES
We maintain executive and administrative offices at Emporium Building, 69
Front Street, Hamilton HM12, Bermuda, where we lease approximately 4,000 square
feet of office space. We also lease additional office space for our operations
in London, England (10,500 square feet and 2,000 square feet for the backup
network operations center), New York City (2,000 square feet), Bangkok (900
square feet), Hong Kong (2,000 square feet), Dubai (8,500 square feet),
Fujairah, U.A.E. (5,300 square feet for the network operations center), Delhi
(220 square feet), Beijing (650 square feet) and Tokyo (50 square feet).
EMPLOYEES
At January 1, 2000, we had approximately 109 full-time employees. We intend
to hire additional personnel as we begin commercial operations of the FLAG
Atlantic-1 cable system and roll-out new wholesale product and service
offerings. None of our employees are represented by a union or covered by a
collective bargaining agreement. We believe that our relations with our
employees are good. In connection with the construction and maintenance of the
FLAG Atlantic-1 cable system, we will use third party contractors, some of whose
employees may be represented by unions or covered by collective bargaining
agreements.
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LEGAL PROCEEDINGS
We are involved in litigation from time to time in the ordinary course of
business. In management's opinion, the litigation in which we are currently
involved, individually and in the aggregate, is not material to our financial
condition, results of operations or cash flows.
EXCHANGE CONTROLS
Under Bermuda law, there are currently no restrictions on the export or
import of capital, including foreign exchange controls, or that affect the
remittance of dividends, interest or other payments to nonresident holders of
our common shares.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
We are a Bermuda company. Most of our directors and officers, and some of
the experts named in this prospectus, are not residents of the United States.
All or a substantial portion of our assets and the assets of these persons are
or may be located outside the United States. As a result, it may not be possible
for investors to effect service of process within the United States upon these
persons or to enforce against them judgments obtained in the United States
courts. We have been advised by our legal counsel in Bermuda, Appleby,
Spurling & Kempe, that there is doubt as to the enforcement in Bermuda, in
original actions or in actions for enforcement of judgments of United States
courts, of liabilities predicated upon U.S. federal securities laws (including
civil liabilities under such laws), although Bermuda courts will enforce foreign
judgments for liquidated amounts in civil matters subject to certain conditions
and exceptions.
We have expressly submitted to the jurisdiction of the U.S. federal and New
York state courts sitting in the City of New York for the purpose of any suit,
action or proceeding arising out of this offering, and we have appointed FLAG
Telecom USA Ltd. to accept service of process in any such action.
THIS PROSPECTUS HAS BEEN FILED WITH THE REGISTRAR OF COMPANIES IN BERMUDA
PURSUANT TO PART III OF THE COMPANIES ACT, 1981 OF BERMUDA AND THE BERMUDA
MONETARY AUTHORITY (BMA) HAS GIVEN ITS CONSENT TO THE ISSUE AND TRANSFER OF UP
TO 30,360,000 COMMON SHARES. IN ACCEPTING THIS PROSPECTUS FOR FILING, THE
REGISTRAR OF COMPANIES ACCEPTS NO RESPONSIBILITY FOR THE FINANCIAL SOUNDNESS OF
ANY PROPOSALS OR FOR THE CORRECTNESS OF ANY STATEMENTS MADE OR OPINIONS
EXPRESSED WITH REGARD TO THEM. APPROVALS OR PERMISSIONS RECEIVED FROM THE BMA DO
NOT CONSTITUTE A GUARANTEE BY THE BMA AS TO OUR PERFORMANCE OR OUR
CREDITWORTHINESS. AS A RESULT, IN GIVING SUCH APPROVALS OR PERMISSIONS, THE BMA
SHALL NOT BE LIABLE FOR OUR PERFORMANCE OR OUR DEFAULT OR FOR THE CORRECTNESS OF
ANY OPINIONS OR STATEMENTS EXPRESSED IN THIS PROSPECTUS.
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MANAGEMENT
The following table sets forth, as of January 1, 2000, information for each
of our directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Andres Bande......................... 55 Chairman and Chief Executive Officer
Edward McCormack..................... 44 Chief Financial Officer and Director
Stuart Rubin......................... 52 General Counsel and Assistant Secretary
Michael Fitzpatrick.................. 50 Director Nominee(1)
Abdul Latif Ghurab................... 57 Director(2)
Edward J. McQuaid.................... 44 Director Nominee(3)
Adnan Omar........................... 47 Director
Daniel Petri......................... 51 Director
Philip Seskin........................ 36 Director Nominee(3)
Umberto Silvestri.................... 67 Director
Jonathan Solomon..................... 60 Director
Dr. Lim Lek Suan..................... 50 Director(2)
Fumio Uehara......................... 49 Director(2)
Dr. Vallobh Vimolvanich.............. 58 Director
</TABLE>
- ------------------------
(1) Appointment as a director will become effective prior to the closing of this
offering.
(2) Expected to resign upon closing of this offering.
(3) Appointment as a director will become effective upon the closing of this
offering.
At our first annual general meeting after this offering, we intend to
implement a staggered Board of Directors comprised of ten persons. At that
meeting, the term of each of our directors will expire and, at each annual
general meeting thereafter, the term of approximately one-third of our directors
will expire.
ANDRES BANDE. Mr. Bande has served as Chairman of the Board and Chief
Executive Officer since January 1998. Before joining us, Mr. Bande was the
President of Sprint International from 1996 to the beginning of 1998. Prior to
that, he was President of Ameritech International Corporation from 1990 to 1996.
From 1987 to 1990, Mr. Bande was Executive Vice President of US West
International. From 1976 to 1986, he was President of Telecomsult, an
international telecommunications consulting practice. Mr. Bande holds a law
degree from the University of Chile and a Master's degree in politics and
international law from Oxford University.
EDWARD MCCORMACK. Mr. McCormack has been a member of the Board since
October 1999 and has served as the Chief Financial Officer since February 1996.
Prior to that time, Mr. McCormack spent seventeen years with Bechtel, an
engineering and construction company. His final position was based in London as
Chief Financial Officer of Bechtel Europe, Africa, Middle East and South West
Asia. Prior to then, he had assignments at their San Francisco headquarters and
in Saudi Arabia. Mr. McCormack holds a Bachelor of Commerce degree from
University College in Galway, Ireland.
STUART RUBIN. Mr. Rubin has served as the General Counsel since
January 1996. Prior to joining us, Mr. Rubin spent over twenty years with the
law firm of Coudert Brothers, as a partner for the last twelve, and two years
with the U.S. Peace Corps in Malaysia. As an international lawyer, Mr. Rubin
worked extensively in Southeast Asia, the U.S., and England, specializing in
cross border financial transactions, joint ventures and other commercial
transactions. Mr. Rubin holds a J.D. degree from Columbia University School of
Law and a Bachelor of Arts degree in Political Science from Union College.
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MICHAEL FITZPATRICK. Mr. Fitzpatrick will become our director prior to the
closing of this offering. Mr. Fitzpatrick is Chairman of the Board, President
and Chief Executive Officer of E-TEK Dynamics, Inc., a fiber optic manufacturer.
Mr. Fitzpatrick was previously President and Chief Executive Officer of Pacific
Telesis Enterprises, where he had responsibilities for the exploration and
development of new emerging technology products and services and for the
following Pacific Bell subsidiaries: Yellow Pages, Payphones, Voicemail, Mobile
Services (PCS) and Video and Internet Media. Additionally, Mr. Fitzpatrick had
responsibilities for corporate marketing and advertising for all of Pacific Bell
and Pacific Telesis. Mr. Fitzpatrick joined Pacific Bell in September 1993 as
Executive Vice President. In January 1994, he became Executive Vice President,
Marketing and Sales and managed approximately 15,000 employees. Prior to joining
Pacific Bell, Mr. Fitzpatrick served as President and Chief Executive Officer of
Network Systems Corporation, a public company specializing in high speed data
communications between computers and local area networks. Mr. Fitzpatrick
currently serves as a director of NorthPoint Communications Group, Inc., a
national provider of local data network services and Adva Optical Networking, a
worldwide optical networking solutions provider located in Germany.
ABDUL LATIF GHURAB. Mr. Ghurab was a director of FLAG Limited from April
1994 until the corporate restructuring in February 1999 and has since been a
member of our Board. Mr. Ghurab is also the shareholder representative for
Dallah Albaraka Group. Mr. Ghurab is the Chairman of the South East Asia Holding
Company (Singapore) and the Transport Sector Board of Dallah Albaraka. He is
involved in various business sectors in the Banking & Investment Sector.
Mr. Ghurab is the Chairman of the Board of Directors of Albaraka Turkish Finance
House "Turkey" and Board Member of Albaraka Investment & Development Company,
Saudi Arabia and Chairman of BASAFOJAGU Co. He is involved in the Transport
Sector as the Chairman of Al-Jazirah Transport Holding Company "Saudi Arabia"
and Chairman of the Board of Directors of Dallah Haj Transport Co.--Saudi
Arabia. In the Insurance Sector he is the Managing Director of Islamic Arab
Insurance Company--IAIC--(E.C.U.) and Director General Islamic Insurance &
Reinsurance Co. (IIRCO), Saudi Arabia and a Board Member of B.E.S.T. Reinsurance
Co. Mr. Ghurab received a Bachelor of Science in Geology and a Master of Arts
degree in Geography from Saint Louis University.
EDWARD MCQUAID. Mr. McQuaid will become our director upon the closing of
this offering. Mr. McQuaid is a Bell Atlantic Corporation director nominee.
Mr. McQuaid is an Executive Director in charge of financial planning and
analysis for Bell Atlantic Corporation. Mr. McQuaid is responsible for
establishing Bell Atlantic Corporation's portfolio financial targets and
coordinating the development of integrated five-year business plans. He also
supervises the International Wireline Controller and ensures compliance with all
regulatory rules related to transactions between Bell Atlantic Corporation
subsidiaries. Since joining Bell Atlantic Corporation in July 1977, Mr. McQuaid
has held various positions of increasing responsibility in a variety of
financial disciplines. Mr. McQuaid is a Certified Management Accountant and has
over 22 years of financial experience in the telecommunications industry.
ADNAN OMAR. Mr. Omar was a director of FLAG Limited from April 1994 until
the corporate restructuring in February 1999 and has since been a member of our
Board. Mr. Omar is the Executive Director of Al-Jazirah Holding Company, which
is fully owned by Dallah Albaraka Group. Mr. Omar also serves on the board of
directors of BASAFOJAGU Co., Al-Sham Shipping Co. Syria, Dallah Transport Co.
Saudi Arabia, Dallah Pilgrimage Transport Co., and Dallah Lebanon Tourism &
Transport Co. Prior to joining Dallah Albaraka Group, Mr. Omar spent over
12 years in construction management and planning of large infrastructure
projects. Mr. Omar received a Bachelor of Science degree in Civil Engineering
from Southampton University in the United Kingdom.
DANIEL PETRI. Mr. Petri was FLAG Limited's acting Chairman and Chief
Executive Officer from June 1997 to January 1998. Mr. Petri was a director of
FLAG Limited from September 1995 until the corporate restructuring in February
1999 and has since been a member of our Board. Mr. Petri is a
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<PAGE>
shareholder representative for Bell Atlantic. Mr. Petri is President of Bell
Atlantic International Telecommunications and of Bell Atlantic Network Systems.
Over the past 25 years with NYNEX and most recently Bell Atlantic, Mr. Petri has
held many key positions including Vice President and General Manager, Customer
Services, Central New York, Vice President and General Manager of Midtown
Manhattan, and Managing Director of Worldwide Operations. Mr. Petri received a
Bachelor of Science degree in Mechanical Engineering from Rutgers University and
a Master of Science degree in Management Science from Long Island University. He
has also completed management programs in General Management, Finance, and
Marketing at the Columbia University Graduate School of Business.
PHILIP SESKIN. Mr. Seskin will become our director upon the closing of this
offering. Mr. Seskin is a Bell Atlantic Corporation director nominee.
Mr. Seskin is currently the Vice President-Strategy & Corporate Development for
Bell Atlantic Corporation. He is responsible for strategic business initiatives,
as well as merger and acquisition activity worldwide. Since joining Bell
Atlantic Corporation in 1987, Mr. Seskin has been involved in numerous major
mergers, acquisitions and joint ventures, including the formation of Bell
Atlantic Nynex Mobile, Cable & Wireless Communications and the merger of Bell
Atlantic and Nynex.
UMBERTO SILVESTRI. Mr. Silvestri has been a member of the Board since
October 1999. Mr. Silvestri is Chairman of STET International Netherlands and
formerly was the Chief Executive Officer of STET and Chairman of Telecom Italia.
Mr. Silvestri also sits on the Board of Meie Assicuratrice and was previously a
member of the Board of the Italian Banking Association, Italtel, Sirti, CSELT
(Telecom Italia Group Laboratories) and was Vice Chairman of ELSAG--Elettronica
S Giorgio--Genoa.
JONATHAN SOLOMON. Mr. Solomon has been a member of the Board since October
1999. Mr. Solomon currently serves on the Boards of Millicom International
Cellular, THUS, the new name for Scottish Telecom and Societe Europeene de
Communications. Until 1997, Mr. Solomon was Executive Director, Strategy and
Corporate Business Development at Cable & Wireless plc and non-Executive
Director of Hong Kong Telecom, IDC Japan, Nakhodka and Sakhalin Telecom Russia
and Tele2 in Sweden.
DR. LIM LEK SUAN. Dr. Lim has been a member of the Board since
February 1999 and is the shareholder representative of The Asian Infrastructure
Fund. He is a director and co-head of Telecommunications Sector of Asian
Infrastructure Fund Advisers Limited. He is also a director of Bayan
Telecommunications Holdings Corporation and a Commissioner of PT Excelcomindo
Pratama. Dr. Lim has spent more than 20 years in the finance, utilities and
engineering industry. He holds a Ph.D. degree in Electrical Engineering from
Loughborough University of Technology, England and a first class honors degree
in Electrical Engineering from the University of Malaya, Malaysia.
FUMIO UEHARA. Mr. Uehara was a director of FLAG Limited from January 1998
until the corporate restructuring in February 1999 and has since been a member
of our Board. Mr. Uehara is the shareholder representative for Marubeni Telecom
Development Ltd. Mr. Uehara is President of Marubeni Telecom Development Ltd.
and also General Manager of the Telecom & Information Network Dept. of Marubeni
Corporation. Mr. Uehara has spent over 25 years in planning and management of
telecommunications infrastructure projects. Mr. Uehara received a Bachelor of
Commercial Science degree from Hitotsubashi University in Japan.
DR. VALLOBH VIMOLVANICH. Dr. Vallobh was a director of FLAG Limited from
July 1995 until the corporate restructuring in February 1999 and has since been
a member of our Board. Dr. Vallobh is the shareholder representative of K.I.N.
(Thailand) Co. Ltd. Dr. Vallobh is Chairman of Telecom Holding Co., Ltd. and
Vice Chairman of Telecom Asia Corporation PCL. Dr. Vallobh holds a Master of
Science and a Ph.D. degree in Electrical Engineering from the University of
California and a Bachelor of Engineering degree in Electrical Engineering from
Chulalongkorn University.
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<PAGE>
KEY MANAGEMENT.
LARRY BAUTISTA. Mr. Bautista has served as Vice President-Finance and
Treasurer since December 1995. Prior to joining us, Mr. Bautista spent over six
years in various finance and treasury positions at NYNEX. He structured,
negotiated and closed several financings for FLAG Telecom, including the
non-recourse debt of the FLAG Atlantic-1 cable system and the refinancing of the
FLAG Europe-Asia cable system. Mr. Bautista has an M.B.A. degree with honors
from Fordham University and a Bachelor of Science degree in Management
Engineering from Ateneo de Manila University in the Philippines.
ANDREW EVANS. Mr. Evans has served as Vice President of Strategy and
Marketing since April 1998. Mr. Evans started his career with British Telecom in
1982, subsequently becoming an Executive Engineer and leading the development of
BT's real-time network traffic management systems. In 1990, he joined
McKinsey & Company as a Senior Telecommunications Specialist. Mr. Evans holds an
MA in Engineering and Electrical Sciences with First Class Honors from the
University of Cambridge, England, and an MBA with High Distinction (Baker
Scholar) from the Harvard Business School.
PETER MARTINS DA SILVA. Mr. Martins joined us in September 1999 as Vice
President of Business Development. As Vice President of Sprint's Latin American
operations, Mr. Martins led their winning bid to acquire Brazil's second long
distance carrier license and subsequently directed the set-up of the new company
to exploit the license. Previously, as Vice President of Business Development
for Ameritech International, Mr. Martins led the Ameritech consortium's winning
bid for Belgacom, and held responsibility for Ameritech's privatization efforts
in the Czech Republic, Ireland and Portugal, as well as being involved in the
privatization of MATAV, the Hungarian PTT. Mr. Martins majored in Economics at
the University of California at Berkeley and holds an MBA in international
business from the Harvard Business School.
DR. EBERHARD PLATTFAUT. Dr. Plattfaut has served as Vice President of
Europe based in London since July 1998. Dr. Plattfaut was a director with
o.tel.o Communications/Vebacom, where he held a number of management positions
in sales, marketing and strategy. Previously he was a senior manager with
McKinsey & Company, where he was responsible for client projects in the
telecom/IT area, as well as sales, marketing and strategy projects across
industries with a focus on European franchises. Dr. Plattfaut is a Fulbright
Scholar and has studied business, mechanical engineering and computer sciences.
Dr. Plattfaut received his MBA from the University of Southern California and
his Doctorate from the University of Erlangen.
OWEN BEST. Mr. Best has served as Vice President of Asia Pacific based in
Hong Kong since June 1998. Prior to joining us, Mr. Best was Vice President of
Telstra Japan and Regional Director for Telstra Korea. He has over 17 years
experience in the telecommunications industry, working extensively in the Asia
Pacific region in various technical and operational positions with Telecom
Australia and Telecom International. Mr. Best received his Bachelor's of
Engineering (Electronics/Communications) and his MBA from the University of
Queensland.
SORAYA TARRANT. Ms. Tarrant has served as Vice President of Americas based
in New York since March 1999. Ms. Tarrant was employed by Global One where over
an 11-year period she served in several key management positions including
Director of Carrier Services Sales, Director of Global Data Services and most
recently, as Director of Global Internet Solutions. Previously, she was with
Cable & Wireless Hong Kong serving major multinational clients. Ms. Tarrant
holds a Bachelor's of Science degree in Electronic Communications from the
University of Salford in Manchester, and a postgraduate degree in
Telecommunications Systems from the University of Aston in Birmingham, U.K.
WALID IRSHAID. Mr. Irshaid has served as Vice President of Middle East
based in Dubai since July 1998. Mr. Irshaid was the Director General of
Palestine Telecom Corporation, the emerging
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telecom service provider in Palestine. Mr. Irshaid's experience in the Middle
East was acquired from his previous 17-year assignment with the Emirates
Telecommunications Corporation as Corporate Manager. Mr. Irshaid was actively
involved in the deployment and development of several major projects and key
services within the Middle Eastern region, including cellular, data, value added
services and multimedia.
DR. CHIA CHOON WEI. Dr. Chia joined us in August 1998 as Senior Advisor
(Asia Pacific) based in Singapore. He was most recently Chief Executive Officer,
International Investments of Hutchison Telecom International Limited from
April 1997 to the end of June 1998. He has 27 years telecommunication
experience, first with British Telecom and then with Singapore Telecom, where he
spent twenty-two years. In his last position there, he was Vice President,
International Network Services. Dr. Chia holds a Ph.D. in Electrical Engineering
(Control Systems), and an M.Sc. and a B.Sc. (Engineering) from Imperial College,
London University.
WILSON WANG. Mr. Wang joined us in February 1999 as our resident
representative in China. He was Senior Vice President and China General Manager
of Sprint International from June 1997 to November 1998. Prior to that, he was
Senior VP and China General Manager of Ameritech International from
October 1994 to June 1997. Mr. Wang holds a BA from National Taiwan University
and an MBA from University of Washington.
KIMIAKI UENO. Mr. Ueno joined us in July 1999 as Vice President for Japan
based in Tokyo. Before joining the Company, Mr. Ueno was Representative
Director & Chief Executive of MCI International (Japan) Co., Ltd. from 1991 to
March, 1999 and Director of Marketing/Technical Support for MCI International
(Japan) Co., Ltd. from 1988 to 1991. Prior to that, Mr. Ueno was Assistant
General Manager of General Administration of Mitsui & Co., (U.S.A.) Inc. from
1982 to 1988.
ADOLFO CASTILLA. Mr. Castilla joined us in June 1998 as our resident
representative in Spain and special advisor for Southern European Countries.
Previously, he was Sprint International's General Manager in Spain, and a member
of the Steering Committee of Lince, the third Spanish fixed license winner.
Prior to this, he was a member of the steering committee of the OPERA
consortium, and also the Airtel steering committee, a consortium he helped
create for Ameritech. Mr. Castilla has also been the General Manager of Roland
Berger in Spain, and worked for 8 years at the Telefonica Group of companies.
SAMIH KAWAR. Mr. Kawar is Vice President Construction and Operations and
joined the FLAG Europe-Asia Cable system project in 1995. Prior to joining us
and for more than 17 years, Mr. Kawar worked in development/project management
of various international projects and management control systems. Mr. Kawar has
a degree in Engineering from the American University of Beirut.
FRANK DENNISTON. Mr. Denniston is our Chief Technical Officer. Previously,
he was Vice President and Chief Engineer of Bell Atlantic Global Systems
Company, where he served as Project Manager for the construction of the FLAG
Europe-Asia cable system. With over 38 years experience, Mr. Denniston has
served in various technical and operations positions with NYNEX, AT&T and the
New York Telephone Company. Mr. Denniston holds a Bachelor's and a Master's
degree in Electrical Engineering from Rensselaer Polytechnic Institute.
JOHN DRAHEIM. Mr. Draheim has served as Project Manager of the FLAG
Atlantic-1 cable system project since January 1999. Prior to this, Mr. Draheim
was Vice President of Operations at Ameritech International during which time he
also served as General Manager and a member of the Board of Directors of
Ameritech's joint venture in China, and Executive Director of the MATAV. Before
joining us, Mr. Draheim spent 35 years in the telecommunications industry,
having served in various technical, operations and management positions at
Ameritech, Bellcore, AT&T and the Ohio Bell Telephone
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Company. Mr. Draheim holds a Bachelor's Degree in Electrical Engineering from
Valparaiso University and a Master's Degree in Management from Pace University.
COMMITTEES OF THE BOARD
In connection with this offering, we have established an Audit Committee,
all of the members of which will be non-employee directors. The Audit Committee
will be responsible for recommending to the Board of Directors the engagement of
our independent auditors and reviewing with our independent auditors the conduct
and results of the audits, our internal accounting controls, audit practices and
the professional services furnished by our independent auditors.
We also currently have a Compensation Committee. Among other
responsibilities, our Compensation Committee reviews and approves all
compensation agreements for our officers and administers our long term incentive
plan.
COMPENSATION
For the year ended December 31, 1998, the aggregate compensation of all
members of our Board of Directors and all of our executive officers was
approximately $3.5 million. We anticipate that compensation levels in the future
will be greater than they have been to date.
LONG-TERM INCENTIVE PLAN
In 1999, our Board of Directors and our shareholders adopted the FLAG
Limited 1998 Long-Term Incentive Plan, originally adopted in 1998 by the Board
of Directors and shareholders of FLAG Limited. The purpose of the Plan is to
allow us to attract, retain and reward officers, employees, consultants and
certain other individuals and to compensate them in a way that provides
additional incentives and enables such individuals to increase their ownership
interests. Individual awards under the Plan may take the form of:
- incentive stock options ("ISOs") or non-qualified stock options ("NQSOs");
- stock appreciation rights ("SARs");
- restricted or deferred stock;
- dividend equivalents;
- bonus shares and awards in lieu of our obligations to pay cash
compensation; and
- other awards the value of which is based in whole or in part upon the
value of the common shares.
The Plan is administered by a committee, whose members were appointed by our
Board of Directors. The committee is empowered to select the individuals who
will receive awards and the terms and conditions of those awards, including
exercise prices for options and other exercisable awards, vesting and forfeiture
conditions (if any), performance conditions, the extent to which awards may be
transferable and periods during which awards will remain outstanding. Awards may
be settled in cash, shares, other awards or other property, as determined by the
committee.
The maximum number of common shares that may be subject to awards under the
Plan may not exceed 6,763,791.
The Plan may be amended by the Board of Directors without the consent of our
shareholders, except that any amendment, although effective when made, will be
subject to shareholder approval if required by any Federal or state law or
regulation or by the rules of any stock exchange or automated quotation system
on which our common shares may then be listed or quoted. The number and kind of
shares reserved or deliverable under the Plan and the number and kind of shares
subject to outstanding awards are subject to adjustment in the event of stock
splits, stock dividends and other extraordinary corporate events. Following
completion of this offering, we intend to file a registration statement on Form
S-8 to register the issuance of our common shares under the Plan.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information known to FLAG Telecom with
respect to the beneficial ownership of our common shares as of January 1, 2000
by: (1) each shareholder known by us to be the beneficial owner of our common
shares and (2) all of our executive officers and directors as a group. Except as
otherwise noted below, each of the shareholders identified in the table has sole
voting and investment power over the shares it beneficially owns.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
--------------------------------------------------- --------------------------------
NAME OF BENEFICIAL OWNER BEFORE OFFERING SOLD IN OFFERING AFTER OFFERING BEFORE OFFERING AFTER OFFERING
- ------------------------ --------------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Bell Atlantic
Corporation (1).................. 39,922,276 0 39,922,276 36.97% 30.93%
Dallah Albaraka (2)................ 21,910,694 1,120,537 20,790,157 20.29% 16.11%
Telecom Asia Corporation Public
Co. Ltd. (3)..................... 18,130,114 2,968,865 15,161,249 16.79% 11.75%
Marubeni Corporation (4)........... 10,124,612 517,784 9,606,828 9.38% 7.44%
The Asian Infrastructure Fund
(5).............................. 9,065,057 463,597 8,601,460 8.39% 6.66%
General Electric Capital
Corporation (6).................. 2,744,415 140,353 2,604,062 2.54% 2.02%
Abdul Latif Omar Ghurab (7)........ 411,415 21,040 390,375 0.38% 0.30%
Abdul Aziz Abdullah Kamel (7)...... 411,415 21,040 390,375 0.38% 0.30%
AT&T Capital Corporation (8)....... 914,805 46,784 868,021 0.85% 0.67%
Reja Sabet (9)..................... 932,501 0 932,501 0.86% 0.72%
Hormoz Sabet (9)................... 932,501 0 932,501 0.86% 0.72%
Spinconsult SA (9)................. 466,251 0 466,251 0.43% 0.36%
All directors and executive
officers as a group (11 persons)
(10)............................. 2,016,040 0 2,016,040 1.87% 1.56%
Total.............................. 107,982,096 5,300,000 102,682,096 100.00% 79.54%
</TABLE>
- ------------------------
(1) Bell Atlantic Corporation is the ultimate parent of a wholly owned
subsidiary, Bell Atlantic Network Systems Company, which directly owns our
shares. The business address of the direct owner is: Bell Atlantic Network
Systems Company, 4 West Red Oak Lane, White Plains, NY 10604, U.S.A.
(2) Dallah Albaraka is the parent of Rathburn Limited, its wholly-owned
subsidiary. The business address of the direct owner is: Rathburn Limited,
Abbott Building, Main Street, P.O. Box 3186, Road Town, Tortola, BVI.
(3) Telecom Asia Corporation Public Co. Ltd. is the ultimate parent of a wholly
owned subsidiary, K.I.N. (Thailand) Co., Ltd., which directly owns our
shares. The business address of the direct owner is: K.I.N. (Thailand) Co.,
Ltd., c/o Telecom Holdings Company Limited, 30th Floor, Telecom Tower, 18
Ratchadaphisak Road, Huai Khwang, Bangkok 10310, Thailand. Bell Atlantic
holds approximately 19% of the shares of Telecom Asia Corporation Public Co.
Ltd.
(4) Marubeni Corporation is the ultimate parent of a wholly owned subsidiary,
Marubeni Telecom Development Limited, which directly owns our shares. The
business address of the direct owner is: Marubeni Telecom Development
Limited, Cedar House, 41 Cedar Avenue, Hamilton HM 12, Bermuda.
(5) The business address of The Asian Infrastructure Fund is: c/o Caledonian
Bank & Trust Limited, Caledonian House, Mary Street, Georgetown, Grand
Cayman, Cayman Islands, BWI.
(6) General Electric Capital Corporation is the ultimate parent of an indirect
wholly owned subsidiary, GE Capital Project Finance VI Ltd., which directly
owns our shares. The business address of the
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direct owner, GE Capital Project Finance VI Ltd., is Clarendon House, Church
Street West, Hamilton HMCX, Bermuda.
(7) Rathburn Limited previously owned the identified shares. Rathburn Limited
transferred these shares to Mr. Ghurab and Mr. Kamel in early January 2000.
The address for these shareholders is c/o Dallah Albaraka Group, P.O. Box
430, Dallah Tower, Palestine Road, Jeddah 21411, Saudi Arabia.
(8) The business address of AT&T Capital Corporation is: 44 Whippany Road,
Morristown, NJ 07926, U.S.A.
(9) Gulf Associates Communications, Limited previously owned the identified
shares. Gulf Associates distributed these shares to Spinconsult, Reja Sabet
and Hormoz Sabet in the second quarter of 1999. The address for these
shareholders is 30 Rockefeller Plaza, New York, NY 10012.
(10) The beneficial share ownership of our directors and executive officers as a
group consists solely of shares that may be acquired within sixty days of
the date of this prospectus by exercising options. Those shares are also
deemed to be outstanding for purposes of calculating the percentage
ownership of these persons.
CERTAIN TRANSACTIONS
There exist various agreements between our subsidiaries and our shareholders
(or their affiliates) for the development, construction, operation, financing
and marketing of the FLAG Europe-Asia cable system and the FLAG Atlantic-1
system. The following paragraphs are a summary of the material provisions of
certain of these agreements.
PROGRAM MANAGEMENT SERVICES AGREEMENT
Under the terms of the Program Management Services Agreement, Bell Atlantic
Network Systems, one of our shareholders, managed all aspects of the planning
and construction of the FLAG Europe-Asia cable system including the regulatory
aspects, physical layout, development of specifications, evaluation of contract
bids, negotiation of the construction and maintenance agreement and supplemental
arrangements, development of restoration plans, development of an operations and
maintenance plan, development of a quality assurance plan and management of the
actual construction and installation of the FLAG Europe-Asia cable system. FLAG
Limited, in consideration of such services, agreed to reimburse Bell Atlantic
Network Systems for all costs and out-of-pocket expenses incurred in connection
with performing such services, plus a fee equal to 16% of payroll costs and
certain outside contractor and consultant costs. In May 1998, FLAG Limited
entered into a Termination and Release Agreement providing for the termination
of the program management services provided by Bell Atlantic Network Systems.
The total payments made under these agreements to settle all outstanding
liabilities were $70.0 million.
MARKETING SERVICES AGREEMENT
FLAG Limited and Bell Atlantic Network Systems entered into a Marketing
Services Agreement pursuant to which Bell Atlantic Network Systems was
responsible for marketing the assignable capacity of the FLAG Europe-Asia cable
system. Bell Atlantic Network Systems was appointed the exclusive sales agent
for FLAG Limited throughout the world and bore all marketing expenses and costs
it incurred in connection with these marketing services. FLAG Limited agreed to
pay commissions at the rate of 4% of commitments obtained prior to July 3, 1995
and 3% of the commitments obtained thereafter. From inception through September
1999, FLAG Limited incurred commissions and other costs in the amount of
$18.4 million. In May 1998, under a Marketing Transition Agreement, FLAG Limited
and Bell Atlantic Network Systems agreed to terminate the Marketing Services
Agreement.
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Under the Marketing Transition Agreement, FLAG Limited agreed to pay certain
closing down expenses, certain commissions in connection with their
pre-termination activities, and up to $3.0 million in commissions resulting from
certain post-termination sales. In this regard, FLAG Limited incurred
$0.5 million in closing down expenses, $15.9 million related to commissions in
connection with pre-termination sales activity and $2.0 million in connection
with post-termination sales activity. No further commissions are due in relation
to post-termination sales activity. As at September 30, 1999, $1.7 million of
the above remained unpaid and fully accrued by FLAG Limited. Also, under the
Marketing Transition Agreement, FLAG Limited agreed to pay a 50% commission in
the event that Bell Atlantic Network Systems or an affiliate secures the sale of
four whole DS3s on the FLAG Europe-Asia cable system. No such sales have
occurred to date.
CONSTRUCTION CONTRACT
Under FLAG Limited's previous credit facility, in order to obtain political
risk insurance through the Ministry of International Trade and Industry of
Japan, FLAG Limited named Marubeni, one of our indirect beneficial shareholders,
as a nominal contractor under the construction contract. The construction
contract provided that payments for substantially all of the goods and services
that were sourced from outside of the United States were to be remitted through
Marubeni to the relevant contractor. FLAG Limited made no payments to Marubeni
in connection with its acting as nominal contractor.
PREVIOUS CREDIT FACILITY
Marubeni was the administrative agent for Tranche B of FLAG Limited's
previous credit facility and was paid a customary agency fee. FLAG Limited has
retired all amounts outstanding under this credit facility, including the
Tranche B indebtedness. From inception to March 31, 1998, $15.5 million in fees
were paid to Marubeni.
CONTINGENT SPONSOR SUPPORT AGREEMENTS
As a condition to obtaining FLAG Limited's previous credit facility, certain
of FLAG Limited's then-existing shareholders entered into Contingent Sponsor
Support Agreements to provide up to $500 million of additional equity
contributions in the event of certain defaults. FLAG Limited's previous credit
facility has been repaid, which benefitted the affected shareholders by
releasing them from their contingent obligations under the Contingent Sponsor
Support Agreements.
EMPLOYEE SERVICES AGREEMENT
FLAG Limited has entered into an Employee Services Agreement with Bell
Atlantic Global Systems under which Bell Atlantic Global Systems has seconded
certain employees to FLAG Limited. As of September 1, 1999, two Bell Atlantic
Global Systems employees were seconded to FLAG Limited. FLAG Limited incurred
total costs of $217,000 for this service from February 27, 1999 to
September 30, 1999.
CAPACITY PURCHASE AGREEMENTS
Bell Atlantic has agreed to purchase $15 million of capacity on the FLAG
Atlantic-1 cable system under a Capacity Purchase Agreement. GTE has agreed to
purchase $7.5 million of capacity on the FLAG Atlantic-1 cable system pursuant
to a separate Capacity Purchase Agreement. On June 27, 1998, Bell Atlantic
Corporation and GTE Corporation entered into an Agreement and Plan of Merger.
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PRIMARY SUPPLIER AGREEMENT
We have agreed to enter into a Primary Supplier Agreement with Bell Atlantic
Global Systems under which Bell Atlantic Global Systems would agree to purchase
from us 50% of the undersea facilities based communications capacity in any
fiber optic cable needed by Bell Atlantic Global Systems or any of its
affiliates in each of the four calendar years beginning on January 1, 2000. The
purchase of capacity may be on the FLAG Europe-Asia cable system, the FLAG
Atlantic-1 cable system or any additional system constructed or acquired in the
future and would be effected by executing Capacity Purchase Agreements with us
or any of our affiliates.
EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION; TAX AGREEMENT
On February 26, 1999, FLAG Limited's shareholders other than Bell Atlantic
Network Systems exchanged their common shares in FLAG Limited for common shares
in FLAG Telecom. Bell Atlantic Network Systems, however, exchanged only a
limited portion of its common shares in FLAG Limited for 3,666,155 common shares
in FLAG Telecom. At the same time, Bell Atlantic Network Systems and FLAG
Telecom entered into an Exchange Agreement and Plan of Reorganization providing
that Bell Atlantic Network Systems' remaining common shares in FLAG Limited
would be exchanged for common shares in FLAG Telecom in the event that, prior to
February 26, 2002, Bell Atlantic received certain regulatory approvals from the
Federal Communications Commission allowing Bell Atlantic to offer long distance
service. Effective January 4, 2000, Bell Atlantic Network Systems exchanged the
remaining 36,256,121 common shares it held in FLAG Limited for an equivalent
number of common shares in FLAG Telecom.
The initial transfer by Bell Atlantic Network Systems of some of its common
shares in FLAG Limited and the subsequent transfer by Bell Atlantic Network
Systems of its remaining shares in FLAG Limited are intended to be treated as
tax-free transactions for United States federal income tax purposes. Under a tax
agreement between FLAG Telecom and Bell Atlantic Network Systems, FLAG Telecom
agreed (1) to make customary representations that are designed to ensure that
each exchange is treated as a tax-free transaction and (2) not to dispose of any
shares in FLAG Limited or to permit FLAG Limited to dispose of substantially all
of its assets for a five-year period following the initial or any subsequent
exchange of shares. Any breach of this agreement would require FLAG Telecom to
indemnify Bell Atlantic and Bell Atlantic Network Systems against any resulting
United States federal, state or local tax consequences.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the completion of this offering, our authorized
capital stock will consist of 300,000,000 common shares, par value $.0006 per
share. Upon completion of this offering, there will be 127,066,056 outstanding
common shares and outstanding options to purchase 4,111,040 common shares.
COMMON SHARES
The holders of common shares are entitled to receive dividends out of assets
legally available for such purposes at times and in amounts as our Board of
Directors may from time-to-time determine. Each shareholder is entitled to one
vote for each common share held on all matters submitted to a vote of
shareholders. Cumulative voting for the election of directors is not provided
for in our Memorandum of Association, which means that the holders of a majority
of the shares voted can elect all of the directors then standing for election
(subject to the rights of certain shareholders to appoint directors, as
described below). After this offering, we will have a staggered Board of
Directors, with one-third of our directors being selected each year. The common
shares are not entitled to preemptive rights and are not subject to conversion
or redemption. Upon the occurrence of a liquidation, dissolution or winding-up,
the holders of common shares would be entitled to share ratably in the
distribution of all of our assets remaining available for distribution after
satisfaction of all our liabilities.
OPTIONS
As of January 1, 2000, (1) options to purchase a total of 4,111,040 common
shares were outstanding or had been approved and (2) up to 2,652,751 additional
common shares may be subject to options granted in the future under our option
plan. All of the options are subject to standard anti-dilution provisions.
BERMUDA LAW
We are an exempted company organized under the Companies Act 1981 of
Bermuda. The rights of our shareholders, including those persons who will become
shareholders in connection with this offering, are governed by Bermuda law and
our Memorandum of Association and By-laws. The Companies Act 1981 of Bermuda
differs in some material respects from laws generally applicable to United
States corporations and their shareholders. The following is a summary of the
material provisions of Bermuda law and our organizational documents.
DIVIDENDS. Under Bermuda law, a company may pay dividends that are declared
from time to time by its board of directors unless there are reasonable grounds
for believing that the company is or would, after the payment, be unable to pay
its liabilities as they become due or that the realizable value of its assets
would thereby be less than the aggregate of its liabilities and issued share
capital and share premium accounts.
VOTING RIGHTS. Under Bermuda law, except as otherwise provided in the
Companies Act 1981 of Bermuda or our By-laws, questions brought before a general
meeting of shareholders are decided by a majority vote of shareholders present
at the meeting. Our By-laws provide that, subject to the provisions of the
Companies Act 1981 of Bermuda, any question proposed for the consideration of
the shareholders will be decided by a simple majority of the votes cast, on a
show of hands, with each shareholder present (and each person holding proxies
for any shareholder) entitled to one vote for each common share held by the
shareholder.
RIGHTS IN LIQUIDATION. Under Bermuda law, in the event of liquidation or
winding up of a company, after satisfaction in full of all claims of creditors
and subject to the preferential rights accorded to any series of preferred
shares, the proceeds of the liquidation or winding up are distributed PRO RATA
among the holders of the company's common shares.
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MEETINGS OF SHAREHOLDERS. Under Bermuda law, a company is required to
convene at least one general shareholders' meeting each calendar year. Bermuda
law provides that a special general meeting may be called by the board of
directors and must be called upon the request of shareholders holding not less
than 10% of the paid-up capital of the company carrying the right to vote.
Bermuda law also requires that shareholders be given at least 5 days' advance
notice of a general meeting but the accidental omission to give notice to any
person does not invalidate the proceedings at a meeting. Under our By-laws, we
must give each shareholder at least 20 days' notice of the annual general
meeting and of any special general meeting.
Under Bermuda law, the number of shareholders constituting a quorum at any
general meeting of shareholders is determined by the By-laws of a company. Our
By-laws provide that the presence in person or by proxy of the holders of more
than 50.1% of our issued common shares constitutes a quorum.
ACCESS TO BOOKS AND RECORDS AND DISSEMINATION OF INFORMATION. Members of
the general public have the right to inspect the public documents of a company
available at the office of the Registrar of Companies in Bermuda. These
documents include a company's Certificate of Incorporation, its Memorandum of
Association (including its objects and powers) and any alteration to its
Memorandum of Association. The shareholders have the additional right to inspect
the by-laws of the company, minutes of general meetings and the company's
audited financial statements, which must be presented at the annual general
meeting. The register of shareholders of a company is also open to inspection by
shareholders without charge and by members of the general public on the payment
of a fee. A company is required to maintain its share register in Bermuda but
may, subject to the provisions of Bermuda law, establish a branch register
outside Bermuda. We maintain a share register in Hamilton, Bermuda. A company is
required to keep at its registered office a register of its directors and
officers which is open for inspection for not less than 2 hours each day by
members of the public without charge. Bermuda law does not, however, provide a
general right for shareholders to inspect or obtain copies of any other
corporate records.
ELECTION OR REMOVAL OF DIRECTORS. Under Bermuda law and our By-laws,
directors are elected or appointed at the annual general meeting and serve until
re-elected or re-appointed or until their successors are elected or appointed,
unless they are earlier removed or resign. Following the consummation of this
offering, we will have a staggered Board of Directors. At the first annual
general meeting after this offering, all current directors will be required to
resign and, at every subsequent annual general meeting, one-third of the
directors will be required to resign. Our By-laws provide that a shareholder is
entitled to elect one member of our Board of Directors for each 9% of our issued
and outstanding common shares held by that shareholder. Consequently, Bell
Atlantic will be entitled to appoint three of our directors. Two of our
shareholders, Bell Atlantic and Rathburn Limited, are each entitled to elect one
member of our Board of Directors as long as they hold any common shares. In
addition, another shareholder may elect one member of our Board of Directors as
long as this shareholder is required under FLAG Limited's credit facility to
directly or indirectly hold at least 5% of FLAG Limited's common shares.
Under Bermuda law and our By-laws, a director may be removed at a special
general meeting of shareholders specifically called for that purpose, provided
the director is served with at least 14 days' notice. The director has a right
to be heard at that meeting. Any vacancy created by the removal of a director at
a special general meeting may be filled at that meeting by the election of
another director in his or her place or, in the absence of any such election, by
the board of directors.
BOARD ACTIONS. Our By-laws provide that certain actions required to be
approved by our Board of Directors must be approved by two-thirds of the votes
present and entitled to be cast at a properly convened meeting of our Board of
Directors.
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AMENDMENT OF MEMORANDUM OF ASSOCIATION AND BY-LAWS. Bermuda law provides
that the Memorandum of Association of a company may be amended by a resolution
passed at a general meeting of shareholders of which due notice has been given.
An amendment to the Memorandum of Association, other than an amendment which
alters or reduces a company's share capital as provided in the Companies Act
1981 of Bermuda, also requires the approval of the Bermuda Minister of Finance,
who may grant or withhold approval at his discretion. Our By-laws may be amended
by the Board of Directors if the amendment is approved by a vote of two-thirds
of the votes cast by our directors and by our shareholders by a resolution
passed by a majority of votes cast at a general meeting.
Under Bermuda law, the holders of an aggregate of no less than 20% in par
value of a company's issued share capital or any class of issued share capital
have the right to apply to the Bermuda Court for an annulment of any amendment
of the Memorandum of Association adopted by shareholders at any general meeting,
other than an amendment which alters or reduces a company's share capital as
provided in the Companies Act 1981 of Bermuda. Where such an application is
made, the amendment becomes effective only to the extent that it is confirmed by
the Bermuda Court. An application for the annulment of an amendment of the
Memorandum of Association must be made within 21 days after the date on which
the resolution altering the company's memorandum is passed and may be made on
behalf of the persons entitled to make the application by one or more of their
number as they may appoint in writing for the purpose. No such application may
be made by persons voting in favor of the amendment.
APPRAISAL RIGHTS AND SHAREHOLDER SUITS. Under Bermuda law, in the event of
an amalgamation of two Bermuda companies, a shareholder who is not satisfied
that fair value has been paid for his stock may apply to the Bermuda Court to
appraise the fair value of his shares. The amalgamation of a company with
another company requires the amalgamation agreement to be approved by the board
of directors and, except where the amalgamation is between a holding company and
one or more of its wholly owned subsidiaries or between two or more wholly owned
subsidiaries, by meetings of the holders of shares of each company and of each
class of such shares. Under Bermuda law, an amalgamation also requires the
consent of the Bermuda Minister of Finance, who may grant or withhold such
consent at his discretion.
Class actions and derivative actions are generally not available to
shareholders under Bermuda law. The Bermuda Court, however, would ordinarily be
expected to permit a shareholder to commence an action in the name of a company
to remedy a wrong done to the company where the act complained of is alleged to
be beyond the corporate power of the company or is illegal or would result in
the violation of the company's Memorandum of Association or by-laws. Further
consideration would be given by the Bermuda Court to acts that are alleged to
constitute a fraud against the minority shareholders or, for instance, where an
act requires the approval of a greater percentage of the company's shareholders
than that which actually approved it.
When the affairs of a company are being conducted in a manner oppressive or
prejudicial to the interests of some part of the shareholders, one or more
shareholders may apply to the Bermuda Court for an order regulating the
company's conduct of affairs in the future or compelling the purchase of the
stock by any shareholder, by other shareholders or by the company.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company will serve as transfer agent and
registrar for the common shares.
LISTING
We have applied to have the common shares included for quotation on the
Nasdaq National Market under the symbol "FTHL"and for listing on the London
Stock Exchange under the symbol
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"FTL." The LSE shares will be quoted on SEAQI in pounds sterling and settlement
will take place through Euroclear and Cedel in pounds sterling. The Nasdaq
shares will be quoted on Nasdaq in U.S. dollars and settlement will take place
through The Depository Trust Company in U.S. dollars. The LSE shares may be
exchanged for Nasdaq shares, and vice versa, through the applicable procedures
of the relevant clearing agency.
REGISTRATION RIGHTS
We have previously granted to AT&T Capital Corporation and GE Capital
Project Finance VI Ltd. certain piggy-back registration rights which allow them
to register for resale the common shares held by them whenever we propose, on
behalf of us or third parties, to register the issuance of common shares. AT&T
Capital Corporation and GE Capital Project Finance VI Ltd. have elected to
exercise these rights in connection with this offering.
We have also previously granted to some of our executive officers piggy-back
registration rights with respect to common shares issuable to such officers upon
the exercise of options granted under our long-term incentive plan.
We intend to enter into a Registration Rights Agreement, which will become
effective upon completion of this offering, with our existing shareholders
pursuant to which, subject to various restrictions and limitations stated
therein, we will provide to these stockholders a number of demand and piggy-back
registration rights.
The piggyback registration rights allow the shareholders to register the
common shares issued or issuable to them whenever we propose to register any
securities for our own or another's account under the Securities Act for a
public offering, other than:
- any shelf registration of common shares to be used as consideration for
acquisitions of additional businesses; and
- registrations relating to employee benefit plans.
The shareholders will also have the right, on 13 occasions in the aggregate,
to require that we register under the Securities Act any or all of the common
shares issued or issuable to them. None of these registrations may be demanded
within the first six months after the closing of this offering. The demand and
piggyback registration rights apply to the shareholders and to any transferee of
shares held by a shareholder who agrees to be bound by the terms of the
Registration Rights Agreement.
We have agreed to pay all costs of the demand and piggyback registrations,
other than underwriting discounts and commissions. All of these registration
rights are subject to conditions and limitations, including (1) the right of
underwriters of an offering to limit the number of shares included in that
registration and (2) our right not to effect more than one demand registration
within any six month period and within 90 days after the effective date of any
registration statement for the offering of our securities.
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SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have outstanding 127,066,056 common shares, or
128,386,056 shares if the underwriters exercise their over-allotment option in
full. Of these shares, the 26,400,000 shares that we and the selling
shareholders expect to sell in this offering, or 30,360,000 shares if the
underwriters exercise their over-allotment option in full, will be freely
tradable in the public market without restriction under the Securities Act,
unless these shares are held by our "affiliates," as that term is defined in
Rule 144 under the Securities Act.
The remaining 100,666,056 common shares (or 98,026,056 shares if the
underwriters exercise their over-allotment option in full, in each case
exclusive of shares issuable to our directors and officers upon exercise of
options granted under our long term incentive plan) that will be outstanding
after this offering will be restricted shares. We issued and sold the restricted
shares in private transactions in reliance on exemptions from registration under
the Securities Act. Restricted shares may be sold in the public market only if
they are registered under the Securities Act, or if they qualify for an
exemption from registration including pursuant to Rule 144 or 701 or in an
offshore transaction pursuant to Regulation S under the Securities Act. On the
date of the expiration of the lock-up agreements, all of the remaining
100,666,056 shares will be eligible for sale, subject to holding period, volume,
manner of sale and other limitations under Rule 144.
Under lock-up agreements with the underwriters, all of the executive
officers, directors and most of our shareholders, who following this offering
will collectively hold approximately 98% of our outstanding restricted shares,
have agreed not to offer, sell, contract to sell, grant any option to purchase
or otherwise dispose of any of these shares for a period of 180 days from the
date of this prospectus. We also have entered into an agreement with the
underwriters that we will not offer, sell or otherwise dispose of common shares
for a period of 180 days from the date of this prospectus other than upon
exercise of currently outstanding options or warrants or upon the issuance of
options to employees, consultants and directors under our stock option plan.
These agreements are subject to certain exceptions described in "Underwriting"
and may be waived in writing by Salomon Smith Barney Inc.
Following the expiration of these lock-up periods, some of the shares issued
upon exercise of options we granted prior to the date of this prospectus will
also be available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of these shares in reliance upon
Rule 144 under the Securities Act, but without compliance with some of its
restrictions, including the holding-period requirement, imposed under Rule 144.
Under Rule 144, beginning 90 days after the date of this prospectus, a person
who has beneficially owned restricted shares for at least one year would be
entitled to sell in any three-month period that number of common shares up to
the greater of:
- 1% of the then-outstanding common shares, or approximately 1,270,660
shares immediately after this offering, assuming no exercise of the
underwriters' over-allotment option and
- the average weekly trading volume of the common shares during the four
calendar weeks preceding the filing of a Form 144 with respect to this
sale.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who has not been an affiliate of ours during the
preceding 90 days and who has beneficially owned the restricted shares for at
least two years is entitled to sell them without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
After the completion of this offering, we intend to file a registration
statement under the Securities Act to register all shares issuable on exercise
of stock options or other awards granted or to be granted under our long term
incentive plan. After this registration statement becomes effective, and subject
to
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some of the restrictions under Rule 144, those shares will be freely saleable in
the public market immediately following exercise of these options.
In addition, we may decide to register additional common shares under the
Securities Act after the closing of this offering for use by us as consideration
for future acquisitions. Upon such registration and issuance, these shares
generally will be freely tradable, unless the resale thereof is contractually
restricted or unless the holders thereof are subject to the restrictions on
resale provided in Rule 145 under the Securities Act. We will not be able to
issue the shares, however, without Salomon Smith Barney Inc.'s consent during
the 180 days after the date of this prospectus.
There has been no public market for the common shares prior to this offering
and we cannot assure you that an active public market for the common shares will
develop or be sustained after completion of this offering. Sales of substantial
amounts of the common shares, or the perception that these sales could occur,
could adversely affect the prevailing market price of the common shares and
could impair our ability to raise capital or effect acquisitions through the
issuance of common shares.
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TAX CONSIDERATIONS
TAXATION OF FLAG TELECOM
We believe that a significant portion of our income will not be subject to
tax by Bermuda, which currently has no corporate income tax, or by other
countries in which we conduct activities or in which our customers are located,
including the United States. However, this belief is based upon the anticipated
nature and conduct of our business, which may change, and upon our understanding
of our position under the tax laws of the various countries in which we have
assets or conduct activities, which position is subject to review and possible
challenge by taxing authorities and to possible changes in law, which may have
retroactive effect. The extent to which certain taxing jurisdictions may require
us to pay tax or to make payments in lieu of tax cannot be determined in
advance. In addition, payments due to us from our customers may be subject to
withholding tax or other tax claims in amounts that exceed the taxation that we
anticipate based upon our current and anticipated business practices and the
current tax regime.
BERMUDA TAX CONSIDERATIONS
Under current Bermuda law, we are not subject to tax on income or capital
gains. Furthermore, we have obtained from the Minister of Finance of Bermuda,
under the Exempted Undertakings Tax Protection Act 1966, an undertaking that, in
the event that Bermuda enacts any legislation imposing tax computed on profits
or income or computed on any capital asset, gain or appreciation, or any tax in
the nature of estate duty or inheritance tax, then the imposition of such tax
will not be applicable to us or to any of our operations, or to the shares,
capital or common stock of FLAG Telecom, until March 28, 2016. This undertaking
does not, however, prevent the imposition of property taxes on any company
owning real property or leasehold interests in Bermuda. We pay an annual
government fee on our authorized share capital and share premium, which for 1999
is $1,695.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FLAG Telecom and its non-United States subsidiaries will be subject to
United States federal income tax at regular corporate rates, and possibly to
United States branch profits tax, on any income that is effectively connected
with the conduct of a trade or business within the United States, and will be
required to file federal income tax returns with respect to that income. We
intend to conduct our operations so as to minimize the amount of
effectively-connected income. However, no assurance can be given that the
Internal Revenue Service (IRS) will agree with the positions that we take in
this regard. Our United States subsidiaries will be subject to United States
federal income tax on their worldwide income regardless of its source, subject
to reduction by allowable foreign tax credits, and distributions that our United
States subsidiaries make to FLAG Telecom or to our non-United States
subsidiaries generally will be subject to United States withholding tax.
TAXATION OF SHAREHOLDERS
BERMUDA TAX CONSIDERATIONS
Under current Bermuda law, no income, withholding or other taxes or stamp or
other duties are imposed upon the issue, transfer or sale of the common shares
or on any payments made on the common shares. See "Taxation of FLAG
Telecom--Bermuda Tax Considerations" for a description of the undertaking on
taxes that we obtained from the Minister of Finance of Bermuda.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
considerations arising from the acquisition, ownership and disposition of the
common shares by a United States holder. A United States holder is:
- an individual citizen or resident of the United States;
- a corporation created or organized in or under the laws of the United
States or any of its political subdivisions; or
- an estate or trust the income of which is subject to United States federal
income taxation regardless of its source.
This summary deals only with common shares that are held as a capital asset
by a United States holder, and does not address tax considerations applicable to
United States holders that may be subject to special tax rules, including:
- dealers or traders in securities or currencies;
- financial institutions or other United States holders that treat income in
respect of the common shares as financial services income;
- insurance companies;
- tax-exempt entities;
- United States holders that hold the common shares as a part of a straddle
or conversion transaction or other arrangement involving more than one
position;
- United States holders that own, or are deemed for United States tax
purposes to own, 10% or more of the total combined voting power of all
classes of our voting stock;
- United States holders that have a principal place of business or "tax
home" outside the United States; or
- United States holders whose "functional currency" is not the United States
dollar.
The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial
decisions thereunder as of the date of this prospectus; any such authority may
be repealed, revoked or modified, perhaps with retroactive effect, so as to
result in federal income tax consequences different from those discussed below.
BECAUSE UNITED STATES TAX CONSEQUENCES MAY DIFFER FROM ONE HOLDER TO THE
NEXT, THE DISCUSSION SET OUT BELOW DOES NOT PURPORT TO DESCRIBE ALL OF THE TAX
CONSIDERATIONS THAT MAY BE RELEVANT TO YOU AND YOUR PARTICULAR SITUATION.
ACCORDINGLY, YOU ARE ADVISED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE UNITED
STATES FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF INVESTING IN THE
COMMON SHARES. THE STATEMENTS OF UNITED STATES TAX LAW SET OUT BELOW ARE BASED
ON THE LAWS AND INTERPRETATIONS IN FORCE AS OF THE DATE OF THIS PROSPECTUS, AND
ARE SUBJECT TO ANY CHANGES OCCURRING AFTER THAT DATE.
We believe, and the discussion below therefore assumes, that FLAG Telecom
and its non-United States subsidiaries are not and will not become foreign
personal holding companies for United States federal income tax purposes.
DISTRIBUTIONS
Subject to the discussion below under "Passive Foreign Investment Company
Considerations," distributions that we make with respect to the common shares,
other than distributions in liquidation and distributions in redemption of stock
that are treated as exchanges, will be taxed to United States
74
<PAGE>
holders as ordinary dividend income to the extent that the distributions do not
exceed the current and accumulated earnings and profits of FLAG Telecom.
Distributions, if any, in excess of the current and accumulated earnings and
profits of FLAG Telecom will constitute a nontaxable return of capital to a
United States holder and will be applied against and reduce the United States
holder's tax basis in the common shares. To the extent that distributions in
excess of FLAG Telecom's current and accumulated earnings and profits exceed the
tax basis of the United States holder in its common shares, the excess generally
will be treated as capital gain.
Dividends that we pay generally will constitute portfolio income for
purposes of the limitation on the use of passive activity losses, and,
therefore, generally may not be offset by passive activity losses, and as
investment income for purposes of the limitation on the deduction of investment
interest expense. Dividends that we pay will not be eligible for the dividends
received deduction generally allowed to United States corporations under
Section 243 of the Internal Revenue Code.
For United States foreign tax credit purposes, if at least 50% of our stock
by voting power or by value is owned, directly, indirectly or by attribution, by
United States persons, then, subject to the limitation described below, a
portion of the dividends that we pay in each taxable year will be treated as
United States-source income, depending in general upon the ratio for that
taxable year of our United States-source earnings and profits to our total
earnings and profits. The remaining portion of our dividends (all of our
dividends, if we do not meet the 50% test described above) will be treated as
foreign-source income and generally will be treated as passive income, subject
to the separate foreign tax credit limitation for passive income. However, if,
in any taxable year, we have earnings and profits and less than 10% of those
earnings and profits are from United States sources, then, in general, dividends
that we pay from our earnings and profits for that taxable year will be treated
entirely as foreign-source income.
SALE OR EXCHANGE
Subject to the discussion below under "Passive Foreign Investment Company
Considerations," upon a sale or exchange of common shares to a person other than
FLAG Telecom, a United States holder will recognize gain or loss in an amount
equal to the difference between the amount realized on the sale or exchange and
the United States holder's adjusted tax basis in the common shares. Any gain or
loss recognized will be capital gain or loss and will be long-term capital gain
or loss if the United States holder has held the common shares for more than one
year.
Gain realized by a United States holder on the sale or exchange of the
common shares generally will be treated as United States-source gain, and, under
recently-promulgated Treasury regulations, loss realized by a United States
holder on the sale or exchange of the common shares generally will be treated as
United States-source loss, for United States foreign tax credit purposes.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
PFIC CLASSIFICATION
Special and adverse United States tax rules apply to a United States holder
that holds an interest in a passive foreign investment company (PFIC). In
general, a PFIC is any non-United States corporation, if (1) 75% or more of the
gross income of the corporation for the taxable year is passive income (the PFIC
income test) or (2) the average percentage of assets held by the corporation
during the taxable year that produce passive income or that are held for the
production of passive income is at least 50% (the PFIC asset test). In applying
the PFIC income test and the PFIC asset test, a corporation that owns, directly
or indirectly, at least 25% by value of the stock of a second corporation must
take into account its proportionate share of the second corporation's income and
assets.
75
<PAGE>
If a corporation is classified as a PFIC for any year during which a United
States person is a shareholder, then the corporation generally will continue to
be treated as a PFIC with respect to that shareholder in all succeeding years,
regardless of whether the corporation continues to meet the PFIC income test or
the PFIC asset test, subject to elections to recognize gain that may be
available to the shareholder.
Although we are engaged through our subsidiaries in the conduct of a
substantial and active business of selling and leasing telecommunications
capacity, it is possible that we could be treated as a PFIC, if, in any taxable
year, (1) a sufficient portion of our income or assets is considered to be
passive under the PFIC provisions or (2) we hold a relatively large amount of
passive assets such as cash and marketable securities, including cash derived
from our issuance of common shares. Based on our operations to date and current
projections concerning the composition of our income and assets, we do not
believe that we will be treated as a PFIC for our taxable year ending
December 31, 1999 or for any future year. However, this conclusion is based in
part on our current projections and expectations as to our future business
activity, and also is based in part on interpretations of existing law that we
believe are reasonable, but that have not been approved by any taxing authority.
Accordingly, we can provide no assurance that we will not be treated as a PFIC
for our taxable year ending December 31, 1999 or for any future taxable year.
CONSEQUENCES OF PFIC STATUS
If we are treated as a PFIC for any taxable year during which a United
States holder holds our common shares, then, subject to the discussion of the
qualified electing fund (QEF) and mark-to-market rules below, the United States
holder will be subject to a special and adverse tax regime (1) in respect of
gains realized on the sale or other disposition of our common shares and (2) in
respect of distributions on our common shares to the extent that those
distributions are treated as excess distributions. The adverse tax consequences
include taxation of such gain or excess distribution at ordinary income tax
rates and payment of an interest charge on tax that is deemed to have been
deferred with respect to such gain or excess distribution. An excess
distribution generally includes dividends or other distributions received from a
PFIC in any taxable year of a United States holder to the extent that the amount
of those distributions exceeds 125% of the average distributions made by the
PFIC during a specified base period.
In some circumstances, a United States holder may avoid the unfavorable
consequences of the PFIC rules by making a QEF election with respect to FLAG
Telecom. A QEF election effectively would require an electing United States
holder to include in income currently its pro rata share of the ordinary
earnings and net capital gain of FLAG Telecom. However, a United States holder
cannot elect QEF status with respect to FLAG Telecom unless we comply with
certain reporting requirements and we cannot assure that we will provide the
required information.
A United States holder that holds "marketable" stock in a PFIC may, in lieu
of making a QEF election, avoid some of the unfavorable consequences of the PFIC
rules by electing to mark the PFIC stock to market as of the close of each
taxable year. Under proposed regulations, the common shares will be treated as
marketable stock for a calendar year if the common shares are traded on the
NASDAQ National Market, in other than de minimis quantities, on at least
15 days during each calendar quarter of the year. A United States holder that
makes the mark-to-market election generally will be required to include in
income each year as ordinary income an amount equal to the increase in value of
our common shares for that year, regardless of whether the United States holder
actually sells the common shares. The United States holder generally will be
allowed a deduction for the decrease in value of our common shares for the
taxable year, to the extent of the amount of gain previously included in income
under the mark-to-market rules (reduced by prior deductions under the
mark-to-market rules). Any gain from the actual sale of the PFIC stock will be
treated as ordinary
76
<PAGE>
income, and any loss will be treated as ordinary loss to the extent of net
mark-to-market gains previously included in income.
You are urged to consult your own tax advisor regarding the possible
classification of FLAG Telecom as a PFIC, as well as the potential tax
consequences arising from the ownership and disposition, directly or indirectly,
of interests in a PFIC.
BACKUP WITHHOLDING TAX
Backup withholding tax at a rate of 31% may apply to payments of dividends
and to certain payments of proceeds from the sale or other disposition of the
common shares within the United States by a non-corporate United States holder,
if the holder fails to furnish a correct taxpayer identification number or
otherwise fails to comply with applicable requirements of the backup withholding
tax rules. Backup withholding tax is not an additional tax and may be credited
against a United States holder's United States federal income tax liability,
provided that correct information is provided to the IRS.
77
<PAGE>
UNDERWRITING
The global offering consists of (1) an offering of an aggregate of
common shares in the United States and Canada and (2) an offering of an
aggregate of common shares outside the United States and Canada. Salomon
Smith Barney Inc. is the global coordinator and sole bookrunner of the global
offering.
Subject to the terms and conditions stated in the U.S. underwriting
agreement dated the date hereof, each U.S. underwriter named below has severally
agreed to purchase, and FLAG Telecom and the selling shareholders have agreed to
sell to such underwriter, the number of shares set forth opposite the name of
such underwriter.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ----------
<S> <C>
Salomon Smith Barney Inc. ..................................
Deutsche Bank Securities Inc................................
Goldman, Sachs & Co. .......................................
Morgan Stanley & Co. Incorporated...........................
Warburg Dillon Read LLC.....................................
----------
Total...................................................
==========
</TABLE>
The U.S. underwriting agreement provides that the obligations of the several
U.S. underwriters to purchase the shares included in this offering are subject
to approval of certain legal matters by counsel and to certain other conditions.
The U.S. underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The U.S. underwriters, for whom Salomon Smith Barney Inc., Deutsche Bank
Securities Inc., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and
Warburg Dillon Read LLC are acting as U.S. representatives, propose to offer
some of the shares directly to the public at the public offering price set forth
on the cover page of this prospectus and some of the shares to certain dealers
at the public offering price less a concession not in excess of $ per
share. The underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share on sales to certain other dealers. If all
of the shares are not sold at the initial offering price, the representatives
may change the public offering price and the other selling terms.
FLAG Telecom and certain of the selling shareholders have granted to the
U.S. underwriters an option, exercisable for 30 days from the date of this
prospectus, to purchase up to additional common shares at the public
offering price less the underwriting discount. Two thirds of the common shares
subject to the over-allotment option shall be sold by the selling shareholders
and one third of the common shares subject to the over-allotment option shall be
sold by FLAG Telecom for its own account upon any exercise of the over-allotment
option by the underwriters. The U.S. underwriters may exercise such option
solely for the purpose of covering over-allotments, if any, in connection with
this offering. To the extent such option is exercised, each U.S. underwriter
will be obligated, subject to certain conditions, to purchase a number of
additional shares approximately proportionate to such underwriter's initial
purchase commitment.
FLAG Telecom and the selling shareholders have also entered into an
underwriting agreement with a syndicate of international underwriters providing
for the concurrent offer and sale of common shares outside the United
States and Canada. The offering price and aggregate underwriting discounts and
commissions per share for the U.S. offering and the international offering are
identical. In addition, the U.S. and international offerings are each
conditioned upon the closing of the other.
The U.S. and international underwriters have entered into an agreement in
which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer common
78
<PAGE>
shares. The U.S. and international underwriters have also agreed that they may
sell common shares between their respective underwriting syndicates.
FLAG Telecom, its officers and directors and certain shareholders (including
the selling shareholders) have agreed that, for a period of 180 days from the
date of this prospectus, they will not, without the prior written consent of
Salomon Smith Barney Inc., dispose of or hedge any common shares of FLAG Telecom
or any securities convertible into or exchangeable for common shares. Salomon
Smith Barney Inc. in its sole discretion may release any of the securities
subject to these lock-up agreements at any time without notice. These lock-up
agreements do not apply to issuances by FLAG Telecom of shares under certain
employee incentive programs, the filing of a shelf registration statement by
FLAG Telecom with respect to shares to be issued as acquisition currency, or
dispositions of shares by the selling shareholders pursuant to a merger or
tender offer on terms available to shareholders generally.
Prior to this offering, there has been no public market for the common
shares. Consequently, the initial public offering price for the shares will be
determined by negotiations among FLAG, the selling shareholders, and the
representatives. Among the factors considered in determining the initial public
offering price will be FLAG Telecom's record of operations, its current
financial condition, its future prospects, its markets, the economic conditions
in and future prospects for the industry in which FLAG Telecom competes, its
management, and currently prevailing general conditions in the equity securities
markets, including current market valuations of publicly traded companies
considered comparable to FLAG Telecom. There can be no assurance, however, that
the prices at which the shares will sell in the public market after this
offering will not be lower than the price at which they are sold by the
underwriters or that an active trading market in the common shares will develop
and continue after this offering.
FLAG Telecom has applied to have the common shares included for quotation on
the Nasdaq National Market under the symbol "FTHL" and listed on the London
Stock Exchange under the symbol "FTL".
The following table shows the underwriting discounts and commissions to be
paid to the U.S. underwriters by FLAG Telecom and the selling shareholders in
connection with this offering. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase additional common
shares. The underwriters will pay their expenses out of these amounts.
<TABLE>
<CAPTION>
PAID BY SELLING
PAID BY FLAG TELECOM SHAREHOLDERS
--------------------------- ---------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share...................................... $ $ $ $
Total.......................................... $ $ $ $
</TABLE>
FLAG Telecom estimates that the total expenses of this offering will be
approximately $3 million.
In connection with this offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell common shares in the open market. These
transactions may include over-allotment, syndicate covering transactions and
stabilizing transactions. Over-allotment involves syndicate sales of common
shares in excess of the number of shares to be purchased by the underwriters in
the offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the common shares in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of common shares
made for the purpose of preventing or retarding a decline in the market price of
the common shares while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate
79
<PAGE>
short positions or making stabilizing purchases, repurchases shares originally
sold by that syndicate member.
Any of these activities may cause the price of the common shares to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market, on the London Stock Exchange, in the over-the-counter market or
otherwise and, if commenced, may be discontinued at any time.
The underwriting agreements require the underwriters to pay for the shares
in U.S. dollars. However, investors will pay for the shares issued in a form
eligible for trading on the London Stock Exchange in pounds sterling. Salomon
Brothers International Limited will convert pounds sterling that the
international underwriters receive into U.S. dollars at an exchange rate of
$ to L1. This rate includes a customary commission.
The representatives have performed certain investment banking and advisory
services for FLAG Telecom from time to time for which it has received customary
fees and expenses. The representative may, from time to time, engage in
transactions with and perform services for FLAG Telecom in the ordinary course
of its business.
FLAG Telecom and the selling shareholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the underwriters may be
required to make in respect of any of those liabilities.
LEGAL MATTERS
The validity of the issuance of the common shares offered in this
prospectus, the matter of enforcement of judgments in Bermuda and Bermuda tax
consequences will be passed on by Appleby, Spurling & Kempe, Hamilton, Bermuda,
counsel to FLAG Telecom. United States legal matters related to this offering,
including matters of United States law, will be passed upon for FLAG Telecom by
Morgan, Lewis & Bockius LLP, New York, New York and for the underwriters by
Cleary, Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The financial statements and schedules of FLAG Telecom Holdings Limited for
the period from incorporation to September 30, 1999 and FLAG Limited for the
period from January 1, 1999 to February 26, 1999 and for the the years ended
December 31, 1998, 1997 and 1996 included in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen & Co.,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance the authority of said firm as
experts in giving said reports.
80
<PAGE>
AVAILABLE INFORMATION
FLAG Telecom has filed with the Securities and Exchange Commission a
registration statement on Form F-1 under the Securities Act of 1933 with respect
to the common shares offered in this prospectus. This prospectus, which forms a
part of the registration statement, does not contain all the information in the
registration statement. Certain portions of the registration statement contain
exhibits and schedules which have been omitted from this prospectus as permitted
by the rules and regulations of the Securities and Exchange Commission. For
further information about us and our common shares offered in this prospectus,
we refer you to the registration statement and to its exhibits and schedules.
You may inspect the registration statement, including all its exhibits and
schedules, without charge at the principal office of the Securities and Exchange
Commission located at 450 Fifth Street, N.W., Washington, DC 20549, and at the
following regional offices of the Securities and Exchange Commission: Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
7 World Trade Center, 13th Floor, New York, New York 10048. You may obtain
copies of this material from the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Room 1204, Washington, DC 20549,
at prescribed rates. In addition, we have applied for listing on the Nasdaq
National Market. You may inspect reports and other information concerning FLAG
Telecom at the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, DC.
Upon completion of this offering, we will be subject to informational
requirements of some U.S. federal securities laws and, therefore, we will be
required or have agreed to file periodic reports and other information with the
Securities and Exchange Commission, except as described below. As a foreign
private issuer, FLAG Telecom is exempt from the rules under the Securities
Exchange Act of 1934 prescribing the furnishing and content of proxy statements.
Additionally, our officers, directors and principal shareholders are exempt from
the reporting and short-swing profit recovery provisions contained in
Section 16 of the Securities Exchange Act of 1934. In addition, under the
Securities Exchange Act of 1934, we are not required to publish financial
statements as frequently, as promptly or containing the same information as
United States companies. However, we have agreed to provide our shareholders
with reports on Form 10-Q and 10-K and to comply with the United States proxy
rules. In addition, we will furnish to holders of common shares annual reports
in English containing consolidated financial statements, prepared in accordance
with U.S. GAAP, examined by our independent public auditors and including their
report thereon. We also will make available quarterly reports containing
condensed unaudited financial information for the first three fiscal quarters of
each year, prepared in accordance with U.S. GAAP. We will generally furnish
annual reports within 90 days after the end of each fiscal year, and make
available quarterly reports within 45 days after the end of each of the first
three fiscal quarters of each year. We will also provide the holders of common
shares with notice of meetings of holders of common shares.
The Securities and Exchange Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The address of the Securities and Exchange Commission's web-site is
http://www.sec.gov.
81
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
FLAG Telecom Holdings Limited
Report of Independent Public Accountants (Arthur
Andersen)................................................. F-2
Consolidated Balance Sheet as of September 30, 1999
(audited)................................................. F-3
Consolidated Statement of Operations for the period from
incorporation to September 30, 1999 (audited)............. F-4
Consolidated Statement of Comprehensive Income for the
period from incorporation to September 30, 1999
(audited)................................................. F-5
Consolidated Statement of Shareholders' Equity for the
period from incorporation to September 30, 1999........... F-6
Consolidated Statement of Cash Flows for the period from
incorporation to September 30, 1999 (audited)............. F-7
Notes to Consolidated Financial Statements.................. F-8
FLAG Limited
Report of Independent Public Accountants (Arthur
Andersen)................................................. F-21
Consolidated Balance Sheets as of February 26, 1999 and
December 31, 1998 and 1997 (audited)...................... F-22
Consolidated Statements of Operations for the period from
January 1, 1999 to February 26, 1999 and the years ended
December 31, 1998, 1997 and 1996 (audited)................ F-23
Consolidated Statements of Comprehensive Income for the
period from January 1, 1999 to February 26, 1999 and the
years ended December 31, 1998, 1997 and 1996 (audited).... F-24
Consolidated Statements of Shareholders' Equity for the
period from January 1, 1999 to February 26, 1999 and the
years ended December 31, 1998, 1997 and 1996 (audited).... F-25
Consolidated Statements of Cash Flows for the period from
January 1, 1999 to February 26, 1999 and the years ended
December 31, 1998, 1997 and 1996 (audited)................ F-26
Notes to Consolidated Financial Statements.................. F-28
Consolidated Statement of Operations for the nine-month
period ended September 30, 1998 (unaudited)............... F-45
Consolidated Statement of Cash Flows for the nine-month
period ended September 30, 1998 (unaudited)............... F-46
Notes to Consolidated Financial Information for the
nine-month period ended September 30, 1998................ F-47
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of FLAG Telecom Holdings Limited:
We have audited the accompanying consolidated balance sheet of FLAG Telecom
Holdings Limited (a Bermuda company) and subsidiaries (the "Group") as of
September 30, 1999, and the related consolidated statement of operations,
comprehensive income, shareholders' equity and cash flows for the period from
incorporation to September 30, 1999. These financial statements are the
responsibility of FLAG Telecom Holdings Limited's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of FLAG Telecom
Holdings Limited and subsidiaries as of September 30, 1999, and the consolidated
results of their operations and their cash flows for the period from
incorporation to September 30, 1999, in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen & Co.
Hamilton, Bermuda
January 17, 2000
F-2
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999
----------
<S> <C>
ASSETS:
Current assets:
Cash...................................................... $ 2,836
Accounts receivable, net of allowance for doubtful
accounts of $7,454...................................... 116,854
Due from affiliate........................................ 5,000
Prepaid expenses and other assets......................... 4,906
----------
129,596
Funds held by collateral trustee............................ 144,183
Capacity available for sale................................. 870,181
Capitalized financing costs, net of accumulated amortization
of $2,731................................................. 11,119
Fixed assets, net........................................... 208,825
----------
$1,363,904
==========
LIABILITIES:
Current liabilities:
Accrued construction costs................................ $ 75,604
Accrued liabilities....................................... 27,519
Accounts payable.......................................... 5,116
Income taxes payable...................................... 4,511
Deferred revenue and other.................................. 17,635
----------
130,385
8 1/4% Senior Notes, due 2008, net of unamortized discount
of $4,878................................................. 425,122
Long-term debt.............................................. 223,000
Deferred revenue and other.................................. 111,318
Deferred taxes.............................................. 3,651
----------
893,476
MINORITY INTEREST........................................... 160,562
SHAREHOLDERS' EQUITY:
Common shares, $.0006 par value............................. 7
Other shareholders' equity.................................. 308,547
Foreign currency translation adjustment..................... (3)
Retained earnings........................................... 1,315
----------
309,866
----------
$1,363,904
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999
------------
<S> <C>
REVENUES:
Capacity sales, net of discounts.......................... $ 89,223
Standby maintenance and restoration revenue............... 28,760
------------
117,983
SALES AND OTHER OPERATING EXPENSES:
Cost of capacity sold..................................... 43,799
Operations and maintenance................................ 16,215
Sales and marketing....................................... 7,335
General and administrative................................ 11,278
Stock compensation........................................ 3,464
Depreciation and amortization............................. 5,220
------------
87,311
OPERATING INCOME............................................ 30,672
INTEREST EXPENSE............................................ 31,264
INTEREST INCOME............................................. 4,924
------------
INCOME BEFORE MINORITY INTEREST AND INCOME TAXES............ 4,332
MINORITY INTEREST........................................... 1,919
------------
INCOME BEFORE INCOME TAXES.................................. 2,413
PROVISION FOR INCOME TAXES.................................. 1,098
------------
NET INCOME.................................................. $ 1,315
============
Basic and diluted income per common share................... $ 0.02
Weighted average common shares outstanding.................. 69,709,935
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999
--------
<S> <C>
NET INCOME.................................................. $1,315
Foreign currency translation adjustment..................... (3)
------
COMPREHENSIVE INCOME........................................ $1,312
------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOREIGN
COMMON SHARES ADDITIONAL CURRENCY TOTAL
---------------------- PAID-IN STOCK RETAINED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS ADJUSTMENT EQUITY
----------- -------- ---------- ------------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Opening Balance.......... -- $-- $ -- $ -- $ -- $ -- $ --
Issuance of shares in
exchange for shares in
FLAG Limited........... 69,709,935 7 305,083 -- -- -- 305,090
Stock compensation
accrued................ -- -- 17,239 (17,239) -- -- --
Stock compensation
current year charge.... -- -- -- 3,464 -- -- 3,464
Foreign currency
translation
adjustment............. -- -- -- -- -- (3) (3)
Net income for period.... -- -- -- -- 1,315 -- 1,315
----------- --- -------- -------- ------ ----- --------
Balance, September 30,
1999................... 69,709,935 $ 7 $322,322 $(13,775) $1,315 $ (3) $309,866
=========== === ======== ======== ====== ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income applicable to common shareholders................ $ 1,315
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest......................................... 1,919
Amortization of financing costs........................... 959
Provision for doubtful accounts........................... 1,176
Accretion of discount on 8 1/4% senior notes.............. 345
Stock compensation........................................ 3,464
Depreciation and amortization............................. 5,220
Deferred taxes............................................ 304
Add (deduct) net changes in operating assets and
liabilities:
Accounts receivable..................................... (28,681)
Due from affiliate...................................... (5,000)
Prepaid expenses and other assets....................... (1,333)
Capacity available for sale............................. 49,389
Accounts payable and accrued liabilities................ 9,701
Income taxes payable.................................... (2,064)
Due to affiliate........................................ (1,175)
Deferred revenue and other.............................. 26,574
---------
Net cash provided by operating activities............. 62,113
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt................................. (33,500)
Decrease in funds held by collateral trustee................ 74,953
---------
Net cash provided by financing activities............. $ 41,453
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for construction.................................. (101,365)
Purchase of fixed assets.................................... (1,271)
---------
Net cash used in investing activities................. (102,636)
NET DECREASE IN CASH........................................ 930
Effect of foreign currency movements........................ (10)
CASH, beginning of period................................... 1,916
---------
CASH, end of year........................................... $ 2,836
=========
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING ACTIVITIES:
Decrease in capacity available for sale..................... $ 60,389
Decrease in accrued construction costs...................... (11,000)
---------
Cost of capacity sold....................................... $ 49,389
=========
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING ACTIVITIES:
Increase in construction in progress........................ $ 34,039
Decrease in accrued construction costs...................... 67,326
---------
Cash paid for construction in progress...................... $ 101,365
=========
SUPPLEMENTAL INFORMATION DISCLOSURE OF CASH FLOW
INFORMATION:
Interest expense for period................................. $ 31,264
Amortization of financing costs............................. (1,304)
Decrease (increase) in accrued interest payable............. (4,170)
---------
Interest paid............................................... $ 25,790
=========
Interest capitalized........................................ $ 1,281
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
1. BACKGROUND
FLAG Telecom was incorporated on February 3, 1999 to serve as the holding
company for the FLAG Telecom group of companies. On February 26, 1999, FLAG
Telecom acquired approximately 65.79% of FLAG Limited by exchanging 69,709,935
shares of FLAG Limited common stock for the same number of shares of FLAG
Telecom common stock. The minority shareholder of FLAG Limited exchanged its
remaining holding in FLAG Limited for shares in FLAG Telecom on January 4, 2000
such that on that date FLAG Limited became a wholly owned subsidiary of FLAG
Telecom. This acquisition has been accounted for as a recapitalization such that
no goodwill arises and assets and liabilities are reflected at carryover basis.
The results of the operations of FLAG Limited have been included in the
consolidated results of FLAG Telecom's operations since the date of acquisition.
FLAG Limited is a facilities-based provider of telecommunications capacity
to licensed international carriers through its ownership of the world's longest
independent, privately-owned digital fiberoptic undersea cable system. The FLAG
Europe-Asia cable system links the telecommunications markets of Western Europe
and Japan through the Middle East, India, Southeast Asia and China, along a
route which adjoins countries with approximately 70% of the world's population.
The FLAG Europe-Asia cable system was constructed to address the growing demand
for high performance, secure and cost-effective digital communications for
voice, data and video along its route. FLAG Limited provides capacity on the
FLAG Europe-Asia cable system at market-based prices to licensed international
carriers. The FLAG Europe-Asia cable system, which was placed in commercial
service on November 22, 1997, cost approximately $1.6 billion to construct, and
consists of over 28,000 kilometers of fiberoptic cable.
FLAG Telecom also has an indirect 50% interest in FLAG Atlantic Limited via
FLAG Atlantic Holdings Limited, a wholly-owned subsidiary. FLAG Atlantic Limited
is a joint venture company set up to build, own and operate a transatlantic
fiberoptic cable system connecting the United States, United Kingdom and France.
Global Telesystem Group, Inc. owns the other 50% interest in the venture. The
transatlantic cable system will be designed to carry voice, high-speed data and
video traffic. The FLAG Atlantic system is expected to be ready for service in
the first quarter of 2001.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("U.S. GAAP") and are
expressed in U.S. Dollars ("Dollars"). The preparation of financial statements
in conformity with U.S. GAAP 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
F-8
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The significant accounting policies are summarized as
follows:
a) Basis of Consolidation
The financial statements consolidate the financial statements of FLAG
Telecom and its subsidiary companies after eliminating intercompany transactions
and balances. Investments in which FLAG Telecom has an investment of 20%-50% or
investments in which FLAG Telecom can assert significant influence, but does not
control, are accounted for under the equity method.
b) Revenue Recognition
Capacity contracts are accounted for as leases. For contracts that satisfy
sales type lease accounting, revenues are recognized upon the date the risks and
rewards of ownership are transferred to the purchaser, which is the date the
capacity is made available for activation and the customer becomes responsible
for maintenance charges. As a result of the issue of Interpretation 43 "Real
Estate Sales, an interpretation of FASB Statement No. 66", ("FIN 43") capacity
contracts entered into after June 30, 1999 must satisfy the additional
requirements for sales of real estate to qualify for sales type lease
accounting.
Capacity contracts that do not qualify for sales type lease accounting are
accounted for as operating leases and revenue is recognized over the term of the
lease. Until June 30, 1999 revenues from operating lease transactions were
considered incidental and recorded as a reduction of the capacity available for
sale.
Payments received from customers before the relevant criteria for revenue
recognition are satisfied are included in deferred revenue.
Because substantially all receivables under agreements qualifying as
sales-type leases are receivable within 75 days of the date the risks and
rewards of ownership are transferred to the customer, the accounts receivable
balance in the accompanying balance sheets, representing the gross future
minimum lease payments due, approximates the present value of future minimum
lease payments. Amounts billed to customers for maintenance and repair services
are invoiced separately from capacity lease payments. There are no guaranteed or
unguaranteed residual values accruing to the benefit of the Group.
In exchange for construction costs incurred, FLAG Limited had granted
credits to suppliers toward future capacity. In addition, certain customers have
committed to purchase capacity at a future date under signed capacity credit
agreements. Such amounts received or receivable under these agreements and the
capacity credits granted to suppliers are recorded as deferred revenue until the
date the credits are utilized, at which time the deferred revenue is recognized
as earned. Amounts receivable under these capacity agreements are reflected
within accounts receivable in the accompanying balance sheets. Deferred revenue
also includes amounts invoiced for standby maintenance which are applicable to
future periods.
For certain customers, FLAG Limited has granted price protection credits
entitling them to additional capacity if FLAG Limited lowers its prices prior to
December 31, 1999. In the period that it
F-9
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
becomes probable that FLAG Limited will lower its list prices, FLAG Limited
records a provision for expected cost of sales for the additional units of
capacity granted.
Standby maintenance and restoration charges are invoiced separately from
capacity sales. Revenues relating to standby maintenance and restoration are
recognized over the period the service is provided.
c) Cost of Sales
The cost relating to capacity sold under sales type lease contracts is
recognized as cost of sales upon recognition of revenues. The amount charged to
cost of sales is based on the ratio of capacity sales recognized as revenues in
the period to total expected revenues over the entire life of the cable system
multiplied by the total construction costs. This calculation of cost of sales
matches costs with the relative sales value of each sale to total expected
revenues.
Management's estimate of total expected revenues over the life of the cable
system may change due to a number of factors affecting estimated future revenues
including changes in management's estimate of the units of capacity to be sold
and changes in the expected sales value per unit of capacity to be sold.
Additionally, the cost per unit will decrease in the event the capacity of the
cable system is upgraded in the future to increase the units of capacity
available for sale. Changes in management's estimate of total expected revenues
over the life of the cable system will result in adjustments to the calculations
of cost of sales. These adjustments will be recorded on a prospective basis over
future periods commencing with the period management revises its estimate.
Costs of the network relating to capacity contracts accounted for as
operating leases are treated as fixed assets and depreciated over the remaining
economic life of the network.
d) Commissions
Commissions for purchase commitments are recognized as an expense upon
recognition of the related revenues.
e) Capacity Available for Sale and Construction in Progress
Capacity available for sale is recorded at the lower of cost or fair value
less cost to sell and is charged to cost of sales as capacity is sold. Until
contracts are entered into that preclude sales type lease accounting for a
particular segment, the cost of such segment will remain in capacity available
for sale. Construction in progress is transferred to capacity available for sale
at the date it is completed and placed into commercial operation if the capacity
contracts on the particular segment will satisfy sales type lease accounting
rules. Construction in progress relating to other segments is transferred to
fixed assets and depreciated over its remaining economic life. Construction in
progress is stated at cost. Capitalized costs include costs incurred under the
construction contract, engineering and consulting fees, legal fees related to
obtaining landing right licenses, costs related to program management, costs for
the route surveys, and other costs necessary for developing the cable system.
F-10
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f) Capitalized Financing Costs
Costs incurred by FLAG Limited to obtain financing for the FLAG Europe-Asia
cable system have been capitalized and are being amortized over the term of the
related borrowings. Capitalized costs relating to existing financings are
written off when a refinancing occurs.
g) Fixed Assets
Fixed assets are stated at cost, net of accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Computer equipment.......................................... 33 1/3% per annum
Fixtures and fittings....................................... 20% per annum
Leasehold improvement....................................... remaining lease term
Motor vehicles.............................................. 20% per annum
Network assets.............................................. 6 2/3% per annum
</TABLE>
h) Interest Rate Derivatives
The Group uses derivative financial instruments for the purpose of reducing
its exposure to adverse fluctuations in interest rates. The Group does not
utilize derivative financial instruments for trading or other speculative
purposes. The counterparties to these instruments are major financial
institutions with high credit quality. The Group is exposed to credit loss in
the event of nonperformance by these counterparties.
At the end of March 1998, FLAG Limited entered into two interest rate swap
agreements to manage its exposure to interest rate fluctuations on the $370,000
bank credit facility undertaken on January 30, 1998 (the "New Credit Facility").
Under the swap agreements, FLAG Limited pays a fixed rate of 5.60% on a notional
amount of $60,000 and a fixed rate of 5.79% on a notional amount of $100,000 and
the counterparty pays the floating rate based on LIBOR. The swap agreements
terminate in January and July 2000, respectively, unless extended by an
additional one year and six months, respectively, at the option of the
counterparty.
The 8 1/4% Senior Notes arising on the refinancing undertaken on
January 30, 1998 (the "Senior Notes") accrue interest at the rate of 8 1/4% per
annum paid semi-annually on January 30 and July 30 of each year, commencing on
July 30, 1998 (see Note 4. "Long-term Debt"). Interest is expensed as it
accrues. The Senior Notes are redeemable at FLAG Limited's option, in whole or
in part, at any time on or after January 30, 2003, at specified option prices.
In the event of any equity offering before January 31, 2001, FLAG Limited may
use all or a portion of the net proceeds therefrom to redeem up to 33 1/3% of
the original principal amount of the Senior Notes at a redemption price of
108.25% plus accrued and unpaid interest. If FLAG Limited has excess cash flow,
as defined, for any fiscal year commencing in 2001, FLAG Limited is required,
subject to certain exceptions and limitations, to make an offer to purchase the
Senior Notes at specified prices. Upon a change in control, the noteholders may
require FLAG Limited to purchase all or any portion of the outstanding notes at
a price equal to 101% of the principal amount plus accrued but unpaid interest.
F-11
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For interest rate derivatives to qualify for hedge accounting, the debt
instrument being hedged must expose the Group to interest rate risk and, at the
inception of the derivative instrument and throughout the period the derivative
is held, there must be a high correlation of changes in the market value of the
derivative and interest expense of the hedged item. Under hedge accounting, net
interest payments due to or from the counterparties are recorded as an increase
or deduction in interest expense.
If an interest rate derivative instrument were to terminate or be replaced
by another instrument and no longer qualify as a hedge instrument, then it would
be marked to market and carried on the balance sheet at fair value.
i) Translation of Foreign Currencies
Transactions in foreign currencies are translated into United States Dollars
at the rate of exchange prevailing at the date of each transaction. Monetary
assets and liabilities denominated in foreign currencies at year end are
translated into Dollars at the rate of exchange at that date. Foreign exchange
gains or losses are reflected in the accompanying statements of operations.
The statements of operations of overseas subsidiary undertakings are
translated into United States Dollars at average exchange rates and the year-end
net investments in these companies are translated at year-end exchange rates.
Exchange differences arising from retranslation at year-end exchange rates of
the opening net investments and results for the year are charged or credited
directly to the cumulative translation adjustment in shareholders' equity.
j) Long Term Incentive Plan
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company has chosen
to account for employee stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), and, accordingly,
recognizes compensation expense for stock option grants to the extent that the
estimated fair value of the stock exceeds the exercise price of the option at
the measurement date. The compensation expense is charged against operations
ratably over the vesting period of the options.
k) Income Taxes
Deferred taxes are determined based on the difference between the tax basis
of an asset or liability and its reported amount in the financial statements
using enacted tax rates. A deferred tax liability or asset is recorded using the
enacted tax rates expected to apply to taxable income in the period in which the
deferred tax liability or asset is expected to be settled or realized. Future
tax benefits attributable to these differences, if any, are recognizable to the
extent that realization of such benefits is more likely than not.
l) Net Income per Common Share
Basic net income per common share is based on dividing net income applicable
to common shareholders by the weighted average number of common shares
outstanding in the period. Diluted net
F-12
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
income per common share is computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding during
the period.
m) Pending Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). Following the amendment made by SFAS No. 137, SFAS No.
133 is effective for periods beginning after June 15, 2000. Management is
currently assessing the impact of the adoption of SFAS 133 on the Company's
financial position and results of operations, which may be material.
n) Reverse Stock Split
The accompanying consolidated financial statements have been retroactively
restated to give effect to a reverse stock split of 6:1.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1999
-------------
<S> <C>
Fixtures and fittings....................................... $ 1,403
Leasehold improvements...................................... 2,621
Computer equipment.......................................... 2,328
Motor vehicles.............................................. 286
Network assets.............................................. 208,376
-------------
215,014
Less--Accumulated depreciation.............................. (6,189)
-------------
Net book value.............................................. $ 208,825
=============
</TABLE>
As a result of the application of FIN 43, sales on certain parts of the FLAG
system will not be able to satisfy the requirements for sales type lease
accounting. Accordingly the costs of these parts of the system have been
reclassified with effect from July 1, 1999 from capacity available for sale to
fixed assets and are being depreciated over their remaining useful economic life
of 15 years.
F-13
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
4. LONG-TERM DEBT
The Group's long-term debt comprises the following:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Bank credit facility........................................ $223,000
8 1/4% Senior Notes, due 2008, net of unamortized discount
of $4,878................................................. $425,122
</TABLE>
On January 30, 1998, FLAG Limited completed a refinancing which consisted of
$370,000 of bank credit facilities under the New Credit Facility and $430,000 of
the Senior Notes. Proceeds received under the Senior Notes were $424,088, net of
a $5,912 discount. The Senior Notes are not secured by any asset of the Group.
Accordingly, they are effectively subordinated to any secured obligation arising
from the New Credit Facility.
The existing bank credit facilities include a seven-year $320,000 term loan
facility and a $50,000 revolving credit facility. Total Group borrowings under
the credit facility at September 30, 1999 are $223,000. Under the term loan and
revolving credit facilities, borrowings bear interest at LIBOR plus 190 to 212.5
basis points and are secured by a pledge of substantially all of FLAG Limited's
assets and revenues, other than FLAG Limited's physical assets.
The New Credit Facility and the indenture under which the Senior Notes were
issued impose certain operating and financial restrictions on FLAG Limited. Such
restrictions will affect, and in many respects significantly limit or prohibit,
among other things, the ability of FLAG Limited to incur additional
indebtedness, repay indebtedness (including the Senior Notes) prior to stated
maturities, sell assets, make investments, engage in transactions with
shareholders and affiliates, issue capital stock, create liens or engage in
mergers or acquisitions. These restrictions could also limit the ability of FLAG
Limited to effect future financings, make needed capital expenditures, withstand
a future downturn in FLAG Limited's business or the economy in general, or
otherwise conduct necessary corporate activities.
The collateral trustee maintains certain accounts in accordance with the
terms of FLAG Limited's credit facility. The collateral trustee has a security
interest in these accounts.
Contractual maturities of the Group's indebtedness over the next five years
are as follows:
<TABLE>
<S> <C>
Year ended December 31,
1999.................................................... $ --
2000.................................................... --
2001.................................................... --
2002.................................................... --
2003.................................................... 91,080
--------
$ 91,080
========
</TABLE>
F-14
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
5. SHAREHOLDERS' EQUITY
The authorized common share capital of FLAG Telecom consists of 189,833,333
shares with a par value of $.0006 per share. The following number of shares were
issued and outstanding at September 30, 1999.
<TABLE>
<CAPTION>
1999
----
<S> <C>
Shares outstanding.......................................... 69,709,935
Share capital............................................... $ 7
</TABLE>
On February 26, 1999, FLAG Limited's shareholders other than Bell Atlantic
Network Systems exchanged their common shares in FLAG Limited for common shares
in FLAG Telecom. Bell Atlantic Network Systems, however, exchanged only a
limited portion of its common shares in FLAG Limited for 3,666,155 common shares
in FLAG Telecom. At the same time, Bell Atlantic Network Systems and FLAG
Telecom entered into an Exchange Agreement and Plan of Reorganization providing
that Bell Atlantic Network Systems' remaining common shares in FLAG Limited
would be exchanged for common shares in FLAG Telecom in the event that, prior to
February 26, 2002, Bell Atlantic received certain regulatory approvals from the
Federal Communications Commission allowing Bell Atlantic to offer long distance
service. Such regulatory approvals were obtained and Bell Atlantic exchanged its
remaining common shares in FLAG Limited for common shares in FLAG Telecom on
January 4, 2000.
By ownership of their common shares, the shareholders are entitled to one
vote per share at each meeting of the shareholders and, at any general meeting
or special meeting of all shareholders. Common shareholders are entitled to
receive dividends or distributions declared or paid, pro rata in proportion to
the total number of common shares held.
6. STOCK OPTIONS
In March, 1998, the Group adopted a Long-Term Incentive Plan under which
options may be granted on up to 6,763,791 shares of common stock to eligible
members of staff. Generally, options granted under this plan vest and are
exercisable on the third and fourth anniversaries of their grant, subject to
meeting certain qualifying criteria. All options vest no later than eight years
and expire ten years after the date of grant. The options can vest, and are
exercisable earlier on the commencement of an initial public offering of equity.
F-15
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
6. STOCK OPTIONS (CONTINUED)
The following summarizes stock option activity under this plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balance December 31, 1997......................... -- $ --
Granted........................................... 2,357,706 6.42
Forfeited......................................... -- --
Exercised......................................... -- --
----------
Balance December 31, 1998......................... 2,357,706 6.42
Granted........................................... 1,614,167 6.42
Forfeited......................................... -- --
Exercised......................................... -- --
----------
Balance September 30, 1999........................ 3,971,873 $6.42
==========
</TABLE>
All options during 1998 and 1999 were granted at an exercise price of $6.42
per share. At December 31, 1998 and September 30, 1999 no options had vested.
The weighted average fair value of options granted during 1998 and 1999 was
$3.66 and $3.60 per share respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used for grants in 1998 and 1999: risk-free interest
rates ranging from 5.1% to 5.8%; expected lives of 5.0 years; expected dividend
yield of zero percent; and expected volatility of 59%.
During the period ended September 30, 1999 the Company recorded additional
shareholders capital of $17,239 relating to awards under the Long Term Incentive
Plan. During the period the Company recorded an expense of $3,464. Expected
future charges in respect of these stock options are as follows:
<TABLE>
<S> <C>
Rest of 1999................................................ 5,274
2000........................................................ 6,508
2001........................................................ 1,943
2002........................................................ 50
</TABLE>
Had compensation cost for these grants been determined consistent with Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," the Group's net income and net income per share would have been
reduced to the following amounts:
<TABLE>
<S> <C>
Net income 1999
-----
As reported.............................................. 1,315
Pro forma............................................... 3,757
Basic and diluted income per share
As reported............................................. 0.02
Pro forma............................................... 0.05
</TABLE>
F-16
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
6. STOCK OPTIONS (CONTINUED)
The weighted average remaining contractual life of all options is 9.0 years. The
effects of applying SFAS 123 for disclosing compensation cost may not be
representative of the effects on reported income for future years.
7. BASIC AND DILUTED INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Net income.................................................. $ 1,315
Number of shares............................................ 69,709,935
Income per share............................................ $ 0.02
</TABLE>
The stock options granted during the year ended December 31, 1998 and during
the period from February 27, 1999 to September 30, 1999 discussed in Note 5 did
not have a dilutive effect on income per share for the period from incorporation
to September 30, 1999.
The right granted to Bell Atlantic Network Systems to exchange common shares
in FLAG Limited for common shares in FLAG Telecom, as discussed in Note 5 did
not have a dilutive effect on income per share for the period from incorporation
to September 30, 1999.
8. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Group's financial instruments as of September 30, 1999:
<TABLE>
<CAPTION>
1999
NOTIONAL CARRYING FAIR
AMOUNT AMOUNT VALUE
-------- -------- -----
<S> <C> <C> <C>
Funds held by Collateral Trustee................. -- 144,183 144,183
8 1/4% Senior Notes.............................. 430,000 425,122 375,175
Long-term debt................................... -- 223,000 223,000
Interest rate swaps.............................. 160,000 -- (37)
</TABLE>
The notional amounts of interest rate derivatives do not represent amounts
exchanged by the parties and, thus, are not a measure of the Group's exposure
through its use of derivatives. The amounts exchanged are determined by
reference to the notional amounts and the other terms of the derivatives.
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments but does not expect
any counterparties to fail to meet their obligations. The Company deals only
with highly rated counterparties.
<TABLE>
<S> <C>
Funds held by Collateral Trustee..... The carrying amount is a reasonable estimate of fair value
as the balance includes amounts held in banks and time
deposits with a short-term maturity.
</TABLE>
F-17
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
8. FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<S> <C>
8 1/4% Senior Notes.................. The carrying amount of the 8 1/4% Senior Notes is the net
proceeds of the Senior Notes issue. The fair value is based
on the market price of the Senior Notes at September 30,
1999.
Long-term debt....................... The carrying amount of the long term debt is the proceeds
drawn on the New Credit Facility. The debt is subject to
variable interest rates, and therefore, in management's
opinion, the carrying amount approximates the fair value of
the long term debt.
Interest rate swaps.................. The interest rate swaps agreements are "zero cost" meaning
that the cost of acquiring the agreement is embedded in the
interest rate spread. As such, the agreement does not have a
carrying value. The fair value is estimated using an implied
yield curve and values the changes in interest rates since
inception, and the potential for future changes over the
remaining term.
</TABLE>
9. TAXES
At the present time, no income, profit, capital or capital gains taxes are
levied in Bermuda. In the event that such taxes are levied, FLAG Telecom and all
its subsidiaries registered in Bermuda have received an undertaking from the
Bermuda Government exempting them from all such taxes until March 28, 2016.
The provision for income taxes reflected in the accompanying statement of
operations consists of taxes incurred on income derived from capacity sales and
standby maintenance revenues from customers in certain jurisdictions along the
FLAG Europe-Asia cable system where FLAG Limited is deemed to have a taxable
presence or is otherwise subject to tax.
Income tax expense, which consists entirely of taxes payable to foreign
governments, is comprised of the following:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Current..................................................... 794
Deferred.................................................... 304
------
$1,098
</TABLE>
F-18
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
9. TAXES (CONTINUED)
Deferred taxes arise principally because, for tax purposes, in certain
jurisdictions, revenues from capacity sales are deferred and recognized as
taxable income over the estimated life of the FLAG Europe-Asia cable system. The
provision for deferred tax comprises the following:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Capacity sales revenues deferred for tax purposes........... $ 16,250
Deferred commissions for tax purposes....................... (1,851)
Future depreciation for tax purposes........................ (8,204)
Tax losses carried forward.................................. (2,012)
Other....................................................... (532)
--------
$ 3,651
</TABLE>
Since Bermuda does not impose an income tax, the difference between reported
tax expense in the accompanying statements of operations and tax as computed at
statutory rates, is attributable to the provisions for foreign taxes shown
above.
10. RELATED PARTY TRANSACTIONS
In May 1998, FLAG Limited entered into an Employee Services Agreement with
Bell Atlantic Global Systems ("BAGS") pursuant to which BAGS seconds certain
employees to FLAG Limited. The total cost incurred for this service during the
period from February 27, 1999 to September 30, 1999 was $217. These costs have
been expensed in the accompanying statements of operations.
11. COMMITMENTS AND CONTINGENCIES
As of September 30, 1999, FLAG Limited was committed under supply contracts
for the FLAG Europe-Asia cable system for final payments totalling $75,604
representing funds withheld pending the completion of certain outstanding items
under the supply contracts. Provision has been made in full in the Group's
financial statements to cover the anticipated final payments.
During 1997 FLAG Limited entered into an operations contract for the FLAG
Network Operations Center (the "FNOC") with one of the landing parties on the
FLAG Europe-Asia cable system. The terms of the contract require the landing
party to provide a permanent facility in which to locate the FNOC along with
qualified personnel and additional support as required to assist in the
operations of the FNOC. In exchange for the services provided under the
contract, FLAG Limited is committed to compensate the landing party an annual
fixed charge for rent of the premises where the FNOC is located equal to $200
for the first year of the contract increasing in 5% increments for the following
three years. Costs incurred by the landing party to provide qualified personnel
and additional support are to be reimbursed by FLAG Limited on a cost plus
basis.
F-19
<PAGE>
FLAG TELECOM HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCORPORATION TO SEPTEMBER 30, 1999
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
FLAG Limited has entered into lease agreements for the rental of office
space. Estimated future minimum rental payments under the leases are as follows:
<TABLE>
<S> <C> <C>
Remainder of 1999.......................................... $289
2000....................................................... 824
2001....................................................... 537
2002....................................................... 549
2003....................................................... 549
Thereafter................................................. 2,910
</TABLE>
FLAG Limited is also committed to make quarterly payments under standby
maintenance agreements for the period commencing October 8, 1997 and continuing
through December 31, 2007. Estimated future payments under the standby
maintenance agreements are as follows:
<TABLE>
<S> <C>
Remainder of 1999........................................... $ 5,608
2000........................................................ 24,546
2001........................................................ 25,105
2002........................................................ 25,197
2003........................................................ 8,820
Thereafter.................................................. 35,280
</TABLE>
The estimated future payments under the standby maintenance agreements are
based on a number of assumptions, including, among other things, the proportion
of the total FLAG Europe-Asia cable system capacity sold at any point in time
and the number of other cable systems serviced under the agreement.
The Group is subject to legal proceedings and claims in the ordinary course
of business. Based on consultations with legal counsel, management does not
believe that any of these proceedings or claims will have a material effect on
the Group's financial position or results of operations.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
FLAG Limited:
We have audited the accompanying consolidated balance sheets of FLAG Limited
(a Bermuda company) and subsidiaries as of February 26, 1999, and December 31,
1998 and 1997, and the related consolidated statements of operations,
comprehensive income, shareholders' equity and cash flows for the period from
January 1, 1999 to February 26, 1999 and for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of FLAG Limited's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FLAG Limited and
subsidiaries as of February 26, 1999, and December 31, 1998 and 1997, and the
results of their operations and their cash flows for the period from
January 1, 1999 to February 26, 1999 and for each of the three years in the
period ended December 31, 1998 in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen & Co.
Hamilton, Bermuda
December 30, 1999
F-21
<PAGE>
FLAG LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 26, 1999 AND DECEMBER 31, 1998 AND 1997
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash................................................... $ 1,916 $ 3,024 $ 2,490
Accounts receivable, net of allowance for doubtful
accounts of $8,630, $8,630 and $9,054................ 68,501 70,211 91,102
Due from affiliates and other receivables.............. -- 206 690
Prepaid expenses and other assets...................... 3,524 2,673 2,395
---------- ---------- ----------
73,941 76,114 96,677
Accounts receivable...................................... 20,854 20,854 42,023
Funds held by collateral trustee......................... 219,136 255,366 425,905
Construction in progress................................. 18,471 11,494 389
Capacity available for sale.............................. 1,086,435 1,095,099 1,208,948
Capitalized financing costs, net of accumulated
amortization of $1,498, $1,498 and $52,669............. 12,078 12,352 61,848
Fixed assets, net........................................ 4,454 4,487 1,147
---------- ---------- ----------
$1,435,369 $1,475,766 $1,836,937
========== ========== ==========
LIABILITIES:
Current liabilities:
Accrued construction costs............................. $ 153,930 $ 146,165 $ 317,058
Accrued liabilities.................................... 15,151 33,214 21,394
Accounts payable....................................... 7,541 6,018 5,262
Income taxes payable................................... 6,620 6,453 4,391
Due to affiliate....................................... 1,175 1,843 5,892
Deferred revenue....................................... 18,809 39,121 16,558
---------- ---------- ----------
203,226 232,814 370,555
8 1/4% Senior Notes, due 2008, net of unamortized
discount of $5,321, $5,321, $nil....................... 424,777 424,679 --
Long-term debt........................................... 256,500 271,500 615,087
Deferred revenue and other............................... 83,570 84,415 176,221
Deferred taxes........................................... 3,562 3,562 4,600
---------- ---------- ----------
971,635 1,016,970 1,166,463
COMMITMENTS AND CONTINGENCIES
PREFERRED SHARES:
Series A, $100 liquidation value, net of unamortized
discount of $nil, $nil and $1,905.................... -- -- 129,445
SHAREHOLDERS' EQUITY:
Class A common shares, $.0001 par value................ -- 13 13
Class B common shares, $.0001 par value................ 64 57 57
Additional paid-in capital............................. 504,387 504,381 514,389
Foreign currency translation adjustment................ (526) (704) --
Retained (deficit) earnings............................ (40,191) (44,951) 26,570
---------- ---------- ----------
463,734 458,796 541,029
---------- ---------- ----------
$1,435,369 $1,475,766 $1,836,937
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
FLAG LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996
1999 1998 1997 (AS RESTATED)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Capacity sales, net of discounts........ $ 25,554 $ 182,935 $ 335,982 --
Standby maintenance and restoration
revenue............................... 4,458 25,313 4,011 --
----------- ----------- ----------- -----------
30,012 208,248 339,993 --
SALES AND OTHER OPERATING EXPENSES:
Cost of capacity sold................... 8,294 101,288 196,190 --
Operations and maintenance.............. 5,114 37,931 4,600 --
Sales and marketing..................... 637 10,680 6,598 316
General and administrative.............. 2,870 21,674 30,339 12,345
Depreciation and amortization........... 233 844 276 121
----------- ----------- ----------- -----------
17,148 172,417 238,003 12,782
OPERATING INCOME (LOSS)................... 12,864 35,831 101,990 (12,782)
INTEREST EXPENSE.......................... 9,758 61,128 20,193 --
INTEREST INCOME........................... 1,825 14,875 6,637 2,408
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES......... 4,931 (10,422) 88,434 (10,374)
PROVISION FOR INCOME TAXES................ 171 1,260 8,991 --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM... 4,760 (11,682) 79,443 (10,374)
EXTRAORDINARY ITEM........................ -- 59,839 -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS)......................... 4,760 (71,521) 79,443 (10,374)
CUMULATIVE PAY-IN-KIND PREFERRED
DIVIDENDS............................... -- 1,508 16,324 14,410
REDEMPTION PREMIUM AND WRITE OFF OF
DISCOUNT ON PREFERRED SHARES............ -- 8,500 -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS............................ $ 4,760 $ (81,529) $ 63,119 $ (24,784)
=========== =========== =========== ===========
Basic and diluted net income (loss) per
common share--Class A................... $ 0.00 $ (0.07) $ 0.05 $ (0.02)
=========== =========== =========== ===========
Basic and diluted net income (loss) per
common share--Class B................... $ 0.01 $ (0.13) $ 0.14 $ (0.13)
=========== =========== =========== ===========
Weighted average common shares
outstanding--Class A.................... -- 132,000,000 132,000,000 132,000,000
Weighted average common shares
outstanding--Class B.................... 635,796,338 565,858,741 396,890,512 164,445,547
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
FLAG LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1996
1999 1998 1997 (AS RESTATED)
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS)..................................... $4,760 $(81,529) $63,119 $(24,784)
Foreign currency translation adjustment............... 178 (704) -- --
------ -------- ------- --------
COMPREHENSIVE INCOME (LOSS)........................... $4,938 $(82,233) $63,119 $(24,784)
====== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
FLAG LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT NUMBERS OF SHARES)
<TABLE>
<CAPTION>
CLASS A CLASS B FOREIGN RETAINED
COMMON SHARES COMMON SHARES ADDITIONAL CURRENCY EARNINGS
----------------------- ---------------------- PAID-IN TRANSLATION (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT)
------------ -------- ----------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995... 132,000,000 $13 92,366,742 $9 $99,098 $-- $(42,499)
Preferred share dividends and
accretion.................. -- -- -- -- (14,410) -- 14,410
Issuance of Class B shares
for cash................... -- -- 119,000,000 12 110,448 -- --
Issuance of Class B shares to
preferred shareholders..... -- -- 4,099,204 1 (1) -- --
1996 net loss applicable to
common shareholders........ -- -- -- -- -- -- (24,784)
------------ --- ----------- --- -------- -------- --------
Balance, December 31, 1996... 132,000,000 13 215,465,946 22 195,135 -- (52,873)
Preferred share dividends and
accretion.................. -- -- -- -- (16,324) -- 16,324
Issuance of Class B shares
for cash................... -- -- 335,612,492 34 335,579 -- --
Issuance of Class B shares to
preferred shareholders..... -- -- 14,780,303 1 (1) -- --
1997 net income applicable to
common shareholders........ -- -- -- -- -- -- 63,119
------------ --- ----------- --- -------- -------- --------
Balance, December 31, 1997... 132,000,000 13 565,858,741 57 514,389 -- 26,570
Preferred share dividends and
accretion.................. -- -- -- -- (1,508) -- 1,508
Premium on redemption of
preferred shares........... -- -- -- -- (6,641) -- 6,641
Write-off of unamortized
discount on issuance of
preferred shares........... -- -- -- -- (1,859) -- 1,859
Foreign currency translation
adjustment................. -- -- -- -- -- (704) --
1998 net loss applicable to
common shareholders........ -- -- -- -- -- -- (81,529)
------------ --- ----------- --- -------- -------- --------
Balance, December 31, 1998... 132,000,000 13 565,858,741 57 504,381 (704) (44,951)
Conversion of Class A shares
into Class B shares
Class A shares
[retired]................ (132,000,000) (13) -- -- 13 -- $--
Class B shares issued.... -- -- 69,937,597 7 (7) -- --
Foreign currency translation
adjustment................. -- -- -- -- -- -- 178
1999 net income applicable to
common shareholders........ -- -- -- -- -- 4,760 --
------------ --- ----------- --- -------- -------- --------
Balance, February 26, 1999... -- $-- 635,796,338 $64 $504,387 $(40,191) $(528)
============ === =========== === ======== ======== ========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 31, 1995... $56,621
Preferred share dividends and
accretion.................. --
Issuance of Class B shares
for cash................... 110,460
Issuance of Class B shares to
preferred shareholders..... --
1996 net loss applicable to
common shareholders........ (24,784)
--------
Balance, December 31, 1996... 142,297
Preferred share dividends and
accretion.................. --
Issuance of Class B shares
for cash................... 335,613
Issuance of Class B shares to
preferred shareholders..... --
1997 net income applicable to
common shareholders........ 63,119
--------
Balance, December 31, 1997... 541,029
Preferred share dividends and
accretion.................. --
Premium on redemption of
preferred shares........... --
Write-off of unamortized
discount on issuance of
preferred shares........... --
Foreign currency translation
adjustment................. (704)
1998 net loss applicable to
common shareholders........ (81,529)
--------
Balance, December 31, 1998... 458,796
Conversion of Class A shares
into Class B shares
Class A shares
[retired]................ --
Class B shares issued.... --
Foreign currency translation
adjustment................. 178
1999 net income applicable to
common shareholders........ 4,760
--------
Balance, February 26, 1999... $463,734
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
FLAG LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997 1996
-------- --------- --------- ------------
<S> <C> <C> <C> <C>
(AS
RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) applicable to common shareholders......... $ 4,760 $ (81,529) $ 63,119 $ (24,784)
-------- --------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Pay-in-kind preferred dividends......................... -- 1,508 16,324 14,410
Amortization of financing costs......................... 274 3,427 6,082 --
Provision for doubtful accounts......................... -- (424) 9,054 --
Depreciation............................................ 233 844 276 121
Deferred taxes.......................................... -- (1,038) 4,600 --
Preferred share redemption premium...................... -- 8,500 -- --
Loss on debt refinancing................................ -- 59,839 -- --
Senior debt discount.................................... 98 591 -- --
Add (deduct) net changes in operating assets and
liabilities:
Accounts receivable................................... 1,710 42,500 (142,179) --
Due from affiliates and other receivables............. -- 484 (371) (294)
Prepaid expenses and other assets..................... (645) (272) 735 (337)
Capacity available for sale........................... 8,664 113,849 196,190 --
Accounts payable and accrued liabilities.............. (16,541) 12,250 26,335 (236)
Income taxes payable.................................. 168 2,062 4,391 --
Due to affiliate...................................... (668) (4,049) (4,179) (983)
Deferred revenue...................................... (21,157) (69,711) 104,779 --
-------- --------- --------- ---------
Net cash (used in) provided by operating
activities........................................ (23,104) 88,831 285,156 (12,103)
CASH FLOWS FROM FINANCING ACTIVITIES:
Organization and financing costs incurred................. -- (13,769) (11,769) (29,335)
Proceeds from long-term debt.............................. -- 320,000 414,914 262,543
Proceeds from 8 1/4% Senior Notes......................... -- 424,088 -- --
Repayment of long-term debt............................... (15,000) (663,587) (112,370) --
Capital contributions--common shares...................... -- -- 335,613 110,460
Redemption of preferred shares............................ -- (139,453) -- --
Gulf settlement payment................................... -- -- (3,000) --
Decrease (increase) in funds held by collateral trustee... 36,230 170,539 (377,711) (1,657)
-------- --------- --------- ---------
Net cash provided by financing activities........... 21,230 97,818 245,677 342,011
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for construction in progress.................... 788 (181,998) (527,808) (329,372)
Purchase of fixed assets.................................. (200) (4,146) (845) (514)
-------- --------- --------- ---------
Net cash provided by (used in) investing
activities........................................ 588 (186,144) (528,653) (329,886)
NET (DECREASE) INCREASE IN CASH............................. (1,286) 505 2,180 22
Effect of foreign currency movements...................... 178 29 -- --
CASH, beginning of year..................................... 3,024 2,490 310 288
-------- --------- --------- ---------
CASH, end of year........................................... $ 1,916 $ 3,024 $ 2,490 $ 310
======== ========= ========= =========
</TABLE>
F-26
<PAGE>
FLAG LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997 1996
-------- --------- --------- ------------
<S> <C> <C> <C> <C>
(AS
RESTATED)
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING ACTIVITIES:
Costs (reimbursed) incurred for construction in
progress................................................ $ (788) $ 11,105 $ 757,722 $ 480,524
Increase in deferred revenue for capacity credits......... -- -- (88,000) --
Decrease (increase) in accrued liabilities................ -- 170,893 (123,964) (126,562)
Amortization of capitalized financing costs............... -- -- (17,950) (24,590)
-------- --------- --------- ---------
Cash paid for construction in progress.................... $ (788) $ 181,998 $ 527,808 $ 329,372
======== ========= ========= =========
SUPPLEMENTAL INFORMATION DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid............................................... $ 22,668 $ 39,171 $ 58,286 $ 14,018
======== ========= ========= =========
Taxes paid.................................................. $ -- $ -- $ -- $ --
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BACKGROUND
The Company is a facilities-based provider of telecommunications capacity to
licensed international carriers through its ownership of the world's longest
independent, privately-owned digital fiberoptic undersea cable system, the FLAG
Europe-Asia cable system. The FLAG Europe-Asia cable system links the
telecommunications markets of Western Europe and Japan through the Middle East,
India, Southeast Asia and China (the "FLAG Route"), along a route which adjoins
countries with approximately 70% of the world's population. The FLAG Europe-Asia
cable system was constructed to address the growing demand for high performance,
secure and cost-effective digital communications for voice, data and video along
the FLAG Route. The Company provides capacity on the FLAG Europe-Asia cable
system at market-based prices to licensed international carriers. The FLAG
Europe-Asia cable system, which was placed in commercial service on
November 22, 1997, cost approximately $1.55 billion to construct, and consists
of over 17,000 miles of fiberoptic cable.
On February 26, 1999, the Company was part of a reorganization whereby FLAG
Telecom Holdings Limited ("FTHL"), a Bermuda company, became the holding company
for the FLAG Telecom group of companies. Pursuant to this reorganization, all of
the Class A common shares of the Company were converted to Class B common shares
and the shareholders of the Company transferred to FTHL 418,259,688 Class B
common shares in exchange for an equal number of shares in FTHL. As a result of
this reorganization, FTHL held 65.79% of the share capital of the Company with
the balance of 34.21% being held by Bell Atlantic Network Systems Company.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States and are expressed in U.S.
Dollars ("Dollars"). The preparation of financial statements in conformity with
U.S. generally accepted accounting principles ("U.S. GAAP") 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. Actual results could differ from those estimates.
The significant accounting policies are summarized as follows:
a) Basis of Consolidation
The financial statements consolidate the financial statements of the Company
and its subsidiary companies after eliminating intercompany transactions and
balances.
b) Sales and Cost of Sales Recognition
Revenues are recognized upon the date the risks and rewards of ownership are
transferred to the purchaser, which is the date the capacity is made available
for activation and the customer becomes responsible for standby maintenance and
repairs.
Because substantially all receivables under agreements qualifying as
sales-type leases are receivable within 75 days of the date the risks and
rewards of ownership are transferred to the customer, the accounts receivable
balance in the accompanying balance sheets, representing the gross future
minimum lease payments due, approximates the present value of future minimum
lease payments. Amounts billed
F-28
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to customers for maintenance and repair services are invoiced separately from
capacity lease payments. There are no guaranteed or unguaranteed residual values
accruing to the benefit of the Company. The Company has no minimum lease
payments due in 1999 and no minimum lease payments for all subsequent years.
As of December 31, 1998, in exchange for construction costs incurred, the
Company had granted credits to suppliers toward future capacity. In addition,
certain customers have committed to purchase capacity at a future date under
signed capacity credit agreements. Such amounts received or receivable under
these agreements and the capacity credits granted to suppliers are recorded as
deferred revenue until the date the credits are utilized, at which time the
deferred revenue is recognized as earned. Amounts receivable under these
capacity agreements are reflected within accounts receivable in the accompanying
balance sheets. Deferred revenue also includes amounts invoiced for standby
maintenance which are applicable to future periods.
For certain customers, the Company has granted price protection credits
entitling them to additional capacity if the Company lowers its prices prior to
December 31, 1999. In the period that it becomes probable that the Company will
lower its list prices, the Company records a provision for expected cost of
sales for the additional units of capacity granted.
The cost of the FLAG Europe-Asia cable system relating to capacity sold is
recognized as cost of sales upon recognition of revenues. The amount charged to
cost of sales is based on the ratio of capacity sales recognized as revenues in
the period to total expected revenues over the entire life of the FLAG
Europe-Asia cable system multiplied by the total construction costs. This
calculation of cost of sales matches costs with the relative sales value of each
sale to total expected revenues.
Management's estimate of total expected revenues over the life of the FLAG
Europe-Asia cable system may change due to a number of factors affecting
estimated future revenues including changes in management's estimate of the
units of capacity to be sold and changes in the expected sales value per unit of
capacity to be sold. Additionally, the cost per unit will decrease in the event
the Company elects to upgrade the capacity of the FLAG Europe-Asia cable system
in the future to increase the units of capacity available for sale. Changes in
management's estimate of total expected revenues over the life of the FLAG
Europe-Asia cable system will result in adjustments to the calculations of cost
of sales. These adjustments will be recorded on a prospective basis over future
periods commencing with the period management revises its estimate. As the
revenue from operating lease transactions is incidental, such transactions are
recorded as a reduction of capacity available for resale and no depreciation is
recorded.
Standby maintenance charges are invoiced separately from capacity sales.
Revenue relating to standby maintenance is recognized over the period in which
the service is provided.
c) Commissions
Commissions for purchase commitments are recognized as an expense upon
recognition of the related revenues.
F-29
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d) Capacity Available for Sale and Construction in Progress
Capacity available for sale is recorded at the lower of cost or fair value
less cost to sell and is charged to cost of sales as capacity is sold.
Construction in progress is transferred to capacity available for sale at the
date it is completed and placed into commercial operation. Construction in
progress includes direct and indirect expenditures which are stated at cost and
includes the accumulated work in progress for construction of the FLAG
Europe-Asia cable system. Capitalized costs include costs incurred under the
construction contract, engineering and consulting fees, legal fees related to
obtaining landing right licenses, costs related to program management, costs for
the route surveys, interest and other costs necessary for developing the FLAG
Europe-Asia cable system.
e) Capitalized Financing Costs
Costs incurred by the Company to obtain financing for the FLAG Europe-Asia
cable system have been capitalized and are being amortized over the term of the
related borrowings. Capitalized costs relating to existing financings are
written off when a refinancing occurs.
f) Fixed Assets
Fixed assets are stated at cost, net of accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Computer equipment............................... 33 1/3% per annum
Fixtures and fittings............................ 20% per annum
Leasehold improvement............................ remaining lease term
Motor vehicles................................... 20% per annum
</TABLE>
Fixed assets consist of the following
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Office furniture............................................ $1,265 $1,231
Leasehold improvements...................................... 2,371 2,326
Computer equipment.......................................... 1,703 1,582
Motor vehicles.............................................. 267 267
------ ------
5,606 5,406
Less--Accumulated depreciation.............................. (1,152) (919)
------ ------
Net book value.............................................. $4,454 $4,487
====== ======
</TABLE>
g) Interest Rate Derivatives
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest rates. The Company
does not utilize derivative financial instruments for trading or other
speculative purposes. The counterparties to these instruments are major
financial
F-30
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
institutions with high credit quality. The Company is exposed to credit loss in
the event of nonperformance by these counterparties.
At the end of March 1998, the Company entered into two interest rate swap
agreements to manage the Company's exposure to interest rate fluctuations on the
$370,000 bank credit facility undertaken on January 30, 1998 (the "New Credit
Facility"). Under the swap agreements, the Company pays a fixed rate of 5.60% on
a notional amount of $60,000, a fixed rate of 5.79% on a notional amount of
$100,000, and the counterparty pays the floating rate based on LIBOR. The swap
agreements terminate in January and July 2000, respectively, unless extended by
an additional one year and six months, respectively, at the option of the
counterparty.
The 8 1/4% Senior Notes arising on the refinancing undertaken on
January 30, 1998 (the "Senior Notes") accrue interest at the rate of 8 1/4% per
annum paid semi-annually on January 30 and July 30 of each year, commencing on
July 30, 1998 (see Note 3. "Long-term Debt"). Interest is expensed as it
accrues. The Senior Notes are redeemable at the Company's option, in whole or in
part, at any time on or after January 30, 2003, at specified option prices. In
the event of any equity offering before January 31, 2001, the Company may use
all or a portion of the net proceeds therefrom to redeem up to 33 1/3% of the
original principal amount of the Senior Notes at a redemption price of 108.25%
plus accrued and unpaid interest. If the Company has excess cash flow, as
defined, for any fiscal year commencing in 2001, the Company is required,
subject to certain exceptions and limitations, to make an offer to purchase the
Senior Notes at specified prices. Upon a change in control, the noteholders may
require the Company to purchase all or any portion of the outstanding notes at a
price equal to 101% of the principal amount plus accrued but unpaid interest.
For interest rate derivatives to qualify for hedge accounting, the debt
instrument being hedged must expose the Company to interest rate risk and, at
the inception of the derivative instrument and throughout the period the
derivative is held, there must be a high correlation of changes in the market
value of the derivative and interest expense of the hedged item. Gains and
losses on interest rate derivatives and other derivative instruments which do
not meet this criteria would be recorded in the statement of operations.
If an interest rate derivative instrument were to terminate or be replaced
by another instrument and no longer qualify as a hedge instrument, then it would
be marked to market and carried on the balance sheet at fair value.
h) Translation of Foreign Currencies
Transactions in foreign currencies are translated into Dollars at the rate
of exchange prevailing at the date of each transaction. Monetary assets and
liabilities denominated in foreign currencies at year end are translated into
Dollars at the rate of exchange at that date. Foreign exchange gains or losses
are reflected in the accompanying statements of operations.
The statements of operations of overseas subsidiary undertakings are
translated into United States Dollars at average exchange rates and the year-end
net investments in these companies are translated at year-end exchange rates.
Exchange differences arising from retranslation at year-end exchange rates
F-31
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of the opening net investments and results for the year are charged or credited
directly to the cumulative translation adjustment in shareholders' equity.
i) Stock Option Plan
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25") and accordingly, recognizes compensation expense for stock option
grants to the extent that the fair value of the stock exceeds the exercise price
of the option at the measurement date.
j) Income Taxes
Deferred taxes are determined based on the difference between the tax basis
of an asset or liability and its reported amount in the financial statements. A
deferred tax liability or asset is recorded using the enacted tax rates expected
to apply to taxable income in the period in which the deferred tax liability or
asset is expected to be settled or realized. Future tax benefits attributable to
these differences, if any, are recognizable to the extent that realization of
such benefits is more likely than not.
k) Net Income (Loss) per Common Share
In February 1999, the shareholders of all Class A common shares in the
Company converted their shares into Class B common shares of equivalent value.
Basic net income per Class B common share in 1999 is based on dividing the net
income by the number of Class B common shares outstanding for the period as if
the exchange had occurred on January 1, 1999. The basic net loss per Class A and
Class B common share in 1998 are based on dividing net loss applicable to
Class A and Class B shareholders by the weighted average number of common shares
outstanding during the period.
l) Reclassifications/Restatements of 1996 Financial Statements
U.S. GAAP for entities subject to SEC regulations require that mandatorily
redeemable preferred shares be shown between total liabilities and shareholders'
equity in the balance sheet and that cumulative pay-in-kind dividends on the
Company's Preferred Shares be shown as an increase to the Company's net loss or
decrease to the Company's net income on the statement of operations to arrive at
net income (loss) applicable to common shareholders. As a company not previously
subject to SEC regulations, in its financial statements for the year ended
December 31, 1996, as issued in March 1997, the Company accounted for the
Preferred Shares as a component of shareholders' equity with cumulative
pay-in-kind dividends recorded as a reduction of additional paid-in capital
(given the accumulated deficit during the development stage). The Company has
restated its financial statements for the year ended December 31, 1996,
accordingly.
Upon issuance of the Company's Preferred Shares, the Company issued
3,075,816 Class B common shares to the preferred shareholders. The Company, in
its financial statements for the year ended December 31, 1996, as issued in
March 1997, had accounted for the Preferred Shares at the full amount of the
proceeds received and had recorded the Class B common shares at nil value. The
Company has now recorded the Preferred Shares at a discounted value equal to the
amount of
F-32
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
proceeds received less the fair value of the Class B common shares issued. The
fair value of the Class B common shares issued to the preferred shareholders was
deemed to be $3,076 based on $1 per Class B common share paid by other Class B
shareholders. This discount was being amortized over the term of the Preferred
Shares and was expensed in the statement of operations when the Preferred Shares
were redeemed. For the year ended December 31, 1996, this restatement had no
effect on net loss, increased net loss applicable to common shareholders by $550
and had no effect on basic and diluted loss per common share for Class A and
Class B.
The Company entered into a settlement agreement with Gulf Associates
Communications, Limited ("Gulf") in 1994. As a result of this settlement $9,000
was payable by the Company to Gulf of which $1,400 was reflected as a settlement
of loans payable, and the remaining $7,600 was reflected as a reduction in
additional paid-in capital in the year the payments became due. Under generally
accepted accounting principles, the Company should have expensed the $7,600 in
1994 as it was determined that the amount primarily related to Gulf's agreement
to discontinue arbitration proceedings and the accompanying financial statements
reflect this change. This restatement had no effect on net loss, net loss
applicable to common shareholders or basic or diluted net loss per common share
in 1996 or 1997. The effect of the restatement in the accompanying balance
sheets was to increase additional paid-in capital and decrease retained earnings
(increase accumulated deficit) by $7,600 as of December 31, 1997.
m) Pending Accounting Standards
The Financial Accounting Standards Board has also recently issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is effective for periods beginning
after June 15, 2000. This pronouncement requires the recognition of all
derivative instruments on the balance sheet at fair-value. Any subsequent
changes in fair-value are then recognized in earnings unless the derivative
qualifies for treatment as a hedge. Management has not yet assessed the impact
of the adoption of SFAS 133 on the Company's financial position or results of
operations, although it may lead to increased volatility in the Company's
earnings and comprehensive income.
The Financial Accounting Standards Board has recently issued Interpretation
No. 43, "Real Estate Sales, an interpretation of FASB Statement No. 66." This
interpretation clarifies that sales of real estate with property improvements or
integral equipment that cannot be removed and used separately from the real
estate without incurring significant costs should be accounted for under FASB
Statement No. 66, "Accounting for Sales of Real Estate" ("FAS 66"). The
provisions of this Interpretation are effective for all sales of real estate
with property improvements or integral equipment entered into after June 30,
1999. It is expected that the provisions of this pronouncement will affect
timing of the Company's recognition of revenues and costs associated with future
sales of capacity.
F-33
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
3. LONG-TERM DEBT
The Company's long-term debt comprises the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Tranche A Facility.......................................... $ -- $ -- $306,380
Tranche B Facility.......................................... -- -- 308,707
Bank credit facility........................................ 256,500 271,500 --
8 1/4% Senior Notes, due 2008, net of unamortized discount
of $5,321................................................. 424,777 424,679 --
-------- -------- --------
$681,277 $696,179 $615,087
======== ======== ========
</TABLE>
On January 30, 1998, the Company completed the Refinancing which resulted in
the repayment of all $615,087 of outstanding borrowings under the Amended and
Restated Participation Agreement (the "Agreement") and the redemption of the
Preferred Shares. The Refinancing consisted of $370,000 of bank credit
facilities under the New Credit Facility and $430,000 of the Senior Notes. The
Company has registered the Senior Notes with the SEC. Proceeds received under
the Senior Notes were $424,088, net of a $5,912 underwriters' discount. This
discount is being amortised over the life of the notes. The Senior Notes are not
secured by any asset of the Company. Accordingly, they are effectively
subordinated to any secured obligation arising from the New Credit Facility.
The bank credit facilities include a seven-year $320,000 term loan facility
and a $50,000 revolving credit facility. On January 30, 1998, the Company
borrowed $320,000 under the term loan facility. Total borrowings at
February 28, 1999 are $256,500. Under the term loan and revolving credit
facilities, borrowings bear interest at LIBOR plus 190 to 212.5 basis points and
are secured by a pledge of substantially all of the Company's assets and
revenues, other than the Company's physical assets.
The New Credit Facility and the indenture under which the Senior Notes were
issued impose certain operating and financial restrictions on the Company. Such
restrictions will affect, and in many respects significantly limit or prohibit,
among other things, the ability of the Company to incur additional indebtedness,
repay indebtedness (including the Senior Notes) prior to stated maturities, sell
assets, make investments, engage in transactions with Shareholders and
affiliates, issue capital stock, create liens or engage in mergers or
acquisitions. These restrictions could also limit the ability of the Company to
effect future financings, make needed capital expenditures, withstand a future
downturn in the Company's business or the economy in general, or otherwise
conduct necessary corporate activities.
In the first quarter of 1998, the Company recognized a loss on refinancing
of approximately $59,839 which has been reflected as an extraordinary item in
the accompanying statement of operations. The loss on refinancing primarily
represents the write-off of the remaining unamortized deferred financing costs
on the outstanding borrowings under the Agreement.
The collateral trustee maintains certain accounts in accordance with the
terms of the Credit Facility. The collateral trustee has a security interest in
these accounts.
F-34
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
3. LONG-TERM DEBT (CONTINUED)
Contractual maturities of debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
Remainder of 1999..................................... $ --
2000.................................................. --
2001.................................................. --
2002.................................................. 27,700
2003.................................................. 96,880
--------
$124,580
========
</TABLE>
4. PREFERRED SHARES
On January 30, 1998, the Company completed a refinancing which resulted in
the redemption of all the Preferred Shares. In addition, the Company paid a
premium of $6,641 to redeem the Preferred Shares, which, together with the
write-off of the remaining $1,859 of discount related to the Preferred Shares,
was charged to additional paid-in capital during 1998. The shares had a par
value of $.0001 per share and a liquidation value of $100 per share. The
following number of shares were issued and outstanding:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
Shares outstanding................................... -- -- 1,306,429
Share capital........................................ $ -- $ -- $ 129,445
</TABLE>
The holders of such shares were entitled to receive cumulative pay-in-kind
dividends, at an annual rate of 13% of the $100 liquidation value per share from
the issue date through and including the redemption date. The Preferred Shares
ranked senior to all common shares with respect to dividend rights, rights of
redemption or rights on liquidation.
By ownership of their Preferred Shares, the preferred shareholders had the
right to vote 5.22% of the total voting interests of the Company, and to elect
one director and the right to receive additional Class B common shares such that
in total they maintained their 3.88% ownership of Class B common shares.
The preferred shareholders were issued 3,075,816 Class B common shares when
they purchased the Preferred Shares. The Class B common shares had a fair value
of $1 and therefore $3,076 was assigned to the Class B common shares issued and
recorded as a discount on the Preferred Shares issued. The discount was being
amortized over the term of the Preferred Shares and the amortization is included
in cumulative pay-in-kind preferred dividends in the accompanying statements of
operations.
During the years ended December 31, 1998 and 1997 the Board of Directors
declared Preferred Share pay-in-kind dividends resulting in the issue of 21,701
and 156,885 additional shares, respectively, of Preferred Shares. In addition,
as of December 31, 1997, the Company accrued approximately $708 for additional
pay-in-kind dividends for the period from December 16, 1997 to December 31,
1997.
F-35
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
5. SHAREHOLDERS' EQUITY
a) Class A Common Shares
In February 1999, the shareholders of all Class A common shares in the
Company converted their shares into Class B common shares of equivalent value.
132,000,000 Class A shares were converted to 69,937,597 Class B shares.
As of December 31, 1998 and 1997 132,000,000 Class A common shares were
issued and outstanding.
By ownership of their Class A common shares, the Class A shareholders were
entitled to one vote per share at any meeting of Class A shareholders and, at
any general meeting or special meeting of all shareholders, to a vote
representing 11% of the total voting interests of the Company, multiplied by the
percentage of Class A common shares held. Class A shareholders were entitled to
receive 11% of any dividends or distributions declared, paid pro rata in
proportion to the number of Class A common shares held, prior to the payment of
any dividends or distributions to the Class B shareholders.
b) Class B Common Shares
The authorized Class B common shares capital of the Company consists of
1,000,000,000 shares with a par value of $.0001 per share. The following number
of shares were issued and outstanding.
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Shares outstanding................. 635,796,338 565,858,741 565,858,741
Share capital...................... $64 $57 $57
</TABLE>
By ownership of their Class B common shares, the Class B shareholders are
entitled to one vote per share at each meeting of Class B shareholders and, at
any general meeting or special meeting of all shareholders, to a vote
representing 89% of the total voting interests of the Company, multiplied by the
percentage of Class B common shares held. Class B shareholders are entitled to
receive dividends or distributions declared or paid, pro rata in proportion to
the total number of Class B common shares held, after taking into account the
rights of Class A shareholders to such dividends and distributions.
During the year ended December 31, 1997, the Company issued, in exchange for
cash consideration, 335,612,492 of the Class B common shares. The proceeds of
the 1997 issue were used in funding the construction of the FLAG Europe-Asia
cable system. There were no issues of Class B common shares during 1998. All
Class B common shares were funded at $1 per share.
6. STOCK OPTIONS
In March, 1998, the Company adopted a Long-Term Incentive Plan under which
the Company may grant up to 25,237,831 shares of common stock to eligible
members of staff. During the year ended December 31, 1998, options to purchase
14,146,239 Class B common shares were granted under the plan. No options were
granted under the plan from January 1, 1999 to February 26, 1999. Generally, the
options vest and are exercisable on the third and fourth anniversaries of their
grant, subject to meeting certain qualifying criteria. All options vest no later
than eight years and expire ten years after
F-36
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
6. STOCK OPTIONS (CONTINUED)
the date of grant. The options can vest, and are exercisable, earlier on the
commencement of an initial public offering of equity in the Company. All of the
options were granted at an exercise price of $1.07 per share. No options had
vested. Since the Company accounts for employee options in accordance with APB
No. 25, the Company has not recognized compensation expense with respect to the
options granted since the exercise price did not exceed management's estimated
fair value of the shares on the date of the grant (the measurement date).
Had the compensation for the Company's Long Term Incentive Plan (see above
in this Note 6) been determined in accordance with SFAS 123, the Company's net
loss and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Net income attributable to common shareholders
--as reported............................................. 4,760
--pro forma............................................... 4,501
Earnings per share
--as reported............................................. 0.01
--pro forma............................................... 0.01
</TABLE>
The effects of applying SFAS 123 for disclosing compensation cost may not be
representative of the effects on reported net income for future years.
The weighted average fair value of options granted during 1998 was $0.61 per
share. The fair value of each option grant is estimated on the date of grant
using the Black Scholes option-pricing model using the following weighted
average assumptions.
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Dividend yield.............................................. 0.0%
Expected volatility......................................... 0.59
Risk-free interest rate..................................... 6.0%
Expected lives of the options............................... 5.0 years
</TABLE>
The weighted average remaining contractual life of all options is
9.31 years.
F-37
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
7. BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
1999 1998 1997 1996
---------------------- ------------------------- ------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A
-------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) before
extraordinary item...... -- $4,760 $(21,847) $(21,847) $63,119 $63,119 $(24,784)
Extraordinary item........ -- -- $(59,839) $(59,839) -- -- --
Net income (loss)......... -- $4,760 $(81,529) $(81,529) $63,119 $63,119 $(24,784)
Percentage entitlement.... -- 100% 11% 89% 11% 89% 11%
Net income (loss) per
class before
extraordinary item...... -- $4,760 $(2,403) $(19,444) $6,943 $56,176 $(2,726)
Extraordinary item........ -- -- $(6,582) $(53,257) -- -- --
Net income (loss) per
class................... -- $4,760 $(8,968) $(72,561) $6,943 $56,176 $(2,726)
Number of shares.......... -- 635,796,333 132,000,000 565,858,741 132,000,000 396,890,512 132,000,000
Income (loss) per share
before extraordinary
item.................... -- $0.01 $(0.02) $(0.03) $0.05 $0.14 $(0.02)
Extraordinary item per
share................... -- -- $(0.05) $(0.10) -- -- --
Net income (loss) per
share................... -- $0.00 $(0.07) $(0.13) $0.05 $0.14 $(0.02)
<CAPTION>
1996
-----------
<S> <C>
CLASS B
-----------
Net income (loss) before
extraordinary item...... $(24,784)
Extraordinary item........ --
Net income (loss)......... $(24,784)
Percentage entitlement.... 89%
Net income (loss) per
class before
extraordinary item...... $(22,058)
Extraordinary item........ --
Net income (loss) per
class................... $(22,058)
Number of shares.......... 164,445,547
Income (loss) per share
before extraordinary
item.................... $(0.13)
Extraordinary item per
share................... --
Net income (loss) per
share................... $(0.13)
</TABLE>
In February 1999, the shareholders of all Class A common shares in the
Company converted their shares into Class B common shares of equivalent value.
Basic net income per Class B common share in 1999 is based on dividing the net
income by the number of Class B common shares outstanding for the period as if
the exchange had occurred on January 1, 1999. The basic net loss per Class A and
Class B common share in 1998 is based on dividing net loss applicable to
Class A and Class B shareholders by the weighted average number of common shares
outstanding during the period.
No stock options were granted during the period from January 1, 1999 to
February 26, 1999. The stock options granted during 1998, discussed in Note 6,
did not have a dilutive effect on 1999 net income per common share or 1998 net
loss per common share.
8. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments as of February 26, 1999 and December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
NOTIONAL CARRYING FAIR NOTIONAL CARRYING FAIR NOTIONAL CARRYING FAIR
AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Funds held by Collateral
Trustee...................... -- $219,136 $219,136 -- $255,366 $255,366 -- $425,905 $425,909
8 1/4% Senior Notes $430,000 $424,777 $407,425 $430,000 $424,679 $419,250 -- -- --
Long-term debt................. -- $256,500 $256,500 -- $271,500 $271,500 -- $615,087 $615,087
Interest rate swaps............ $160,000 -- (835) $160,000 -- $2,621 -- -- --
Interest rate collar
agreement.................... -- -- -- -- -- -- $300,000 -- $(1,613)
Treasury rate lock agreement... -- -- -- -- -- -- $100,000 -- $(1,260)
</TABLE>
The notional amounts of interest rate derivatives do not represent amounts
exchanged by the parties and, thus, are not a measure of the Company's exposure
through its use of derivatives. The
F-38
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
8. FINANCIAL INSTRUMENTS (CONTINUED)
amounts exchanged are determined by reference to the notional amounts and the
other terms of the derivatives.
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments but does not expect
any counterparties to fail to meet their obligations. The Company deals only
with highly rated counterparties.
<TABLE>
<S> <C>
Funds held by Collateral The carrying amount is a reasonable estimate of fair value
Trustee....................... as the balance includes amounts held in banks and time
deposits with a short-term maturity.
8 1/4% Senior Notes........... The carrying amount of the 8 1/4% Senior Notes is the net
proceeds of the Senior Notes issue. The fair value is based
on the market price of the Senior Notes at the relevant
date.
Long-term debt................ The carrying amount of the long term debt is the proceeds
drawn on the New Credit Facility. The debt is subject to
variable interest rates, and therefore, in management's
opinion, the carrying amount approximates the fair value of
the long term debt.
Interest rate swaps........... The interest rate swaps agreements are "zero cost" meaning
that the cost of acquiring the agreement is embedded in the
interest rate spread. As such, the agreement does not have a
carrying value. The fair value is estimated using an option
pricing model and values the changes in interest rates since
inception, and the potential for future changes over the
remaining term.
Interest rate collar The interest rate collar agreement is "zero cost" meaning
agreement..................... that the cost of acquiring the agreement is embedded in the
interest rate spread. As such, the agreement does not have a
carrying value. The fair value is estimated using an option
pricing model and essentially values the potential for
change in interest rates during the remaining term.
Treasury rate lock The treasury rate lock agreement is "zero cost" meaning that
agreement..................... the cost of acquiring the agreement is embedded in the price
spread. As such, the agreement does not have a carrying
value. The fair value is estimated using an implied yield
curve and essentially values the potential for change in
interest rates during the remaining term.
</TABLE>
F-39
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
9. TAXES
At the present time, no income, profit, capital or capital gains taxes are
levied in Bermuda. In the event that such taxes are levied, the Company has
received an undertaking from the Bermuda Government exempting it from all such
taxes until March 28, 2016.
The provision for income taxes reflected in the accompanying statement of
operations consists of taxes incurred on income derived from capacity sales and
standby maintenance revenues from customers in certain jurisdictions along the
FLAG Europe-Asia cable system where the Company is deemed to have a taxable
presence or is otherwise subject to tax.
Income tax expense, which consists entirely of taxes payable to foreign
governments, is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current....................................... $171 $2,281 $4,391 $--
Deferred...................................... -- (1,021) 4,600 --
---- ------ ------ ------
$171 $1,260 $8,991 $--
==== ====== ====== ======
</TABLE>
Deferred taxes arise principally because, for tax purposes, in certain
jurisdictions, revenues from capacity sales are deferred and recognized as
taxable income over the estimated life of the FLAG Europe-Asia cable system. The
provision for deferred tax comprises the following:
<TABLE>
<CAPTION>
1999 1998 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Capacity sales revenues deferred for tax
purposes.............................. $13,217 $13,217 $7,145 $--
Deferred commissions for tax purposes... (1,911) (1,911) (197) --
Future depreciation for tax purposes.... (5,797) (5,797) (2,362) --
Tax losses carried forward.............. (1,479) (1,479) -- --
Other................................... (468) (451) 14 --
------- ------- ------- -------
$3,562 $3,579 $4,600 $--
======= ======= ======= =======
</TABLE>
Since Bermuda does not impose an income tax, the difference between reported
tax expense in the accompanying statements of operations and tax as computed at
statutory rates, is attributable to the provisions for foreign taxes shown
above.
F-40
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
10. RELATED PARTY TRANSACTIONS
The Company and certain of its Shareholders or affiliates thereof have
entered into agreements for the development, construction, operation, financing
and marketing of the FLAG Europe-Asia cable system.
a) Program Management Services Agreement
Under the terms of a Program Management Services Agreement, Bell Atlantic
Network Systems ("BANS"), a Shareholder of the Company, managed all aspects of
the planning and construction of the FLAG Europe-Asia cable system. The Company
reimbursed BANS for all related costs and out-of-pocket expenses plus a fee
equal to 16% of payroll costs and certain outside contractor and consultant
costs.
Effective May 14, 1998, the Company entered into a Termination and Release
Agreement providing for the termination of the Program Management Services
Agreement with BANS. In June 1998, the Company made a final payment to BANS to
settle all outstanding liabilities under the Program Management Services
Agreement.
b) Marketing Services Agreement
The Company and BANS, entered into a Marketing Services Agreement pursuant
to which BANS was responsible for marketing the assignable capacity of the FLAG
Europe-Asia cable system. BANS invoiced the Company for commissions at the rate
of 3% of the commitments obtained.
Effective May 21, 1998, under a Marketing Transition Agreement the Company
and BANS agreed to terminate the Marketing Services Agreement. Under the
Marketing Transition Agreement, the Company agreed to pay certain BANS' closing
down expenses and certain commissions in connection with their pre-termination
and post-termination activities. The Company will pay BANS (i) commissions
accrued under the Marketing Services Agreement but remaining unpaid and (ii) up
to $3,000 commissions resulting from certain sales. Also under the Marketing
Transition Agreement the Company has agreed to pay BANS or its affiliate a 50%
commission where BANS or its affiliate secures the sale of four whole DS-3s
(which equates to 84 whole MIUs) on the FLAG Europe-Asia cable system. The
Company will accrue a liability for the commissions in the period it becomes
probable that BANS or its affiliate will obtain the sales and that the amount of
the commissions can be reasonably estimated.
c) Employee Services Agreement
In May 1998, the Company entered into an Employee Services Agreement with
Bell Atlantic Global Systems ("BAGS") pursuant to which BAGS seconds certain
employees to the Company.
F-41
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
Total amounts incurred for the above services are as follows:
<TABLE>
<CAPTION>
PROGRAM MARKETING BUSINESS EMPLOYEE
MANAGEMENT SERVICES DEVELOPMENT SERVICES
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
1999.............................. -- -- -- $208
1998.............................. $2,823 $2,229 $662 $411
1997.............................. 12,000 3,098 436 --
1996.............................. 11,985 316 471 --
</TABLE>
Program management and business development costs directly related to the
construction of the FLAG System have been capitalized. Total program management
and business development costs capitalized through PSA were $49,199. All other
program management and business development costs have been expensed in the
accompanying statements of operations. All marketing services commissions and
employee services in the above table have been expensed in the accompanying
statements of operations.
Marubeni Corporation, the administrative agent for the financing provided
under Tranche B, which was repaid in January 1998, is affiliated with Marubeni
Telecom Development Limited, a Shareholder of the Company. Under the terms of
the Agreement, Marubeni Corporation was entitled to certain arrangement and
commitment fees. Fees incurred payable to Marubeni Corporation for the years
ended December 31, 1998, 1997 and 1996, were $58, $1,280 and $2,240,
respectively. At the end of each year, no amounts were payable. Interest in
relation to financing provided by Marubeni for the years ended December 31,
1998, 1997 and 1996 were $1,953, $14,927 and $3,742, respectively, of which
$nil, $579 and $120 were payable at the end of each year, respectively.
Through March 1996, the Company paid consulting fees to Albaraka
International, an affiliate of Rathburn Limited, a Shareholder of the Company.
Fees paid to Albaraka International during 1996 were $80.
Until the third quarter of 1996, Tyco Submarine Systems Ltd. ("Tyco") was an
affiliate of AT&T Capital Corporation, a holder of Preferred Shares. During the
period in 1996 that Tyco was an affiliate of AT&T Capital Corporation, it was
paid $224,372.
The Company granted approximately $60,000 of capacity credits and $9,250 of
cash to an affiliate of a Shareholder of the Company in connection with the
construction of the FLAG Europe-Asia cable system in the year ended
December 31, 1997. The capacity credits were utilized during the year ended
December 31, 1998.
12. COMMITMENTS AND CONTINGENCIES
As of February 26, 1999, the Company was committed under the Contract for a
final payment totaling $132,725. FLAG Limited is currently holding discussions
with Tyco and KDD Submarine Cable
F-42
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Systems Inc. regarding the final payment. Provision has been made in the
Company's financial statements to cover the anticipated final payment.
During the year, the Company signed agreements with two new landing parties.
The Company reached formal agreements with the Saudi Telecom Company and the
Jordan Telecommunications Company to add landing points in Jeddah and Aqaba
respectively. The estimated cost to construct these landing points is
approximately $53 million and is being funded through the Company's cash flow
and contributions from one of the landing parties. The landing stations are
expected to enter service in July 1999.
During 1997 the Company entered into an operations contract for the FLAG
Network Operations Center (the "FNOC") with one of the landing parties on the
FLAG Europe-Asia cable system. The terms of the contract require the landing
party to provide a permanent facility in which to locate the FNOC along with
qualified personnel and additional support as required to assist in the
operations of the FNOC. In exchange for the services provided under the
contract, the Company is committed to compensate the landing party an annual
fixed charge for rent of the premises where the FNOC is located equal to $200
for the first year of the contract increasing in 5% increments for the following
three years. Costs incurred by the landing party to provide qualified personnel
and additional support are to be reimbursed by the Company on a cost plus basis.
The Company has entered into lease agreements for the rental of office
space. Estimated future minimum rental payments under the leases are for the
period February 27, 1999 to December 31, 1999 and for the years ended
December 2000, 2001, 2002 and 2003 and thereafter are as follows:
<TABLE>
<S> <C>
Remainder of 1999........................................... $963
2000........................................................ 824
2001........................................................ 537
2002........................................................ 549
2003........................................................ 549
Thereafter.................................................. 2,910
</TABLE>
The Company is also committed to make quarterly payments under standby
maintenance agreements for the period commencing October 8, 1997 and continuing
through December 31, 2007. Estimated future payments under the standby
maintenance agreements are for the period February 27,
F-43
<PAGE>
FLAG LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
1999 to December 31, 1999 and for the years ended December 2000, 2001, 2002 and
2003 and thereafter are as follows:
<TABLE>
<S> <C>
Remainder of 1999........................................... $18,694
2000........................................................ 24,546
2001........................................................ 25,105
2002........................................................ 25,197
2003........................................................ 8,820
Thereafter.................................................. 35,280
</TABLE>
The estimate future payments under the standby maintenance agreements are
based on a number of assumptions, including, among other things, the proportion
of the total FLAG Europe-Asia cable system capacity sold at any point in time
and the number of other cable systems serviced under the agreement.
The Company is subject to legal proceedings and claims in the ordinary
course of business. Based on consultations with legal counsel, management does
not believe that any of these proceedings or claims will have a material effect
on the Company's financial position or results of operations.
13. SUBSEQUENT EVENTS.
On February 26, 1999, the Company was part of a reorganization whereby FLAG
Telecom Holdings Limited, a Bermuda company, became the holding company for the
FLAG Telecom group of companies. As a result of this reorganization, the Company
became a majority-owned subsidiary of FLAG Telecom Holdings Limited.
F-44
<PAGE>
FLAG LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
REVENUES:
Capacity sales, net of discounts.......................... $ 137,019
Standby maintenance revenue............................... 18,576
-----------
155,595
-----------
SALES AND OTHER OPERATING COSTS:
Cost of capacity sold..................................... 71,876
Operations and maintenance................................ 28,757
Sales and marketing....................................... 8,292
General and administrative................................ 17,759
Depreciation.............................................. 530
-----------
127,214
-----------
OPERATING INCOME (LOSS)..................................... 28,381
INTEREST EXPENSE............................................ 46,897
INTEREST INCOME............................................. 11,721
-----------
LOSS BEFORE INCOME TAXES.................................... (6,795)
PROVISION FOR INCOME TAXES.................................. 1,489
-----------
LOSS BEFORE EXTRAORDINARY ITEM.............................. (8,284)
EXTRAORDINARY ITEM--LOSS ON REFINANCING..................... 59,839
NET LOSS.................................................... (68,123)
CUMULATIVE PAY-IN-KIND PREFERRED DIVIDENDS.................. 1,508
-----------
REDEMPTION PREMIUM AND WRITE-OFF OF DISCOUNT ON PREFERRED
SHARES.................................................... 8,500
-----------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS.................. $ (78,131)
===========
Basic and diluted loss per common share--Class A............ $ (0.07)
Basic and diluted loss per common share--Class B............ $ (0.12)
Weighted average common shares outstanding--Class A......... 132,000,000
Weighted average common shares outstanding--Class B......... 565,858,741
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
FLAG LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss applicable to common shareholders................ $ (78,131)
Adjustments to reconcile net loss to net cash used in
operating activities:
Pay-in-kind preferred dividends......................... 1,508
Redemption premium and write-off of discount on
preferred shares...................................... 8,500
Amortization of financing costs......................... 2,976
Extraordinary item-loss on refinancing.................. 59,839
Provision for doubtful accounts......................... 1,445
Accretion of discount on 8 1/4% senior notes............ 443
Depreciation............................................ 530
Deferred taxes.......................................... 740
Add (deduct) net changes in assets and liabilities:
Accounts receivable, net.............................. 82,794
Due from affiliates and other receivables............. 511
Prepaid expenses and other assets..................... 690
Capacity available for sale........................... 72,861
Accounts payable and accrued liabilities.............. (549)
Income taxes payable.................................. 663
Due to affiliate...................................... 243
Deferred revenue...................................... (91,987)
---------
Net cash provided in operating activities........... 63,076
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Financing costs incurred.................................. (13,330)
Net proceeds from issuance of 8 1/4% senior notes......... 424,088
Proceeds from long-term debt.............................. 320,000
Repayment of long-term debt............................... (658,687)
Capital contributions--common shares...................... --
Redemption of preferred shares............................ (139,454)
Decrease in funds held by collateral trustee or in
escrow.................................................. 184,966
---------
Net cash provided by financing activities........... 117,584
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for construction in progress.................... (179,150)
Purchase of fixed assets, net............................. (3,212)
---------
Net cash used in investing activities............... (182,362)
---------
NET INCREASE (DECREASE) IN CASH............................. (1,702)
CASH, beginning of period................................... 2,490
---------
CASH, end of period......................................... $ 788
=========
</TABLE>
F-46
<PAGE>
FLAG LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<S> <C>
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING ACTIVITIES:
Costs incurred for construction in progress............... $ 7,158
Decrease (Increase) in accrued construction costs......... 171,992
Amortization of capitalized financing costs............... --
--------
Cash paid for construction in progress.................... $179,150
========
SUPPLEMENTAL INFORMATION DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid............................................. $ 33,616
</TABLE>
NOTES:
1. GENERAL
The interim consolidated financial statements presented herein have been
prepared on the basis of U.S. generally accepted accounting principles and
include the accounts of FLAG Limited and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation. In
the opinion of management, the unaudited consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the results of operations for the nine-month period ended
September 30, 1998 and the cash flows for the nine-month period ended
September 30, 1998. The results of operations for any interim period are not
necessarily indicative of results for the full year.
2. NET INCOME (LOSS) PER COMMON SHARE
FLAG Limited has adopted Statement of Accounting Standard No. 128, "Earnings
per Share," which requires dual presentation of basic and diluted earnings per
share. Basic net income (loss) per Class A common share and basic net income
(loss) per Class B common share are based on dividing net income (loss)
applicable to Class A and Class B shareholders by the weighted average number of
common shares and common share equivalents outstanding during the period.
F-47
<PAGE>
[COLLAGE OF PHOTOS OF
FLAG TELECOM FACILITIES
AND NETWORK OPERATIONS CENTER]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
26,400,000 SHARES
FLAG TELECOM HOLDINGS LIMITED
COMMON STOCK
[LOGO]
--------
P R O S P E C T U S
, 2000
---------
SALOMON SMITH BARNEY
DEUTSCHE BANC ALEX. BROWN
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
WARBURG DILLON READ LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
compensation we expect to incur) in connection with this offering. All of these
amounts (except the SEC registration fee, the NASD filing fee and the London
Stock Exchange filing fee) are estimated.
<TABLE>
<S> <C>
SEC registration fee........................................ $176,331
NASDAQ listing fee.......................................... *
NASD filing fee............................................. 30,000
Blue Sky fees and expenses.................................. *
London Stock Exchange filing fee............................ *
Printing and Engraving Costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Consulting Fee.............................................. *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous............................................... *
--------
Total....................................................... $ *
========
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our By-Laws provide that our directors and officers and former directors and
officers shall be indemnified to the fullest extent permitted by The Companies
Act of Bermuda 1981, as amended from time to time, and provides for advances to
any indemnified director or officer of expenses in connection with actual
proceedings and claims arising out of their status as our director or officer.
We also maintain a directors' and officers' liability insurance policy on behalf
of our directors and officers.
Section 8 of the Underwriting Agreement to be filed as Exhibit 1 provides
that the underwriters named therein will indemnify and hold us harmless and each
of our directors, officers or controlling persons from and against certain
liabilities, including liabilities under the Securities Act. Section 8 of the
Underwriting Agreement also provides that these underwriters will contribute to
certain liabilities of these persons under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
We were formed on February 26, 1999 in connection with a reorganization of
the FLAG Telecom family of companies. As a result of this reorganization, we
became the parent holding company for the FLAG Telecom family of companies and
the owner of a 66% interest in FLAG Limited. Also as part of the reorganization,
pursuant to Share Transfer Forms and Subscription Forms which each of the
shareholders of FLAG Limited executed, the shareholders of FLAG Limited
transferred the number of
II-1
<PAGE>
common shares of FLAG Limited set forth below opposite their names, or
418,259,610 common shares in the aggregate, in consideration for a corresponding
number of our common shares.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
FLAG
LIMITED
FLAG LIMITED SHAREHOLDER TRANSFERRED
- ------------------------------------------------------------ -----------
<S> <C>
K.I.N. (Thailand) Co., Ltd.................................. 108,780,684
Bell Atlantic Network Systems Company....................... 21,996,930
AT&T Capital Corporation.................................... 5,488,830
GE Capital Project Finance VI Ltd........................... 16,466,490
The Asian Infrastructure Fund............................... 54,390,342
Gulf Associates Communications, Limited..................... 13,987,518
Marubeni Telecom Development Limited........................ 60,747,672
Rathburn Limited............................................ 136,401,144
</TABLE>
On January 4, 2000 we issued 217,536,730 common shares to Bell Atlantic in
connection with its exchange of the shares held by Bell Atlantic in FLAG Limited
for our common shares. The share numbers set forth in the preceding discussion
do not reflect the reverse stock split of 6:1 we intend to effect in connection
with this offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1 Form of Underwriting Agreement*
3.1 Memorandum of Association of FLAG Telecom
3.2 By-laws of FLAG Telecom*
4.1 Letter to GE Capital Project Finance VI Ltd. from FLAG
Telecom regarding registration rights
4.2 Letter to AT&T Capital Corporation from FLAG Telecom
regarding registration rights
4.3 Grant of options to Andres Bande pursuant to the Long-Term
Incentive Plan of FLAG Telecom
4.4 Grant of options to Edward McCormack pursuant to the
Long-Term Incentive Plan of FLAG Telecom
4.5 Grant of options to Stuart Rubin pursuant to the Long-Term
Incentive Plan of FLAG Telecom
4.6 Form of Registration Rights Agreement
5 Opinion of Appleby, Spurling & Kempe*
10.1 Long-Term Incentive Plan of FLAG Telecom*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.2 Credit Agreement, dated as of January 28, 1998, among FLAG
Limited, the Term Lenders thereto, the Revolving Lenders
thereto, Barclays Bank PLC and International Trust Company
of Bermuda Limited, including all amendments thereto
10.3 Indenture for 8 1/4% Senior Notes Due 2008, dated as of
January 30, 1998, between FLAG Limited and IBJ Schroeders
Bank & Trust Company*
10.4 Further Restated Shareholders Agreement, dated 7 October
1999, between FLAG Atlantic Holdings Limited and GTS
TransAtlantic Holdings, Ltd.+*
10.5 Exchange Agreement and Plan of Reorganization, dated as of
February 26, 1999, between FLAG Telecom and Bell Atlantic
Network Systems Company*
10.6 Tax Agreement, dated as of February 26, 1999, among FLAG
Telecom, Bell Atlantic Corporation and Bell Atlantic
Network Systems Company*
10.7 Marketing Transition Agreement, dated as of May 14, 1998,
among FLAG Limited, Bell Atlantic Network Systems Company
and NYNEX Network Systems Company*
10.8 Employee Services Agreement, dated as of May 21, 1998,
between FLAG Limited and Bell Atlantic Global Systems
Company*
10.9 Construction and Maintenance Agreement, dated as of December
14, 1994, among FLAG Limited and each of the landing party
signatories thereto*
10.10 Operations Contract for the FLAG Network Operations Center,
dated as of June 30, 1997, between FLAG Limited and
Emirates Telecommunications Corporation*
10.11 Credit Agreement dated as of October 8, 1999 among FLAG
Atlantic Limited, Barclays Bank plc, as the Administrative
Agent, Dresdner Bank AG, New York Branch, as the
Documentation Agent, Westdeutsche Landesbank Girozentrale,
New York Branch, as the Syndication Agent, Barclays Bank
plc and the other Lenders listed therein, as Lenders and
Barclays Capital, as the Lead Arranger+*
10.12 FLAG Atlantic Fibre Optic Cable System Contract, dated
20 September 1999, among FLAG Atlantic Limited, FLAG
Atlantic UK Limited, FLAG Atlantic USA Limited, FLAG
Atlantic France SARL, Alcatel Submarine Networks, Alcatel
Submarine Networks, Alcatel Submarine Networks Inc. and
Alcatel Submarine Networks Limited+*
10.13 Equity Contribution Agreement, dated as of October 8, 1999,
among FLAG Atlantic Limited, FLAG Atlantic Holdings
Limited and Barclays Bank plc, as Administrative Agent
10.14 Equity Contribution Agreement, dated as of October 8, 1999,
among FLAG Atlantic Limited, GTE TransAtlantic Holdings,
Ltd. and Barclays Bank plc, as Administrative Agent
10.15 Limited Guarantee Agreement, dated as of October 8, 1999,
made by FLAG Atlantic Holdings Limited in favor of
Barclays Bank plc, as Secured Party
10.16 Shareholder Pledge Agreement, dated as of October 8, 1999,
among GTS TransAtlantic Holdings, Ltd., FLAG Atlantic
Holdings Limited and Barclays Bank plc, as Secured Party
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.17 Capacity Right of Use Agreement dated 7 October, 1999 among
FLAG Atlantic Limited, FLAG Atlantic USA Limited and NYNEX
Long Distance Company, d/b/a Bell Atlantic Long Distance+*
10.18 Capacity Right of Use Agreement dated 8 October, 1999 among
FLAG Atlantic Limited, FLAG Atlantic USA Limited, and
GTE+*
10.19 Fibre, Capacity and Facilities Purchase Agreement dated 8
October, 1999 among FLAG Atlantic Limited, FLAG Atlantic
USA Limited, and GTS Transatlantic Carrier Services
Limited+*
10.20 Capacity Right of Use Agreement dated 17 November, 1999
among FLAG Atlantic Limited, FLAG Atlantic USA Limited,
PSINetworks Company, PSINet Telecom Limited and
PSINetworks SARL+*
10.21 Indefeasible Right of Use Agreement dated 8 October, 1999
among FLAG Atlantic Limited, FLAG Atlantic USA Limited and
Teleglobe USA Inc.+*
10.22 South East Asia and Indian Ocean Cable Maintenance
Agreement, dated as of June 1, 1986, among FLAG Limited
and the other parties listed on Schedule A1 and
Supplemental Agreements thereto+*
10.23 Atlantic Cable and Maintenance Repair Agreement, dated as of
January 20, 1998, among FLAG Limited and the parties
identified in Schedule A attached thereto
10.24 Mediterranean Cable Maintenance Agreement, dated January 1,
1999, between FLAG Limited and the other Signatories
listed on Schedule A1 thereto+*
10.25 ROV Service Agreement, dated as of January 1, 1999, among
FLAG Limited, France Cables et Radio, Elettra TLC S.p.A.
and the other entities identified on Schedule 1 thereto+*
10.26 SCARAB III and IV Users Agreement dated February 28, 1990
among FLAG Limited and those other parties listed.
10.27 Primary Supplier Agreement dated January , 2000 between
Bell Atlantic Global Systems Company and the Company*
13 Form 20-F filed as of April 13, 1999 (File No. 333-08456)
(Incorporated by reference)
21 List of subsidiaries of the Company *
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of Appleby, Spurling & Kempe*
23.3 Consent of Michael Fitzpatrick*
23.4 Consent of Edward J. McQuaid*
23.5 Consent of Philip Seskin*
24 Powers of Attorney (included on signature page)
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to portions of
this exhibit.
(b) Financial Statement Schedules
2. Movements in Qualifying and Valuation Accounts.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the underwriters at the closing specified in
the Underwriting Agreement certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance on 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 Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(3) For the purpose of determining any liability under the Securities 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 the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, FLAG Telecom
Holdings Limited has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
the State of New York, on the 18th day of January, 2000.
FLAG TELECOM HOLDINGS LIMITED
By: /s/ STUART RUBIN
---------------------------------------------------------------------------
Name: Stuart Rubin
Title: Assistant Secretary
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Andres Bande, Edward McCormack and Stuart Rubin,
and each of them, with full power to act without the other, this person's true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, any and all amendments
(including post-effective amendments), any subsequent Registration Statements
pursuant to Rule 462 of the Securities Act of 1933, as amended, and any
amendments there and to file the same, with exhibits and schedules, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANDRES BANDE Chairman and Chief Executive
------------------------------------------- Officer (Principal January 18, 2000
Andres Bande Executive Officer)
Chief Financial Officer
/s/ EDWARD MCCORMACK (Principal Financial and
------------------------------------------- Accounting Officer) and January 18, 2000
Edward McCormack Director
/s/ STUART RUBIN General Counsel and Assistant
------------------------------------------- Secretary January 18, 2000
Stuart Rubin
/s/ ABDUL LATIF GHURAB Director
------------------------------------------- January 18, 2000
Abdul Latif Ghurab
/s/ ADNAN OMAR Director
------------------------------------------- January 18, 2000
Adnan Omar
/s/ DANIEL PETRI Director
------------------------------------------- January 18, 2000
Daniel Petri
/s/ UMBERTO SILVESTRI Director
------------------------------------------- January 18, 2000
Umberto Silvestri
/s/ JONATHAN SOLOMON Director
------------------------------------------- January 18, 2000
Jonathan Solomon
/s/ DR. LIM LEK SUAN Director
------------------------------------------- January 18, 2000
Dr. Lim Lek Suan
Director
------------------------------------------- January , 2000
Fumio Uehara
/s/ DR. VALLOBH VIMOLVANICH Director
------------------------------------------- January 18, 2000
Dr. Vallobh Vimolvanich
</TABLE>
II-7
<PAGE>
Exhibit 3.1
FORM NO. 2
[LOGO]
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(SECTION 7(1) AND (2)
MEMORANDUM OF ASSOCIATION
OF
FLAG TELECOM HOLDINGS LIMITED
(hereinafter referred to as "the Company")
1. The liability of the members of the Company is limited to the amount (if
any) for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
<TABLE>
<CAPTION>
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARES
(YES/NO) SUBSCRIBED
<S> <C> <C> <C> <C>
Judith Collis
Cedar House, 41 Cedar Avenue
Hamilton, HM 12, Bermuda Yes British 1
Ruby L. Rawlins
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
Rachael M. Lathan
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
Andresa L. Tucker
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
</TABLE>
do hereby respectively agree to take such number of shares of the Company
as may be allotted to us respectively by the provisional directors of the
Company, not exceeding the number of shares for which we have respectively
subscribed, and to satisfy such calls as may be made by the directors,
provisional directors or promoters of the Company in respect of the shares
allotted to us respectively.
<PAGE>
3. The Company is to be an exempted Company as defined by the Companies
Act 1981.
4. The Company, with the consent of the Minister of Finance, has power to
hold land situate in Bermuda not exceeding in all, including the
following parcels-
Not Applicable
5. The authorised share capital of the Company is $12,000.00 divided into
12,000 shares of US one dollar each. The minimum subscribed share
capital of the Company is $12,000.00 in United States currency.
6. The objects for which the Company is formed and incorporated are -
(i) To carry on business as a holding company and to acquire and hold
shares, stocks, debenture stock, bonds, mortgages, obligations and
securities of any kind issued or guaranteed by FLAG Telecom Group
Services Limited and any other wholly-owned subsidiaries of the Company
which carry on directly or indirectly the whole or any part of the
business to design, construct, operate, own and maintain fibre optic
submarine cable networks and to sell, lease and otherwise deal in
capacity on such Networks, to provide telecommunications services and
services for the laying, maintenance and repair of telecommunications
cables and to construct, own, operate and maintain all structures,
buildings, cableships and other plant and equipment associated with any
of the foregoing (the "Business");
(ii) To acquire any such shares and other securities as are mentioned in the
preceding paragraph (i) by subscription, syndicate participation,
tender, purchase, exchange or otherwise and to subscribe for the same,
either conditionally or otherwise, and to guarantee the subscription
thereof and to exercise and enforce all rights and powers conferred by
or incident to the ownership thereof;
(iii) To coordinate the administration, policies, management, supervision,
control, research, planning, trading and any and all other activities
of, and to act as financial advisers and consultants to, any company or
companies now or hereafter incorporated or acquired to carry on the
whole or a part of the Business which may be or may become a Group
Company (which expression, in this and the next following paragraph,
means any company wherever incorporated, which is or becomes a
wholly-owned subsidiary of the Company or within the meaning assigned
to this term in the Companies Act 1981);
(iv) To provide financing and financial investment, management and advisory
services to any Group Company, which shall include but not be limited
to granting or providing credit and financial accommodation, lending
and making advances with or without interest to any Group Company and
lending to or depositing with any bank funds or other assets to provide
security (by way of mortgage, charge, pledge, lien or otherwise) for
loans or other forms of financing granted to such Group Company by such
bank provided that the Company shall not be deemed to have the power to
act as executor or administrator, or as trustee, except in connection
with the issue of bonds and debentures by the Company or any Group
Company;
(v) Packaging of goods of all kinds;
(vi) Acquiring, owning, selling, chartering, repairing or dealing in ships
and aircraft;
<PAGE>
(vii) All forms of engineering;
(viii) Acquiring by purchase or otherwise and holding as an investment
inventions, patents, trade marks, trade names, trade secrets, designs
and the like;
(ix) Employing, providing, hiring out and acting as agent for artists,
actors, entertainers of all sorts, authors, composers, producers,
directors, engineers and experts or specialists of any kind; and
(x) To enter into any guarantee, contract of indemnity or suretyship and to
assure, support or secure with or without consideration or benefit the
performance of any obligations of any person or persons and to
guarantee the fidelity of individuals filling or about to fill
situations of trust or confidence.
7. The Company has the powers set out below:
(a) To borrow and raise money in any currency or currencies and to secure
or discharge any debt or obligation in any manner and in particular
(without prejudice to the generality of the foregoing) by mortgages of
or charges upon all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company or by the
creation and issue of securities in connection with the Business;
(b) To enter into any guarantee, contract of indemnity or suretyship and in
particular (without prejudice to the generality of the foregoing) to
guarantee, support or secure, with or without consideration, whether by
personal obligation or by mortgaging or charging all or any part of the
undertaking, property and assets (present and future) and uncalled
capital of the Company or by both such methods or in any other manner,
the performance of any obligations or commitments of, and the repayment
or payment of the principal amounts of and any premiums, interest,
dividends and other moneys payable on or in respect of any securities
or liabilities of, any person, including (without prejudice to the
generality of the foregoing) any company which is for the time being a
subsidiary or a holding company of the Company or another subsidiary of
a holding company of the Company or otherwise associated with the
Company;
(c) To accept, draw, make, create, issue, execute, discount, endorse,
negotiate and deal in bills of exchange, promissory notes, and other
instruments and securities, whether negotiable or otherwise;
(d) To sell, exchange, mortgage, charge, let on rent, share of profit,
royalty or otherwise, grant licences, easements, options, servitudes
and other rights over, and in any other manner deal with or dispose of,
all or any part of the undertaking, property and assets (present and
future) of the Company for any consideration and in particular (without
prejudice to the generality of the foregoing) for any securities;
(e) To issue and allot securities of the Company for cash or in payment or
part payment for any real or personal property purchased or otherwise
acquired by the Company or any services rendered to the Company or as
security for any obligation or amount (even if less than the nominal
amount of such securities) or for any other purpose;
(f) To grant pensions, annuities, or other allowances, including allowances
on death, to any directors, officers or employees or former directors,
officers or employees of the Company or any company which at any time
is or was a subsidiary or a holding company or another subsidiary of a
holding company of the Company or otherwise associated with the Company
or of any predecessor in business of any of them, and to the relations,
connections or dependents of
<PAGE>
any such persons, and to other persons whose service or services have
directly or indirectly been of benefit to the Company or whom the
Company considers have any moral claim on the Company or to their
relations connections or dependents, and to establish or support any
associations, institutions, clubs, schools, building and housing
schemes, funds and trusts, and to make payment towards insurance or
other arrangements likely to benefit any such persons or otherwise
advance the interests of the Company or of its members or for any
national, charitable, benevolent, educational, social, public, general
or useful object;
(g) Subject to the provisions of Section 42 of the Companies Act 1981, to
issue preference shares which at the option of the holders thereof are
to be liable to be redeemed;
(h) To purchase its own shares in accordance with the provisions of Section
42A of the Companies Act 1981;
(i) To acquire or undertake the whole or any part of the business, property
and liabilities of any person carrying on any business that the Company
is authorized to carry on;
(j) To apply for, register, purchase, lease, acquire, hold, use, control,
licence, sell, assign or dispose of patents, patent rights, copyrights,
trade marks, formulae, licences, inventions, processes, distinctive
marks and similar rights;
(k) To enter into partnership or into any arrangement for sharing of
profits, union of interests, cooperation, joint venture, reciprocal
concession or otherwise with any person carrying on or engaged in or
about to carry on or engage in any business or transaction that the
Company is authorized to carry on or engage in or any business or
transaction capable of being conducted so as to benefit the Company;
(l) To take or otherwise acquire and hold securities in any other body
corporate having objects altogether or in part similar to those of the
Company or carrying on any business capable of being conducted so as to
benefit the Company;
(m) Subject to section 96 to lend money to any employee or to any person
having dealings with the Company or with whom the Company proposes to
have dealings or to any other body corporate any of whose shares are
held by the Company or to any other body corporate which is a holding
company of the Company;
(n) To apply for, secure or acquire by grant, legislative enactment,
assignment, transfer, purchase or otherwise and to exercise, carry out
and enjoy any charter, licence, power, authority, franchise,
concession, right or privilege, that any government or authority or any
body corporate or other public body may be empowered to grant, and to
pay for, aid in and contribute toward carrying it into effect and to
assume any liabilities or obligations incidental thereto;
(o) To establish and support or aid in the establishment and support of
associations, institutions, funds or trusts for the benefit of
employees or former employees of the Company or its predecessors, or
the dependents or connections of such employees or former employees,
and grant pensions and allowances, and make payments towards insurance
or for any object similar to those set forth in this paragraph, and to
subscribe or guarantee money for charitable, benevolent, educational or
religious objects or for any exhibition or for any public, general or
useful objects;
(p) To promote any company for the purpose of acquiring or taking over any
of the property and liabilities of the Company or for any other purpose
that may benefit the Company;
<PAGE>
(q) To purchase, lease, take in exchange, hire or otherwise acquire any
personal property and any rights or privileges that the Company
considers necessary or convenient for the purposes of its business;
(r) To construct, maintain, alter, renovate and demolish any buildings or
works necessary or convenient for its objects;
(s) To take land in Bermuda by way of lease or letting agreement for a term
not exceeding twenty-one years, being land bona fide required for the
purposes of the business of the Company and with the consent of the
Minister granted in his discretion to take land in Bermuda by way of
lease or letting agreement for a similar period in order to provide
accommodation or recreational facilities for its officers and employees
and when no longer necessary for any of the above purposes to terminate
or transfer the lease or letting agreement;
(t) Except to the extent, if any, as may be otherwise expressly provided in
its incorporating Act or memorandum and subject to this Act every
company shall have power to invest the moneys of the Company by way of
mortgage of real or personal property of every description in Bermuda
or elsewhere and to sell, exchange, vary, or dispose of such mortgage
as the Company shall from time to time determine;
(u) To construct, improve, maintain, work, manage, carry out or control the
whole or any part of the Business;
(v) To raise and assist in raising money for, and aid by way of bonus,
loan, promise, endorsement, guarantee or otherwise, any person and
guarantee the performance or fulfilment of any contracts or obligations
of any person, and in particular guarantee the payment of the principal
of and interest on the debt obligations of any such person;
(w) To borrow or raise or secure the payment of money in such manner as the
Company may think fit;
(x) To draw, make, accept, endorse, discount, execute and issue bills of
exchange, promissory notes, bills of lading, warrants and other
negotiable or transferable instruments;
(y) When properly authorized to do so, to sell, lease, exchange or
otherwise dispose of the undertaking of the Company or any part thereof
as an entirety or substantially as an entirety for such consideration
as the Company thinks fit;
(z) To sell, improve, manage, develop, exchange, lease, dispose of, turn to
account or otherwise deal with the property of the Company in the
ordinary course of its business;
(aa) To adopt such means of making known the products of the Company as may
seem expedient, and in particular by advertising, by purchase and
exhibition of works of art or interest, by publication of books and
periodicals and by granting prizes and rewards and making donations;
(bb) To cause the Company to be registered and recognized in any foreign
jurisdiction, and designate persons therein according to the laws of
that foreign jurisdiction or to represent the Company and to accept
service for and on behalf of the Company of any process or suit;
(cc) To allot and issue fully-paid shares of the Company in payment or part
payment of any property purchased or otherwise acquired by the Company
or for any past services performed for the Company;
<PAGE>
(dd) To distribute among the members of the Company in cash, kind, specie or
otherwise as may be resolved, by way of dividend, bonus or in any other
manner considered advisable, any property of the Company, but not so as
to decrease the capital of the Company unless the distribution is made
for the purpose of enabling the Company to be dissolved or the
distribution, apart from this paragraph, would be otherwise lawful;
(ee) To establish agencies and branches;
(ff) To take or hold mortgages, hypothecs, liens and charges to secure
payment of the purchase price, or of any unpaid balance of the purchase
price, of any part of the property of the Company of whatsoever kind
sold by the Company, or for any money due to the Company from
purchasers and others and to sell or otherwise dispose of any such
mortgage, hypothec, lien or charge;
(gg) To pay all costs and expenses of or incidental to the incorporation and
organization of the Company;
(hh) To invest and deal with the moneys of the Company not immediately
required for the objects of the Company in such manner as may be
determined;
(ii) To do any of the things authorized by this Clause 7 and all things
authorized by its memorandum as principals, agents, contractors,
trustees or otherwise, and either alone or in conjunction with others;
and
(jj) To do all such other things as are incidental or conducive to the
attainment of the objects and the exercise of the powers of the
Company.
The Company may exercise its powers beyond the boundaries of Bermuda to the
extent to which the laws in force where the powers are sought to be exercised
permit.
<PAGE>
Signed by each subscriber in the presence of at least one witness attesting the
signature thereof -
[Names of subscriber] [Name of witness]
-------------------------- --------------------------
[Names of subscriber] [Name of witness]
-------------------------- --------------------------
[Names of subscriber] [Name of witness]
-------------------------- --------------------------
[Names of subscriber] [Name of witness]
-------------------------- --------------------------
(Subscribers) (Witnesses)
SUBSCRIBED this 1st day of February, 1999
<PAGE>
STAMP DUTY (To be affixed)
Not Applicable
<PAGE>
FLAG Telecom Holdings Limited
Emporium Building
4th Floor
69th Front Street
Hamilton, HM 12
BERMUDA
18 February 1999
GE Capital Project Finance VI Limited
Clarendon House
Church Street West
Hamilton HM 11
Bermuda
Dear Sirs
REGISTRATION RIGHTS
We agree that the registration rights applicable to the Class B shares held by
you in the capital of FLAG Limited, shall apply to the ordinary shares in the
capital of FLAG Telecom Holdings Limited which are to be issued to you in
exchange for the transfer of such shares to us.
Regards.
Director
<PAGE>
FLAG Telecom Holdings Limited
Emporium Building
4th Floor
69th Front Street
Hamilton, HM 12
BERMUDA
18 February 1999
AT&T Capital Corporation
c/o New Court Capital Inc.
2 Gatehall Drive
1st Floor
Parsippany
NJ 07054
USA
We agree that registration rights applicable to the Class B shares held by you
in the capital of FLAG Limited (the "Shares"), shall apply equally to the
ordinary shares in the capital of FLAG Telecom Holdings Limited which are to be
issued to you in exchange for the transfer of the Shares to us.
We also agree that FLAG Telecom Holdings Limited shall be responsible for, and
shall indemnify AT&T Capital Corporation from and against, any issue, transfer
tax, stamp duty or other taxes that may be payable in respect of any issue,
delivery or transfer of the Shares to us (it being understood that such taxes
shall not include taxes levied on AT&T Capital Corporation's income, gross
receipts, capital gains or net income).
Regards.
Director
<PAGE>
FLAG LIMITED
1998 LONG-TERM INCENTIVE PLAN
OPTION GRANT CERTIFICATE
This Grant Certificate evidences the grant of an option pursuant to the
provisions of the 1998 Long-Term Incentive Plan (the "Plan") of FLAG Limited
(the "Company") to the individual whose name appears below (the "Grantee"),
covering the specific number of shares of Class B Common Stock of the Company
("Stock") set forth below, pursuant to the provisions of the Plan and on the
following express terms and conditions:
1. Name of Grantee:
Andres Bande
2. Number of shares of Stock of the Company which are subject to this
option:
6,430,239 shares
3. Exercise price of shares subject to this option:
US$ 1.07 per share
4. Date of grant of this option:
March 11, 1998
5. Vesting:
See Section 3(f)(i)(3) and (6) of the Employment Agreement
between the Company and the Grantee, dated December 11, 1997
("Grantee's Employment Agreement")
6. Termination date of this option:
March 11, 2008, subject to earlier termination in the event of
termination of employment as provided in Section 3(f)(i)(4) of
the Grantee's Employment Agreement and in the event of certain
corporate events as set forth in Sections 4(b) and 6(b)(iv) of
the Plan; provided, however, prior to the cash out or
cancellation of any portion of this option pursuant to
Sections 4(b) and 6(b)(iv) of the Plan, the options shall
fully vest and the Grantee shall have the opportunity to
exercise this option
7. Transferability of option:
See Section 3(f)(i)(8) of the Grantee's Employment Agreement
8. Rights and Restrictions on Shares:
See Sections 3(f)(i), 3(f)(i)(5), 3(f)(i)(7), 3(f)(i)(10) and
3(f)(i)(11) of the Grantee's Employment Agreement
The Grantee hereby acknowledges receipt of a copy of the Plan as presently in
effect. The text and all of the terms and provisions of the Plan are
incorporated herein by reference, and this option is subject to these terms and
provisions in all respects.
At any time when the Grantee wishes to exercise this option, in whole or in
part, the Grantee shall submit to the Company a written notice of exercise,
specifying the exercise date and the number of shares to be exercised. Upon
exercise, the Grantee shall remit to the Company the exercise price in cash or,
if permitted by Section 3(f)(i)(9) of the Grantee's Employment Agreement, a
note, or in such other form as permitted under the Plan, plus an amount
sufficient to satisfy any withholding tax obligation of the Company that arises
in connection with such exercise.
FLAG LIMITED AGREED TO AND ACCEPTED BY:
By: /s/ Name of Officer /s/ Andres Bande
------------------------------- -------------------------
Grantee
<PAGE>
Exhibit 4.4
FLAG LIMITED
1998 LONG-TERM INCENTIVE PLAN
OPTION GRANT CERTIFICATE
(Performance)
This Grant Certificate evidences the grant of an option pursuant to the
provisions of the 1998 Long-Term Incentive Plan (the "Plan") of FLAG Limited
(the "Company") to the individual whose name appears below (the "Grantee"),
covering the specific number of shares of Class B Common Stock of the Company
(the "Shares") set forth below, pursuant to the provisions of the Plan and on
the following express terms and conditions (capitalized terms not otherwise
defined herein shall have the meaning ascribed thereto in the Plan):
1. Name of Grantee:
Edward McCormack
2. Number of Shares:
608,000 shares
3. Exercise price per Share:
US$ 1.07
4. Date of grant of this option:
March 31, 1998
5. Expiration date of this option:
Tenth anniversary of the date of grant
6. Vesting:
As of each of the first two fiscal year ends following the date of
grant, the Chief Executive Officer of the Company shall determine, in
his discretion based on the Grantee's performance during each such
fiscal year, the number of Shares that become available for future
vesting; provided, however, that as of the end of the first such
fiscal year, no more than 304,000 shall become available for future
vesting. The Shares subject to the option that became available for
future vesting pursuant to the preceding sentence shall vest and be
exercisable in two equal installments on each of the third and fourth
anniversaries of the date of grant; provided that in the case of an
initial public offering of any class of the Company's common shares
("IPO"), such Shares shall become fully vested and exercisable upon
the later of the commencement of the IPO or the date they become
available for future vesting pursuant to the preceding sentence.
Notwithstanding the foregoing, (i) all Shares subject to the option
shall become fully vested and exercisable immediately prior to any
termination of the option pursuant to Section 6(b)(iv) of the Plan,
(ii) 50% of all Shares subject to the option that have not yet become
vested and exercisable shall become vested and exercisable immediately
prior to any termination of the Grantee's employment with the Company
and its subsidiaries initiated by the Company or any of its
subsidiaries for reasons other than Cause or initiated by the Grantee
for "good reason" (as defined below), except that if such termination
occurs within three years following a "change in control" (as defined
below), "100%" shall be substituted for "50%", (iii) 50% of all Shares
subject to the option that have not yet become vested and exercisable
shall become vested and exercisable immediately prior to any
termination of the Grantee's employment with the Company and its
subsidiaries that occurs prior to the third anniversary of the date of
grant, and is by reason of the Grantee's death or is initiated by the
Company or any of its subsidiaries because of the Grantee's
disability, and (iv) all Shares subject to the option will vest and
become exercisable on the eighth anniversary of the date of grant.
The term "good reason" shall have the meaning ascribed thereto in any
employment agreement between the Company and the Grantee. If no such
definition exists, then the provisions herein relating to good reason
shall be disregarded. A change in control shall be deemed to have
occurred upon: (a) any "person"as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, any company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of Common Stock
of the Company or any current shareholder of the Company or its
affiliates (collectively the "Exceptions")) is or becomes the owner
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more than fifty
percent (50%)
<PAGE>
of the combined voting power of the Company's then outstanding
securities; (b) the merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity),
together with any shares owned by Exceptions, more than fifty percent
(50%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no person (other than an Exception)
acquires more than fifty percent (50%) of the combined voting power of
the Company's then outstanding securities shall not constitute a
change in control of the Company; or (c) the stockholders of the
Company approve a plan of liquidation of the Company or closing of an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets other than the sale of all
or substantially all of the assets of the Company to a person or
persons who beneficially own, directly or indirectly, at least fifty
percent (50%) or more of the combined voting power of the outstanding
voting securities of the Company at the time of the sale or to a
person who is an Exception.
7. Termination of employment:
The option shall terminate upon the earliest of (i) the expiration
date, (ii) a termination of the Grantee's employment with the Company
and its subsidiaries initiated by the Company or any of its
subsidiaries for Cause, (iii) a material breach by the Grantee of any
non-compete and confidentiality agreement between the Grantee and the
Company (iv) 30 days following the Grantee's termination of employment
with the Company and its subsidiaries initiated by the Grantee (other
than for good reason or by reason of death), or (v) one year following
the Grantee's termination of employment with the Company and its
subsidiaries for reasons other than those specified in (ii) and (iv)
above, provided that if the Company's common shares are not publicly
traded at the time of such termination, such one year period shall be
extended to the earlier of three years following such termination and
one year following an IPO, and provided further that if at the end of
the applicable period specified in this clause (v), an
underwriter-imposed lock-up is in effect, the applicable period
referred to in this clause (v) shall expire 90 days after the
expiration of such lock-up. During any period following the Grantee's
termination of employment, the option shall be exercisable only to the
extent it was vested and exercisable as of such termination of
employment.
8. Conversion of Shares in the event of an IPO:
If, in connection with an initial public offering of common stock of
the Company (other that the Class B Common Stock) or an affiliate of
the Company, shareholders of Class B Common Stock are granted the
right to convert their Class B Common Stock into the common stock
being publicly offered, the Grantee shall have the right to convert
this option to purchase Shares into an option to purchase the common
stock being publicly offered on the same basis as a shareholder of
Class B Common Stock, and the per share exercise price shall be
adjusted accordingly (provided that the aggregate exercise price shall
remain the same).
9. Restrictions on Shares:
As permitted pursuant to Section 3(a)(vi) of the Plan, the Committee
may condition the delivery of the Shares upon the Grantee's agreement
to such restrictions on the Shares as the Committee shall determine,
provided that such restrictions shall be no more restrictive than
those imposed on other Class B shareholders. The Grantee hereby waives
any rights he may have in connection with a transfer of shares of
Class B Common Stock by any other shareholder.
10. Piggyback Registration Rights:
If the Company (or an affiliate of the Company) intends to register
securities of any of its shareholders for an offering to the public
while the Grantee is employed by the Company or an affiliate of the
Company or, thereafter, within one year after he has a right to
exercise an option, the Company shall notify the Grantee of its
intention to do so and, subject to such limitations as shall affect
all selling shareholders equally and as may be imposed by any
underwriter of such offering or by law, the Grantee may irrevocably
elect to participate in such offering on a pari passu basis with any
other selling shareholders based on the relative number of shares
owned and options vested of each of such other selling shareholders
(and its affiliates and permitted assigns) and the Grantee (the "Pari
Passu Percentage"). Such participation shall be under the same terms
and conditions as may apply to such other shareholders, provided that
the Grantee shall not have any rights to select the underwriter or
similar matters given to the other shareholders. The Grantee shall
make any election within 30 days of receipt of such notice of intent
to register by a writing given to the Secretary of the Company, which
writing shall indicate his irrevocable election to sell in the
intended offering, the number of Shares he wishes to sell and the
portion thereof to be included by him. The Grantee's notice may not be
for
2
<PAGE>
less than 100 percent of the number of Shares of the Grantee which the
Grantee could sell pursuant to Rule 144 or another exemption from
securities law registration or pursuant to an S-8 (or similar
registration statement) then effective (an "Alternative Sales Means")
within the next six months. The Grantee shall be responsible for
delivery of the Shares covered by the notice on a timely basis. The
Company shall only have to give notice of intent to register under
this paragraph to the Grantee and any notice of intent to participate
shall only be valid if received from the Grantee (or in the event of
his death, his executor). The Company may at any time abandon any
offering. The Company or the underwriter may at any time cutback
(including, without limitation, limiting the amount to the extent a
prior amount had not been specified) on the number of shares in any
offering in which the Company is offering shares and the underwriter
may at any time cutback (including, without limitation, limiting the
amount to the extent a prior amount had not been specified) on the
number of shares to be offered by shareholders in any offering in
which the Company is not also offering shares. In either such case the
Grantee's Shares to be offered shall be proportionately reduced so
that the amounts offered by the Grantee and by other shareholders (and
their affiliates and permitted assigns) satisfy the Pari Passu
Percentage. The Grantee shall have no right to participate in any
offering by the Company that does not include any shares owned by
other shareholders and the provision of this paragraph shall not apply
to any registration on Form S-8, or otherwise with regard to
securities of compensatory plans of the Company. The Grantee shall
sign such underwriting and other agreements in the same forms as
signed by the other participating shareholders.
The Grantee hereby acknowledges receipt of a copy of the Plan as presently in
effect. The text and all of the terms and provisions of the Plan are
incorporated herein by reference, and this option is subject to these terms and
provisions in all respects.
At any time when the Grantee wishes to exercise this option, in whole or in
part, the Grantee shall submit to the Company a written notice of exercise,
specifying the exercise date and the number of shares to be exercised. Upon
exercise, the Grantee shall remit to the Company the exercise price in cash or
in such other form as permitted under the Plan, plus an amount sufficient to
satisfy any withholding tax obligation of the Company that arises in connection
with such exercise.
FLAG LIMITED AGREED TO AND ACCEPTED BY:
By: /s/ Name of Officer /s/ Edward McCormack
------------------------------ ---------------------------
Grantee
3
<PAGE>
FLAG LIMITED
1998 LONG-TERM INCENTIVE PLAN
OPTION GRANT CERTIFICATE
(Non-Performance)
This Grant Certificate evidences the grant of an option pursuant to the
provisions of the 1998 Long-Term Incentive Plan (the "Plan") of FLAG Limited
(the "Company") to the individual whose name appears below (the "Grantee"),
covering the specific number of shares of Class B Common Stock of the Company
(the "Shares") set forth below, pursuant to the provisions of the Plan and on
the following express terms and conditions (capitalized terms not otherwise
defined herein shall have the meaning ascribed thereto in the Plan):
1. Name of Grantee:
Edward McCormack
2. Number of Shares:
1,000,000 shares
3. Exercise price per Share:
US$ 1.07
4. Date of grant of this option:
March 31, 1998
5. Expiration date of this option:
Tenth anniversary of the date of grant
6. Vesting:
The option shall vest and be exercisable in two equal installments on
each of the third and fourth anniversaries of the date of grant;
provided that (i) the option shall become fully vested and exercisable
upon commencement of an initial public offering of any class of the
Company's common shares ("IPO"), (ii) the option shall become fully
vested and exercisable immediately prior to any termination of the
option pursuant to Section 6(b)(iv) of the Plan, (iii) the option
shall become vested and exercisable as to 50% of the unvested portion
of the option immediately prior to any termination of the Grantee's
employment with the Company and its subsidiaries initiated by the
Company or any of its subsidiaries for reasons other than Cause or
initiated by the Grantee for "good reason" (as defined below), except
that if such termination occurs within three years following a "change
in control" (as defined below), "100%" shall be substituted for "50%",
and (iv) the option shall become vested and exercisable as to 50% of
the unvested portion of the option immediately prior to any
termination of the Grantee's employment with the Company and its
subsidiaries that occurs prior to the third anniversary of the date of
grant, and is by reason of the Grantee's death or is initiated by the
Company or any of its subsidiaries because of the Grantee's
disability.
The term "good reason" shall have the meaning ascribed thereto in any
employment agreement between the Company and the Grantee. If no such
definition exists, then the provisions herein relating to good reason
shall be disregarded. A change in control shall be deemed to have
occurred upon: (a) any "person"as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, any company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of Common Stock
of the Company or any current shareholder of the Company or its
4
<PAGE>
affiliates (collectively the "Exceptions")) is or becomes the owner
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more than fifty
percent (50%) of the combined voting power of the Company's then
outstanding securities; (b) the merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity), together with any shares owned by Exceptions, more
than fifty percent (50%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however,
that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person (other than an Exception) acquires more than fifty percent
(50%) of the combined voting power of the Company's then outstanding
securities shall not constitute a change in control of the Company;
or (c) the stockholders of the Company approve a plan of liquidation
of the Company or closing of an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets
other than the sale of all or substantially all of the assets of the
Company to a person or persons who beneficially own, directly or
indirectly, at least fifty percent (50%) or more of the combined
voting power of the outstanding voting securities of the Company at
the time of the sale or to a person who is an Exception.
7. Termination of employment:
The option shall terminate upon the earliest of (i) the expiration
date, (ii) a termination of the Grantee's employment with the Company
and its subsidiaries initiated by the Company or any of its
subsidiaries for Cause, (iii) a material breach by the Grantee of any
non-compete and confidentiality agreement between the Grantee and the
Company (iv) 30 days following the Grantee's termination of employment
with the Company and its subsidiaries initiated by the Grantee (other
than for good reason or by reason of death), or (v) one year following
the Grantee's termination of employment with the Company and its
subsidiaries for reasons other than those specified in (ii) and (iv)
above, provided that if the Company's common shares are not publicly
traded at the time of such termination, such one year period shall be
extended to the earlier of three years following such termination and
one year following an IPO, and provided further that if at the end of
the applicable period specified in this clause (v), an
underwriter-imposed lock-up is in effect, the applicable period
referred to in this clause (v) shall expire 90 days after the
expiration of such lock-up. During any period following the Grantee's
termination of employment, the option shall be exercisable only to the
extent it was vested and exercisable as of such termination of
employment.
8. Conversion of Shares in the event of an IPO:
If, in connection with an initial public offering of common stock of
the Company (other that the Class B Common Stock) or an affiliate of
the Company, shareholders of Class B Common Stock are granted the
right to convert their Class B Common Stock into the common stock
being publicly offered, the Grantee shall have the right to convert
this option to purchase Shares into an option to purchase the common
stock being publicly offered on the same basis as a shareholder of
Class B Common Stock, and the per share exercise price shall be
adjusted accordingly (provided that the aggregate exercise price shall
remain the same).
5
<PAGE>
9. Restrictions on Shares:
As permitted pursuant to Section 3(a)(vi) of the Plan, the Committee
may condition the delivery of the Shares upon the Grantee's agreement
to such restrictions on the Shares as the Committee shall determine,
provided that such restrictions shall be no more restrictive than
those imposed on other Class B shareholders. The Grantee hereby waives
any rights he may have in connection with a transfer of shares of
Class B Common Stock by any other shareholder.
10. Piggyback Registration Rights:
If the Company (or an affiliate of the Company) intends to register
securities of any of its shareholders for an offering to the public
while the Grantee is employed by the Company or an affiliate of the
Company or, thereafter, within one year after he has a right to
exercise an option, the Company shall notify the Grantee of its
intention to do so and, subject to such limitations as shall affect
all selling shareholders equally and as may be imposed by any
underwriter of such offering or by law, the Grantee may irrevocably
elect to participate in such offering on a pari passu basis with any
other selling shareholders based on the relative number of shares
owned and options vested of each of such other selling shareholders
(and its affiliates and permitted assigns) and the Grantee (the "Pari
Passu Percentage"). Such participation shall be under the same terms
and conditions as may apply to such other shareholders, provided that
the Grantee shall not have any rights to select the underwriter or
similar matters given to the other shareholders. The Grantee shall
make any election within 30 days of receipt of such notice of intent
to register by a writing given to the Secretary of the Company, which
writing shall indicate his irrevocable election to sell in the
intended offering, the number of Shares he wishes to sell and the
portion thereof to be included by him. The Grantee's notice may not be
for less than 100 percent of the number of Shares of the Grantee which
the Grantee could sell pursuant to Rule 144 or another exemption from
securities law registration or pursuant to an S-8 (or similar
registration statement) then effective (an "Alternative Sales Means")
within the next six months. The Grantee shall be responsible for
delivery of the Shares covered by the notice on a timely basis. The
Company shall only have to give notice of intent to register under
this paragraph to the Grantee and any notice of intent to participate
shall only be valid if received from the Grantee (or in the event of
his death, his executor). The Company may at any time abandon any
offering. The Company or the underwriter may at any time cutback
(including, without limitation, limiting the amount to the extent a
prior amount had not been specified) on the number of shares in any
offering in which the Company is offering shares and the
underwriter may at any time cutback (including, without limitation,
limiting the amount to the extent a prior amount had not been
specified) on the number of shares to be offered by shareholders in
any offering in which the Company is not also offering shares. In
either such case the Grantee's Shares to be offered shall be
proportionately reduced so that the amounts offered by the Grantee and
by other shareholders (and their affiliates and permitted assigns)
satisfy the Pari Passu Percentage. The Grantee shall have no right to
participate in any offering by the Company that does not include any
shares owned by other shareholders and the provision of this paragraph
shall not apply to any registration on Form S-8, or otherwise with
regard to securities of compensatory plans of the Company. The Grantee
shall sign such underwriting and other agreements in the same forms as
signed by the other participating shareholders. The Grantee hereby
acknowledges receipt of a copy of the Plan as presently in effect.
The text and all of the terms and provisions of the Plan are
incorporated herein by reference, and this option is subject to these
terms and provisions in all respects.
6
<PAGE>
At any time when the Grantee wishes to exercise this option, in whole
or in part, the Grantee shall submit to the Company a written notice
of exercise, specifying the exercise date and the number of shares to
be exercised. Upon exercise, the Grantee shall remit to the Company
the exercise price in cash or in such other form as permitted under
the Plan, plus an amount sufficient to satisfy any withholding tax
obligation of the Company that arises in connection with such
exercise.
FLAG LIMITED AGREED TO AND ACCEPTED BY:
/s/ Name of Officer /s/ Edward McCormack
------------------------------ ---------------------------
Grantee
7
<PAGE>
Exhibit 4.5
FLAG LIMITED
1998 LONG-TERM INCENTIVE PLAN
OPTION GRANT CERTIFICATE
(Performance)
This Grant Certificate evidences the grant of an option pursuant to the
provisions of the 1998 Long-Term Incentive Plan (the "Plan") of FLAG Limited
(the "Company") to the individual whose name appears below (the "Grantee"),
covering the specific number of shares of Class B Common Stock of the Company
(the "Shares") set forth below, pursuant to the provisions of the Plan and on
the following express terms and conditions (capitalized terms not otherwise
defined herein shall have the meaning ascribed thereto in the Plan):
1. Name of Grantee:
Stuart Rubin
2. Number of Shares:
608,000 shares
3. Exercise price per Share:
US$ 1.07
4. Date of grant of this option:
March 31, 1998
5. Expiration date of this option:
Tenth anniversary of the date of grant
6. Vesting:
As of each of the first two fiscal year ends following the
date of grant, the Chief Executive Officer of the Company
shall determine, in his discretion based on the Grantee's
performance during each such fiscal year, the number of Shares
that become available for future vesting; provided, however,
that as of the end of the first such fiscal year, no more than
304,000 shall become available for future vesting. The Shares
subject to the option that became available for future vesting
pursuant to the preceding sentence shall vest and be
exercisable in two equal installments on each of the third and
fourth anniversaries of the date of grant; provided that in
the case of an initial public offering of any class of the
Company's common shares ("IPO"), such Shares shall become
fully vested and exercisable upon the later of the
commencement of the IPO or the date they become available for
future vesting pursuant to the preceding sentence.
Notwithstanding the foregoing, (i) all Shares subject to the
option shall become fully vested and exercisable immediately
prior to any termination of the option pursuant to Section
6(b)(iv) of the Plan, (ii) 50% of all Shares subject to the
option that have not yet become vested and exercisable shall
become vested and exercisable immediately prior to any
termination of the Grantee's employment with the Company and
its subsidiaries initiated by the Company or any of its
subsidiaries for reasons other than Cause or initiated by the
Grantee for "good reason" (as defined below), except that if
such termination occurs within three years following a "change
in control" (as defined below), "100%" shall be substituted
for "50%", (iii) 50% of all Shares subject to the option that
have not yet become vested and exercisable shall become vested
and exercisable immediately prior to any termination of the
Grantee's employment with the Company and its subsidiaries
that occurs prior to the third anniversary of the date of
grant, and is by reason of the Grantee's death or is initiated
by the Company or any of its subsidiaries because of the
Grantee's disability, and (iv) all Shares subject to the
option will vest and become exercisable on the eighth
anniversary of the date of grant.
The term "good reason" shall have the meaning ascribed thereto
in any employment agreement between the Company and the
Grantee. If no such definition exists, then the provisions
herein relating to good reason shall be disregarded. A change
in control shall be deemed to have occurred upon: (a) any
"person"as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act")
(other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the
Company, any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of Common Stock of the Company
or any current shareholder of the Company or its affiliates
(collectively the "Exceptions")) is or becomes the owner (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more
than fifty percent (50%)
<PAGE>
of the combined voting power of the Company's then outstanding
securities; (b) the merger or consolidation of the Company
with any other corporation, other than a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity),
together with any shares owned by Exceptions, more than fifty
percent (50%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided,
however, that a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in
which no person (other than an Exception) acquires more than
fifty percent (50%) of the combined voting power of the
Company's then outstanding securities shall not constitute a
change in control of the Company; or (c) the stockholders of
the Company approve a plan of liquidation of the Company or
closing of an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets
other than the sale of all or substantially all of the assets
of the Company to a person or persons who beneficially own,
directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting
securities of the Company at the time of the sale or to a
person who is an Exception.
7. Termination of employment:
The option shall terminate upon the earliest of (i) the
expiration date, (ii) a termination of the Grantee's
employment with the Company and its subsidiaries initiated by
the Company or any of its subsidiaries for Cause, (iii) a
material breach by the Grantee of any non-compete and
confidentiality agreement between the Grantee and the Company
(iv) 30 days following the Grantee's termination of employment
with the Company and its subsidiaries initiated by the Grantee
(other than for good reason or by reason of death), or (v) one
year following the Grantee's termination of employment with
the Company and its subsidiaries for reasons other than those
specified in (ii) and (iv) above, provided that if the
Company's common shares are not publicly traded at the time of
such termination, such one year period shall be extended to
the earlier of three years following such termination and one
year following an IPO, and provided further that if at the end
of the applicable period specified in this clause (v), an
underwriter-imposed lock-up is in effect, the applicable
period referred to in this clause (v) shall expire 90 days
after the expiration of such lock-up. During any period
following the Grantee's termination of employment, the option
shall be exercisable only to the extent it was vested and
exercisable as of such termination of employment.
8. Conversion of Shares in the event of an IPO:
If, in connection with an initial public offering of common
stock of the Company (other that the Class B Common Stock) or
an affiliate of the Company, shareholders of Class B Common
Stock are granted the right to convert their Class B Common
Stock into the common stock being publicly offered, the
Grantee shall have the right to convert this option to
purchase Shares into an option to purchase the common stock
being publicly offered on the same basis as a shareholder of
Class B Common Stock, and the per share exercise price shall
be adjusted accordingly (provided that the aggregate exercise
price shall remain the same).
9. Restrictions on Shares:
As permitted pursuant to Section 3(a)(vi) of the Plan, the
Committee may condition the delivery of the Shares upon the
Grantee's agreement to such restrictions on the Shares as the
Committee shall determine, provided that such restrictions
shall be no more restrictive than those imposed on other Class
B shareholders. The Grantee hereby waives any rights he may
have in connection with a transfer of shares of Class B Common
Stock by any other shareholder.
10. Piggyback Registration Rights:
If the Company (or an affiliate of the Company) intends to
register securities of any of its shareholders for an offering
to the public while the Grantee is employed by the Company or
an affiliate of the Company or, thereafter, within one year
after he has a right to exercise an option, the Company shall
notify the Grantee of its intention to do so and, subject to
such limitations as shall affect all selling shareholders
equally and as may be imposed by any underwriter of such
offering or by law, the Grantee may irrevocably elect to
participate in such offering on a pari passu basis with any
other selling shareholders based on the relative number of
shares owned and options vested of each of such other selling
shareholders (and its affiliates and permitted assigns) and
the Grantee (the "Pari Passu Percentage"). Such participation
shall be under the same terms and conditions as may apply to
such other shareholders, provided that the Grantee shall not
have any rights to select the underwriter or similar matters
given to the other shareholders. The Grantee shall make any
election within 30 days of receipt of such notice of intent to
register by a writing given to the Secretary of the Company,
which writing shall indicate his irrevocable election to sell
in the intended offering, the number of Shares he wishes to
sell and the portion thereof to be included by him. The
Grantee's notice may not be for
2
<PAGE>
less than 100 percent of the number of Shares of the Grantee
which the Grantee could sell pursuant to Rule 144 or another
exemption from securities law registration or pursuant to an
S-8 (or similar registration statement) then effective (an
"Alternative Sales Means") within the next six months. The
Grantee shall be responsible for delivery of the Shares
covered by the notice on a timely basis. The Company shall
only have to give notice of intent to register under this
paragraph to the Grantee and any notice of intent to
participate shall only be valid if received from the Grantee
(or in the event of his death, his executor). The Company may
at any time abandon any offering. The Company or the
underwriter may at any time cutback (including, without
limitation, limiting the amount to the extent a prior amount
had not been specified) on the number of shares in any
offering in which the Company is offering shares and the
underwriter may at any time cutback (including, without
limitation, limiting the amount to the extent a prior amount
had not been specified) on the number of shares to be offered
by shareholders in any offering in which the Company is not
also offering shares. In either such case the Grantee's Shares
to be offered shall be proportionately reduced so that the
amounts offered by the Grantee and by other shareholders (and
their affiliates and permitted assigns) satisfy the Pari Passu
Percentage. The Grantee shall have no right to participate in
any offering by the Company that does not include any shares
owned by other shareholders and the provision of this
paragraph shall not apply to any registration on Form S-8, or
otherwise with regard to securities of compensatory plans of
the Company. The Grantee shall sign such underwriting and
other agreements in the same forms as signed by the other
participating shareholders.
The Grantee hereby acknowledges receipt of a copy of the Plan as presently in
effect. The text and all of the terms and provisions of the Plan are
incorporated herein by reference, and this option is subject to these terms and
provisions in all respects.
At any time when the Grantee wishes to exercise this option, in whole or in
part, the Grantee shall submit to the Company a written notice of exercise,
specifying the exercise date and the number of shares to be exercised. Upon
exercise, the Grantee shall remit to the Company the exercise price in cash or
in such other form as permitted under the Plan, plus an amount sufficient to
satisfy any withholding tax obligation of the Company that arises in connection
with such exercise.
FLAG LIMITED AGREED TO AND ACCEPTED BY:
By: /s/ Name of Officer /s/ Stuart Rubin
------------------------------- -------------------------
Grantee
3
<PAGE>
FLAG LIMITED
1998 LONG-TERM INCENTIVE PLAN
OPTION GRANT CERTIFICATE
(Non-Performance)
This Grant Certificate evidences the grant of an option pursuant to the
provisions of the 1998 Long-Term Incentive Plan (the "Plan") of FLAG Limited
(the "Company") to the individual whose name appears below (the "Grantee"),
covering the specific number of shares of Class B Common Stock of the Company
(the "Shares") set forth below, pursuant to the provisions of the Plan and on
the following express terms and conditions (capitalized terms not otherwise
defined herein shall have the meaning ascribed thereto in the Plan):
1. Name of Grantee:
Stuart Rubin
2. Number of Shares:
1,000,000 shares
3. Exercise price per Share:
US$ 1.07
4. Date of grant of this option:
March 31, 1998
5. Expiration date of this option:
Tenth anniversary of the date of grant
6. Vesting:
The option shall vest and be exercisable in two equal installments on
each of the third and fourth anniversaries of the date of grant;
provided that (i) the option shall become fully vested and exercisable
upon commencement of an initial public offering of any class of the
Company's common shares ("IPO"), (ii) the option shall become fully
vested and exercisable immediately prior to any termination of the
option pursuant to Section 6(b)(iv) of the Plan, (iii) the option
shall become vested and exercisable as to 50% of the unvested portion
of the option immediately prior to any termination of the Grantee's
employment with the Company and its subsidiaries initiated by the
Company or any of its subsidiaries for reasons other than Cause or
initiated by the Grantee for "good reason" (as defined below), except
that if such termination occurs within three years following a "change
in control" (as defined below), "100%" shall be substituted for "50%",
and (iv) the option shall become vested and exercisable as to 50% of
the unvested portion of the option immediately prior to any
termination of the Grantee's employment with the Company and its
subsidiaries that occurs prior to the third anniversary of the date of
grant, and is by reason of the Grantee's death or is initiated by the
Company or any of its subsidiaries because of the Grantee's
disability.
The term "good reason" shall have the meaning ascribed thereto in any
employment agreement between the Company and the Grantee. If no such
definition exists, then the provisions herein relating to good reason
shall be disregarded. A change in control shall be deemed to have
occurred upon: (a) any "person"as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, any company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of Common Stock
of the Company or any current shareholder of the Company or its
4
<PAGE>
affiliates (collectively the "Exceptions")) is or becomes the owner
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more than fifty
percent (50%) of the combined voting power of the Company's then
outstanding securities; (b) the merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity), together with any shares owned by Exceptions, more
than fifty percent (50%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however,
that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person (other than an Exception) acquires more than fifty percent
(50%) of the combined voting power of the Company's then outstanding
securities shall not constitute a change in control of the Company;
or (c) the stockholders of the Company approve a plan of liquidation
of the Company or closing of an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets
other than the sale of all or substantially all of the assets of the
Company to a person or persons who beneficially own, directly or
indirectly, at least fifty percent (50%) or more of the combined
voting power of the outstanding voting securities of the Company at
the time of the sale or to a person who is an Exception.
7. Termination of employment:
The option shall terminate upon the earliest of (i) the expiration
date, (ii) a termination of the Grantee's employment with the Company
and its subsidiaries initiated by the Company or any of its
subsidiaries for Cause, (iii) a material breach by the Grantee of any
non-compete and confidentiality agreement between the Grantee and the
Company (iv) 30 days following the Grantee's termination of employment
with the Company and its subsidiaries initiated by the Grantee (other
than for good reason or by reason of death), or (v) one year following
the Grantee's termination of employment with the Company and its
subsidiaries for reasons other than those specified in (ii) and (iv)
above, provided that if the Company's common shares are not publicly
traded at the time of such termination, such one year period shall be
extended to the earlier of three years following such termination and
one year following an IPO, and provided further that if at the end of
the applicable period specified in this clause (v), an
underwriter-imposed lock-up is in effect, the applicable period
referred to in this clause (v) shall expire 90 days after the
expiration of such lock-up. During any period following the Grantee's
termination of employment, the option shall be exercisable only to the
extent it was vested and exercisable as of such termination of
employment.
8. Conversion of Shares in the event of an IPO:
If, in connection with an initial public offering of common stock of
the Company (other that the Class B Common Stock) or an affiliate of
the Company, shareholders of Class B Common Stock are granted the
right to convert their Class B Common Stock into the common stock
being publicly offered, the Grantee shall have the right to convert
this option to purchase Shares into an option to purchase the common
stock being publicly offered on the same basis as a shareholder of
Class B Common Stock, and the per share exercise price shall be
adjusted accordingly (provided that the aggregate exercise price shall
remain the same).
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9. Restrictions on Shares:
As permitted pursuant to Section 3(a)(vi) of the Plan, the Committee
may condition the delivery of the Shares upon the Grantee's agreement
to such restrictions on the Shares as the Committee shall determine,
provided that such restrictions shall be no more restrictive than
those imposed on other Class B shareholders. The Grantee hereby waives
any rights he may have in connection with a transfer of shares of
Class B Common Stock by any other shareholder.
10. Piggyback Registration Rights:
If the Company (or an affiliate of the Company) intends to register
securities of any of its shareholders for an offering to the public
while the Grantee is employed by the Company or an affiliate of the
Company or, thereafter, within one year after he has a right to
exercise an option, the Company shall notify the Grantee of its
intention to do so and, subject to such limitations as shall affect
all selling shareholders equally and as may be imposed by any
underwriter of such offering or by law, the Grantee may irrevocably
elect to participate in such offering on a pari passu basis with any
other selling shareholders based on the relative number of shares
owned and options vested of each of such other selling shareholders
(and its affiliates and permitted assigns) and the Grantee (the "Pari
Passu Percentage"). Such participation shall be under the same terms
and conditions as may apply to such other shareholders, provided that
the Grantee shall not have any rights to select the underwriter or
similar matters given to the other shareholders. The Grantee shall
make any election within 30 days of receipt of such notice of intent
to register by a writing given to the Secretary of the Company, which
writing shall indicate his irrevocable election to sell in the
intended offering, the number of Shares he wishes to sell and the
portion thereof to be included by him. The Grantee's notice may not be
for less than 100 percent of the number of Shares of the Grantee which
the Grantee could sell pursuant to Rule 144 or another exemption from
securities law registration or pursuant to an S-8 (or similar
registration statement) then effective (an "Alternative Sales Means")
within the next six months. The Grantee shall be responsible for
delivery of the Shares covered by the notice on a timely basis. The
Company shall only have to give notice of intent to register under
this paragraph to the Grantee and any notice of intent to participate
shall only be valid if received from the Grantee (or in the event of
his death, his executor). The Company may at any time abandon any
offering. The Company or the underwriter may at any time cutback
(including, without limitation, limiting the amount to the extent a
prior amount had not been specified) on the number of shares in any
offering in which the Company is offering shares and the
underwriter may at any time cutback (including, without limitation,
limiting the amount to the extent a prior amount had not been
specified) on the number of shares to be offered by shareholders in
any offering in which the Company is not also offering shares. In
either such case the Grantee's Shares to be offered shall be
proportionately reduced so that the amounts offered by the Grantee and
by other shareholders (and their affiliates and permitted assigns)
satisfy the Pari Passu Percentage. The Grantee shall have no right to
participate in any offering by the Company that does not include any
shares owned by other shareholders and the provision of this paragraph
shall not apply to any registration on Form S-8, or otherwise with
regard to securities of compensatory plans of the Company. The Grantee
shall sign such underwriting and other agreements in the same forms as
signed by the other participating shareholders. The Grantee hereby
acknowledges receipt of a copy of the Plan as presently in effect.
The text and all of the terms and provisions of the Plan are
incorporated herein by reference, and this option is subject to these
terms and provisions in all respects.
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At any time when the Grantee wishes to exercise this option, in whole
or in part, the Grantee shall submit to the Company a written notice
of exercise, specifying the exercise date and the number of shares to
be exercised. Upon exercise, the Grantee shall remit to the Company
the exercise price in cash or in such other form as permitted under
the Plan, plus an amount sufficient to satisfy any withholding tax
obligation of the Company that arises in connection with such
exercise.
FLAG LIMITED AGREED TO AND ACCEPTED BY:
/s/ Name of Officer /s/ Stuart Rubin
------------------------------ ---------------------------
Grantee
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Exhibit 4.6
FORM OF REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of January 13,
2000, is entered into by and between FLAG TELECOM HOLDINGS LIMITED, a
corporation organized and existing under the laws of Bermuda (the "COMPANY"), on
the one hand, and RATHBURN LIMITED, a corporation organized and existing under
the laws of the British Virgin Islands ("RATHBURN"), ABDUL LATIF OMAR GHURAB, an
individual with a place of business in Jeddah, Saudi Arabia ("GHURAB"), ABDUL
AZIZ ABDULLAH KAMEL, an individual with a place of business in Jeddah, Saudi
Arabia ("KAMEL", and collectively with Rathburn and Ghurab, the "RATHBURN
SHAREHOLDERS") BELL ATLANTIC NETWORK SYSTEMS COMPANY, a corporation organized
and existing under the laws of the state of Delaware, United States of America
("BELL ATLANTIC"), K.I.N. (THAILAND) CO. LTD., a corporation organized and
existing under the laws of Thailand ("KIN"), MARUBENI TELECOM DEVELOPMENT
LIMITED, a corporation organized and existing under the laws of Bermuda
("MARUBENI"), THE ASIAN INFRASTRUCTURE FUND, a corporation organized and
existing under the laws of the Cayman Islands, British West Indies ("AIF"), REJA
SABET, an individual, with a place of business in New York, New York ("R
SABET"), HORMOZ SABET, an individual, with a place of business in New York, New
York ("H SABET"), SPINCONSULT SA, a corporation organized and existing under the
laws of Panama ("SPINCONSULT"), GE CAPITAL PROJECT FINANCE VI LTD., a
corporation organized and existing under the laws of Bermuda ("GE"), and AT&T
CAPITAL CORPORATION, a corporation organized and existing under the laws of
Delaware ("AT&T"), on the other hand (all of the foregoing other than the
Company collectively, the "SHAREHOLDERS").
W I T N E S S E T H
WHEREAS, as of the date hereof the Shareholders own
substantially all of the outstanding common shares of the Company; and
WHEREAS, the Company contemplates an initial public offering
of its common shares and has agreed to provide the Shareholders with liquidity
for the shares that they own by providing them with registration rights with
respect thereto;
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, it is hereby agreed as follows:
1. DEFINITIONS. The following terms shall have (unless
otherwise provided elsewhere in this Agreement) the following respective
meanings (such meanings being equally applicable to both the singular and plural
form of the terms defined):
<PAGE>
"AFFILIATE" shall mean, with respect to any Person, any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such Person.
"AGREEMENT" shall mean this Registration Rights Agreement,
including all amendments, modifications and supplements and any exhibits or
schedules hereto, and shall refer to the Registration Rights Agreement as the
same may be in effect at the time such reference becomes operative.
"BLACKOUT PERIOD" shall have the meaning assigned to such term
in Section 5 hereof.
"BUSINESS DAY" shall mean any day that is not a Saturday, a
Sunday or a day on which commercial banks are required or permitted by law to be
closed in New York, New York, United States of America, London, the United
Kingdom or Hamilton, Bermuda.
"COMMON SHARES" shall be the common shares of the Company, par
value $.0001 per share, and any Securities issuable or issued or distributed in
respect of the Common Shares by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, reorganization,
merger, consolidation or otherwise.
"DEMAND REGISTRATION" shall have the meaning assigned to such
term in Section 2(a) hereof.
"DEMAND REGISTRATION STATEMENT" shall have the meaning
assigned to such term in Section 2(a) hereof.
"DERIVATIVE SECURITIES" shall have the meaning assigned to
such term in Section 4 hereof.
"EFFECTIVE DATE" shall mean the closing date of the Company's
initial public offering.
"HOLDER" shall mean any Shareholder and any assignee or
transferee of any Shareholder or Holder who continues to be entitled to the
rights of a Holder hereunder.
"INDEMNIFIED PARTY" shall have the meaning assigned to such
term in Section 8(d) hereof.
"INDEMNIFYING PARTY" shall have the meaning assigned to such
term in Section 8(d) hereof.
"INITIATING DEMAND HOLDER" shall have the meaning assigned to
such term in Section 2(a) hereof.
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"MAXIMUM NUMBER OF SECURITIES" shall have the meaning assigned
to such term in Section 2(b) hereof.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor entity thereof.
"PARTICIPATING DEMAND HOLDERS" shall have the meaning
assigned to such term in Section 2(a) hereof.
"PARTICIPATING PIGGY-BACK HOLDERS" shall have the meaning
assigned to such term in Section 3(b) hereof.
"PERSON" shall mean any individual, corporation, partnership,
joint venture, firm, trust, unincorporated organization, government or any
agency or political subdivision thereof or other entity.
"PIGGY-BACK REGISTRATION" shall have the meaning assigned to
such term in Section 3(a) hereof.
"PIGGY-BACK REGISTRATION STATEMENT" shall have the meaning
assigned to such term in Section 3(a) hereof.
"REGISTRABLE SECURITIES" shall mean (a) the Common Shares
held by a Holder and (b) any Securities issuable or issued or distributed in
respect of any of the Common Shares identified in clause (a) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, reorganization, merger, consolidation or otherwise. For
purposes of this Agreement, (i) Registrable Securities shall cease to be
Registrable Securities when a Registration Statement covering such Registrable
Securities has been declared effective under the Securities Act by the SEC and
such Registrable Securities have been disposed of pursuant to such effective
Registration Statement and (ii) the Registrable Securities of a Holder shall not
be deemed to be Registrable Securities at any time when such Registrable
Securities have been sold in a sale made pursuant to Rule 144 (or any successor
provision then in effect) of the Securities Act.
"REGISTRATION STATEMENT" shall mean a Demand Registration
Statement, a Piggy-Back Registration Statement and/or a Shelf Registration
Statement, as the case may be.
"SECURITIES" shall have the meaning assigned to such term in
Section 2(a)(1) of the Securities Act.
"SECURITIES ACT" shall mean the United States Securities Act
of 1933, as amended, and all rules and regulations promulgated thereunder.
"SEC" shall mean the United States Securities and Exchange
Commission, or any successor thereto.
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<PAGE>
"SHELF REGISTRATION" shall have the meaning assigned to such
term in Section 4 hereof.
"SHELF REGISTRATION STATEMENT" shall have the meaning assigned
to such term in Section 4 hereof.
2. DEMAND REGISTRATION.
(a) At any time from and after 180 days following the
Effective Date and subject to Sections 2(c) and 2(d) hereof, after receipt of a
written request from a Holder (the "INITIATING DEMAND HOLDER") requesting that
the Company effect a registration (a "DEMAND REGISTRATION") under the Securities
Act covering all or part of the Registrable Securities held by such Holder,
which specifies the intended method or methods of disposition thereof, the
Company shall promptly notify all Holders in writing of the receipt of such
request and each such Holder, in lieu of exercising its rights under Section 3
hereof, may elect (by written notice sent to the Company within twenty (20) days
from the date of such Holder's receipt of the aforementioned Company's notice)
to have all or part of such Holder's Registrable Securities included in such
registration thereof pursuant to this Section 2, and such Holder shall specify
in such notice the number of Registrable Securities that such Holder elects to
include in such registration. Thereupon the Company shall, as expeditiously as
is reasonably possible, file with the SEC and use commercially reasonable
efforts to cause to be declared effective, a registration statement (a "DEMAND
REGISTRATION STATEMENT") relating (subject to Section 2(b) hereof) to all of the
Registrable Securities which the Company has been so requested to register by
such Holders ("PARTICIPATING DEMAND HOLDERS") for sale, to the extent required
to permit the disposition (in accordance with the intended method or methods
thereof, as aforesaid) of the Registrable Securities so registered, PROVIDED,
HOWEVER, that the aggregate number of Registrable Securities requested to be
registered by all Participating Demand Holders shall be, subject to Section 2(b)
below, at least the greater of (a) five percent (5%) of the Common Shares issued
and outstanding on the Effective Date, and (b) an aggregate value of
$100,000,000, based on the closing trading price of the Common Shares on the
date the demand to file such Demand Registration Statement is made.
(b) If the Initiating Demand Holder so requests that the
offering be underwritten with a managing underwriter (which shall be selected in
the manner set forth in Section 12 below) and such managing underwriter of such
Demand Registration advises the Company in writing that, in its opinion, the
number of Securities to be included in such offering is greater than the total
number of Securities which can be sold therein without having a material adverse
effect on the distribution of such Securities or otherwise having a material
adverse effect on the marketability thereof (the "MAXIMUM NUMBER OF
SECURITIES"), then the Company shall include in such Demand Registration the
Registrable Securities that the Participating Demand Holders have requested to
be registered thereunder only to the extent the number of such Registrable
Securities does not exceed the Maximum Number of Securities. The Company shall
include such Registrable Securities in a Demand Registration even if the Maximum
Number of
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<PAGE>
Securities is less than the threshold set forth in Section 2(a) above. If such
amount exceeds the Maximum Number of Securities, the number of Registrable
Securities included in such Demand Registration shall be allocated among all the
Participating Demand Holders on a PRO RATA basis, unless any of the
Participating Demand Holders otherwise agree between or among themselves and
notify the Company in writing of such agreement. If the amount of such
Registrable Securities does not exceed the Maximum Number of Securities, the
Company may include in such Registration any other Securities of the Company,
and then other Securities held by other security holders of the Company, on a
PRO RATA basis if necessary, in an amount which together with the Registrable
Securities included in such Demand Registration shall not exceed the Maximum
Number of Securities.
(c) The following Shareholders shall be entitled to the
following number of registrations of Registrable Securities pursuant to this
Section 2: the Rathburn Shareholders collectively - 3, Bell Atlantic - 6, KIN -
2, Marubeni - 1, and AIF - 1. All Holders who are assignees or transferees of
one of such Shareholders, or assignees or transferees of an assignee or
transferee of one of such Shareholders shall collectively be entitled to such
number of registrations pursuant to this Section 2 as the original Shareholder
Holder of the relevant Registrable Securities was entitled pursuant to this
Section 2(c), less any registrations demanded prior to the date such Person
becomes a Holder hereunder. None of R Sabet, H Sabet, Spinconsult, GE or AT&T
are entitled to any registrations of Registrable Securities pursuant to this
Section 2. Each Shelf Registration pursuant to Section 4 hereof shall be deemed
one Demand Registration pursuant hereto.
(d) Notwithstanding anything to the contrary contained
herein, the Company shall not be required to prepare and file (i) more than one
(1) Demand Registration Statement under this Agreement in any six-month period,
or (ii) any Demand Registration Statement within ninety (90) days following the
date of effectiveness of any Registration Statement (other than a Shelf
Registration Statement).
(e) A Demand Registration requested pursuant to Section
2(a) hereof shall not be deemed to have been effected with respect to any
Participating Demand Holder that is not able to register and sell at least 80%
of the amount of Registrable Securities requested to be included on behalf of
such Holder in such registration.
(f) A Participating Demand Holder may withdraw its
request with respect to a Demand Registration at any time prior to the effective
date of the Demand Registration Statement relating thereto by providing to the
Company written notice. Upon any such withdrawal, if the Company determines not
to otherwise continue with such Registration Statement for the purpose of
registering Common Shares of the Company, another Holder or another shareholder
of the Company, the withdrawing Participating Demand Holder shall be obligated,
pro rata with any other withdrawing Participating Demand Holder, to reimburse
the Company, within 20 days of the date of the written notice of withdrawal, for
all Expenses (as defined in Section 12 below)
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<PAGE>
incurred by the Company, in connection with such withdrawn Demand Registration
that would not otherwise have been incurred by the Company. Any such withdrawn
Demand Registration shall be counted with respect to such Holder for purposes of
Section 2(c) hereof as a completed Demand Registration, unless such withdrawal
was the result of a change in market conditions that would materially adversely
effect the amount and/or price of the Registrable Securities to be included in
the Demand Registration.
3. PIGGY-BACK REGISTRATION.
(a) If the Company at any time after 180 days from the
Effective Date proposes to file on its behalf and/or on behalf of any holder of
its Securities a registration statement under the Securities Act on any form
(other than a registration statement on Form S-4 or S-8 or any successor form
for Securities to be offered in a transaction of the type referred to in Rule
145 under the Securities Act or to employees of the Company pursuant to any
employee incentive plan, respectively) for the registration of Securities (a
"PIGGY-BACK REGISTRATION"), it will give written notice to all Holders at least
20 days before the initial filing with the SEC of such piggy-back registration
statement (a "PIGGY-BACK REGISTRATION STATEMENT"), which notice shall set forth
the intended method of disposition of the Securities proposed to be registered
by the Company. The notice shall offer to include in such filing the aggregate
number of shares of Registrable Securities as such Holders may request.
(b) Each Holder desiring to have Registrable Securities
registered under this Section 3 ("PARTICIPATING PIGGY-BACK HOLDERS") shall
advise the Company in writing within ten (10) days after the date of receipt of
such offer from the Company, setting forth the amount of such Registrable
Securities for which registration is requested. The Company shall thereupon
include in such filing the number or amount of Registrable Securities for which
registration is so requested, subject to paragraph (c) below, and shall use
commercially reasonable efforts to effect registration of such Registrable
Securities under the Securities Act.
(c) If the Piggy-Back Registration relates to an
underwritten public offering and the managing underwriter of such proposed
public offering advises in writing that, in its opinion, the amount of
Registrable Securities requested to be included in the Piggy-Back Registration
in addition to the Securities being registered by the Company would be greater
than the Maximum Number of Securities, then:
(i) in the event the Company initiated the Piggy-Back
Registration, the Company shall include in such Piggy-Back Registration
FIRST, the Securities the Company proposes to register and SECOND, the
Securities of all other selling security holders, including the
Participating Piggy-Back Holders, to be included in such Piggy-Back
Registration in an amount which together with the Securities the
Company proposes to register, shall not exceed the Maximum Number of
Securities, such amount to be allocated among such other selling
security holders on a PRO RATA basis;
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<PAGE>
(ii) in the event any holder (or holders) of Securities
of the Company initiated the Piggy-Back Registration, the Company shall
include in such Piggy-Back Registration FIRST, the Securities such
security holder (or holders) proposes to register, SECOND, any
Securities that the Company proposes to register, and THIRD, the
Securities of any other selling security holders, in an aggregate
amount which shall not exceed the Maximum Number of Securities; if the
aggregate of all Securities proposed to be registered exceeds the
Maximum Number of Securities, the number to be registered shall be
allocated in the foregoing order and among any such other selling
security holders piggy backing on such registration, on a PRO RATA
basis;
(d) The Company will not hereafter enter into any
agreement which is inconsistent with the rights of priority provided in
paragraph (c) above.
4. SHELF REGISTRATION. In the event that at any time from and
after 180 days following the Effective Date, and subject to Sections 2(c) and
2(d) above, a Shareholder or one of its Affiliates (other than R Sabet, H Sabet,
Spinconsult, GE or AT&T or any of their respective Affiliates) issues Securities
(the "DERIVATIVE SECURITIES") that by their terms are convertible into or
exchangeable for Registrable Securities and which will be issued in reliance on
Regulation S and/or Rule 144A under the Securities Act, upon the written request
of such Shareholder, provided that the aggregate number of Registrable
Securities requested to be registered shall be at least the greater of (a) five
percent (5%) of the Common Shares issued and outstanding on the Effective Date,
and (b) an aggregate value of $100,000,000, based on the closing trading price
of the Common Shares on the date the request for such shelf registration
statement is made, as promptly as practicable, but in any event no later than 45
days after receipt of such request, the Company shall file with the SEC and
thereafter use commercially reasonable efforts to cause to be declared effective
as promptly as practicable, but no later than 110 days after receipt of such
request, a shelf registration statement (the "SHELF REGISTRATION STATEMENT") on
an appropriate form under the Securities Act relating to the conversion or
exchange of the Derivative Securities from time to time in accordance with the
methods and distribution set forth in the Shelf Registration Statement and Rule
415 under the Securities Act (hereafter, the "SHELF REGISTRATION"). Subject to
Section 5 below, the Company shall use commercially reasonable efforts to keep
the Shelf Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered to holders of the
Derivative Securities for a period of time until such time as all the Derivative
Securities have been converted or exchanged pursuant thereto.
5. BLACKOUT PERIODS. Notwithstanding anything to the contrary
contained in this Agreement, the Company shall have the right to delay the
filing or effectiveness of a Registration Statement requested pursuant to
Section 2, 3 or 4 hereof during no more than two (2) periods aggregating to not
more than 90 days in any twelve-month period (a "BLACKOUT PERIOD") in the event
that (i) (a) the Company would, in accordance with the reasonable advice of its
counsel, be required to disclose in the prospectus information not otherwise
then required by law to be publicly disclosed, and (b) in the judgment of the
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<PAGE>
Company's Board of Directors, there is a reasonable likelihood that such
disclosure, or any other action to be taken in connection with the prospectus,
would materially and adversely affect or interfere with any financing,
acquisition, merger, material joint venture, disposition of assets (not in the
ordinary course of business), corporate reorganization or other similar
transaction involving the Company, or (ii) the Company is actively involved in
the preparation of its annual audited financial statements (during which time,
if a Blackout Period, the Company shall not be required to permit the use of an
effective Registration Statement and related Prospectus); PROVIDED, HOWEVER,
that during any such Blackout Period, the Company shall also delay the filing or
effectiveness of any registration statement with respect to any Securities of
the Company or any other shareholder of the Company. The Company shall promptly
give the Holders written notice of such determination containing a general
statement of the reasons for such postponement and an approximation of the
anticipated delay; and PROVIDED FURTHER, HOWEVER, that the implementation of any
Blackout Period shall be done in good faith, and not for the purpose or
intention of impeding such rights.
6. REGISTRATION PROCEDURES. If the Company is required by the
provisions of Section 2, 3 or 4 to use commercially reasonable efforts to effect
the registration of any of its Securities under the Securities Act, the Company
will, as expeditiously as possible:
(a) prepare and file with the SEC a Registration
Statement with respect to such Securities and use commercially reasonable
efforts to cause such Registration Statement to become and remain effective for
a period of time required for the disposition of such Securities by the Holders
thereof (or with respect to the Shelf Registration Statement, the Holder of the
Derivative Securities) but not to exceed 180 days (except with respect to the
Shelf Registration Statement). The Company shall not be deemed to have used
commercially reasonable efforts to keep a Registration Statement effective
during the applicable period if it voluntarily takes any action that would
result in the Holders of such Securities (or with respect to the Shelf
Registration, the holders of the Derivative Securities) not being able to sell
such Securities (or convert or exchange such Derivative Securities) during that
period, unless such action is required under applicable law or otherwise
permitted by this Agreement;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all Securities covered by such Registration Statement until
the earlier of such time as all of such Securities have been disposed of in a
public offering and (except with respect to the Shelf Registration Statement)
the expiration of 180 days;
(c) furnish to all selling security holders such number
of copies of the applicable Registration Statement and each such amendment and
supplement thereto, and of a summary prospectus or other prospectus, including a
preliminary prospectus, in
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<PAGE>
conformity with the requirements of the Securities Act, and such other
documents, as such selling security holders may reasonably request;
(d) use commercially reasonable efforts to register or
qualify the Securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States and
Puerto Rico as each Holder of such Securities shall reasonably request
(PROVIDED, HOWEVER, that the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any jurisdiction in which
it is not then qualified, to subject itself to taxation in any such
jurisdiction, or to file any general consent to service or process), and do such
other reasonable acts and things as may be required of it to enable such Holder
to consummate the disposition in such jurisdiction of the Securities covered by
such Registration Statement;
(e) furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale pursuant to such
registration or, if such Registrable Securities are not being sold through
underwriters, on the date that the Registration Statement with respect to such
shares of Registrable Securities becomes effective, (1) an opinion, dated such
date, of the independent counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, in customary form and
covering matters of the type customarily covered in such legal opinions; and (2)
a comfort letter dated such date, from the independent certified public
accountants of the Company, addressed to the underwriters, in a customary form
and covering matters of the type customarily covered by such comfort letters and
as the underwriters shall reasonably request. Such opinion of counsel shall
additionally cover such other legal matters with respect to the registration in
respect of which such opinion is being given as such underwriters may reasonably
request;
(f) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities;
(g) otherwise use commercially reasonable efforts to
comply with all applicable rules and regulations of the SEC, and make earnings
statements satisfying the provisions of Section 11(a) of the Securities Act
generally available to the Holders no later than 45 days after the end of any
twelve-month period (or 90 days, if such period is a fiscal year) (i) commencing
at the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in an underwritten public offering, or (ii) if not sold to
underwriters in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the
Registration Statement, which statements shall cover said twelve-month periods;
(h) use commercially reasonable efforts to cause all
such Registrable Securities to be listed on each securities exchange or
quotation system on which similar Securities issued by the Company are listed or
traded;
9
<PAGE>
(i) give prompt written notice to Holders:
(i) when such Registration Statement or any amendment
thereto has been filed with the SEC and when such Registration
Statement or any post-effective amendment thereto has become effective;
(ii) of any request by the SEC for amendments or
supplements to such Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the SEC of any stop order
suspending the effectiveness of such Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel
of any notification with respect to the suspension of the qualification
of the Common Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the
Company to make changes in such Registration Statement or the
prospectus in order to make the statements therein not misleading
(which notice shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made);
(j) use commercially reasonable efforts to prevent the
issuance or obtain the withdrawal of any order suspending the effectiveness of
such Registration Statement at the earliest possible time;
(k) furnish to each Holder, without charge, at least one
copy of such Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits (including those, if any, incorporated by reference);
(l) upon the occurrence of any event contemplated by
Section 6(i)(v) above, promptly prepare a post-effective amendment to such
Registration Statement or a supplement to the related prospectus or file any
other required document so that, as thereafter delivered to Holders, the
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the Company
notifies the Holders in accordance with Section 6(i)(v) above to suspend the use
of the prospectus until the requisite changes to the prospectus have been made,
then the Holders shall suspend use of such prospectus, and the period of
effectiveness of such Registration Statement provided for above shall be
extended by the number of days from and including the date of the giving of such
notice to the date
10
<PAGE>
Holders shall have received such amended or supplemented prospectus pursuant to
this Section 6(l);
(m) (i) make reasonably available for inspection by a
single representative of the Holders, any underwriter participating in any
disposition pursuant to such Registration Statement and any attorney, accountant
or other agent retained by such representative or any such underwriter all
relevant financial and other records, pertinent corporate documents and
properties of the Company and (ii) cause the Company's officers, directors and
employees during normal business hours and upon reasonable advance notice to
supply all relevant information reasonably requested by such representative or
any such underwriter, attorney, accountant or agent in connection with the
registration; and
(n) in connection with any underwritten offering, make
appropriate officers of the Company available to the selling security holders
for meetings with prospective purchasers of the Registrable Securities and
prepare and present to potential investors customary "road show" material in a
manner consistent with other new issuances of Securities similar to the
Registrable Securities, in connection with any proposed sale of the Registrable
Securities in an aggregate offering of at least $100,000,000.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Agreement in respect of the
Securities which are to be registered at the request of any Holder that such
Holder shall furnish to the Company such information regarding the Securities
held by such Holder and the intended method of disposition thereof as the
Company shall reasonably request and as shall be required in connection with the
action taken by the Company.
7. EXPENSES. All expenses incurred in complying with the
provisions of this Agreement, including, without limitation, all registration
and filing fees (including all expenses incident to filing with the NASD),
printing expenses, fees and disbursements of counsel for the Company, the
reasonable fees and expenses of a single counsel for the selling security
holders (selected by the Initiating Demand Holder, in the case of a Demand
Registration, and otherwise selected by those holding a majority of the shares
being registered), expenses of any special audits incident to or required by any
such registration and expenses of complying with the Securities or blue sky laws
of any jurisdiction pursuant to Section 6(d), shall be paid by the Company
("Expenses"), except that:
(a) all such expenses in connection with any amendment
or supplement to the Registration Statement or prospectus filed more than 180
days after the effective date of such Registration Statement (except with
respect to a Shelf Registration Statement) because any Holder has not effected
the disposition of the Securities requested to be registered shall be paid by
such Holder; and
11
<PAGE>
(b) The Company shall not be liable for any fees,
discounts or commissions to any underwriter or any fees or disbursements of
counsel for any underwriter in respect of the Securities sold by such Holder.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of any registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, the Company
shall indemnify and hold harmless the Holder of such Registrable Securities,
such Holder's partners, directors and officers, and each other person (including
each underwriter) to the extent permitted by law who participated in the
offering of such Registrable Securities and each other Person, if any, who
controls such Holder or such participating person within the meaning of the
Securities Act, against any losses, claims, damages or liabilities ("Losses"),
to which such Holder or any such partner, director or officer or participating
person or controlling person may become subject under the Securities Act or any
other statute or at common law, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon (i) any alleged untrue statement of any
material fact contained, on the effective date thereof, in any Registration
Statement under which such Securities were registered under the Securities Act,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (ii) any alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and, upon receipt of reasonably detailed invoices
relating thereto, shall reimburse such Holder or such partner, director, officer
or participating person or controlling person for any legal or any other
expenses reasonably incurred by such Holder or such partner, director, officer
or participating person or controlling person in connection with investigating
or defending any such Loss or action; PROVIDED that the foregoing indemnity with
respect to any preliminary prospectus shall not inure to the benefit of any
indemnified party from whom the person asserting such Losses, expenses and
judgments purchased securities if such untrue statement or omission or alleged
untrue statement or omission made in such preliminary prospectus is eliminated
or remedied in the final prospectus and a copy of the final prospectus shall not
have been furnished to such person in a timely manner, unless such prospectus
was not furnished because the Company failed to provide the indemnified party in
accordance with law and the terms hereof with sufficient copies of such
corrected prospectus within the time period required; PROVIDED, FURTHER that the
Company shall not be liable in any case to the extent such Losses arise out of
or are based upon any untrue statement or actual or alleged omission made in
such Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by such Holder or such Holder's partners,
directors, officers and/or controlling persons specifically for use therein, or
(in the case of any underwritten offering) so furnished for such purpose by any
underwriter.
(b) Each Holder, by acceptance hereof, agrees to
indemnify and hold harmless the Company, its directors and officers and each
other person, if any, who controls the Company within the meaning of the
Securities Act against any Losses, to which the Company or any such director or
officer or controlling person may become
12
<PAGE>
subject under the Securities Act or any other statute or at common law, insofar
as such Losses (or actions in respect thereof) arise out of or are based upon
information in writing provided to the Company by or on behalf of such Holder
specifically for use in the following documents and contained, on the effective
date thereof, in any Registration Statement under which Securities were
registered under the Securities Act at the request of such Holder, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto. Notwithstanding the provisions of this paragraph (b) or
paragraph (c) below, no Holder shall be required to indemnify any person
pursuant to this Section 8 or to contribute pursuant to paragraph (c) below if
any such indemnification or contribution combined with all previous payments
made under this Section 8 would in the aggregate be in an amount in excess of
the amount of the aggregate net proceeds received by such Holder in connection
with any such registration under the Securities Act.
(c) If the indemnification provided for in this Section
8 from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any Losses or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such Losses or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such Losses or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the Losses and expenses referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding. If
the allocation provided in this paragraph (c) is not permitted by applicable
law, the parties shall contribute based upon the relevant benefits received by
the Company and the Holders from the sale of Securities.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(c) were determined by PRO
RATA allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(d) Any person entitled to indemnification hereunder
(the "INDEMNIFIED PARTY") agrees to give prompt written notice to the
indemnifying party (the "INDEMNIFYING PARTY") after the receipt by the
Indemnified Party of any written notice of the commencement of any action, suit,
proceeding or investigation or threat
13
<PAGE>
thereof made in writing for which the Indemnified Party intends to claim
indemnification or contribution pursuant to this Agreement; PROVIDED, that the
failure so to notify the Indemnifying Party shall not relieve the Indemnifying
Party of any liability that it may have to the Indemnified Party hereunder
unless such failure is materially prejudicial to the Indemnifying Party. If
notice of commencement of any such action is given to the Indemnifying Party as
above provided, the Indemnifying Party shall be entitled to participate in and,
to the extent it may wish, to assume the defense of such action at its own
expense, with counsel chosen by it and reasonably satisfactory to such
Indemnified Party. The Indemnified Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be paid by the Indemnified Party unless (i)
the Indemnifying Party agrees in writing to pay the same, (ii) the Indemnifying
Party fails to assume the defense of such action, or (iii) the named parties to
any such action (including any impleaded parties) have been advised in writing
by such counsel that either (A) representation of such Indemnified Party and the
Indemnifying Party by the same counsel would be inappropriate under applicable
standards of professional conduct or (B) there are one or more legal defenses
available to the Indemnified Party which are substantially different from or
additional to those available to the Indemnifying Party. No Indemnifying Party
shall be liable for any settlement entered into without its written consent,
which consent shall not be unreasonably withheld.
(e) The agreements contained in this Section 8 shall
survive the transfer of the Registered Securities by any Holder and sale of all
the Registrable Securities pursuant to any Registration Statement and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Holder or such partner, director, officer or participating or
controlling person.
9. CERTAIN ADDITIONAL LIMITATIONS ON REGISTRATION RIGHTS.
Notwithstanding the other provisions of this Agreement, the Company shall not be
obligated to register the Registrable Securities of any Holder (i) if such
Holder or any underwriter of such Registrable Securities shall fail to furnish
to the Company necessary information in respect of the distribution of such
Registrable Securities, or (ii) if such registration involves an underwritten
offering, such Registrable Securities are not included in such underwritten
offering on the same terms and conditions as shall be applicable to the other
Securities being sold through underwriters in the registration or such Holder
fails to enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwritten offering. In
addition, each Holder agrees not to effect any public sale or distribution of
any Registrable Securities or of any securities convertible into or exchangeable
or exercisable for such Registrable Securities, including a sale pursuant to
Rule 144 under the Securities Act and to enter into a customary lock-up
agreement with the managing underwriter for an offering, during the 90-day
period beginning on the effective date of any Demand Registration Statement
(initiated by such Holder) or Piggy-Back Registration Statement in which such
Holder is participating or other underwritten offering (initiated by the
Company) (except as part of
14
<PAGE>
such registration), if and to the extent requested by the managing underwriter
for such offering.
10. LIMITATIONS ON REGISTRATION OF OTHER SECURITIES;
REPRESENTATION. From and after the date of this Agreement, the Company shall
not, without the prior written consent of a majority in interest of the Holders,
enter into any agreement with any holder or prospective holder of any Securities
of the Company giving such Holder or prospective holder any registration rights
the terms of which are more favorable taken as a whole (taking into account the
aggregate remaining ownership interest of Registrable Securities by the Holders)
than the registration rights granted to the Holders hereunder unless the Company
shall also give such rights to the Holders hereunder.
11. NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its Securities which is inconsistent in
any material respects with the rights granted to the Holders in this Agreement.
12. SELECTION OF MANAGING UNDERWRITERS. The managing
underwriter or underwriters for any offering of Registrable Securities to be
registered pursuant to Sections 2 or 3 hereto shall be selected by the Company
and shall be acceptable to the Initiating Demand Holder.
13. MISCELLANEOUS.
(a) REMEDIES. Each Holder, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate. In any action or proceeding brought to enforce
any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
(b) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departure from the provisions hereof
may not be given unless the Company has obtained the written consent of each
Shareholder who is a Holder and a majority in interest of the other Holders.
(c) NOTICE GENERALLY. Any notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder to be
made pursuant to the provisions of this Agreement shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged or
sent by overnight courier mail, return receipt requested, postage prepaid, or by
telecopy and confirmed by telecopy answerback, addressed as follows:
15
<PAGE>
(i) If to any Holder, at its last known address
appearing on the books of the Company maintained for such purpose.
(ii) If to the Company, at
FLAG Telecom Holdings Limited
Emporium Building
69 Front Street
Hamilton HM12, Bermuda
Attention: General Counsel
Telecopy Number: 1-441-296-0938
with a copy to:
3rd Floor
103 Mount Street
London W1Y5HE
England
Telecopy Number: 011-441-317-0808
or at such other address as may be substituted by notice given as
herein provided.
The giving of any notice required hereunder may be waived in writing by
the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback or three (3) Business Days after the same shall have been sent by
overnight courier.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties hereto including any person to whom Registrable Securities are assigned
or transferred.
(e) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(f) GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by, construed and enforced in accordance with the laws of the State of
New York, United States of America without giving effect to the conflict of laws
provisions thereof. Each of the parties hereby submits to personal jurisdiction
and waives any objection as to venue in the County of New York, State of New
York, United States of America. Service of process on the parties in any action
arising out of or relating to this Agreement shall be effective if mailed to the
parties in accordance with Section 13(c) hereof. The parties hereto waive all
right to trial by jury in any action or proceeding to enforce or defend any
rights hereunder.
16
<PAGE>
(g) SEVERABILITY. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
(h) ENTIRE AGREEMENT. This Agreement represents the
complete agreement and understanding of the parties hereto in respect of the
subject matter contained herein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to the subject matter
hereof, including without limitation Section 7 of the Stock Purchase Agreement
between GE and FLAG Limited, dated as of October 19, 1995 and [ATT Agreement].
(i) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument. If any
party to this Agreement, other than the Company, fails to execute this Agreement
by the Effective Date, the Agreement shall be deemed to be valid, binding and
enforceable only for or against those parties who have executed the Agreement,
and shall not be valid, binding or enforceable by or against those parties who
have not so executed.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
FLAG TELECOM HOLDINGS LIMITED
By:_________________________________
Name:
Title:
RATHBURN LIMITED
By:_________________________________
Name:
Title:
____________________________________
ABDUL LATIF OMAR GHURAB
17
<PAGE>
____________________________________
ABDUL AZIZ ABDULLAH KAMEL
BELL ATLANTIC NETWORK SYSTEMS COMPANY
By:_________________________________
Name:
Title:
K.I.N. (THAILAND) CO. LTD.
By:_________________________________
Name:
Title:
MARUBENI TELECOM DEVELOPMENT LIMITED
By:_________________________________
Name:
Title:
THE ASIAN INFRASTRUCTURE FUND
By:_________________________________
Name:
Title:
____________________________________
REJA SABET
____________________________________
HORMOZ SABET
18
<PAGE>
SPINCONSULT SA
By:_________________________________
Name:
Title:
GE CAPITAL PROJECT FINANCE VI LTD.
By:_________________________________
Name:
Title:
AT&T CAPITAL CORPORATION
By:_________________________________
Name:
Title:
19
<PAGE>
Exhibit 10.2
EXECUTION COPY
CREDIT AGREEMENT
Dated as of
January 28, 1998
among
FLAG LIMITED,
as the Borrower
BARCLAYS BANK PLC,
as Administrative Agent
INTERNATIONAL TRUST COMPANY OF BERMUDA LIMITED,
as Collateral Trustee
BARCLAYS BANK PLC
AND THE OTHER TERM LENDERS LISTED HEREIN,
as the Term Lenders
BARCLAYS BANK PLC
AND THE OTHER REVOLVING CREDIT LENDERS LISTED HEREIN,
as the Revolving Credit Lenders
------------------------------------------------------
BARCLAYS BANK PLC,
as the Arranger
------------------------------------------------------
Term and Working Capital Financing of an
Approximately 27,000 Kilometer Submarine Fiberoptic
Cable System Connecting Europe, the Middle East and Asia
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
<S> <C>
DEFINITIONS........................................................................ 2
SECTION 1.1. Defined Terms............................................................................ 2
SECTION 1.2. Classification of Loans and Borrowings................................................... 37
SECTION 1.3. Terms Generally.......................................................................... 37
SECTION 1.4. Accounting Terms; GAAP................................................................... 38
ARTICLE II
THE COMMITMENTS.................................................................... 38
SECTION 2.1. Commitments.............................................................................. 38
SECTION 2.2. Loans and Borrowings..................................................................... 38
SECTION 2.3. Requests for Borrowings.................................................................. 39
SECTION 2.4. Funding of Borrowings.................................................................... 40
SECTION 2.5. Interest Elections....................................................................... 40
SECTION 2.6. Termination and Reduction of Commitments................................................. 41
SECTION 2.7. Repayment of Loans; Evidence of Debt..................................................... 43
SECTION 2.8. Optional Prepayments of Loans............................................................ 44
SECTION 2.9. Mandatory Prepayments.................................................................... 45
SECTION 2.10. Fees.................................................................................... 47
SECTION 2.11. Interest................................................................................ 47
SECTION 2.12. Alternate Rate of Interest; Illegality.................................................. 48
SECTION 2.13. Increased Costs......................................................................... 49
SECTION 2.14. Break Funding Payments.................................................................. 50
SECTION 2.15. Taxes................................................................................... 50
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs............................. 51
SECTION 2.17. Mitigation Obligations; Replacement of Lenders.......................................... 52
ARTICLE III
REPRESENTATIONS AND WARRANTIES..................................................... 54
SECTION 3.1. Financial Condition...................................................................... 54
SECTION 3.2. No Change................................................................................ 54
SECTION 3.3. Organization; Existence; Business........................................................ 54
SECTION 3.4. Compliance with Law...................................................................... 54
SECTION 3.5. Power and Authorization; Enforceable Obligations......................................... 55
SECTION 3.6. Corporate Structure...................................................................... 55
SECTION 3.7. Governmental Actions, Rights-of-Way and Other Consents and
Approvals.............................................................................. 56
SECTION 3.8. No Legal Bar............................................................................. 56
</TABLE>
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<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 3.9. No Proceeding or Litigation.............................................................. 57
SECTION 3.10. No Default, Event of Default or Event of Loss........................................... 57
SECTION 3.11. Ownership of Property; Liens; Common Stock.............................................. 57
SECTION 3.12. Taxes................................................................................... 58
SECTION 3.13. Federal Regulations..................................................................... 58
SECTION 3.14. ERISA................................................................................... 59
SECTION 3.15. Investment Company Act.................................................................. 59
SECTION 3.16. Full Disclosure......................................................................... 59
SECTION 3.17. Principal Place of Business, Etc. ...................................................... 59
SECTION 3.18. Intellectual Property................................................................... 59
SECTION 3.19. Sufficiency of Project Documents........................................................ 60
SECTION 3.20. Environmental Matters................................................................... 60
SECTION 3.21. Commercial Insurance.................................................................... 60
SECTION 3.22. Immunity................................................................................ 60
SECTION 3.23. Foreign Corrupt Practices Act........................................................... 60
SECTION 3.24. Fees and Enforcement.................................................................... 60
SECTION 3.25. Enforcement; Performance................................................................ 60
SECTION 3.26. Available Capacity...................................................................... 61
SECTION 3.27. Outstanding Contractor Obligations...................................................... 61
ARTICLE IV
CONDITIONS......................................................................... 61
SECTION 4.1. Conditions Precedent to Closing.......................................................... 61
SECTION 4.2. Conditions Precedent to each Loan........................................................ 70
ARTICLE V
AFFIRMATIVE COVENANTS.............................................................. 72
SECTION 5.1. Financial Statements and Other Information............................................... 72
SECTION 5.2. Reports; Other Information............................................................... 73
SECTION 5.3. Payment of Obligations................................................................... 74
SECTION 5.4. Existence................................................................................ 74
SECTION 5.5. Compliance with Laws..................................................................... 74
SECTION 5.6. Performance and Enforcement of Agreements................................................ 74
SECTION 5.7. Taxes and Claims......................................................................... 74
SECTION 5.8. Notices.................................................................................. 75
SECTION 5.9. Insurance................................................................................ 76
SECTION 5.10. Fiscal Year............................................................................. 76
SECTION 5.11. Use of Proceeds......................................................................... 76
SECTION 5.12. Interest Rate Protection................................................................ 77
SECTION 5.13. Operating Budgets....................................................................... 77
SECTION 5.14. Governmental Actions and Rights-of-Way.................................................. 77
SECTION 5.15. Cooperation with Independent Engineer................................................... 77
</TABLE>
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<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 5.16. Revenue Account......................................................................... 77
SECTION 5.17. Maintenance of Process Agent............................................................ 77
SECTION 5.18. System Operation and Maintenance........................................................ 77
SECTION 5.19. Event of Loss........................................................................... 78
SECTION 5.20. Books and Records; Inspection Rights.................................................... 78
SECTION 5.21. Foreign Corrupt Practices Act........................................................... 79
SECTION 5.22. Intellectual Property Collateral........................................................ 79
SECTION 5.23. Maintenance of Restoration.............................................................. 79
SECTION 5.24. PSA 3; FSA Date......................................................................... 79
SECTION 5.25. Further Assurances...................................................................... 80
ARTICLE VI
NEGATIVE COVENANTS................................................................. 80
SECTION 6.1. Indebtedness............................................................................. 81
SECTION 6.2. Liens.................................................................................... 81
SECTION 6.3. Fundamental Changes...................................................................... 82
SECTION 6.4. Sale of Assets........................................................................... 82
SECTION 6.5. Investments, Loans, Advances, Guarantees and Acquisitions................................ 82
SECTION 6.6. Restricted Payments; Payments with respect to Senior Unsecured Notes..................... 83
SECTION 6.7. Limitations on Issuance of Interests..................................................... 83
SECTION 6.8. Limitations on Transfer of Interests..................................................... 84
SECTION 6.9. Payment of Construction Costs; Construction Cost Certificate; Operating Budget........... 84
SECTION 6.10. Amendment of Project Documents, Senior Unsecured Note Documents......................... 85
SECTION 6.11. Termination, Assignment of Project Documents............................................ 86
SECTION 6.12. Approval of Additional Contracts........................................................ 87
SECTION 6.13. Sales of Capacity....................................................................... 87
SECTION 6.14. Acceptance of System.................................................................... 88
SECTION 6.15. Construction and Maintenance Agreement.................................................. 88
SECTION 6.16. Changes to Configuration................................................................ 88
SECTION 6.17. Leases.................................................................................. 89
SECTION 6.18. Change of Office........................................................................ 89
SECTION 6.19. Change of Name.......................................................................... 89
SECTION 6.20. Transactions with Affiliates............................................................ 89
SECTION 6.21. Sale and Leaseback...................................................................... 89
SECTION 6.22. Capital Expenditures; Other Purchases of Assets......................................... 90
SECTION 6.23. Unrelated Activities; Abandonment....................................................... 90
SECTION 6.24. Set-off................................................................................. 90
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 6.25. Intentionally Omitted................................................................... 90
SECTION 6.26. Subsidiaries............................................................................ 90
SECTION 6.27. Concentration of Cash................................................................... 91
SECTION 6.28. Amendments, etc. of Organizational and Other Documents.................................. 91
SECTION 6.29. Immunity................................................................................ 91
SECTION 6.30. Restrictive Agreements.................................................................. 92
SECTION 6.31. Minimum Cumulative Net Revenue.......................................................... 92
SECTION 6.32. Minimum Present Value Coverage Ratio.................................................... 93
ARTICLE VII
EVENTS OF DEFAULT.................................................................. 93
ARTICLE VIII
ACCOUNTS........................................................................... 98
SECTION 8.1. Creation of Accounts..................................................................... 98
SECTION 8.2. Required Deposits into the Accounts...................................................... 98
SECTION 8.3. Deposits Held as Cash Collateral.........................................................100
SECTION 8.4. Source of Payments; Deposits Irrevocable.................................................101
SECTION 8.5. Books of Account; Statements.............................................................101
SECTION 8.6. Location of the Accounts.................................................................101
SECTION 8.7. Receipt by the Borrower..................................................................101
SECTION 8.8. Construction Account.....................................................................101
SECTION 8.9. Presale Proceeds Account.................................................................102
SECTION 8.10. Revenue Account.........................................................................103
SECTION 8.11. Debt Reserve Account....................................................................105
SECTION 8.12. Supplemental Debt Reserve Account.......................................................106
SECTION 8.13. Operating Reserve Account...............................................................106
SECTION 8.14. Current Account.........................................................................106
SECTION 8.15. Maintenance Reserve Account.............................................................106
SECTION 8.16. Repair and Restoration Reserve Account..................................................106
SECTION 8.17. Capital Expenditure Account.............................................................107
SECTION 8.18. Rebate Account..........................................................................107
SECTION 8.19. Insurance Proceeds Account..............................................................108
SECTION 8.20. Special Payment Account.................................................................109
SECTION 8.21. Sales and Issuances Proceeds Account....................................................109
SECTION 8.22. Excess Revenue Account..................................................................110
SECTION 8.23. Permitted Sources Account...............................................................111
SECTION 8.24. Delivery of Officer's Certificates; Timing of Payments..................................111
SECTION 8.25. Release of Excess Amounts...............................................................111
SECTION 8.26. Event of Default........................................................................112
SECTION 8.27. Investment..............................................................................112
SECTION 8.28. Statements of Accounts..................................................................112
SECTION 8.29. Value...................................................................................113
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 8.30. Other Determinations....................................................................113
SECTION 8.31. Sales of Permitted Investments..........................................................113
SECTION 8.32. Available Cash..........................................................................113
SECTION 8.33. Termination.............................................................................113
ARTICLE IX
THE ADMINISTRATIVE AGENT...........................................................113
ARTICLE X
THE COLLATERAL TRUSTEE.............................................................116
SECTION 10.1. Appointment of Collateral Trustee.......................................................116
SECTION 10.2. Actions Etc. Under Financing Documents..................................................116
SECTION 10.3. Exculpatory Provisions..................................................................119
SECTION 10.4. Reliance by Collateral Trustee..........................................................120
SECTION 10.5. Supplemental Provisions Relating to the Collateral Trustee..............................121
SECTION 10.6. Limitations and Duties of Collateral Trustee............................................122
SECTION 10.7. Proceeds to be Held in Trust............................................................122
SECTION 10.8. Resignation and Removal of the Collateral Trustee.......................................123
SECTION 10.9. Status of Successor Collateral Trustee..................................................124
SECTION 10.10. Merger of the Collateral Trustee.......................................................124
SECTION 10.11. Appointment of Separate or Co-Collateral Trustee.......................................124
SECTION 10.12. Treatment of Payee or Indorsee by Collateral Trustee;
Representatives of Secured Parties.................................................124
SECTION 10.13. Indemnification; Fees..................................................................125
SECTION 10.14. Representation and Warranties of the Collateral Trustee................................126
SECTION 10.15. Release of Collateral..................................................................127
ARTICLE XI
MISCELLANEOUS......................................................................127
SECTION 11.1. Notices.................................................................................127
SECTION 11.2. Waivers; Amendments.....................................................................127
SECTION 11.3. Expenses; Indemnity; Damage Waiver......................................................129
SECTION 11.4. Successors and Assigns; Consent and Agreement...........................................131
SECTION 11.5. Survival................................................................................133
SECTION 11.6. Counterparts; Integration; Effectiveness................................................133
SECTION 11.7. Severability............................................................................133
SECTION 11.8. Right of Setoff.........................................................................134
SECTION 11.9. GOVERNING LAW; JURISDICTION; CONSENT TO
SERVICE OF PROCESS......................................................................134
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 11.10. Waiver of Sovereign Immunity...........................................................135
SECTION 11.11. Judgment Currency......................................................................136
SECTION 11.12. Damage Waiver..........................................................................136
SECTION 11.13. WAIVER OF JURY TRIAL...................................................................136
SECTION 11.14. Headings...............................................................................136
SECTION 11.15. Replacement of Independent Engineer....................................................136
SECTION 11.16. Confidentiality........................................................................136
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES:
<S> <C> <C>
Schedule 1.1(a) -- Presale Proceeds
Schedule 1.1(b) -- Original Configuration of the FLAG System
Schedule 1.1(c) -- Present Value Coverage Ratios
Schedule 2.1 -- Commitments; Addresses
Schedule 2.7(b) -- Term Loan Amortization; Principal Payment Dates
Schedule 3.6(a) -- Capital Structure
Schedule 3.6(b) -- Subsidiaries
Schedule 3.7(b) -- Governmental Actions and Rights-of-Way
Schedule 3.9 -- Litigation
Schedule 3.11(b) -- Collateral Recordings and Filings
Schedule 3.19(b) -- Contractual Obligations
Schedule 3.26 -- Available Capacity
Schedule 5.9 -- Insurance
Schedule 8.10(b) -- Contingent Amortization
EXHIBITS:
Exhibit A-1 -- Form of Revolving Credit Note
Exhibit A-2 -- Form of Term Note
Exhibit B-1 -- Form of Borrowing Request (Revolving Credit Loans)
Exhibit B-2 -- Form of Borrowing Request (Term Loans)
Exhibit C -- Form of Borrowing Certificate
Exhibit D -- Form of Continuation/Conversion Notice
Exhibit E -- Form of Borrower Security Agreement
Exhibit F -- Form of Pledge Agreement
Exhibit G -- Intentionally Omitted
Exhibit H -- Intentionally Omitted
Exhibit I-1 -- Form of Contractor Consent
Exhibit I-2 -- Form of AT&T Guaranty Consent
Exhibit I-3 -- Form of BANS Consent
Exhibit I-4 -- Form of Bell Atlantic Shareholder Consent
Exhibit I-5 -- Form of KDD Guaranty Consent
Exhibit J -- Intentionally Omitted
Exhibit K -- Form of Construction Cost Certificate
Exhibit L -- Intentionally Omitted
Exhibit M -- Form of Assignment and Acceptance
Exhibit N-1 -- Form of Opinion of Morgan, Lewis & Bockius LLP, New York
counsel to the Borrower
Exhibit N-2 -- Form of Opinion of Stuart Rubin, Esq., in-house counsel to the Borrower
Exhibit N-3 -- Form of Opinion of Harney, Westwood & Riegels, British Virgin
<PAGE>
Islands counsel to Rathburn
Exhibit N-4 -- Form of Opinion of Appleby, Spurling & Kempe, Bermuda counsel to
Marubeni Telecom
Exhibit N-5 -- Form of Opinion of Edward G. Scheibler, Jr., Esq., in-house counsel to
Marubeni Telecom
Exhibit N-6 -- Form of Opinion of W.S. Walker & Company, Cayman Islands counsel to
AIF
Exhibit N-7 -- Form of Opinion of Baker & McKenzie, Thai counsel to KIN
Exhibit N-8 -- Form of Opinion of Paul Repp, Esq., in-house counsel to the Bell Atlantic
Shareholder
Exhibit N-9 -- Form of Opinion of Barbara Meserole, Esq., in-house counsel to AT&T
Capital
Exhibit N-10 -- Form of Opinion of Harsha Murthy, Esq., in-counsel to GE Capital
Exhibit N-11 -- Form of Opinion of Mello, Hollis, Jones & Martin, Bermuda counsel to
GE Capital
Exhibit N-12 -- Form of Opinion of Mello, Hollis, Jones & Martin, Bermuda counsel to
the Collateral Trustee
Exhibit N-13 -- Form of Opinion of Conyers Dill & Pearman, Bermuda counsel to the
Lenders
Exhibit O -- Form of Contractor Escrow Agreement
Exhibit P -- Form of Registrar and Transfer Agent Agreement
Exhibit Q -- Form of Expense Certificate
</TABLE>
<PAGE>
CREDIT AGREEMENT, dated as of January 28, 1998 (as amended,
supplemented or otherwise modified from time to time, this "AGREEMENT"), among
FLAG LIMITED, a company organized and existing under the laws of Bermuda (the
"BORROWER"), the Term Lenders (as defined herein), the Revolving Credit Lenders
(as defined herein; and together with the Term Lenders, the "LENDERS"), BARCLAYS
BANK PLC, as administrative agent for the Lenders (in such capacity, the
"ADMINISTRATIVE AGENT"), and INTERNATIONAL TRUST COMPANY OF BERMUDA LIMITED, as
collateral trustee (in such capacity, the "COLLATERAL TRUSTEE").
W I T N E S S E T H :
WHEREAS, capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to them in Section 1.1 of this
Agreement;
WHEREAS, the Borrower (a) has developed and constructed a
fiberoptic submarine cable system to furnish digital transmission facilities
between and among points in the United Kingdom, Spain, Italy, Egypt, the United
Arab Emirates, India, Thailand, Malaysia, Hong Kong, the People's Republic of
China, the Republic of Korea and Japan (the "FLAG SYSTEM") and (b) proposes to
sell capacity on the FLAG System to telecommunications carriers;
WHEREAS, in order to provide for the construction and
installation of the FLAG System, the Borrower entered into the Construction
Contract with TSS, KDD-SCS and Marubeni;
WHEREAS, TSS and KDD-SCS have physically completed the
construction and installation of the FLAG System and the Certificate of
Provisional System Acceptance has been issued under the Construction Contract in
respect thereof;
WHEREAS, the Borrower, the Landing Party PTTs and the
Participating PTTs have executed and delivered the C&MA which sets forth, among
other things, the terms and conditions upon which the FLAG System has been
constructed and will be owned, maintained and operated;
WHEREAS, the Borrower has requested the Lenders to provide
certain extensions of credit hereunder in order to (a) refinance the Borrower's
existing senior secured indebtedness, (b) redeem the Existing Preferred Stock,
(c) pay for certain transaction, legal and other expenses, (d) provide for all
remaining FLAG System construction costs and (e) provide a working capital
facility, all in accordance with the terms hereof; and
WHEREAS, in furtherance of the foregoing and in order to
secure and support the Borrower's obligations to the Lenders under the Financing
Documents, the
<PAGE>
2
Borrower and the Shareholders (other than Gulf) will enter into the Security
Documents;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINED TERMS. As used in this Agreement, including in the
preamble hereto, the following terms shall have the meanings specified below:
"ABR" when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"ACCOUNTS" shall be the collective reference to the Revenue Account,
the Current Account, the Construction Account, the Presale Proceeds Account, the
Debt Reserve Account, the Supplemental Debt Reserve Account, the Operating
Reserve Account, the Insurance Proceeds Account, the Special Payment Account,
the Sales and Issuances Proceeds Account, the Repair and Restoration Reserve
Account, the Capital Expenditure Account, the Maintenance Reserve Account, the
Excess Revenue Account, the Rebate Account, the Permitted Sources Account and
each other account, together with each sub-account of such accounts, established
and maintained pursuant to Article VIII.
"ADDITIONAL CONTRACT" shall mean each contract entered into by the
Borrower or any Subsidiary thereof after the Closing Date (other than employment
contracts and contracts involving less than $1,000,000 annually).
"ADJUSTED LIBO RATE" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"ADMINISTRATIVE AGENT" shall have the meaning ascribed thereto in the
preamble, together with each of its successors hereunder.
"AFFILIATE" shall mean, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or
<PAGE>
3
is under common Control with the Person specified.
"AGREEMENT" shall have the meaning ascribed thereto in the preamble.
"AGREEMENT FOR THE MAINTENANCE OF PACIFIC OCEAN CABLE SYSTEMS IN THE
YOKOHAMA ZONE" shall mean the Agreement for the Maintenance of Pacific Ocean
Cable Systems in the Yokohama Zone, dated March 11, 1997, between and among
AT&T, KDD, the Borrower, and other Persons from time to time parties thereto, as
amended, supplemented or otherwise modified prior to the Closing Date and as the
same may be further amended, supplemented or otherwise modified from time to
time in accordance with the terms of this Agreement.
"AGREEMENT FOR THE MAINTENANCE OF THE FLAG SUBMARINE CABLE SYSTEM"
shall mean Agreement No. 136H-96 for Maintenance & Repair of FLAG Submarine
Cable System, dated November 1, 1997, between Emirates Telecommunications
Corporation and the Borrower, as amended, supplemented or otherwise modified
prior to the Closing Date and as the same may be further amended, supplemented
or otherwise modified from time to time in accordance with the terms of this
Agreement.
"AIF" shall mean the Asian Infrastructure Fund, a corporation organized
and existing under the laws of the Cayman Islands.
"AIF/DRESDNER SUBORDINATED PLEDGE AGREEMENT" shall mean the Pledge
Agreement, dated as of June 30, 1995, between AIF and Dresdner Bank AG, New York
Branch, as amended, supplemented or otherwise modified prior to the Closing
Date.
"AIF/NYNEX CORPORATION SUBORDINATED PLEDGE AGREEMENT" shall mean the
Pledge Agreement, dated as of June 30, 1995, between AIF and NYNEX Corporation,
as amended, supplemented or otherwise modified prior to the Closing Date.
"AIF PLEDGE AGREEMENT" shall mean the Pledge Agreement, dated as of the
date hereof, substantially in the form of Exhibit F, made by AIF in favor of the
Collateral Trustee, for the benefit of the Secured Parties, as amended,
supplemented or otherwise modified from time to time in accordance with the
terms of this Agreement.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum equal
to the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, the Alternate Base Rate shall be determined
without regard to clause (b) of the preceding sentence until such time as the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the
<PAGE>
4
Federal Funds Effective Rate shall be effective from and including the effective
date of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
"APPLICABLE LAWS" shall mean all Requirements of Law, all Governmental
Actions and all applicable laws, statutes, treaties, rules, codes, ordinances,
regulations, certificates, orders, interpretations, licenses and permits of any
Governmental Authority and judgments, decrees, injunctions, writs, orders or
like action of any court, arbitrator or other administrative, judicial or
quasi-judicial tribunal or agency of competent jurisdiction (including those
pertaining to health, safety or the environment).
"APPLICABLE MARGIN" shall mean, for any day, with respect to any ABR
Loan or Eurodollar Loan, the applicable rate per annum set forth below under the
caption "ABR Spread" or "Eurodollar Spread", as the case may be:
<TABLE>
<CAPTION>
ABR Spread Eurodollar Spread
---------- -----------------
<S> <C>
0.90% 1.90%
</TABLE>
PROVIDED that the Applicable Margins set forth above shall be increased by
0.225% on and after the date which is five years after the Closing Date.
"APPLICABLE PERCENTAGE" shall mean, with respect to any Lender at any
time of determination, the percentage of the total unused Commitments and
outstanding Loans represented by such Lender's unused Commitments and
outstanding Loans. If the Commitments have terminated or expired, the Applicable
Percentages shall be determined based upon the Commitments most recently in
effect, giving effect to any assignments.
"APPROVED FUND" shall mean, with respect to any Lender that is a fund
that invests in commercial loans, any other fund that invests in commercial
loans and is managed by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"ARRANGER" shall mean Barclays Bank PLC.
"ASSIGNED AGREEMENTS" shall be the collective reference to each
agreement which is being assigned by the Borrower or any Subsidiary of the
Borrower to the Collateral Trustee pursuant to any Security Document.
"ASSIGNMENT AND ACCEPTANCE" shall mean any assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Administrative
Agent in
<PAGE>
5
accordance with Section 11.4, substantially in the form of Exhibit M or any
other form approved by the Administrative Agent.
"ATLANTIC CABLE MAINTENANCE AGREEMENT" shall mean the Atlantic Cable
Maintenance And Repair Agreement, dated January 1, 1998, between and among AT&T,
British Telecommunications plc, the Borrower and the other Persons from time to
time parties thereto, as amended, supplemented or otherwise modified prior to
the Closing Date and as the same may be further amended, supplemented or
otherwise modified from time to time in accordance with the terms of this
Agreement.
"AT&T" shall mean AT&T Corp., a New York corporation, and its
successors.
"AT&T CAPITAL" shall mean AT&T Capital Corporation, a Delaware
corporation.
"AT&T CAPITAL PLEDGE AGREEMENT" shall mean the Pledge Agreement, dated
as of the date hereof, substantially in the form of Exhibit F, made by AT&T
Capital in favor of the Collateral Trustee, for the benefit of the Secured
Parties, as amended, supplemented or otherwise modified from time to time in
accordance with the terms of this Agreement.
"AT&T CONSTRUCTION CONTRACT GUARANTY" shall mean the Guaranty, dated as
of December 14, 1994, made by AT&T in favor of the Borrower, as amended,
supplemented or otherwise modified prior to the Closing Date and as the same may
be further amended, supplemented or otherwise modified from time to time in
accordance with the terms of this Agreement.
"AT&T GUARANTY CONSENT" shall mean the Consent to Assignment, dated as
of the date hereof, made by AT&T in favor of the Collateral Trustee,
substantially in the form of Exhibit I-2, as amended, supplemented or otherwise
modified from time to time in accordance with the terms of this Agreement.
"BANS" shall mean Bell Atlantic Network Systems (Bermuda) Limited, a
corporation organized and existing under the laws of Bermuda, formerly known as
NNS (Bermuda) Limited.
"BANS CONSENT" shall mean the Consent to Assignment, dated as of the
date hereof, made by BANS in favor of the Collateral Trustee, substantially in
the form of Exhibit I-3, as amended, supplemented or otherwise modified from
time to time in accordance with the terms of this Agreement.
"BASIC SYSTEM MODULES" shall have the meaning ascribed thereto in the
C&MA.
"BELL ATLANTIC CORPORATION" shall mean Bell Atlantic Corporation, a
Delaware corporation.
<PAGE>
6
"BELL ATLANTIC SHAREHOLDER" shall mean NYNEX Network Systems Company, a
Delaware corporation, and a wholly-owned subsidiary of Bell Atlantic
Corporation.
"BELL ATLANTIC SHAREHOLDER CONSENT" shall mean the Consent to
Assignment, dated as of the date hereof, made by the Bell Atlantic Shareholder
in favor of the Collateral Trustee, substantially in the form of Exhibit I-4, as
amended, supplemented or otherwise modified from time to time in accordance with
the terms of this Agreement.
"BELL ATLANTIC SHAREHOLDER PLEDGE AGREEMENT" shall mean the Pledge
Agreement, dated as of the date hereof, substantially in the form of Exhibit F,
made by the Bell Atlantic Shareholder in favor of the Collateral Trustee, for
the benefit of the Secured Parties, as amended, supplemented or otherwise
modified from time to time in accordance with the terms of this Agreement.
"BOARD" shall mean the Board of Governors of the Federal Reserve System
of the United States of America.
"BORROWER" shall have the meaning ascribed thereto in the preamble.
"BORROWER PLEDGE AGREEMENTS" shall be the collective reference to each
pledge agreement executed and delivered by the Borrower in accordance with
Section 6.26, as each may be amended, supplemented or otherwise modified from
time to time in accordance with the terms of this Agreement.
"BORROWER SECURITY AGREEMENT" shall mean the Security Agreement, dated
as of the date hereof, substantially in the form of Exhibit E, made by the
Borrower in favor of the Collateral Trustee, for the benefit of the Secured
Parties, as amended, supplemented or otherwise modified from time to time in
accordance with the terms of this Agreement.
"BORROWER'S INSURANCE CONSULTANT" shall mean Hobbs Group, LLC.
"BORROWING" shall mean Loans of the same Class and Type, made,
converted or continued on the same date and as to which a single Interest Period
is in effect.
"BORROWING CERTIFICATE" shall mean a certificate of the Borrower,
substantially in the form of Exhibit C, executed by a Responsible Officer of the
Borrower.
"BORROWING REQUEST" shall mean a notice from the Borrower, executed by
a Responsible Officer of the Borrower, substantially in the form of (a) Exhibit
B-1, in the
<PAGE>
7
case of a request for the making of Revolving Credit Loans and (b) Exhibit B-2,
in the case of a request for the making of Term Loans.
"BRANCHING UNIT" shall have the meaning ascribed thereto in the C&MA.
"BUSINESS DAY" shall mean any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; PROVIDED that, when used in connection with a
Eurodollar Loan, the term "BUSINESS DAY" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"C&MA" shall mean the Construction and Maintenance Agreement, dated as
of December 14, 1994, among the Borrower, the Original Landing Party PTTs and
the Participating PTTs from time to time parties thereto, as amended,
supplemented or otherwise modified prior to the Closing Date and as the same may
be further amended, supplemented or otherwise modified from time to time in
accordance with the terms of this Agreement.
"CAPACITY" shall have the meaning ascribed to the term "Design
Capacity" in the C&MA.
"CAPACITY PAYMENTS" shall mean the cash payments in Dollars that the
PTTs are obligated to make to the Borrower pursuant to Capacity Sales
Agreements.
"CAPACITY SALES AGREEMENTS" shall mean all agreements for the sale,
lease or other disposition of Capacity (including for non-cash consideration
pursuant to Capacity swap arrangements and agreements for mutual restoration)
entered into between the Borrower and any other Person, in each case as the same
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms of this Agreement.
"CAPITAL EXPENDITURE ACCOUNT" shall mean the special account designated
by that name established by the Collateral Trustee pursuant to Article VIII.
"CAPITAL EXPENDITURE MAXIMUM BALANCE" shall mean $35,000,000.
"CAPITAL LEASE OBLIGATIONS" of any Person, shall mean the obligation 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 the amount of such obligations
shall be the capitalized amount thereof determined in accordance with GAAP.
<PAGE>
8
"CAPITAL STOCK" shall mean any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, and any and all equivalent ownership interests in a Person (other
than a corporation) and any and all warrants or options to purchase any of the
foregoing.
"CASUALTY PROCEEDS" shall mean all payments and proceeds of each
insurance policy maintained by the Borrower or any Subsidiary thereof and all
compensation, award, damages or other payments or relief in respect of any
taking of, or in respect of casualty to or loss of, property, but excluding
business interruption insurance and payments in respect of liability policies.
"CASUALTY PROCEEDS DEPOSITS" shall have the meaning ascribed thereto in
Section 8.19(a).
"CERTIFICATE OF FINAL SYSTEM ACCEPTANCE" shall have the meaning
ascribed thereto in the Construction Contract.
"CERTIFICATE OF PROVISIONAL SYSTEM ACCEPTANCE" shall have the meaning
ascribed thereto in the Construction Contract.
"CHANGE IN CONTROL" shall mean and shall be deemed to have occurred if
any of the following occurs: (a) Bell Atlantic Corporation shall cease to
directly or indirectly own at least 20% of the issued and outstanding voting
stock of the Borrower, free and clear of all Liens, other than the Liens created
by the Security Documents or (b) Marubeni shall cease to directly or indirectly
own at least 5% of the issued and outstanding voting stock of the Borrower, free
and clear of all Liens, other than the Liens created by the Security Documents.
"CHANGE IN LAW" shall mean (a) the adoption of any law, rule or
regulation after the Closing Date, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the Closing Date or (c) compliance by any Lender or any parent of any
Lender with any request, guideline or directive of any Governmental Authority
made or issued after the Closing Date (whether or not having the force of law).
"CLASS" when used in reference to any Loan or Borrowing, refers to
whether such Loan is part of, or the Loans comprising such Borrowing are,
Revolving Credit Loans or Term Loans and, when used in reference to any
Commitment, refers to whether such Commitment is a Revolving Credit Commitment
or a Term Loan Commitment.
<PAGE>
9
"CLOSING DATE" shall mean the date on which this Agreement shall have
been executed and delivered by the parties hereto and the conditions specified
in Section 4.1 are satisfied or waived as evidenced by the making of the Term
Loans.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL" shall be the collective reference to (a) the "Collateral"
as such term is defined in any Security Agreement, (b) the Pledged Stock and (c)
all other property, if any, in which a security interest is, or is purported to
be, granted to secure the Obligations (or any portion thereof).
"COLLATERAL TRUSTEE" shall have the meaning ascribed thereto in the
preamble, together with each of its successors hereunder.
"COMMITMENTS" shall mean the Revolving Credit Commitments or the Term
Loan Commitments, or a combination thereof (as the context requires).
"COMMONLY CONTROLLED ENTITY" shall mean, as to any Person, an entity,
whether or not incorporated, which is under common control with such Person
within the meaning of Section 4001 of ERISA or is part of a group which includes
such Person and which is treated as a single employer under Section 414 of the
Code.
"CONSENTS" shall be the collective reference to the Contractor Consent,
the AT&T Guaranty Consent, the KDD Guaranty Consent, the Bell Atlantic
Shareholder Consent, the BANS Consent and each other consent to assignment, in
form and substance satisfactory to the Administrative Agent, to be executed and
delivered by each party (other than the Borrower) to any Additional Contract
which may be obtained and delivered to the Administrative Agent in accordance
with Section 6.12.
"CONSOLIDATED EBITDA" shall mean, for any period, the revenues of the
Borrower and its Subsidiaries for such period from continuing operations, minus
associated costs (including cost of sales but excluding Interest Expense, income
taxes, depreciation and amortization), determined in each case on a consolidated
basis in accordance with GAAP.
"CONSTRUCTION ACCOUNT" shall mean the special account designated by
that name established by the Collateral Trustee pursuant to Article VIII.
"CONSTRUCTION CONTRACT" shall mean the FLAG Cable System Terms and
Conditions of Contract, dated as of December 14, 1994, among the Borrower, TSS,
KDD-SCS and Marubeni (including all schedules and appendices thereto), as
amended, supplemented or otherwise modified prior to the Closing Date and as the
<PAGE>
10
same may be further amended, supplemented or otherwise modified from time to
time in accordance with the terms of this Agreement.
"CONSTRUCTION CONTRACT GUARANTEES" shall be the collective reference to
the AT&T Construction Contract Guaranty and the KDD Construction Contract
Guaranty.
"CONSTRUCTION CONTRACT GUARANTORS" shall be the collective reference to
AT&T and KDD.
"CONSTRUCTION COST CERTIFICATE" shall have the meaning ascribed thereto
in Section 4.1(x).
"CONSULTANTS" shall be the collective reference to the Independent
Engineer and the Market Consultant.
"CONTEST" shall mean, with respect to any tax, Lien, claim or
obligation, a contest with respect thereto pursued in good faith and by
appropriate and timely proceedings diligently conducted, so long as (a) no Lien
(other than Permitted Liens) shall have been filed in connection therewith or
any Lien (other than Permitted Liens) filed in connection therewith shall have
been fully removed from the record by the bonding thereof, (b) except with
respect to any Lien that has been removed from the record by the bonding thereof
in accordance with clause (a), adequate reserves (which shall be in cash unless
the Administrative Agent otherwise agrees) shall have been established with
respect to such tax, Lien, claim or obligation, (c) during the period of such
contest the enforcement of any contested item is effectively stayed, (d) such
contest could not reasonably be expected to involve any material danger of the
sale, forfeiture or loss of any of the Pledged Stock or any material part of the
other Collateral or the Project, title thereto or any interest therein and will
not cause a material interference with any Project Activity and (e) the failure
to pay such tax, Lien, claim or obligation during the pendency of such contest
could not reasonably be expected to have a Material Adverse Effect.
"CONTINUATION/CONVERSION NOTICE" shall mean a notice in the form of
Exhibit D, executed by a Responsible Officer of the Borrower.
"CONTRACT VARIATIONS" shall mean any amendment, supplement or other
modification to the Construction Contract and shall include any "Contract
Variation" as such term is defined in the Construction Contract.
"CONTRACTOR CONSENT" shall mean the Consent to Assignment, dated as of
the date hereof, substantially in the form of Exhibit I-1, made by the
Contractors in favor of the Collateral Trustee, as amended, supplemented or
otherwise modified from time to time in accordance with the terms of this
Agreement.
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11
"CONTRACTOR ESCROW ACCOUNT" shall mean the special account designated
by that name established by the Contractor Escrow Agent pursuant to the
Contractor Escrow Agreement.
"CONTRACTOR ESCROW AGENT" shall mean Barclays Bank PLC, in its capacity
as escrow agent under the Contractor Escrow Agreement.
"CONTRACTOR ESCROW AGREEMENT" shall mean the Escrow Agreement, dated as
of the Closing Date, substantially in the form of Exhibit O, among the Borrower,
the Contractors and the Contractor Escrow Agent, as amended, supplemented or
otherwise modified from time to time in accordance with the terms of this
Agreement.
"CONTRACTORS" shall be the collective reference to TSS, KDD-SCS and
Marubeni (as to Marubeni, solely in its capacity as a nominal supplier under the
Construction Contract).
"CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision of
any security issued by such Person or any agreement, instrument, judgment,
order, decree or other undertaking to which such Person is a party or by which
it or any of its property is bound.
"CONTROL" shall mean the possession, directly or indirectly, of (a) the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise and/or (b) the ownership of 10% or more of the securities having
ordinary voting power for the election of directors of a Person. "CONTROLLING"
and "CONTROLLED" have meanings correlative thereto.
"CUMULATIVE NET REVENUE" shall mean, for any period, the sum of (a) the
aggregate amount of Capacity Payments received during such period (plus up to
$4.5 million of Capacity Payments received prior to such period which did not
constitute Presale Proceeds) in respect of the sale, lease and/or other
disposition of Capacity which are not subject to return to the applicable PTT
(net of sales commissions, Landing Party commissions and Taxes payable with
respect thereto and net of any amount received which is subject to a rebate
obligation), MINUS (b) the aggregate amount of Presale Proceeds received during
such period, PLUS (c) the aggregate amount of Restoration Payments received
during such period (net of any amount received which is subject to a rebate
obligation), PLUS (d) the aggregate amount of Standby Maintenance Payments
received during such period, MINUS (e) the aggregate amount of Operating
Expenses (net of repair maintenance expenses and restoration
<PAGE>
12
expenses reimbursed by third parties or paid out of the Repair and Restoration
Account) and capital expenditures paid (other than capital expenditures paid
with amounts on deposit in the Capital Expenditure Account) in respect of each
calendar year occurring prior to the date on which "Cumulative Net Revenue" is
calculated, in each case only to the extent such amounts were paid in accordance
with the then current Operating Budget or otherwise permitted hereunder, MINUS
(f) the aggregate amount transferred to the Capital Expenditure Account in
accordance with Section 8.10(a)(iii) in respect of each calendar year occurring
prior to the date on which "Cumulative Net Revenue" is calculated, MINUS (g) an
amount equal to a proportionate share of the Operating Expenses (net of repair
maintenance expenses and restoration expenses reimbursable by third parties) and
capital expenditures set forth in the then current Operating Budget (25% of such
amounts for each calendar quarter since the end of the previous fiscal year),
PLUS (h) the aggregate amount of Presale Proceeds received during the period
prior to the date on which "Cumulative Net Revenue" is calculated which were
used during such period to prepay the Term Loans, PLUS (i) the aggregate amount
of the Term Loans, if any, prepaid during such period with proceeds from the
Contractor Escrow Account, the Construction Account or Capital Expenditure
Account.
"CURRENT ACCOUNT" shall mean the special account designated by that
name established by the Collateral Trustee pursuant to Article VIII.
"DEBT RESERVE ACCOUNT" shall mean the special account designated by
that name established by the Collateral Trustee pursuant to Article VIII.
"DEBT RESERVE REQUIRED BALANCE" shall mean, as of any date of
determination, an amount (not less than zero) equal to the difference between
(a) the Gross Debt Reserve Required Amount at such time and (b) the aggregate
amount of the Revolving Credit Commitments at such time. The aggregate amount of
the Revolving Credit Commitments shall be computed for purposes of this
definition by taking into account any limitation of the Revolving Credit
Commitments pursuant to Section 2.6(e).
"DEFAULT" shall mean any event or condition which constitutes an Event
of Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"DESIGN DOCUMENTS" shall be the collective reference to each document
which justifies the Project (or any portion thereof) as meeting the requirements
and specifications set forth in the Construction Contract and/or the C&MA.
"DESIGNATED EVENT" shall mean, as of any date of determination, the
failure of the Borrower and its Subsidiaries to be in compliance with Section
6.31 or 6.32 as of such date, as set forth in the certificate delivered by the
Borrower to the Administrative Agent
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13
and the Collateral Trustee in accordance with Section 5.2(b), or the failure of
the Borrower to deliver such certificate when required.
"DOLLARS" or "$" refers to lawful money of the United States of
America.
"ENVIRONMENTAL LAWS" shall mean any and all international, national,
state, local or municipal treaties, laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, permits or requirements of any Governmental
Authority relating to the protection of the environment, natural resources or
human health, including, but not limited to, those relating to emissions,
discharge, Releases or threatened Releases of Hazardous Materials into the
environment including, without limitation, ambient air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as now or hereafter in effect.
"ENVIRONMENTAL LIABILITY" shall mean any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
thereof directly or indirectly resulting from or based upon (a) a violation of
any Environmental Law or (b) the release or threatened release of any Hazardous
Materials into the environment.
"EOL COMPLIANCE CERTIFICATE" shall have the meaning ascribed thereto in
Section 5.19(a).
"EQUITY SUBSCRIPTION AGREEMENT" shall mean the FLAG Equity Subscription
Agreement, dated as of June 15, 1995, among the Bell Atlantic Shareholder,
Marubeni Telecom, Rathburn, AIF, KIN and the Borrower, as amended, supplemented
or otherwise modified prior to the Closing Date and as the same may be further
amended, supplemented or otherwise modified from time to time in accordance with
the terms of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA AFFILIATE" shall mean any entity (whether or not incorporated)
that, together with the Borrower, is treated as a single employer under Section
414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of
the Code.
"ERISA EVENT" means (a) any "reportable event", as defined in Section
4043(c)
<PAGE>
14
of ERISA or the regulations issued thereunder with respect to a Plan (other than
an event for which the 30-day notice period is waived under applicable PBGC
regulations); (b) the failure to make a required contribution to any Plan
sufficient to give rise to a lien under Section 302(f) of ERISA; (c) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the taking of any steps by the Borrower or any of its
ERISA Affiliates to terminate any Plan, if such termination could result in any
liability under Title IV of ERISA with respect to such Plan; (f) the receipt by
the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any
notice relating to an intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (g) the incurrence by the Borrower or any of its
ERISA Affiliates of any liability with respect to the withdrawal or partial
withdrawal, within the meaning of Section 4063 of ERISA, from any
multiple-employer Plan; or (h) the receipt by the Borrower or any ERISA
Affiliate of any notice from any Multiemployer Plan concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.
"EURODOLLAR" when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.
"EVENT OF DEFAULT" shall mean the occurrence of any of the events
specified in Article VII, PROVIDED that any requirement for the giving of
notice, the lapse of time or both, or for the happening of any other condition,
has been satisfied.
"EVENT OF LOSS" shall mean (a) the actual or constructive total loss
(by way of condemnation, expropriation or otherwise) of all or substantially all
of the Project or any Segment of the FLAG System, (b) the loss, destruction,
damage or constructive loss of a material portion of the Project or any Segment
of the FLAG System (by way of condemnation, expropriation or otherwise), (c) the
cessation or material impairment of the operation of the Project or any Segment
of the FLAG System for a period greater than 90 days or (d) the occurrence of
one or more judgments or decrees being entered in the form of an injunction or
similar form of relief requiring suspension or abandonment of a portion of the
Project and the failure of the Borrower to have such injunction or similar form
of relief stayed or discharged within 60 days.
"EXCESS CASH FLOW" shall mean, for each quarterly period ending on a
Principal Payment Date (or, with respect to the Initial Principal Payment Date,
the period from the Closing Date to the Initial Principal Payment Date), all
cash revenue received by the Borrower during such period and available after the
application of clauses first through seventh of Section 8.10(b) in accordance
with the terms of Article VIII.
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15
"EXCESS CASH FLOW ACCOUNT" shall have the meaning ascribed thereto in
Section 6.27.
"EXCESS REVENUE ACCOUNT" shall mean the special account designated by
that name established by the Collateral Trustee pursuant to Article VIII.
"EXCHANGE NOTES" shall mean the promissory notes issued by the Borrower
in exchange for the Unregistered Notes (in an aggregate principal amount not to
exceed the aggregate principal amount of the Unregistered Notes being exchanged
and with terms identical in all material respects to those of the Unregistered
Notes except that the Exchange Notes will not contain terms with respect to
transfer restrictions) as contemplated by the Senior Unsecured Note Offering
Memorandum.
"EXCHANGE OFFER" shall mean the offer by the Borrower to exchange the
Exchange Notes for the Unregistered Notes as contemplated by the Senior
Unsecured Note Offering Memorandum.
"EXCLUDED TAXES" shall mean, with respect to the Administrative Agent,
the Collateral Trustee, the Arranger or any Lender (a) income or franchise taxes
imposed on (or incurred by) its net income by the United States of America, or
by the jurisdiction under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which
its applicable lending office is located, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any other
jurisdiction in which such Lender, the Administrative Agent or the Collateral
Trustee, as the case may be, is located and (c) in the case of a Lender, any
withholding Tax that is attributable to such Lender's failure to comply with
Section 2.15(e).
"EXISTING AT&T CAPITAL STOCK PURCHASE AGREEMENT" shall mean the Stock
Purchase Agreement, dated as of December 28, 1995, between the Borrower and AT&T
Capital, as amended, supplemented or otherwise modified prior to the Closing
Date.
"EXISTING COLLATERAL TRUSTEE" shall mean International Trust Company of
Bermuda Limited, a company organized and existing under the laws of Bermuda, as
collateral trustee under the Existing Participation Agreement and certain of the
Existing Financing Documents.
"EXISTING EQUITY CONTRIBUTION AGREEMENTS" shall have the meaning
ascribed to the term "Equity Contribution Agreements" in Annex A to the Existing
Participation Agreement.
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16
"EXISTING FINANCING DOCUMENTS" shall have the meaning ascribed to the
term "Financing Documents" in Annex A to the Existing Participation Agreement.
"EXISTING GE CAPITAL STOCK PURCHASE AGREEMENT" shall mean the Stock
Purchase Agreement, dated as of October 19, 1995, between the Borrower and GE
Capital, as amended, supplemented or otherwise modified prior to the Closing
Date.
"EXISTING PARTICIPATION AGREEMENT" shall mean the Amended and Restated
Participation Agreement, dated as of October 19, 1995, among the Borrower, the
Existing Collateral Trustee, the lenders from time to time parties thereto as
Tranche A Lenders, the lenders from time to time parties thereto as Tranche B
Lenders, the lenders from time to time parties thereto as Tranche C Lenders,
Barclays Bank PLC, New York Branch, as Tranche A Administrative Agent and
Tranche C Administrative Agent, Marubeni Corporation, as Tranche B
Administrative Agent and Canadian Imperial Bank of Commerce, New York Agency, as
Documentation Agent, as amended, supplemented or otherwise modified prior to the
Closing Date.
"EXISTING PREFERRED SHAREHOLDERS" shall mean GE Capital and AT&T
Capital.
"EXISTING PREFERRED STOCK" shall mean all of the issued and outstanding
shares of preferred stock of the Borrower as of the Closing Date (before giving
effect to the consummation of the Refinancing).
"EXISTING PREFERRED STOCK DOCUMENTS" shall be the collective reference
to the Existing Stock Purchase Agreements and each other document to which any
Existing Preferred Shareholder is a party to or which was otherwise executed in
connection with any Existing Preferred Shareholders' acquisition of any Existing
Preferred Stock.
"EXISTING SPONSOR SUBORDINATED PLEDGE AGREEMENTS" shall be the
collective reference to the AIF/NYNEX Corporation Subordinated Pledge Agreement,
the AIF/Dresdner Subordinated Pledge Agreement and the Rathburn/NYNEX
Corporation Subordinated Pledge Agreement.
"EXISTING STOCK PURCHASE AGREEMENTS" shall be the collective reference
to the Existing GE Capital Stock Purchase Agreement and the Existing AT&T
Capital Stock Purchase Agreement.
"EXPENSE CERTIFICATE" shall mean a certificate of the Borrower
substantially in the form of Exhibit Q.
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17
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) 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 that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"FEE LETTER" shall mean the fee letter agreement, dated as of the date
hereof, among the Borrower, the Arranger and the Administrative Agent, as
amended, supplemented or otherwise modified from time to time.
"FINAL" shall, (a) as to any Governmental Action issued or transferred
to any Person, mean the status of such Governmental Action as (i) duly issued in
the name of, or validly transferred to, such Person and accepted by such Person,
(ii) in full force and effect and (iii) not then subject to any pending judicial
or administrative proceedings or (b) as to any judicial proceeding, mean the
resolution of such proceeding by a court of competent jurisdiction from which no
appeal is or can be taken. If the Applicable Law under which a Governmental
Action was issued provides for a fixed period for judicial or administrative
appeal or review thereof, such Governmental Action shall not be deemed "Final"
unless such period has expired and no petition for administrative or judicial
appeal or review has been filed.
"FINAL SYSTEM ACCEPTANCE" shall have the meaning ascribed thereto in
the Construction Contract.
"FINANCING DOCUMENTS" shall be the collective reference to this
Agreement, the Notes, the Security Documents, the Interest Hedging Agreements,
the Registrar and Transfer Agent Agreement, the Subsidiary Guarantees and the
Consents.
"FLAG SYSTEM" shall have the meaning ascribed thereto in the recitals
to this Agreement, as such system may be reconfigured or otherwise altered in
accordance with the terms of this Agreement.
"FNOC" shall have the meaning ascribed thereto in Paragraph 10.4 of the
C&MA.
"FSA DATE" shall mean the date the Certificate of Final System
Acceptance is issued in accordance with the terms of the Construction Contract
and the Financing Documents.
"GAAP" shall mean generally accepted accounting principles in the
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18
United States of America, as in effect from time to time.
"GE CAPITAL" shall mean GE Capital Project Finance VI Ltd., a company
organized and existing under the laws of Bermuda.
"GE CAPITAL PLEDGE AGREEMENT" shall mean the Pledge Agreement, dated as
of the date hereof, substantially in the form of Exhibit F, made by GE Capital
in favor of the Collateral Trustee, for the benefit of the Secured Parties, as
amended, supplemented or otherwise modified from time to time in accordance with
the terms of this Agreement.
"GOVERNMENTAL ACTION" shall mean all permits, authorizations,
registrations, consents, approvals, waivers, exceptions, variances, claims,
orders, judgments and decrees, licenses, exemptions, publications, filings,
notices to and declarations of or with any Governmental Authority and shall
include, without limitation, all Permits (as defined in the Construction
Contract) and all construction, installation, siting, environmental and
operating permits and licenses that are required for the performance of the
Project Activities.
"GOVERNMENTAL AUTHORITY" shall mean the government of the United States
of America, any other nation or any political subdivision thereof, whether state
or local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"GROSS DEBT RESERVE REQUIRED AMOUNT" shall mean, as of any date of
determination, an amount equal to the sum of (a) 50% of all scheduled payments
of interest (based on the then current interest rates on the Loans and Senior
Unsecured Notes, as applicable, after giving effect to any principal prepayments
made on or prior to such date) and (b) 50% of all scheduled payments of
principal (before giving effect to any principal prepayments), in each case on
the Loans and the Senior Unsecured Notes during the succeeding twelve months,
PROVIDED that the amount set forth in clause (b) shall in no event exceed the
aggregate principal amount of the Loans outstanding as of such date.
"GROSS MAINTENANCE RESERVE REQUIRED AMOUNT" shall mean, as of any date
of determination, an amount (not less than zero) equal to the difference between
(a) the actual Operating Expenses for the preceding six-month period ending on
such date and (b) 50% of the aggregate of any O&M Payments received by the
Borrower during the 12-month period ending on such date (or, for any date prior
to the first anniversary of
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19
the Closing Date, 50% of the aggregate of any O&M
Payments received by the Borrower prior to such date annualized to an annual
period).
"GUARANTEE" of or by any Person (the "GUARANTOR") shall mean any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; PROVIDED, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"GULF" shall mean Gulf Associates Communications, Ltd., a corporation
organized and existing under the laws of the British Virgin Islands.
"HAZARDOUS MATERIALS" shall mean any petroleum or petroleum products or
any chemicals, materials or substances defined as or included in the definition
of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic
pollutants", "contaminants" or "pollutants", or words of similar import, under
any applicable Environmental Law.
"HEDGING AGREEMENT" shall mean any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"INDEBTEDNESS" of any Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person in
respect of the deferred purchase price of property or services (excluding
current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), (d) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, provided, however, that the amount of such Indebtedness shall be
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20
the lesser of (x) the fair market value of such property and (y) the amount of
such Indebtedness of others, (e) all Guarantees by such Person of Indebtedness
of others, (f) all obligations of such Person constituting Capital Lease
Obligations, (g) all obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit and letters of guaranty, (h) all
obligations of such Person under any Hedging Agreement (including all Interest
Hedging Obligations) and (i) all obligations, contingent or otherwise, of such
Person in respect of bankers' acceptances.
"INDEMNIFIED TAXES" shall mean Taxes other than Excluded Taxes.
"INDEPENDENT ENGINEER" shall mean BT Worldwide Networks or such other
engineer or engineering firm as may be appointed by the Administrative Agent in
accordance with Section 11.15.
"INITIAL PRINCIPAL PAYMENT DATE" shall mean April 30, 1998 or, if such
day is not a Business Day, the next preceding Business Day.
"INITIAL PURCHASERS" shall mean, with respect to the Unregistered
Notes, Salomon Brothers Inc, Barclays de Zoete Wedd Limited and Morgan Stanley &
Co. Incorporated.
"INSURANCE PROCEEDS ACCOUNT" shall mean the special account designated
by that name established by the Collateral Trustee pursuant to Article VIII.
"INTELLECTUAL PROPERTY" shall mean, with respect to any Person, all
licenses, trademarks, tradenames, copyrights, patents, technology, know-how,
processes and other such similar agreements and all Software.
"INTEREST EXPENSE" shall mean, for any period, the amount of interest
expense, both expensed and capitalized, of the Borrower and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP for such period on
the aggregate principal amount of their Indebtedness determined on a
consolidated basis in accordance with GAAP.
"INTEREST HEDGING AGREEMENT" means any Hedging Agreement evidencing an
Interest Hedging Transaction.
"INTEREST HEDGING COUNTERPARTY" shall mean (a) Barclays Bank PLC, or
any agency, branch or Affiliate thereof or (b) any other financial institution
whose long-term unsecured indebtedness is rated "A" or better by S&P or "A2" or
better by Moody's, at the time of such financial institutions's entry into an
Interest Hedging Transaction with
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21
the Borrower.
"INTEREST HEDGING OBLIGATIONS" shall mean all indebtedness, liabilities
and obligations of the Borrower under any agreement or agreements entered into
by the Borrower and one or more Interest Hedging Counterparties with respect to
any Interest Hedging Transaction.
"INTEREST HEDGING TRANSACTION" shall mean any interest rate swap
transaction, interest "cap" or "collar" transaction and/or any other interest
rate hedging transaction entered into by the Borrower with an Interest Hedging
Counterparty to hedge the Borrower's interest rate exposure with respect to the
Term Loans.
"INTEREST PAYMENT DATE" shall mean (a) with respect to any ABR Loan,
the 30th day of each January, April, July and October, commencing with April 30,
1998 (or, if any such day is not a Business Day, the immediately preceding
Business Day) and (b) with respect to any Eurodollar Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and, in
the case of a Eurodollar Borrowing with an Interest Period of more than three
months' duration, each day prior to the last day of such Interest Period that
occurs at intervals of three months' duration after the first day of such
Interest Period.
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the Borrower may elect in accordance with the terms of
this Agreement; PROVIDED that (a) if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day, (b) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period, (c)
Interest Periods shall be selected so that sufficient funds are available
without breakage to make scheduled amortization payments on the Loans, (d) if
the Administrative Agent elects an Interest Period under Section 2.5(e), such
Interest Period may be of any period of time and is not subject to the
restriction that it shall have a duration of either one, two, three or six
months and (e) any Interest Period that would otherwise extend beyond the
Maturity Date, shall end on the Maturity Date. For purposes hereof, the date of
a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"KDD" shall mean Kokusai Denshin Denwa Co., Ltd., a corporation
organized under the laws of Japan.
<PAGE>
22
"KDD CONSTRUCTION CONTRACT GUARANTY" shall mean the Guaranty, dated as
of December 14, 1994, made by KDD in favor of the Borrower, as amended,
supplemented or otherwise modified prior to the Closing Date and as the same may
be further amended, supplemented or otherwise modified from time to time in
accordance with the terms of this Agreement.
"KDD GUARANTY CONSENT" shall mean the Consent to Assignment, dated as
of the date hereof, made by KDD in favor of the Collateral Trustee,
substantially in the form of Exhibit I-5, as amended, supplemented or otherwise
modified from time to time in accordance with the terms of this Agreement.
"KDD-SCS" shall mean KDD Submarine Cable Systems Inc., a corporation
organized under the laws of Japan and a wholly-owned subsidiary of KDD.
"KIN" shall mean K.I.N. (Thailand) Company Limited, a company organized
and existing under the laws of Thailand.
"KIN PLEDGE AGREEMENT" shall mean the Pledge Agreement, dated as of the
date hereof, substantially in the form of Exhibit F, made by KIN in favor of the
Collateral Trustee, for the benefit of the Secured Parties, as amended,
supplemented or otherwise modified from time to time in accordance with the
terms of this Agreement.
"LANDING COUNTRY" shall mean, at any time of determination, each
country in which the FLAG System is landed or is planned to land at such time.
"LANDING PARTY PTTS" shall be the collective reference to the Original
Landing Party PTTs and each other PTT located in a Landing Country added
pursuant to Section 6.16 and which is designated as a "Landing Party" in the
C&MA.
"LENDERS" shall be the collective reference to the lenders listed on
the signature pages hereto, together with their respective successors and
permitted assigns hereunder.
"LIBO RATE" shall mean, with respect to any Eurodollar Borrowing for
any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or
on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
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23
available at such time for any reason, then the "LIBO RATE" with respect to such
Eurodollar Borrowing for such Interest Period shall be the average (rounded
upwards, if necessary, to the next 1/16 of 1%) of the respective rates notified
to the Administrative Agent by each of the Reference Lenders as the rate at
which such Reference Lender is offered Dollar deposits at approximately 11:00
a.m., London time, two Business Days prior to the commencement of such Interest
Period in the London interbank eurodollar market for delivery on the first day
of such Interest Period for the number of days comprised therein and in amount
comparable to the amount of its Eurodollar Loans to be outstanding during such
Interest Period.
"LIEN" shall mean, with respect to any asset (a) any mortgage,
assignment, deposit arrangement, deed of trust, lien (statutory or other),
pledge, hypothecation, encumbrance, charge, expropriation (or expropriatory
claims), security interest or similar encumbrance in, on or of such asset and
(b) the interest of a vendor or a lessor under any conditional sale agreement,
capital lease or title retention agreement (or any financing lease having
substantially the same economic effect as any of the foregoing) relating to such
asset.
"LOANS" shall be the collective reference to the Revolving Credit Loans
and the Term Loans.
"MAINTENANCE RESERVE ACCOUNT" shall mean the special account designated
by that name established by the Collateral Trustee pursuant to Article VIII.
"MAINTENANCE RESERVE REQUIRED BALANCE" shall mean, as of any date of
determination, an amount (not less than zero) equal to the difference between
(a) the Gross Maintenance Reserve Required Amount at such time and (b) the
excess, if any, of the aggregate amount of the Revolving Credit Commitments at
such time over the Gross Debt Reserve Required Amount at such time. The
aggregate amount of the Revolving Credit Commitments shall be computed for
purposes of this definition by taking into account any limitation of the
Revolving Credit Commitments pursuant to Section 2.6(e).
"MAINTENANCE ZONE AGREEMENTS" shall be the collective reference to the
Atlantic Cable Maintenance Agreement, the Mediterranean Cable Maintenance
Agreement, the Agreement for the Maintenance of Pacific Ocean Cable Systems in
the Yokohama Zone, the South East Asia and Indian Ocean Cable Maintenance
Agreement and the Agreement for the Maintenance of the FLAG Submarine Cable
System, as each may be replaced in accordance with the terms of this Agreement
and as each may be amended, supplemented or otherwise modified from time to time
in accordance with the
<PAGE>
24
terms of this Agreement.
"MAJORITY LENDERS" shall mean, at any time of determination, Lenders
having outstanding Revolving Credit Loans and Term Loans and unused Commitments
representing more than 51% of the sum of the aggregate outstanding Revolving
Credit Loans and Term Loans and aggregate unused Commitments at such time.
"MANAGEMENT COMMITTEE" shall mean the "MC", as such term is defined in
Paragraph 4 of the C&MA.
"MARKET CONSULTANT" shall mean Arthur D. Little Inc.
"MARKETING SERVICES AGREEMENT" shall mean the Marketing Services
Agreement, dated as of April 19, 1994, between BANS and the Borrower, as
amended, supplemented or otherwise modified prior to the Closing Date and as the
same may be further amended, supplemented or otherwise modified from time to
time in accordance with the terms of this Agreement.
"MARUBENI" shall mean the Marubeni Corporation, a Japanese corporation.
"MARUBENI TELECOM" shall mean Marubeni Telecom Development Limited, a
Bermuda corporation.
"MARUBENI TELECOM PLEDGE AGREEMENT" shall mean the Pledge Agreement,
dated as of the date hereof, substantially in the form of Exhibit F, made by
Marubeni Telecom in favor of the Collateral Trustee, for the benefit of the
Secured Parties, as amended, supplemented or otherwise modified from time to
time in accordance with the terms of this Agreement.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the Project or the business, operations, condition (financial or otherwise),
property or prospects of the Borrower and its Subsidiaries taken as a whole or
the Project, (b) the ownership, use or operation of the Project, (c) the ability
of the Borrower or any of its Subsidiaries to perform its obligations under any
Financing Document, (d) the value, validity, perfection and enforceability of
the Liens granted to the Collateral Trustee under the Security Documents, or (e)
the validity or enforceability of the Financing Documents or the Principal
Project Documents (other than any Capacity Sales Agreement) or the availability
of the remedies of the Administrative Agent, the Collateral Trustee or the
Lenders under the Financing Documents; PROVIDED, HOWEVER, that an adverse change
in sales or prospective sales of Capacity based on changes or perceived changes
in external market conditions (including as a result of increased competition or
introductions or applications of new technology) will not, in and of itself,
provide a basis that an event described above has occurred.
<PAGE>
25
"MATERIAL INDEBTEDNESS" shall mean Indebtedness (other than the Loans)
in a principal amount exceeding $1,000,000. For purposes of determining Material
Indebtedness, the "principal amount" of the obligations of the Borrower in
respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that the Borrower would be
required to pay if such Hedging Agreement were terminated at such time.
"MATURITY DATE" shall mean January 30, 2005.
"MEDITERRANEAN CABLE MAINTENANCE AGREEMENT" shall mean the
Mediterranean Cable Maintenance Agreement, dated January 1, 1993, between and
among Azienda di Stato per i Servizi Telefonici, Telefonica de Espana, S.A., the
Borrower and the other parties listed therein from time to time parties thereto,
as amended, supplemented or otherwise modified prior to the Closing Date and as
the same may be further amended, supplemented or otherwise modified from time to
time in accordance with the terms of this Agreement.
"MIUS" shall mean the minimum investment units in which Capacity is
disposed of from time to time.
"MOODY'S" shall mean Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NET CASH PROCEEDS" shall mean (a) with respect to the sale, transfer,
lease or other disposition of any asset (excluding Capacity), an amount
certified in reasonable detail by a Responsible Officer of the Borrower to the
Lenders as the excess, if any, of (i) the sum of cash received in connection
with such sale, transfer, lease or other disposition over (ii) the sum of (A)
amounts placed in escrow or held as a reserve against any liabilities directly
associated with such sale or disposition (except that, to the extent and as of
the time any such amounts are released from such escrow or reserve, such amounts
shall constitute Net Cash Proceeds), (B) amounts paid to minority interest
holders of such asset and the principal amount of any Indebtedness (other than
Indebtedness under this Agreement) which is secured by any such asset and which
is repaid in connection with the sale, transfer, lease or other disposition
thereof, (C) the out-of-pocket expenses incurred by the Borrower in connection
with such sale, transfer, lease or other disposition and (D) provision for taxes
payable by the Borrower and which are directly attributable to such sale,
transfer, lease or other disposition (as estimated by the Borrower in good faith
within one month of such sale to
<PAGE>
26
be payable by the Borrower, PROVIDED that to the extent such estimate shall have
exceeded the amount of taxes actually paid, such difference shall thereupon
constitute Net Cash Proceeds), (b) with respect to the issuance of any Capital
Stock, an amount certified in reasonable detail by a Responsible Officer of the
Borrower to the Lenders as the excess of (i) the sum of the cash received in
connection with such issuance over (ii) the underwriting discounts and
commissions (if any) and other fees, out-of-pocket expenses and other costs
incurred by the Borrower in connection with such issuance and (c) with respect
to the incurrence of Indebtedness, an amount certified in reasonable detail by a
Responsible Officer of the Borrower to the Lenders as the excess of (i) the sum
of the cash received in connection with such incurrence of Indebtedness over
(ii) the fees, out-of-pocket expenses and other costs incurred by the Borrower
in connection with such incurrence of Indebtedness.
"NOTES" shall be the collective reference to the Revolving Credit Notes
and the Term Notes.
"NYNEX CORPORATION" shall mean NYNEX Corporation, a Delaware
corporation.
"O&M PAYMENTS" shall be the collective reference to the Standby
Maintenance Payments and Repair Maintenance Payments.
"OBLIGATIONS" shall mean (a) all the unpaid principal amount of, and
accrued interest on, the Loans, and all other obligations of the Borrower, any
of its Subsidiaries or any other Person to the Secured Parties (including,
without limitation, interest accruing at the then applicable rate provided for
in the Financing Documents after the maturity of the Loans and interest accruing
at the then applicable rate provided in the Financing Documents after the filing
or commencement of any bankruptcy, insolvency, reorganization or like proceeding
relating to the Borrower or any of its Subsidiaries whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), 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, the Notes or any other Financing Document, whether on
account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including, without limitation, all reasonable fees and
disbursements of counsel) or otherwise and (b) any extension, renewal,
refunding, or refinancing of any indebtedness referred to in clause (a) above.
"OPERATING BUDGET" shall mean an operating budget of the Borrower and
its Subsidiaries detailing anticipated costs in connection with operating the
Project (a) with respect to the initial Operating Year, which is delivered to
the Administrative Agent under Section 4.1(ac) or (b) with respect to each
ensuing Operating Year, adopted by the Borrower pursuant to Section 5.13, as
each may be amended, supplemented or otherwise modified from time to time in
accordance with Section 6.9(b).
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27
"OPERATING EXPENSE TRANSFER DATE" shall have the meaning ascribed
thereto in Section 8.10(a).
"OPERATING EXPENSES" shall mean, with respect to any Operating Year,
all operation, administration and maintenance expenses with respect to the
Project which are payable by the Borrower or any Subsidiary of the Borrower in
such Operating Year, including all selling, general and administrative expenses,
all standby and repair maintenance expenses, landing site operations expense,
project management expense, insurance expense, all commissions on dispositions
of Capacity, all sales, excise and similar taxes and all other Taxes and duties
payable by the Borrower (excluding income taxes) in respect of operating the
Project; PROVIDED, HOWEVER, in no event shall "Operating Expenses" include (a)
any payments made by the Borrower to purchasers or lessees of Capacity relating
to such purchase or lease or (b) any payments made by the Borrower not related
to the transfer of Capacity or other Project Activities.
"OPERATING PROJECTIONS" shall have the meaning ascribed thereto in
Section 4.1(u).
"OPERATING RESERVE ACCOUNT" shall mean the special account designated
by that name established by the Collateral Trustee pursuant to Article VIII.
"OPERATING RESERVE MAXIMUM BALANCE" shall mean $20,000,000.
"OPERATING YEAR" shall mean each calendar year beginning with the 1998
calendar year.
"OPERATIONS AND MAINTENANCE PLAN" shall mean the plan prepared in
accordance with Paragraph 10.2 of the C&MA.
"ORIGINAL CONFIGURATION" shall mean the configuration of the Project on
the Closing Date which consists of (a) thirty-two Basic System Modules on one
fiber pair available for traffic and restoration between: the United Kingdom and
Italy, Italy and Egypt, Egypt and India, India and Thailand, Thailand and Hong
Kong, Hong Kong and the People's Republic of China, the People's Republic of
China and the Republic of Korea, and the Republic of Korea and Japan (all as set
forth and more fully described in Schedule 1.1(b)), and (b) thirty-two Basic
System Modules on a second fiber pair available for traffic and restoration
between: the United Kingdom and Spain, Spain and Italy, Italy and Egypt, Egypt
and the United Arab Emirates, the United Arab Emirates and India, India and
Malaysia, Malaysia and Thailand, Thailand and Hong Kong, Hong Kong and the
People's Republic of China, the People's Republic of China and the Republic of
Korea, and the Republic of Korea and Japan (all as set forth and more fully
<PAGE>
28
described in Schedule 1.1(b)) , and (c) terminal stations at (and only at) the
following: Porthcurno, the United Kingdom; Estepona, Spain; Palermo, Italy;
Alexandria, Egypt; Suez, Egypt; Fujairah, the United Arab Emirates; Mumbai,
India; Penang, Malaysia; Songkhla, Thailand; Lantau Island, Hong Kong, China;
Nan Hui, China; Keoje, Korea; Miura, Japan; and Ninomiya, Japan.
"ORIGINAL LANDING PARTY PTTS" shall mean, collectively, the following
PTTs: (i) Cable & Wireless Communications Limited; (ii) Telefonica de Espana
S.A.; (iii) TELECOM ITALIA S.p.A.; (iv) Telecom Egypt; (v) Emirates
Telecommunications Corporation; (vi) Videsh Sanchar Nigam Limited; (vii) Telekom
Malaysia Berhad; (viii) The Communications Authority of Thailand; (ix) Hong Kong
Telecom International Limited; (x) China Telecom; (xi) Korea Telecom; (xii)
International Digital Communications Inc.; and (xiii) KDD.
"OTHER TAXES" shall mean any and all present or future stamp or
documentary Taxes, charges or similar levies arising from any payment hereunder
or from the execution, delivery or enforcement of, or otherwise with respect to,
this Agreement or any other Financing Document.
"PARTICIPATING PTTS" shall mean any PTT (other than a Landing Party
PTT) who has executed a Capacity Sales Agreement and, as a result, has become a
party to the C&MA.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA and any successor entity performing similar functions.
"PERFORMANCE BOND" shall mean the letter of credit, dated July 18,
1995, issued by Canadian Imperial Bank of Commerce, New York Agency, in favor of
the Existing Collateral Trustee in accordance with Article 15 of the
Construction Contract, as amended, supplemented or otherwise modified prior to
the Closing Date, as amended by the amendment thereto, dated the date hereof,
pursuant to which the Collateral Trustee became the beneficiary thereof and as
the same may be further amended, supplemented or otherwise modified, or replaced
from time to time in accordance with the terms of this Agreement.
"PERMITTED C&MA AMENDMENT" shall mean (a) any amendment to the C&MA
contemplated by Paragraph 30.3(i) of the C&MA, (b) any amendment to the C&MA to
remove a PTT (which is not a Landing Party PTT) as a party thereto as a result
of the loss of the Capacity Sales Agreement to which such PTT is a party (or the
suspension or termination of the Capacity conveyed thereunder), (c) any
amendment to the C&MA
<PAGE>
29
which (i) does not impose on the Borrower an obligation to make any payment
unless such payment is provided for in the then current Operating Budget or from
Permitted Sources and (ii) could not reasonably be expected to have an adverse
effect on the ability of the Borrower to perform its obligations under the
Financing Documents to which it is a party, and the Borrower shall have
delivered to the Administrative Agent a certificate of a Responsible Officer
certifying as to the matters set forth in clauses (i) and (ii) prior to entering
into such amendment and (d) any amendment to the C&MA which is required to
conform to Applicable Laws, PROVIDED that such amendment could not reasonably be
expected to have a Material Adverse Effect and is the most reasonable course of
action to take in order to comply with such Applicable Law.
"PERMITTED INVESTMENTS" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America),
in each case maturing within one year from the date of acquisition
thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, a credit rating of at least A-2 from S&P or at least P-2
from Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and
overnight sweep accounts, money market deposit accounts issued or
offered by, (i) the Administrative Agent or any of its Affiliates, (ii)
any Lender or (iii) any other bank which has a combined capital and
surplus and undivided profits of not less than $250,000,000; and
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria
described in clause (c) above.
"PERMITTED LIENS" shall mean:
(a) Liens imposed by law for Taxes that either are not yet
due or are subject to a Contest;
(b) materialmen's, mechanics', worker's, repairmen's,
employees', carriers', warehousemen's and other like Liens relating to
the construction of the Project (as modified in accordance with the
terms hereof) or otherwise arising in the ordinary course of business
for amounts that either are not more than 60 days past due or are
subject to a Contest;
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30
(c) Liens of any of the types referred to in clause (b) above
that have been bonded for the full amount in dispute (or as to which
other security arrangements satisfactory to the Administrative Agent
have been made);
(d) the rights of the PTT's with respect to portions of the
Project as specifically provided in the C&MA;
(e) Liens arising out of judgments or awards with respect to
which appeals or other proceedings for review are being prosecuted in
good faith, so long as such proceedings have the effect of staying the
execution of such judgments or awards and satisfying the conditions for
the continuation of proceedings to contest Taxes set forth in the
definitions of "Contest";
(f) pledges and deposits made in the ordinary course of
business in compliance with worker's compensation, unemployment
insurance and other social security laws or regulations;
(g) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not interfere with ordinary conduct of
business of the Borrower or the Project;
(h) Liens arising under the Contractor Escrow Agreement as in
effect on the Closing Date; and
(i) Liens arising under any Financing Document.
"PERMITTED PARENT COMPANY" shall mean any Person which directly owns at
least 97.8% of the Capital Stock of the Borrower and is created in accordance
with Section 6.8, together with any Person which indirectly owns at least 97.8%
of the Capital Stock of the Borrower.
"PERMITTED SALE LEASEBACKS" shall mean sale leasebacks of real and
personal property constituting a portion of the Project, PROVIDED that (a) such
sale leasebacks shall be undertaken for fair value pursuant to a tax program
reasonably satisfactory to the Majority Lenders and recommended by an
internationally recognized tax consultant of the Borrower, (b) the terms of such
sale leasebacks shall be acceptable to the Majority Lenders and (c) the Net Cash
Proceeds of any sale of assets undertaken in connection therewith shall be
applied to the prepayment of the Loans in accordance
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31
with Section 2.9.
"PERMITTED SOURCES" shall mean, so long as no Event of Default shall
have occurred and be continuing, (a) funds received by the Borrower after the
Closing Date in respect of the issuance of common equity of the Borrower which
are not required to prepay the Loans in accordance with Section 2.9 and are on
deposit in the Sales and Issuances Proceeds Account (b) funds available in the
Capital Expenditure Account if such funds are being used pursuant to Section
6.16(b), (c) on and after the S&J Savings Declaration Date, funds available in
the Capital Expenditure Account, if (i) such funds are being used pursuant to
Section 6.16(a) or 6.22 or for Permitted Upgrades, and (ii) the Administrative
Agent shall have received a certificate of a Responsible Officer of the Borrower
certifying (A) the particular uses of such funds and (B) that the use of such
funds will create a benefit to the Borrower or an improvement to the FLAG System
and could not reasonably be expected to have an adverse effect on the ability of
the Borrower to perform its obligations under the Financing Documents to which
it is a party, (d) funds actually made available to the Borrower for its sole
benefit in accordance with clause ninth of Section 8.10(b) and which are being
maintained on deposit in the Permitted Sources Account (or, if such amounts are
not on deposit therein, such funds have been committed to on terms and pursuant
to documentation satisfactory to the Administrative Agent) or (e) funds made
available by parties other than the Borrower and its Subsidiaries without any
recourse to the Borrower, its assets (other than to Capacity to the extent
conveyed in accordance with the terms of this Agreement), any of its
Subsidiaries or their respective assets or any portion of the Project and which
funds are being maintained on deposit in the Permitted Sources Account (or, if
such amounts are not on deposit therein, such funds have been committed to on
terms and pursuant to documentation satisfactory to the Administrative Agent),
and in each case the use of such funds has not been provided for or otherwise
allocated to another purpose in accordance with the terms of this Agreement.
"PERMITTED SOURCES ACCOUNT" shall mean the special account designated
by that name established by the Collateral Trustee pursuant to Article VIII.
"PERMITTED UPGRADES" shall mean any and all physical additions,
improvements or upgrades to the FLAG System that the Independent Engineer
certifies to the Administrative Agent will add to the overall value of the FLAG
System, PROVIDED that such addition, improvement or upgrade (a) could not
reasonably be expected to have an adverse effect (other than a temporary or
minor adverse effect) on the normal use or operation of the FLAG System, (b)
will not require the Borrower to enter into any Additional Contract or otherwise
amend any Project Document, except as permitted by Sections 6.10 and 6.12, (c)
will not conflict with the provisions of Section 6.16, (d) will not otherwise
result in a Default or Event of Default and (e) could not reasonably be expected
to have a Material Adverse Effect.
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32
"PERSON" shall mean any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"PLEDGE AGREEMENTS" shall be the collective reference to the Bell
Atlantic Shareholder Pledge Agreement, the Rathburn Pledge Agreement, the
Marubeni Telecom Pledge Agreement, the AIF Pledge Agreement, the KIN Pledge
Agreement, the GE Capital Pledge Agreement, the AT&T Capital Pledge Agreement
and the Borrower Pledge Agreements.
"PLEDGED STOCK" shall mean all Capital Stock of the Borrower (other
than the Capital Stock owned by Gulf) and of each of the Borrower's
Subsidiaries, together with all other "Collateral" as defined in the Pledge
Agreements.
"PRESALE PROCEEDS" shall mean all cash proceeds received by the
Borrower at any time in respect of Capacity Sales Agreements set forth on
Schedule 1.1(a).
"PRESALE PROCEEDS ACCOUNT" shall mean the special account designated by
that name established by the Collateral Trustee pursuant to Article VIII.
"PRESENT VALUE COVERAGE RATIOS" shall have the meaning ascribed thereto
on Schedule 1.1(c).
"PRICING SCHEDULE" shall mean the schedule setting forth for each
Segment the sale or lease price for Capacity on the FLAG System, including any
discounts for aggregated purchases, as the same may be amended by the Borrower
at its discretion from time to time.
"PRIME RATE" shall mean the rate of interest per annum established by
Barclays Bank PLC as its prime or reference or base rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is effective. The Prime Rate
is not necessarily the lowest rate of interest charged to borrowers.
"PRINCIPAL PAYMENT DATE" shall mean the Initial Principal Payment Date
and each date set forth on Schedule 2.7(b), or if any such day is not a Business
Day, the
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33
preceding Business Day.
"PRINCIPAL PROJECT DOCUMENTS" shall be the collective reference to the
C&MA, the Construction Contract, each Construction Contract Guaranty, each
Capacity Sales Agreement, each Software Agreement, each Maintenance Zone
Agreement, the Marketing Services Agreement, the Contractor Escrow Agreement and
the Performance Bond, and any replacement of any of the foregoing in accordance
with the terms hereof.
"PROGRAM MANAGEMENT AGREEMENT" shall mean the Program Management
Services Agreement, dated as of April 19, 1994, between the Bell Atlantic
Shareholder and the Borrower, as amended, supplemented or otherwise modified
prior to the Closing Date and as the same may be further amended, supplemented
or otherwise modified from time to time in accordance with the terms of this
Agreement.
"PROJECT" shall be the collective reference to the Segments-T, the
Segments-S, the Segment X-1, the Segment X-2, the FNOC and all other facilities
and components necessary for the use, operation and maintenance of the FLAG
System.
"PROJECT ACTIVITIES" shall mean (a) the design, development,
engineering, acquisition, installation, construction, landing, completion,
disposition, financing, modification, start-up, testing, operation, ownership,
possession, maintenance and use of the Project (and any portion thereof), (b)
the sale, lease or other disposition of Capacity on the FLAG System and (c) all
activities related or incidental to any of the foregoing.
"PROJECT DOCUMENTS" shall be the collective reference to the Principal
Project Documents and each other agreement in existence on the Closing Date that
the Borrower or any of its Subsidiaries is a party to related to any Project
Activity, including, without limitation, the documents set forth on Schedule
3.19(b) and each Additional Contract for which the prior written consent of the
Majority Lenders is required under Section 6.12.
"PROJECT REVENUES" shall mean, for any period, all revenues and
proceeds received by the Borrower or any Subsidiary thereof during such period
from whatever source (including, without limitation, in respect of (a) Interest
Hedging Transactions, (b) O&M Payments, (c) refunds in respect of Taxes, (d)
Restoration Payments and (e) the disposition of Capacity); PROVIDED, HOWEVER,
that Project Revenues shall not, in any event, include Special Payments,
Casualty Proceeds, Net Cash Proceeds and proceeds of Loans hereunder.
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34
"PROPER INSTRUCTIONS" shall have the meaning ascribed thereto in
Section 10.4(c).
"PROPER PARTY" shall have the meaning ascribed thereto in Section
10.2(a).
"PROVISIONAL SYSTEM ACCEPTANCE" shall have the meaning ascribed thereto
in the Construction Contract.
"PSA AGREEMENT" shall mean the PSA Agreement, dated October 15, 1997,
among the Borrower, TSS and KDD, as amended, supplemented or otherwise modified
from time to time in accordance with the terms of this Agreement.
"PSA 2" shall have the meaning ascribed thereto in the PSA Agreement.
"PSA 3" shall have the meaning ascribed thereto in the PSA Agreement.
"PTT" shall mean any international telecommunications entity or other
Person which commits to purchase or lease or otherwise acquire rights with
respect to Capacity pursuant to a Capacity Sales Agreement.
"RATHBURN" shall mean Rathburn Limited, a company organized and
existing under the laws of the British Virgin Islands.
"RATHBURN/NYNEX CORPORATION SUBORDINATED PLEDGE AGREEMENT" shall mean
the Pledge Agreement, dated as of June 30, 1995, between Rathburn and NYNEX
Corporation, as amended, supplemented or otherwise modified prior to the Closing
Date.
"RATHBURN PLEDGE AGREEMENT" shall mean the Pledge Agreement, dated as
of the date hereof, substantially in the form of Exhibit F, made by Rathburn in
favor of the Collateral Trustee, for the benefit of the Secured Parties, as
amended, supplemented or otherwise modified from time to time in accordance with
the terms of this Agreement.
"REBATE ACCOUNT" shall mean the special account designated by that name
established by the Collateral Trustee pursuant to Article VIII.
"REDEMPTION LETTER AGREEMENT" shall mean the letter agreement, dated as
of October 20, 1997, among the Borrower and the Existing Preferred Shareholders,
without giving effect to any amendments or supplements thereto.
"REFERENCE LENDERS" shall be the collective reference to Barclays Bank
PLC, Australia and New Zealand Banking Group Limited and Dresdner Bank AG.
"REFINANCED INDEBTEDNESS" shall mean all Indebtedness under the
Existing
<PAGE>
35
Financing Documents.
"REFINANCING" shall be the collective reference to (a) the issuance by
the Borrower of the Senior Unsecured Notes, (b) the making of the initial
extensions of credit by the Lenders
hereunder, (c) the repayment in full of the Refinanced Indebtedness on the
Closing Date and (d) the repurchase of the Existing Preferred Stock on the
Closing Date.
"REGISTER" shall have the meaning ascribed thereto in Section 11.4(c).
"REGISTRAR AND TRANSFER AGENT AGREEMENT" shall mean the Registrar and
Transfer Agent Agreement, dated as of the date hereof, substantially in the form
of Exhibit P, among the Borrower, the Collateral Trustee and Butterfield
Corporate Services Limited, as registrar, as amended, supplemented or otherwise
modified from time to time in accordance with the terms of this Agreement.
"RELATED PARTIES" shall mean, with respect to any specified Person,
such Person's Affiliates and subsidiaries and the respective directors, officers
and employees of such Person and such Person's Affiliates and subsidiaries.
"RELEASE" shall mean any release, burial, disposal, discharge,
emission, injection, spillage, leakage, seepage, leaching, dumping, pumping,
pouring, escaping, emptying or placement.
"REPAIR AND RESTORATION RESERVE ACCOUNT" shall mean the special account
designated by that name established by the Collateral Trustee pursuant to
Article VIII.
"REPAIR MAINTENANCE PAYMENTS" shall mean payments due from time to time
from PTTs pursuant to Paragraph 11.2 of the C&MA or pursuant to comparable
arrangements.
"REPORTABLE EVENT" shall mean any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than an event for which
the 30-day notice requirement is waived under Subsections .13, .14, .16, .18,
.19 or .20 of PBGC Regulation Section 2615.
"REQUIRED BALANCE" shall mean, as of any Principal Payment Date or
other date of determination (a) with respect to the Debt Reserve Account, the
Debt Reserve Required Balance and (b) with respect to the Maintenance Reserve
Account, the Maintenance Reserve Required Balance.
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36
"REQUIREMENT OF LAW" shall mean, as to any Person, the Certificate of
Incorporation and By-Laws (or in the case of a partnership, its partnership
agreement) or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation of any Governmental Authority, and any
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" shall mean, with respect to any Person, the
Chairman, Chief Financial Officer, President or Treasurer of such Person.
"RESTORATION PAYMENTS" shall mean payments in dollars received by the
Borrower for providing restoration on the FLAG System.
"RESTORATION PLAN" shall have the meaning ascribed thereto in Section
4.1(ad), as the same may be amended, supplemented or otherwise modified from
time to time.
"RESTRICTED PAYMENT" shall mean any dividend or distribution (whether
in cash, securities or other property) with respect to any shares of any class
of Capital Stock of the Borrower, or any payment (whether in cash, securities or
other property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such shares of Capital Stock of the Borrower or any option, warrant or
other right to acquire any such shares of Capital Stock of the Borrower.
"REVENUE ACCOUNT" shall mean the special account designated by that
name established by the Collateral Trustee pursuant to Article VIII.
"REVOLVING CREDIT AVAILABILITY PERIOD" shall mean, with respect to any
Revolving Credit Loan, the period from and including the Closing Date to but not
including the Revolving Credit Termination Date (or such earlier date on which
the Revolving Credit Commitments shall terminate).
"REVOLVING CREDIT COMMITMENT" shall mean, as to any Revolving Credit
Lender, the obligation of such Revolving Credit Lender to make Revolving Credit
Loans to the Borrower in an aggregate amount not to exceed, at any one time
outstanding, the amount set forth opposite such Revolving Credit Lender's name
on Schedule 2.1 under the heading "Revolving Credit Commitment" or, in the case
of any Revolving Credit Lender that is an assignee, the amount of the assigning
Revolving Credit Lender's Revolving Credit Commitment assigned to such assignee
pursuant to Section 11.4, in each case as such amount may be adjusted or reduced
from time to time as provided herein (including pursuant to Section 2.6(e)).
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37
"REVOLVING CREDIT LENDERS" shall mean, at any time of determination,
Lenders having outstanding Revolving Credit Loans or unused Revolving Credit
Commitments.
"REVOLVING CREDIT LOANS" shall have the meaning ascribed thereto in
Section 2.1.
"REVOLVING CREDIT NOTE" shall have the meaning ascribed thereto in
Section 2.7(f).
"REVOLVING CREDIT TERMINATION DATE" shall mean January 30, 2004.
"RIGHTS-OF-WAY" shall mean all easements, rights-of-way and other real
property or similar interests and all consents required or reasonably necessary
for access to the Project or for the performance of any Project Activity.
"R&R RESERVE MAXIMUM BALANCE" shall mean $5,000,000.
"S&J ACTUAL SAVINGS AMOUNT" shall have the meaning ascribed thereto in
Section 8.17(b).
"S&J EXPECTED SAVINGS AMOUNT" shall have the meaning ascribed thereto
in Section 8.17(b).
"S&J SAVINGS DECLARATION DATE" shall have the meaning ascribed thereto
in Section 8.17(b).
"S&P" shall mean Standard & Poor's Ratings Services.
"SALES AND ISSUANCES PROCEEDS ACCOUNT" shall mean the special account
designated by that name established by the Collateral Trustee pursuant to
Article VIII.
"SECURED PARTIES" shall be the collective reference to the
Administrative Agent, the Collateral Trustee, the Lenders and the Interest
Hedging Counterparties described in clause (a) of the definition thereof.
"SECURITY AGREEMENTS" shall be the collective reference to the Borrower
Security Agreement and the Subsidiary Security Agreements.
"SECURITY DOCUMENTS" shall be the collective reference to the Security
Agreements, the Pledge Agreements and any other document pursuant to which a
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38
security interest is, or is purported to be, granted to secure the Obligations.
"SEGMENT-X" shall mean Segment X-1 or Segment X-2, as the case may be.
"SEGMENT X-1" shall have the meaning ascribed thereto in the C&MA.
"SEGMENT X-2" shall have the meaning ascribed thereto in the C&MA.
"SEGMENTS" shall be the collective reference to the Segments-S,
Segments-T, Segment X- 1, Segment X-2 and any other "Segment" under the C&MA.
"SEGMENTS-S" shall have the meaning ascribed thereto in the C&MA.
"SEGMENTS-T" shall have the meaning ascribed thereto in the C&MA.
"SENIOR UNSECURED NOTE DOCUMENTS" shall be the collective reference to
the Senior Unsecured Notes, the Senior Unsecured Note Indenture and the Senior
Unsecured Note Offering Memorandum.
"SENIOR UNSECURED NOTE INDENTURE" shall mean the Indenture, dated the
Closing Date, between the Borrower and the Senior Unsecured Note Trustee,
pursuant to which the Senior Unsecured Notes are issued, as amended,
supplemented or otherwise modified from time to time in accordance with the
terms of this Agreement.
"SENIOR UNSECURED NOTE INTEREST PAYMENT DATE" shall mean the 30th day
of January and July of each calendar year, commencing with July 30, 1998 (or, if
any such day is not a Business Day, the immediately succeeding Business Day).
"SENIOR UNSECURED NOTE OFFERING MEMORANDUM" shall mean the Offering
Memorandum related to the issuance of the Unregistered Notes, which shall be in
form and substance reasonably satisfactory to the Administrative Agent.
"SENIOR UNSECURED NOTE TRUSTEE" shall mean IBJ Schroder Bank & Trust
Company, as trustee under the Senior Unsecured Note Indenture.
"SENIOR UNSECURED NOTES" shall mean (a) at any time prior to the
consummation of the Exchange Offer, the Unregistered Notes and (b) at any time
after the consummation of the Exchange Offer, the Exchange Notes.
"SHAREHOLDER AGREEMENT" shall mean the Agreement, dated as of April 19,
1994 by and between the Bell Atlantic Shareholder, Rathburn, Gulf, Spinconsult
S.A., Hormoz Sabet, Reja Sabet, Luay Swaidi, the Borrower and Fiber Optics
Association for International Research Inc., as amended, supplemented or
otherwise modified prior to
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39
the Closing Date and as the same may be further amended, supplemented or
otherwise modified from time to time in accordance with the terms of this
Agreement.
"SHAREHOLDERS" shall be the collective reference to the Bell Atlantic
Shareholder, Marubeni Telecom, Rathburn, Gulf, AIF, KIN, GE Capital and AT&T
Capital each in their capacity as a shareholder of the Borrower, together with
each other shareholder of the Borrower receiving newly issued Capital Stock of
the Borrower after the Closing Date (other than Persons receiving Capital Stock
of the Borrower under the Stock Option Plan), and the respective permitted
successors and assigns of each of the foregoing.
"SINGLE EMPLOYER PLAN" shall mean any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"SOFTWARE" shall have the meaning ascribed thereto in the Construction
Contract.
"SOFTWARE AGREEMENTS" shall be the collective reference to the
Software Development and License Agreement, the Technology Escrow Deposit
Agreement, each Software Maintenance Agreement and each other software
license agreement entered into by the Borrower in order to perform any
Project Activity.
"SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT" shall mean the Amended
and Restated Software Development and License Agreement, dated as of December
14, 1994, by and between the Borrower and AT&T, as amended, supplemented or
otherwise modified prior to the Closing Date and as the same may be further
amended, supplemented or modified from time to time in accordance with the
terms of this Agreement.
"SOFTWARE MAINTENANCE AGREEMENT" shall mean the software maintenance
agreement to be entered into by the Borrower in accordance with Section
5.22(c) and each other software maintenance agreement to which the Borrower
is a party, as each may be amended, supplemented or otherwise modified from
time to time in accordance with the terms of this Agreement.
"SOUTH EAST ASIA AND INDIAN OCEAN CABLE MAINTENANCE AGREEMENT" shall
mean the South East Asia and Indian Ocean Cable Maintenance Agreement, dated
June 1, 1986, between and among Cable and Wireless plc, Kokusai Denshin Denwa
Co., Ltd., the Borrower and other Persons set forth therein or from time to
time parties thereto, as amended, supplemented or otherwise modified prior to
the Closing Date and as the same may be further amended, supplemented or
otherwise modified from time to time
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40
in accordance with the terms of this Agreement.
"SPECIAL PAYMENT ACCOUNT" shall mean the special account designated by
that name established by the Collateral Trustee pursuant to Article VIII.
"SPECIAL PAYMENTS" shall mean (a) all payments made by the Contractors
after the Closing Date under the Construction Contract and all other payments
made after the Closing Date by the Contractors or the Construction Contract
Guarantors in respect of any breach or failure by the Contractors to perform
their obligations under the Construction Contract, whether as a result of any
proceeding, settlement or otherwise, and (b) all payments made under the
Performance Bond.
"SPECIFIED PARTICIPANT" shall be the collective reference to (a) the
Borrower, (b) each Shareholder (other than Gulf), (c) at any time prior to the
expiration of the Warranty Period, the Construction Contract Guarantors and (d)
the Permitted Parent Company, if any.
"STANDBY MAINTENANCE PAYMENTS" shall mean payments due from time to
time from PTTs pursuant to Paragraph 11.1 of the C&MA or pursuant to comparable
arrangements.
"STATUTORY RESERVE RATE" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurodollar Loans shall be
deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such Regulation D or
any comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"STOCK OPTION PLAN" shall mean a stock option plan to be created by the
Borrower for the benefit of certain employees of the Borrower and/or any of its
Subsidiaries.
"SUBJECT COLLATERAL" shall mean all Collateral which can be perfected
by the taking of action in respect of the United States or Bermuda.
"SUBMARINE SYSTEM" shall have the meaning ascribed thereto in the C&MA.
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41
"SUBSIDIARY" shall mean, as to any Person, a corporation, partnership
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 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.
"SUBSIDIARY GUARANTEES" shall be the collective reference to all
guarantees entered into by any Subsidiary of the Borrower pursuant to Section
6.26, as the same may be amended, supplemented or otherwise modified from time
to time in accordance with the terms of this Agreement.
"SUBSIDIARY SECURITY AGREEMENTS" shall be the collective reference to
all security agreements entered into by any Subsidiary of the Borrower pursuant
to Section 6.26, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with the terms of this Agreement.
"SUPPLEMENTAL DEBT RESERVE ACCOUNT" shall mean the special account
designated by that name established by the Collateral Trustee pursuant to
Article VIII.
"SUPPLEMENTAL DEBT RESERVE MAXIMUM BALANCE" shall mean, as of any date
of determination, an amount equal to the difference between (a) the Gross Debt
Reserve Required Amount at such time and (b) the actual cash balance in the Debt
Reserve Account at such time.
"TAX" OR "TAXES" shall mean any and all present or future fees
(including, without limitation, documentation, recording, license and
registration fees), taxes (including, without limitation, net income, franchise,
value added, ad valorem, gross income, gross receipts, sales, use, rental,
property (personal and real, tangible and intangible) and stamp taxes), levies,
imposts, duties, deductions, charges, assessments or withholdings of any nature
whatsoever, general or special, ordinary or extraordinary, imposed or assessed
by any Governmental Authority, together with any and all penalties, fines,
additions to tax and interest thereon and including any and all liabilities,
losses, expenses and costs of any kind whatsoever that are in the nature of
taxes.
"TECHNOLOGY ESCROW DEPOSIT AGREEMENT" shall mean the Amended and
Restated Technology Escrow Deposit Agreement, dated as of December 14, 1994,
among the Borrower, AT&T and Filesafe, Inc., as escrow agent, as amended,
supplemented or otherwise modified prior to the Closing Date and as the same may
be further amended, supplemented or otherwise modified from time to time in
accordance with the terms of this Agreement.
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42
"TERM LENDERS" shall mean, at any time of determination, Lenders having
outstanding Term Loans or unused Term Loan Commitments.
"TERM LOAN COMMITMENT" shall mean, as to any Term Lender, the
obligation of such Term Lender to make Term Loans to the Borrower in an
aggregate principal amount not to exceed the amount set forth opposite such Term
Loan Lender's name on Schedule 2.1 under the heading "Term Loan Commitment" or,
in the case of a Term Loan Lender that is an assignee, the amount of the
assigning Term Loan Lender's Term Loan Commitment assigned to such assignee
pursuant to Section 11.4, in each case as such amount may be adjusted from time
to time as provided herein.
"TERM LOANS" shall have the meaning ascribed thereto in Section 2.1.
"TERM NOTE" shall have the meaning ascribed thereto in Section 2.7(f).
"TOTAL CONTRACT PRICE" shall have the meaning ascribed thereto in the
Construction Contract.
"TRANSACTION DOCUMENTS" shall be the collective reference to the
Financing Documents and the Project Documents.
"TSS" shall mean Tyco Submarine Systems Ltd. (formerly known as AT&T
Submarine Systems, Inc.).
"TYPE" when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"UNREGISTERED NOTES" shall mean the $430 million aggregate principal
amount of 8.25% Senior Notes due 2008 of the Borrower issued pursuant to the
Senior Unsecured Note Indenture, as amended, supplemented or otherwise modified
from time to time in accordance with the terms of this Agreement.
"VOTING STOCK" shall mean, with respect to any Person, securities of
any class or classes of Capital Stock in such Person entitling the holders
thereof to vote under ordinary circumstances in the election of members of the
board of directors or other governing body of such Person.
"WARRANTY PERIOD" shall mean the period from and including the Closing
Date to and including the last day of the latest "Replacement Period" under the
Construction
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43
Contract.
"WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"WORK" shall mean any and all services, functions, duties,
responsibilities or other obligations to be undertaken and performed by any
Contractor pursuant to the Construction Contract, including, but not limited to,
all "Work" and "Services" as such terms are defined in the Construction
Contract, and the provision of all labor, material and services utilized in the
design, construction, installation, engineering, equipping and testing of the
Project.
SECTION 1.2. CLASSIFICATION OF LOANS AND BORROWINGS. For purposes of
this Agreement, Loans may be classified and referred to by Class (E.G., a
"Revolving Credit Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and
Type (e.g., a "Eurodollar Revolving Credit Loan"). Borrowings also may be
classified and referred to by Class (e.g., a "Revolving Credit Borrowing") or by
Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar
Revolving Credit").
SECTION 1.3. TERMS GENERALLY. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as amended, supplemented, or
otherwise modified from time to time (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
SECTION 1.4. ACCOUNTING TERMS; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time.
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ARTICLE II
THE COMMITMENTS
SECTION 2.1. COMMITMENTS. Subject to the terms and conditions set forth
herein, (a) each Revolving Credit Lender severally agrees to make revolving
credit loans (collectively, the "REVOLVING CREDIT LOANS") to the Borrower from
time to time during the Revolving Credit Availability Period in an aggregate
principal amount at any one time outstanding not to exceed such Revolving Credit
Lender's Revolving Credit Commitment at such time and (b) each Term Lender
severally agrees to make term loans (collectively, the "TERM LOANS") to the
Borrower on the Closing Date in an aggregate principal amount not to exceed such
Term Lender's Term Loan Commitment. Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrower may borrow, prepay and
reborrow Revolving Credit Loans. Amounts repaid in respect of Term Loans may not
be reborrowed.
SECTION 2.2. LOANS AND BORROWINGS. (a) Each Loan shall be made as part
of a Borrowing consisting of Loans of the same Class and Type made by the
applicable Lenders ratably in accordance with their respective Commitments of
the applicable Class. The failure of any Lender to make any Loan required to be
made by it shall not relieve any other Lender of its obligations hereunder;
PROVIDED that the Commitments of the Lenders are several and no Lender shall be
responsible for any other Lender's failure to make Loans as required.
(b) Subject to Section 2.12, each Borrowing of a Class shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith. Each Lender, at its option, may make any Eurodollar Loan
by causing any domestic or foreign branch of such Lender to make such Loan;
PROVIDED that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement and
shall not increase the cost to the Borrower with respect to such Loan.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $5,000,000, and at the time each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000; PROVIDED that any
Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the total Revolving
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Credit Commitments. Borrowings of more than one Type and Class may be
outstanding at the same time; PROVIDED that there shall not at any time be more
than a total of ten Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
SECTION 2.3. REQUESTS FOR BORROWINGS. To request a Borrowing, the
Borrower shall deliver a Borrowing Request to the Administrative Agent (a) in
the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of the proposed Borrowing or (b) in
the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one
Business Day before the date of the proposed Borrowing. Each such Borrowing
Request shall be irrevocable. Each such Borrowing Request shall specify the
following information in compliance with Section 2.2:
(i) whether the requested Borrowing is to be a Revolving Credit
Borrowing and/or a Term Loan Borrowing;
(ii) the aggregate amount of each requested Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) whether each such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(v) in the case of any Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period".
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be a Eurodollar Borrowing. If no Interest Period is specified
with respect to any requested Eurodollar Borrowing, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each applicable Lender of the details thereof
and of the amount of such Lender's Loan to be made as part of the requested
Borrowing.
SECTION 2.4. FUNDING OF BORROWINGS. (a) Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the
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Lenders. The Administrative Agent will make such Loans available to the Borrower
by (i) with respect to Loans made on the Closing Date, promptly distributing the
amounts so received, in like funds, in accordance with the instructions set
forth in the related Borrowing Request, provided such instructions are
consistent with the schedule of "sources and uses" delivered to the
Administrative Agent prior to the Closing Date and (ii) with respect to all
other Loans, promptly crediting the amounts so received, in like funds, to the
Revenue Account.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Revolving Credit Loans. If such Lender pays
such amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
SECTION 2.5. INTEREST ELECTIONS. (a) Each Borrowing shall be of the
Type and, in the case of a Eurodollar Borrowing, shall have an initial Interest
Period, as specified in the applicable Borrowing Request. Thereafter, the
Borrower may elect to convert such Borrowing to a different Type or to continue
such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Section 2.5. The Borrower may elect
different options with respect to different portions of the affected Borrowing
of any Class, in which case each such portion shall be allocated ratably among
the Lenders of such Class holding the Loans of such Class comprising such
Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by delivering a
Continuation/Conversion Notice to the Administrative Agent by the time that a
Borrowing Request would be required under
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Section 2.3 if the Borrower were requesting a Borrowing of the Type resulting
from such election to be made on the effective date of such election. Each such
notice shall be irrevocable.
(c) Each Continuation/Conversion Notice shall specify the following
information in compliance with Section 2.2:
(i) the Borrowing to which such
Continuation/Conversion Notice applies and, if different options are
being elected with respect to different portions thereof, the portions
thereof to be allocated to each resulting Borrowing (in which case the
information to be specified pursuant to clauses (iii) and (iv) below
shall be specified for each resulting Borrowing);
(ii) the effective date of the election made
pursuant to such Continuation/Conversion Notice, which shall be a
Business Day;
(iii) whether the resulting Borrowing is to be
an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a
Eurodollar Borrowing, the Interest Period to be applicable thereto
after giving effect to such election, which shall be a period
contemplated by the definition of the term "Interest Period".
If any such Continuation/Conversion Notice requests a Eurodollar Borrowing but
does not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of a Continuation/Conversion Notice, the
Administrative Agent shall advise the applicable Lenders of the details thereof
and of such Lender's portion of each resulting Borrowing.
(e) Subject to Sections 2.2 and 2.12 and the other provisions of this
Section, if the Borrower fails to deliver a timely Continuation/Conversion
Notice with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then the Borrower shall be deemed to have selected to
continue such Borrowing as a Eurodollar Borrowing with an Interest Period of one
month's duration. Notwithstanding any contrary provision hereof, if an Event of
Default as described in paragraph (a) of Article VII (or any other Event of
Default if the Administrative Agent so elects) has occurred and is continuing
and the Administrative Agent so notifies the Borrower, then, so long as such
Event of Default is continuing, if the Borrower wishes to continue any
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Borrowing as, or convert any Borrowing to, a Eurodollar Borrowing, the
Administrative Agent shall have the right to elect the Interest Period for such
Eurodollar Borrowing, which Interest Period may be of any period of time and is
not subject to the restriction that it shall have the duration of either one,
two, three or six months.
SECTION 2.6. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The Term
Loan Commitments shall terminate after the initial Term Loans are made on the
Closing Date. Unless previously terminated, the Revolving Credit Commitments
shall terminate on the Revolving Credit Termination Date.
(b) The Borrower shall notify the Administrative Agent of any election
to terminate or reduce the Revolving Credit Commitments under paragraph (c) of
this Section at least five (5) Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Revolving Credit Lenders of the contents thereof. Each notice
delivered by the Borrower pursuant to this Section shall be irrevocable. Any
termination or reduction of the Revolving Credit Commitments shall be permanent.
Each reduction of the Revolving Credit Commitments shall be made ratably among
the Revolving Credit Lenders in accordance with their respective Revolving
Credit Commitments.
(c) The Borrower may at any time terminate, or from time to time
reduce, the Revolving Credit Commitments; PROVIDED that each reduction of the
Revolving Credit Commitments shall be in an amount that is an integral multiple
of $1,000,000; and PROVIDED, FURTHER, that the Borrower shall not be permitted
to terminate or reduce the Revolving Credit Commitments unless, after giving
effect to such termination or reduction of the Revolving Credit Commitments, the
aggregate Revolving Credit Commitments are greater than or equal to the sum of
(x) the difference, if positive, between the Gross Debt Reserve Required Balance
and the actual balance in the Debt Reserve Account and (y) the difference, if
positive, between the Gross Maintenance Reserve Required Balance and the actual
balance in the Maintenance Reserve Account.
(d) Except for mandatory prepayments of the Revolving Credit Loans
pursuant to Section 2.9(b), the Revolving Credit Commitments shall be
automatically and permanently reduced upon and in the amount of any prepayments
made thereon pursuant to Section 2.9.
(e) Upon the occurrence and continuance of a Designated Event, the
Revolving Credit Commitment of each Revolving Credit Lender shall, at any date
of determination,
<PAGE>
49
only be available in an amount equal to the product of (i) the Revolving Credit
Commitment of such Revolving Credit Lender and (ii) the percentage set forth
below corresponding to the quarterly period in which such date falls:
<TABLE>
<CAPTION>
QUARTERLY PERIOD ENDING ON PERCENTAGE (%)
-------------------------- --------------
<S> <C>
March 31, 1998 98.3%
June 30, 1998 96.7%
September 30, 1998 95.0%
December 31, 1998 93.4%
March 31, 1999 91.2%
June 30, 1999 89.1%
September 30, 1999 86.9%
December 31, 1999 84.8%
March 31, 2000 82.0%
June 30, 2000 79.3%
September 30, 2000 76.6%
December 31, 2000 73.9%
March 31, 2001 70.5%
June 30, 2001 67.1%
September 30, 2001 63.8%
December 31, 2001 60.4%
March 31, 2002 56.2%
June 30, 2002 52.1%
September 30, 2002 48.0%
December 31, 2002 43.9%
March 31, 2003 32.9%
June 30, 2003 21.9%
September 30, 2003 10.9%
Thereafter 0.0%
</TABLE>
Nothing contained in this Section 2.6(e) shall limit the provisions of Section
4.2(b), 6.31 or 6.32.
SECTION 2.7. REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Revolving Credit Lender, the then unpaid principal amount of
each Revolving Credit Loan of such Revolving Credit Lender on the Maturity Date
(together with accrued interest thereon).
(b) The Borrower hereby unconditionally promises to pay to the
Administrative Agent, for the benefit of the Term Lenders, the aggregate unpaid
principal amount of the Term Loans, in quarterly installments on Principal
Payment Dates, commencing on the Initial Principal Payment Date, in an amount
for each such Principal Payment Date
<PAGE>
50
as set forth in Schedule 2.7(b) under the heading "Contractual Amortization". To
the extent not previously paid, all Term Loans shall be due and payable on the
Maturity Date. Each repayment of Term Loan Borrowings shall be applied to repay
any outstanding ABR Term Loan Borrowings first, and then to outstanding
Eurodollar Term Loan Borrowings in the order of the remaining duration of their
respective Interest Periods (the Borrowing with the shortest remaining Interest
Period to be repaid first). Repayments of Term Loan Borrowings shall be
accompanied by accrued interest thereon.
(c) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(d) The Administrative Agent shall maintain the Register pursuant to
Section 11.4(c) and a subaccount therein for each Lender, in which it shall
record (i) the amount of each Loan made hereunder, the Class and Type thereof
and the 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) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(e) The entries made in the Register maintained pursuant to paragraph
(d) of this Section shall constitute PRIMA FACIE evidence of the existence and
amounts of the obligations recorded therein; PROVIDED that the failure of any
Lender or the Administrative Agent to maintain such accounts pursuant to
Sections 2.7(c) or (d) or any error therein shall not in any manner affect the
obligation of the Borrower to repay the Loans in accordance with the terms of
this Agreement.
(f) The Borrower agrees that, upon the request by the Administrative
Agent on behalf of any Lender, the Borrower will execute and deliver to such
Lender, as applicable, (i) a promissory note of the Borrower payable to the
order of such Lender and its registered assigns evidencing the Revolving Credit
Loans of such Lender and substantially in the form of Exhibit A-1 with
appropriate insertions as to date and principal amount (each, a "REVOLVING
CREDIT NOTE") and (ii) a promissory note of the Borrower payable to the order of
such Lender and its registered assigns evidencing the Term Loans of such Lender
and substantially in the form of Exhibit A-2 with appropriate insertions as to
date and principal amount (each, a "TERM NOTE"). Thereafter, the Loans evidenced
by any such Note and interest thereon shall at all times (including after
assignment pursuant to Section 11.4) be represented by one or more Notes payable
to
<PAGE>
51
the order of the payee named therein and its registered assigns. A Note and the
obligation evidenced thereby may be assigned or otherwise transferred in whole
or in part only as part of an assignment under this Agreement in accordance with
Section 11.4 and only by registration of such assignment or transfer of such
Note and the obligation evidenced thereby in the Register (and each Note shall
expressly so provide). Any assignment or transfer of all or part of an
obligation evidenced by a Note shall be registered in the Register only upon
surrender for registration of assignment or transfer of the Note evidencing such
obligation, accompanied by an Assignment and Acceptance duly executed by the
assignor thereof, and thereupon, if requested by the assignee, one or more new
Notes shall be issued to the designated assignee and the old Note shall be
returned by the Administrative Agent to the Borrower marked "canceled". No
assignment of a Note and the obligation evidenced thereby shall be effective
unless it shall have been recorded in the Register by the Administrative Agent
as provided in this Section.
SECTION 2.8. OPTIONAL PREPAYMENTS OF LOANS. (a) The Borrower shall have
the right at any time and from time to time to prepay any Borrowing in whole or
in part, without premium or penalty (out of funds available to the Borrower
under clause ninth of Section 8.10(b)) subject to prior notice in accordance
with paragraph (b) of this Section and subject to the provisions of Section
2.14.
(b) The Borrower shall notify the Administrative Agent in writing of
any optional prepayment hereunder, not later than 11:00 a.m., New York City
time, five Business Days before the date of prepayment. Each such notice shall
be irrevocable and shall specify the date and amount of prepayment and whether
the prepayment is (i) of Term Loans, Revolving Credit Loans or a combination
thereof and (ii) of Eurodollar Loans, ABR Loans or a combination thereof, and,
in each case if a combination thereof, the principal amount allocable to each
Class, and shall specify how such prepayment shall be applied to the remaining
installments of the Loans. Promptly following receipt of any such notice, the
Administrative Agent shall advise the applicable Lenders of the contents
thereof. Partial optional prepayments shall be in a minimum aggregate principal
amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof or,
if less, the outstanding amount of the Loans being prepaid or the entire amount
of a Borrowing for which the date of prepayment is the last day of the Interest
Period of such Borrowing. Optional prepayments shall be accompanied by accrued
interest thereon. Optional prepayments with respect to the Term Loans may not be
reborrowed.
(c) Optional prepayments shall be applied to the remaining installments
of the Loans as specified by the Borrower in the notice of prepayment set forth
in paragraph (b) above.
SECTION 2.9. MANDATORY PREPAYMENTS. (a) The Borrower shall prepay the
Term Loans with funds available in the Presale Proceeds Account in accordance
with
<PAGE>
52
the terms of Section 8.9.
(b) The Borrower shall prepay the Loans on each Principal Payment Date
in accordance with the terms of Section 8.10(b).
(c) The Borrower shall prepay the Loans immediately (except as provided
in Section 2.9(k)) after the receipt of Net Cash Proceeds as follows:
(i) by an amount equal to 50% of the Net Cash Proceeds
of any issuance on and after the Closing Date of Capital Stock of the
Borrower or any Permitted Parent Company; PROVIDED, HOWEVER, that if a
Responsible Officer of the Borrower delivers to the Administrative
Agent and the Collateral Trustee a certificate on or before the date
such Net Cash Proceeds are received and such certificate sets forth the
portion of such Net Cash Proceeds the Borrower intends to spend on
Permitted Upgrades within the next six months, together with a
description of such Permitted Upgrades, then, so long as no Default,
Event of Default or Designated Event shall have occurred and be
continuing, the Borrower shall be permitted to retain such portion (the
"SPECIFIED PORTION") in the Sales and Issuances Proceeds Account to pay
for Permitted Upgrades in accordance with Section 8.21, with 50% of the
remainder of such Net Cash Proceeds being immediately used to prepay
the Loans; PROVIDED, FURTHER, that if the Specified Portion is not
applied within six months (or such longer period not in excess of one
year as the Administrative Agent may approve in writing), 50% of such
unapplied amount shall also be immediately used to prepay the Loans;
(ii) by an amount equal to 100% of the Net Cash Proceeds
of any incurrence of Indebtedness on and after the Closing Date by the
Borrower in accordance with clause (g) of Section 6.1 or by any
Subsidiary of the Borrower or any Permitted Parent Company; PROVIDED,
HOWEVER, that, so long as no Default, Event of Default or Designated
Event shall have occurred and be continuing, the Borrower shall not be
required to make any such prepayment with respect to any portion of
such Net Cash Proceeds which are, within three months of the receipt
thereof, applied to the payment of Permitted Upgrades; and
(iii) by an amount equal to 100% of the Net Cash Proceeds
of any sale, transfer or other disposition of any asset of the Borrower
or any Subsidiary thereof (other than sales, transfers or dispositions
of Capacity described in clause (a) of Section 6.4 and dispositions
resulting in aggregate Net Cash Proceeds not exceeding $1,000,000
during any fiscal year of the Borrower); PROVIDED, HOWEVER, that the
Borrower shall not be required to make any such prepayment if such Net
Cash Proceeds are, within three months of receipt, used to replace such
assets disposed of with similar assets of at least substantially the
<PAGE>
53
same value, utility and useful life.
(d) If an Event of Loss shall occur, unless the affected portion of the
FLAG System is being repaired in accordance with Section 5.19(b), the Borrower
shall, on the third Business Day following the date on which insurance,
condemnation or expropriation proceeds are received with respect to such Event
of Loss, prepay the Loans in an amount equal to the insurance, condemnation
and/or expropriation proceeds received.
(e) The Borrower shall immediately prepay the Loans with the Net Cash
Proceeds received in respect of any Permitted Sale Leaseback.
(f) The proceeds of any Special Payments shall be used to prepay the
Loans in accordance with Section 8.20. The Borrower shall prepay the Loans from
funds available in the Capital Expenditure Account in accordance with Section
8.17(b).
(g) The Borrower shall prepay the Loans with all remaining proceeds
then being held in the Construction Account upon the payment in full of all
costs in respect of the construction and installation of the Project which were
set forth in the Construction Cost Certificate (other than costs set forth
therein which are payable to the Contractors) in accordance with Section 8.8(b).
(h) The Borrower shall prepay the Loans with all proceeds disbursed or
otherwise released from the Contractor Escrow Account (other than disbursements
made therefrom directly to the Contractors in respect of payments due under the
Construction Contract in accordance with the terms of the Contractor Escrow
Agreement).
(i) Mandatory prepayments shall be accompanied by accrued interest.
(j) Mandatory prepayments of the Loans pursuant to paragraphs (c), (d),
(e), (f), (g) and (h) above shall be applied FIRST, to the mandatory prepayment
of the Term Loans and SECOND, to the mandatory prepayment of the Revolving
Credit Loans (and then, unless the Revolving Credit Commitments shall have been
terminated, to the cash collateralization of the Revolving Credit Commitments on
terms and subject to documentation reasonably satisfactory to the Administrative
Agent). Mandatory prepayments of the Term Loans shall be applied to the
installments thereof in the direct order of maturity.
(k) Upon being required to make a mandatory prepayment pursuant to this
<PAGE>
54
Section, the Borrower shall have the right (i) first, to prepay the ABR Loans
and any and all Eurodollar Loans having Interest Period(s) ending on the date
such prepayment is required and (ii) then, with respect to Eurodollar Loans
having Interest Period(s) ending on a day other than the date of such
prepayment, to deposit cash in the Supplemental Debt Reserve Account sufficient
to prepay in full such Eurodollar Loans (together with accrued interest thereon)
at the end of the applicable Interest Period(s). Any amounts so deposited shall
be held in the Supplemental Debt Reserve Account and shall be applied to the
prepayment of the applicable Eurodollar Loans at the end of the current Interest
Periods applicable thereto.
SECTION 2.10. FEES. (a) The Borrower agrees to pay to the
Administrative Agent, for the account of each Revolving Credit Lender, a
commitment fee, which shall accrue at the rate of 0.25% per annum on the average
daily unused portion of the Revolving Credit Commitment of such Revolving Credit
Lender during the period from the Closing Date to but excluding the date on
which the Revolving Credit Commitments terminate. Accrued commitment fees shall
be payable in arrears on the 30th day of each January, April, July and October
(and, with respect to the commitment fees payable in respect of any Revolving
Credit Commitment being terminated or reduced, on the date of such termination
or reduction) commencing on April 30, 1998 (or, if any such day is not a
Business Day, on the immediately preceding Business Day). All commitment fees
shall be computed on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed (including the first day but excluding the
last day). For purposes of computing the fees payable under this paragraph (a),
the Revolving Credit Commitments shall be computed without taking into account
any limitation on the availability of the Revolving Credit Commitments pursuant
to Section 2.6(e).
(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, an annual administration fee in the amounts set forth in the Fee Letter
and payable on the Closing Date and each anniversary thereof prior to the
Maturity Date all as set forth in the Fee Letter.
(c) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent, for distribution, in
the case of commitment fees, to the Revolving Credit Lenders.
SECTION 2.11. INTEREST. (a) The Loans comprising each ABR Borrowing
shall bear interest at a rate per annum equal to the Alternate Base Rate plus
the Applicable Margin.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest
at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in
effect for such Borrowing plus the Applicable Margin.
<PAGE>
55
(c) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of or interest on any
Loan, 2% plus the rate otherwise applicable to such Loan as provided above or
(ii) in the case of any other amount, 2% plus the highest rate applicable to the
Loans as provided above.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan; PROVIDED that (i) interest accrued pursuant
to paragraph (c) of this Section shall be payable on demand, (ii) in the event
of any repayment or prepayment of any Loan, accrued and unpaid interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment, (iii) in the event of any conversion of any Eurodollar
Borrowing prior to the end of the current Interest Period therefor, accrued
interest on such Loan shall be payable on the effective date of such conversion
and (iv) all unpaid accrued interest shall be payable upon the Maturity Date.
(e) All interest hereunder shall be computed on the basis of a year of
360 days, except that interest computed by reference to the Alternate Base Rate
at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate or
Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.12. ALTERNATE RATE OF INTEREST; ILLEGALITY. (a)
Notwithstanding any other provision of this Agreement to the contrary, if prior
to the commencement of any Interest Period for a Eurodollar Borrowing:
(i) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate for such
Interest Period; or
(ii) the Administrative Agent is advised by the Majority
Lenders that the Adjusted LIBO Rate for such Interest Period will not
adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest
Period;
<PAGE>
56
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any
Continuation/Conversion Notice that requests the conversion of any Borrowing to,
or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and such Borrowing shall continue as, or be converted to, as applicable, an ABR
Borrowing and (ii) if any Borrowing Request requests a Eurodollar Borrowing,
such Borrowing shall be made as an ABR Borrowing.
(b) Notwithstanding any other provision of this Agreement to the
contrary, if on or after the date of this Agreement the adoption of or any
change in any applicable 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, such Lender shall give telex, telecopy or
telephonic notice thereof to the Administrative Agent and the Borrower as soon
as practicable (and, with respect to any such telephonic notice, the party
delivering the same agrees to confirm such notice in writing) and (i) the
commitment of such Lender hereunder to make Eurodollar Loans and continue
Eurodollar Loans as such shall forthwith be cancelled and (ii) such Lender's
Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to ABR 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.
SECTION 2.13. INCREASED COSTS. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended or participated in by, any
Lender (except any such reserve requirement reflected in the Adjusted
LIBO Rate); or
(ii) impose on any Lender or the London interbank market
any other condition affecting this Agreement or Eurodollar Loans made
by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender such additional amount or
amounts as will compensate such Lender for such additional costs incurred or
reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on the
capital of such Lender or any holding company for such Lender, if any, as a
consequence of
<PAGE>
57
this Agreement or the Loans made by such Lender, to a level below that which
such Lender or the holding company for such Lender would have achieved but for
such Change in Law (taking into consideration such Lender's or such Lender's
holding company's policies with respect to capital adequacy), then from time to
time the Borrower will pay to such Lender or such Lender's holding company, as
the case may be, such additional amount or amounts as will compensate such
Lender for any such reduction suffered.
(c) If any Lender becomes entitled to claim compensation pursuant to
this Section, such Lender shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
A certificate of a Lender setting forth the amount or amounts necessary to
compensate such Lender or such holding company, as the case may be, as specified
in paragraph (a) or (b) of this Section shall be delivered to the Borrower (with
a copy to the Administrative Agent). The Borrower shall pay such Lender the
amount shown as due within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; PROVIDED that the Borrower shall not be required to
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than six months prior to the date that such Lender
notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender's intention to claim compensation therefor;
PROVIDED, FURTHER, that, if the Change in Law giving rise to such increased
costs or reductions is retroactive, then the six-month period referred to above
shall be extended to include the period of retroactive effect thereof.
SECTION 2.14. BREAK FUNDING PAYMENTS. In the event of (a) the payment
of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto, (b) the conversion of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto (including
in accordance with the provisions of Section 2.12(b) or 2.17(b)) or (c) the
failure to borrow, convert, continue or prepay any Eurodollar Loan on the date
specified in any notice delivered pursuant hereto, then, in any such event, the
Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, the loss to any
Lender attributable to any such event may include an amount determined by such
Lender to be equal to the excess, if any, of (i) the amount of interest that
such Lender would pay for a deposit equal to the principal amount of such Loan
for the period from the date of such payment, conversion or failure to the last
day of the then current Interest Period for such Loan (or, in the case of a
failure to borrow, convert or continue, the duration of the Interest Period that
would have resulted from such borrowing, conversion or continuation) if the
interest rate payable on such deposit were equal to the Adjusted LIBO Rate for
such Interest Period, over (ii) the amount of interest that
<PAGE>
58
such Lender would earn on such principal amount for such period if such Lender
were to invest such principal amount for such period at the interest rate that
would be bid by such Lender (or an affiliate of such Lender) for dollar deposits
from other banks in the eurodollar market at the commencement of such period. A
certificate of any Lender setting forth the details of any amount or amounts
that such Lender is entitled to receive pursuant to this Section shall be
delivered by such Lender to the Borrower (with a copy to the Administrative
Agent) and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due within 10 days after receipt thereof.
SECTION 2.15. TAXES. (a) Any and all payments by or on account of any
obligation of the Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if the
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent or Lender
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower shall make such deductions
and (iii) the Borrower shall pay the full amount deducted to the relevant
Governmental Authority in accordance with Applicable Law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with Applicable Law.
(c) The Borrower shall indemnify the Administrative Agent and each
Lender, within 10 days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this Section)
paid by the Administrative Agent or such Lender, as the case may be, and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender or by the Administrative Agent on its own behalf or on
behalf of a Lender, shall be conclusive absent manifest error.
(d) As soon as reasonably practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the
<PAGE>
59
Administrative Agent.
(e) Any Lender that is legally entitled to an exemption from or
reduction of withholding tax which is an Indemnified Tax with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times 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 or
subject to withholding at a reduced rate, 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.
SECTION 2.16. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF
SET-OFFS. (a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest or fees, or under Section 2.13, 2.14
or 2.15, or otherwise) prior to 1:00 p.m., New York City time, on the date when
due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. Subject to Article
VIII, all such payments shall be made to the Administrative Agent at its offices
at 222 Broadway, New York, New York, 10038 except that payments pursuant to
Sections 2.13, 2.14, 2.15 and 10.3 shall be made directly to the Persons
entitled thereto. The Administrative Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate recipient
promptly following receipt thereof. Except as otherwise set forth herein, if any
payment hereunder shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments hereunder shall be made in Dollars.
(b) If at any time insufficient funds are received by and available to
the Administrative Agent to pay fully all amounts of principal, interest and
fees then due hereunder, such funds shall be applied, subject to the provisions
of Article VIII, (i) first, to pay interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, to pay principal then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Loans of a particular Class
and accrued interest thereon than the proportion received by any other Lender of
such Class, then the Lender receiving such
<PAGE>
60
greater proportion shall purchase (for cash at face value) a participation in
the Loans of such Class of the other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans of such Class; PROVIDED that (i) if any such
participation is purchased and all or any portion of the payment giving rise
thereto is recovered, such participation shall be rescinded and the purchase
price restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to the Borrower, any Shareholder or any Affiliate
thereof (as to which the provisions of this paragraph shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that the Borrower will not make
such payment, the Administrative Agent may assume that the Borrower has made
such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders severally
agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by
it pursuant to Section 2.4(b) or 2.16(d), then the Administrative Agent may, in
its discretion apply any amounts thereafter received by the Administrative Agent
for the account of such Lender to satisfy such Lender's obligations under such
Sections until all such unsatisfied obligations are fully paid.
SECTION 2.17. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS. (a) If
any Lender notifies the Borrower of its intent to apply Section 2.12(b) and/or
requests compensation under Section 2.13, or if the Borrower is required to pay
any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.15, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights
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and obligations hereunder to another of its offices, branches or affiliates, if,
in the judgment of such Lender, such designation or assignment (i) would avoid
the application of Section 2.12(b), eliminate or reduce amounts payable pursuant
to Section 2.13 or 2.15, as the case may be, and (ii) would not subject such
Lender to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable
costs and expenses incurred by any Lender in connection with any such
designation or assignment.
(b) If any Lender notifies the Borrower of its intent to apply Section
2.12(b) and such application is not being made by the Lenders generally and/or
requests compensation under Section 2.13 which is not being requested by the
Lenders generally, or if the Borrower is required to pay any additional amount
to any Lender or any Governmental Authority for the account of any Lender
pursuant to Section 2.15, or if any Lender defaults in its obligation to fund
Loans hereunder, so long as no Default shall have occurred and is continuing, at
its sole expense and effort, upon notice to such Lender and the Administrative
Agent, then the Borrower (i) may require such Lender to assign and delegate,
without recourse (in accordance with and subject to the restrictions contained
in Section 11.4), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); PROVIDED that (A) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld or delayed, (B) such Lender shall
have received payment of an amount equal to the outstanding principal of its
Loans, accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts)
and (C) in the case of any such assignment resulting from a claim for
compensation under Section 2.13 or payments required to be made pursuant to
Section 2.15, such assignment will result in a reduction in such compensation or
payments or in the case of any such assignment resulting from the application of
Section 2.12(b), such assignment will be to an assignee not then subject to such
Section or (ii) if the Borrower, after using best efforts (to the satisfaction
of the Administrative Agent), cannot procure for such Lender an assignee and
delegatee in satisfaction of clause (i) above, may prepay such Lender's Loans in
full out of funds made available to the Borrower for its sole benefit in
accordance with clause ninth of Section 8.10(b) or out of funds available in the
Excess Cash Flow Account, whereupon such Lender's Commitment shall also
terminate. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent, the
Collateral Trustee and the Lenders that:
SECTION 3.1. FINANCIAL CONDITION. (a) The financial statements of the
Borrower, furnished to the Lenders pursuant to Section 4.1(t), are complete and
correct in all material respects and present fairly in all material respects the
financial position and results of operations and cash flow of the Borrower as of
the dates thereof and for the periods then ended in conformity with GAAP applied
on a consistent basis. All material liabilities, direct and contingent, of the
Borrower on such dates are disclosed in such balance sheets.
(b) The unaudited PRO FORMA balance sheet of the Borrower, as at
September 30, 1997, furnished to the Lenders pursuant to Section 4.1(t),
represents in all material respects the PRO FORMA financial condition of the
Borrower as at such date after giving effect to the Refinancing and the initial
extensions of credit under this Agreement, assuming the Refinancing occurred on
September 30, 1997.
SECTION 3.2. NO CHANGE. Since December 31, 1996, there has been no
event, occurrence, development of facts or change which has had or could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.3. ORGANIZATION; EXISTENCE; BUSINESS. (a) Each of the
Borrower and its Subsidiaries is a company duly organized and validly existing
and in good standing under the laws of the jurisdiction of its organization and
is duly qualified to do business in such jurisdiction and in each other
jurisdiction in which the conduct of its business or the ownership or lease of
its assets requires such qualification, except in the case of any such other
jurisdiction, where the failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect.
(b) No filing, recording, publishing or other act is necessary or
appropriate in connection with the existence of the Borrower or any of its
Subsidiaries except those which have been duly made or performed and except
where the failure to so file, record, publish or act could not reasonably be
expected to have a Material Adverse Effect.
(c) Prior to the Closing Date, the Borrower has engaged in no business
other than the development, construction, installation, maintenance and
operation of the Project, the marketing and disposition of Capacity and
activities incidental thereto, and
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the Borrower has no obligations or liabilities (contingent or otherwise) other
than those directly related to the conduct of such business and disclosed in the
financial statements delivered pursuant to Section 4.1(t).
SECTION 3.4. COMPLIANCE WITH LAW. Each of the Borrower and its
Subsidiaries is in compliance with all Applicable Laws, including, without
limitation, all Environmental Laws and all Governmental Actions except to the
extent of any non-compliance which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.5. POWER AND AUTHORIZATION; ENFORCEABLE OBLIGATIONS. (a) Each
of the Borrower and its Subsidiaries has full corporate power and authority to
engage in all Project Activities, to conduct its business as now conducted, to
execute, deliver and perform this Agreement and the other Transaction Documents
to which it is a party and each other document to be executed in connection
herewith, to take all action as may be necessary to complete the transactions
contemplated hereunder, including to borrow the Loans and to grant the Liens and
security interests provided for in the Security Documents to which it is a
party.
(b) Each of the Borrower and its Subsidiaries has taken all necessary
corporate and legal action to authorize the borrowings by the Borrower hereunder
on the terms and conditions set forth herein, to grant the Liens provided for in
the Security Documents to which it is a party and to authorize the execution,
delivery and performance of this Agreement and the other Transaction Documents
to which it is a party and each other document to be executed in connection
herewith.
(c) Each of this Agreement and the other Financing Documents to which
the Borrower is a party has been duly executed and delivered by the Borrower and
constitutes, and each of the other Financing Documents to which the Borrower or
any of its Subsidiaries is to become a party will, upon execution and delivery
thereof by the Borrower or such Subsidiary, as the case may be, and the other
parties thereto (if any), constitute, a legal, valid and binding obligation of
the Borrower or such Subsidiary enforceable against the Borrower or such
Subsidiary in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting the rights of creditors generally, general
principles of equity (whether considered in a proceeding in equity or law) and
an implied covenant of good faith and fair dealing.
(d) Each of the Project Documents to which the Borrower is a party has
been duly executed and delivered by the Borrower and the Borrower has no reason
to believe that each of the Project Documents has not been duly executed and
delivered by the other parties thereto. Each of the Project Documents
constitutes a legal, valid and binding obligation of the Borrower enforceable
against the Borrower in accordance
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with its terms and the Borrower has no reason to believe that each of the
Project Documents does not constitute legal, valid and binding obligations of
such other parties enforceable against such other parties in accordance with its
terms, in each case except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws affecting the rights of creditors generally, general principles of
equity (whether considered in a proceeding in equity or law) and an implied
covenant of good faith and fair dealing.
SECTION 3.6. CORPORATE STRUCTURE. (a) Immediately prior to giving
effect to the transactions contemplated hereby, the capital structure of the
Borrower is as set forth in Schedule 3.6(a).
(b) Except as set forth in Schedule 3.6(b), as of the Closing Date, the
Borrower does not have any Subsidiaries and does not hold beneficially or
otherwise any ownership interest in any other Person.
SECTION 3.7. GOVERNMENTAL ACTIONS, RIGHTS-OF-WAY AND OTHER CONSENTS AND
APPROVALS. (a) No Governmental Actions, Rights-of-Way or other consents or
approvals are required by the Borrower, its Subsidiaries, any Contractor, any
PTT or, to the best knowledge of the Borrower, any other Person in connection
with (i) the Refinancing, (ii) the participation by the Borrower and its
Subsidiaries in the transactions contemplated by this Agreement and the other
Transaction Documents, (iii) the ownership and operation of the Project by the
Borrower, the performance by the Borrower of any Project Activity or the use by
the Borrower of the FLAG System as contemplated by the C&MA (including, without
limitation, the sale, lease or other disposition of Capacity on any Segment of
the Project) in accordance with the applicable provisions of the Transaction
Documents and in compliance with all Applicable Laws, (iv) the validity and
enforceability of the Transaction Documents against the Borrower and its
Subsidiaries and (v) the execution, delivery and performance of the Financing
Documents by the Borrower and its Subsidiaries, the borrowings by the Borrower
hereunder and the grant by the Borrower and its Subsidiaries of the Liens
created pursuant to the Security Documents to which the Borrower or any of its
Subsidiaries is a party and the validity and enforceability thereof and the
perfection of and the exercise by the Collateral Trustee of its rights and
remedies thereunder, except in each case for those Governmental Actions,
Rights-of-Way and consents or approvals which have been duly obtained or made,
are in full force and effect and are Final and those which are not required to
have been obtained or made by the date on which this representation and warranty
is made or deemed made and, as of any date after the Closing Date on which
representations and warranties are made or deemed made under this Agreement,
except where the failure
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to so obtain such Governmental Actions, Rights-of-Way and consents or approvals
could not reasonably be expected to have a Material Adverse Effect.
(b) To the best of the Borrower's knowledge as of the Closing Date,
Schedule 3.7(b) sets forth all the material Governmental Actions and
Rights-of-Way that are required to be obtained pursuant to any Project Document
or Applicable Law in connection with the performance by the Borrower of the
Project Activities (including, without limitation, the sale, lease or other
disposition of Capacity on any Segment of the Project).
SECTION 3.8. NO LEGAL BAR. (a) The execution, delivery and performance
by the Borrower and its Subsidiaries of this Agreement and the other Financing
Documents to which it is a party, the borrowings by the Borrower hereunder and
the use of the proceeds thereof, the granting of the Liens by the Borrower and
its Subsidiaries under the Security Documents and the consummation of the
Refinancing and the transactions contemplated hereby and thereby, (i) will not
violate or result in a breach of any Applicable Law, (ii) will not violate or
result in a default under any material Contractual Obligation of the Borrower or
any Subsidiary thereof and (iii) will not result in, or require, the creation or
imposition of any Lien on any of the properties or revenues of the Borrower, its
Subsidiaries or the Project, except for Permitted Liens.
(b) The execution, delivery and performance by the Borrower and each
Subsidiary thereof of the Project Documents to which it is a party (i) will not
violate or result in a breach of any Applicable Law or a default under any
material Contractual Obligation of the Borrower or such Subsidiary, except for
any violation, breach or default that, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect and (ii) will not
result in, or require, the creation or imposition of any Lien on any of the
properties or revenues of the Borrower, its Subsidiaries or the Project, except
for Permitted Liens.
SECTION 3.9. NO PROCEEDING OR LITIGATION. No litigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the best
of the Borrower's knowledge, threatened against or affecting the Borrower or any
of its Subsidiaries or against or affecting any of the properties, rights,
revenues or assets of the Borrower or any of its Subsidiaries, or the Project or
this Agreement or any other Transaction Document or the transactions
contemplated hereby or thereby, except for such litigation or proceedings
described in Schedule 3.9 and except in the case of any litigation or proceeding
occurring or arising after the Closing Date (and as to which the Borrower had no
knowledge prior to the Closing Date) which, if adversely determined, could not
be reasonably expected to have a Material Adverse Effect.
SECTION 3.10. NO DEFAULT, EVENT OF DEFAULT OR EVENT OF LOSS. (a) No
Default or Event of Default has occurred and is continuing. No Event of Loss has
occurred and
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is continuing as of the Closing Date (and, as of any date after the Closing Date
on which representations and warranties are made or deemed made under this
Agreement, no Event of Loss has occurred and is continuing or, if an Event of
Loss has occurred and is continuing as of such date, an EOL Compliance
Certificate has been delivered by the Borrower to the Administrative Agent
pursuant to Section 5.19(a)).
(b) Neither the Borrower nor any of its Subsidiaries is and, to the
best of the Borrower's knowledge, no other party is, (i) in material default
under or with respect to any Principal Project Document (other than any Capacity
Sales Agreement and other than any Maintenance Zone Agreement so long as such
default could not reasonably be expected to have an adverse effect on the
Borrower's ability to maintain the FLAG System or perform its obligations under
the Financing Documents and the Principal Project Documents) or (ii) in default
under or with respect to any other Project Document except for any defaults
under such other Project Documents which could not reasonably be expected to
have a Material Adverse Effect, and no notice of default has been given to or by
the Borrower or any of its Subsidiaries under any Project Document with respect
to any matter which could reasonably be expected to have a Material Adverse
Effect.
SECTION 3.11. OWNERSHIP OF PROPERTY; LIENS; COMMON STOCK. (a) As of the
Closing Date (and on each date on which representations and warranties are made
or deemed made under this Agreement), the Borrower and its Subsidiaries have
good and valid title to (or, if applicable, valid leasehold interests or rights
of use in) the Collateral, to all of their respective assets comprising a part
of the Project and to all of their respective other assets free and clear of all
Liens except Permitted Liens. The Rights-of-Way granted to the Borrower are free
and clear of all Liens other than Permitted Liens.
(b) The recordings, filings and other actions shown on Schedule 3.11(b)
are all the recordings, filings and other actions necessary and appropriate to
establish, protect and perfect the Collateral Trustee's Lien on and prior
perfected security interest in the Subject Collateral. The provisions of the
Security Documents (together with such recordings, filings and actions) are
effective to create, in favor of the Collateral Trustee, for the benefit of the
Secured Parties, a legal, valid and enforceable lien on and security interest in
all of the Collateral and, from and after the Closing Date, the Collateral
Trustee has a legal, valid and enforceable first lien on and prior perfected
security interest in all of the Subject Collateral.
(c) All of the Pledged Stock has been duly authorized and validly
issued and is fully paid and non-assessable. There are no outstanding
obligations of the Borrower to repurchase, redeem or otherwise acquire any
Capital Stock (or any security convertible into or exchangeable for the same) of
the Borrower from any Shareholder other than in respect of the Existing
Preferred Stock.
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SECTION 3.12. TAXES. (a) Neither the Borrower, any of its Subsidiaries,
the Project nor any of their respective assets or revenues (including any
Capacity Payments and O&M Payments) is subject to any Tax in any jurisdiction,
except for Taxes in an aggregate amount for any Operating Year not exceeding 5%
of the Borrower's Consolidated EBITDA for such Operating Year.
(b) All clearance rulings, decrees or similar items necessary to
establish the exemption from the imposition of any Tax or similar charge (other
than Taxes or other charges in an aggregate amount not to exceed the amount
referred to in paragraph (a) of this Section) upon which the Borrower or any of
its Subsidiaries is relying under the laws of Bermuda or any other jurisdiction
on its income, assets, operations or revenues have been obtained, are in full
force and effect and are Final.
(c) Each of the Borrower and its Subsidiaries has timely filed or
caused to be filed all tax returns which are required to be filed by it, and has
paid or caused to be paid all Taxes shown to be due and payable on such returns
or on any assessments made against it or any of its property and has paid or
caused to be paid all other Taxes, fees or other charges imposed on it or any of
its property by any Governmental Authority, except for Taxes subject to a
Contest and except with respect to the delay in filing tax returns in respect of
Thailand for fiscal 1996 and interim 1997 and a late filing of a protective
return in the United States for 1996, in each case to which no taxes, penalties
or fees (other than nominal penalties or fees) are associated.
SECTION 3.13. FEDERAL REGULATIONS. Neither the Borrower nor any of its
Subsidiaries is engaged nor will it engage in the business of extending credit
for the purpose of "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulations G, U and X of
the Board as now and from time to time hereafter in effect. No part of the
proceeds of the Loans will be used for "purchasing" or "carrying" any "margin
stock" as so defined or for any purpose which violates, or which would be
inconsistent with, the provisions of the Regulations of the Board.
SECTION 3.14. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
have a Material Adverse Effect, and no contribution failure has occurred with
respect to any Plan sufficient to give rise to a Lien under Section 302(f) of
ERISA.
SECTION 3.15. INVESTMENT COMPANY ACT. Neither the Borrower nor any of
its
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Subsidiaries is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 3.16. FULL DISCLOSURE. All factual information (taken as a
whole) furnished in writing to the Collateral Trustee, the Administrative Agent
or any Lender directly or indirectly by the Borrower or any of its Subsidiaries
was (or is) true and accurate in all material respects on the date as of which
such information was (or is) dated or certified and not incomplete by omitting
to state a material fact necessary in order to make such information (taken as a
whole) not misleading in any material respect at such time in light of the
circumstances under which such information was (or is) provided. All such
factual information (taken as a whole) shall not include any information by way
of projections, estimates or other expressions of view as to future
circumstances so long as such projections, estimates or expressions were made in
good faith, based on reasonable assumptions, and fairly represent the Borrower's
expectation as to the matter covered thereby as of their date.
SECTION 3.17. PRINCIPAL PLACE OF BUSINESS, ETC. As of the Closing Date,
the principal place of business and chief executive office of the Borrower is
located at 12 Par-la-Ville Road, Hamilton HM 08, Bermuda.
SECTION 3.18. INTELLECTUAL PROPERTY. (a) Each of the Borrower and its
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted and proposed to be
conducted that are material to the condition (financial or other), business, or
operations of the Borrower, its Subsidiaries or the Project.
(b) No claim has been asserted and is pending by any Person with
respect to the use of any such Intellectual Property in connection with the
Project or the conduct of the business of the Borrower or any of its
Subsidiaries, or, to the Borrower's best knowledge, challenging or questioning
the validity or effectiveness of any such Intellectual Property (except for any
claim or claims arising after the Closing Date which individually or in the
aggregate could not, if determined adversely to the Borrower or such Subsidiary,
as applicable, reasonably be expected to have a Material Adverse Effect) and
neither the Borrower nor any of its Subsidiaries knows of any valid basis for
any such claim.
(c) As of the Closing Date and to the Borrower's best knowledge, the
use or contemplated use of such Intellectual Property by the Borrower and any of
its Subsidiaries does not infringe on the rights of any Person and, as of any
date after the Closing Date on which representations and warranties are made or
deemed made under this Agreement, except for any infringement which
individually, or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
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SECTION 3.19. SUFFICIENCY OF PROJECT DOCUMENTS. (a) Other than such
services, materials, property interests, license agreements and other rights
that the Borrower reasonably believes are readily obtainable on commercially
reasonable terms, the services to be performed, the materials to be supplied and
the property interests, license agreement(s), and other rights granted pursuant
to the Project Documents and other Contractual Obligations to which the Borrower
is a party comprise all of the services, materials and property interests
required to perform the Project Activities in accordance with all Applicable
Laws and the Transaction Documents.
(b) The Borrower is not, as of the Closing Date, party to or otherwise
obligated in any way under any material Contractual Obligation other than those
listed on Schedule 3.19(b) and such Contractual Obligations have not been
amended or otherwise modified (by letter agreement or otherwise) as of the
Closing Date, except as set forth on Schedule 3.19(b). Schedule 3.19(b) sets
forth each Contractual Obligation of the Borrower or, to the best of the
Borrower's knowledge, other Person which could have an adverse effect on the
Collateral or on the availability of the remedies of the Collateral Trustee, the
Administrative Agent or the Lenders under the Financing Documents.
SECTION 3.20. ENVIRONMENTAL MATTERS. No condition or violation of
Environmental Laws exists with respect to the Project, the Borrower, its
Subsidiaries, any property owned or operated by the Borrower or its Subsidiaries
or otherwise that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
SECTION 3.21. COMMERCIAL INSURANCE. All commercial insurance policies
required to be maintained pursuant to Section 5.9 are in full force and effect
and all premiums with respect thereto have been paid in full.
SECTION 3.22. IMMUNITY. Neither the Borrower nor any of its
Subsidiaries is entitled to claim for itself, any of its assets or the Project
(or any portion thereof) immunity from suit, execution, attachment or other
legal process in any proceedings in any jurisdiction in connection with any of
the Financing Documents to which the Borrower or any of its Subsidiaries is a
party.
SECTION 3.23. FOREIGN CORRUPT PRACTICES ACT. Neither the Borrower nor
any of its Subsidiaries nor any of their respective officers, directors,
employees, or authorized agents or any of their affiliates which are Controlled
by the Borrower, acting on its behalf, has taken any action in connection with
the Project that violates the Foreign Corrupt Practices Act of the United
States, if applicable, or any similar law of any other jurisdiction, if
applicable.
SECTION 3.24. FEES AND ENFORCEMENT. Other than amounts that have been
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paid in full, no fees or Taxes, including without limitation stamp, transaction,
registration or similar taxes, are required to be paid for the legality,
validity, or enforceability of this Agreement or any of the other Transaction
Documents.
SECTION 3.25. ENFORCEMENT; PERFORMANCE. It is not necessary solely (i)
in order to execute or enforce any rights in Bermuda under this Agreement or
under any other Financing Document to which the Borrower is a party or (ii) by
reason of the entry into or performance of this Agreement or any other Financing
Document to which the Borrower is a party, that the Collateral Trustee, the
Administrative Agent or any Lender be licensed, qualified or entitled to do
business in Bermuda.
SECTION 3.26. AVAILABLE CAPACITY. Schedule 3.26 sets forth, as of the
date hereof, the amount of Capacity on each Segment available for the sale,
lease, transfer or other disposition.
SECTION 3.27. OUTSTANDING CONTRACTOR OBLIGATIONS. (a) As of the Closing
Date, the Total Contract Price is $1,136,332,524, of which $840,110,124 has been
paid in full to the Contractors. As of the Closing Date, the Borrower does not
owe any amounts to any Contractor other than in respect of amounts which have
been provided for as of the Closing Date in the Contractor Escrow Account and
the Construction Account.
(b) As of the Closing Date, there are no disputes between the Borrower
and the Contractors with respect to amounts owing under the Construction
Contract. As of the Closing Date, there are no disputes between the Borrower and
the Contractors with respect to the performance of any obligations under the
Construction Contract or otherwise, except those that have been disclosed to the
Independent Engineer.
ARTICLE IV
CONDITIONS
SECTION 4.1. CONDITIONS PRECEDENT TO CLOSING. The obligation of each
Lender to make its initial Loans on the Closing Date shall be subject to the
fulfillment, or waiver in its sole discretion by such Lender, of each of the
following conditions precedent:
(a) UNREGISTERED NOTES. Simultaneously with the making of the
initial Loans on the Closing Date, the Unregistered Notes shall be
issued, and the Borrower shall receive gross proceeds of not less than
$430 million therefrom,
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substantially on the terms set forth in the Senior Unsecured Note
Offering Memorandum.
(b) SENIOR UNSECURED NOTE DOCUMENTS. The Administrative Agent
shall have received, with a copy for each Lender and the Collateral
Trustee, true and complete copies of each Senior Unsecured Note
Document (other than the Senior Unsecured Notes), certified as such by
a Responsible Officer of the Borrower as of the Closing Date.
(c) FINANCING DOCUMENTS. The Administrative Agent shall have
received, with a counterpart for each Lender and the Collateral
Trustee, each of the following documents:
(i) this Agreement, duly executed and delivered
by each of the parties hereto;
(ii) each Pledge Agreement, duly executed and
delivered by the Shareholder party thereto in favor of the
Collateral Trustee, for the benefit of the Secured Parties,
together with (A) the stock certificates representing all of
the Capital Stock of the Borrower owned by such Shareholder,
(B) undated stock powers for each stock certificate
representing such Capital Stock, executed in blank and
delivered by a duly authorized representative of such
Shareholder, (C) undated transfer certificates for each stock
certificate representing such Capital Stock, executed in blank
and delivered by a duly authorized officer of such Shareholder
and (D) a proxy of such Shareholder in the form attached to
the Pledge Agreement to which such Shareholder is a party,
executed and delivered by a duly authorized officer of such
Shareholder;
(iii) the Borrower Security Agreement, duly
executed and delivered by the Borrower in favor of the
Collateral Trustee, for the benefit of the Secured Parties;
and
(iv) the Registrar and Transfer Agent Agreement,
duly executed and delivered by the parties thereto.
(d) PROJECT DOCUMENTS. The Administrative Agent shall have
received, with a copy for the Collateral Trustee and each Lender
(unless otherwise specified below), each of the following documents:
(i) a true and complete copy of the Construction
Contract, duly certified as such by a Responsible Officer of
the Borrower as of the Closing Date and as being in full force
and effect (and, with respect to the copies delivered to the
Collateral Trustee and the Lenders, only the Terms
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and Conditions of Contract are required to be delivered);
(ii) a true and complete copy of the AT&T
Construction Contract Guaranty, duly certified as such by a
Responsible Officer of the Borrower as of the Closing Date and
as being in full force and effect;
(iii) a true and complete copy of the KDD
Construction Contract Guaranty, duly certified as such by a
Responsible Officer of the Borrower as of the Closing Date and
as being in full force and effect;
(iv) a true and complete copy of the C&MA, duly
certified as such by a Responsible Officer of the Borrower as
of the Closing Date and as being in full force and effect
(and, with respect to the copies delivered to the Collateral
Trustee and the Lenders, the C&MA may exclude amendments which
solely add a signatory thereto);
(v) for delivery to the Administrative Agent
only, a true and complete copy of each then outstanding
Capacity Sales Agreement executed by the Borrower, duly
certified as such by a Responsible Officer of the Borrower as
of the Closing Date and as being in full force and effect;
(vi) a true and complete copy of the Software
Development and License Agreement, duly certified as such by a
Responsible Officer of the Borrower as of the Closing Date and
as being in full force and effect;
(vii) a true and complete copy of the Technology
Escrow Deposit Agreement, duly certified as such by a
Responsible Officer of the Borrower as of the Closing Date and
as being in full force and effect;
(viii) for delivery to the Administrative Agent
only, a true and complete copy of each Maintenance Zone
Agreement, duly certified as such by a Responsible Officer of
the Borrower as of the Closing Date and as being in full force
and effect;
(ix) a true and complete copy of the Program
Management Agreement, duly certified as such by a Responsible
Officer of the Borrower as of the Closing Date and as being in
full force and effect;
(x) a true and complete copy of the Marketing
Services
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73
Agreement, duly certified as such by a Responsible Officer of
the Borrower as of the Closing Date and as being in full force
and effect;
(xi) a true and complete copy of the
Shareholder Agreement, duly certified as such by a Responsible
Officer of the Borrower as of the Closing Date and as being in
full force and effect;
(xii) for delivery to the Administrative Agent
only, a true and complete copy of the Equity Subscription
Agreement, duly certified as such by a Responsible Officer of
the Borrower as of the Closing Date and as being in full force
and effect; and
(xiii) for delivery to the Administrative Agent
only, a true and complete copy of the Existing Preferred Stock
Documents, duly certified as such by a Responsible Officer of
the Borrower as of the Closing Date.
(e) PERFORMANCE BOND. The Collateral Trustee shall have
received a true and complete original counterpart of the Performance
Bond (in a stated amount as of the Closing Date not less than
$113,633,252), together with the amendment thereto which substitutes
the Collateral Trustee as the Beneficiary thereof, duly certified as
such by a Responsible Officer of the Borrower as of the Closing Date
and as being in full force and effect.
(f) CONSENTS. The Administrative Agent shall have received,
with a copy for the Collateral Trustee and each Lender:
(i) the Contractor Consent, duly executed and
delivered by the parties thereto;
(ii) the AT&T Guaranty Consent, duly executed
and delivered by the parties thereto;
(iii) the KDD Guaranty Consent, duly executed
and delivered by the parties thereto;
(iv) the Bell Atlantic Shareholder Consent,
duly executed and delivered by the parties thereto; and
(v) the BANS Consent, duly executed and
delivered by the parties thereto.
(g) EXISTING SPONSOR SUBORDINATED PLEDGE AGREEMENTS. The
Administrative Agent shall have received evidence reasonably
satisfactory to it
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that the Liens created by the Existing Sponsor Subordinated Pledge
Agreements shall have been terminated.
(h) REDEMPTION OF EXISTING PREFERRED STOCK. The Administrative
Agent shall have received evidence reasonably satisfactory to it that,
simultaneously with the making of the initial Loans on the Closing
Date, the Existing Preferred Stock is being redeemed pursuant to the
Redemption Letter Agreement and the Administrative Agent shall have
received a certificate of a Responsible Officer of the Borrower
certifying as of the Closing Date that, other than the Redemption
Letter Agreement, no other agreements have been entered into with the
Existing Preferred Shareholders or any of their Affiliates in
connection with the redemption of the Existing Preferred Stock.
(i) REFINANCING. The Administrative Agent shall have received
evidence reasonably satisfactory to it that, simultaneously with the
making of the initial Loans on the Closing Date, all Refinanced
Indebtedness is being paid in full and all Liens securing such
Indebtedness are being terminated.
(j) CONSENTS, LICENSES AND APPROVALS. The Administrative Agent
shall have received evidence reasonably satisfactory to it that all
governmental and third party approvals (including consents) necessary
in connection with the consummation of the Refinancing and the
execution, delivery and performance of the Financing Documents shall
have been obtained and shall be in full force and effect and shall be
Final.
(k) EQUITY CONTRIBUTIONS. The Administrative Agent shall have
received a certificate of a Responsible Officer of the Borrower
certifying that, as of the Closing Date, (i) the Shareholders (other
than Gulf, GE Capital and AT&T Capital) made cash equity contributions
to the Borrower pursuant to the Existing Equity Contribution Agreements
in an aggregate amount not less than $500,000,000 and (ii) such cash
equity contributions were used in respect of Project Activities (or, to
the extent any such funds were not yet expended and are, as of the
Closing Date, being held by the Existing Collateral Trustee, such funds
are, simultaneously with the making of the initial Term Loans
hereunder, being (x) used to prepay the Refinanced Indebtedness, (y)
transferred to the Contractor Escrow Account or one or more of the
Accounts or (z) held by the Borrower in a bank account in accordance
with Section 6.27, in each case consistent with the schedule of
"sources and uses" referred to in Section 4.1(l)).
(l) SOURCES AND USES. The Administrative Agent shall have
received, with a copy for the Collateral Trustee and each Lender, a
schedule, in form and
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75
substance reasonably satisfactory to the Administrative Agent, which
sets forth in reasonable detail the "sources and uses" of funds
necessary to consummate the Refinancing.
(m) ACCOUNT BALANCES. The Administrative Agent shall have
received, with a copy for the Collateral Trustee and each Lender, a
certificate of a Responsible Officer of the Borrower certifying, as of
the Closing Date and before giving effect to the Refinancing (i) the
aggregate amount of funds and other investments then being held by the
Existing Collateral Trustee and the amount of accrued interest thereon
and (ii) the aggregate amount of all funds and investments held by the
Borrower in any other bank account, checking account or similar
account.
(n) TRANSFER OF FUNDS. The Administrative Agent shall have
received evidence reasonably satisfactory to it that, simultaneously
with the making of the initial Loans, all funds and investments of the
Borrower, together with all accrued interest thereon, are being (i)
used to prepay the Refinanced Indebtedness and redeem the Existing
Preferred Stock, (ii) transferred to the Contractor Escrow Account or
one or more of the Accounts or (iii) held in a bank account of the
Borrower in accordance with Section 6.27, all in accordance with the
schedule of "sources and uses" referred to in Section 4.1(l).
(o) LEGAL OPINIONS. The Administrative Agent shall have
received, with a counterpart for the Collateral Trustee and each
Lender, the following opinions of counsel, dated the Closing Date, each
in form and substance reasonably satisfactory to the Administrative
Agent and addressed to each of the Secured Parties:
(i) the legal opinion of Morgan, Lewis &
Bockius LLP, New York counsel to the Borrower, substantially
in the form of Exhibit N-1;
(ii) the legal opinion of Stuart Rubin, Esq.,
in-house counsel to the Borrower, substantially in the form of
Exhibit N-2;
(iii) the legal opinion of Harney, Westwood &
Riegels, British Virgin Islands counsel to Rathburn,
substantially in the form of Exhibit N-3;
(iv) the legal opinion of Appleby, Spurling &
Kempe, Bermuda counsel to Marubeni Telecom, substantially in
the form of Exhibit N-4;
(v) the legal opinion of Edward G. Scheibler,
Jr., Esq., in-house counsel to Marubeni Telecom, substantially
in the form of Exhibit
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N-5;
(vi) the legal opinion of W.S. Walker &
Company, Cayman Islands counsel to AIF, substantially in the
form of Exhibit N-6;
(vii) the legal opinion of Baker & McKenzie,
Thai counsel to KIN, substantially in the form of Exhibit N-7;
(viii) the legal opinion of Paul Repp, Esq.,
in-house counsel to the Bell Atlantic Shareholder,
substantially in the form of Exhibit N-8;
(ix) the legal opinion of Barbara Meserole,
Esq., in-house counsel to AT&T Capital, substantially in the
form of Exhibit N-9;
(x) the legal opinion of Harsha Murthy, Esq.,
in-house counsel to GE Capital, substantially in the form of
Exhibit N-10;
(xi) the legal opinion of Mello, Hollis,
Jones & Martin, Bermuda counsel to GE Capital, substantially
in the form of Exhibit N-11;
(xii) the legal opinion of Mello, Hollis,
Jones & Martin, Bermuda counsel to the Collateral Trustee,
substantially in the form of Exhibit N-12; and
(xiii) the legal opinion of Conyers Dill &
Pearman, Bermuda counsel to the Lenders, substantially in the
form of Exhibit N-13.
(p) INDEPENDENT ENGINEER'S REPORT. The Administrative Agent
shall have received, with a copy for each Lender, a report of the
Independent Engineer, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Administrative Agent.
(q) MARKET CONSULTANT'S REPORT. The Administrative Agent shall
have received, with a copy for each Lender, the final report of the
Market Consultant, dated October 1997, and the Administrative Agent
shall have received no information from the Market Consultant which
would make such report inaccurate or incomplete.
(r) BORROWER'S INSURANCE CONSULTANT'S REPORT. The
Administrative Agent shall have received, with a copy for each Lender,
a report of the
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77
Borrower's Insurance Consultant, dated as of the Closing Date, in form
and substance reasonably satisfactory to the Administrative Agent.
(s) INSURANCE. Insurance complying with the provisions of
Section 5.9 shall be in full force and effect and the Administrative
Agent shall have received (i) certificates of insurance signed in each
case by the insurer or an agent authorized to bind the insurer and (ii)
a certificate of the Borrower's Insurance Consultant, setting forth the
types and amounts of insurance obtained by the Borrower and the risks
covered thereby, and stating that such insurance is in full force and
effect, complies with the requirements of Section 5.9 and that all
currently due premiums therefor have been paid in full. The Borrower's
Insurance Consultant shall have approved the insurance policies,
applications, disclosures and other information provided to or obtained
from, as the case may be, all insurers providing the insurance required
pursuant to Section 5.9.
(t) FINANCIAL STATEMENTS. The Administrative Agent shall have
received, with a copy for each Lender (i) the audited balance sheet and
related financial statements of the Borrower for the fiscal year ended
December 31, 1996, certified without qualification or exception as to
the scope of its audit by Arthur Andersen & Co., (ii) the unaudited
balance sheet and related financial statements of the Borrower for the
fiscal period ended September 30, 1997, certified by a Responsible
Officer of the Borrower as of the Closing Date and (iii) the unaudited
PRO FORMA balance sheet of the Borrower, as at September 30, 1997,
certified by a Responsible Officer of the Borrower (prepared assuming
the Refinancing and the initial extensions of credit hereunder occurred
on September 30, 1997).
(u) PROJECTIONS. The Administrative Agent shall have received,
with a copy for each Lender, operating projections for the Project
certified by a Responsible Officer of the Borrower as being prepared in
good faith in full consideration of all information known to such
officer, after due inquiry, as of the Closing Date (the "OPERATING
PROJECTIONS"), setting forth (i) the projections of revenues, operating
and other expenses (including all Taxes) and cash flows of the Project
for each Operating Year prior to December 31, 2006 and (ii) the
projected Present Value Coverage Ratios and the Cumulative Net Revenue
for each quarterly period set forth therein, all in such detail and
based on such assumptions as shall be reasonably satisfactory to the
Administrative Agent, which Operating Projections shall be in form and
substance reasonably satisfactory to the Administrative Agent.
(v) TAXES. All Taxes, if any, payable or indemnifiable by the
Borrower on or prior to the Closing Date in connection with the
execution, delivery, performance, recording and filing of the Financing
Documents and the
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documents and instruments described in Schedule 3.11(b) or in
connection with the consummation of the transactions contemplated
hereby or by the other Financing Documents, shall have been paid in
full.
(w) CERTIFICATE OF PROVISIONAL SYSTEM ACCEPTANCE; PSA 2. The
Certificate of Provisional System Acceptance shall have been issued.
The Administrative Agent shall have received a certificate of the
Independent Engineer certifying that PSA 2 has occurred.
(x) OUTSTANDING CONSTRUCTION COSTS. The Administrative Agent
shall have received, with a copy for the Collateral Trustee and each
Lender, a certificate of a Responsible Officer of the Borrower,
substantially in the form of Exhibit K (the "CONSTRUCTION COST
CERTIFICATE") certifying as of the Closing Date all payments (including
interest) remaining to be paid to the Contractors (under the
Construction Contract or otherwise), together with all other costs
which are not set forth in the initial Operating Budget and are payable
by the Borrower to any other Person in respect of the construction,
installation and start-up of the Project.
(y) PAYMENT OF PROJECT COSTS. The Administrative Agent shall
have received evidence reasonably satisfactory to it that,
simultaneously with the making of the initial Loans hereunder (i) the
Contractor Escrow Account is being funded with an amount equal to all
payments remaining to be paid to the Contractors under the Construction
Contract and (ii) the Construction Account is being funded with an
amount equal to all other costs remaining to be paid to any Person in
respect of the construction and installation of the Project, in each
case consistent with the schedule of "sources and uses" referred to in
Section 4.1(l).
(z) CAPACITY COMMITMENTS. The Administrative Agent shall have
received a certificate of a Responsible Officer of the Borrower
certifying as of the date hereof (i) the aggregate amount of Capacity
Payments received to date and the aggregate amount of Capacity sold in
respect thereof (on a Segment by Segment basis), (ii) the aggregate
amount of Capacity Payments outstanding, the date such Capacity
Payments become due and payable, each PTT obligated therefor, the
amount of Capacity purchased by such PTT, the relevant Segments and
correspondents and the purchase price therefor and (iii) such other
information as is set forth on Schedule 1.1(c).
(aa) PRICING SCHEDULE. The Borrower shall have delivered to
the Administrative Agent, with a copy for each Lender, the initial
Pricing Schedule, certified as such as of the Closing Date by a
Responsible Officer of the Borrower.
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79
(bb) GOVERNMENTAL ACTIONS; RIGHTS-OF-WAY. The Administrative
Agent shall have received a certificate of a Responsible Officer of the
Borrower that all Governmental Actions and Rights-of-Way set forth in
Section 3.7(a) have been obtained and that each such Governmental
Action and Right-of-Way is in full force and effect and is Final. A
copy of each such Governmental Action and Right-of-Way (to the extent
in writing and in the Borrower's possession) shall have been delivered
to the Administrative Agent.
(cc) OPERATING BUDGET. The Administrative Agent shall have
received, with a copy for each Lender, an Operating Budget for the
initial Operating Year which shall be consistent with the Operating
Projections and shall otherwise be in form and substance reasonably
satisfactory to the Administrative Agent.
(dd) RESTORATION PLAN. The Administrative Agent shall have
received a true and complete copy of a plan developed by the Borrower
and approved by the Management Committee (or any subcommittee thereof)
in respect of restoration for the FLAG System (the "RESTORATION PLAN"),
certified as such by a Responsible Officer of the Borrower as of the
Closing Date, and the Administrative Agent shall have received evidence
reasonably satisfactory to it that the Restoration Plan has been
implemented.
(ee) OPERATIONS AND MAINTENANCE PLAN. The Administrative Agent
shall have received a true and complete copy of the Operations and
Maintenance Plan, duly certified as such by a Responsible Officer of
the Borrower as of the Closing Date.
(ff) CHARTER DOCUMENTS; BOARD RESOLUTIONS. The Administrative
Agent shall have received, with a copy for each Lender, the following,
in each case in form and substance reasonably satisfactory to the
Administrative Agent:
(i) a copy of (A) the Memorandum of Association
and Bye-laws of the Borrower, certified as of the Closing Date
by the Secretary or an Assistant Secretary thereof, and (B)
resolutions of the Board of Directors of the Borrower,
certified as of the Closing Date by the Secretary or an
Assistant Secretary thereof, authorizing the execution,
delivery and performance by the Borrower of each Financing
Document to which it is or is to become a party and
authorizing the Borrower to enter into the transactions
contemplated hereby and to make the borrowings under this
Agreement and grant the Liens under the Security Documents to
which it is a party, together with an incumbency certificate
as to the Person or Persons authorized to execute and deliver
such documents on
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its behalf; and
(ii) a copy of (A) the Certificate of
Incorporation of and By-Laws (or such other organizational and
governing documents) of each Shareholder (other than Gulf),
certified as of the Closing Date by the Secretary or Assistant
Secretary of such Shareholder and (B) resolutions of the Board
of Directors of each Shareholder (other than Gulf), certified
as of the Closing Date by the Secretary or an Assistant
Secretary of such Shareholder, duly authorizing the execution,
delivery and performance by such Shareholder of each Financing
Document to which it is or is to become a party and grant the
Liens under the Security Documents to which it is a party,
together with an incumbency certificate as to the Person or
Persons authorized to execute and deliver such documents on
its behalf.
(gg) OFFICER'S CERTIFICATE. The Administrative Agent shall
have received, with a counterpart for each Lender, a certificate of a
Responsible Officer of the Borrower, dated the Closing Date, stating
that (i) the representations and warranties of the Borrower contained
in Article III and in each other Financing Document to which it is a
party are true and accurate on and as of the Closing Date as though
made on and as of such date except to the extent that such
representations and warranties relate solely to an earlier date (in
which case such representations and warranties shall have been true and
accurate on and as of such earlier date); (ii) no event or condition
has occurred and is continuing, or would result from the consummation
of any transaction contemplated by the Refinancing, the other
transactions contemplated hereby or any Financing Document, which
constitutes a Default or Event of Default; (iii) each Project Document
to which it is a party has been fully performed in accordance with its
terms or, if such Project Document continues to have outstanding
obligations, the Borrower has no reason to believe that such Project
Document is not in full force and effect and (iv) there has been no
material adverse change in the financial condition or results of
operations of the Borrower since the date of the financial statements
referred to in Section 4.1(t).
(hh) AGENT FOR SERVICE OF PROCESS. The Administrative Agent
shall have received evidence reasonably satisfactory to it that the
Borrower and each Shareholder (other than Gulf, AT&T Capital and GE
Capital) that does not have an office in New York, New York, has
irrevocably appointed an agent in New York, New York for service of
process.
(ii) FEES AND EXPENSES. The Administrative Agent and the
Arranger shall have received the fees payable to it on the Closing Date
pursuant to the Fee Letter and all other fees and expenses payable by
the Borrower. Each Lender
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shall have received the fees which are payable to it on the Closing
Date as agreed by the Administrative Agent and such Lender.
(jj) NO VIOLATION OF APPLICABLE LAW. The consummation of the
Refinancing and the other transactions contemplated hereby and by the
other Transaction Documents shall not violate any Applicable Law.
(kk) PERFECTION OF LIENS AND SECURITY INTERESTS. The
Administrative Agent shall have received a certificate by a Responsible
Officer of the Borrower certifying that, as of the Closing Date, all
filings, recordings and other actions shown on Schedule 3.11(b) hereto
shall have been duly made or taken and all fees, taxes and other
charges relating to such filings and recordings and other actions shall
have been paid in full. The Administrative Agent shall have received
evidence reasonably satisfactory to it that all filings or recordings,
if any, previously made in respect of the Collateral shall have been
terminated pursuant to documentation reasonably satisfactory to the
Administrative Agent. The Collateral Trustee shall have a perfected
first lien on and prior perfected security interest in all right,
title, estate and interest of the Borrower or the Shareholders (other
than Gulf), as the case may be, in and to the Subject Collateral, prior
and superior to all other Liens.
(ll) OTHER MATTERS. The Administrative Agent and the Lenders
shall have each received such information, opinions, documents and
copies of such other documents as any of them may reasonably request,
which information, opinions and documents shall be reasonably
satisfactory in form and substance to such requesting party.
SECTION 4.2. CONDITIONS PRECEDENT TO EACH LOAN. The obligation of each
Lender to make each Loan requested to be made on any date (including, without
limitation, its Loans made on the Closing Date) shall be subject to the
fulfillment of, or waiver by the Majority Lenders (or, with respect to Loans
made on the Closing Date, by such Lender) of, each of the following conditions
precedent:
(a) NO DEFAULT OR EVENT OF DEFAULT. No Default or Event of
Default shall have occurred and be continuing on such date, or shall
occur after giving effect to the extension of credit to be made on such
date.
(b) PRESENT VALUE COVERAGE RATIO TESTS. With respect to the
making of any Revolving Credit Loan, each of the Present Value Coverage
Ratios calculated as of the end of the most recent calendar quarter
shall be no less than 1.5 to 1.00.
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(c) NO CHANGE IN LAW. No change shall have occurred after the
Closing Date in any Applicable Law or in the interpretation thereof by
any Governmental Authority charged with the administration or
interpretation thereof (i) which would make any Secured Party's
participation in the transactions contemplated hereby illegal or (ii)
which would render void, voidable or invalid or require or cause the
cancellation, suspension or termination of any of the Financing
Documents, or (iii) which would cause any of the transactions
contemplated hereby to violate any Applicable Law, other than any
change in Applicable Law provided for in Section 2.12(b).
(d) NO FORCE MAJEURE, CANCELLATION, SUSPENSION, TERMINATION,
ETC. No event of FORCE MAJEURE or similar event or condition shall
exist under any Project Document (i) which could reasonably be expected
to have a Material Adverse Effect or (ii) which permits or requires any
party to any of the Project Documents to cancel, suspend or terminate
its performance thereunder in accordance with the terms thereof or
which could reasonably be expected to excuse any such party from
liability for non-performance thereunder unless such cancellation,
suspension or termination or non-performance could not reasonably be
expected to have a Material Adverse Effect.
(e) LITIGATION. No action, proceeding or investigation shall
have been instituted or threatened by or before any Governmental
Authority, nor shall any order, judgment or decree have been issued or
proposed to be issued by any Governmental Authority, to set aside,
restrain, enjoin, limit, restrict or prevent the consummation of the
Refinancing.
(f) REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by the Borrower and any of its Subsidiaries (and, if
such date is the Closing Date, each Shareholder (other than Gulf)) in
this Agreement or in any other Financing Document to which it shall be
a party shall be true and correct in all material respects on and as of
such date as if made on and as of such date except to the extent that
such representations and warranties relate solely to an earlier date
(in which case such representations and warranties shall have been true
and accurate in all material respects on and as of such earlier date).
(g) PERFECTION OF LIENS AND SECURITY INTERESTS. The Collateral
Trustee shall have a perfected first lien on and prior perfected
security interest in all right, title, estate and interest of the
Borrower, any Subsidiary of the Borrower and the Shareholders (other
than Gulf) in and to the Subject Collateral, prior and superior to all
other Liens.
(h) BORROWING REQUEST. The Administrative Agent shall have
received the
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applicable Borrowing Request in accordance with Section 2.3, with
appropriate insertions and attachments, executed by a Responsible
Officer of the Borrower.
(i) BORROWING CERTIFICATE. The Administrative Agent shall have
received a Borrowing Certificate, dated the date of such Borrowing,
with appropriate insertions and attachments, executed by a Responsible
Officer of the Borrower.
ARTICLE V
AFFIRMATIVE COVENANTS
Until all the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees and other obligations
payable hereunder and under the other Financing Documents shall have been paid
in full, the Borrower covenants and agrees with the Administrative Agent, the
Collateral Trustee and the Lenders that:
SECTION 5.1. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower
shall deliver to the Administrative Agent, with a copy for each Lender, the
following:
(a) within 90 days after the end of each fiscal year of the
Borrower, its audited consolidated balance sheet and related
consolidated statements of income, retained earnings and change in cash
flow as of the end of and for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported
on by independent public accountants of recognized national standing
reasonably acceptable to the Administrative Agent (without
qualification or exception as to the scope of such audit) to the effect
that such financial statements present fairly in all material respects
the financial condition and results of operations of the Borrower and
its consolidated Subsidiaries in accordance with GAAP consistently
applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower (commencing with
the fiscal quarter ending March 31, 1998), a consolidated balance sheet
of the Borrower as of the end of such fiscal quarter and the related
consolidated statements of income, retained earnings and change in cash
flow for such fiscal quarter and the then elapsed portion of the fiscal
year, setting forth in each case in comparative form the figures for
the corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by a
Responsible Officer of the Borrower as presenting fairly in all
material respects the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries in accordance with GAAP
consistently applied, subject to normal
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year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of the financial statements
referred to in clauses (a) and (b), a certificate of a Responsible
Officer of the Borrower certifying to such officer's knowledge whether
a Default has occurred and, if a Default has occurred, specifying the
details thereof and any action taken or proposed to be taken with
respect thereto;
(d) concurrently with any delivery of the financial statements
referred to in clause (a), a certificate of the independent public
accountants who certified such financial statements, if available from
such independent public accountants, stating that in making the
examination necessary to the audit thereof no knowledge was obtained of
any Default or Event of Default, except as specified in such
certificate (which certificate may be limited to the extent permitted
by accounting rules or guidelines);
(e) simultaneously with the delivery of any Expense
Certificate in accordance with Section 8.10(a), to the Administrative
Agent only, a certificate of a Responsible Officer of the Borrower
setting forth all Operating Expenses, capital expenditures and income
taxes paid out of the Current Account since the date of the last
Expense Certificate (and, in the case of the delivery of the first
Expense Certificate, since the Closing Date), with, if applicable,
invoices attached thereto; and
(f) such other information respecting the conditions or
operations, financial or otherwise, of the Borrower or any Subsidiary
thereof as the Administrative Agent may from time to time reasonably
request.
SECTION 5.2. REPORTS; OTHER INFORMATION. (a) The Borrower shall deliver
to the Administrative Agent within 30 days after the end of each calendar
quarter (commencing with the calendar quarter ending on December 31, 1997) a
report which sets forth (i) the aggregate proceeds received in respect of the
sale, lease or other disposition of Capacity since the end of the previous
calendar quarter, (ii) the aggregate amount of Capacity Payments owing, but not
yet paid, as at the end of such calendar quarter and the date such Capacity
Payments become (or became) due, (iii) a list of the PTT's who have purchased or
leased Capacity and the aggregate dollar value of Capacity acquired by each such
PTT during such calendar quarter, (iv) the aggregate MIUs disposed of during
such calendar quarter, together with a Schedule detailing the allocation thereof
among the Segments, (v) any termination of commitments for the sale, lease or
other disposition of Capacity during such calendar quarter, (vi) the
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aggregate amount of Capacity disposed of for non-cash consideration during such
calendar quarter, and (vii) any and all rebates or other returns of cash to PTTs
during such calendar quarter.
(b) The Borrower shall deliver to the Administrative Agent, with a copy
for the Collateral Trustee and each Lender, within 20 days after the end of each
calendar quarter, a certificate of a Responsible Officer of the Borrower setting
forth (i) reasonably detailed calculations of the Cumulative Net Revenue and the
Present Value Coverage Ratios calculated as of the end of such calendar quarter
in accordance with Sections 6.31 and 6.32 and (ii) if such calculations
demonstrate that a Designated Event shall have occurred and be continuing, a
certification thereof and the reduction, if any, to the aggregate Revolving
Credit Commitments as required by Section 2.6(e).
(c) Within three Business Days prior to each Principal Payment Date,
the Borrower shall deliver to the Administrative Agent, with a copy for the
Collateral Trustee, a certificate setting forth (i) the Required Balance with
respect to the Debt Reserve Account and the Maintenance Reserve Account, as of
such date and (ii) the Supplemental Debt Reserve Maximum Balance as of such
date.
(d) The Borrower shall deliver to the Administrative Agent each new
Pricing Schedule effective upon its adoption.
(e) The Borrower shall deliver to the Administrative Agent the
information set forth on Schedule 1.1(c) on the dates set forth therein.
SECTION 5.3. PAYMENT OF OBLIGATIONS. The Borrower shall pay, and shall
cause each of its Subsidiaries to pay, at or before maturity or before they
become delinquent, as the case may be, all its obligations under the Financing
Documents and all its other material obligations of whatever nature, except,
with respect to such other material obligations, where the amount or validity
thereof is subject to a Contest.
SECTION 5.4. EXISTENCE. The Borrower shall do or cause to be done, and
shall cause each of its Subsidiaries to do or cause to be done, all things
necessary to preserve, renew and keep in full force and effect its legal
existence and take all reasonable action to maintain all rights, privileges and
franchises material, necessary or desirable in the normal conduct of its
business except where the failure to maintain such rights, privileges and
franchises, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
SECTION 5.5. COMPLIANCE WITH LAWS. The Borrower shall, and shall cause
each of its Subsidiaries to, comply in all material respects with all Applicable
Laws (including, without limitation, all Environmental Laws and Governmental
Actions) applicable to it or its property, except where the failure to do so,
individually or in the
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aggregate, could not reasonably be expected to have a Material Adverse Effect.
SECTION 5.6. PERFORMANCE AND ENFORCEMENT OF AGREEMENTS. The Borrower
shall, and shall cause each of its Subsidiaries to, observe in all material
respects the covenants and agreements of the Borrower or such Subsidiary, as the
case may be, contained in each Project Document and all of its other material
obligations contained in each other document to which the Borrower or such
Subsidiary is a party. The Borrower shall, and shall cause each of its
Subsidiaries to, enforce in a diligent and commercially reasonable manner all of
its rights under the C&MA and the other Project Documents, unless forbearance is
commercially reasonable.
SECTION 5.7. TAXES AND CLAIMS. (a) The Borrower shall, and shall cause
each of its Subsidiaries to, pay and discharge all Taxes lawfully imposed on it
or on its income or profits or on any of its property and all other lawful
claims prior to the date on which penalties attach thereto unless such Tax or
claim is subject to a Contest.
(b) The Borrower shall, and shall cause each of its Subsidiaries to,
maintain and keep in full force and effect all clearance rulings, decrees or
similar items necessary to continue the exemption of the Borrower or such
Subsidiary from the impositions of any Tax or similar charge on which the
Borrower or such Subsidiary is relying (other than, with respect to any
Operating Year, Taxes and other charges in an aggregate amount not exceeding 5%
of the Borrower's Consolidated EBITDA for such Operating Year).
SECTION 5.8. NOTICES. The Borrower shall, promptly after a Responsible
Officer of the Borrower has knowledge thereof, give written notice to the
Administrative Agent of:
(a) the occurrence of any Default, Event of Default or Event
of Loss;
(b) any payment default under any Project Document (i) in an
amount in excess of $1,000,000 or (ii) in an amount in excess of
$500,000 if such amount is deemed uncollectible by the Borrower or has
been outstanding for greater than 60 days;
(c) any litigation or similar proceeding affecting the
Borrower, any of its Subsidiaries or the Project (or any portion
thereof) or concerning any Governmental Action relating to the Project
(including any Governmental Action between any PTT and any Governmental
Authority), or which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect;
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(d) any proceeding by or before any tax regulatory authority
contesting the tax position of the Borrower or any of its Subsidiaries
if the resolution of such proceeding could result in an increased
liability in excess of $1,000,000;
(e) the occurrence of any ERISA Event that alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to result in liability in an aggregate amount in excess of
$1,000,000;
(f) any material event constituting FORCE MAJEURE under any
Principal Project Document which may have an impact on the Project;
(g) the cancellation or revocation of any material
Governmental Action, Right-of-Way or other consents or approvals or the
failure to obtain, maintain or renew and keep in full force and effect
any material Governmental Actions, Right-of-Way or other consents or
approvals;
(h) any Lien (other than Permitted Liens) against any
collateral security or any portion of the Project;
(i) the initiation of any condemnation or expropriation or
similar proceedings against any of the Collateral or the Project or any
portion thereof;
(j) any proposed change or supplement to the configuration of
the Project approved by the Borrower's Board of Directors or of any
event which could lead to a change, supplement or breakage in the
configuration of the Project;
(k) any issuance or proposed issuance of any class of Capital
Stock of the Borrower, or of any sale or proposed sale of any Capital
Stock of the Borrower or any proposed issuance of equity securities by
any Permitted Parent Company;
(l) its intent to enter into any amendment to any Principal
Project Document, together with a draft thereof prior to its execution
as well as an executed counterpart upon execution;
(m) any interruption in the operation of the Project (or any
portion thereof) of which the Borrower generally notifies its
customers;
(n) the material breach by any Landing Party PTT of any of its
obligations under the C&MA; and
(o) any other event, fact or development that has resulted in,
or could reasonably be expected to result in, a Material Adverse
Effect.
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SECTION 5.9. INSURANCE. The Borrower shall, and shall cause each of its
Subsidiaries to, at all times carry and maintain or cause to be carried and
maintained the insurance set forth in Schedule 5.9. All such insurance shall
comply with the other provisions set forth in Schedule 5.9.
SECTION 5.10. FISCAL YEAR. The fiscal year of the Borrower and its
Subsidiaries shall be the twelve-month period ending on December 31 of each
year.
SECTION 5.11. USE OF PROCEEDS. (a) The proceeds of the Term Loans shall
be used, together with the proceeds from the issuance of the Senior Unsecured
Notes, solely (i) for the repayment of the Refinanced Indebtedness on the
Closing Date, (ii) for the redemption of the Existing Preferred Stock on the
Closing Date, (iii) to pay costs and expenses relating to the Refinancing and
(iv) to fund a portion of the funds required to be deposited into the Contractor
Escrow Account and the Construction Account, all in accordance with the schedule
of "sources and uses" delivered to the Administrative Agent pursuant to Section
4.1(l). The proceeds of the Revolving Credit Loans shall be used for Operating
Expenses set forth in the then current Operating Budget (including debt service
on the Loans and the Senior Unsecured Notes) to the extent that (A) revenues are
insufficient to pay such expenses in accordance with the terms of Section
8.10(b), (B) funds in the Operating Reserve Account and the Maintenance Reserve
Account are insufficient to pay such expenses in accordance with the terms of
Article VIII and (C) with respect to the payment of debt service on the Loans
and the Senior Unsecured Notes, funds in the Debt Reserve Account and
Supplemental Debt Reserve Account are insufficient to pay such debt service in
accordance with the terms of Article VIII.
SECTION 5.12. INTEREST RATE PROTECTION. The Borrower shall, within two
months after the Closing Date, enter into one or more Interest Hedging
Agreements to hedge the Borrower's interest rate exposure on 50% of the Term
Loans for a period of at least three years from the Closing Date, all on terms
reasonably satisfactory to the Administrative Agent.
SECTION 5.13. OPERATING BUDGETS. At least 30 days prior to the
commencement of each Operating Year (other than the initial Operating Year), and
after prior review by, and the approval of the aggregate amount of the Operating
Expenses set forth therein by, the Administrative Agent, the Borrower will
adopt, for itself and its Subsidiaries, an Operating Budget for such Operating
Year (and deliver a copy thereof to the Administrative Agent), PROVIDED in no
event shall any Operating Budget provide for capital expenditures in excess of
$500,000 for such Operating Year. The Borrower shall, simultaneously with the
delivery of each Operating Budget (other than the initial Operating Budget),
deliver to the Administrative Agent an update of the Operating Projections.
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SECTION 5.14. GOVERNMENTAL ACTIONS AND RIGHTS-OF-WAY. The Borrower
shall obtain, or cause to be obtained, and maintain, or cause to be maintained,
in full force and effect all material Governmental Actions, Rights-of-Way and
other consents and approvals as are at the time necessary in order for the
Borrower and, if applicable, its Subsidiaries, (a) to operate and maintain the
Project as contemplated by the C&MA, (b) to transfer Capacity on all Segments
and (c) to perform all other Project Activities, except where the failure to
obtain or maintain such Governmental Actions, Rights-of-Way, consents or
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
SECTION 5.15. COOPERATION WITH INDEPENDENT ENGINEER. The Borrower shall
keep the Independent Engineer fully informed on a timely basis with respect to
(a) capital expenditures for the Project and (b) prior to the FSA Date, all
material matters relating to the Project, and shall meet (and cause the
Contractors to meet) the Independent Engineer at reasonable times and upon
reasonable notice to discuss any of the foregoing.
SECTION 5.16. REVENUE ACCOUNT. Subject to Sections 8.2(b), 8.2(i) and
8.2(j), the Borrower shall deposit, and shall direct others (including all of
its Subsidiaries) to pay or deposit, all Project Revenues directly into the
Revenue Account as required by Article VIII.
SECTION 5.17. MAINTENANCE OF PROCESS AGENT. The Borrower shall, and
shall cause each of its Subsidiaries to, maintain in New York, New York a Person
acting as agent to receive on its behalf service of process.
SECTION 5.18. SYSTEM OPERATION AND MAINTENANCE. The Borrower shall
cause the Project to be operated and maintained in an efficient and
business-like manner in accordance with the terms of the Project Documents.
SECTION 5.19. EVENT OF LOSS. (a) The Borrower shall immediately notify
the Administrative Agent and the Collateral Trustee in writing of the occurrence
of an Event of Loss and, unless the affected portion of the Project is being
repaired in accordance with Section 5.19(b), the Borrower shall deliver to the
Administrative Agent, within 30 days of the occurrence of such Event of Loss, a
certificate of a Responsible Officer of the Borrower (the "EOL COMPLIANCE
CERTIFICATE") certifying as to the Present Value Coverage Ratios as of the last
day of the immediately preceding calendar quarter (but recalculated to give
effect to such Event of Loss).
(b) If an Event of Loss shall occur and no Event of Default shall have
occurred
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and be continuing and (i) in the Independent Engineer's reasonable opinion it is
technically feasible to restore, rebuild or replace the affected portion of the
Project within six months, (ii) in the Administrative Agent's reasonable opinion
(after consultation with the Consultants) there are or will be sufficient funds
available to the Borrower (from Permitted Sources, proceeds of insurance and/or
other sources permitted by the Majority Lenders) to (x) restore, rebuild or
replace the affected portion of the Project so that the Project will be able to
operate as reliably and efficiently (and with a comparable market value) as the
Project operated (and was valued) prior to such event (and in any event on a
basis sufficient to pay the Senior Unsecured Notes, the Loans and all other
obligations owing to the Lenders) and (y) pay all cash operating and maintenance
costs and all the principal of, and interest on and all fees with respect to,
the Loans and to pay all other Obligations coming due prior to the time such
restoration, rebuilding or replacement is completed and (z) pay all obligations
to any PTT which may be coming due prior to the time such restoration,
rebuilding or replacement is completed (as a result of such Event of Loss or
otherwise), (iii) no party to the Principal Project Documents or any other
Project Document shall have the right to terminate such Principal Project
Document or other Project Document at any time during the period of restoration,
rebuilding or replacement as a result of any such Event of Loss unless, with
respect to any such other Project Document, such termination could not
reasonably be expected to have a Material Adverse Effect, and (iv) in the
Independent Engineer's reasonable opinion, it is reasonably likely that the
Borrower (or other applicable Persons) will have as and when needed all rights
of way and permits necessary to restore, rebuild or replace the affected portion
of the Project, then the Borrower and/or, if applicable, any Landing Party PTT
or such other appropriate Person permitted under the C&MA, at their sole cost
and expense, shall restore, rebuild or replace the affected portion of the
Project.
SECTION 5.20. BOOKS AND RECORDS; INSPECTION RIGHTS. (a) The Borrower
shall, and shall cause each of its Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower shall, and
shall cause each of its Subsidiaries to, permit any representative of the
Lenders designated by the Administrative Agent, upon reasonable prior notice, to
visit and inspect its properties, to examine and make copies from its books and
records and to discuss its affairs, finances and condition with its officers and
its independent accountants, all at such reasonable times and as often as
reasonably requested. The Borrower agrees that the Administrative Agent, the
Independent Engineer and each other advisor to the Lenders (at the Borrower's
expense), may visit the Borrower's executive offices, the FNOC, any other
portion of the Project (including any Segment-T or any other portion of the
Project, but only to the extent of the Borrower's rights of access thereto under
the C&MA or otherwise), each site where Work is being performed (but only to the
extent of the Borrower's rights of access thereto) and other properties owned by
the Borrower or any of its Subsidiaries at any and all reasonable times during
normal business hours,
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upon reasonable advance notice.
(b) The Administrative Agent, the Independent Engineer and each other
advisor to the Lenders will be given access, to the extent within the possession
or control of the Borrower or any of its Subsidiaries or to the extent the
Borrower or any of its Subsidiaries has rights of access, to (i) all Design
Documents (including, without limitation, data relating to any proposed design
changes in the Project), (ii) quality control data, (iii) invoices relating to
construction progress and to services to be performed and materials to be
supplied on a cost reimbursement basis, and invoices relied on by the
Contractors in verifying construction progress to the extent the Borrower or any
of its Subsidiaries has received the same, (iv) contracts relating to the
engineering of, the procurement of services, equipment, supplies or other
materials for, or the construction of, the Project and (v) all other data
relating to the Project as may be requested by the Administrative Agent or the
Independent Engineer.
SECTION 5.21. FOREIGN CORRUPT PRACTICES ACT. The Borrower shall, and
shall cause each of its Subsidiaries to, comply in all material respects with
the Foreign Corrupt Practices Act of the United States, or any similar law of
any other jurisdiction, if applicable.
SECTION 5.22. INTELLECTUAL PROPERTY COLLATERAL. (a) The Borrower shall
own, or shall have licenses to use, and shall cause each of its Subsidiaries to
own or have license to use, all Intellectual Property necessary for the conduct
of its business as currently conducted by it and proposed to be conducted that
are material to the condition (financial or other), business or operations of
the Borrower and its Subsidiaries, taken as a whole, or the Project.
(b) The Borrower shall, and shall cause each of its Subsidiaries to,
take all reasonably necessary steps to maintain and pursue any application (and
to obtain the relevant registration) filed with respect to, and to maintain any
registration of, any material item of the Intellectual Property owned by the
Borrower or such Subsidiary, including the filing of applications for renewal,
affidavits of use, affidavits of incontestability and opposition, interference
proceedings and the payment of appropriate fees, except where the failure to so
maintain, obtain or pursue could not reasonably be expected to have a Material
Adverse Effect.
(c) The Borrower shall, prior to the end of the Warranty Period, enter
into software maintenance agreements and software licensing agreements on terms
reasonably satisfactory to the Administrative Agent and the Independent
Engineer.
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SECTION 5.23. MAINTENANCE OF RESTORATION. The Borrower shall maintain
restoration for the FLAG System in accordance with the Restoration Plan.
SECTION 5.24. PSA 3; FSA DATE. (a) The Borrower shall use its best
efforts to cause PSA 3 to occur on or prior to September 30, 1998. If the FLAG
System shall fail to meet the requirement for achieving PSA 3 (exclusive of any
requirement with respect to Software) on or prior to September 30, 1998, the
Borrower shall immediately deliver to the Administrative Agent a certificate of
a Responsible Officer of the Borrower certifying (x) the reasons why the FLAG
System failed to meet the requirement for achieving PSA 3 (exclusive of any
requirement with respect to Software) and the actions, if any, the Borrower is
pursuing in respect thereof and (y) that, in the Borrower's reasonable opinion,
such failure does not relate to items or failures which have, or could
reasonably be expected to have, an adverse effect on the ability of the FLAG
System to reliably carry traffic.
(b) The Borrower shall use its best efforts to cause the FSA Date to
occur within 150 days after the occurrence of PSA 3. If the FSA Date shall fail
to occur within 150 days after the occurrence of PSA 3, the Borrower shall
immediately deliver to the Administrative Agent a certificate of a Responsible
Officer of the Borrower certifying (i) the reasons why the FSA Date has not
occurred and the actions, if any, the Borrower is pursuing in respect thereof
and (ii) that, in the Borrower's reasonable opinion, the failure to achieve
Final System Acceptance does not relate to items or failures which have, or
could reasonably be expected to have, an adverse effect on the ability of the
FLAG System to reliably carry traffic (or, if the Borrower cannot certify as to
the matters set forth in clause (ii), the Borrower shall have delivered to the
Administrative Agent a detailed plan reasonably satisfactory to the Majority
Lenders (upon consultation with the Independent Engineer) setting forth the
reasons why the FSA Date has not occurred and the actions the Borrower is
pursuing for the purpose of achieving Final System Acceptance or remediating the
items or failures which prevent the occurrence of the FSA Date).
SECTION 5.25. FURTHER ASSURANCES. The Borrower shall cause to be
promptly and duly taken, executed, acknowledged and delivered all such further
acts, documents and assurances as the Administrative Agent or the Collateral
Trustee from time to time may reasonably request in order to carry out more
effectively the intent and purposes of this Agreement and the other Financing
Documents, including with respect to the maintenance of perfection of all
Subject Collateral.
ARTICLE VI
NEGATIVE COVENANTS
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Until all the Commitments have expired or terminated and the principal
of and interest on each Loan and all fees and other obligations payable
hereunder and under the Financing Documents have been paid in full, the Borrower
covenants and agrees with the Administrative Agent, the Collateral Trustee and
the Lenders that:
SECTION 6.1. INDEBTEDNESS. The Borrower shall not, and shall not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness of the Borrower incurred under the Financing
Documents and in respect of the other Obligations and the guarantee of
such Indebtedness by any Subsidiary of the Borrower;
(b) Indebtedness of the Borrower evidenced by the Senior
Unsecured Notes in an aggregate principal amount not to exceed $430
million less an amount equal to any prepayments made thereon or
redemptions or purchases thereof after the Closing Date and, if any
Subsidiary of the Borrower has guaranteed the Obligations, the
guarantee of such Indebtedness by such Subsidiary;
(c) Indebtedness of the Borrower described in clause (c) of
the definition of "Indebtedness" with respect to amounts payable under
the Construction Contract to the extent that such amounts are set forth
in the Construction Cost Certificate and Dollars have been deposited in
the Contractor Escrow Account;
(d) Capital Lease Obligations of the Borrower permitted by
Section 6.17;
(e) Indebtedness of the Borrower under, or constituting net
exposure under, Interest Hedging Agreements entered into in accordance
with Section 5.12 or otherwise permitted by the Administrative Agent;
(f) Indebtedness of the Borrower under any Permitted Sale
Leaseback;
(g) unsecured Indebtedness of the Borrower owing to any
Shareholder which is payable only after the repayment of the
Obligations, which is expressly subordinated to the Obligations and
which contain terms (including terms with respect to subordination)
that are satisfactory to the Administrative Agent (which terms shall
(i) include that, upon any foreclosure with respect to the Capital
Stock of the Borrower, such Indebtedness shall only be payable from the
excess proceeds of such foreclosure after application of such proceeds
to the Obligations, and (ii) provide for no cash interest payments,
except for cash interest payments to the extent and only to the extent
funds are actually made available to the Borrower in accordance with
clause ninth of Section 8.10(b) and only if no Default, Event of
Default or Designated Event shall have occurred and be continuing); and
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(h) other Indebtedness of the Borrower in an aggregate
principal amount not to exceed $1,000,000 at any one time.
SECTION 6.2. LIENS. The Borrower shall not, and shall not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien on the
Collateral (or any part thereof), the Project (or any portion thereof) or any of
its, or its Subsidiaries, other assets, other than Permitted Liens.
SECTION 6.3. FUNDAMENTAL CHANGES. The Borrower shall not, and shall not
permit any of its Subsidiaries to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
change its form of organization or its business, or liquidate or dissolve,
except that the Borrower may, with the prior written consent of the Majority
Lenders, merge into or consolidate with a Subsidiary of a Permitted Parent
Company.
SECTION 6.4. SALE OF ASSETS. The Borrower shall not, and shall not
permit any of its Subsidiaries to, sell, lease, convey, assign, transfer or
otherwise dispose of (each, a "TRANSFER") all or any portion of its assets
except (a) Transfers of Capacity (and capacity on other telecommunication
systems acquired in accordance with the terms of this Agreement) in accordance
with Section 6.13, (b) Transfers of assets in the ordinary course of business
not required for the efficient operation of the FLAG System for fair value with
a book value not exceeding $10,000,000 in the aggregate for all fiscal years for
all such Transfers under this clause (b), (c) Transfers by the Borrower in
connection with Permitted Sale Leasebacks, (d) Transfers of obsolete, worn out
or defective equipment and other assets for fair value in cash and/or cash
equivalents, (e) Transfers of title to portions of the FLAG System as required
under the C&MA, (f) any Transfer of assets by a Subsidiary of the Borrower to
the Borrower and (g) Transfers of title to any Landing Party PTT with respect to
any portion of the Project within the territorial limits of the jurisdiction of
such Landing Party PTT for the purpose of minimizing taxes payable by the
Borrower or to comply with the laws of the jurisdiction of such Landing Party
PTT, but only to the extent permitted by the terms of the C&MA and only if the
Borrower and the other PTTs are granted an irrevocable right of use (at no
charge) with respect to the portion of the Project so transferred; PROVIDED that
(A) the Net Cash Proceeds of a Transfer under clauses (b), (c), (d), (e) and (g)
shall be deposited in the Sales and Issuances Proceeds Account and shall be
applied to the prepayment of the Loans if required in accordance with Section
2.9 and (B) other proceeds received in respect of Transfers permitted under this
Section (including under clause (a)) shall be, subject to Sections 8.2(b),
8.2(i) and 8.2(j), deposited into the Revenue Account for application in
accordance with Article VIII.
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SECTION 6.5. INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND ACQUISITIONS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, (a)
purchase, hold or acquire any Capital Stock, evidences of indebtedness or other
securities (including any option, warrant or other right to acquire any of the
foregoing) of, make or permit to exist any loans or advances to, Guarantee any
obligations of, or make or permit to exist any investment or any other interest
in, any other Person, or purchase or otherwise acquire (in one transaction or a
series of transactions) any assets of any other Person constituting a business
unit, or become a general or limited partner in any partnership or a joint
venturer in any joint venture or enter into any profit sharing or royalty
agreement or similar arrangement whereby the income or profits of the Borrower
or any of its Subsidiaries are, or might be, shared with any Person, except (i)
Permitted Investments, (ii) the Borrower may own Capital Stock of wholly-owned
Subsidiaries created in accordance with Section 6.26, (iii) the Borrower may
make equity contributions in any such Subsidiary only out of funds made
available to the Borrower in accordance with clause "ninth" of Section 8.10(b)
or funds available in the Excess Cash Flow Account, (iv) Guarantees permitted by
Section 6.1 and Guarantees by the Borrower of obligations of its Subsidiaries to
the extent such obligations constitute Operating Expenses set forth in the then
current Operating Budget, (v) the Borrower may enter into reasonable joint
marketing agreements or arrangements and (vi) the Borrower may, through any of
its Subsidiaries, become a joint venturer in a joint venture so long as (x) such
Subsidiary shall not enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon the ability
of such Subsidiary to pay dividends or otherwise make distributions on its
Capital Stock and (y) parties to the transaction with such Subsidiary shall have
no recourse against the Borrower in respect of such transaction, or (b) enter
into any management contract (other than the Program Management Agreement and
the Marketing Services Agreement and other than any agreement between the
Borrower and a Subsidiary thereof approved by the Administrative Agent) or
similar arrangement whereby its business or operations are managed by any other
Person.
SECTION 6.6. RESTRICTED PAYMENTS; PAYMENTS WITH RESPECT TO SENIOR
UNSECURED NOTES. (a) The Borrower shall not declare or make any Restricted
Payment except for (i) distributions by the Borrower in respect of its Capital
Stock which are payable solely in additional Capital Stock of the Borrower, but
only to the extent such additional Capital Stock is common stock and, if such
Capital Stock in respect of which such distribution is made is subject to a Lien
in favor of the Collateral Trustee, is subject to a first priority perfected
Lien in favor of the Collateral Trustee pursuant to a Pledge Agreement or such
other documentation as shall be reasonably acceptable to the Administrative
Agent and which is delivered to the Collateral Trustee, together with undated
stock powers for each stock certificate representing such additional Capital
Stock, executed in blank, (ii) so long as no Default or Event of Default shall
have occurred and be continuing or would result therefrom, distributions by the
Borrower in
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respect of its Capital Stock from funds available to the Borrower in accordance
with clause ninth of Section 8.10(b) or with funds available in the Excess Cash
Flow Account and (iii) so long as no Default or Event of Default shall have
occurred and be continuing or would result therefrom, the Borrower may purchase
or redeem shares of Capital Stock (or options or warrants in respect of such
shares) of the Borrower held by present or former officers or employees of the
Borrower or any of its Subsidiaries upon such person's death, disability,
retirement or termination of employment or under any agreement under which such
shares of Capital Stock or related rights were issued, provided that the
aggregate amount of such purchases or redemptions shall not exceed $5,000,000 in
the aggregate.
(b) The Borrower shall not, except with funds available in the Excess
Cash Flow Account, make any payment (other than payments of interest thereon) or
prepayment on, or any redemption or purchase or otherwise provide for the
defeasance of, the Senior Unsecured Notes (or any portion thereof) or any
Guarantees in respect thereof.
SECTION 6.7. LIMITATIONS ON ISSUANCE OF INTERESTS. (a) The Borrower
shall not issue any additional Capital Stock of the Borrower or any other
interest in the Borrower, to any Person, except for (i) additional Capital Stock
which is common stock and which is subject to the perfected Lien of the
Collateral Trustee pursuant to a Pledge Agreement or such other documentation as
shall be reasonably acceptable to the Administrative Agent and which is
delivered to the Collateral Trustee, together with undated stock powers for each
stock certificate representing such additional Capital Stock, executed in blank
and (ii) additional Capital Stock which is common stock (or options or warrants
to purchase the same) issued by the Borrower under the Stock Option Plan to
persons who are, at the time of such issuance, officers or employees of the
Borrower and/or its Subsidiaries; PROVIDED that the Borrower shall not permit
the Capital Stock (and the warrants and options to purchase the same) issued
pursuant to this clause (ii) to represent more than 3.8% of all common stock of
the Borrower on a fully diluted basis.
(b) The Borrower shall not permit any of its Subsidiaries to issue any
additional Capital Stock or any other interest in any such Subsidiary to any
Person, except to the Borrower and only if such additional Capital Stock is (i)
subject to the perfected Lien of the Collateral Trustee pursuant to a Pledge
Agreement or such other documentation as shall be reasonably acceptable to the
Administrative Agent and (ii) delivered to the Collateral Trustee, together with
undated stock powers for each stock certificate representing such additional
Capital Stock, executed in blank.
SECTION 6.8. LIMITATIONS ON TRANSFER OF INTERESTS. The Borrower shall
not consent to the transfer (by assignment, sale or otherwise) of any Capital
Stock or any other equity interest of the Borrower, or permit the transfer (by
assignment, sale or otherwise) of any Capital Stock or any other equity interest
of any of its Subsidiaries,
<PAGE>
97
except for (a) subject to the provisions of paragraph (n) of Article VII, a
transfer by the Shareholders of all the Capital Stock of the Borrower (other
than 2.2% of the Class A common Capital Stock which is owned by Gulf) to a newly
created corporation in exchange for Capital Stock of such newly created
corporation, all in connection with a public offering of equity or debt
securities by such newly created corporation; PROVIDED that (i) the Borrower
shall not assume or otherwise be obligated in respect of any obligations
associated with such a transaction, (ii) the terms of such a transaction shall
be reasonably acceptable to the Administrative Agent and (iii) after giving
effect to such transaction, the Collateral Trustee shall have a perfected first
priority security interest in all Capital Stock of the Borrower (other than the
Capital Stock held by Gulf and other than the Capital Stock issued under the
Stock Option Plan) and (b) subject to the provisions of paragraph (n) of Article
VII, any transfer of the Borrower's Capital Stock made subject to the Lien and
the terms of the Pledge Agreement pursuant to which such Capital Stock is
pledged (including, without limitation, the delivery by the transferee to the
Collateral Trustee of an Irrevocable Proxy and Power as contemplated by such
Pledge Agreement), (c) any Capital Stock issued under the Stock Option Plan
(unless any such Capital Stock is required to be pledged to the Collateral
Trustee in accordance with the terms of this Agreement or the other Financing
Documents) and (d) Capital Stock held by Gulf.
SECTION 6.9. PAYMENT OF CONSTRUCTION COSTS; CONSTRUCTION COST
CERTIFICATE; OPERATING BUDGET. (a) The Borrower shall not, and shall not permit
any of its Subsidiaries to, pay any amount (other than with respect to amounts
received from Permitted Sources) in respect of the construction and installation
of the FLAG System in the Original Configuration other than those costs set
forth in the initial Operating Budget or in the Construction Cost Certificate.
Without the prior written consent of the Majority Lenders, the Borrower shall
not modify the Construction Cost Certificate to increase the aggregate amounts
payable thereunder, PROVIDED that the Borrower may apply identifiable cost
savings (as confirmed by the Administrative Agent) for items set forth therein
to cost overruns for items set forth therein, without increasing the aggregate
amounts payable thereunder.
(b) The Borrower shall not, without the prior written consent of the
Majority Lenders, amend or otherwise modify the Operating Budget for any
Operating Year, PROVIDED, HOWEVER, the Borrower may (i) with the prior written
consent of the Administrative Agent, amend the budgeted amount of the Operating
Expenses set forth in such Operating Budget so long as, after giving effect to
such amendment, the aggregate Operating Expenses set forth therein do not exceed
110% of the Operating Expenses set forth in the Operating Budget delivered in
accordance with Section 4.1(ac) or 5.13 in respect of such Operating Year and
(ii) amend such Operating Budget in order to apply identified cost savings in a
budget category to cost overruns in another budget category (other than the
capital expenditure budget category) or to a new budget category without
increasing the aggregate amounts payable under the
<PAGE>
98
Operating Budget.
SECTION 6.10. AMENDMENT OF PROJECT DOCUMENTS, SENIOR UNSECURED NOTE
DOCUMENTS. (a) Without the prior written consent of the Majority Lenders, the
Borrower shall not, and shall not permit any of its Subsidiaries to, agree or
consent to or otherwise permit any amendment, supplement or other modification
or waiver with respect to, or any consent under, any Project Document to which
the Borrower or such Subsidiary is a party or with respect to which the consent
of the Borrower or such Subsidiary is required, other than:
(i) amendments, supplements or other modifications or waivers
with respect to, or consents under, any Capacity Sales Agreement in a
manner not inconsistent with the provisions of Section 6.13;
(ii) amendments, supplements or other modifications or waivers
with respect to, or consents under, the C&MA which constitute Permitted
C&MA Amendments;
(iii) amendments, supplements or other modifications or
waivers with respect to, or consents under, the Construction Contract
which (A) are entered into by the Borrower in the ordinary course of
business (including amendments to effectuate an alteration of the
configuration of the FLAG System in accordance with Section 6.16) and
are on commercially reasonable terms, (B) provide for no additional
amounts to be paid by the Borrower thereunder (or, if additional
amounts are required to be paid by the Borrower thereunder, such
additional amounts are provided for in the then current Operating
Budget or are provided for from Permitted Sources), (C) do not
otherwise increase the Borrower's liability thereunder, (D) do not
release any Contractor from any liability thereunder, (E) do not reduce
the duration or scope of any warranty or replacement period thereunder,
(F) do not reduce the scope or availability of any Intellectual
Property thereunder or which is to be conveyed to the Borrower
thereunder, (G) do not amend the requirements for PSA 3 or Final System
Acceptance without the prior written consent of the Independent
Engineer, and (H) could not reasonably be expected to have a Material
Adverse Effect and could not reasonably be expected to have an adverse
effect (other than a temporary or minor adverse effect) on the
continued use, operation or maintenance of the Project;
(iv) amendments, supplements or other modifications or waivers
with respect to, or consents under, any Project Document (other than
any Principal Project Document referred to clause (i), (ii) or (iii)
above and other than the Construction Contract Guarantees, the
Performance Bond and the Contractor Escrow Agreement) (A) which are
permitted by such Project Document without
<PAGE>
99
the consent of the Borrower or any Subsidiary of the Borrower party
thereto or (B) which (1) are entered into by the Borrower or any
Subsidiary of the Borrower in the ordinary course of business and are
on commercially reasonable terms, (2) provide for no additional amounts
to be paid by the Borrower or any Subsidiary of the Borrower thereunder
(or, if additional amounts are required to be paid by the Borrower or
any Subsidiary of the Borrower thereunder, such additional amounts are
provided for in the then current Operating Budget or are provided for
from Permitted Sources), (3) do not release any party thereto (other
than the Borrower or any Subsidiary of the Borrower) from any material
liability thereunder unless such release would be commercially
reasonable or unless the Borrower would otherwise be permitted to
terminate such agreement pursuant to Section 6.11 and (4) could not
reasonably be expected to have a Material Adverse Effect and could not
reasonably be expected to have an adverse effect (other than a
temporary or minor adverse effect) on the continued use, operation or
maintenance of the Project; and
(v) (A) immaterial amendments, supplements or other
modifications or immaterial waivers with respect to, or immaterial
consents under, any Principal Project Document and (B) amendments,
supplements or other modifications to, or consents or waivers under,
any Principal Project Document which are permitted by such Principal
Project Document without the consent of the Borrower.
(b) Without the prior written consent of the Majority Lenders, the
Borrower shall not agree or consent to or otherwise permit any amendment,
supplement or other modification or waiver with respect to, or any consent
under, any Senior Unsecured Note Document in any manner adverse to the Lenders
(including, without limitation, increasing the principal amount outstanding
thereunder, increasing the interest rate or any of the fees payable with respect
thereto, and changing the payment dates in respect of the payment of interest or
principal thereunder).
SECTION 6.11. TERMINATION, ASSIGNMENT OF PROJECT DOCUMENTS. (a) The
Borrower shall not terminate, cancel or suspend, or permit the termination,
cancellation or suspension of, any Project Document other than (i) in accordance
with its terms, (ii) as permitted by such Project Document without the consent
of the Borrower or any Subsidiary of the Borrower, (iii) as required by
applicable law or (iv) a Project Document, other than the C&MA, the Construction
Contract (prior to the end of the Warranty Period) and the Construction Contract
Guarantees (prior to the end of the Warranty Period), if (A) the Borrower
delivers to the Administrative Agent at the time of such termination,
cancellation or suspension a certificate of a Responsible Officer of the
<PAGE>
100
Borrower certifying that (1) such termination, cancellation or suspension is
permitted by the terms of such Project Document, (2) the Borrower reasonably
believes that such Project Document (or its replacement) is no longer beneficial
or useful to the Lenders and to the Borrower's business and (3) such
termination, cancellation or suspension could not reasonably be expected to have
a Material Adverse Effect, (B) with respect to the termination, cancellation or
suspension of the Marketing Services Agreement or any Software Agreement, such
agreement is simultaneously replaced with a new contract (or other arrangement)
on terms and with a party (which party may be the Borrower itself) reasonably
satisfactory to the Majority Lenders and (C) with respect to the termination,
cancellation or suspension of the Performance Bond or any Maintenance Zone
Agreement, such agreement is simultaneously replaced with a new contract (or
other arrangement) on terms and with a party reasonably satisfactory to the
Administrative Agent.
(b) The Borrower shall not agree or consent to or otherwise permit the
assignment of the obligations of any party to any Principal Project Document,
except pursuant to the Security Documents and except as permitted without the
consent of the Borrower by the terms of such Principal Project Document.
SECTION 6.12. APPROVAL OF ADDITIONAL CONTRACTS. Without the prior
written consent of the Majority Lenders, the Borrower shall not, and shall not
permit any of its Subsidiaries to, enter into any Additional Contract, other
than (a) Capacity Sales Agreements entered into by the Borrower in accordance
with Section 6.13, (b) contracts entered into by the Borrower in the ordinary
course of business of performing Project Activities to the extent that (i) they
are entered into on commercially reasonable terms, (ii) amounts payable
thereunder are provided for in the then current Operating Budget or from
Permitted Sources, and (iii) the execution, delivery and performance thereof
could not reasonably be expected to have a Material Adverse Effect and could not
reasonably be expected to have an adverse effect (other than a temporary or
minor adverse effect) on the continued use, operation or maintenance of the
Project, (c) contracts entered into by the Borrower in order to effectuate the
provisions of Section 6.16, PROVIDED such contracts are consistent with the
terms of Section 6.16 and (d) any replacement Maintenance Zone Agreement entered
into with the consent of the Administrative Agent in accordance with Section
6.11(a). At the time any Additional Contract is entered into (other than
Capacity Sales Agreements) the Borrower will deliver a copy thereof to the
Administrative Agent. If the prior written consent of the Majority Lenders is
required for any Additional Contract, upon such consent and at the request of
the Administrative Agent, the Borrower shall use its best efforts to obtain and
deliver to the Administrative Agent a consent to assignment with respect to such
Additional Contract, in form and substance reasonably satisfactory to the
Administrative Agent.
SECTION 6.13. SALES OF CAPACITY. The Borrower shall not, and shall not
permit
<PAGE>
101
any of its Subsidiaries to, sell, lease or otherwise dispose of Capacity or
capacity on other telecommunication systems acquired in accordance with the
terms of this Agreement except pursuant to agreements entered into by the
Borrower on commercially reasonable terms; PROVIDED that, in any event, (i) the
relevant agreement shall provide that all cash consideration payable thereunder
shall be paid in Dollars to the Revenue Account (except as provided in Section
8.2(j)), (ii) if the relevant agreement shall provide for future payments it
shall not prohibit the granting of a security interest in such agreement by the
Borrower to the Collateral Trustee, for the benefit of the Secured Parties,
(iii) the Borrower shall deliver a copy of the relevant agreement to the
Administrative Agent and (iv) the relevant agreement shall not provide for any
cash rebate or otherwise provide for the return of any cash previously paid to
the Borrower (or, if such agreement does provide for any such rebate or return,
a portion of the Capacity Payments or other payments received in respect of such
agreement in an amount equal to such contingent rebate or return, shall be
deposited into the Rebate Account); PROVIDED, FURTHER, the Borrower shall not
(A) enter into any transaction to dispose of Capacity for non-cash consideration
if, after giving effect to such transaction, the Capacity disposed of for
non-cash consideration during the 12-month period ending on (and including) the
date of such transaction (exclusive of up to $20,000,000 of Capacity disposed of
for non-cash consideration in connection with the addition of Aqaba, Jordan as
contemplated by Section 6.16(b)) would exceed 10% of the Capacity disposed of
during the same period (exclusive of up to $20,000,000 of Capacity disposed of
for non-cash consideration in connection with the addition of Aqaba, Jordan as
contemplated by Section 6.16(b)) or (B) dispose of any Capacity for non-cash
consideration at any time a Default or Designated Event shall have occurred and
be continuing (in each case, except for transfers of Capacity for non-cash
consideration in connection with customary mutual restoration agreements).
SECTION 6.14. ACCEPTANCE OF SYSTEM. The Borrower shall not, without the
prior written consent of the Independent Engineer (such consent not to be
unreasonably withheld), issue the Certificate of Final System Acceptance or
agree with the Contractors that PSA 3 shall have occurred.
SECTION 6.15. CONSTRUCTION AND MAINTENANCE AGREEMENT. The Borrower
shall not, and shall not permit any of its Subsidiaries to, (a) make any
payments pursuant to Paragraph 11.4 of the C&MA not provided for in the then
current Operating Budget, (b) permit any additional capital costs to be incurred
in accordance with Paragraph 9.1 of the C&MA not provided for in the then
current Operating Budget or from Permitted Sources, (c) include under the
Construction Contract (or otherwise become obligated to pay for) equipment and
services which are associated with the Project but which are not included in the
Submarine System or Segments X-1 and X-2 as contemplated by Paragraph 7.3 of the
C&MA unless such obligation is provided for in the then current Operating Budget
or unless the Borrower shall have received Dollars from a PTT or shall have
Permitted Sources in an amount equal to the obligation to be incurred or (d)
<PAGE>
102
vote its interest on the Management Committee except in the best interests of
the Borrower and so long as any such decision could not reasonably be expected
to have a Material Adverse Effect.
SECTION 6.16. CHANGES TO CONFIGURATION. (a) Except as provided in
paragraph (b) below, the Borrower shall not, without the prior written consent
of the Majority Lenders, add any additional Landing Country or add any
additional Landing Party PTT or select, or agree to the selection of, any
alternative Landing Country or Landing Party PTT or otherwise alter in any way
the Original Configuration of the FLAG System, except in the case of adding an
additional Landing Country or an additional Landing Party PTT if (i) no Default
or Event of Default shall have occurred and be continuing, (ii) all costs
related to such addition are funded with Permitted Sources, (iii) no material
liabilities of or costs to the Borrower or any of its Subsidiaries shall be
created which are not provided for from sources described in clause (ii) above,
(iv) such addition could not reasonably be expected to have an adverse effect
(other than a temporary or minor adverse effect) on the continued use, operation
or maintenance of the Project, (v) such addition is added via a Branching Unit
or as an extension to the Original Configuration and (vi) such addition could
not reasonably be expected to have a Material Adverse Effect.
(b) The Borrower shall not add Saudi Arabia or Jordan as Landing
Countries unless (i) all costs related to such addition are funded with
Permitted Sources or are paid for with Capacity disposed of in accordance with
Section 6.13, (ii) no material liabilities of or costs to the Borrower or any of
its Subsidiaries shall be created which are not provided for from sources
described in clause (i) above and (iii) in connection with (A) the landing in
Jeddah, Saudi Arabia, the Landing Party PTT is the Ministry of Posts, Telegraph
and Telecommunications and (B) the landing in Aqaba, Jordan, the Landing Party
PTT is Jordan Telecommunications PLC.
SECTION 6.17. LEASES. The Borrower shall not, and shall not permit any
of its Subsidiaries to, enter into any lease except for (a) leases of personal
property in the ordinary course of business (to the extent the obligations
thereunder are provided for in the then current Operating Budget), (b) leases of
real property in the ordinary course of business (to the extent the obligations
thereunder are provided for in the then current Operating Budget), (c) Capital
Lease Obligations for the lease of office equipment and automobiles in the
ordinary course of business of the Borrower and (d) Permitted Sale Leasebacks by
the Borrower.
SECTION 6.18. CHANGE OF OFFICE. The Borrower shall not, and shall not
permit any of its Subsidiaries to, change the location of its chief executive
office or principal
<PAGE>
103
place of business or the office where it keeps its records concerning the
Project and all contracts related thereto from that existing on the date of this
Agreement, unless the Borrower or such Subsidiary, as applicable, shall have
given the Administrative Agent at least 30 days' prior written notice thereof
and all action necessary or advisable in the Administrative Agent's reasonable
opinion to protect and perfect the Liens and security interests in the
Collateral shall have been taken.
SECTION 6.19. CHANGE OF NAME. The Borrower shall not, and shall not
permit any of its Subsidiaries to, change its name unless the Borrower or such
Subsidiary, as applicable, shall have given the Administrative Agent at least 30
days' prior written notice thereof and all action necessary or advisable in the
Administrative Agent's reasonable opinion to protect and perfect the Liens and
security interests in the Collateral shall have been taken.
SECTION 6.20. TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into any agreement with any
Affiliate of the Borrower except (a) pursuant to any Contractual Obligation of
the Borrower in existence on the Closing Date and set forth on Schedule 3.19(b)
and (b) transactions in the ordinary course of business which are on fair and
reasonable terms not less favorable than the Borrower or such Subsidiary could
obtain in an arm's-length transaction with a Person which is not an Affiliate.
SECTION 6.21. SALE AND LEASEBACK. The Borrower shall not, and shall not
permit any of its Subsidiaries to, enter into any arrangement with any Person
providing for the leasing of real or personal property which has been or is to
be sold by it to such Person, other than Permitted Sale Leasebacks by the
Borrower.
SECTION 6.22. CAPITAL EXPENDITURES; OTHER PURCHASES OF ASSETS. (a)
Except as permitted under Section 6.16 or as set forth in the Construction Cost
Certificate, the Borrower shall not, and shall not permit any of its
Subsidiaries to, make any expenditure (including, without limitation, the
transfer of Capacity for non-cash consideration) in respect of the purchase of
capital assets in any Operating Year, except for such expenditures which could
not reasonably be expected to adversely affect the Project and (i) which do not
cause the Borrower and its Subsidiaries to spend more than $500,000 in the
aggregate in any Operating Year in respect of such expenditures or, to the
extent such expenditure would cause the Borrower and its Subsidiaries to spend
more than $500,000 in the aggregate in any Operating Year, which excess is
funded solely from Permitted Sources, (ii) are paid for with Capacity to the
extent the transfer of such Capacity is in accordance with Section 6.13 or (iii)
are approved by the Majority Lenders in writing (after consultation with the
Independent Engineer).
(b) The Borrower shall not, and shall not permit any of its
Subsidiaries to, purchase or acquire any assets or other property other than (i)
any purchase of assets
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104
by the Borrower in connection with the completion of the Project, (ii) the
purchase of assets reasonably required in connection with the performance of
Project Activities and (iii) Permitted Investments.
SECTION 6.23. UNRELATED ACTIVITIES; ABANDONMENT. (a) The Borrower shall
not, and shall not permit any of its Subsidiaries to, engage in any business
other than Project Activities.
(b) The Borrower shall not abandon the diligent operation and
maintenance of the Project.
SECTION 6.24. SET-OFF. Without the prior written consent of the
Administrative Agent, the Borrower shall not exercise any right of set-off with
respect to amounts owing to it by the Contractors under the Construction
Contract or amounts owing under the Performance Bond.
SECTION 6.25. Intentionally Omitted.
SECTION 6.26. SUBSIDIARIES. The Borrower shall not, and shall not
permit any of its Subsidiaries to, create or otherwise acquire any Subsidiary
unless the Borrower gives the Administrative Agent notice thereof and unless:
(i) such Subsidiary is a newly created, wholly-owned direct
Subsidiary of the Borrower;
(ii) such Subsidiary shall, if the Administrative Agent shall
so request, execute and deliver (A) a guaranty with respect to all
Obligations in form and substance reasonably satisfactory to the
Administrative Agent and/or (B) a security agreement in substantially
the form of the Borrower Security Agreement, with such modifications as
the Collateral Trustee or the Administrative Agent may reasonably
request or consent to;
(iii) the Borrower shall pledge to the Collateral Trustee, for
the benefit of the Secured Parties, all of the outstanding shares of
Capital Stock or other ownership interests of such Subsidiary pursuant
to documentation reasonably satisfactory to the Administrative Agent;
(iv) the Administrative Agent shall have received evidence
reasonably satisfactory to it that the Collateral Trustee shall have,
if required by the Administrative Agent, a perfected first priority
security interest in the collateral set forth in any such security
agreement and/or pledge agreement;
(v) the creation of such Subsidiary and the performance of its
applicable obligations will not create any material risk that the
aggregate tax liability of the
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105
Borrower and its Subsidiaries for any Operating Year will exceed 5% of
the Borrower's Consolidated EBITDA for such Operating Year; and
(vi) if the Administrative Agent requests, the Administrative
Agent shall have received legal opinions in form and substance
reasonably satisfactory to the Administrative Agent with respect to
paragraphs (ii) through (iv) of the foregoing.
SECTION 6.27. CONCENTRATION OF CASH. The Borrower shall not permit the
aggregate balance in all bank accounts, checking accounts or similar accounts
maintained by the Borrower and any of its Subsidiaries (including the value of
all Permitted Investments contained therein) to exceed an amount equal to
$3,000,000 (exclusive of all amounts and the value of Permitted Investments
maintained in the Accounts and exclusive of any amounts distributed pursuant to
Article VIII to the Borrower or its Subsidiaries for the benefit of other
Persons) except that the Borrower may establish and maintain an account (the
"EXCESS CASH FLOW ACCOUNT") into which funds may be deposited in accordance with
Section 8.22(c). Amounts on deposit in any account (other than the Accounts and
other than the Excess Cash Flow Account) shall be used solely to pay costs in
accordance with the then current Operating Budget.
SECTION 6.28. AMENDMENTS, ETC. OF ORGANIZATIONAL AND OTHER DOCUMENTS.
The Borrower shall not, and shall not permit any of its Subsidiaries to, amend,
supplement or otherwise modify, or permit the amendment, modification or
supplementation of its Bye-Laws or Memorandum of Association in a manner which
is inconsistent with or violates the terms of or could reasonably be expected to
prevent compliance with any of the terms of any Financing Document or Project
Document or could materially adversely affect the Lenders or any Collateral.
SECTION 6.29. IMMUNITY. The Borrower shall not, and shall not permit
any of its Subsidiaries to, in any proceeding in Bermuda, the United States or
elsewhere, in connection with any Financing Document, claim for itself, any of
its assets or the FLAG System, immunity from suit, execution, attachment or
other legal process.
SECTION 6.30. RESTRICTIVE AGREEMENTS. The Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into, incur or permit to exist any
agreement or other arrangement that prohibits, restricts or imposes any
condition upon the ability of the Borrower or such Subsidiary to create, incur
or permit to exist any Lien upon any of its property or assets to secure the
Obligations, PROVIDED that the foregoing shall not apply to restrictions and
conditions imposed by law or by this Agreement.
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106
SECTION 6.31. MINIMUM CUMULATIVE NET REVENUE. The Borrower shall not
permit the Cumulative Net Revenue for the period from December 31, 1997 through
and including the last day of the calendar month preceding each Principal
Payment Date set forth below, to be less than the amount set forth below
opposite such Principal Payment Date:
<TABLE>
<CAPTION>
Principal Payment Date Minimum Cumulative Net Revenue
---------------------- ------------------------------
<S> <C>
April 30, 1998 $37,500,000
July 30, 1998 61,500,000
October 30, 1998 75,900,000
January 30, 1999 114,100,000
April 30, 1999 139,700,000
July 30, 1999 154,600,000
October 30, 1999 160,100,000
January 30, 2000 198,600,000
April 30, 2000 228,800,000
July 30, 2000 244,900,000
October 30, 2000 253,300,000
January 30, 2001 299,100,000
April 30, 2001 331,500,000
July 30, 2001 349,600,000
October 30, 2001 360,000,000
January 30, 2002 413,500,000
April 30, 2002 455,900,000
July 30, 2002 484,300,000
October 30, 2002 504,600,000
January 30, 2003 575,800,000
April 30, 2003 629,900,000
July 30, 2003 664,300,000
October 30, 2003 690,700,000
January 30, 2004 778,000,000
April 30, 2004 848,400,000
July 30, 2004 897,100,000
October 30, 2004 944,700,000
January 30, 2005 1,058,400,000
</TABLE>
Notwithstanding anything to the contrary contained in this Agreement, the
failure to comply with this Section at any time shall not constitute an Event of
Default, but shall result in (a) a limitation on the availability of the
Revolving Credit Commitments pursuant to Section 2.6(e) and (b) until such time
as the Borrower shall have delivered a certificate to the Administrative Agent
in accordance with Section 5.2(b) demonstrating the Borrower's compliance with
this Section and Section 6.32, Excess
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107
Cash Flow being applied 100% to the Administrative Agent for the account of the
Lenders in accordance with Section 8.10(b).
SECTION 6.32. MINIMUM PRESENT VALUE COVERAGE RATIO. The Borrower shall
not permit, as of the end of any calendar quarter, either Present Value Coverage
Ratio to be less than 1.75 to 1.00. Notwithstanding anything to the contrary
contained in this Agreement, the failure to comply with this Section at any time
shall not constitute an Event of Default, but shall result in (a) a limitation
on the availability of the Revolving Credit Commitments pursuant to Section
2.6(e) and (b) until such time as the Borrower shall have delivered a
certificate to the Administrative Agent in accordance with Section 5.2(b)
demonstrating the Borrower's compliance with this Section and Section 6.31,
Excess Cash Flow being applied 100% to the Administrative Agent for the account
of the Lenders in accordance with Section 8.10(b).
ARTICLE VII
EVENTS OF DEFAULT
If any of the following events shall occur and be continuing (whether
any such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or an order, rule or regulation of any administrative or
governmental body):
(a) the Borrower shall fail to pay any principal of any Loan
when due; or the Borrower or any Subsidiary of the Borrower shall fail
to pay any interest on any Loan or fee or other amount payable
hereunder or under any other Financing Document within 5 days after any
such other amount becomes due in accordance with the terms hereof or
thereof; or
(b) the Borrower shall fail to perform or observe any of its
covenants set forth in Article VI hereof (other than Sections 6.31 and
6.32); or the Borrower shall fail to perform or observe any of its
covenants set forth in subsections 4.1(a), 4.1(f), 4.1(h), 5.2 and
5.3(a) of the Borrower Security Agreement; or any Shareholder shall
fail to perform or observe any of its covenants set forth in the second
sentence of Section 4.1, Section 4.2, the first sentence of Section
4.3(a), Section 4.3(b), the second sentence of Section 4.4 or Section
4.5, 4.7 or 4.8 of the Pledge Agreement to which it is a party; or the
Borrower shall fail to maintain in effect any of the insurance required
to be maintained in accordance with Section 5.9; or
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(c) the Borrower, any Subsidiary of the Borrower or any
Shareholder shall fail to perform or observe any of its covenants set
forth in this Agreement or in any other Financing Document to which it
is a party (other than those referred to in paragraphs (a) and (b)
above and those set forth in Sections 6.31 and 6.32) and such failure
shall continue unremedied or unwaived for a period of 30 days after
receiving written notice thereof; or
(d) any representation or warranty made or deemed made by the
Borrower, any Subsidiary of the Borrower or any Shareholder in this
Agreement or in any other Financing Document or in any certificate,
financial statement or other document delivered by such Person pursuant
hereto or thereto, shall prove to have been false or misleading in any
material respect when such representation or warranty was made or
deemed made; or
(e) (i) Any Specified Participant 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 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 any Specified
Participant shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against any Specified
Participant any case, proceeding or other action of a nature referred
to in clause (i) above which (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 any Specified Participant 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 which results in the entry of an order for any such
relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv)
any Specified Participant 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) any
Specified Participant shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become
due; PROVIDED, HOWEVER, the commencement of any proceeding or other
action or event of a nature referred to in clauses (i) through (v)
above with respect to any Shareholder (other than the Bell Atlantic
Shareholder and Marubeni Telecom) shall not constitute an Event of
Default under this paragraph unless such proceeding, other action or
event could reasonably be expected to have a
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Material Adverse Effect; or
(f) one or more judgments or decrees shall be entered (i)
against the Borrower or any Subsidiary of the Borrower involving in the
aggregate a liability (not fully covered by insurance) of $5,000,000 or
more (or the equivalent thereof in other currencies), and all such
judgments or decrees shall not have been paid, vacated, discharged,
stayed or bonded pending appeal within 60 days from the entry thereof
or (ii) in the form of an injunction or similar form of relief
requiring suspension or abandonment of the operation of the Project and
the failure of the Borrower to have such injunction or similar form of
relief stayed or discharged within 60 days; or
(g) (i) any Financing Document shall cease, for any reason, to
be in full force and effect or the Borrower or any Shareholder (other
than Gulf) or other party thereto (other than a Lender) shall so assert
in writing or (ii) the Lien created by any Security Document shall
cease to be enforceable and of the same effect and priority purported
to be created thereby or (iii) any of the Capital Stock of the
Borrower, other than any Capital Stock held by Gulf on the Closing Date
and other than Capital Stock issued under the Stock Option Plan, shall
not be subject to a Pledge Agreement in favor of the Collateral
Trustee; or
(h) prior to the end of the Warranty Period, either
Construction Contract Guarantee shall cease, for any reason, to be in
full force and effect, or AT&T or KDD, as the case may be, shall so
assert in writing; or
(i) at any time prior to the last day of the Warranty Period
(or such shorter period not ending before February 6, 2001 as the
Borrower may agree with the Contractors), the invalidity, termination,
dishonor or revocation of the Performance Bond (except termination as a
result of a final drawing thereunder); or the failure at any time of
the Performance Bond to be in a stated amount equal to (i) at any time
prior to the FSA Date (or such shorter period not ending before
February 6, 2001 as the Borrower may agree with the Contractors), at
least 10% of then Total Contract Price, or (ii) at any time on or after
the FSA Date until the last day of the Warranty Period (or such shorter
period not ending before February 6, 2001 as the Borrower may agree
with the Contractors), at least 5% of the Total Contract Price; or
(j) any Project Document shall, prior to its stated
termination date, at any time and for any reason cease to be valid and
binding and in full force and effect, or any material provision of any
Project Document shall be declared to be null
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and void or unenforceable by a court or arbitrator, or the validity or
enforceability of any provision of any Project Document is contested
through appropriate proceedings by any party thereto or by any
Governmental Authority seeking to establish the invalidity or
unenforceability thereof which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect; PROVIDED that
such occurrence shall not constitute an Event of Default under this
paragraph if it relates to (i) a Capacity Sales Agreement or (ii) any
other Principal Project Document (other than the C&MA and, prior to the
end of the Warranty Period, the Construction Contract and the
Construction Contract Guarantees) if the Borrower shall obtain a
replacement agreement or arrangement reasonably satisfactory in form
and substance to the Majority Lenders (or, with respect to the
Performance Bond and any Maintenance Zone Agreement, to the
Administrative Agent) with a Person satisfactory to the Majority
Lenders (or, with respect to the Performance Bond and any Maintenance
Zone Agreement, to the Administrative Agent) within 120 days after such
invalidity, contest, denial or declaration shall have occurred or (iii)
any Project Document other than a Principal Project Document if such
event could not reasonably be expected to have a Material Adverse
Effect; or
(k) any party to any Project Document shall be in material
default thereunder and such default shall continue unremedied for 30
consecutive days; PROVIDED that such occurrence shall not constitute an
Event of Default under this paragraph if it relates to (i) a Capacity
Sales Agreement, (ii) the Construction Contract, if the Construction
Contract Guarantees remain in full force and effect and the
Construction Contract Guarantors are actually performing their
obligations thereunder in a timely fashion, (iii) the C&MA, if the
defaulting party can be replaced and is replaced within 120 days with a
Person satisfactory to the Majority Lenders, or if it is not feasible
to replace such party, if the default by such party could not
reasonably be expected to have a Material Adverse Effect, (iv) any
Maintenance Zone Agreement so long as such default could not reasonably
be expected to have an adverse effect on the Borrower's ability to
maintain the FLAG System or perform its obligations under the Financing
Documents and the Principal Project Documents or (v) any other
Principal Project Document (other than those referred to in clauses (i)
through (iv) above and other than the Construction Contract Guarantees)
if the Borrower shall obtain a replacement agreement or arrangement
reasonably satisfactory in form and substance to the Majority Lenders
(or, with respect to the Performance Bond, to the Administrative Agent)
with a Person satisfactory to the Majority Lenders (or, with respect to
the Performance Bond, to the Administrative Agent) within 120 days
after such event shall have occurred or (vi) any Project Document other
than a Principal Project Document if such event could not reasonably be
expected to have a Material Adverse Effect; or
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(l) any Governmental Action, Right-of-Way, consent or other
approval which shall at the time be necessary for the performance of
any Project Activity in the manner contemplated under the Financing
Documents and the Project Documents shall be revoked, terminated,
withdrawn, modified, suspended or withheld or shall cease to be in full
force or effect, or any proceeding shall be commenced by or before any
Governmental Authority for the purpose of so revoking, terminating,
withdrawing, modifying, suspending or withholding any such Governmental
Action, Right-of-Way, consent or other approval and such proceeding is
not dismissed within 60 days of the commencement thereof, and in either
case such revocation, termination, withdrawal, modification,
suspension, withholding or cessation or such proceeding has or could
reasonably be expected to have a Material Adverse Effect; or
(m) operation of the Project shall be suspended for a period
of longer than 3 months or the Borrower shall abandon the operation of
the Project; or
(n) a Change in Control shall occur; or
(o) any Event of Loss shall occur and (A) unless the affected
portion of the Project is being repaired in accordance with Section
5.19(b), the Borrower shall have failed to deliver to the
Administrative Agent an EOL Certificate in accordance with the terms of
Section 5.19(a) (or either Present Value Coverage Ratio set forth in
the EOL Certificate so delivered to the Administrative Agent shall be
less than 1.50 to 1.00) or (B) if the affected portion of the Project
is being repaired in accordance with Section 5.19(b), the Borrower
shall have failed to comply with the provisions of such Section within
the time period specified therein; or
(p) an ERISA Event shall have occurred that, in the opinion of
the Majority Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to have a Material
Adverse Effect; or
(q) the Borrower or any Permitted Parent Company shall fail to
make any payment (whether of principal or interest and regardless of
amount) in respect of the Senior Unsecured Notes or in respect of any
other Material Indebtedness, when and as the same shall become due and
payable; or
(r) any event or condition occurs that results in the Senior
Unsecured Notes or any other Material Indebtedness of the Borrower or
any Permitted Parent Company becoming due prior to its scheduled
maturity or that enables or permits (with or without the giving of
notice, the lapse of time or both) the holder or holders of the Senior
Unsecured Notes or any other Material Indebtedness or any trustee or
agent on its or their behalf to cause the Senior Unsecured Notes
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or any other Material Indebtedness to become due, or requires the
prepayment, repurchase (or gives a holder or the holders of any of the
Senior Unsecured Notes the right to require the Borrower to purchase
all or any part of the Senior Unsecured Notes except with funds
available in the Excess Cash Flow Account), redemption or defeasance
thereof, prior to its scheduled maturity; or
(s) the invalidity, termination or revocation of the Bye-Laws
of the Borrower which (i) could be expected to impair the value of the
Collateral in any manner, (ii) is inconsistent with or violates the
terms of or could prevent compliance with any of the terms of any
Transaction Document or (iii) could adversely affect the Lenders in any
material way;
then, and in every such event (other than an event with respect to the Borrower
described in clause (e) of this Article), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of
the Majority Lenders shall, by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (e) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
ARTICLE VIII
ACCOUNTS
SECTION 8.1. CREATION OF ACCOUNTS. (a) The Collateral Trustee hereby
establishes the following 16 special, segregated and irrevocable cash collateral
accounts in the name of the Collateral Trustee and for the benefit of the
Secured Parties, which accounts shall be maintained by the Collateral Trustee at
all times until
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the termination of this Agreement and the payment in full of all Obligations:
(1) Construction Account;
(2) Presale Proceeds Account;
(3) Revenue Account;
(4) Debt Reserve Account;
(5) Supplemental Debt Reserve Account;
(6) Operating Reserve Account;
(7) Current Account;
(8) Maintenance Reserve Account;
(9) Repair and Restoration Reserve Account;
(10) Capital Expenditure Account;
(11) Rebate Account;
(12) Insurance Proceeds Account;
(13) Special Payment Account;
(14) Sales and Issuances Proceeds Account;
(15) Excess Revenue Account; and
(16) Permitted Sources Account.
(b) All moneys, investments and securities at any time on deposit in
any of the Accounts shall be under the sole dominion and control of the
Collateral Trustee and shall constitute collateral in accordance with the terms
of the Security Documents to be held in the custody of the Collateral Trustee
for the purposes and on the terms set forth in the Security Documents and this
Article VIII.
SECTION 8.2. REQUIRED DEPOSITS INTO THE ACCOUNTS.
(a) CONSTRUCTION ACCOUNT. On the Closing Date, the Borrower shall
deposit into the Construction Account an amount equal to the construction costs
set forth in the Construction Cost Certificate which are payable to Persons
other than the Contractors.
(b) PRESALE PROCEEDS ACCOUNT. The Borrower shall deposit into the
Presale Proceeds Account all Presale Proceeds.
(c) REVENUE ACCOUNT. Subject to Sections 8.2(b), 8.2(i) and 8.2(j), the
Borrower shall deposit into the Revenue Account all Project Revenues of the
Borrower and its Subsidiaries.
(d) DEBT RESERVE ACCOUNT. The Collateral Trustee shall deposit amounts
into the Debt Reserve Account from amounts on deposit in the Revenue Account as
specified in Section 8.10(b).
(e) SUPPLEMENTAL DEBT RESERVE ACCOUNT. The Collateral Trustee shall
deposit
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amounts into the Supplemental Debt Reserve Account from amounts on deposit in
the Revenue Account as specified in Section 8.10(b).
(f) OPERATING RESERVE ACCOUNT. On the Closing Date, the Borrower shall
deposit into the Operating Reserve Account the amount set forth in the schedule
of "sources and uses" referred to in Section 4.1(l) to be deposited into the
Operating Reserve Account, PROVIDED such amount shall in no event exceed the
Operating Reserve Maximum Balance. The Collateral Trustee shall deposit amounts
into the Operating Reserve Account from amounts on deposit in the Presale
Proceeds Account as specified in Section 8.9 and from amounts on deposit in the
Revenue Account as specified in Section 8.10(b).
(g) CURRENT ACCOUNT. The Collateral Trustee shall deposit amounts into
the Current Account from amounts on deposit in the Revenue Account as specified
in Section 8.10(a).
(h) MAINTENANCE RESERVE ACCOUNT. The Collateral Trustee shall deposit
amounts into the Maintenance Reserve Account from amounts on deposit in the
Revenue Account as specified in Section 8.10(b).
(i) REPAIR AND RESTORATION RESERVE ACCOUNT. On the Closing Date, the
Borrower shall deposit into the Repair and Restoration Reserve Account the
amount set forth in the schedule of "sources and uses" referred to in Section
4.1(l) to be deposited into the Repair and Restoration Reserve Account, PROVIDED
such amount shall in no event exceed the R&R Reserve Maximum Balance. The
Borrower shall deposit into the Repair and Restoration Reserve Account all
Repair Maintenance Payments and Restoration Payments received by the Borrower.
(j) CAPITAL EXPENDITURE ACCOUNT. On the Closing Date, the Borrower
shall deposit into the Capital Expenditure Account the amount set forth in the
schedule of "sources and uses" referred to in Section 4.1(l) to be deposited
into the Capital Expenditure Account, PROVIDED such amount shall in no event
exceed the Capital Expenditure Maximum Balance. In addition, the Borrower shall
cause to be deposited directly into the Capital Expenditure Account any proceeds
received from Jordan Telecommunications PLC in respect of progress payments to
be made by Jordan Telecommunications PLC for the development of the landing in
Aqaba, Jordan, PROVIDED in no event shall more than $20,000,000 be deposited
into the Capital Expenditure Account pursuant to this sentence. The Collateral
Trustee shall deposit amounts into the Capital Expenditure Account from amounts
on deposit in the Presale Proceeds Account as specified in Section 8.9 and from
amounts on deposit in the
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Revenue Account as specified in Section 8.10(a)(iii).
(k) REBATE ACCOUNT. The Collateral Trustee shall deposit amounts into
the Rebate Account from amounts on deposit in the Revenue Account as specified
in Section 8.10(a)(i).
(l) INSURANCE PROCEEDS ACCOUNT. The Borrower, its Subsidiaries and the
Collateral Trustee shall deposit into the Insurance Proceeds Account all
Casualty Proceeds.
(m) SPECIAL PAYMENT ACCOUNT. The Borrower, its Subsidiaries and the
Collateral Trustee shall deposit into the Special Payment Account all Special
Payments.
(n) SALES AND ISSUANCES PROCEEDS ACCOUNT. The Borrower and its
Subsidiaries shall deposit into the Sales and Issuances Proceeds Account all Net
Cash Proceeds received.
(o) EXCESS REVENUE ACCOUNT. The Borrower and its Subsidiaries shall
deposit amounts into the Excess Revenue Account from amounts on deposit in the
Revenue Account or the Sales and Issuances Proceeds Account as specified in
Section 8.10(b) or Section 8.21(a), as applicable.
(p) PERMITTED SOURCES ACCOUNT. The Borrower shall deposit amounts into
the Permitted Sources Account with funds contemplated by clauses (d) and (e) of
the definition of "Permitted Sources" to the extent necessary to cause such
funds to constitute a "Permitted Source."
SECTION 8.3. DEPOSITS HELD AS CASH COLLATERAL. (a) The Collateral
Trustee agrees to accept all revenues, cash, payments, insurance and casualty
proceeds, other amounts and Permitted Investments to be delivered to or held by
the Collateral Trustee pursuant to the terms of this Agreement or the Security
Documents. The Collateral Trustee shall hold and safeguard the Accounts (and the
revenues, cash, payments, insurance and casualty proceeds, instruments,
securities and other amounts on deposit therein) during the term of this
Agreement and shall treat the revenues, cash, payments, insurance and casualty
proceeds, instruments, securities and other amounts in the Accounts as funds,
instruments, securities and other properties pledged by the Borrower to the
Collateral Trustee as collateral securing the Obligations in accordance with the
provisions of this Agreement and the Security Documents.
(b) All moneys, cash equivalents, instruments, investments and
securities at any
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time on deposit in the Accounts shall constitute security for the payment and
performance by the Borrower of the Obligations and shall at all times be subject
to the sole dominion and control of the Collateral Trustee and shall be held in
the custody of the Collateral Trustee in trust for the purposes of, and on the
terms set forth in, this Agreement.
(c) Neither the Borrower, any Subsidiary of the Borrower nor any
Shareholder shall have any rights or powers with respect to any amounts in the
Accounts or any part thereof, except the right to have such amounts applied in
accordance with this Article VIII.
SECTION 8.4. SOURCE OF PAYMENTS; DEPOSITS IRREVOCABLE. (a) The Borrower
shall use reasonable efforts to ensure that all amounts delivered to the
Collateral Trustee shall be accompanied by information in reasonable detail
specifying the source of the amounts and the Account into which such amounts are
to be deposited. If the Collateral Trustee shall be unable to determine the
source of any payments received or the Account or Accounts into which such
payments are to be deposited, the Collateral Trustee shall hold such amounts in
the Revenue Account (and shall not be applied in accordance with Section 8.10)
pending receipt of Proper Instructions from the Administrative Agent as to how
to apply such amount.
(b) Any deposit made into any Account hereunder shall, absent manifest
error, be irrevocable and the amount of such deposit and any instrument or
security held in such Account and all interest thereon shall be held in trust by
the Collateral Trustee and applied solely as provided in this Article VIII.
SECTION 8.5. BOOKS OF ACCOUNT; STATEMENTS. The Collateral Trustee shall
maintain books of account on a cash basis and record therein all deposits into
and transfers to and from the Accounts and all investment transactions effected
by the Collateral Trustee pursuant to Section 8.27 and any such recordation
shall constitute PRIMA FACIE evidence of the information recorded.
SECTION 8.6. LOCATION OF THE ACCOUNTS. The Accounts shall be maintained
by the Collateral Trustee with Bermuda Commercial Bank Limited at its principal
office located at 44 Church Street, Hamilton HM 12, Bermuda, and shall not,
without the prior written consent of the Administrative Agent, be moved to any
different location.
SECTION 8.7. RECEIPT BY THE BORROWER. The Borrower agrees that if any
payments or other amounts are received directly by it, it shall deliver such
amounts in the exact form received (but with the Borrower's endorsement if
necessary) to the Collateral Trustee for deposit into the applicable Account not
later than the first Business Day after the Borrower's receipt. Until so
deposited, all such amounts shall be held in trust by the Borrower for the
Collateral Trustee and the other Secured Parties
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as additional collateral security for the Obligations and such amounts shall not
be commingled with any other funds or property of the Borrower.
SECTION 8.8. CONSTRUCTION ACCOUNT. (a) The Collateral Trustee shall,
upon receipt by it of a certificate of the Borrower setting forth the costs due
and payable and to be paid from the Construction Account (which certificate
shall be consistent with the Construction Cost Certificate), distribute, from
the cash available in the Construction Account, (A) directly to each Person to
which an amount in excess of $200,000 is due and payable, the amounts identified
in such certificate referred to above and (B) to the Borrower for the benefit of
the Persons entitled thereto, all other amounts then due and owing as set forth
in such certificate.
(b) The Collateral Trustee shall, upon receipt by it of a certificate
of the Borrower (countersigned by the Administrative Agent) stating that all
costs set forth in the Construction Cost Certificate to be paid from the
Construction Account have been paid or are no longer payable, distribute, from
the cash available in the Construction Account, the amounts set forth in such
certificate in the following order of priority:
FIRST, to the Administrative Agent, to be applied to the
payment of all accrued but unpaid interest on the Term Loans, if any;
SECOND, to the Administrative Agent, to be applied to the
payment of all accrued but unpaid interest on the Revolving Credit
Loans, if any;
THIRD, to the Administrative Agent, to be applied to the
prepayment of the unpaid principal of the Revolving Credit Loans, if
any;
FOURTH, to the Administrative Agent, to be applied to the
prepayment of the unpaid principal of the Term Loans, if any;
FIFTH, to the Administrative Agent, to be applied to the cash
collateralization of the unused Revolving Credit Commitments, on terms
and pursuant to documentation reasonably satisfactory to the
Administrative Agent;
SIXTH, to the Administrative Agent, to be applied to the
payment of all other Obligations; and
SEVENTH, the remaining balance, if any, shall be transferred
to the Revenue Account.
SECTION 8.9. PRESALE PROCEEDS ACCOUNT. The Collateral Trustee shall,
upon receipt by it of a certificate of the Borrower (countersigned by the
Administrative Agent), distribute, from the cash available in the Presale
Proceeds Account, the amounts set
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forth in such certificate in the following order of priority:
FIRST, to the Repair and Restoration Reserve Account, in an
amount equal to the difference between (a) the R&R Reserve Maximum
Balance and (b) an amount equal to the sum of (x) the aggregate amount
deposited into the Repair and Restoration Reserve Account on the
Closing Date and (y) the aggregate amount previously deposited into the
Repair and Restoration Reserve Account pursuant to this clause;
provided in no event shall the balance therein exceed the R&R Reserve
Maximum Balance;
SECOND, to the Operating Reserve Account, in an amount equal
to the difference between (a) the Operating Reserve Maximum Balance and
(b) an amount equal to the sum of (x) the aggregate amount deposited
into the Operating Reserve Account on the Closing Date and (y) the
aggregate amount previously deposited into the Operating Reserve
Account pursuant to this clause; provided in no event shall the balance
therein exceed the Operating Reserve Maximum Balance;
THIRD, to the Capital Expenditure Account, in an amount equal
to the difference between (a) the Capital Expenditure Maximum Balance
and (b) an amount equal to the sum of (x) the aggregate amount
deposited into the Capital Expenditure Account on the Closing Date and
(y) the aggregate amount previously deposited into the Capital
Expenditure Account pursuant to this clause;
FOURTH, to the Administrative Agent, to be applied to the
payment of all accrued but unpaid interest on the Term Loans, if any;
and
FIFTH, to the Administrative Agent, to be applied to the
prepayment of the unpaid principal of the Term Loans.
SECTION 8.10. REVENUE ACCOUNT.
(a) MONTHLY PAYMENT OF OPERATING EXPENSES AND CAPITAL EXPENDITURES;
DAILY PAYMENT OF DEBT SERVICE. (i) On or before the fifth Business Day prior to
the end of each month (or if such day is not a Business Day, the immediately
preceding Business Day), the Borrower shall deliver to the Collateral Trustee
and the Administrative Agent an Expense Certificate requesting distributions to
pay Operating Expenses (other than repair maintenance expenses and restoration
expenses reimbursable by third parties) and capital expenditures from the
Revenue Account, the amounts of which distributions
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shall, unless consented to in writing by the Majority Lenders, conform to the
then current Operating Budget of the Borrower and distributions to pay income
taxes from the Revenue Account. On the 30th day of each month or, if such day is
not a Business Day, the immediately preceding Business Day (each such date, an
"OPERATING EXPENSE TRANSFER DATE"), the Collateral Trustee shall distribute,
from the cash available in the Revenue Account, FIRST, with respect to any
Project Revenues which have been received and are subject to potential rebate or
other return, that portion of such Project Revenues directly to the Rebate
Account and SECOND, (A) directly to each Person to which an amount in excess of
$200,000 is due and payable, the amounts identified as Operating Expenses or
capital expenditures or income taxes of the Borrower then due and owing in Item
1 of the Expense Certificate referred to above, (B) to the Borrower for the
benefit of the Persons entitled thereto, all other Operating Expenses and
capital expenditures or income taxes of the Borrower then due and owing in Item
2 of such Expense Certificate, and (C) to the Current Account, the amounts
identified as Operating Expenses and capital expenditures or income taxes of the
Borrower expected to be due and owing prior to the next Operating Expense
Transfer Date in Item 4 of such Expense Certificate.
(ii) The Borrower shall be permitted to deliver a certificate to the
Collateral Trustee and the Administrative Agent on any other day of the month
setting forth the fees, interest and other obligations due and owing under this
Agreement or any other Financing Document and the Collateral Trustee shall
distribute from the cash available in the Revenue Account the amount of such
fees, interest or other obligations directly to the Administrative Agent, for
the benefit of the persons entitled thereto.
(iii) Within 15 days after the end of each Operating Year of the
Borrower, and so long as no Designated Event shall have occurred and be
continuing, the Borrower shall be permitted to deliver a certificate to the
Collateral Trustee and the Administrative Agent (which shall be countersigned by
the Administrative Agent) setting forth the aggregate amount of capital
expenditures spent by the Borrower in such Operating Year from the $500,000
allocation for capital expenditures in the Operating Budget for such year and to
request the Collateral Trustee to distribute from cash available in the Revenue
Account to the Capital Expenditure Account an amount (the "REQUESTED AMOUNT")
not in excess of the difference, if positive, between $500,000 and such
aggregate amount of capital expenditures. Upon the receipt of such certificate,
the Collateral Trustee shall distribute from the cash available in the Revenue
Account the requested amount to the Capital Expenditure Account.
(b) QUARTERLY TRANSFERS. On each Principal Payment Date, the Collateral
Trustee shall distribute from the cash available in the Revenue Account (after
making any distributions required by paragraph (a) above) the following amounts
in the following order of priority:
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FIRST, (i) to the Administrative Agent, for the account of (A)
the Term Lenders, the amount, if any, equal to the scheduled principal
payments with respect to the Term Loans set forth in Schedule 2.7(b)
and all accrued and unpaid interest thereon which the Administrative
Agent certifies to the Borrower and the Collateral Trustee to be due
and payable on such date and (B) the Revolving Credit Lenders, the
amount, if any, equal to the principal with respect to the Revolving
Credit Loans and all accrued and unpaid interest thereon which the
Administrative Agent certifies to the Borrower and the Collateral
Trustee to be due and payable on such date, PRO RATA and (ii) if such
Principal Payment Date is in January or July, to the Senior Unsecured
Note Trustee, the amount, if any, equal to the accrued and unpaid
interest on the Senior Unsecured Notes which the Borrower certifies to
the Collateral Trustee to be due and payable on such date (or, if such
Principal Payment Date is not a Senior Unsecured Note Interest Payment
Date, the amount, if any, equal to the accrued and unpaid interest on
the Senior Unsecured Notes which the Borrower certifies to the
Collateral Trustee to be due and payable on the immediately succeeding
Senior Unsecured Note Interest Payment Date); PROVIDED, HOWEVER, that
in the event that the cash available in the Revenue Account is
insufficient to make all payments required under clauses (i) and (ii),
the payments required to be made under clause (i) shall be paid first;
SECOND, to the Administrative Agent, to be applied to the
prepayment of all of the unpaid principal of the Revolving Credit
Loans;
THIRD, (i) upon the occurrence and during the continuation of
a Designated Event, to the Operating Reserve Account, an amount
sufficient to cause the amounts on deposit therein to equal the
Operating Reserve Maximum Balance or (ii) upon the written request of
the Borrower, to the Operating Reserve Account, an amount so requested
so long as the balance therein (after giving effect to the requested
transfer) will not exceed the Operating Reserve Maximum Balance;
FOURTH, to the Debt Reserve Account, an amount sufficient to
cause the amounts on deposit therein to equal the Debt Reserve Required
Balance as of such date (as set forth in the certificate of the
Borrower delivered pursuant to Section 5.2(c) or, if the Borrower shall
not have delivered such a certificate to the Collateral Trustee and the
Administrative Agent, as set forth by the Administrative Agent);
FIFTH, to the Maintenance Reserve Account, an amount
sufficient to cause the amounts on deposit therein to equal the
Maintenance Reserve Required Balance as of such date (as set forth in
the certificate of the Borrower delivered pursuant to Section 5.2(c)
or, if the Borrower shall not have delivered such a
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certificate to the Collateral Trustee and the Administrative Agent,
as set forth by the Administrative Agent);
SIXTH, to the Administrative Agent, for the account of the
Term Lenders, an amount sufficient to reduce the aggregate outstanding
principal amount of the Term Loans to the amount set forth for such
year under the heading "Outstanding Amount" on Schedule 8.10(b), as
certified by the Administrative Agent to the Borrower and the
Collateral Trustee;
SEVENTH, if requested by the Borrower, to the Supplemental
Debt Reserve Account, the amount requested by the Borrower so long as
the balance therein (after giving effect to the requested transfer)
will not exceed the Supplemental Debt Reserve Maximum Balance;
EIGHTH, to the Administrative Agent, for the account of the
Term Lenders, an amount equal to 50% of the remaining cash available in
the Revenue Account (which amount shall be increased to 100% of the
remaining cash available in the Revenue Account during the continuance
of a Designated Event), to be applied to the prepayment of the Term
Loans (and, after the payment in full of the Term Loans, to be applied
to the cash collateralization of the Revolving Credit Commitments, on
terms and pursuant to documentation reasonably satisfactory to the
Administrative Agent); and
NINTH, so long as no Default or Event of Default shall have
occurred and be continuing, the remainder, if any, to be applied to
such purposes (including the making of equity dividends or distribution
to the Excess Revenue Account) as the Borrower may direct and which do
not violate the terms of this Agreement and the other Financing
Documents.
SECTION 8.11. DEBT RESERVE ACCOUNT. If, as of any date on which the
payment of interest on or principal of the Loans and the Senior Unsecured Notes
becomes due and payable as certified by the Borrower to the Collateral Trustee
and the Administrative Agent, the cash available in the Revenue Account and the
Excess Revenue Account (and, if required, the Supplemental Debt Reserve Account)
is insufficient to make such payment obligations on such date in accordance with
Sections 8.10 and 8.22 (and, if required, Section 8.12), the Collateral Trustee
shall transfer FIRST, to the Administrative Agent, for the benefit of the
Lenders and SECOND, to the Senior Unsecured Note Trustee, for the benefit of the
holders of the Senior Unsecured Notes, their respective amounts to the extent
cash is available in the Debt Reserve Account to remedy any such insufficiency.
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SECTION 8.12. SUPPLEMENTAL DEBT RESERVE ACCOUNT. If, as of any date on
which the payment of interest on or principal of the Loans and the Senior
Unsecured Notes becomes due and payable as certified by the Borrower to the
Collateral Trustee and the Administrative Agent, the cash available in the
Revenue Account and the Excess Revenue Account is insufficient to make such
payment obligations on such date in accordance with Sections 8.10 and 8.22, the
Collateral Trustee shall transfer FIRST, to the Administrative Agent, for the
benefit of the Lenders and SECOND, to the Senior Unsecured Note Trustee, for the
benefit of the holders of the Senior Unsecured Notes, their respective amounts
to the extent cash is available in the Supplemental Debt Reserve Account
(excluding any amounts deposited therein in accordance with Section 2.9(k) and
accrued interest thereon) to remedy any such insufficiency.
SECTION 8.13. OPERATING RESERVE ACCOUNT. If, as of any Operating
Expense Transfer Date, the cash available in the Revenue Account and the Excess
Revenue Account is less than the Operating Expenses set forth in the Expense
Certificate (or other certificate) setting forth such Operating Expenses to be
paid on such date, the Collateral Trustee shall transfer to the Person(s)
entitled thereto in accordance with Section 8.10(a) (to the extent cash is
available in the Operating Reserve Account) the amount of any deficiency in the
payment of the Operating Expenses set forth in such certificate. Funds in the
Operating Reserve Account will not be available for interest on and principal of
the Loans or the Senior Unsecured Notes.
SECTION 8.14. CURRENT ACCOUNT. The Collateral Trustee shall pay, from
and to the extent of cash available in the Current Account and as set forth in a
certificate of the Borrower delivered to the Collateral Trustee and the
Administrative Agent, (i) directly to each Person to which an amount in excess
of $200,000 is due and payable, the amounts previously identified as Operating
Expenses in Item 4 of the most recently delivered Expense Certificate which are
then due and owing or (ii) to the Borrower for the benefit of the Persons
entitled thereto, all other such Operating Expenses previously identified in
Item 4 of the most recently delivered Expense Certificate which are then due and
owing.
SECTION 8.15. MAINTENANCE RESERVE ACCOUNT. If, as of any Operating
Expense Transfer Date, the cash available in the Revenue Account, the Excess
Revenue Account and, if required, the Operating Reserve Account, is less than
the Operating Expenses set forth in the Expense Certificate (or other
certificate) setting forth such Operating Expenses to be paid on such date, the
Collateral Trustee shall transfer to the Person(s) entitled thereto in
accordance with Section 8.10(a) (to the extent cash is available in the
Maintenance Reserve Account) the amount of any deficiency in the payment of the
Operating Expenses set forth in such certificate.
SECTION 8.16. REPAIR AND RESTORATION RESERVE ACCOUNT. Upon the delivery
by
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the Borrower to the Collateral Trustee and the Administrative Agent of a
certificate of amounts due and payable in respect of a repair operation or
restoration which the Borrower may recover from PTTs pursuant to paragraph 11.2
of the C&MA or pursuant to comparable arrangements, the Collateral Trustee shall
distribute, from the cash available in the Repair and Restoration Reserve
Account, (A) directly to each Person to which an amount in excess of $200,000 is
due and payable, the amounts then due and owing identified in the certificate
referred to above, and (B) to the Borrower for the benefit of the Persons
entitled thereto, all other amounts then due and owing identified in such
certificate.
SECTION 8.17. CAPITAL EXPENDITURE ACCOUNT. (a) Upon the delivery by the
Borrower of a certificate to the Collateral Trustee and the Administrative Agent
of any amount due and payable in respect of capital expenditures which are
permitted by the terms of this Agreement to be paid from cash available in the
Capital Expenditure Account, the Collateral Trustee shall distribute, from the
cash available in the Capital Expenditure Account, (A) directly to each Person
to which an amount in excess of $200,000 is due and payable, the amounts then
due and owing identified in the certificate referred to above, and (B) to the
Borrower for the benefit of the Persons entitled thereto, all other amounts then
due and owing identified in such certificate.
(b) The Borrower may on any date (the "S&J SAVINGS DECLARATION DATE")
deliver to the Administrative Agent and the Collateral Trustee a certificate
setting forth in detail by budget category the aggregate capital expenditures
the Borrower reasonably expects to incur pursuant to Section 6.16(b), and the
amount, if any (THE "S&J EXPECTED SAVINGS AMOUNT"), by which $35,000,000 is in
excess of such aggregate capital expenditures (whether as a result of the
abandonment by the Borrower of any transaction contemplated by Section 6.16(b),
the use or intended use of Capacity as non-cash consideration or otherwise). The
Collateral Trustee shall distribute, from funds available in the Capital
Expenditure Account, the amount (if any) by which the S&J Expected Savings
Amount exceeds $5,000,000, to the Administrative Agent for the prepayment of
principal of the Loans, together with accrued interest thereon. Within 60 days
after the completion or abandonment of all transactions contemplated by Section
6.16(b), the Borrower shall deliver to the Administrative Agent and the
Collateral Trustee a certificate setting forth the actual aggregate capital
expenditures incurred in connection therewith, and the amount, if any (the "S&J
ACTUAL SAVINGS AMOUNT"), by which $35,000,000 is in excess of such actual
capital expenditures. If the S&J Actual Savings Amount is greater than the S&J
Expected Savings Amount, the Collateral Trustee shall distribute, from funds
available in the Capital Expenditure Account, to the Administrative Agent for
the prepayment of principal of the Loans (with accrued interest thereon) the
difference (if positive) between (i) the amount that would have been distributed
to the Administrative Agent if the S&J Actual Savings Amount were used in the
calculation on the S&J Savings Declaration Date and (ii) the amount of actual
distribution to the Administrative Agent.
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SECTION 8.18. REBATE ACCOUNT. (a) Upon the delivery by the Borrower of
a certificate to the Collateral Trustee and the Administrative Agent that
amounts previously distributed into the Rebate Account in respect of a potential
rebate are now due and payable, the Collateral Trustee shall distribute, from
the cash available in the Rebate Account, (A) directly to each Person to which
an amount in excess of $200,000 is due and payable, the amounts then due and
owing identified in the certificate referred to above, and (B) to the Borrower
for the benefit of the Persons entitled thereto, all other amounts then due and
owing identified in such certificate.
(b) Upon the delivery by the Borrower of a certificate to the
Collateral Trustee and the Administrative Agent that amounts previously
distributed into the Rebate Account in respect of a potential rebate cease to be
subject to such rebate, the Collateral Trustee shall distribute, from the cash
available in the Rebate Account, such amounts to the Revenue Account.
SECTION 8.19. INSURANCE PROCEEDS ACCOUNT. (a) All cash, cash
equivalents, instruments, investments and securities at any time on deposit in
the Insurance Proceeds Account, including all interest or other income earned
with respect thereto, are herein called the "CASUALTY PROCEEDS DEPOSITS".
(b) The Casualty Proceeds Deposits shall be accumulated in the
Insurance Proceeds Account and held therein until paid to or upon the order of
the Borrower as provided in paragraph (c) of this Section, or paid to the
Administrative Agent as provided in paragraph (d) of this Section, or returned
to the Borrower as provided in Section 8.32.
(c) Subject to the provisions of paragraph (d) of this Section,
Casualty Proceeds Deposits shall be paid over to or upon the order of the
Borrower (or directly to the Persons entitled thereto, in the case of amounts in
excess of $200,000) to reimburse it for, or to pay, the cost of repairing,
rebuilding or otherwise replacing the damaged or destroyed or lost or condemned
property in respect of which such moneys were received, upon the receipt by the
Collateral Trustee and the Administrative Agent of a certificate of the Borrower
(A) setting forth in reasonable detail the work done or proposed to be done and
materials purchased or to be purchased by way of the renewal, repair, rebuilding
or other replacement of the damaged or destroyed or lost or condemned property
and (B) stating the specific amount requested to be paid over to or upon the
order of the Borrower (or such other Person) or that such amount is requested to
reimburse the Borrower, as the case may be, for, or to pay, costs actually
incurred to repair, rebuild or replace property and that such amount, together
with amounts
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remaining in the Insurance Proceeds Account for such purpose and other funds
of the Borrower available for such purpose, are sufficient to pay in full the
costs of such renewal, repair, rebuilding or other replacement. In the event
that any amounts remain in the Insurance Proceeds Account after application
thereof in accordance with this paragraph, the Collateral Trustee shall
transfer such Casualty Proceeds Deposits to the Administrative Agent to be
applied to the payment of the Obligations in accordance with Sections 2.9(d)
and 2.9(j).
(d) If the Borrower or the Administrative Agent shall at any time
notify the Collateral Trustee that an Event of Loss has occurred, then, unless
the FLAG System is being repaired in accordance with Section 5.19(b), the
Collateral Trustee shall, on the third Business Day following the date on which
the Casualty Proceeds with respect to such Event of Loss are deposited to the
Insurance Proceeds Account, withdraw the Casualty Proceeds Deposits from the
Insurance Proceeds Account and deliver the same to the Administrative Agent to
be applied to the payment of the Obligations in accordance with Section 2.9(d).
If the FLAG System is being repaired in accordance with Section 5.19(b), the
provisions of paragraph (c) above shall apply.
SECTION 8.20. SPECIAL PAYMENT ACCOUNT. All Special Payments deposited
in the Special Payment Account shall be applied by the Collateral Trustee to the
Administrative Agent for the prepayment of principal of the Loans, together with
accrued interest thereon (and, thereafter, to the cash collateralization of the
Revolving Credit Commitments on terms and pursuant to documentation reasonably
satisfactory to the Administrative Agent). All other Special Payments shall be
transferred to the Revenue Account to be applied in accordance with Section
8.10.
SECTION 8.21. SALES AND ISSUANCES PROCEEDS ACCOUNT. Amounts on deposit
in the Sales and Issuances Proceeds Account shall be applied as follows:
(a) if such amounts are Net Cash Proceeds of any new issuance
after the Closing Date of Capital Stock of the Borrower or any
Permitted Parent Company, (i) an amount equal to the portion thereof
being held in accordance with the proviso contained in Section
2.9(c)(i) for application to the payment of Permitted Upgrades (which
shall be specified in a certificate of the Borrower delivered to the
Collateral Trustee and the Administrative Agent before or when such Net
Cash Proceeds are deposited) shall be held and applied to the payment
thereof upon receipt by the Collateral Trustee and the Administrative
Agent of a certificate of the Borrower specifying the Person(s) to whom
such payment of Permitted Upgrades are due and owing, PROVIDED that no
amount shall be expended under this clause (i) if a Default, Event of
Default or Designated Event shall have occurred and be continuing;
PROVIDED, FURTHER, if any such portion is not expended within six
months (or such longer period not in excess of one year as the
Administrative Agent may approve in writing) of its receipt into the
Sales
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and Issuances Proceeds Account, the Collateral Trustee shall, at
the request of the Administrative Agent, apply 50% of such unexpended
amount to the Administrative Agent to prepay the Loans in accordance
with Section 2.9(c)(i) and the remainder of such unexpended amount
shall remain in the Sales and Issuance Proceeds Account or, at the
request of the Borrower, be distributed to the Borrower and (ii) the
remainder shall be distributed, 50% to the Administrative Agent for the
prepayment of the Loans in accordance with Section 2.9(c)(i) and, so
long as no Default or Event of Default shall have occurred and be
continuing, 50% to the Borrower, to be used in such manner (including
equity dividends or distribution to the Excess Revenue Account) as the
Borrower shall determine in accordance with the terms of this
Agreement;
(b) if such amounts are Net Cash Proceeds of an incurrence of
Indebtedness after the Closing Date by the Borrower in accordance with
clause (g) of Section 6.1 or by any Subsidiary of the Borrower or any
Permitted Parent Company (i) an amount equal to the portion thereof
being held in accordance with the proviso contained in Section
2.9(c)(ii) for application to the payment of Permitted Upgrades (which
shall be specified in a certificate of the Borrower delivered to the
Collateral Trustee and the Administrative Agent when such Net Cash
Proceeds are deposited) shall be held and applied to the payment
thereof upon receipt of a certificate of the Borrower specifying the
Person(s) to whom such payments of Permitted Upgrades are due and
owing, PROVIDED that no amount shall be expended under this clause (i)
if a Default, Event of Default or Designated Event shall have occurred
and be continuing and (ii) the remainder shall be applied to the
prepayment of the Loans in accordance with Sections 2.9(c)(ii) and
2.9(j);
(c) if such amounts are Net Cash Proceeds in respect of any
sale, transfer or other disposition of any asset of the Borrower (other
than sales, transfers or dispositions of Capacity described in clause
(a) of Section 6.4 and dispositions resulting in aggregate Net
Cash Proceeds not exceeding $1,000,000 during any fiscal year of the
Borrower), (i) an amount equal to the portion thereof being held to be
used to replace such asset disposed of with similar asset of at least
substantially the same value, utility and useful life (which shall be
specified in a certificate of the Borrower delivered to the Collateral
Trustee and the Administrative Agent when such Net Cash proceeds are
deposited) shall be held and applied to the payment of the relevant
expenses upon receipt by the Collateral Trustee and the Administrative
Agent of a certificate of the Borrower specifying the Person(s) to whom
such expenses are due and owing, and (ii) if any such Net Cash Proceeds
are not expended in accordance with clause (i) above within three
months of their receipt into the Sales and Issuances Proceeds Account,
such Net Cash Proceeds shall be applied to the prepayment of the Loans
in accordance with Sections 2.9(c)(iii)
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and 2.9(j); and
(d) if such amounts are Net Cash Proceeds of a Permitted Sale
Leaseback Transaction, such amount shall be distributed to the
Administrative Agent to be applied to the prepayment of the Loans in
accordance with Sections 2.9(e) and 2.9(j).
SECTION 8.22. EXCESS REVENUE ACCOUNT. (a) If, as of any Operating
Expense Transfer Date, the cash available in the Revenue Account is less than
the Operating Expenses set forth in the Expense Certificate (or other
certificate) setting forth such Operating Expenses due on such date, the
Collateral Trustee shall transfer to the Person(s) entitled thereto in
accordance with Section 8.10(a) (to the extent cash is available in the Excess
Revenue Account) the amount of any deficiency in the payment of the Operating
Expenses set forth in such certificate.
(b) If, as of any date on which the payment of interest on or principal
of the Loans and the Senior Unsecured Notes becomes due and payable as certified
by the Borrower to the Collateral Trustee and the Administrative Agent, the cash
available in the Revenue Account is insufficient to make such payment
obligations on such date in accordance with Section 8.10, the Collateral Trustee
shall transfer FIRST, to the Administrative Agent, for the benefit of the
Lenders and SECOND, to the Senior Unsecured Note Trustee, for the benefit of the
holders of the Unsecured Notes, their respective amounts to the extent cash is
available in the Excess Revenue Account to remedy any such insufficiency.
(c) Within 45 days after the end of each Operating Year of the
Borrower, the Borrower shall be permitted to request the Collateral Trustee to
distribute any or all amounts available in the Excess Revenue Account to the
Excess Cash Flow Account. Upon such request, the Collateral Trustee shall
distribute such amount from the cash available in the Excess Revenue Account to
the Excess Cash Flow Account.
SECTION 8.23. PERMITTED SOURCES ACCOUNT. Amounts on deposit in the
Permitted Sources Account shall be paid over to or upon the order of the
Borrower (or directly to the Persons entitled thereto, in the case of amounts in
excess of $200,000) to pay costs in respect of which such Permitted Sources were
deposited, upon the receipt by the Collateral Trustee and the Administrative
Agent of a certificate of the Borrower stating the specific amount requested to
be paid over to or upon the order of the Borrower (or such other Person) to pay
such costs actually incurred and setting forth a brief description of the costs
to be paid. If, at any time, amounts that were deposited into the Permitted
Sources Account are no longer necessary to pay costs in
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respect of which such funds were deposited, as certified by a Responsible
Officer of the Borrower to the Collateral Trustee (and countersigned by the
Administrative Agent), the Collateral Trustee shall transfer such amounts
from amounts on deposit in the Permitted Sources Account to the Excess Cash
Flow Account.
SECTION 8.24. DELIVERY OF OFFICER'S CERTIFICATES; TIMING OF PAYMENTS.
(a) Each certificate to be delivered by the Borrower under this Article shall be
issued by a Responsible Officer of the Borrower and shall be delivered (unless
otherwise specified) not later than 12:00 noon, New York City time, on the
Business Day immediately prior to the day on which the Collateral Trustee is
required to make transfers hereunder. Any certificate of a Responsible Officer
of the Borrower delivered later than the time specified herein shall
nevertheless be considered valid and shall be honored by the Collateral Trustee
on or as promptly after the date otherwise specified herein for payment as is
practicable, subject to the availability of cash in the applicable Account.
(b) Subject to (i) the timely receipt of a certificate of a Responsible
Officer of the Borrower as set forth in paragraph (a) above, (ii) the
availability of cash in the applicable Account, (iii) other circumstances beyond
the control of the Collateral Trustee and (iv) if sought by the Collateral
Trustee due to a perceived inconsistency between the Borrower's instructions and
the terms of this Agreement, the receipt from the Administrative Agent of Proper
Instructions confirming the requested payment, the Collateral Trustee shall make
any payment hereunder required (except for transfers between Accounts) by means
of wire transfer of immediately available funds, to the address of the payee(s)
set forth in the applicable certificate, to be received prior to 2:00 p.m., New
York City time, on the date specified herein for such payment.
SECTION 8.25. RELEASE OF EXCESS AMOUNTS. If, as of any Principal
Payment Date, (a)(i) an amount is on deposit in the Debt Reserve Account or the
Maintenance Reserve Account in excess of the Debt Reserve Required Balance or
the Maintenance Reserve Required Balance, as applicable, or (ii) an amount is on
deposit in the Supplemental Debt Reserve Account, the Operating Reserve Account
or the Repair and Restoration Reserve Account in excess of the Supplemental Debt
Reserve Maximum Balance, the Operating Reserve Maximum Balance or the R&R
Reserve Maximum Balance, as applicable, in each case whether as the result of
the actual realization of income or gain on the amounts on deposit in such
Account or otherwise and (b) no Event of Default or Designated Event has
occurred and is continuing, then the Collateral Trustee shall, upon the
instruction of the Borrower, distribute any such excess amounts to the Revenue
Account.
SECTION 8.26. EVENT OF DEFAULT. Any other provision contained in this
Agreement to the contrary notwithstanding, (a) if the Collateral Trustee shall
have received notice from the Administrative Agent that a Default shall have
occurred and be continuing, distributions from the Accounts shall be made only
with the consent of the
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Majority Lenders and (b) if the Collateral Trustee shall have received notice
from any Secured Party that an Event of Default shall have occurred and be
continuing and the Loans have been accelerated in accordance with Article
VII, the Collateral Trustee shall upon the request of the Majority Lenders
then apply any proceeds in any Account in the following order of priorities:
FIRST, to the payment of all expenses, liabilities and
advances incurred or made by the Collateral Trustee or any other
Secured Party in connection with the collection of any such amounts or
the liquidation of any Permitted Investments and of all unpaid fees
owing to the Collateral Trustee or the Administrative Agent;
SECOND, to the Administrative Agent, to be applied to the
payment of all accrued but unpaid interest (whether or not due) on the
Loans;
THIRD, to the Administrative Agent, to be applied to the
payment of all of the unpaid principal (whether or not due) of the
Loans;
FOURTH, to the Administrative Agent, to be applied to the
payment of all other Obligations (whether or not due); and
FINALLY, to the Borrower, or such other Person as a court of
competent jurisdiction may direct, of any surplus then remaining from
such proceeds.
SECTION 8.27. INVESTMENT. Any cash held by the Collateral Trustee in
any Account shall be invested by the Collateral Trustee from time to time as
directed in writing by the Borrower (or, upon the receipt of notice by the
Collateral Trustee from the Administrative Agent that an Event of Default has
occurred and is continuing, by the Administrative Agent in its sole discretion)
in Permitted Investments. Any income or gain realized as a result of any such
investment shall be held as part of the applicable Account and reinvested as
provided herein. If any income tax is payable on account of any such income or
gain, it shall be paid by the Borrower or its Affiliates. Any such investment
may be sold by the Collateral Trustee whenever necessary to make any
distribution required by this Agreement. The Collateral Trustee shall have no
liability for any loss resulting from any such investment or sale thereof other
than by reason of its willful misconduct or gross negligence. The Collateral
Trustee will promptly notify the Borrower and the Administrative Agent of any
loss resulting from any such investment or sale.
SECTION 8.28. STATEMENTS OF ACCOUNTS. Not later than five Business Days
following the end of each calendar month, and from time to time upon written
request of the Administrative Agent or the Borrower, the Collateral Trustee
shall provide to the Borrower and the Administrative Agent a statement of
amounts on deposit in each Account and Permitted Investments as of the end of
the prior month, (b) a statement of
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all transfers into and withdrawals from each Account during the prior month
and (c) a statement of purchases and sales of Permitted Investments, and the
receipt, application or existence of any income, dividends or capital gains
with respect thereto, during the prior month.
SECTION 8.29. VALUE. Cash and Permitted Investments on deposit from
time to time in the Accounts shall be valued by the Collateral Trustee as
follows:
(a) cash shall be valued at the face amount thereof; and
(b) Permitted Investments shall be valued at the lesser of the
face amount and the purchase price.
SECTION 8.30. OTHER DETERMINATIONS. The Borrower, the Administrative
Agent and the Collateral Trustee may establish procedures not materially
inconsistent with this Agreement pursuant to which the Collateral Trustee may
conclusively determine, for purposes of this Agreement, the amounts from time to
time to be distributed or paid by the Collateral Trustee from cash available in
the Accounts or pursuant to which the Collateral Trustee and the Borrower may
provide for reasonable operating and administrative flexibility.
SECTION 8.31. SALES OF PERMITTED INVESTMENTS. The Collateral Trustee
will use its reasonable commercial efforts to sell Permitted Investments so that
actual cash is available, on each date on which a distribution is to be made
pursuant to this Agreement, for the Collateral Trustee to make such distribution
in cash on such date. The amount of any check or other instrument which may be
deposited in any Account shall not be treated as cash available until the final
collection thereof.
SECTION 8.32. AVAILABLE CASH. In determining the amount of available
cash in any Account at any time, in addition to any cash then on deposit in such
Account, the Collateral Trustee shall treat as available cash the amount which
the Collateral Trustee would have received on such day if the Collateral Trustee
had liquidated all the Permitted Investments (at then prevailing market prices)
then on deposit in such Account.
SECTION 8.33. TERMINATION. Upon termination of this Agreement and the
payment in full of all Obligations, the Administrative Agent shall deliver
instructions to the Collateral Trustee terminating the trust relationship
between the Collateral Trustee and the other Secured Parties, whereupon all
rights to the Collateral shall revert to the Person legally entitled thereto,
and the Collateral Trustee shall transfer any remaining
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amounts, together with any interest thereon, on deposit in the Accounts to
the Borrower or as the Borrower may direct.
ARTICLE IX
THE ADMINISTRATIVE AGENT
Each of the Lenders hereby irrevocably appoints the Administrative
Agent as its agent and authorizes the Administrative Agent to take such actions
on its behalf and to exercise such powers as are delegated to the Administrative
Agent by the terms hereof and by the other Financing Documents, together with
such actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower or other Affiliate thereof as if it
were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein. Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Majority Lenders and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower that is communicated to or obtained by the bank serving
as Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Majority Lenders or in the absence of
its own gross negligence or wilful misconduct. The Administrative Agent shall be
deemed not to have knowledge of any Default unless and until written notice
thereof is given to the Administrative Agent by the Borrower or a Lender, and
the Administrative Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with this Agreement or any other Financing Document, (ii) the
contents of any certificate, report or other document delivered hereunder, under
any other Financing Document or in connection herewith or therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein or in any other Financing Document, (iv) the
validity, enforceability, effectiveness or genuineness of this Agreement, any
other
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Financing Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein or
in any other Financing Document, other than to confirm receipt of items
expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided in this paragraph, the Administrative Agent may resign at any
time by notifying the Lenders and the Borrower. Upon any such resignation, the
Majority Lenders shall have the right, in consultation with the Borrower, to
appoint a successor. If no successor shall have been so appointed by the
Majority Lenders and shall have accepted such appointment within 30 days after
the retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent may, on behalf of the Lenders and in consultation
with the Borrower, appoint a successor Administrative Agent which shall be a
bank with an office in New York, New York, or an Affiliate of any such bank.
Upon the acceptance of its appointment as Administrative Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the
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same as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor. After the Administrative Agent's resignation
hereunder, the provisions of this Article and Section 11.3 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Administrative Agent.
The Lenders agree to indemnify the Administrative Agent and each
Related Party of the Administrative Agent (to the extent not reimbursed by the
Borrower), ratably according to the respective principal amounts of the Loans
owing to them and Commitments issued by them, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgements,
suits, costs, expenses or disbursements of any kind or nature whatsoever that
may be imposed on, incurred by, or asserted against the Administrative Agent or
such Related Party in any way relating to or arising out of this Agreement or
any other Financing Document or any action taken or omitted by the
Administrative Agent or such Related Party under this Agreement or any other
Financing Document, PROVIDED that no Lender shall be liable to the
Administrative Agent or such Related Party for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgements, suits, costs,
expenses or disbursements resulting from the Administrative Agent's or such
Related Party's gross negligence or willful misconduct. Without limitation of
the foregoing, each Lender agrees to reimburse the Administrative Agent and each
Related Party of the Administrative Agent promptly upon demand for its ratable
share of any out-of-pocket expenses (including counsel fees) incurred by the
Administrative Agent or such Related Party in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, to the
extent that the Administrative Agent or such Related Party is not reimbursed for
such expenses by the Borrower.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent, the Collateral Trustee or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Lender also acknowledges that it will, independently and without reliance upon
the Administrative Agent, the Collateral Trustee or any other Lender and based
on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any related agreement or any document
furnished hereunder or thereunder.
ARTICLE X
THE COLLATERAL TRUSTEE
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SECTION 10.1. APPOINTMENT OF COLLATERAL TRUSTEE. Each of the Lenders
and the other Secured Parties hereby appoints the Collateral Trustee, as
collateral trustee, security agent and representative hereunder and under the
other Financing Documents (together with its permitted successors and assigns)
and authorizes the Collateral Trustee to act as such hereunder and under the
other Financing Documents by and on behalf of each Secured Party. The Collateral
Trustee accepts the trusts created hereunder and under the Security Documents
and agrees to act as agent and fiduciary for the Secured Parties and their
respective successors and assigns upon the express conditions contained in this
Agreement and in the other Financing Documents to the extent provided herein. In
performing its functions and duties under this Agreement and the other Financing
Documents to which it is a party, the Collateral Trustee shall act solely as an
agent of the Secured Parties to the extent, but only to the extent, provided in
this Agreement and the other Financing Documents to which it is a party. The
Collateral Trustee does not assume, and shall not be deemed to have assumed,
hereby or thereby, any obligation towards, or relationship of agency, fiduciary
or trust with or for any other Person, including the Borrower or any Subsidiary
or Shareholder of the Borrower. Further, the Collateral Trustee shall be
released by the Secured Parties from any and all of such trusts and its
responsibilities and obligations whatsoever owed to the Secured Parties under
this Agreement or any other Financing Document with effect upon the termination
of this Agreement and payment in full of all Obligations.
SECTION 10.2. ACTIONS ETC. UNDER FINANCING DOCUMENTS. (a) The
Collateral Trustee shall not be required to exercise any power, discretion or
authority or take any action or actions under this Agreement or any other
Financing Document or with respect to the sale or disposition of the Collateral
unless and until it shall have received Proper Instructions as to how to
exercise any power, discretion or authority or how to take such action or
actions from the Majority Lenders (or the Administrative Agent where specified
in accordance with any Financing Document) (individually the "PROPER PARTY" or
collectively the "PROPER PARTIES"); PROVIDED that the Collateral Trustee shall
(i) be permitted (but not required) to verify the composition of the Majority
Lenders with the Administrative Agent and shall not be required to take any
action or actions until it receives such verification; (ii) not be obligated to
follow any Proper Instructions given by the relevant Proper Party unless the
Collateral Trustee shall have received adequate security or indemnity as
provided in paragraph (j) of this Section; (iii) not, under any circumstances
(other than its own gross negligence or willful misconduct in carrying out such
Proper Instructions, as finally determined by a court of competent
jurisdiction), be liable to any Secured Party or any other Person (including the
Borrower or any Subsidiary or Shareholder of the Borrower) for following the
Proper Instructions of the relevant Proper Party.
(b) Any party giving Proper Instructions shall be entitled to withdraw
or modify such Proper Instructions by delivering written notice of such
withdrawal or modification by way of revised Proper Instructions to the
Collateral Trustee prior to the time when
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the Collateral Trustee exercises any discretion or authority or takes any
action pursuant to the initial Proper Instructions.
(c) Each Secured Party has irrevocably authorized and directed the
Collateral Trustee to execute and deliver this Agreement and hereby irrevocably
authorizes and directs the Collateral Trustee to execute and deliver the other
Financing Documents to which it is a party.
(d) Each Secured Party irrevocably authorizes the Collateral Trustee to
exercise any power, discretion or authority and/or to take such action on the
Secured Parties' behalf and to exercise such powers as are specifically
delegated to or conferred upon the Collateral Trustee by the terms of this
Agreement, the Security Documents and any of the other Financing Documents,
together with such powers as the Collateral Trustee believes in good faith are
reasonably incidental thereto, and acknowledges that the Collateral Trustee is
authorized to disburse amounts in the Accounts in accordance with the Borrower's
certificates given in accordance with the terms of this Agreement without
verifying whether the specified amounts are correctly stated therein.
(e) The Collateral Trustee shall have only those duties, obligations
and responsibilities that are expressly specified in this Agreement, the
Security Documents and any of the other Financing Documents to which it is a
party, and shall not have any implied duties, obligations or responsibilities.
(f) The Collateral Trustee may perform or carry out its duties,
obligations and responsibilities by or through its directors, officers,
employees or agents. Any agent of the Collateral Trustee shall be entitled to be
paid its reasonable professional and other charges for business transacted and
acts done by him or any partner or employee of his in connection with this
Agreement or any of the other Financing Documents, as the case may be.
(g) The Collateral Trustee may, with the prior consent of the
Administrative Agent, which consent shall not be unreasonably withheld, delegate
in any manner to any Person any of the rights and powers vested in this
Agreement, the Security Documents and any of the other Financing Documents to
which it is a party, upon such terms and conditions (including the power to
sub-delegate) as the Collateral Trustee may think fit; PROVIDED that no such
prior consent shall be required in the case of Bermuda Commercial Bank Limited.
(h) The Collateral Trustee may, with the prior consent of the
Administrative Agent, which consent shall not be unreasonably withheld, place
any and all title deeds
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and other documents certifying, representing or constituting the title to any
of the Collateral in its possession in any safe deposit, safe or receptacle
selected by the Collateral Trustee or with any banker or banking company or
company whose business includes undertaking the safe custody of documents.
The Collateral Trustee shall not be responsible for any loss incurred in
connection with any such deposit except for any loss arising out of its own
gross negligence or willful misconduct, as finally determined by a court of
competent jurisdiction; PROVIDED that no such prior consent shall be required
in the case of Bermuda Commercial Bank Limited.
(i) All moneys received or held by the Collateral Trustee shall be
received, held, disbursed and invested in accordance with the terms of Article
VIII, and, without prejudice to the generality of the foregoing, the Collateral
Trustee may establish accounts in the name or under the control of the
Collateral Trustee at such bank or institution as the Collateral Trustee may
think fit. The Collateral Trustee may at any time vary, exchange, transfer or
transpose any investments made by it pursuant to Article VIII for or into other
investments in accordance with the terms thereof and shall not be responsible
for any loss occasioned thereby, whether by depreciation in value or otherwise.
Any such investment may, at the discretion of the Collateral Trustee, be made or
retained in the names of nominees.
(j) The Collateral Trustee shall be fully entitled and justified in
taking or refusing to exercise any power, discretion or authority or take any
action under this Agreement or any other Financing Document, unless it shall
have received adequate security or indemnity reasonably satisfactory to it
against the costs, expenses and liabilities (including, without limitation,
payment in advance of all reasonable estimated advances and out-of-pocket
expenses) which, in the determination of the Collateral Trustee, may be
incurred, suffered or sustained by it (including legal and other professional
fees) in connection therewith or if taking such action (x) would subject the
Collateral Trustee to a tax in any jurisdiction where it is not then subject to
a tax (unless it is fully indemnified for such tax), (y) would require the
Collateral Trustee to qualify to do business in any jurisdiction where it is not
then so qualified, unless the Collateral Trustee receives security or indemnity
reasonably satisfactory to it (including, without limitation, payment in advance
of all reasonable estimated advances and out-of-pocket expenses) against such
tax (or equivalent liability) or any liability resulting from such
qualification, in each case as results from the taking of such action under this
Agreement or any other Financing Document to which it is a party, or (z) would
subject the Collateral Trustee to in personam jurisdiction in any location where
it is not then so subject. If any security or indemnity furnished to the
Collateral Trustee for any purpose shall, in the reasonable opinion of the
Collateral Trustee, be insufficient or become impaired, then the Collateral
Trustee shall be entitled to require such additional security or indemnity and
to cease, or not commence, to exercise any discretion or authority or to take
any action under this Agreement or any other Financing Document, as the case may
be, until such time as such additional security or indemnity is furnished.
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(k) Each of the Lenders and the Administrative Agent hereby undertakes
to give Proper Instructions to the Collateral Trustee in a timely manner, so as
to enable the Collateral Trustee to exercise any power, discretion or authority
or take any action within the time periods provided in any of the Financing
Documents and in the event of failure by any such Person to do so, the
Collateral Trustee shall not be responsible for any loss occasioned thereby.
(l) The Collateral Trustee shall exercise those rights and powers
vested in it by this Agreement and the other Financing Documents to which it is
a party using the same degree and care and skill in their exercise as a
reasonably prudent Person would exercise or use under the circumstances in the
conduct of its own affairs.
SECTION 10.3. EXCULPATORY PROVISIONS. (a) The Collateral Trustee shall
not be responsible to any Person in any manner whatsoever for the execution,
effectiveness, genuineness, validity, perfection, ranking, enforceability,
collectibility, value, admissibility or sufficiency of the Collateral, the
Obligations, the Security Documents, or any of the Financing Documents, or the
adequacy or correctness of any recitals, statements, information,
representations or warranties in this Agreement, or any other Financing Document
to which it is a party (other than any statements, representations or warranties
expressly made by the Collateral Trustee) or written or oral statement or in any
financial or other documents, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by or on behalf
of the Borrower to the Collateral Trustee or any Secured Party.
(b) The Collateral Trustee shall not be responsible for insuring the
Collateral or for the payment of Taxes, charges or assessments or discharging of
Liens upon the Collateral or otherwise as to the maintenance or care of the
Collateral, except that if the Collateral Trustee takes possession of any
Collateral, the Collateral Trustee shall use reasonable care in the physical
preservation of the Collateral in its possession.
(c) The Collateral Trustee shall not be required to ascertain or
inquire (i) as to the performance or observance by the Borrower or any
Subsidiary or Shareholder of the Borrower or any of their respective successors
and assigns of any of the terms, conditions, provisions, covenants or agreements
contained in any Financing Document, or (ii) as to the existence or possible
existence of any default or event of default (howsoever described) or the
occurrence of any other event under any Financing Document or Transaction
Document, or whether it is still continuing.
(d) Whenever it is necessary, or in the opinion of the Collateral
Trustee advisable, for the Collateral Trustee to ascertain the amount of the
outstanding Commitments or Obligations, the Collateral Trustee may rely on
Proper Instructions of the Administrative Agent containing such information.
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(e) Notwithstanding any other provision of this Agreement, the
Collateral Trustee shall not, in its individual capacity, be personally liable
for any power, discretion or authority exercised or action taken or omitted to
be taken by it in accordance with the terms hereof, or of any other Financing
Document to which it is a party except for its own gross negligence or willful
misconduct, as finally determined by a court of competent jurisdiction.
(f) The Collateral Trustee and each of its Affiliates shall have the
same rights with respect to any Obligation held by it as any Secured Party and
may exercise such rights as though it were not the Collateral Trustee hereunder,
and may accept deposits from, lend money to, and generally engage in any kind of
banking, trust, financial, advisory or other business with the Borrower and each
of its Affiliates as if it were not the Collateral Trustee.
SECTION 10.4. RELIANCE BY COLLATERAL TRUSTEE. (a) Whenever in the
administration of this Agreement, the Security Documents or any other Financing
Document to which it is a party, the Collateral Trustee shall deem it necessary
or desirable that any Collateral received by the Collateral Trustee is in a form
acceptable to the Secured Parties or that a factual matter be proved or
established in connection with the Collateral Trustee taking, suffering or
omitting the exercise of any power, discretion or authority or any action under
this Agreement or any of the Financing Documents, such matter (unless other
evidence in respect thereof is prescribed herein or in any other Financing
Document to which it is a party) may be deemed to be conclusively proved or
established by Proper Instructions from the Proper Parties, delivered to the
Collateral Trustee, and such Proper Instructions shall be full warrant and
protection to the Collateral Trustee for any power, discretion, authority or
action taken, suffered or omitted in reliance thereon and the Collateral Trustee
shall not be responsible for any loss occasioned thereby.
(b) The Collateral Trustee may consult with counsel, accountants or
other experts, and any opinion of counsel or opinion of accountants or other
experts shall be full and complete authorization and protection in respect of
the exercise of any power, discretion or authority of the exercise of any power,
discretion or authority or any action taken or suffered by the Collateral
Trustee hereunder or under any other Financing Document to which it is a party
(including any concern on the Collateral Trustee's part as to the composition of
the Proper Parties at any time) or in accordance herewith or therewith and the
Collateral Trustee shall not be responsible for any loss occasioned by so
acting. The Collateral Trustee shall also have the right at any time to seek
instructions concerning the administration of this Agreement and any other
Financing Document to which it is a party (including any concern on the
Collateral Trustee's part as to the composition of the Proper Parties at any
time) from any court of competent jurisdiction and to receive in advance thereof
adequate security or indemnity against
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the costs and expenses and liabilities which may be incurred by it in
connection with such court proceedings in accordance with the provisions of
Section 10.2(j).
(c) The Collateral Trustee may rely, and shall be fully protected and
indemnified hereunder in acting, upon any instruction, resolution, statement,
certificate, instrument, opinion, report, notice request, consent, order, bond
or other paper or document which, in the absence of its gross negligence or
willful misconduct, as finally determined by a court of competent jurisdiction,
it believes to be genuine and to have been signed or presented by the respective
person or persons from time to time authorized by each of the Proper Parties, to
sign or present on its behalf, and identified by specimen signatures previously
distributed to the Collateral Trustee or, in the case of cables, telecopies and
telexes, to have been sent by such authorized person or persons (collectively
the "PROPER INSTRUCTIONS"). The Collateral Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed in
Proper Instructions and upon any such document or communication furnished to the
Collateral Trustee and conforming to the requirements of this Agreement or any
other Financing Document to which it is a party or, if not so conforming as
approved by Proper Instructions of the Proper Party and the Collateral Trustee
shall be in no way bound to call for further evidence or be responsible for any
loss which may be occasioned by acting on any such Proper Instructions. Without
limiting the foregoing, if the Collateral Trustee is unsure whether or not a
person or persons is authorized to issue Proper Instructions, the Collateral
Trustee shall always be entitled to rely and shall be fully protected in relying
upon a certificate of the Administrative Agent confirming the authority of such
Person or Persons.
(d) If the Collateral Trustee shall at any time request further Proper
Instructions from a Proper Party with respect to the exercise of any power,
discretion, authority or any act or action to be taken or omitted in connection
with this Agreement or any other Financing Document in respect of which the
Collateral Trustee has previously received Proper Instructions from such Proper
Party, the Collateral Trustee shall not be required to exercise any power,
discretion or authority or take or omit to take such action unless and until it
shall have received such further Proper Instructions as the Collateral Trustee
shall deem appropriate in respect thereof.
(e) If the Collateral Trustee shall have received Proper Instructions
from the Proper Party it shall exercise any power, discretion or authority or
take or omit to take any action as directed therein, and shall not be obliged to
verify that such Proper Instructions comply with the terms of any of the
Financing Documents, and (subject to such compliance) the Collateral Trustee
shall not be responsible for any loss occasioned thereby.
(f) Notwithstanding anything to the contrary in this Agreement or the
Financing Documents, the Collateral Trustee shall not be deemed to have any
notice or
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knowledge of:
(i) any Default or the occurrence of any other event unless
and until it shall have received Proper Instructions thereof from a
Proper Party (or the Administrative Agent describing such Default or
other event in reasonable detail (including the date or, if not known,
the estimated date of the occurrence of the relevant Default or other
event) and stating whether it is still continuing; or
(ii) the contents or the performance by any party thereto of
any provision of any of the Financing Documents unless it shall have
been specifically informed thereof by way of Proper Instructions from a
Proper Party (or the Administrative Agent) which describes such
contents or performance in reasonable detail to the Collateral
Trustee's satisfaction.
SECTION 10.5. SUPPLEMENTAL PROVISIONS RELATING TO THE COLLATERAL
TRUSTEE. By way of supplement to the rights and powers conferred by Trustee Act
1975 of Bermuda, as amended, and by general law it is expressly declared as
follows:
(a) The Collateral Trustee may refrain from doing anything which would
or might in its reasonable opinion be contrary to any law, directive or
regulation of any state or which would or might otherwise render it liable to
any person and may do anything which it determines, in its absolute discretion,
is necessary to comply with any such law, directive or regulation;
(b) The Collateral Trustee shall not be liable for any failure,
omission or defect in perfecting the security created by or pursuant to the
Security Documents, including, without prejudice to the generality of the
foregoing (i) failure to obtain any license, consent or other authority for the
execution, delivery, validity, legality, adequacy, performance, enforceability
or admissibility in evidence of any Financing Document and (ii) failure to
effect or procure registration of or otherwise protect any of the security
created by the Security Documents by registering under any applicable
registration laws in any territory or by any notice, caution, filing,
registration laws in any territory or by any notice, caution, filing,
registration or other entry prescribed by or pursuant to the provisions of the
said laws;
(c) The Collateral Trustee may accept without inquiry, requisition,
objection or investigation such title as the Borrower or any other Person may
have to that part of the Collateral belonging to it (or any part thereof) which
is the subject matter of the Security Documents, and shall not be liable for any
failure or omission to ascertain or investigate the title of the Borrower or any
other Person to any Collateral now or at any time hereafter subject or
purporting to be subject to any security created by or pursuant to the Security
Documents; and
(d) The Collateral Trustee shall, for the purposes of this Agreement
and the
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Security Documents, have full power to determine all questions and doubts
arising in relation to any provisions of any Security Document, and, save for
manifest error, every such determination (whether made upon a question
actually raised or implied in the acts or proceedings of the Collateral
Trustee) shall be conclusive and shall bind the Secured Parties and the other
Persons who are parties thereto.
SECTION 10.6. LIMITATIONS AND DUTIES OF COLLATERAL TRUSTEE. No
provision of this Agreement or any other Financing Document to which it is a
party shall be deemed to impose any duty or obligation on the Collateral Trustee
to exercise any power, discretion or authority or to perform any act or acts
conferred or imposed on it, in any jurisdiction in which it shall be illegal, or
in which the Collateral Trustee shall be legally unqualified or incompetent, to
perform any such act or acts or to exercise any such right, power, duty or
obligation or if such performance or exercise would constitute doing business by
the Collateral Trustee in such jurisdiction or would impose a tax on the
Collateral Trustee by reason thereof.
SECTION 10.7. PROCEEDS TO BE HELD IN TRUST. All proceeds received by
the Collateral Trustee under or pursuant to any provision of this Agreement or
any other Financing Document to which it is a party (except where made by way of
payment, reimbursement or indemnification of the fees, costs and expenses of the
Collateral Trustee or its counsel or agents) shall be held in trust for the
exclusive benefit of the Secured Parties, and placed on deposit in accordance
with Article VIII.
SECTION 10.8. RESIGNATION AND REMOVAL OF THE COLLATERAL TRUSTEE. (a)
The Collateral Trustee may at any time, by giving 30 days' prior written notice
to the Administrative Agent, resign and be fully discharged from the duties,
obligations and responsibilities created by this Agreement or any of the other
Financing Documents, such resignation to become effective upon the appointment
of a successor Collateral Trustee by the Administrative Agent after consultation
with the Borrower. If no successor Collateral Trustee shall be appointed and
shall have accepted such appointment within 90 days after the Collateral Trustee
gives the aforesaid notice of resignation, the Collateral Trustee or any Secured
Party may apply to any court of competent jurisdiction to appoint a successor
Collateral Trustee to act until such time, if any, as a successor Collateral
Trustee shall have been appointed as provided in this Section and shall have
accepted such appointment. Any successor Collateral Trustee so appointed by such
court shall immediately and without further act be superseded by any successor
Collateral Trustee appointed as provided in this Section. The Secured Parties
shall, if so requested by the Collateral Trustee, execute a Deed of Release and
Retirement containing an adequate indemnity in form and substance satisfactory
to the Collateral Trustee.
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(b) The Majority Lenders may remove the Collateral Trustee and upon the
appointment of a successor Collateral Trustee and acceptance of such appointment
by such successor, the Collateral Trustee shall be discharged from the duties,
obligations and responsibilities created by this Agreement or any other
Financing Document. Any Collateral Trustee shall be entitled to payment or
reimbursement of fees, costs and expenses (including those of its counsel and
agents) to the extent incurred or arising, or relating to events occurring,
before such resignation or removal. The Lenders shall, if so requested by the
Collateral Trustee, execute a Deed of Release and Retirement containing an
adequate indemnity in form and substance satisfactory to the Collateral Trustee.
(c) If at any time the Collateral Trustee shall resign or be removed or
otherwise become incapable of acting, the powers, duties, authority and title of
such Collateral Trustee shall be terminated and cancelled without procuring its
resignation and without any formality (except as may be required by Applicable
Law) other than the appointment and designation of a successor Collateral
Trustee in writing duly acknowledged and delivered to the predecessor Collateral
Trustee and the Administrative Agent. Such appointment and designation shall be
full evidence of the right and authority to make the same and of all the facts
therein recited, and recited in this Agreement and the other Financing
Documents, and shall vest in such successor Collateral Trustee, without any
further act, deed or conveyance, all the estates, properties, rights, powers,
trusts, duties, authority and title of its predecessor Collateral Trustee; but
such predecessor Collateral Trustee shall, nevertheless, on the written request
of the Administrative Agent or the successor Collateral Trustee execute and
deliver an instrument transferring to such successor Collateral Trustee all the
estates, properties, rights, powers, trusts, duties, authority and title of such
predecessor Collateral Trustee hereunder and shall deliver all Collateral held
by it or him or its or his agents to such successor Collateral Trustee. The
Secured Parties shall, if so requested by the Collateral Trustee, execute a Deed
of Release and Retirement containing an adequate indemnity in form and substance
satisfactory to the Collateral Trustee.
SECTION 10.9. STATUS OF SUCCESSOR COLLATERAL TRUSTEE. Every successor
Collateral Trustee appointed pursuant to Section 10.8 shall be a bank or trust
company in good standing and having power to act as Collateral Trustee
hereunder, incorporated under the laws of Bermuda and having its principal
corporate trust office in Bermuda and shall, if required by the Secured Parties,
have capital, surplus and undivided profits of not less than $50,000,000, if
there be such an institution with such capital, surplus and undivided profits
willing, qualified and able to accept the trust hereunder upon reasonable or
customary terms.
SECTION 10.10. MERGER OF THE COLLATERAL TRUSTEE. Any corporation into
which the Collateral Trustee may be merged, or with which it may be
consolidated, or any
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corporation resulting from any merger or consolidation to which the
Collateral Trustee shall be a party, shall be Collateral Trustee under this
Agreement and any other Financing Document to which it is a party, without
the execution or filing of any paper or any further act on the part of the
parties hereto.
SECTION 10.11. APPOINTMENT OF SEPARATE OR CO-COLLATERAL TRUSTEE. (a)
The Collateral Trustee may, and upon instructions of the Majority Lenders shall,
by an instrument in writing delivered to each Secured Party, appoint a bank or
trust company or an individual to act as separate trustee or co-trustee with
respect to any Financing Document to which it is a party in any jurisdiction
where the Collateral Trustee is disqualified from acting or for any other
purpose deemed by the Collateral Trustee or by the Majority Lenders to be
necessary to the interests of the Secured Parties, such separate trustee or
co-trustee to exercise only such rights and to have only such duties as shall be
specified in the instrument of appointment (which rights and duties shall not
exceed the rights or duties of the Collateral Trustee set forth herein and which
rights shall be exercised and duties shall be performed only as expressly set
forth in such instrument or as set forth in written instructions from the
Collateral Trustee). Each party hereto by its execution or other acceptance of
the terms hereof agrees to the appointment of any such separate trustee or
co-trustee. If requested by the Collateral Trustee, such separate trustee or
co-trustee or the Majority Lenders, each party hereto affected thereby will
enter into an amendment to this Agreement, satisfactory in form and substance to
the Collateral Trustee, such separate trustee or co-trustee or the Majority
Lenders, confirming the rights and duties of such separate trustee or
co-trustee.
(b) The Collateral Trustee or the Majority Lenders may at any time, by
an instrument in writing, accept the resignation of or remove any such separate
trustee or co-trustee and may, by an instrument in writing, appoint a successor
to any such separate trustee or co-trustee, so removed, reasonably satisfactory
to the Majority Lenders.
(c) Wherever there shall be more than two collateral trustees hereof,
the majority of such collateral trustees shall be competent to execute and
exercise all the duties, powers, trusts, authorities and discretions vested in
the Collateral Trustee by this Agreement and the other Financing Documents.
SECTION 10.12. TREATMENT OF PAYEE OR INDORSEE BY COLLATERAL TRUSTEE;
REPRESENTATIVES OF SECURED PARTIES. (a) The Collateral Trustee may treat the
registered holder or, if none, the payee or indorsee of any promissory note or
debenture or similar instrument evidencing an Obligation as the absolute owner
thereof for all purposes and shall not be affected by any notice to the
contrary, whether such promissory note or debenture or similar instrument shall
be past due or not.
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(b) Any Person (other than the Administrative Agent) which shall be
designated as the duly authorized representative of one or more Secured Parties
to act as such in connection with any matters pertaining to this Agreement or
any other Financing Document to which the Collateral Trustee is a party or to
the Collateral shall present to the Collateral Trustee such documents,
including, without limitation, opinions of counsel, as the Collateral Trustee
may reasonably require, in order to demonstrate to the Collateral Trustee the
authority of such Person to act as the representative of (other than the
Administrative Agent) such Secured Party.
SECTION 10.13. INDEMNIFICATION; FEES. (a) Without limitation of the
liabilities of the Borrower under Section 11.3, and to the extent not
reimbursed or paid by the Borrower, the Lenders severally agree, based upon
their respective Commitments (or if the Commitments are no longer in effect,
based upon their respective percentage of the outstanding Loans) in effect on
the date indemnification is sought under this Section, to (i) pay or cause to
be paid, upon demand or as may otherwise be agreed with the Collateral
Trustee, to the Collateral Trustee or any separate trustee or co-trustee
appointed pursuant to Section 10.11, reasonable compensation for its services
hereunder and under the other Financing Documents to which it is a party,
(ii) pay in advance all fees and reasonable out-of pocket expenses required
by the Collateral Trustee, (iii) reimburse, or cause to be reimbursed, to the
Collateral Trustee on demand for any costs or expenses incurred by the
Collateral Trustee, including counsel fees and compensation of agents on a
full indemnity basis, arising out of, in any way connected with, or as a
result of, the execution or delivery of this Agreement or any other Financing
Document to which it is a party, or any agreement or instrument contemplated
hereby or thereby or the performance by the parties thereto of their
respective obligations hereunder or thereunder or in connection with the
enforcement or protection of the rights of the Collateral Trustee and the
Secured Parties under the Financing Documents to which the Collateral Trustee
is a party or as regards the resignation of the Collateral Trustee pursuant
to Section 10.8(a) and (iv) indemnify and hold harmless the Collateral
Trustee, and its directors, officers, employees, agents and delegates, on
demand, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Collateral Trustee in any way relating to
or arising out of this Agreement or any other Financing Document to which the
Collateral Trustee is a party, or any action taken or omitted by them under
this Agreement or any other Financing Documents to which the Collateral
Trustee is a party, in each case to the extent not theretofore reimbursed or
paid by the Borrower; PROVIDED that no other Secured Party shall be liable to
the Collateral Trustee for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements
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resulting from the gross negligence or wilful misconduct of the
Collateral Trustee or any of its directors, officers, employees or agents, as
finally determined by a court of competent jurisdiction. The indemnities
contained in this Section shall survive the termination of this Agreement.
Any payment made by any Secured Party under this Section with respect to any
obligation of the Borrower under Section 11.3 of this Agreement shall be
deemed to be Obligations of the Borrower under this Agreement.
(b) Without limitation of the liabilities of the Borrower under Section
11.3, and to the extent not paid by the Borrower in accordance with the terms of
Section 11.3, the Lenders hereby severally agree to pay to the Collateral
Trustee, ratably, the fees payable to the Collateral Trustee from time to time
for its services hereunder.
SECTION 10.14. REPRESENTATION AND WARRANTIES OF THE COLLATERAL TRUSTEE.
The Collateral Trustee represents and warrants in its individual capacity to
each Secured Party that:
(a) the Collateral Trustee is a licensed trust company in Bermuda and
the wholly owned subsidiary of a banking association duly organized under the
laws of Bermuda, and has all requisite corporate power and authority to enter
into and perform its obligations under this Agreement and each other Financing
Document to which it is or is to become a party;
(b) the execution, delivery and performance by the Collateral Trustee
of this Agreement and each other Financing Document to which it is or is to
become a party have been duly and validly authorized by all necessary corporate
action on the part of the Collateral Trustee;
(c) neither the execution and delivery by the Collateral Trustee of
this Agreement and each other Financing Document to which it is or is to become
a party nor the consummation of the transactions contemplated hereby or thereby,
nor the compliance by the Collateral Trustee with any of the respective terms or
provisions hereof or thereof, nor the performance by the Collateral Trustee of
its obligations hereunder or thereunder will contravene the charter or by-laws
of the Collateral Trustee or any law, judgment, rule, regulation or order of
Bermuda regulating the trust business of the Collateral Trustee or otherwise
binding on or applicable to the Collateral Trustee;
(d) no consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental or public body or authority of
Bermuda is required in connection with the execution and delivery by the
Collateral Trustee of this Agreement or any other Financing Document to which it
is or is to become a party or in connection with the performance by it of its
duties hereunder or thereunder (other than any recordation, filing or other
action that may be required to perfect a Lien purported to be created by any
Security Document); and
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(e) this Agreement has been duly executed and delivered by two duly
authorized officers of the International Trust Company of Bermuda Limited and
constitutes the legal, valid and binding obligation of the International Trust
Company of Bermuda Limited in accordance with its terms, and each other
Financing Document to which the Collateral Trustee is or is to become a party
has been (or upon its execution will be) duly executed and delivered by a duly
authorized officer of the Collateral Trustee and constitutes (or will
constitute) the legal, valid and binding obligation of the Collateral Trustee in
accordance with their respective terms (assuming the due authorization,
execution and delivery of each of the Financing Documents by each of the parties
thereto other than the Collateral Trustee and that such other documents
constitute legal, valid and binding obligations of each of the parties thereto
other than the Collateral Trustee).
SECTION 10.15. RELEASE OF COLLATERAL. Upon the Administrative
Agent giving the Collateral Trustee written notice of the payment and
satisfaction in full of all Obligations and the termination of the Revolving
Credit Commitments, the Collateral Trustee shall, at the sole expense of the
Borrower, execute such statements as are reasonably necessary to release the
Collateral from the Liens created by the Security Documents.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. NOTICES. All notices, demands, declarations, consents,
directions, approvals, instructions, requests and other communications required
or permitted by the terms hereof shall be in writing and shall be given in
person or by means of telex, telecopy (promptly followed by delivery in person,
by mail or by courier in the case of a notice of Default) or other wire
transmission, or mailed by registered or certified mail, or sent by courier, in
each case addressed as follows (or to such other address as may be hereafter
notified by the respective parties from time to time parties hereto in
accordance with the terms of this Section):
(a) if to the Borrower, to it at 12 Par-la-Ville Road,
Hamilton HM 08, Bermuda, Attention: Treasurer (Telecopy No.
441-296-0938);
(b) if to the Collateral Trustee, to it at 44 Church Street,
Hamilton HM FX, Bermuda, Attention: General Manager (Telecopy No.
441-292-6128);
(c) if to the Administrative Agent, to it at 222 Broadway, New
York, New York, 10038, Attention: Peter Yetman (Telecopy No.
212-412-7511); and
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(d) if to any Lender, to it at its address (or telecopy
number) set forth on Schedule 2.1.
Any such communication shall become effective when delivered by hand, or three
days after being deposited in the mail, first class postage prepaid, or, in the
case of a nationally or internationally recognized overnight courier service,
one Business Day after delivery to such courier service, or, in the case of
transmission by telecopier, when confirmation of receipt is obtained, or, in the
case of telex notice, when sent, answerback received.
SECTION 11.2. WAIVERS; AMENDMENTS. (a) No failure or delay by any party
in exercising any right or power hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the
Collateral Trustee and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or any other Financing Document or consent to
any departure by the Borrower therefrom shall in any event be effective unless
the same shall be permitted by paragraph (b) of this Section, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. Without limiting the generality of the foregoing, the
making of a Loan shall not be construed as a waiver of any Default, regardless
of whether the Administrative Agent, the Collateral Trustee or any Lender may
have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any other Financing Document nor any
provision hereof or thereof may be waived, amended or modified except (i) in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Borrower and the Majority Lenders or by the Borrower and the
Administrative Agent with the consent of the Majority Lenders (unless expressly
provided otherwise in this Agreement), (ii) in the case of the Borrower Security
Agreement, pursuant to an agreement or agreements in writing entered into by the
Borrower and the Majority Lenders or by the Borrower and the Collateral Trustee
with the consent of the Majority Lenders (unless expressly provided otherwise in
the Borrower Security Agreement), (iii) in the case of any other Security
Document, pursuant to an agreement or agreements in writing entered into by the
Collateral Trustee (with the consent of the Majority Lenders, unless expressly
provided otherwise in such Security Document) and each other Person party
thereto or (iv) in the case of any other Financing Document, pursuant to an
agreement or agreements in writing entered into by the Administrative
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Agent (with the consent of the Majority Lenders, unless expressly provided
otherwise in such other Financing Document) and each other person party
thereto; PROVIDED that no such agreement shall (i) increase the Commitment of
any Lender without the written consent of such Lender, (ii) reduce the
principal amount of any Loan or reduce the rate of interest thereon, or
reduce any fees payable hereunder, without the written consent of each Lender
affected thereby, (iii) postpone the scheduled date of payment of the
principal amount of any Loan, or any interest thereon, or any fees payable
hereunder, or reduce the amount of, waive or excuse any such payment, or
postpone the scheduled date of expiration of any Commitment, without the
written consent of each Lender affected thereby, (iv) change Section 2.16(b)
or (c), without the written consent of each Lender, (v) release all or
substantially all of the Collateral without the consent of each Lender, or
(vi) change any of the provisions of this Section or the definition of
"Majority Lenders" or any other provision hereof specifying the number or
percentage of Lenders (or Lenders of any Class) required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder without the written consent of each Lender (or each Lender of such
Class, as the case may be); PROVIDED, FURTHER, that (A) no such agreement
shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent hereunder without the prior written consent of the
Administrative Agent, (B) no such agreement shall amend, modify or otherwise
affect the rights or duties of the Collateral Trustee hereunder without the
prior written consent of the Collateral Trustee, and (C) any waiver,
amendment or modification of this Agreement that by its terms affects the
rights or duties under this Agreement of the Revolving Credit Lenders (but
not the Term Lenders) or the Term Lenders (but not the Revolving Credit
Lenders) may be effected by an agreement or agreements in writing entered
into by the Borrower and requisite percentage in interest of the affected
Class of Lenders.
SECTION 11.3. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) The Borrower
shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent, the Arranger, the Collateral Trustee and their respective
Affiliates, including the reasonable fees, charges and disbursements of the
Collateral Trustee and counsel for the Administrative Agent and the Collateral
Trustee and the reasonable fees, charges and disbursements of the Marketing
Consultant and the Independent Engineer, in connection with the syndication of
the credit facilities provided for herein (including the costs in respect of
preparing and copying one set of closing binders for each Lender), the
preparation and administration of this Agreement and the other Financing
Documents or any amendments, modifications or waivers of the provisions hereof
or thereof (whether or not the transactions contemplated hereby or thereby shall
be consummated) and (ii) all out-of-pocket expenses incurred by the
Administrative Agent, the Arranger, the Collateral Trustee or any Lender,
including the fees, charges and disbursements of any counsel for the
Administrative Agent, the Arranger, the Collateral Trustee or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement or any other Financing Document, including its rights
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under this Section, or in connection with the Loans made hereunder, the
Project Documents, or any other instrument or agreement entered into by the
Borrower in connection herewith or therewith, including in connection with
any workout, restructuring or negotiations in respect thereof.
(b) The Borrower further agrees to pay, indemnify and hold each Lender,
the Collateral Trustee, the Administrative Agent and the Arranger 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 or other similar taxes,
if any, which may 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 in
respect of, this Agreement or the other Financing Documents.
(c) The Borrower shall indemnify the Administrative Agent, the
Arranger, the Collateral Trustee and each Lender, and each Related Party of any
of the foregoing Persons (each such Person being called an "INDEMNITEE")
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the reasonable fees,
charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of this Agreement, any other Financing
Document or any agreement or instrument contemplated hereby or thereby, the
performance by the parties hereto of their respective obligations hereunder or
thereunder or the consummation of the transactions contemplated hereby, (ii) any
Loan or the use of the proceeds therefrom, (iii) in any way relating to or
arising out of the Project, or the manufacture, financing, construction,
purchase, acceptance, rejection, ownership, acquisition, delivery, nondelivery,
preparation, installation, storage, maintenance, repair, transfer of title,
abandonment, possession, rental, use, operation, maintenance, environmental
clean-up, condition, sale, return, importation, exportation or other application
or disposition of all or any part of any interest in the Project, or (iv)
resulting from any and all liability of or relating to the Borrower or the
Project, whether contingent or fixed, actual or potential, known or unknown,
which arise under or relate to matters covered by Environmental Laws, including,
without limitation, resulting from the violation of any Environmental Law,
off-site disposal of wastes or the existence or Release of any Hazardous
Materials at the Project or any other property of the Borrower (including,
without limitation, clean-up costs, response costs, costs of corrective action
and natural resources damages); PROVIDED that such indemnity shall not, as to
any Indemnitee, be available (i) to the extent that such losses, claims,
damages, liabilities or related expenses are a result of the gross negligence or
wilful misconduct of such Indemnitee or are a result of the representations and
warranties or undertakings made by such Indemnitee to its assignees hereunder or
(ii) to compensate such Indemnitee for any injury to the personnel of such
Indemnitee if such injury is not a result of the negligence of the Borrower.
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(d) Each Indemnitee claiming any right to indemnity under paragraph (c)
of this Section by reason of the making of any claim or the institution of any
action against such Indemnitee shall promptly notify the Borrower thereof (and
shall notify the Borrower of any other loss, damage or liability that it has
suffered and intends to seek indemnification therefor hereunder promptly after
acquiring knowledge thereof) and shall consult with the Borrower from time to
time in connection with the defense of such claim or action and shall not settle
any such claim or action (x) before giving the Borrower notice thereof and the
Borrower the opportunity to assume the defense thereof (if entitled hereunder)
or (y) without the prior written consent of the Borrower, which shall not be
unreasonably withheld, if the Borrower is not entitled to assume the defense as
a result of clause (ii) or (iii) of the succeeding sentence. The Borrower shall
be entitled, at its expense, to assume the defense of such claim or action or to
participate in such action with counsel of its choice (which counsel shall be
reasonably satisfactory to such Indemnitee if the Borrower elects to assume the
defense) and at its expense, PROVIDED that the Borrower may not assume the
defense if (i) such Indemnitee determines, on the reasonable advice of counsel,
that representation of both the Borrower and such Indemnitee by the Borrower's
counsel would present such counsel with a conflict of interest, (ii) the
defendants in, or targets of, any such action include both such Indemnitee and
the Borrower, and such Indemnitee shall have concluded, on reasonable advice of
counsel, that there may be legal defenses available to it which are different
from or additional to those available to the Borrower, (iii) the Borrower shall
not have employed counsel satisfactory to such Indemnitee to represent such
Indemnitee within a reasonable time after notice of the institution of any such
action, or (iv) such Indemnitee is faced with potential criminal liability.
(e) To the extent that the Borrower fails to pay any amount required to
be paid by it to the Administrative Agent or the Arranger under paragraph (a),
(b) or (c) of this Section, each Lender severally agrees to pay to the
Collateral Trustee, the Administrative Agent or the Arranger, as the case may
be, such Lender's Applicable Percentage (determined as of the time that the
applicable unreimbursed expense or indemnity payment is sought) of such unpaid
amount; PROVIDED that the unreimbursed expense or indemnified loss, claim,
damage, liability or related expense, as the case may be, was incurred by or
asserted against the Collateral Trustee, the Administrative Agent or the
Arranger in its capacity as such.
(f) All amounts due under this Section shall be payable promptly after
written demand therefor.
SECTION 11.4. SUCCESSORS AND ASSIGNS; CONSENT AND AGREEMENT. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns permitted hereby,
except that the Borrower may not assign or otherwise transfer any of its rights
or obligations
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hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of the Lenders, the Collateral
Trustee, the Administrative Agent and the Arranger) any legal or equitable
right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may at any time assign to one or more assignees (other
than to the Borrower, any Subsidiary or Shareholder of the Borrower or any of
their respective Affiliates) all or a portion of its rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
at the time owing to it) and the other Financing Documents; PROVIDED that (i)
except in the case of an assignment to a Lender, an Affiliate of any Lender or
an Approved Fund, no such assignment shall be permitted without the prior
written consent of the Administrative Agent and, so long as no Default or Event
of Default shall have occurred and be continuing, the Borrower, (ii) except in
the case of an assignment to a Lender, an Affiliate of a Lender or an Approved
Fund or an assignment of the entire remaining amount of the assigning Lender's
Commitments, the amount of each Commitment of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Administrative Agent) shall
not be less than $5,000,000 unless each of the Borrower and the Administrative
Agent otherwise consents, and (iii) the parties to each assignment shall execute
and deliver to the Administrative Agent an Assignment and Acceptance for its
acceptance and recording in the Register, together with a processing and
recordation fee of $3,500 (which shall be paid by the assignor and/or assignee
but not the Borrower). Upon acceptance and recording pursuant to paragraph (d)
of this Section, from and after the effective date specified in each Assignment
and Acceptance, the assignee thereunder shall be a party hereto and, to the
extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.13, 2.14, 2.15 and 11.3). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the
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names and addresses of the Lenders and the registered owner(s) of any
obligation evidenced by a Note, and the Commitment of, and principal amount
of the Loans owing to, each Lender pursuant to the terms hereof from time to
time (the "REGISTER"). The Notes and the obligations evidenced thereby may be
assigned or otherwise transferred in whole or in part only by registration in
the Register and the Note evidencing the same shall be registered on the
Register only upon surrender for registration of assignment or transfer of
the Note evidencing such obligation, duly endorsed by (or accompanied by a
written instrument of assignment or transfer duly executed by) the registered
owner thereof, and thereupon one or more new Note(s) in the same aggregate
principal amount shall be issued to the designated assignee(s) and the old
Notes shall be returned by the Administrative Agent to the Borrower marked
"canceled". No assignment of any Note or obligation evidenced thereby shall
be effective unless it has been recorded in the Register as provided in this
Section 11.4(c). The entries in the Register shall be conclusive, and the
Borrower, the Collateral Trustee, the Administrative Agent and the Lenders
may treat each Person whose name is recorded in the Register pursuant to the
terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the processing and recordation
fee referred to in paragraph (b) of this Section and any written consent to such
assignment required by paragraph (b) of this Section, the Administrative Agent
shall accept such Assignment and Acceptance and record the information contained
therein in the Register. No assignment shall be effective for purposes of this
Agreement unless it has been recorded in the Register as provided in this
paragraph.
(e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a "PARTICIPANT") in all or a portion of such Lender's rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); PROVIDED that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrower, the Collateral Trustee, the Administrative Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement. Any agreement or
instrument pursuant to which a Lender sells such a participation shall provide
that such Lender shall retain the sole right to enforce this Agreement and to
approve any amendment, modification or waiver of any provision of this
Agreement. Subject to paragraph (f) of this Section, the Borrower agrees that
each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and
2.15 to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section.
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.13, 2.14 or 2.15 than the applicable Lender would have been
entitled to
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receive with respect to the participation sold to such Participant. A
Participant shall not be entitled to the benefits of Section 2.15 unless the
Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with the
provisions of Section 2.15(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any such pledge or assignment to a Federal Reserve Bank,
and this Section shall not apply to any such pledge or assignment of a security
interest; PROVIDED that no such pledge or assignment of a security interest
shall release a Lender from any of its obligations hereunder or substitute any
such assignee for such Lender as a party hereto.
SECTION 11.5. SURVIVAL. All covenants, agreements, representations and
warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, and shall continue in full force and effect as long as the principal of
or any accrued interest on any Loan or any fee or any other amount payable under
this Agreement is outstanding and unpaid and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 11.3 and
Articles IX and X shall survive and remain in full force and effect regardless
of the consummation of the transactions contemplated hereby, the repayment of
the Loans, the expiration or termination of the Commitments or the termination
of this Agreement or any provision hereof.
SECTION 11.6. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to the Administrative
Agent, the Arranger or a Related Party constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.1, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and, subject to and in accordance with Section 11.4, their respective successors
and assigns. Delivery of an executed counterpart of a signature page of this
Agreement by
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telecopy shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 11.7. SEVERABILITY. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 11.8. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 11.9. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF
PROCESS. (a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAW OF THE STATE OF NEW YORK, EXCEPT THAT THE PROVISIONS OF ARTICLE X
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF BERMUDA.
(b) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT
OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES
DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW
YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF
THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL
AFFECT ANY RIGHT THAT THE COLLATERAL TRUSTEE, THE ADMINISTRATIVE AGENT OR ANY
LENDER MAY OTHERWISE
<PAGE>
155
HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST THE
BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN
PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.1. NOTHING IN THIS
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW.
(e) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY APPOINTS C.T.
CORPORATION SYSTEM (THE "NEW YORK PROCESS AGENT"), WITH AN OFFICE ON THE CLOSING
DATE AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS AGENT TO RECEIVE ON
BEHALF OF THE BORROWER AND ITS RESPECTIVE PROPERTY SERVICE OF COPIES OF THE
SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH NEW YORK STATE OR FEDERAL COURT AND AGREES
PROMPTLY TO APPOINT A SUCCESSOR NEW YORK PROCESS AGENT IN THE CITY OF NEW YORK
(WHICH SUCCESSOR PROCESS AGENT SHALL ACCEPT SUCH APPOINTMENT IN A WRITING
REASONABLY SATISFACTORY TO THE ADMINISTRATIVE AGENT PRIOR TO THE TERMINATION FOR
ANY REASON OF THE APPOINTMENT OF THE INITIAL NEW YORK PROCESS AGENT). IN ANY
SUCH ACTION OR PROCEEDING IN SUCH NEW YORK STATE OR FEDERAL COURT SITTING IN THE
CITY OF NEW YORK, SUCH SERVICE MAY BE MADE ON THE BORROWER BY DELIVERING A COPY
OF SUCH PROCESS TO THE BORROWER IN CARE OF THE APPROPRIATE PROCESS AGENT AT SUCH
PROCESS AGENT'S ABOVE ADDRESS AND BY DEPOSITING A COPY OF SUCH PROCESS IN THE
MAILS BY CERTIFIED OR REGISTERED AIR MAIL, ADDRESSED TO THE BORROWER AT ITS
ADDRESS REFERRED TO IN SECTION 11.1 (SUCH SERVICE TO BE EFFECTIVE UPON SUCH
RECEIPT BY THE APPROPRIATE
<PAGE>
156
PROCESS AGENT AND THE DEPOSITING OF SUCH PROCESS IN THE MAILS AS AFORESAID).
THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY AUTHORIZES AND DIRECTS
SUCH PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. AS AN ALTERNATE
METHOD OF SERVICE, THE BORROWER ALSO IRREVOCABLY AND UNCONDITIONALLY CONSENTS
TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING IN
SUCH NEW YORK STATE OR THE UNITED STATES DISTRICT COURT OF THE SOUTHERN
DISTRICT OF NEW YORK BY MAILING OF COPIES OF SUCH PROCESS TO THE BORROWER BY
CERTIFIED OR REGISTERED AIR MAIL AT ITS ADDRESS REFERRED TO IN SECTION 11.1.
SECTION 11.10. WAIVER OF SOVEREIGN IMMUNITY. (a) To the extent that the
Borrower has or hereafter may acquire any immunity (sovereign or otherwise) from
any legal action, suit or proceeding, from jurisdiction of any court or from
set-off or any legal process (whether service or notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise) with respect to itself or any of its property, whether or not held
for its own account, the Borrower hereby irrevocably and unconditionally waives
and agrees not to plead or claim such immunity in respect of its obligations
under this Agreement, the Notes and the other Financing Documents.
(b) The Borrower hereby agrees that the waivers set forth in this
Section shall have the fullest extent permitted under the Foreign Sovereign
Immunities Act of 1976 of the United States of America and are intended to be
irrevocable and not subject to withdrawal for purposes of such Act.
SECTION 11.11. JUDGMENT CURRENCY. The obligation of the Borrower under
this Agreement and any other Financing Document to make payments in Dollars
shall not be discharged or satisfied by any tender or recovery pursuant to any
judgment expressed in or converted into any other currency except to the extent
that such tender or recovery results in the effective receipt by the Collateral
Trustee, the Administrative Agent, the Arranger or the Lenders, as the case may
be, of the full amount of Dollars payable under this Agreement and any of the
other Financing Documents and the Borrower shall indemnify the Collateral
Trustee, the Administrative Agent, the Arranger and the Lenders (and such
Persons shall have an additional legal claim) for any difference between such
full amount and the amount effectively received by the Collateral Trustee, the
Administrative Agent, the Arranger or the Lenders, as the case may be, pursuant
to any such tender or recovery. The Administrative Agent's determination of
amounts effectively received by the Lenders shall be conclusive absent manifest
error.
SECTION 11.12. DAMAGE WAIVER. To the extent permitted by applicable
law, the Borrower shall not assert, and hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as
<PAGE>
157
opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement or any Financing Document or any agreement or
instrument contemplated hereby or thereby, the transactions contemplated
hereby or thereby, any Loan or the use of the proceeds thereof.
SECTION 11.13. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
SECTION 11.14. HEADINGS. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 11.15. REPLACEMENT OF INDEPENDENT ENGINEER. Any appointment by
the Administrative Agent of a replacement engineer to act as the "Independent
Engineer" under the Financing Documents and the Project Documents shall be
subject to the approval of the Borrower, such approval not to be unreasonably
withheld or delayed.
SECTION 11.16. CONFIDENTIALITY. Notwithstanding anything to the
contrary contained in this Agreement or any other Financing Document, each of
the parties hereto agrees, and each successor or assignee thereof, by becoming a
party hereto, shall be deemed to have agreed, to keep confidential (and to cause
its officers, directors, employees, agents, representatives and affiliates to
keep confidential) any information which is obtained pursuant to the terms of
this Agreement or the other Financing Documents and is marked "confidential"
(collectively, the "CONFIDENTIAL MATERIALS"), except that each such party shall
be permitted to disclose the Confidential Materials (a) to its officers,
directors, employees, agents, representatives and Affiliates, (b) to its
attorneys, accountants and financial, insurance and other independent advisors
who have a need for such information (provided such persons are informed of the
confidential nature of the Confidential Materials and the restrictions imposed
by this Section), (c) to the extent required by Applicable Law (including,
without limitation, in making filings with any Governmental Authority and
disclosures by the Lenders to bank or securities examiners and regulatory
officials upon their request or demand), (d) in response to any subpoena or
other legal process (in which event such party shall promptly notify the
Borrower in advance of any such requirement), (e) to the extent such
Confidential Materials become publicly available other than a result of a breach
of the provisions of this Section, (f) to the extent the Borrower shall have
consented to such disclosure in writing and (g) to any Lender's assignee or any
proposed assignee
<PAGE>
158
or participant of a Lender which agrees in writing to be bound by the terms
of this Section as if it were a Lender party to this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
FLAG LIMITED
By: /s/ Edward McCormack
--------------------------------
Name: Edward McCormack
Title: Chief Financial Officer
INTERNATIONAL TRUST COMPANY OF
BERMUDA LIMITED, as Collateral Trustee
By: /s/ Name of Signatory
--------------------------------
Name: Name of Signatory
Title: General Manager
By: /s/ Tony Keywood
--------------------------------
Name: Tony Keywood
Title: Trust Manager
BARCLAYS BANK PLC, as Administrative
Agent, a Term Lender and a Revolving
Credit Lender
By: /s/ Michael J. Wayenne
--------------------------------
Name: Michael J. Wayenne
Title: Director
By: /s/ L. Peter Yetman
--------------------------------
Name: L. Peter Yetman
Title: Associate Director
- Signature Page -
<PAGE>
GULF INTERNATIONAL BANK B.S.C., as a
Term Lender and a Revolving Credit Lender
By: /s/ Thomas E. Fitzherbert
--------------------------------
Name: Thomas E. Fitzherbert
Title: Vice President
By: /s/ Abdel-Fattah Tahoun
--------------------------------
Name: Abdel-Fattah Tahoun
Title: Senior Vice President
- Signature Page -
<PAGE>
DRESDNER BANK AG, New York and Grand
Cayman Branches, as a Term Lender and a
Revolving Credit Lender
By: /s/ Brian Haughney
--------------------------------
Name: Brian Haughney
Title: Assistant Treasurer
By: /s/ Robert Grella
--------------------------------
Name: Robert Grella
Title: Vice President
- Signature Page -
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Term Lender
By: /s/ Lynn Callicott Baransky
--------------------------------
Name: Lynn Callicott Baransky
Title: Authorized Signatory
- Signature Page -
<PAGE>
BANK BRUSSELS LAMBERT, NEW YORK
BRANCH, as a Term Lender and a Revolving
Credit Lender
By: /s/ Luc Verbeken
--------------------------------
Name: Luc Verbeken
Title: Senior Vice President
By: /s/ D. Vangaever
--------------------------------
Name: Dominiek H. J. Vangaever
Title: Senior Vice President-
Credit
- Signature Page -
<PAGE>
AUSTRALIA AND NEW ZEALAND BANKING GROUP
LIMITED, as a Term Lender and a
Revolving Credit Lender
By: /s/ B. F. Guillot
--------------------------------
Name: B. F. Guillot
Title: Director
- Signature Page -
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH, as a
Term Lender and a Revolving Credit Lender
By: /s/ Ralph White
--------------------------------
Name: Ralph White
Title: Vice President
By: /s/ Charles Columbus
--------------------------------
Name: Charles Columbus
Title: Managing Director
- Signature Page -
<PAGE>
LANDESBANK SACHSEN GIROZENTRALE, as
a Term Lender and a Revolving Credit
Lender
By: /s/ M. Tuchalke
--------------------------------
Name: M. Tuchalke
Title: VP
By: /s/ H. P. Kochs
--------------------------------
Name: H. P. Kochs
Title: Senior Manager
- Signature Page -
<PAGE>
BHF-BANK AG, NEW YORK BRANCH, as a
Term Lender and a Revolving Credit Lender
By: /s/ Heidimare Skon
--------------------------------
Name: Heidimare Skon
Title: V.P.
By: /s/ James Lee
--------------------------------
Name: James Lee
Title: V.P.
- Signature Page -
<PAGE>
THE SUMITOMO TRUST & BANKING CO.
LTD., NEW YORK BRANCH, as a Term Lender
and a Revolving Credit Lender
By: /s/ Suraj P. Bhatia
--------------------------------
Name: Suraj P. Bhatia
Title: Senior Vice President
- Signature Page -
<PAGE>
HELABA DUBLIN LANDESBANK
HESSEN-THURINGEN INTERNATIONAL, as a Term
Lender and a Revolving Credit Lender
By: /s/ W. N. Freeman
--------------------------------
Name: W. N. Freeman
Title: Vice President -
Structured Finance
By: /s/ Michael Novack
--------------------------------
Name: Michael Novack
Title: Assistant Vice President -
Structured Finance
- Signature Page -
<PAGE>
OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO, A UNIT OF THE CHASE
MANHATTAN BANK, as a Term Lender
By: /s/ Andrew D. Gordon
--------------------------------
Name: Andrew D. Gordon
Title: Managing Director
- Signature Page -
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT, dated as of February __, 1999 (this
"AMENDMENT"), to the Credit Agreement, dated as of January 28, 1998 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among FLAG LIMITED, a company organized and existing under the
laws of Bermuda (the "BORROWER"), the Term Lenders (as defined therein), the
Revolving Credit Lenders (as defined therein; and together with the Term
Lenders, the "LENDERS"), BARCLAYS BANK PLC, as administrative agent for the
Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and INTERNATIONAL
TRUST COMPANY OF BERMUDA LIMITED, as collateral trustee (in such capacity,
the "COLLATERAL TRUSTEE").
W I T N E S S E T H:
WHEREAS, capitalized terms used herein and not otherwise
defined herein shall have the meanings given to them in the Credit Agreement;
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain loans to the Borrower;
WHEREAS, in a letter dated February 17, 1999, a copy of which
is attached hereto (the "FLAG LETTER"), the Borrower has advised the Lenders
that (a) its Shareholders (other than the Bell Atlantic Shareholder) desire to
exchange all of their shares of Capital Stock in the Borrower into shares of
Capital Stock of FLAG Telecom Holdings Limited ("HOLDCO") and (b) the Bell
Atlantic Shareholder desires to immediately exchange a portion of its shares of
Capital stock in the Borrower into shares of Capital Stock of Holdco and, after
receiving applicable regulatory approvals, to exchange the remaining interests
in the Borrower into Capital Stock of Holdco (the transactions described in
clauses (a) and (b) will collectively be referred to herein as the "SHARE
EXCHANGES");
WHEREAS, immediately after the consummation of the Share
Exchanges, Holdco and the Bell Atlantic Shareholder will own approximately 66%
and 34%, respectively, of the shares of Capital Stock of the Borrower;
WHEREAS, the Borrower has requested that the Lenders' consent
to the Share Exchanges in the manner provided for in this Amendment; and
WHEREAS, the Majority Lenders hereby consent to the Share
Exchanges on the terms and subject to the conditions set forth herein;
<PAGE>
2
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
"BELL ATLANTIC PLEDGE AMENDMENT" shall mean the First
Amendment to the Bell Atlantic Shareholder Pledge Agreement, dated as
of the date hereof, between the Bell Atlantic Shareholder and the
Collateral Trustee, which will amend the Bell Atlantic Shareholder
Pledge Agreement so as to provide that all of the shares of Capital
Stock of the Borrower owned by the Bell Atlantic Shareholder, after
giving effect to the Share Exchanges, will be subject to the Bell
Atlantic Shareholder Pledge Agreement.
"HOLDCO" shall mean FLAG Telecom Holdings Limited, a Bermuda
company.
"HOLDCO PLEDGE AGREEMENT" shall mean the Pledge Agreement,
dated as of the date hereof, made by Holdco in favor of the Collateral
Trustee, for the benefit of the Secured Parties, substantially in the
form of the existing Bell Atlantic Shareholder Pledge Agreement, as
such Holdco Pledge Agreement may be amended, supplemented or otherwise
modified from time to time in accordance with the terms of the Credit
Agreement.
2. CONSENT TO SHARE EXCHANGES
Subject to the terms and conditions set forth herein, the
Majority Lenders hereby consent to the consummation of the Share Exchanges so
long as the Collateral Trustee, for the benefit of the Secured Parties,
maintains a perfected security interest in the Capital Stock of the Borrower.
3. CONDITIONS TO EFFECTIVENESS.
This Amendment shall become effective on the date on which all
of the following shall have occurred or been satisfied or waived by the
Administrative Agent:
(a) the Administrative Agent shall have received counterparts
of this Amendment, duly executed and delivered by a duly authorized
officer of each of the Borrower, the Administrative Agent and the
Majority Lenders;
<PAGE>
3
(b) the Administrative Agent shall have received copies of (i)
the Holdco Pledge Agreement, (ii) the Bell Atlantic Pledge Amendment
and (iii) appropriate proxy and powers, stock powers and transfer
certificates by Holdco and the Bell Atlantic Shareholder, all duly
executed and delivered by the parties thereto and in form and substance
reasonably satisfactory to the Administrative Agent;
(c) the Administrative Agent shall have received a copy of (i)
the Bye-Laws and Memorandum of Association of Holdco, certified by the
Secretary or an Assistant Secretary of Holdco, (ii) resolutions of the
Board of Directors of Holdco duly authorizing the execution, delivery
and performance by Holdco of the Holdco Pledge Agreement and grant the
Liens under such Pledge Agreement, certified by the Secretary or an
Assistant Secretary of Holdco and (iii) an incumbency certificate as to
the Person or Persons authorized to execute and deliver such Pledge
Agreement on its behalf, all of which shall be in form and substance
reasonably satisfactory to the Administrative Agent;
(d) the Administrative Agent shall have received an incumbency
certificate as to the Person or Persons authorized to execute and
deliver the Bell Atlantic Pledge Amendment on its behalf be in form and
substance reasonably satisfactory to the Administrative Agent;
(e) the Administrative Agent shall have received an officer's
certificate from Holdco certifying that (i) the Share Exchanges do not
violate any Applicable Law or violate or result in a default under any
material Contractual Obligation of the Borrower or any Subsidiary
thereof or any material Contractual Obligation of Holdco or any
existing Shareholder of the Borrower, and do not adversely affect the
Borrower, the Collateral or the Lenders and (ii) no governmental and
third party approvals or consents (other than those approvals or
consents which have been duly obtained or made, are in full force and
effect and are final and those which are not required to have been
obtained or made by the date hereof) are necessary in connection with
the Share Exchanges and the execution, delivery and performance of the
Holdco Pledge Agreement, which certificate shall be in form and
substance reasonably satisfactory to the Administrative Agent; and
(f) the Administrative Agent shall have received such other
documents (including officer's certificate, counsel opinions and UCC
filing forms) as it may reasonably request, all of which shall be in
form and substance reasonably satisfactory to the Administrative Agent.
<PAGE>
4
4. ADDITIONAL COVENANTS AND AGREEMENTS
(a) The parties acknowledge and agree that, for all purposes
under the Credit Agreement, (i) Holdco will constitute a "Permitted Parent
Company" and be subject to all provisions of the Credit Agreement applicable to
a Permitted Parent Company and (ii) any issuance of any Capital Stock or any
other equity interest of Holdco (including any issuance in connection with a
public offering of equity by Holdco) shall be subject to the provisions of
provisos (i) and (ii) in Section 6.8(a) of the Credit Agreement with the
reference to "such a transaction" contained therein being deemed to refer to
such issuance of Capital Stock or other equity interest of Holdco.
(b) The parties acknowledge and agree that, for all purposes
under the Credit Agreement, (i) Holdco will be included in the definition of
"Shareholder" and be subject to all provisions of the Credit Agreement
applicable to a Shareholder and (ii) the Holdco Pledge Agreement will be
included in the definition of "Pledge Agreements" and be subject to all
provisions of the Credit Agreement applicable to a Pledge Agreement.
(c) The parties hereby agree that paragraph (e) of Article VII
of the Credit Agreement shall be amended by amending and restating the proviso
at the end thereof as follows:
"PROVIDED, HOWEVER, the commencement of any proceeding or other action
or event of a nature referred to in clauses (i) through (v) above with
respect to any Shareholder (other than the Bell Atlantic Shareholder,
Marubeni Telecom and any Permitted Parent Company) shall not constitute
an Event of Default under this paragraph unless such proceeding, other
action or event could reasonably be expected to have a Material Adverse
Effect; or"
(d) The parties hereby agree that Article VII of the Credit
Agreement shall be amended by adding new paragraphs (t) and (u) after paragraph
(s) as follows:
"(t) Holdco shall, without the prior written consent of the
Majority Lenders, create any entity in between Holdco and its initial
shareholders, or create any subsidiary of Holdco which will hold,
directly or indirectly, any Capital Stock of the Borrower; or"
"(u) Holdco shall, without the prior written consent of the
Majority Lenders, amend, supplement or otherwise modify, or permit the
amendment, modification or supplementation of its Bye-Laws or
Memorandum of Association in a manner which is inconsistent with or
violates the terms of or could reasonably be expected to prevent
<PAGE>
5
compliance with any of the terms of any Financing Document or Project
Document or could materially adversely affect the Lenders or any
Collateral."
5. DIRECTIONS.
The Majority Lenders hereby direct the Administrative Agent to
execute and deliver all such documents as the Administrative Agent may deem
advisable in order to effectuate the transactions referred to herein. The
Majority Lenders hereby authorize the Administrative Agent to direct the
Collateral Trustee to execute and deliver all such documents as the
Administrative Agent may deem advisable in order to effectuate the transactions
referred to herein.
6. GENERAL.
(a) REPRESENTATIONS; NO DEFAULT. On and as of the date hereof
and after giving effect to this Amendment, the Borrower (i) confirms, reaffirms
and restates the representations and warranties set forth in the Credit
Agreement in all material respects except where such representations and
warranties relate to an earlier date in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date, (ii) represents and warrants that all factual information (taken as a
whole) contained in the FLAG Letter is true and accurate in all material
respects as of the date hereof and not incomplete by omitting to state a
material fact necessary in order to make such information (taken as a whole) not
misleading in any material respect in light of the circumstances under which
such information is provided and (iii) represents and warrants that no Default
or Event of Default under the Credit Agreement has occurred and is continuing as
of the date hereof.
(b) PAYMENT OF EXPENSES. The Borrower agrees to pay or
reimburse the Administrative Agent for all of its out-of-pocket costs and
reasonable expenses incurred in connection with this Amendment, any other
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
(c) NO OTHER AMENDMENTS. Except as expressly waived or
consented to or amended, supplemented or modified hereby, the Credit Agreement
shall continue to be and shall remain in full force and effect in accordance
with its terms.
(d) GOVERNING LAW. This Amendment shall be construed in
accordance with and governed by the laws of the State of New York.
<PAGE>
6
(e) COUNTERPARTS. This Amendment may be executed by one or
more of the parties to this Amendment on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Amendment signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
<PAGE>
7
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
FLAG LIMITED
By: /s/ Andres Bande
------------------
Name: Andres Bande
Title: Chairman + CEO
BARCLAYS BANK PLC, as Administrative
Agent, a Term Lender and a Revolving
Credit Lender
By: /s/ L. Peter Yetman
---------------------
Name: L. Peter Yetman
Title: Associate Director
<PAGE>
GULF INTERNATIONAL BANK B.S.C., as a
Term Lender and a Revolving Credit Lender
By:
------------------------------------
Name:
Title:
<PAGE>
DRESDNER BANK AG, New York and Grand
Cayman Branches, as a Term Lender and a
Revolving Credit Lender
By: /s/ Helen Ng
------------------------------------
Name: Helen Ng, P.E.
Title: Assistant Vice President
By: /s/ Laura G. Fazio
------------------------------------
Name: Laura G. Fazio
Title: First Vice President
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Term Lender
By: /s/ Andrew C. Liggio
-----------------------------------
Name: Andrew C. Liggio
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By: /s/ Andrew C. Liggio
-----------------------------------
Name: Andrew C. Liggio
Title: Authorized Signatory
MERRILL LYNCH STRATEGIES PORTIOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By: /s/ Andrew C. Liggio
-----------------------------------
Name: Andrew C. Liggio
Title: Authorized Signatory
<PAGE>
BANK BRUSSELS LAMBERT, NEW YORK
BRANCH, as a Term Lender and a Revolving
Credit Lender
By:
---------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
<PAGE>
AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED, as a Term Lender and a
Revolving Credit Lender
By: /s/ Pamela Couch
------------------------------------
Name: Pamela Couch
Title: Vice President
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH, as a
Term Lender and a Revolving Credit Lender
By: /s/ Charles Columbus
-------------------------------------
Name: Charles Columbus
Title: Managing Director
By: /s/ Andrea N. Picott
-------------------------------------
Name: Andrea N. Picott
Title: Associate
<PAGE>
LANDESBANK SACHSEN GIROZENTRALE,
as a Term Lender and a Revolving Credit
Lender
By: /s/ Kochs
------------------------------------
Name: Kochs
Title: Senior Manager
<PAGE>
BHF-BANK AKTIENGESELLSCHAFT, as a
Term Lender and a Revolving Credit Lender
By: /s/ Perry Forman
------------------------------------
Name: Perry Forman
Title: Vice President
By: /s/ Michael T. Pellerito
------------------------------------
Name: Michael T. Pellerito
Title: AT
<PAGE>
THE SUMITOMO TRUST & BANKING CO.
LTD., NEW YORK BRANCH, as a Term Lender
and a Revolving Credit Lender
By: /s/ Stephen A. Stratico
------------------------------------
Name: Stephen A. Stratico
Title: Vice President
<PAGE>
HELABA DUBLIN LANDESBANK
HESSEN-THURINGEN INTERNATIONAL, as a
Term Lender and a Revolving Credit Lender
By: /s/ Binst van Beek
------------------------------------
Name: Binst van Beek
Title: Deputy Managing Director
By: /s/ Malread Scanion
------------------------------------
Name: Malread Scanion
Title: Officer International Credits
<PAGE>
OCTAGON LOAN TRUST, as a Term Lender
By: Octagon Credit Investors, as Manager
By:
------------------------------------
Name:
Title:
<PAGE>
PACIFIC INVESTMENT MANAGEMENT
COMPANY, as a Term Lender
By:
------------------------------------
Name:
Title:
<PAGE>
SECOND AMENDMENT
SECOND AMENDMENT, dated as of March 19, 1999 (this
"AMENDMENT"), to the Credit Agreement dated as of January 28, 1998 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among FLAG LIMITED, a company organized and existing under the
laws of Bermuda (the "BORROWER"), the Term Lenders (as defined therein), the
Revolving Credit Lenders (as defined therein; and together with the Term
Lenders, the "LENDERS"), BARCLAYS BANK PLC, as administrative agent for the
Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and INTERNATIONAL
TRUST COMPANY OF BERMUDA LIMITED, as collateral trustee (in such capacity,
the "COLLATERAL TRUSTEE").
W I T N E S S E T H:
WHEREAS, capitalized terms used herein and not otherwise
defined herein shall have the meanings given to them in the Credit Agreement;
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain loans to the Borrower;
WHEREAS, in a letter dated March 18, 1999, a copy of which is
attached hereto (the "FLAG LETTER"), the Borrower has advised the Lenders that
(a) it desires to transfer all its shares of Capital Stock in two of its
Subsidiaries (FLAG Telecom Limited and FLAG Telecom USA Ltd., together the
"TRANSFERRED SUBSIDIARIES") to FLAG Telecom Holdings Limited ("HOLDCO") (such
transfer will be referred to herein as the "SUBSIDIARY TRANSFER"), and (b) it
desires to amend the Construction Contract by entering into the Agreement for
PSA 3 and Final Acceptance of the FLAG System dated as of March 8, 1999 among
the Borrower, Tyco Submarine Systems Ltd., KDD Submarine Cable Systems Inc. and
Marubeni Corporation, in the form attached hereto as Exhibit A (the
"CONSTRUCTION CONTRACT AMENDMENT");
WHEREAS, immediately after the consummation of the Subsidiary
Transfer, FLAG Telecom Group Services Limited, a direct wholly-owned subsidiary
of Holdco, will own 100% of the shares of Capital Stock of the Transferred
Subsidiaries;
WHEREAS, the Borrower has requested that the Lenders' consent
to the Subsidiary Transfer and the Construction Contract Amendment and that
certain provisions of the Credit Agreement be amended or waived in the manner
provided for in this Amendment; and
WHEREAS, the Lenders hereby consent to the Subsidiary Transfer
and the Construction Contract Amendment and agree to amend or waive certain
provisions of the Credit Agreement, all on the terms and subject to the
conditions set forth herein.
<PAGE>
3
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, terms defined
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
2. CONSENT AND WAIVERS REGARDING SUBSIDIARY TRANSFER
The Lenders hereby (a) consent to the Subsidiary Transfer and
(b) waive the provisions of Sections 6.3, 6.8 and 6.20 of the Credit Agreement
so as to permit the Subsidiary Transfer.
3. CONSENT REGARDING CONSTRUCTION CONTRACT AMENDMENT
The Lenders hereby (a) consent to the Construction Contract
Amendment and (b) waive the provisions of Section 6.10 so as to permit the
Construction Contract Amendment; PROVIDED that the $11,000,000 released from the
Contractor Escrow Account to the Borrower pursuant to Section 2(a) of the
Construction Contract Amendment shall be used by the Borrower to prepay the
Loans in accordance with Section 2.9(h) of the Credit Agreement and PROVIDED
FURTHER that all amounts released from the Contractor Escrow Account pursuant to
Section 2(c) of the Construction Contract Amendment upon termination of the
Contractor Escrow Agreement shall be deemed Special Payments under the Credit
Agreement and shall be deposited in the Special Payment Account for distribution
to the Contractors in accordance with Section 8.20(b).
4. AMENDMENT TO THE CREDIT AGREEMENT
(a) Section 1.1 of the Credit Agreement is hereby amended by adding the
following in alphabetical order:
"SERVICES AGREEMENTS" shall have the meaning ascribed thereto
in Section 5.26.
"TRANSFERRED SUBSIDIARIES" shall be the collective reference
to FLAG Telecom Limited and FLAG Telecom USA Ltd.
(b) Section 1.1 of the Credit Agreement is hereby amended by
adding at the end of the definition of "PROJECT DOCUMENTS" the following:
<PAGE>
4
"'PROJECT DOCUMENTS' shall also include the Services
Agreements."
(c) Article V of the Credit Agreement is hereby amended by adding a new
Section 5.26 as follows:
"SECTION 5.26. SERVICES AGREEMENTS. The Borrower shall, prior
to April 30, 1999, enter into services agreements (the "SERVICES
AGREEMENTS") with the Transferred Subsidiaries."
(d) Section 8.20 of the Credit Agreement is hereby amended by
deleting said section in its entirety and substituting in lieu thereof the
following:
"SECTION 8.20. SPECIAL PAYMENT ACCOUNT. Special Payments
deposited in the Special Payment Account shall be (a) applied by the
Collateral Trustee to the Administrative Agent either for the
prepayment of principal of the Loans, together with accrued interest
thereon or (b) if such Special Payments result from the termination of
the Contractor Escrow Account, retained by the Collateral Trustee for
distribution from time to time directly to the Contractors upon
completion of Work in accordance with a payment notice from the
Borrower to the Collateral Trustee (and, thereafter, to the cash
collateralization of the Revolving Credit Commitments on terms and
pursuant to documentation reasonably satisfactory to the Administrative
Agent). All other Special Payments shall be transferred to the Revenue
Account to be applied in accordance with Section 8.10."
5. CONDITIONS TO EFFECTIVENESS.
This Amendment shall become effective on the date on which all
of the following shall have occurred, been satisfied or waived by the
Administrative Agent:
(a) the Administrative Agent shall have received counterparts
of this Amendment, duly executed and delivered by a duly authorized
officer of each of the Borrower, the Administrative Agent and the
Majority Lenders;
(b) the Administrative Agent shall have received, with a copy
for each Lender, a report of the Independent Engineer in form and
substance reasonably satisfactory to the Administrative Agent; and
(c) the Administrative Agent shall have received an officer's
certificate from the Borrower certifying that (i) the Subsidiary
Transfer and the Construction Contract Amendment do not violate any
Applicable Law or violate or result in a default under any material
Contractual Obligation of the Borrower or any
<PAGE>
5
Subsidiary thereof, and do not adversely affect the Borrower, the
Collateral or the Lenders and (ii) no governmental and third party
approvals or consents (other than those approvals or consents which
have been duly obtained or made, are in full force and effect and
are final and those which are not required to have been obtained or
made by the date hereof) are necessary in connection with the
Subsidiary Transfer or the Construction Contract Amendment, which
certificate shall be in form and substance reasonably satisfactory
to the Administrative Agent.
6. DIRECTIONS.
The Lenders hereby direct the Administrative Agent to execute
and deliver all such documents as the Administrative Agent may deem advisable in
order to effectuate the transactions referred to herein. The Lenders hereby
authorize the Administrative Agent to direct the Collateral Trustee to execute
and deliver all such documents as the Administrative Agent may deem advisable in
order to effectuate the transactions referred to herein.
7. GENERAL.
(a) REPRESENTATIONS; NO DEFAULT. On and as of the date hereof
and after giving effect to this Amendment, the Borrower (i) confirms, reaffirms
and restates the representations and warranties set forth in the Credit
Agreement in all material respects except where such representations and
warranties relate to an earlier date in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date, (ii) represents and warrants that all factual information (taken as a
whole) contained in the FLAG Letter is true and accurate in all material
respects as of the date hereof and not incomplete by omitting to state a
material fact necessary in order to make such information (taken as a whole) not
misleading in any material respect in light of the circumstances under which
such information is provided and (iii) represents and warrants that no Default
or Event of Default under the Credit Agreement has occurred and is continuing as
of the date hereof.
(b) PAYMENT OF EXPENSES. The Borrower agrees to pay or
reimburse the Administrative Agent for all of its out-of-pocket costs and
reasonable expenses incurred in connection with this Amendment, any other
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
<PAGE>
6
(c) NO OTHER AMENDMENTS. Except as expressly waived or
consented to or amended, supplemented or modified hereby, the Credit Agreement
shall continue to be and shall remain in full force and effect in accordance
with its terms.
(d) GOVERNING LAW. This Amendment shall be construed in
accordance with and governed by the laws of the State of New York.
(e) COUNTERPARTS. This Amendment may be executed by one or
more of the parties to this Amendment on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Amendment signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
<PAGE>
7
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
FLAG LIMITED
By: /s/ James Campbell
-------------------------------------
Name: James Campbell
Title: Chief Financial Officer
BARCLAYS BANK PLC, as Administrative
Agent, a Term Lender and a Revolving
Credit Lender
By: /s/ L. Peter Yetman
------------------------------------
Name: L. Peter Yetman
Title: Director
<PAGE>
GULF INTERNATIONAL BANK B.S.C., as a
Term Lender and a Revolving Credit Lender
By: /s/ Abdel-Fattah Tahoun
-----------------------
Name: Abdel-Fattah Tahoun
Title: Senior Vice President
By: /s/ Thomas Fitzherbert
-----------------------
Name: Thomas E. Fitzherbert
Title: Vice President
<PAGE>
DRESDNER BANK AG, New York and Grand
Cayman Branches, as a Term Lender and a
Revolving Credit Lender
By: /s/ Patricia A. Keleher
----------------------
Name: Patricia A. Keleher
Title: Vice President
By: /s/ Helen Ng, P.E.
----------------------
Name: Helen Ng, P.E.
Title: Assistant Vice President
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Term Lender
By: _________________________________
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By: _________________________________
Name:
Title:
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By: _________________________________
Name:
Title:
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By: _________________________________
Name:
Title:
<PAGE>
BBL (USA) CAPITAL CORP,
BRANCH, as a Term Lender and a Revolving
Credit Lender
By: /s/ Eileen Smith
--------------------------
Name: Eileen Smith
Title: Assistant Vice President
By: /s/ Dominiek Vangaever
--------------------------
Name: Dominiek Vangaever
Title: Vice Chairman
<PAGE>
AUSTRALIA AND NEW ZEALAND BANKING GROUP
LIMITED, as a Term Lender and a
Revolving Credit Lender
By: /s/ Pamela Couch
---------------------------
Name: Pamela Couch
Title: Vice President
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH, as a
Term Lender and a Revolving Credit Lender
By: /s/ Charles Columbus
---------------------------
Name: Charles Columbus
Title: Managing Director
By: /s/ Gary Bloomberg
---------------------------
Name: Gary Bloomberg
Title: Associate
<PAGE>
LANDESBANK SACHSEN GIROZENTRALE,
as a Term Lender and a Revolving Credit Lender
By: /s/ Seitz
---------------------------
Name: Seitz
Title: SVP
By: /s/ Kochs
---------------------------
Name: Kochs
Title: Senior Manager
<PAGE>
BHF-BANK AKTIENGESELLSCHAFT, as a
Term Lender and a Revolving Credit Lender
By: /s/ Don Dobrjanskyj
---------------------------
Name: Don Dobrjanskyj
Title: Assistant Vice President
By: /s/ Michael T. Pellerito
---------------------------
Name: Michael T. Pellerito
Title: AT
<PAGE>
THE SUMITOMO TRUST & BANKING CO.
LTD., NEW YORK BRANCH, as a Term Lender
and a Revolving Credit Lender
By: /s/ Stephen A. Stratico
---------------------------
Name: Stephen A. Stratico
Title: Vice President
<PAGE>
HELABA DUBLIN LANDESBANK
HESSEN-THURINGEN INTERNATIONAL, as
a Term Lender and a Revolving Credit Lender
By: /s/ Name of signatory
---------------------------
Name:
Title:
By: /s/ Malread Scanion
---------------------------
Name: Malread Scanion
Title: Officer International Credits
<PAGE>
OCTAGON LOAN TRUST, as a Term Lender
By: Octagon Credit Investors, as Manager
By: /s/ Andrew D. Gordon
---------------------------
Name: Andrew D. Gordon
Title: Managing Director
<PAGE>
PACIFIC INVESTMENT MANAGEMENT
COMPANY, as a Term Lender
By:
-----------------------------
Name:
Title:
<PAGE>
THE TORONTO DOMINION BANK
By: /s/ Jorge A. Garcia
---------------------------
Name: Jorge A. Garcia
Title: Mgr. Cr. Admin.
<PAGE>
BLACK DIAMOND CLO 1998-1 LTD.
By: /s/ Name of Signatory
---------------------------
Name:
Title:
<PAGE>
HARCH CAPITAL
By:
---------------------------
Name:
Title:
<PAGE>
Exhibit 10.13
EQUITY CONTRIBUTION AGREEMENT
EQUITY CONTRIBUTION AGREEMENT (this "AGREEMENT"), dated as of October 8,
1999, among FLAG ATLANTIC LIMITED, a limited company duly organized and validly
existing under the laws of Bermuda (the "COMPANY"), FLAG ATLANTIC HOLDINGS
LIMITED, a limited company duly organized and validly existing under the laws of
Bermuda (the "EQUITY CONTRIBUTOR") and BARCLAYS BANK PLC, as administrative
agent (together with its successors in such capacity, the "ADMINISTRATIVE
AGENT") for the Secured Parties.
WITNESSETH
WHEREAS, the Company will borrow certain credit facilities pursuant to that
certain Credit Agreement dated October 8, 1999 between the Company, the
Administrative Agent, the Lead Arranger and the Lenders listed therein (as
amended, restated, supplemented or otherwise modified, the "Credit Agreement"),
the proceeds of which will be used to finance Project Costs;
WHEREAS, the Equity Contributor currently owns a 50% equity interest in the
Company;
WHEREAS, it is a condition precedent to the obligations of the Lenders to
make the Loans under the Credit Agreement that the Equity Contributor, the
Company and the Administrative Agent enter into this Agreement;
WHEREAS, the Equity Contributor has agreed to deliver, in support of its
obligations hereunder, on or before the Closing Date, an Equity Letter of Credit
(as defined below) issued by (i) Bank of America or (ii) a financial institution
rated at least "A" by S&P and "A2" by Moody's ("LOC ISSUER");
WHEREAS, the Company has assigned all of its right, title and
interest under this Agreement, including, without limitation, its right to
receive the Equity Contributions pursuant to the terms hereof, to the
Administrative Agent for the benefit of the Secured Parties pursuant to the
Company Security Agreement (U.S.); and
WHEREAS, the Equity Contributor and the Company shall derive
substantial benefit from the Loans pursuant to the Credit Agreement.
<PAGE>
NOW THEREFORE, in consideration of the premises and the
covenants and agreements as hereinafter set forth, each of the parties hereto
hereby agrees as follows:
ARTICLE I. DEFINITIONS
Section 1.1. INCORPORATED TERMS. Each capitalized term used
herein and not defined herein shall have the meaning ascribed to such term in
the Credit Agreement (regardless of whether such agreement shall have been
terminated or otherwise not be in full force and effect).
Section 1.2. DEFINITIONS. As used herein, the following terms shall have
the meanings herein specified unless the context otherwise requires.
"EQUITY CONTRIBUTION" shall mean a cash capital contribution or any other
cash payment to the Company required to be made by the Equity Contributor to the
Company in accordance with Section 2.1 of this Agreement.
"EQUITY CONTRIBUTION COMMITMENT" shall mean the difference
between U.S.$100,000,000 and the sum of (i) amounts paid by the Equity
Contributor under the Limited Guarantee (FLAG) entered into by the Equity
Contributor and (ii) the amounts paid under this Agreement (including, without
limitation, amounts paid or deemed to be paid under subsection 2.1(d) of this
Agreement.)
"EQUITY LETTER OF CREDIT" shall mean an irrevocable letter of credit issued
by an LOC Issuer, naming the Administrative Agent as beneficiary, which (a)
shall be in the form of EXHIBIT A hereto and (b) have a face amount equal to the
initial Equity Contribution Commitment.
"EVENT OF BANKRUPTCY" shall mean, with respect to any Person: (i) such
Person shall apply for, or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of such Person or a
substantial part of its property, (ii) such Person makes a general assignment
for the benefit of its creditors, (iii) such Person is adjudicated bankrupt or
insolvent, (iv) the commencement by such Person of a voluntary case under any
applicable bankruptcy laws (as now or hereafter in effect), (v) the filing by
such Person of a petition seeking to take advantage of any other law relating to
bankruptcy, liquidation, insolvency, reorganization, winding-up, or composition
or readjustment of debts, judicial or extrajudicial, or seeking to take
2
<PAGE>
advantage of any applicable insolvency law relating to such Person, (vi) such
Person shall file any answer admitting the material allegations of a petition
filed against it in any bankruptcy, reorganization or insolvency proceeding,
(vii) such Person shall fail to controvert or oppose in a timely and appropriate
manner, or shall acquiesce in writing to, any petition filed against it in an
involuntary case under any bankruptcy law or (viii) such Person shall have any
petition filed against it in an involuntary case under any bankruptcy law and
such involuntary case remains undismissed for 60 days .
"RATING CRITERIA" shall mean, with respect to an LOC Issuer, a
rating of at least "A" by S&P and "A2" by Moody's.
Section 1.3. RULES OF CONSTRUCTION. (a) Defined terms in this Agreement
shall include in the singular number the plural and in the plural number the
singular.
(b) The words "HEREOF," "HEREIN" and "HEREUNDER" and words of
similar import when used in this Agreement shall, unless otherwise expressly
specified, refer to this Agreement as a whole and not to any particular
provision of this Agreement and all references to Sections shall be references
to Sections of this Agreement unless otherwise expressly specified.
(c) Any agreement, contract or document defined or referred to herein shall
be deemed to refer to such agreement, contract or document, all schedules and
exhibits thereto and all amendments or modifications thereto permitted pursuant
to the terms hereof and the other Financing Documents.
ARTICLE II. EQUITY CONTRIBUTION OBLIGATIONS
2.1. EQUITY CONTRIBUTIONS. The Equity Contributor shall make its Equity
Contribution to the Company in accordance with the following terms and
conditions:
(a) Prior to the expiry of the Equity Letter of Credit (including, without
limitation, pursuant to the service of a termination notice in accordance with
the terms of the Equity Letter of Credit), the Equity Contributor agrees to make
the Equity Contribution to fund Project Costs or to repay Construction Loans,
subject to and in accordance with the terms hereof no later than October 31,
2000. On capital call from the Company, in amounts and on dates to be specified
in each call, the Equity Contributor shall make Equity Contributions to the
Company in an aggregate amount equal to the Equity Contribution Commitment.
3
<PAGE>
(b) Upon an Event of Default and subsequent acceleration under the Credit
Agreement, the obligation of the Equity Contributor to pay the Equity Contribu
tion Commitment shall be accelerated and, upon notice from the Administrative
Agent, the Equity Contributor shall immediately pay such amounts of the Equity
Contribution Commitment which, subject to the provisions of Section 4.7 of this
Agreement, is equal to not more than half of the amount necessary to repay and
discharge all Obligations.
If, pursuant to a termination notice served under the Equity Letter of
Credit, notice is served to terminate the Equity Letter of Credit prior to
its expiry date then the Administrative Agent shall be entitled on notice to
require the Equity Contributor to immediately pay the full amount of the
Equity Contribution Commitment; provided, however, that upon the provision by
the Equity Contributor of written notice to the Administrative Agent no later
than 30 days prior to the expiry date under the Equity Letter of Credit the
Equity Contributor shall be entitled to (i) extend the expiry date under the
Equity Letter of Credit to no later than six months after October 31, 2000,
or to rollover such letter of credit, in each case in accordance with the
terms of the Equity Letter of Credit and (ii) procure the issue of a
replacement Letter of Credit by an LOC Issuer satisfying the Rating Criteria
in an amount equal to the Equity Contribution Commitment and on terms
substantially identical to the Equity Letter of Credit but having an expiry
date falling at least six months after October 31, 2000 under the Equity
Letter of Credit, and the Administrative Agent shall not be entitled to serve
notice on the Equity Contributor to pay the full amount of the Equity
Contribution Commitment except to the extent that any amount is otherwise
payable under the Equity Letter of Credit, this Agreement or otherwise, in
each case in accordance with the terms thereof.
(c) Notwithstanding anything to the contrary herein, in no
event shall the aggregate amount of all Equity Contributions made by or on
behalf of the Equity Contributor plus drawings under and amounts available to be
drawn under the Equity Letter of Credit and any amounts paid pursuant to the
Limited Guarantee Agreement (FLAG) exceed $100,000,000.
(d) Each Equity Contribution directly or indirectly made by or on behalf of
the Equity Contributor (including any such payment by means of a drawing under
the Equity Letter of Credit or pursuant to the Limited Guarantee Agreement
(FLAG) ) shall constitute a capital contribution to the common equity of the
Company pursuant to Section 2.1(a) hereof.
4
<PAGE>
(e) Subject to and in accordance with the terms of this Agreement, each of
the Company, the Equity Contributor and the Administrative Agent agrees that it
shall not amend or alter in any way, or permit any amendment or alteration to be
made to, the amount of any Equity Contribution to be made or the date or dates
upon which such Equity Contribution is to be made as such amount and dates are
set out in Section 2.1(a) of this Agreement without the prior written consent of
the Person holding the second priority pledge, as previously disclosed to the
Administrative Agent.
(f) The Administrative Agent shall promptly upon receipt of
amounts under the Equity Contribution in the Equity Proceeds Account provide to
the LOC Issuer a certificate evidencing receipt of such amounts that have not
been drawn under the Equity Letter of Credit.
Section 2.2. CREDIT SUPPORT DOCUMENTS. (a) On or before the Closing Date,
the Equity Contributor shall deliver to the Administrative Agent an Equity
Letter of Credit issued by the LOC Issuer in support of its obligations under
Section 2.1 of this Agreement.
(b) In the event that the Equity Contributor shall fail to make its Equity
Contribution when due in accordance with Section 2.1 of this Agreement, the
Administrative Agent may promptly make a demand for payment under the Equity
Letter of Credit in the amount of the Equity Contribution required to be paid by
the Equity Contributor under Section 2.1 hereof; PROVIDED, THAT the
Administrative Agent's failure to make such demand for payment under the Equity
Letter of Credit shall not relieve the Equity Contributor of its obligations
under this Agreement. Any payment made directly to the Administrative Agent
under the Equity Letter of Credit shall be deemed to be an Equity Contribution
under Section 2.1 and shall satisfy the obligation of the Equity Contributor to
the Company hereunder to the extent of such payment.
(c) Any payment made directly to the Administrative Agent
under the Limited Guarantee Agreement (FLAG), shall satisfy the obligation of
the Equity Contributor to the Company hereunder to the extent of such payment.
Section 2.3. PAYMENTS. The Equity Contributor agrees to make all payments
required to be made by it hereunder in United States Dollars and immediately
available funds directly to the Administrative Agent for the benefit of the
Company, and such amounts shall be applied as provided in the Credit Agreement.
5
<PAGE>
ARTICLE III. WAIVERS
Section 3.1. OBLIGATIONS ABSOLUTE. The obligation of the Equity Contributor
to make Equity Contributions in accordance with Section 2.1 is absolute,
irrevocable and unconditional and shall be unaffected by:
(i) any lack of validity or enforceability of any obligations
under any Financing Document or any Project Document;
(ii) the existence of any claim, setoff, defense or other right
which the Equity Contributor may have against the Company, the Contractor
or any of its Affiliates or any other Person;
(iii) any failure by the Equity Contributor to perform its
obligations under this Agreement or any release (whether by operation of
law or otherwise) of the Company from its obligations under this Agreement
or of the Company and the Equity Contributor from its obligations under any
Financing Document or any Project Document;
(iv) the occurrence of an Event of Bankruptcy with respect to
the Company or any other Person and the occurrence of any other
proceeding as a result of such Event of Bankruptcy;
(v) any amendment, supplement or other modification of any
Project Document or any Financing Document (including, without limitation,
any increase in the amounts payable in respect of any or all of the
obligations under any Financing Document or any extension of the time of
payment, observance or performance, or any other amendment, supplement or
modification of any of the other terms and provisions relating to the
obligations under any Financing Document);
(vi) the existence of any condition that adversely affects the
Loans or the ability of the Company to use the Loans for the purposes
contemplated by any Financing Document or the Project Documents;
(vii) the exercise by the Company, the Administrative Agent, the
Contractor or any of its Affiliates or any Secured Party of any of their
rights and remedies under the Project Documents or the Financing Documents;
6
<PAGE>
(viii) any delay or failure by the Company, the Administrative
Agent or any Secured Party in the exercise of their rights and remedies
under this Agreement, the Financing Documents or any Project Document;
(ix) any breach or default by any Person in the performance or
observance of any of its obligations under this Agreement or any Financing
Document or the Project Document to which it is a party;
(x) the existence, value or condition of, or failure to
perfect its Lien against, any security for the obligations under the
Financing Documents or any action, or the absence of any action by the
Administrative Agent or any other Secured Party in respect thereof
(including, without limitation, the release of any such security); and
(xi) any other circumstance, condition or event that might
constitute or give rise to a defense to performance by the Equity
Contributor of its obligations under this Agreement (other than the defense
of performance in full of its obligations hereunder).
Section 3.2. WAIVER. In addition to the waivers contained in Section 3.1:
(i) The Equity Contributor waives, and agrees that it shall not
at any time insist upon, plead or in any manner whatever claim or take the
benefit or advantage of, any appraisal, valuation, stay, extension,
marshalling of assets or redemption laws, or exemption, whether now or at
any time hereafter in force, which may delay, prevent or otherwise affect
the performance by the Equity Contributor of its obligations under, or the
enforcement by the Company of, this Agreement.
(ii) The Equity Contributor waives any rights and defenses, if
any, that it may have under, and agrees that it shall not at any time claim
or attempt to take the benefit or advantage of, Section 365(c)(2) of the
Bankruptcy Code or any other similar law in any jurisdiction.
(iii) The Equity Contributor hereby waives all notices,
diligence, presentment and demand with respect to any of the events
referred to in
7
<PAGE>
Section 3.1 of this Agreement, and waives the benefit of all Laws which
are or might be in conflict with the terms of this Agreement.
(iv) The Equity Contributor represents, warrants and agrees
that, as of the date of this Agreement, its obligations under this
Agreement are not subject to any offsets or defenses of any kind against
the Administrative Agent, the Contractor or any of its Affiliates, any
Secured Party or the Company. The Equity Contributor further agrees that
its obligations under this Agreement shall not be subject to any
counterclaims, offsets or defenses against the Administrative Agent, the
Contractor or any of its Affiliates, any Secured Party or the Company of
any kind which may arise in the future.
(v) The Equity Contributor hereby irrevocably waives, to the
extent it may do so under applicable Laws, any defense based on the
adequacy of a remedy at law which may be asserted as a bar to the remedy of
specific performance in any action brought by the Administra tive Agent,
any other Secured Party or the Company against the Equity Contributor for
specific performance of the terms of this Agreement.
Section 3.3. REINSTATEMENT .Notwithstanding anything to the
contrary provided for in Section 4.1, this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Company or the Administrative Agent pursuant to this Agreement
is rescinded or must otherwise be restored or returned by the Company or the
Administrative Agent to the Equity Contributor or any trustee, custodian or
similar official for the Equity Contributor upon the occurrence of an Event of
Bankruptcy with respect to the Equity Contributor, or upon the appointment of
any intervenor or conservator of, or trustee, custodian or similar official for,
the Equity Contributor or any part of the assets of the Equity Contributor or
otherwise, all as though such payments had not been made.
ARTICLE IV. MISCELLANEOUS
Section 4.1. TERMINATION. Except as otherwise provided for
herein, this Agreement shall terminate on the date on which the Equity
Contributor, or anyone on its behalf, shall have satisfied its obligation under
Section 2.1 to make its Equity Contribution.
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Section 4.2. NOTICES. All notices and other communications hereunder shall
be in writing, shall be sent by first class mail, by personal delivery, by a
nationally recognized courier service, or by telecopy and shall be directed to
the addresses and telephone or telecopy numbers listed on Schedule I hereto or
to such other address or addressee as a party may designate by notice given
pursuant hereto.
Section 4.3. EXPENSES. The Equity Contributor agrees to pay on
demand to the Company or any Secured Party, as applicable, all reasonable costs
and expenses of collection (including, without limitation, the reasonable fees
and disbursements of counsel) incident to the enforcement or preservation of any
right or claim under this Agreement against the Equity Contributor.
Section 4.4. DOLLAR TRANSACTION. This is an international financing
transaction in which the specification of Dollars and payment in New York, New
York is of the essence, and Dollars shall be the currency of account and of
payment in all events. The payment obligations of the Equity Contributor
hereunder shall not be discharged by an amount paid in another currency or in
another place, whether pursuant to a judgment or otherwise, to the extent that
the amount so paid on prompt conversion into Dollars and transfer to New York,
New York under normal banking procedures does not yield the amount of Dollars in
New York, New York due hereunder. In the event that any payment, whether
pursuant to a judgment or otherwise, upon such conversion and transfer does not
result in payment of such amount of Dollars in New York, New York, the
Administrative Agent or the Company, as the case may be, shall be entitled to
demand immediate payment of, and shall, to the fullest extent permitted by law,
have a separate cause of action for, such Dollar deficiency.
Section 4.5. SEPARATE COUNTERPARTS; AMENDMENTS; WAIVER. This Agreement may
be executed in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts shall constitute one
and the same instrument. Neither this Agreement nor any of the terms hereof may
be amended, supplemented, waived or otherwise modified except by an instrument
in writing signed by the Administrative Agent and the party against whom any
such waiver, amendment, supplement, or other modification is to be enforced.
Section 4.6. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of the Company or the Administrative Agent in exercising any right, power
or privilege hereunder and no course of dealing between the Company and any
other party hereto shall operate as a waiver thereof; nor shall any single or
partial exercise of any
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right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
Section 4.7. PARALLEL ACTION .On the date hereof, GTS TransAtlantic
Holdings, the owner of a 50% equity interest in the Company ("GTS SPONSOR"),
has entered into an Equity Contribution Agreement dated the date hereof with
provisions corresponding to the provisions hereof for an equity contribution
to be made by GTS Sponsor. In the event that GTS Sponsor is in default of its
obligations under its Equity Contribution Agreement and the Equity
Contributor is in default of its obligations under this Agreement, then the
Administrative Agent agrees that it will act in parallel to initiate remedies
available under the respective Equity Contribution Agreements whether such
initiative is by demand, drawing upon the Equity Letter of Credit (and the
letter of credit provided by the LOC Issuer of GTS Sponsor) or exercise of
remedies of enforcement available pursuant to the respective Equity
Contribution Agreements. Except as expressly provided for herein, this
undertaking shall in no respect diminish or delay the exercise by the
Administrative Agent of all rights available pursuant to the Equity Letter of
Credit, the Letter of Credit provided by the LOC Issuer of GTS Sponsor and
the respective Equity Contribution Agreements. Notwithstanding anything to
the contrary provided for in Section 2.1 and Section 4.9 of this Agreement,
in the event that the exercise of rights by the Administrative Agent under
either Equity Contribution Agreement should be delayed, deferred, enjoined or
for any other reason whatsoever the Administrative Agent is unable to
exercise in full or realize in full its rights and obligations under either
Equity Contribution Agreement, the Administrative Agent may proceed in the
exercise of its remedies under the other Equity Contribution Agreement to the
fullest extent permitted by law. It is expressly acknowledged by the
Administrative Agent that the Equity Contribution Agreement entered into by
GTS Sponsor (as defined in Section 4.7) has a provision corresponding to this
provision.
Section 4.8. SUBSTANTIAL SIMILARITY. It is confirmed by the
Company and the Administrative Agent that GTS Transatlantic Holdings ("GTS
SPONSOR") has entered into an Equity Contribution Agreement (the "GTS EQUITY
CONTRIBUTION AGREEMENT") on substantially the same terms as the terms of this
Agreement.
Section 4.9. CALLS AND DEMANDS. It is agreed that the Company
and the Administrative Agent will to the extent that equal amounts are due under
each such agreements, make parallel calls and demands under this Agreement and
the GTS Equity Contribution Agreement (and if required under any supporting
Letter of Credits) at the same time and for the same amounts and (without
prejudice to section 4.7) will use all
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reasonable endeavors to enforce such calls and demands with a view to treating
the Equity Contributor and the GTS Sponsor on an equal footing.
Section 4.10. SEVERABILITY OF PROVISIONS. Any provision of
this Agreement which 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.
Section 4.11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
each party hereto, and on their permitted successors and assigns, and shall
inure to the benefit of the Company and its successors and assigns; PROVIDED,
HOWEVER, that neither the Company nor the Equity Contributor shall transfer or
assign all or any portion of its obligations under this Agreement without the
prior written consent of the other and the Administrative Agent. The Equity
Contributor hereby consents to the collateral assignment of this Agreement by
the Company to the Administrative Agent for the benefit of the Secured Parties
pursuant to the Company Security Agreement (U.S.) or otherwise, and the Equity
Contributor hereby agrees that (i) pursuant to the exercise of remedies under
any of the Financing Documents the Administrative Agent or its designee or
transferee may succeed to the rights, powers, privileges, interests and remedies
of the Company, whether arising under this Agreement or by statute or in law or
in equity or otherwise and (ii) the Administrative Agent either as party to or
third party beneficiary of this Agreement shall have the right to enforce
directly the provisions hereof against each of the parties hereto. The Equity
Contributor shall be fully protected in making payments to the Administrative
Agent hereunder, such payments shall fully discharge the Equity Contributor's
obligations to the Company or any other Person hereunder and under no
circumstances may the Equity Contributor be required to make Equity
Contributions hereunder that exceed, together with all amounts available to be
drawn under the Equity Letter of Credit and Limited Guarantee Agreement (FLAG),
the Equity Contribution Commitment.
Section 4.12. HEADINGS DESCRIPTIVE. The headings of the several sections of
this Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provisions of this Agreement.
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Section 4.13. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGA TIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO
CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND
ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT AND THE EQUITY
CONTRIBUTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE NON-EXCLU SIVE JURISDICTION OF THE
AFORESAID COURTS AND APPELLATE COURTS FROM ANY THEREOF. EACH OF THE COMPANY
AND THE EQUITY CONTRIBUTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND
EMPOWERS FLAG TELECOM USA LIMITED WITH OFFICES AT 570 LEXINGTON AVENUE, 38TH
FLOOR, NEW YORK, NY 10022, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE,
ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY,
SERVICE OF ANY AND ALL LEGAL PROCESS, SUM MONS, NOTICES AND DOCUMENTS WHICH
MAY BE SERVED IN ANY ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE,
APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE COMPANY
OR THE EQUITY CONTRIBUTOR, AS APPLICABLE, AGREES TO DESIGNATE A NEW DESIGNEE,
APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF
THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT. THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE EQUITY CONTRIBUTOR IRREVOCABLY CONSENT TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE
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PREPAID, TO THE COMPANY, THE ADMINISTRATIVE AGENT AND THE EQUITY CONTRIBUTOR
AT ITS ADDRESS REFERRED TO IN SECTION 4.2. EACH OF THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE EQUITY CONTRIB UTOR HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF
ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY
HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED IN ANY OTHER JURISDICTION.
(c) EACH OF THE COMPANY, THE EQUITY CONTRIBUTOR AND THE ADMINISTRATIVE
AGENT HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY MATTER ARISING HEREUNDER.
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IN WITNESS WHEREOF, the parties hereto have caused their duly
Responsible Officers to execute and deliver this Agreement as of the date first
above written.
FLAG ATLANTIC LIMITED
By: /s/ Steven E. Andrews
---------------------------
Name: Steven E. Andrews
Title: Attorney-in-Fact
By: /s/ Edward McCormack
----------------------------
Name: Edward McCormack
Title: Attorney-in-Fact
FLAG ATLANTIC HOLDINGS LIMITED
By: /s/ Edward McCormack
------------------------------
Name: Edward McCormack
Title:
BARCLAYS BANK PLC
as Administrative Agent,
By: /s/ L. Peter Yetman
-----------------------------
Name: L. Peter Yetman
Title: Director
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Exhibit 10.14
EQUITY CONTRIBUTION AGREEMENT
EQUITY CONTRIBUTION AGREEMENT (this "AGREEMENT"), dated as of October 8,
1999, among FLAG ATLANTIC LIMITED, a limited company duly organized and validly
existing under the laws of Bermuda (the "COMPANY"),GTS TRANSATLANTIC HOLDINGS,
LTD., a limited company duly organized and validly existing under the laws of
Bermuda (the "EQUITY CONTRIBUTOR") and BARCLAYS BANK PLC, as administrative
agent (together with its successors in such capacity, the "ADMINISTRATIVE
AGENT") for the Secured Parties.
WITNESSETH
WHEREAS, the Company will borrow certain credit facilities
pursuant to that certain Credit Agreement dated October 8, 1999 between the
Company, the Administrative Agent, the Lead Arranger and the Lenders listed
therein (as amended, restated, supplemented or otherwise modified, the "CREDIT
AGREEMENT"), the proceeds of which will be used to finance Project Costs;
WHEREAS, the Equity Contributor currently owns a 50% equity interest
in the Company;
WHEREAS, it is a condition precedent to the obligations of the
Lenders to make the Loans under the Credit Agreement that the Equity
Contributor, the Company and the Administrative Agent enter into this Agreement;
WHEREAS, the Equity Contributor has agreed to deliver, in support of its
obligations hereunder, on or before the Closing Date, an Equity Letter of Credit
(as defined below) issued by (i) Bank of America or (ii) a financial institution
rated at least "A" by S&P and "A2" by Moody's ("LOC ISSUER");
WHEREAS, the Company has assigned all of its right, title and interest
under this Agreement, including, without limitation, its right to receive the
Equity Contributions pursuant to the terms hereof, to the Administrative Agent
for the benefit of the Secured Parties pursuant to the Company Security
Agreement (U.S.); and
WHEREAS, the Equity Contributor and the Company shall derive substantial
benefit from the Loans pursuant to the Credit Agreement.
<PAGE>
NOW THEREFORE, in consideration of the premises and the
covenants and agreements as hereinafter set forth, each of the parties hereto
hereby agrees as follows:
ARTICLE I. DEFINITIONS
Section 1.1. INCORPORATED TERMS. Each capitalized term used
herein and not defined herein shall have the meaning ascribed to such term in
the Credit Agreement (regardless of whether such agreement shall have been
terminated or otherwise not be in full force and effect).
Section 1.2. DEFINITIONS. As used herein, the following terms shall have
the meanings herein specified unless the context otherwise requires.
"EQUITY CONTRIBUTION" shall mean a cash capital contribution
or any other cash payment to the Company required to be made by the Equity
Contributor to the Company in accordance with Section 2.1 of this Agreement.
"EQUITY CONTRIBUTION COMMITMENT" shall mean the difference
between U.S.$100,000,000 and the sum of (i) amounts paid by the Equity
Contributor under the Limited Guarantee (GTS) entered into by the Equity
Contributor and (ii) the amounts paid under this Agreement (including, without
limitation, amounts paid or deemed to be paid under subsection 2.1(d) of this
Agreement.)
"EQUITY LETTER OF CREDIT" shall mean an irrevocable letter of credit issued
by an LOC Issuer, naming the Administrative Agent as beneficiary, which (a)
shall be in the form of EXHIBIT A hereto and (b) have a face amount equal to the
initial Equity Contribution Commitment.
"EVENT OF BANKRUPTCY" shall mean, with respect to any Person:
(i) such Person shall apply for, or consent to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator of such Person or
a substantial part of its property, (ii) such Person makes a general assignment
for the benefit of its creditors, (iii) such Person is adjudicated bankrupt or
insolvent, (iv) the commencement by such Person of a voluntary case under any
applicable bankruptcy laws (as now or hereafter in effect), (v) the filing by
such Person of a petition seeking to take advantage of any other law relating to
bankruptcy, liquidation, insolvency, reorganization, winding-up, or composition
or readjustment of debts, judicial or extrajudicial, or seeking to take
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advantage of any applicable insolvency law relating to such Person, (vi) such
Person shall file any answer admitting the material allegations of a petition
filed against it in any bankruptcy, reorganization or insolvency proceeding,
(vii) such Person shall fail to controvert or oppose in a timely and appropriate
manner, or shall acquiesce in writing to, any petition filed against it in an
involuntary case under any bankruptcy law or (viii) such Person shall have any
petition filed against it in an involuntary case under any bankruptcy law and
such involuntary case remains undismissed for 60 days .
"RATING CRITERIA" shall mean, with respect to an LOC Issuer, a
rating of at least "A" by S&P and "A2" by Moody's.
Section 1.3. RULES OF CONSTRUCTION. (a) Defined terms in this Agreement
shall include in the singular number the plural and in the plural number the
singular.
(b) The words "HEREOF," "HEREIN" and "HEREUNDER" and words of
similar import when used in this Agreement shall, unless otherwise expressly
specified, refer to this Agreement as a whole and not to any particular
provision of this Agreement and all references to Sections shall be references
to Sections of this Agreement unless otherwise expressly specified.
(c) Any agreement, contract or document defined or referred to herein shall
be deemed to refer to such agreement, contract or document, all schedules and
exhibits thereto and all amendments or modifications thereto permitted pursuant
to the terms hereof and the other Financing Documents.
ARTICLE II. EQUITY CONTRIBUTION OBLIGATIONS
2.1. EQUITY CONTRIBUTIONS. The Equity Contributor shall make its Equity
Contribution to the Company in accordance with the following terms and
conditions:
(a) Prior to any expiry of the Equity Letter of Credit, the Equity
Contributor agrees to make the Equity Contribution to fund Project Costs or to
repay Construction Loans, subject to and in accordance with the terms hereof no
later than October 31, 2000. On capital call from the Company, in amounts and on
dates to be specified in each call, the Equity Contributor shall make Equity
Contributions to the Company in an aggregate amount equal to the Equity
Contribution Commitment.
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(b) Upon an Event of Default and subsequent acceleration under the Credit
Agreement, the obligation of the Equity Contributor to pay the Equity
Contribution Commitment shall be accelerated and, upon notice from the
Administrative Agent, the Equity Contributor shall immediately pay such amounts
of the Equity Contribution Commitment which, subject to the provisions of
Section 4.7 of this Agreement, is equal to not more than half of the amount
necessary to repay and discharge all Obligations.
(c) Notwithstanding anything to the contrary herein, in no
event shall the aggregate amount of all Equity Contributions made by or on
behalf of the Equity Contributor plus drawings under and amounts available to be
drawn under the Equity Letter of Credit and any amounts paid pursuant to the
Limited Guarantee Agreement (GTS) exceed $100,000,000.
(d) Each Equity Contribution directly or indirectly made by or
on behalf of the Equity Contributor (including any such payment by means of a
drawing under the Equity Letter of Credit or pursuant to the Limited Guarantee
Agreement (GTS) ) shall constitute a capital contribution to the common equity
of the Company pursuant to Section 2.1(a) hereof.
(e) Subject to and in accordance with the terms of this Agreement, each of
the Company, the Equity Contributor and the Administrative Agent agrees that it
shall not amend or alter in any way, or permit any amendment or alteration to be
made to, the amount of any Equity Contribution to be made or the date or dates
upon which such Equity Contribution is to be made as such amount and dates are
set out in Section 2.1(a) of this Agreement without the prior written consent of
the Person holding the second priority pledge, as previously disclosed to the
Administrative Agent.
(f) The Administrative Agent shall promptly upon receipt of amounts under
the Equity Contribution in the Equity Proceeds Account provide to the LOC Issuer
a certificate evidencing receipt of such amounts that have not been drawn under
the Equity Letter of Credit.
Section 2.2. CREDIT SUPPORT DOCUMENTS. (a) On or before the Closing Date,
the Equity Contributor shall deliver to the Administrative Agent an Equity
Letter of Credit issued by the LOC Issuer in support of its obligations under
Section 2.1 of this Agreement.
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(b) In the event that the Equity Contributor shall fail to make its Equity
Contribution when due in accordance with Section 2.1 of this Agreement, the
Administrative Agent may promptly make a demand for payment under the Equity
Letter of Credit in the amount of the Equity Contribution required to be paid by
the Equity Contributor under Section 2.1 hereof; PROVIDED, THAT the
Administrative Agent's failure to make such demand for payment under the Equity
Letter of Credit shall not relieve the Equity Contributor of its obligations
under this Agreement. Any payment made directly to the Administrative Agent
under the Equity Letter of Credit shall be deemed to be an Equity Contribution
under Section 2.1 and shall satisfy the obligation of the Equity Contributor to
the Company hereunder to the extent of such payment.
(c) Any payment made directly to the Administrative Agent under the Limited
Guarantee Agreement (GTS), shall satisfy the obligation of the Equity
Contributor to the Company hereunder to the extent of such payment.
Section 2.3. PAYMENTS. The Equity Contributor agrees to make
all payments required to be made by it hereunder in United States Dollars and
immediately available funds directly to the Administrative Agent for the benefit
of the Company, and such amounts shall be applied as provided in the Credit
Agreement.
ARTICLE III. WAIVERS
Section 3.1. OBLIGATIONS ABSOLUTE. The obligation of the Equity Contributor
to make Equity Contributions in accordance with Section 2.1 is absolute,
irrevocable and unconditional and shall be unaffected by:
(i) any lack of validity or enforceability of any obligations
under any Financing Document or any Project Document;
(ii) the existence of any claim, setoff, defense or other right
which the Equity Contributor may have against the Company, the
Contractor or any of its Affiliates or any other Person;
(iii) any failure by the Equity Contributor to perform its
obligations under this Agreement or any release (whether by operation
of law or otherwise) of the Company from its obligations under this
Agreement or of the Company and the Equity Contributor from its
obligations under any Financing Document or any Project Document;
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(iv) the occurrence of an Event of Bankruptcy with respect
to the Company or any other Person and the occurrence of any other
proceeding as a result of such Event of Bankruptcy;
(v) any amendment, supplement or other modification of any
Project Document or any Financing Document (including, without
limitation, any increase in the amounts payable in respect of any or
all of the obligations under any Financing Document or any extension of
the time of payment, observance or performance, or any other amendment,
supplement or modification of any of the other terms and provisions
relating to the obligations under any Financing Document);
(vi) the existence of any condition that adversely affects the
Loans or the ability of the Company to use the Loans for the purposes
contemplated by any Financing Document or the Project Documents;
(vii) the exercise by the Company, the Administrative Agent,
the Contractor or any of its Affiliates or any Secured Party of any of
their rights and remedies under the Project Documents or the Financing
Documents;
(viii) any delay or failure by the Company, the Administrative
Agent or any Secured Party in the exercise of their rights and remedies
under this Agreement, the Financing Documents or any Project Document;
(ix) any breach or default by any Person in the performance or
observance of any of its obligations under this Agreement or any
Financing Document or the Project Document to which it is a party;
(x) the existence, value or condition of, or failure to
perfect its Lien against, any security for the obligations under the
Financing Documents or any action, or the absence of any action by
the Administrative Agent or any other Secured Party in respect
thereof (including, without limitation, the release of any such
security); and
(xi) any other circumstance, condition or event that might
constitute or give rise to a defense to performance by the Equity
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Contributor of its obligations under this Agreement (other than the
defense of performance in full of its obligations hereunder).
Section 3.2. WAIVER. In addition to the waivers contained in Section 3.1:
(i) The Equity Contributor waives, and agrees that it shall not
at any time insist upon, plead or in any manner whatever claim or take
the benefit or advantage of, any appraisal, valuation, stay, extension,
marshalling of assets or redemption laws, or exemption, whether now or
at any time hereafter in force, which may delay, prevent or otherwise
affect the performance by the Equity Contributor of its obligations
under, or the enforcement by the Company of, this Agreement.
(ii) The Equity Contributor waives any rights and defenses, if
any, that it may have under, and agrees that it shall not at any time
claim or attempt to take the benefit or advantage of, Section 365(c)(2)
of the Bankruptcy Code or any other similar law in any jurisdiction.
(iii) The Equity Contributor hereby waives all notices,
diligence, presentment and demand with respect to any of the events
referred to in Section 3.1 of this Agreement, and waives the benefit of
all Laws which are or might be in conflict with the terms of this
Agreement.
(iv) The Equity Contributor represents, warrants and agrees
that, as of the date of this Agreement, its obligations under this
Agreement are not subject to any offsets or defenses of any kind
against the Administrative Agent, the Contractor or any of its
Affiliates, any Secured Party or the Company. The Equity Contributor
further agrees that its obligations under this Agreement shall not
be subject to any counterclaims, offsets or defenses against the
Administrative Agent, the Contractor or any of its Affiliates, any
Secured Party or the Company of any kind which may arise in the
future.
(v) The Equity Contributor hereby irrevocably waives, to the
extent it may do so under applicable Laws, any defense based on the
adequacy of a remedy at law which may be asserted as a bar to the
remedy of specific performance in any action brought by the
Administrative
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Agent, any other Secured Party or the Company against the
Equity Contributor for specific performance of the terms of this
Agreement.
Section 3.3. REINSTATEMENT. Notwithstanding anything to the
contrary provided for in Section 4.1, this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Company or the Administrative Agent pursuant to this Agreement
is rescinded or must otherwise be restored or returned by the Company or the
Administrative Agent to the Equity Contributor or any trustee, custodian or
similar official for the Equity Contributor upon the occurrence of an Event of
Bankruptcy with respect to the Equity Contributor, or upon the appointment of
any intervenor or conservator of, or trustee, custodian or similar official for,
the Equity Contributor or any part of the assets of the Equity Contributor or
otherwise, all as though such payments had not been made.
ARTICLE IV. MISCELLANEOUS
Section 4.1. TERMINATION. Except as otherwise provided for
herein, this Agreement shall terminate on the date on which the Equity
Contributor, or anyone on its behalf, shall have satisfied its obligation under
Section 2.1 to make its Equity Contribution.
Section 4.2. NOTICES. All notices and other communications hereunder shall
be in writing, shall be sent by first class mail, by personal delivery, by a
nationally recognized courier service, or by telecopy and shall be directed to
the addresses and telephone or telecopy numbers listed on Schedule I hereto or
to such other address or addressee as a party may designate by notice given
pursuant hereto.
Section 4.3. EXPENSES. The Equity Contributor agrees to pay on
demand to the Company or any Secured Party, as applicable, all reasonable costs
and expenses of collection (including, without limitation, the reasonable fees
and disbursements of counsel) incident to the enforcement or preservation of any
right or claim under this Agreement against the Equity Contributor.
Section 4.4. DOLLAR TRANSACTION. This is an international financing
transaction in which the specification of Dollars and payment in New York, New
York is of the essence, and Dollars shall be the currency of account and of
payment in all events. The payment obligations of the Equity Contributor
hereunder shall not be discharged by an amount paid in another currency or in
another place, whether pursuant
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to a judgment or otherwise, to the extent that the amount so paid on prompt
conversion into Dollars and transfer to New York, New York under normal banking
procedures does not yield the amount of Dollars in New York, New York due
hereunder. In the event that any payment, whether pursuant to a judgment or
otherwise, upon such conversion and transfer does not result in payment of such
amount of Dollars in New York, New York, the Administrative Agent or the
Company, as the case may be, shall be entitled to demand immediate payment of,
and shall, to the fullest extent permitted by law, have a separate cause of
action for, such Dollar deficiency.
Section 4.5. SEPARATE COUNTERPARTS; AMENDMENTS; WAIVER. This Agreement may
be executed in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts shall constitute one
and the same instrument. Neither this Agreement nor any of the terms hereof may
be amended, supplemented, waived or otherwise modified except by an instrument
in writing signed by the Administrative Agent and the party against whom any
such waiver, amendment, supplement, or other modification is to be enforced.
Section 4.6. NO WAIVER; REMEDIES CUMULATIVE. No failure or
delay on the part of the Company or the Administrative Agent in exercising any
right, power or privilege hereunder and no course of dealing between the Company
and any other party hereto shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder.
Section 4.7. PARALLEL ACTION. On the date hereof, FLAG Atlantic Holdings
Limited, the owner of a 50% equity interest in the Company ("FLAG Sponsor"), has
entered into an Equity Contribution Agreement dated the date hereof with
provisions corresponding to the provisions hereof for an equity contribution to
be made by FLAG Sponsor. In the event that FLAG Sponsor is in default of its
obligations under its Equity Contribution Agreement and the Equity Contributor
is in default of its obligations under this Agreement, then the Administrative
Agent agrees that it will act in parallel to initiate remedies available under
the respective Equity Contribution Agreements whether such initiative is by
demand, drawing upon the Equity Letter of Credit (and the letter of credit
provided by the LOC Issuer of FLAG Sponsor) or exercise of remedies of
enforcement available pursuant to the respective Equity Contribution Agreements.
Except as expressly provided for herein, this undertaking shall in no respect
diminish or delay the exercise by the Administrative Agent of all rights
available pursuant to the Equity Letter of Credit, the Letter of Credit provided
by the LOC Issuer of FLAG Sponsor and the respective Equity Contribution
Agreements.
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Notwithstanding anything to the contrary provided for in Section 2.1 and
Section 4.9 of this Agreement, in the event that the exercise of rights by
the Administrative Agent under either Equity Contribution Agreement should be
delayed, deferred, enjoined or for any other reason whatsoever the
Administrative Agent is unable to exercise in full or realize in full its
rights and obligations under either Equity Contribution Agreement, the
Administrative Agent may proceed in the exercise of its remedies under the
other Equity Contribution Agreement to the fullest extent permitted by law.
It is expressly acknowledged by the Administrative Agent that the Equity
Contribution Agreement entered into by FLAG Sponsor (as defined in Section
4.7) has a provision corresponding to this provision.
Section 4.8. SUBSTANTIAL SIMILARITY. It is confirmed by the
Company and the Administrative Agent that FLAG Atlantic Holdings Limited ("FLAG
SPONSOR") has entered into an Equity Contribution Agreement (the "FLAG EQUITY
CONTRIBUTION AGREEMENT") on substantially the same terms as the terms of this
Agreement.
Section 4.9. CALLS AND DEMANDS. It is agreed that the Company and the
Administrative Agent will to the extent that equal amounts are due under each
such agreements, make parallel calls and demands under this Agreement and the
FLAG Equity Contribution Agreement (and if required under any supporting Letter
of Credits) at the same time and for the same amounts and (without prejudice to
section 4.7) will use all reasonable endeavors to enforce such calls and demands
with a view to treating the Equity Contributor and the FLAG Sponsor on an equal
footing.
Section 4.10. SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which 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.
Section 4.11. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon each party hereto, and on their permitted successors and assigns,
and shall inure to the benefit of the Company and its successors and assigns;
PROVIDED, HOWEVER, that neither the Company nor the Equity Contributor shall
transfer or assign all or any portion of its obligations under this Agreement
without the prior written consent of the other and the Administrative Agent;
provided, however, that the Equity Contributor may assign all of its obligations
under this Agreement to any Subsidiary of Global Telesystems Group, Inc. without
the prior written consent of any other party to the
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Agreement; provided, further however, that prior written notice of such
assignment is provided to the Administrative Agent by the Equity Contributor.
The Equity Contributor hereby consents to the collateral assignment of this
Agreement by the Company to the Administrative Agent for the benefit of the
Secured Parties pursuant to the Company Security Agreement (U.S.) or otherwise,
and the Equity Contributor hereby agrees that (i) pursuant to the exercise of
remedies under any of the Financing Documents the Administrative Agent or its
designee or transferee may succeed to the rights, powers, privileges, interests
and remedies of the Company, whether arising under this Agreement or by statute
or in law or in equity or otherwise and (ii) the Administra tive Agent either as
party to or third party beneficiary of this Agreement shall have the right to
enforce directly the provisions hereof against each of the parties hereto. The
Equity Contributor shall be fully protected in making payments to the
Administrative Agent hereunder, such payments shall fully discharge the Equity
Contributor's obligations to the Company or any other Person hereunder and under
no circumstances may the Equity Contributor be required to make Equity
Contributions hereunder that exceed, together with all amounts available to be
drawn under the Equity Letter of Credit and Limited Guarantee Agreement (GTS),
the Equity Contribution Commitment.
Section 4.12. HEADINGS DESCRIPTIVE. The headings of the several sections of
this Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provisions of this Agreement.
Section 4.13. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND ANY
ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH OF THE
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COMPANY, THE ADMINISTRATIVE AGENT AND THE EQUITY CONTRIB UTOR HEREBY ACCEPTS
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS FROM
ANY THEREOF. EACH OF THE COMPANY AND THE EQUITY CONTRIBUTOR HEREBY
IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS NATIONAL CORPORATE RESEARCH
WITH OFFICES AT 225 WEST 34TH STREET, SUITE 2110, NEW YORK, NY 10122, AS ITS
DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON
ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL
PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY ACTION OR
PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE
TO BE AVAILABLE TO ACT AS SUCH, THE COMPANY OR THE EQUITY CONTRIBUTOR, AS
APPLICABLE, AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW
YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVI SION SATISFACTORY
TO THE ADMINISTRATIVE AGENT. THE COM PANY, THE ADMINISTRATIVE AGENT AND THE
EQUITY CONTRIBUTOR IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS OUT OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
COMPANY, THE ADMINISTRATIVE AGENT AND THE EQUITY CONTRIBUTOR AT ITS ADDRESS
REFERRED TO IN SECTION 4.2. EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT AND
THE EQUITY CONTRIBUTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS
OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN
THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES
NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED IN ANY OTHER JURISDICTION.
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(c) EACH OF THE COMPANY, THE EQUITY CONTRIBUTOR AND THE ADMINISTRATIVE
AGENT HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY MATTER ARISING HEREUNDER.
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IN WITNESS WHEREOF, the parties hereto have caused their duly
Responsible Officers to execute and deliver this Agreement as of the date first
above written.
FLAG ATLANTIC LIMITED
By: /s/ Edward McCormack
------------------------
Name: Edward McCormack
Title: Attorney-in-Fact
By: /s/ Steven E. Andrews
-------------------------
Name: Steven E. Andrews
Title: Attorney-in-Fact
GTS TRANSATLANTIC HOLDINGS, LTD.
By: /s/ Steven E. Andrews
-------------------------
Name: Steven E. Andrews
Title:
BARCLAYS BANK PLC
as Administrative Agent,
By: /s/ L. Peter Yetman
--------------------------
Name: L. Peter Yetman
Title: Director
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Exhibit 10.15
LIMITED GUARANTEE AGREEMENT
LIMITED GUARANTEE AGREEMENT, dated as of October 8, 1999,
(this "AGREEMENT") made by FLAG ATLANTIC HOLDINGS LIMITED ("GUARANTOR"), in
favor of BARCLAYS BANK PLC, as secured party (in such capacity, the "SECURED
PARTY") for the Beneficiaries (as defined below) . Reference is made to the
Credit Agreement, dated as of October 8, 1999 (as the same may be amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
by and among FLAG Atlantic Limited (the "COMPANY"), the Lenders, Barclays
Capital, as Lead Arranger, WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK
BRANCH, as syndication agent (in such capacity, the "SYNDICATION AGENT"),
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as documentation agent (in
such capacity, the "DOCUMENTATION AGENT") and Barclays Bank plc, as
Administrative Agent and Security Agent (the Administrative Agent, together with
the Lenders and Lender Counterparties (as herein defined, the "BENEFICIARIES").
Capitalized terms used herein and not defined herein shall have the meaning
ascribed to such terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
severally agreed to make Loans upon the terms and subject to the conditions set
forth therein;
WHEREAS, subject to the terms and conditions of the Credit
Agreement, the Company may enter into one or more Interest Rate Agreements
(collectively, the "INTEREST HEDGE AGREEMENTS") with one or more Lenders or
Affiliates thereof (in such capacity, collectively, "LENDER COUNTERPARTIES");
WHEREAS, the proceeds of the Loans will be used by the Company
to finance the construction of the Project;
WHEREAS, Guarantor directly owns 50% of the issued and
outstanding Capital Stock of the Company, and Guarantor will derive substantial
direct and indirect benefit from the making of the Loans;
<PAGE>
WHEREAS, it is a condition precedent to the obligations of the
Lenders to make the Loans that Guarantor shall have executed and delivered this
Guarantee to the Secured Party for the ratable benefit of the Lenders and Lender
Counterparties.
NOW, THEREFORE, in consideration of the premises and to induce
the Lenders to make their respective Loans, Guarantor hereby agrees with the
Secured Party, for the ratable benefit of the Beneficiaries, as follows:
SECTION 1. GUARANTEE
1.1. GUARANTEE OF THE OBLIGATIONS. Subject to the provisions
of subsection 1.2, Guarantor hereby irrevocably and unconditionally guarantees
the due and punctual payment in full of all Obligations when the same shall
become due, whether at stated maturity, by acceleration or otherwise pursuant to
the last paragraph of Section 7.1 of the Credit Agreement, (including amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a) or any similar provision
of any bankruptcy laW); PROVIDED, HOWEVER, that (i) the maximum aggregate amount
of the liability of Guarantor hereunder shall be $100,000,000 (the "GUARANTEED
OBLIGATIONS") and (ii) the Guaranteed Obligations of Guarantor shall be reduced
on a Dollar for Dollar basis by (y) the amount of any equity contribution made
by Guarantor to the Company pursuant to the Equity Contribution Agreement on or
after the date hereof PLUS (z) (1) the amount of any drawing by the
Administrative Agent under Guarantor's Equity Contribution Letter of Credit and
(2) payments by Guarantor under this Guarantee. Such maximum guaranteed amount
in effect from time to time is referred to as the "GUARANTEED AMOUNT."
1.2. PAYMENT BY GUARANTOR. Subject to subsection 1.1,
Guarantor hereby agrees, in furtherance of the foregoing and not in limitation
of any other right which any Beneficiary may have at law or in equity against
Guarantor by virtue hereof, that upon the failure of the Company to pay any of
the Obligations when and as the same shall become due by acceleration,
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a) or
any similar provision of any bankruptcy law), Guarantor will upon demand pay
subject to subsection 1.1, or cause to be paid, in cash, to the Secured Party
for the ratable benefit of the Beneficiaries, an amount equal to the least
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of (i) the Guaranteed Amount and (ii) the sum of the unpaid principal amount of
all Obligations then due as aforesaid, accrued and unpaid interest on such
Obligations (including interest which, but for the filing of a petition in
bankruptcy with respect to Company, would have accrued on such Obligations,
whether or not a claim is allowed against Company for such interest in the
related bankruptcy proceeding) and all other Obligations then owed to
Beneficiaries as aforesaid.
1.3. LIABILITY OF GUARANTOR ABSOLUTE. Guarantor agrees that
its obligations hereunder are irrevocable, absolute, independent and
unconditional and shall not be affected by any circumstance which constitutes a
legal or equitable discharge of a guarantor or surety other than payment in full
of the Guaranteed Amount. In furtherance of the foregoing and without limiting
the generality thereof, Guarantor agrees as follows:
(a) this Guarantee is a guarantee of payment when due and not
of collectibility;
(b) subject to subsection 1.2, the Secured Party may enforce
this Guarantee upon the occurrence of an Event of Default notwithstanding the
existence of any dispute between Company and any Beneficiary with respect to the
existence of such Event of Default;
(c) the obligations of Guarantor hereunder are independent of
the obliga tions of Company and the obligations of any other guarantor of the
obligations of Company, and subject as provided in subsections 3.4, 3.5 and 3.6,
a separate action or actions may be brought and prosecuted against Guarantor
whether or not any action is brought against Company or any of such other
guarantors and whether or not Company is joined in any such action or actions;
(d) payment by Guarantor of a portion, but not all, of the
Obligations shall in no way limit, affect, modify or abridge any other
guarantor's liability for any portion of the Obligations which has not been
paid. Without limiting the generality of the foregoing, if Secured Party is
awarded a judgment in any suit brought to enforce Guarantor's covenant to pay a
portion of the Obligations, such judgment shall, to the fullest extent permitted
by applicable law, not be deemed to release such Guarantor from its covenant to
pay the portion of the Obligations that is not the subject of such suit, and
such judgment shall, to the fullest extent permitted by applicable law, not,
except to the extent satisfied by such Guarantor, limit, affect, modify or
abridge any other guarantor's liability in respect of the Obligations;
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<PAGE>
(e) any Beneficiary, upon such terms as it deems appropriate,
without notice or demand and without affecting the validity or enforceability
hereof or giving rise to any reduction, limitation, impairment, discharge or
termination of Guarantor's liability hereunder, from time to time may (i) renew,
extend, accelerate, increase the rate of interest on, or otherwise change the
time, place, manner or terms of payment of the Obligations; (ii) settle,
compromise, release or discharge, or accept or refuse any offer of performance
with respect to, or substitutions for, the Obligations or any agreement relating
thereto and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Obligations and
take and hold security for the payment hereof or the Obligations; (iv) subject
as provided in subsections 3.4 and 3.6, release, surrender, exchange,
substitute, compromise, settle, rescind, waive, alter, subordinate or modify,
with or without consideration, any security for payment of the Obligations, any
other guaranties of the Obligations, or any other obligation of any Person with
respect to the Obligations; (v) subject as provided in subsections 3.4 and 3.6,
enforce and apply any security now or hereafter held by or for the benefit of
such Beneficiary in respect hereof or the Obligations and direct the order or
manner of sale thereof, or exercise any other right or remedy that such
Beneficiary may have against any such security, in each case as such Beneficiary
in its discretion may determine consistent herewith or the applicable Interest
Hedge Agreement and any applicable security agreement, including foreclosure on
any such security pursuant to one or more judicial or nonjudicial sales, whether
or not every aspect of any such sale is commercially reasonable, and even though
such action operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of Guarantor against Company or any
security for the Obligations; and (vi) exercise any other rights available to it
under the Credit Documents or the Interest Hedge Agree ments; and
(f) this Guarantee and the obligations of Guarantor hereunder
shall be valid and enforceable and shall not be subject to any reduction,
limitation, impairment, discharge or termination for any reason (other than a
reduction in the Guaranteed Amount as provided in subsection 1.1 or as a result
of payment in full of the Guaranteed Obligations), including the occurrence of
any of the following, whether or not Guarantor shall have had notice or
knowledge of any of them: (i) subject as provided in subsections 3.4 and 3.6,
any failure or omission to assert or enforce or agreement or election not to
assert or enforce, or the stay or enjoining, by order of court, by operation of
law or otherwise, of the exercise or enforcement of, any claim or demand or any
right, power or remedy (whether arising under the Credit Documents or the
Interest Hedge Agreements, at law, in equity or otherwise) with
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<PAGE>
respect to the Obligations or any agreement relating thereto (including, without
limitation, the Equity Contribution Agreement), or with respect to any other
guarantee of or security for the payment of the Obligations; (ii) subject as
provided in subsections 3.4 and 3.6, any rescission, waiver, amendment or
modification of, or any consent to departure from, any of the terms or
provisions (including provisions relating to events of default) of, any of the
other Credit Documents, any of the Interest Hedge Agreements or any agreement or
instrument executed pursuant thereto, or of any other guarantee or security for
the Obligations, in each case whether or not in accordance with the terms hereof
or such Credit Document, such Interest Hedge Agreement or any agreement relating
to such other guarantee or security; (iii) the Obligations, or any agreement
relating thereto (including, without limitation, the Equity Contribution
Agreement), at any time being found to be illegal, invalid or unenforceable in
any respect; (iv) the application of payments received from any source (other
than payments received pursuant to the other Credit Documents or any of the
Interest Hedge Agreements or from the proceeds of any security for the
Obligations, except to the extent such security also serves as collateral for
indebtedness other than the Obligations) to the payment of indebtedness other
than the Obligations, even though any Beneficiary might have elected to apply
such payment to any part or all of the Obligations; (v) any Beneficiary's
consent to the change, reorganization or termination of the corporate structure
or existence of Holdings or any of its Subsidiaries and to any corresponding
restructuring of the Obligations; (vi) any failure to perfect or continue
perfection of a security interest in any collateral which secures any of the
Obligations; (vii) any defenses, set-offs or counterclaims which Company may
allege or assert against any Beneficiary in respect of the Obligations,
including failure of consideration, breach of warranty, payment, statute of
frauds, statute of limitations, accord and satisfaction and usury; and (viii)
any other act or thing or omission, or delay to do any other act or thing, which
may or might in any manner or to any extent vary the risk of Guarantor as an
obligor in respect of the Obligations.
1.4. WAIVERS BY GUARANTOR. Except for the rights conferred
under subsection 1.2 and subject to subsections 3.4 and 3.6, Guarantor hereby
waives, for the benefit of Beneficiaries: any right to require any Beneficiary,
as a condition of payment by Guarantor, to proceed against Company, any other
guarantor of the Obligations or any other Person, proceed against or exhaust any
security held from Company, any such other guarantor or any other Person,
proceed against or have resort to any balance of any deposit account or credit
on the books of any Beneficiary in favor of Company or any other Person, or
pursue any other remedy in the power of any Beneficiary whatsoever; any defense
arising by reason of the incapacity, lack
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<PAGE>
of authority or any disability or other defense of Company or Guarantor
including any defense based on or arising out of the lack of validity or the
unenforceability of the Obligations or any agreement or instrument relating
thereto (including, without limitation, the Equity Contribution Agreement) or by
reason of the cessation of the liability of Company from any cause other than
payment in full of the Guaranteed Obligations; any defense based upon any
statute or rule of law which provides that the obligation of a surety must be
neither larger in amount nor in other respects more burdensome than that of the
principal; any defense based upon any Beneficiary's errors or omissions in the
administration of the Obligations, except behavior which amounts to bad faith;
any principles or provisions of law, statutory or otherwise, which are or might
be in conflict with the terms hereof and any legal or equitable discharge of
Guarantor's obligations hereunder, the benefit of any statute of limitations
affecting Guarantor's liability hereunder or the enforcement hereof, any rights
to set-offs, recoupments and counter claims, and promptness, diligence and any
requirement that any Beneficiary protect, secure, perfect or insure any security
interest or lien or any property subject thereto; notices, demands,
presentments, protests, notices of protest, notices of dishonor and notices of
any action or inaction, including acceptance hereof, notices of default
hereunder, the Interest Hedge Agreements or any agreement or instrument related
thereto, notices of any renewal, extension or modification of the Obligations or
any agreement related thereto, notices of any extension of credit to Company and
any right to consent to any thereof; and any defenses or benefits that may be
derived from or afforded by law which limit the liability of or exonerate
guarantors or sureties, or which may conflict with the terms hereof.
1.5. GUARANTOR'S RIGHTS OF SUBROGATION, CONTRIBUTION, ETC.
Guarantor hereby unconditionally and irrevocably agrees not to exercise any
claim, right or remedy, direct or indirect, that Guarantor now has or may
hereafter have against Company or any of its assets in connection with this
Guarantee or the performance by Guarantor of its obligations hereunder, in each
case whether such claim, right or remedy arises in equity, under contract, by
statute, under common law or otherwise and including without limitation any
right of subrogation, reimbursement or indemnification that Guarantor now has or
may hereafter have against Company with respect to the Obligations, any right to
enforce, or to participate in, any claim, right or remedy that any Beneficiary
now has or may hereafter have against Company, and any benefit of, and any right
to participate in, any collateral or security now or hereafter held by any
Beneficiary unless and until all of the Guaranteed Obligations shall have been
paid in full. Guarantor further agrees that, to the extent the agreement to
withhold the exercise of its rights of subrogation, reimbursement, and
indemnifica-
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<PAGE>
tion as set forth herein is found by a court of competent jurisdiction to be
void or voidable for any reason, any rights of subrogation, reimbursement or
indemnification Guarantor may have against Company or against any collateral
or security shall be junior and subordinate to any rights any Beneficiary may
have against Company and to all right, title and interest any Beneficiary may
have in any such collateral or security. If any amount shall be paid to
Guarantor on account of any such subrogation, reimbursement or
indemnification at any time when all Obligations shall not have been paid in
full, such amount shall be held in trust for Secured Party on behalf of
Beneficiaries and shall forthwith be paid over to Secured Party for the
benefit of Beneficiaries to be credited and applied against the Obligations,
whether matured or unmatured, in accordance with the terms hereof.
1.6. SUBORDINATION OF OTHER OBLIGATIONS. Any Indebtedness of
Company (other than dividends payable to the Grantor (or any secured party of
the Grantor) as such payment and receipt is provided for in the Shareholders
Pledge Agreement and the Second Priority Security Agreement) now or hereafter
held by Guarantor is hereby subordinated in right of payment to the Obligations,
and any such Indebtedness collected or received by the Guarantor after an Event
of Default has occurred and is continuing shall be held in trust for Secured
Party on behalf of Beneficiaries and shall forthwith be paid over to Secured
Party for the benefit of Benefi ciaries to be credited and applied against the
Obligations but without affecting, impairing or limiting in any manner the
liability of the Guarantor under any other provision hereof.
1.7. CONTINUING GUARANTEE. This Guarantee is a continuing
Guarantee and shall remain in effect until all of the Obligations shall have
been paid in full. Guarantor hereby irrevocably waives any right to revoke this
Guarantee as to future transactions giving rise to any Obligations.
1.8. AUTHORITY OF GUARANTOR OR COMPANY. It is not necessary
for any Beneficiary to inquire into the capacity or powers of Guarantor or
Company or the officers, directors or any agents acting or purporting to act on
behalf of any of them.
1.9. FINANCIAL CONDITION OF COMPANY. Any Loan may be granted
to Company or continued from time to time, and any Interest Hedge Agreement may
be entered into from time to time, in each case without notice to or
authorization from Guarantor regardless of the financial or other condition of
Company at the time of any such grant or continuation or at the time such
Interest Hedge Agreement is entered
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into, as the case may be. No Beneficiary shall have any obligation to disclose
or discuss with Guarantor its assessment, or Guarantor's assessment, of the
financial condition of Company. Guarantor has adequate means to obtain
information from Company on a continuing basis concerning the financial
condition of Company and its ability to perform its obligations under the Credit
Documents and the Interest Hedge Agreements, and Guarantor assumes the
responsibility for being and keeping informed of the financial condition of
Company and of all circumstances bearing upon the risk of nonpayment of the
Obligations. Guarantor hereby waives and relinquishes any duty on the part of
any Beneficiary to disclose any matter, fact or thing relating to the business,
operations or conditions of Company now known or hereafter known by any Benefi-
ciary.
1.10. BANKRUPTCY, ETC.
(a) So long as any Obligations remain outstanding, Guarantor
shall not, without the prior written consent of Secured Party acting pursuant to
the instructions of Majority Lenders, commence or join with any other Person in
commencing any bankruptcy, reorganization or insolvency proceedings of or
against Company. The obligations of Guarantor hereunder shall not be reduced,
limited, impaired, discharged, deferred, suspended or terminated by any
proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of Company or by any
defense which Company or an Equity Contributor under its Equity Contribution
Agreement may have by reason of any such bankruptcy, insolvency, receivership,
reorganization, liquidation or arrangement proceeding, or by reason of any
order, decree or decision of any court or administrative body resulting from any
such proceeding.
(b) Guarantor acknowledges and agrees that any interest on any
portion of the Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Obligations if said proceedings had not been commenced) shall be
included in the Obligations because it is the intention of Guarantor and
Beneficiaries that the Obligations which are guarantied by Guarantor pursuant
hereto should be determined without regard to any rule of law or order which may
relieve Company of any portion of such Obligations. Guarantor will permit any
trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit
of creditors or similar person to pay Secured Party, or allow the claim of
Secured Party
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in respect of, any such interest accruing after the date on which such
proceeding is commenced.
(c) In the event that all or any portion of the Obligations
are paid by Company, the obligations of Guarantor hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from any Beneficiary as a preference, fraudulent transfer
or otherwise, and any such payments which are so rescinded or recovered shall
constitute Obligations for all purposes hereunder.
1.11. NOTICE OF EVENTS. As soon as Guarantor obtains knowledge
thereof, Guarantor shall give Secured Party written notice of any condition or
event which has resulted in a material adverse change in the financial condition
of Guarantor or Company or a breach of or noncompliance with any term, condition
or covenant contained herein, any other Credit Document, any Interest Hedge
Agreement or any other document delivered pursuant hereto or thereto.
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce Beneficiaries to accept this Guarantee and
to enter into the Credit Agreement and to make the Loans thereunder, Guarantor
hereby represents and warrants to Beneficiaries that the following statements
are true and correct:
2.1. CORPORATE EXISTENCE. Guarantor is a company duly
organized and validly existing under the laws of the jurisdiction of its
organization (and, to the extent applicable in such jurisdiction, is in good
standing under the laws of such jurisdiction) and is duly qualified to do
business in such jurisdiction and in each other jurisdiction in which the
conduct of its business or the ownership or lease of its assets requires such
qualification, except in the case of any such other jurisdiction, where the
failure to be so qualified could not reasonably be expected to have a material
adverse effect on (i) the business, operations, properties, assets, condition
(financial or otherwise) or prospects of Guarantor and its Subsidiaries taken as
a whole; (ii) the ability of any Guarantor to fully and timely perform its
obligations under this Guarantee; (iii) the legality, validity, binding effect
or enforceability against Guarantor of this Guarantee; or (iv) the rights,
remedies and benefits available to, or conferred upon, the Secured Party (a
"MATERIAL ADVERSE EFFECT").
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(a) No filing, recording, publishing or other act is necessary or appropriate in
connection with the establishment of Guarantor except those which have been duly
made or performed and except where the failure to so file, record, publish or
act could not reasonably be expected to have a Material Adverse Effect.
(b) Prior to the Closing Date, Guarantor has not engaged in business other than
that incidental to the development, construction, installation, maintenance and
operation of the Project, the marketing and disposition of Capacity and
activities incidental thereto, and Guarantor has no obligations or liabilities
(contingent or otherwise) other and as previously disclosed to the Agent than
those related to the conduct of such business.
2.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
(a) Guarantor has full corporate power and authority to conduct its business as
now conducted and to execute, deliver and perform this Guarantee.
(b) Guarantor has taken all necessary corporate and legal action to authorize
this Guarantee on the terms and conditions set forth herein and to authorize the
execution, delivery and performance hereof.
(c) This Guarantee has been duly executed and delivered by Guarantor and
constitutes upon execution and delivery thereof by Guarantor, a legal, valid and
binding obligation of Guarantor enforceable against Guarantor, as applicable, in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws affecting the rights of creditors generally, general principles of
equity (whether considered in a proceeding in equity or law) and an implied
covenant of good faith and fair dealing.
2.3. NO LEGAL BAR TO THIS GUARANTEE. The execution, delivery and performance by
Guarantor of this Guarantee, (i) will not violate or result in a breach of any
Applicable Law, (ii) will not violate or result in a default under any
Contractual Obligation of Guarantor (which violation or default could reasonably
be expected to have a Material Adverse Effect) and (iii) will not result in, or
require, the creation or imposition of any Lien on any of the properties or
revenues of Guarantor, except for Permitted Liens.
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SECTION 3. MISCELLANEOUS
3.1. SURVIVAL OF WARRANTIES. All agreements, representations
and warranties made herein shall survive the execution and delivery of this
Guarantee and the other Transaction Documents and any increase in the
Commitments under the Credit Agreement.
3.2. NOTICES. Any communications between Secured Party and
Guarantor and any notices or requests provided herein to be given may be given
by mailing the same, postage prepaid, or by telex, facsimile transmission or
cable to each such party at its address set forth in the Credit Agreement, on
the signature pages hereof or to such other addresses as each such party may in
writing hereafter indicate. Any notice, request or demand to or upon Secured
Party or Guarantor shall not be effective until received.
3.3. SEVERABILITY. In case any provision in or obligation
under this Guarantee shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
3.4. PARALLEL ACTION. On the date hereof, GTS TransAtlantic
Holdings, the owner of a 50% equity interest in the Company ("GTS Sponsor"), has
entered into a Limited Guarantee Agreement dated the date hereof with provisions
corresponding to the provisions hereof for the Guarantee of the Guaranteed
Obligations by GTS Sponsor. In the event that GTS Sponsor is in default of its
obligations under its Limited Guarantee Agreement and the Guarantor is in
default of its obligations under this Guarantee, then the Administrative Agent
agrees that it will act in parallel to initiate remedies available under the
respective Limited Guarantee Agreements whether such initiative is by demand,
drawing upon the Equity Contribution Letter of Credit (and the corresponding
letter of credit provided by the letter of credit Issuer of GTS Sponsor) or
exercise of remedies of enforcement available pursuant to the respective Limited
Guarantee Agreements. Except as expressly provided for herein, this undertaking
shall in no respect diminish or delay the exercise by the Administrative Agent
of all rights available pursuant to the Guarantor's Equity Contribution Letter
of Credit, the letter of credit provided by the letter of credit Issuer of GTS
Sponsor and the respective Limited Guarantee Agreements. Notwithstanding
anything to the contrary provided for in this Guarantee, in the event that the
exercise of rights by the Administrative Agent under either
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Limited Guarantee Agreement should be delayed, deferred, enjoined or for any
other reason whatsoever the Administrative Agent is unable to exercise in full
or realize in full its rights and obligations under either Limited Guarantee
Agreement, the Administrative Agent may proceed in the exercise of its remedies
under the other Limited Guarantee Agreement to the fullest extent permitted by
law. It is expressly acknowledged by the Administrative Agent that the Limited
Guarantee Agreement entered into by GTS Sponsor has a provision corresponding to
this provision.
3.5. CONFIRMATION. It is confirmed by the Company and the
Secured Party that GTS Transatlantic Limited ("GTS SPONSOR") has entered into a
Limited Guarantee Agreement (the "GTS LIMITED GUARANTEE AGREEMENT") on
substantially the same terms as the terms of this Guarantee.
3.6. CALLS AND DEMANDS. It is agreed that the Secured Party
will to the extent that equal amounts are due under each such agreements, make
parallel calls and demands under this Guarantee and the GTS Limited Guarantee
Agreement (and if required under any supporting Letters of Credit) at the same
time and for the same amounts and (without prejudice to subsection 3.4) will use
all reasonable endeavors to enforce such calls and demands with a view to
treating the Guarantor and the GTS Sponsor on an equal footing and that, subject
to the provisions of subsections 3.4 and 3.5 of this Guarantee, the initial
amount so demanded or drawn under the Equity Letter of Credit shall be equal to
not more than half of the amount necessary to repay and discharge all
Obligations; provided, however, that such calls and demands shall be made
without prejudice to the obligations of the Guarantor under subsections 1.1 and
1.2 of this Guarantee.
3.7. AMENDMENTS AND WAIVERS. No amendment, modification,
termination or waiver of any provision of this Guarantee, and no consent to any
departure by Guarantor therefrom, shall in any event be effective without the
written concurrence of Secured Party and, in the case of any such amendment or
modification, Guarantor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
3.8. HEADINGS. Section and subsection headings in this
Guarantee are included herein for convenience of reference only and shall not
constitute a part of this Guarantee for any other purpose or be given any
substantive effect.
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3.9. APPLICABLE LAW. THIS GUARANTEE AND THE RIGHTS AND
OBLIGATIONS OF GUARANTOR AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITH OUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
3.10. SUCCESSORS AND ASSIGNS. This Guarantee is a continuing
Guarantee and shall be binding upon Guarantor and its successors and assigns.
This Guarantee shall inure to the benefit of Beneficiaries and their respective
successors and assigns. Guarantor shall not assign this Guarantee or any of the
rights or obligations of Guarantor hereunder without the prior written consent
of the Majority Lenders. The terms and provisions of this Guarantee shall inure
to the benefit of any transferee or assignee of any Loan transferred or assigned
in accordance with the provisions of the Credit Agreement, and in the event of
such transfer or assignment the rights and privileges herein conferred upon such
Beneficiary shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof.
3.11. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST GUARANTOR ARISING OUT OF OR RELATING TO
THIS GUARANTEE, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW
YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, GUARANTOR, FOR ITSELF AND IN
CONNECTION WITH ITS PROPER TIES, IRREVOCABLY
(a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(c) DESIGNATES AND APPOINTS FLAG TELECOM USA LIMITED WITH
OFFICES AT 570 LEXINGTON AVENUE, 38TH FLOOR, NEW YORK, NY 10022, OR SUCH OTHER
PERSONS LOCATED IN NEW YORK STATE AS MAY HEREAFTER BE SELECTED BY THE GUARANTOR
AND AGREEING IN WRITING TO SO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF
SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS
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IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE GUARANTOR TO BE
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO
SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE GUARANTOR AT ITS ADDRESS
PROVIDED IN ACCORDANCE WITH SUBSECTION 3.2 PROVIDED THAT, UNLESS OTHERWISE
PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE
VALIDITY OF SERVICE OF SUCH PROCESS. IF ANY AGENT APPOINTED BY THE GUARANTOR
REFUSES TO ACCEPT SERVICE, THE GUARANTOR HEREBY AGREES THAT SERVICE OF PROCESS
SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST THE GUARANTOR IN THE
STATE OF NEW YORK MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO THE GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 3.2, AND THE GUARANTOR HEREBY ACKNOWLEDGES THAT SUCH SERVICE SHALL BE
EFFECTIVE AND BINDING IN EVERY RESPECT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO
BRING PROCEEDINGS AGAINST THE GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION;
AND
(d) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 3.11
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE
FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402
OR OTHERWISE.
3.12. WAIVER OF TRIAL BY JURY. GUARANTOR AND, BY ITS
ACCEPTANCE OF THE BENEFITS HEREOF, EACH BENEFICIARY EACH HEREBY AGREES TO WAIVE,
TO THE EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTEE. The scope
of this waiver is intended to be all-encompassing of any and all disputes that
may be filed in any court and that relate to the subject matter of this
transaction, including without limitation contract claims, tort claims, breach
of duty claims and all other common law and statutory claims. Guarantor and, by
its acceptance of the benefits hereof, each Beneficiary each (i) acknowledges
that this waiver is a material inducement for Guarantor and Beneficiaries to
enter into a business relationship, that Guarantor and Beneficiaries have
already relied on this waiver in entering into this Guarantee or accepting the
benefits thereof, as the case may be, and that each will
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continue to rely on this waiver in their related future dealings with respect to
the transaction contemplated hereby and (ii) further warrants and represents
that each has reviewed this waiver with its legal counsel, and that each
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
SPECIFICALLY REFERRING TO THIS SUBSECTION 3.12 AND EXECUTED BY SECURED PARTY
AND GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTEE. In the event of
litigation, this Guarantee may be filed as a written consent to a trial by the
court.
3.13. NO OTHER WRITING. This writing is intended by Guarantor
and Beneficiaries as the final expression of this Guarantee and is also intended
as a complete and exclusive statement of the terms of their agreement with
respect to the matters covered hereby. No course of dealing, course of
performance or trade usage, and no parol evidence of any nature, shall be used
to supplement or modify any terms of this Guarantee. There are no conditions to
the full effectiveness of this Guarantee.
3.14. FURTHER ASSURANCES. At any time or from time to time,
upon the request of Secured Party, Guarantor shall execute and deliver such
further documents and do such other acts and things as Secured Party may
reasonably request in order to effect fully the purposes of this Guarantee.
3.15. SECURED PARTY AS AGENT.
(a) Secured Party has been appointed to act as Secured Party hereunder by
Lenders. Secured Party shall be obligated, and shall have the right hereunder,
to make demands, to give notices, to exercise or refrain from exercising any
rights, and to take or refrain from taking any action, solely in accordance with
this Guarantee and the Credit Agreement.
(b) Secured Party shall at all times be the same Person that is Administrative
Agent under the Credit Agreement. Written notice of resignation by
Administrative Agent pursuant to Article IX of the Credit Agreement shall also
constitute notice of resignation as Secured Party under this Guarantee; removal
of Administrative Agent pursuant to Article IX of the Credit Agreement shall
also constitute removal as Secured Party under this Guarantee; and appointment
of a successor Administrative Agent pursuant to Article IX of the Credit
Agreement shall also constitute appointment
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of a successor Secured Party under this Guarantee. Upon the acceptance of any
appointment as Administrative Agent under Article IX of the Credit Agreement by
a successor Administrative Agent, that successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Secured Party under this Guarantee, and
the retiring or removed Secured Party under this Guarantee shall promptly (i)
transfer to such successor Secured Party all sums held hereunder, together with
all records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Secured Party under this Guarantee,
and (ii) take such other actions as may be necessary or appropriate in
connection with the assignment to such successor Secured Party of the rights
created hereunder, whereupon such retiring or removed Secured Party shall be
discharged from its duties and obligations under this Guarantee. After any
retiring or removed Secured Party's resignation or removal hereunder as Secured
Party, the provisions of this Guarantee shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Guarantee while it was
Secured Party hereunder.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee to be duly executed and delivered by its duly authorized officer as of
the day and year first above written.
FLAG ATLANTIC HOLDINGS LIMITED
By: /s/ Edward McCormack
--------------------------------
Name: Edward McCormack
Title:
S-1
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BARCLAYS BANK PLC, as Secured Party
By: /s/ L. Peter Yetman
--------------------------------
Name: L. Peter Yetman
Title: Director
S-2
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Exhibit 10.16
AMENDED AND RESTATED SHAREHOLDER PLEDGE AGREEMENT
This amended and restated SHAREHOLDER PLEDGE AGREEMENT (this
"AGREEMENT"), which amends and restates the Shareholder Pledge Agreement of even
date hereof, is dated as of October 8, 1999, and entered into by and among GTS
TRANSATLANTIC HOLDINGS, LTD., a company organized and existing under the laws of
Bermuda ("GTS HOLDINGS"), and FLAG ATLANTIC HOLDINGS LIMITED, a company
organized and existing under the laws of Bermuda ("FLAG ATLANTIC HOLDINGS")
(each of GTS Holdings and FLAG Atlantic Holdings being a "PLEDGOR" and
collectively "PLEDGORS"; PROVIDED that after the Closing Date, "PLEDGORS" shall
be deemed to include any Additional Pledgors (as herein defined)) and BARCLAYS
BANK PLC, as agent for and representative of (in such capacity herein called
"SECURED PARTY") the financial institutions ("LENDERS") party to the Credit
Agreement referred to below and any Lender Counterparties (as hereinafter
defined).
PRELIMINARY STATEMENTS
A. Pledgors are the legal and beneficial owners of the shares of stock
(the "PLEDGED SHARES") described in Part A of SCHEDULE I annexed hereto and
issued by FLAG Atlantic Limited, a company organized and existing under the laws
of Bermuda ("COMPANY").
B. Pursuant to that certain Credit Agreement dated as of October 8,
1999 (said Credit Agreement, as it may hereafter be amended, restated,
supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT"; the terms defined therein and not otherwise defined herein being
used herein as therein defined), by and among the Company, the financial
institutions listed therein as Lenders, Barclays Bank plc, as Administrative
Agent, Barclays Bank plc, as Security Agent, Barclays Capital, as Lead Arranger,
WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, as syndication agent (in
such capacity, the "SYNDICATION AGENT"), DRESDNER BANK AG, NEW YORK AND GRAND
<PAGE>
CAYMAN BRANCHES, as documentation agent (in such capacity, the "DOCUMENTATION
AGENT"), and Lenders have made certain commitments, subject to the terms and
conditions set forth in the Credit Agreement, to extend certain credit
facilities to Company.
C. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Hedging Agreements (collectively, the "LENDER
INTEREST HEDGING AGREEMENTS") with one or more Lenders or their Affiliates (in
such capacity, each a "LENDER COUNTERPARTY" and collectively, "LENDER
COUNTERPARTIES") in accordance with the terms of the Credit Agreement, and it is
desired that the obligations of Company under the Lender Interest Hedging
Agreements, including without limitation the obligation of Company to make
payments thereunder in the event of early termination thereof (all such
obligations being the "INTEREST RATE OBLIGATIONS"), together with all
obligations of Company under the Credit Agreement and the other Financing
Documents, be secured hereunder.
D. It is a condition precedent to the initial extensions of credit by
Lenders under the Credit Agreement that each Pledgor shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and to induce Lender Counterparties to enter into Lender Interest Hedging
Agreements, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, each Pledgor hereby agrees with
Secured Party as follows:
SECTION 1. PLEDGE OF SECURITY.
Each Pledgor hereby pledges and assigns to Secured Party, and hereby
grants to Secured Party a security interest in, all of Pledgor's right, title
and interest in and to the following (the "PLEDGED COLLATERAL"):
(a) the Pledged Shares owned by such Pledgor and the
certificates representing such Pledged Shares and any interest of such
Pledgor in the entries on the books of any financial intermediary
pertaining to such Pledged Shares, and all dividends, cash, warrants,
rights, instruments and other
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property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
such Pledged Shares;
(b) all additional shares of, and all securities convertible
into and warrants, options and other rights to purchase or otherwise
acquire, stock of the Company from time to time acquired by such
Pledgor in any manner (which shares shall be deemed to be part of the
Pledged Shares), the certificates or other instruments representing
such additional shares, securities, warrants, options or other rights
and any interest of such Pledgor in the entries on the books of any
financial intermediary pertaining to such additional shares (all such
shares, securities, warrants, options, rights, certificates,
instruments and interests collectively being "ADDITIONAL PLEDGED
SHARES"), and all dividends, cash, warrants, rights, instruments and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
such Additional Pledged Shares;
(c) to the extent not covered by clauses (a) through (b)
above, all proceeds of any or all of the foregoing Pledged Collateral.
For purposes of this Agreement, the term "PROCEEDS" includes whatever
is receivable or received when Pledged Collateral or proceeds are sold,
exchanged, collected or otherwise disposed of, whether such disposition
is voluntary or involuntary, and includes, without limitation, proceeds
of any indemnity or guaranty payable to such Pledgor or Secured Party
from time to time with respect to any of the Pledged Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS.
This Agreement secures, and the Pledged Collateral pledged and assigned
by each Pledgor is collateral security for, the prompt payment or performance in
full when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including without limitation the payment of
amounts that would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all Secured
Obligations with respect to such Pledgor. "SECURED OBLIGATIONS" means, with
respect to any Pledgor, all obligations and liabilities of every nature of
Company now or hereafter existing under or arising out of or in connection with
the Credit Agreement and the other Financing Documents and any Lender Interest
Hedging
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Agreements, in each case together with all extensions or renewals thereof,
whether for principal, interest (including, without limitation, interest
accruing at the then applicable rate provided for in the Financing Documents
after the maturity of the Loans and interest accruing at the then applicable
rate provided in the Financing Documents after the filing or commencement of any
bankruptcy, insolvency, reorganization or like proceeding relating to the
Company or any of its Subsidiaries whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), payments for early
termination of Lender Interest Hedging Agreements, fees, expenses, indemnities
or otherwise, whether voluntary or involuntary, direct or indirect, absolute or
contingent, due or to become due, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Secured Party
or any Lender or Lender Counterparty as a preference, fraudulent transfer or
otherwise, and all obligations of every nature of such Pledgor now or hereafter
existing under this Agreement or any other Financing Document.
SECTION 3. DELIVERY OF PLEDGED COLLATERAL.
All certificates or instruments representing or evidencing the Pledged
Collateral shall be delivered to and held by or on behalf of Secured Party
pursuant hereto and shall be in suitable form for transfer by delivery or, as
applicable, shall be accompanied by the appropriate Pledgor's endorsement, where
necessary, or duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Secured Party. Upon the occurrence and
during the continuation of an Event of Default (as defined in the Credit
Agreement), Secured Party shall have the right, without notice to any Pledgor,
to transfer to or to register in the name of Secured Party or any of its
nominees any or all of the Pledged Collateral, subject only to the revocable
rights specified in Section 7(a). In addition, Secured Party shall have the
right at any time to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations.
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SECTION 4. REPRESENTATIONS AND WARRANTIES.
Each Pledgor represents and warrants as follows:
(a) DUE AUTHORIZATION, ETC. OF PLEDGED COLLATERAL. All of the
Pledged Shares owned by such Pledgor have been duly authorized and
validly issued and are fully paid and non-assessable.
(b) DESCRIPTION OF PLEDGED COLLATERAL. The Pledged Shares
owned by such Pledgor constitute the percentage of the issued and
outstanding shares of stock of the Company set forth on SCHEDULE I
annexed hereto, and, except as disclosed to the Administrative Agent in
writing, there are no outstanding warrants, options or other rights to
purchase, or other agreements outstanding with respect to, or property
that is now or hereafter convertible into, or that requires the
issuance or sale of, any Pledged Shares.
(c) OWNERSHIP OF PLEDGED COLLATERAL. Such Pledgor is the
legal, record and beneficial owner of the Pledged Collateral owned by
such Pledgor free and clear of any Lien except for the security
interest created by this Agreement and by the second priority security
interest, of even date herewith, given by FLAG Atlantic Holdings with
respect to its Pledged Shares in favor of a party acceptable to the
Secured Party who shall be identified to the Secured Party on the
Closing Date (the "SECOND PRIORITY LIEN HOLDER").
(d) PERFECTION. Each Pledgor's pledge of its Pledged
Collateral pursuant to this Agreement creates a valid and, together
with delivery of physical possession to the Secured Party or its Agent
of the share certificates relating thereto, a notation of this pledge
on the Register of Members of the Company and registration of this
Agreement with the Registrar of Companies in Bermuda pursuant to
Section 55 of the Bermuda Companies Act 1981, perfected first priority
security interest in the Pledged Collateral, securing the payment of
the Secured Obligations.
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SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC.
Each Pledgor shall:
(a) not, except as permitted by the immediately following
proviso, (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option, other than pursuant to the
Shareholders Agreement, with respect to, any of the Pledged Collateral
owned by such Pledgor, (ii) create or suffer to exist any Lien upon or
with respect to any of the Pledged Collateral owned by such Pledgor,
except for the security interest under this Agreement or the second
priority security interest of even date herewith given to the Second
Priority Lien Holder, or (iii) permit Company to merge or consolidate
unless all of its outstanding capital stock of the surviving or
resulting corporation is, upon such merger or consolidation, pledged
hereunder and no cash, securities or other property is distributed in
respect of the outstanding shares of any other constituent corporation;
PROVIDED that (i) Pledgor may sell or transfer the Pledged Collateral
so long as the purchaser or transferee thereof is a Pledgor or becomes
an additional Pledgor (each an "ADDITIONAL PLEDGOR") under this
Agreement and (ii) FLAG Atlantic Holdings may grant a security interest
in its shares in the Company and the other assets of the Company which
constitute "PLEDGED CAPITAL" pursuant to the Second Priority Security
Agreement, which security's interest shall be subordinate to the
security interest in the Pledged Collateral created hereby pursuant to
the terms of the Subordination Agreement. Each Additional Pledgor shall
execute an acknowledgment to this Agreement substantially in the form
of Schedule III annexed hereto and shall take such further action in
connection therewith as Secured Party may reasonably request. Upon
delivery of such counterpart to Administrative Agent and Secured Party,
notice of which is hereby waived by Pledgors, each such Additional
Pledgor shall be a Pledgor and shall be as fully a party hereto as if
such Additional Pledgor were an original signatory hereto;
(b) (i) cause Company not to issue any stock or other
securities in addition to or in substitution for the Pledged Shares,
except to a Pledgor or as otherwise permitted by the Credit Agreement
and (ii) pledge hereunder, immediately upon its acquisition (directly
or indirectly) thereof, any and all additional shares of stock or other
securities of the Company;
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(c) promptly deliver to Secured Party all material written
notices received by it with respect to the Pledged Collateral owned by
such Pledgor; and
(d) pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon, and all claims against,
the Pledged Collateral owned by such Pledgor, except to the extent the
validity thereof is being contested in good faith; PROVIDED that such
Pledgor shall in any event pay such taxes, assessments, charges, levies
or claims not later than five days prior to the date of any proposed
sale under any judgement, writ or warrant of attachment entered or
filed against such Pledgor or any of the Pledged Collateral owned by
such Pledgor as a result of the failure to make such payment.
SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
(a) Each Pledgor agrees that from time to time, at the expense of such
Pledgor, such Pledgor will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or desirable,
or that Secured Party may request, in order to perfect and protect any security
interest granted or purported to be granted hereby in respect of Pledged
Collateral owned by such Pledgor or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any Pledged Collateral
owned by such Pledgor. Without limiting the generality of the foregoing, such
Pledgor will: (i) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as Secured Party may request, in order to perfect and preserve
the security interests granted or purported to be granted hereby in respect of
Pledged Collateral owned by such Pledgor and (ii) at Secured Party's reasonable
request, appear in and defend any action or proceeding that may affect such
Pledgor's title to or Secured Party's security interest in all or any part of
the Pledged Collateral.
(b) Each Pledgor further agrees that it will, upon obtaining any
additional shares of stock or other securities required to be pledged hereunder
as provided in Section 5(a) or (b), promptly (and in any event within five
Business Days) deliver to Secured Party a Pledge Amendment, duly executed by
such Pledgor, in substantially the form of SCHEDULE II annexed hereto (a "PLEDGE
AMENDMENT"), in respect of the additional Pledged Shares to be pledged pursuant
to this Agreement. Each Pledgor
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hereby authorizes Secured Party to attach each Pledge Amendment to this
Agreement and agrees that all Pledged Shares listed on any such Pledge Amendment
delivered to Secured Party shall for all purposes hereunder be considered
Pledged Collateral; PROVIDED that the failure of a Pledgor to execute a Pledge
Amendment with respect to any additional Pledged Shares pledged pursuant to this
Agreement shall not impair the security interest of Secured Party therein or
otherwise adversely affect the rights and remedies of Secured Party hereunder
with respect thereto.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
(a) PLEDGORS' RIGHTS. So long as no Event of Default shall have
occurred and be continuing:
(i) Pledgors shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Collateral or any
part thereof for any purpose not inconsistent with the terms of this
Agreement or the Credit Agree ment;
(ii) Pledgors shall be entitled to receive and retain, and to
utilize free and clear of the lien of this Agreement, any and all
dividends and interest paid in respect of the Pledged Collateral;
PROVIDED, HOWEVER, that any and all
(1) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of,
or in exchange for, any Pledged Collateral,
(2) dividends and other distributions paid or payable
in cash in respect of any Pledged Collateral in connection
with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(3) cash paid, payable or otherwise distributed in
respect of principal or in redemption of or in exchange for
any Pledged Collateral,
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shall be, and shall forthwith be delivered to Secured Party to hold as,
Pledged Collateral and shall, if received by a Pledgor, be received in
trust for the benefit of Secured Party, be segregated from the other
property or funds of such Pledgor and be forthwith delivered to Secured
Party as Pledged Collateral in the same form as so received (with all
necessary endorsements); and
(iii) Secured Party shall promptly execute and deliver (or
cause to be executed and delivered) to Pledgors all such proxies,
dividend payment orders and other instruments as Pledgors may from time
to time reasonably request for the purpose of enabling Pledgors to
exercise the voting and other consensual rights which they are entitled
to exercise pursuant to paragraph (i) above and to receive the
dividends, principal or interest payments which they are authorized to
receive and retain pursuant to paragraph (ii) above.
(b) SECURED PARTY'S RIGHTS. Upon acceleration of the maturity of the
Loans in accordance with Section 7 of the Credit Agreement and upon the
occurrence and during the continuation of an Event of Default:
(i) upon written notice from Secured Party to the Pledgors,
all rights of such Pledgors to exercise the voting and other consensual
rights which they would otherwise be entitled to exercise pursuant to
Section 7(a)(i) shall cease, and all such rights shall thereupon become
vested in Secured Party who shall thereupon have the sole right to
exercise such voting and other consensual rights;
(ii) all rights of Pledgors to receive the dividends and
interest payments which they would otherwise be authorized to receive
and retain pursuant to Section 7(a)(ii) shall cease, and all such
rights shall thereupon become vested in Secured Party who shall
thereupon have the sole right to receive and hold as Pledged Collateral
such dividends and interest payments; and
(iii) all dividends and other payments which are received by a
Pledgor contrary to the provisions of paragraph (ii) of this Section
7(b) shall be received in trust for the benefit of Secured Party, shall
be segregated from other funds of such Pledgor and shall forthwith be
paid over to Secured Party as Pledged Collateral in the same form as so
received (with any necessary endorsements).
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(c) IRREVOCABLE PROXY. In order to permit Secured Party to exercise the
voting and other consensual rights which it may be entitled to exercise pursuant
to Section 7(b)(i) and to receive all dividends and other distributions which it
may be entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) each
Pledgor shall promptly execute and deliver (or cause to be executed and
delivered) to Secured Party all such proxies, dividend payment orders and other
instruments in respect of the Pledged Collateral owned by such Pledgor as
Secured Party may from time to time reasonably request and (ii) without limiting
the effect of the immediately preceding clause (i), each Pledgor hereby grants
to Secured Party an IRREVOCABLE PROXY to vote the Pledged Shares owned by such
Pledgor and to exercise all other rights, powers, privileges and remedies to
which a holder of such Pledged Shares would be entitled (including without
limitation giving or withholding written consents of shareholders, calling
special meetings of shareholders and voting at such meetings), which proxy shall
be effective, automatically and without the necessity of any action (including
any transfer of such Pledged Shares on the record books of the issuer thereof)
by any other Person (including the issuer of such Pledged Shares or any officer
or agent thereof), upon the occurrence of an Event of Default and which proxy
shall only terminate upon the earlier to occur of (i) cessation of such Event of
Default and (ii) payment in full of the Secured Obligations.
SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT.
Each Pledgor hereby irrevocably appoints Secured Party as such
Pledgor's attorney-in-fact, with full authority in the place and stead of such
Pledgor and in the name of such Pledgor, Secured Party or otherwise, from time
to time following the occurrence and during the continuance of an Event of
Default, in Secured Party's discretion to take any action and to execute any
instrument that Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including without limitation:
(a) to file one or more financing or continuation statements,
or amendments thereto, relative to all or any part of the Pledged
Collateral owned by such Pledgor without the signature of such Pledgor;
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(b) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Pledged Collateral owned by such
Pledgor;
(c) to receive, endorse and collect any instruments made
payable to such Pledgor representing any dividend, principal or
interest payment or other distribution in respect of the Pledged
Collateral owned by such Pledgor or any part thereof and to give full
discharge for the same; and
(d) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise to enforce the
rights of Secured Party with respect to any of the Pledged Collateral
owned by such Pledgor.
SECTION 9. SECURED PARTY MAY PERFORM.
If any Pledgor fails to perform any agreement contained herein, Secured
Party may itself perform, or cause performance of, such agreement, and the
expenses of Secured Party incurred in connection therewith shall be payable by
the relevant Pledgor under Section 13(b).
SECTION 10. STANDARD OF CARE.
The powers conferred on Secured Party hereunder are solely to protect
its interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, Secured Party shall have no duty as to
any Pledged Collateral, it being understood that Secured Party shall have no
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Pledged Collateral, whether or not Secured Party has or is deemed to have
knowledge of such matters, (b) taking any necessary steps (other than steps
taken in accordance with the standard of care set forth above to maintain
possession of the Pledged Collateral) to preserve rights against any parties
with respect to any Pledged Collateral, (c) taking any necessary steps to
collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the
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Pledged Collateral, or (d) initiating any action to protect the Pledged
Collateral against the possibility of a decline in market value; provided,
however, that the Secured Party shall at all times be liable for its gross
negligence or malfeasance (and that of its employees and agents). Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of Pledged Collateral in its possession if such Pledged Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property consisting of negotiable securities.
SECTION 11. REMEDIES.
(a) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Pledged Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether
or not the Code applies to the affected Pledged Collateral), and Secured Party
may also in its sole discretion, without notice except as specified below, sell
the Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange or broker's board or at any of Secured Party's
offices or elsewhere, for cash, on credit or for future delivery, at such time
or times and at such price or prices and upon such other terms as Secured Party
may deem commercially reasonable, irrespective of the impact of any such sales
on the market price of the Pledged Collateral. Secured Party or any Lender or
Lender Counterparty may be the purchaser of any or all of the Pledged Collateral
at any such sale and Secured Party, as agent for and representative of Lenders
and Lender Counterparties (but not any Lender or Lenders or Lender Counterparty
or Lender Counterparties in its or their respective individual capacities unless
Majority Obligees (as defined in Section 15(a)) shall otherwise agree in
writing), shall be entitled, for the purpose of bidding and making settlement or
payment of the purchase price for all or any portion of the Pledged Collateral
sold at any such public sale, to use and apply any of the Secured Obligations as
a credit on account of the purchase price for any Pledged Collateral payable by
Secured Party at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of any
Pledgor, and each Pledgor hereby waives (to the extent permitted by applicable
law) all rights of redemption, stay and/or appraisal which it now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. Each Pledgor agrees that, to the extent notice of sale shall
be required by law, at least ten days' written notice to such
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Pledgor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Pledged Collateral regardless
of notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Each Pledgor hereby waives any claims
against Secured Party arising by reason of the fact that the price at which any
Pledged Collateral may have been sold at such a private sale was less than the
price which might have been obtained at a public sale, even if Secured Party
accepts the first offer received and does not offer such Pledged Collateral to
more than one offeree.
(b) In the event that Secured Party determines in its sole discretion
to sell the Pledged Collateral in one or more private sales, subject to Section
11(a):
(i) Secured Party may sell the Pledged Collateral or any part
thereof in one or more parcels;
(ii) Secured Party may sell for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon
such other terms as Secured Party may deem commercially reasonable;
(iii) Secured Party may in its discretion establish a reserve
price for the Pledged Collateral or any part thereof;
(iv) Secured Party shall not be obligated to make any sale
regardless of any offer to sell which Secured Party may have made;
(v) Secured Party may postpone or cancel the sale, modify the
terms and conditions of the sale, withdraw any Pledged Collateral from
the sale at any time, including by announcement at the time and place
fixed for the sale, and such sale may, without further notice, be made
at the time and place to which it was so adjourned;
(vi) Each Pledgor unconditionally waives any claims against
Secured Party arising by reason of the fact that the price of which any
Pledged Collateral may have been sold at such a private sale was less
than the price which might have been attained at a public sale, even if
Secured Party accepts
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the first offer received and does not offer such security assets to
more than one offeree;
(vii) Each Pledgor unconditionally agrees that Secured Party
may acquire the Secured Assets or sell them to an affiliate.
(c) Each Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged Collateral under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree, among other things, to acquire the
Pledged Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. Each Pledgor acknowledges that any such
private sales may be at prices and on terms less favorable than those obtainable
through a public sale without such restrictions and, notwithstand ing such
circumstances, such Pledgor agrees that any such private sale shall be deemed to
have been made in a commercially reasonable manner and that Secured Party shall
have no obligation to engage in public sales and no obligation to delay the sale
of any Pledged Collateral for the period of time necessary to permit the issuer
thereof to register it for a form of public sale requiring registration under
the Securities Act or under applicable state securities laws, even if such
issuer would, or should, agree to so register it.
(d) If Secured Party determines to exercise its right to sell any or
all of the Pledged Collateral, upon written request, each Pledgor shall and
shall cause Company to furnish to Secured Party all such information as Secured
Party may request in order to determine the number of shares and other
instruments included in the Pledged Collateral which may be sold by Secured
Party in exempt transactions under the Securities Act and the rules and
regulations of the Securities and Exchange Commission thereunder, as the same
are from time to time in effect.
(e) The Secured Party agrees that it will act in parallel to initiate
remedies available under this Agreement against the respective Pledgors whether
such initiative is by demand or the initiation of the remedies available under
this Section, and if the Secured Party shall realize upon less than all of the
Pledged Collateral, by sale of shares or otherwise, the Secured Party agrees to
initiate a sale of equal portions of the Pledged Collateral from each Pledgor.
This undertaking shall in no respect diminish or delay the exercise by the
Secured Party of all rights available hereunder. In the
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event that the exercise of rights by the Secured Party against one of the
Pledgors should be delayed, deferred, enjoined or for any other reason
whatsoever the Secured Party is unable to exercise in full or realize in full
its rights and benefits under this Agreement, the Secured Party may proceed in
the exercise of its remedies against the other Pledgor and, if its initiative
was in respect of less than all Pledged Collateral of such Pledgor, such
initiative may be supplemented in order to exercise remedies against additional
Pledged Collateral or all Pledged Collateral of such Pledgor to the fullest
extent permitted by law. The Secured Party hereby acknowledges that each Pledgor
is subrogated to the rights of the Secured Party and the Lenders under the
Financing Documents; provided that no such right may be exercisable until the
satisfaction in full by the Company of all its obligations under the Credit
Agreement.
SECTION 12. APPLICATION OF PROCEEDS.
All proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral shall be applied as provided in Section 2.16 of the Credit Agreement.
SECTION 13. INDEMNITY AND EXPENSES.
(a) Subject to Section 25, each Pledgor severally agrees to indemnify
Secured Party from and against any and all claims, losses and liabilities in any
way relating to, growing out of or resulting from enforcement of this Agreement,
except to the extent such claims, losses or liabilities result solely from
Secured Party's or a Lender's or Lender Counterparty's gross negligence or
willful misconduct as finally determined by a court of competent jurisdiction.
(b) Subject to Section 25, each Pledgor severally agrees to pay to
Secured Party upon demand the amount of any and all costs and expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, that Secured Party may incur in connection with (i) the sale of,
collection from, or other realization upon, any of the Pledged Collateral of
such Pledgor, (ii) the exercise or enforcement of any of the rights of Secured
Party hereunder, or (iii) the failure by such Pledgor to perform or observe any
of the provisions hereof.
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(c) The obligations of Pledgors in this Section 13 shall survive the
termination of this Agreement and the discharge of Pledgors' other obligations
under this Agreement, the Lender Interest Hedging Agreements, the Credit
Agreement and the other Financing Documents.
SECTION 14. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (a) remain in full force and effect until the
payment in full of all Secured Obligations and the cancellation or termination
of the Commitments, (b) be binding upon Pledgors and their respective successors
and assigns, and (c) inure, together with the rights and remedies of Secured
Party hereunder, to the benefit of Secured Party and its successors, transferees
and assigns. Without limiting the gener ality of the foregoing clause (c), but
subject to the provisions of subsection 10.4 of the Credit Agreement, any Lender
may assign or otherwise transfer any Loans held by it to any other Person, and
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to Lenders herein or otherwise. Upon the payment in full of all
Secured Obligations and the cancellation or termination of the Commit ments, the
security interest granted hereby shall terminate and all rights to the Pledged
Collateral shall revert to the applicable Pledgors. Upon any such termination
Secured Party will, at Pledgors' expense, execute and deliver to Pledgors such
documents as Pledgors shall reasonably request to evidence such termination and
Pledgors shall be entitled to the return, upon their request and at their
expense, against receipt and without recourse to Secured Party, of such of the
Pledged Collateral as shall not have been sold or otherwise applied pursuant to
the terms hereof.
SECTION 15. SECURED PARTY AS AGENT.
(a) Secured Party has been appointed to act as Secured Party hereunder
by Lenders and, by their acceptance of the benefits hereof, Lender
Counterparties. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
without limitation the release or substitution of Pledged Collateral), solely in
accordance with this Agreement and the Credit Agreement; PROVIDED that Secured
Party shall exercise, or refrain from exercising, any remedies provided for in
Section 11 in accordance with the
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instructions of (i) Majority Lenders or (ii) after payment in full of all
Obligations under the Credit Agreement and the other Financing Documents, and
the termination of the Commitments, the holders of a majority of the aggregate
notional amount (or, with respect to any Lender Interest Rate Agreement that has
been terminated in accordance with its terms, the amount then due and payable
(exclusive of expenses and similar payments but including any early termination
payments then due) under such Lender Interest Rate Agreement) under all Lender
Interest Hedging Agreements (Majority Lenders or, if applicable, such holders
being referred to herein as "MAJORITY OBLIGEES"). In furtherance of the
foregoing provisions of this Section 15(a), each Lender Counterparty, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Pledged Collateral hereunder, it being
understood and agreed by such Lender Counterparty that all rights and remedies
hereunder may be exercised solely by Secured Party for the benefit of Lenders
and Lender Counterparties in accordance with the terms of this Section 15(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to Article IX of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to Article IX of the Credit Agreement
shall also constitute removal as Secured Party under this Agreement; and
appointment of a successor Administrative Agent pursuant to Article IX of the
Credit Agreement shall also constitute appointment of a successor Secured Party
under this Agreement. Upon the acceptance of any appoint ment as Administrative
Agent under Article IX of the Credit Agreement by a successor Administrative
Agent, that successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Secured Party under this Agreement, and the retiring or removed Secured
Party under this Agreement shall promptly (i) transfer to such successor Secured
Party all sums, securities and other items of Collateral held hereunder,
together with all records and other documents necessary or appropriate in
connection with the performance of the duties of the successor Secured Party
under this Agreement, and (ii) execute and deliver to such successor Secured
Party such amendments to financing statements, and take such other actions, as
may be necessary or appropriate in connection with the assignment to such
successor Secured Party of the security interests created hereunder, whereupon
such retiring or removed Secured Party shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Administrative
Agent's resignation or removal hereunder as Secured Party, the provisions of
this Agreement shall inure to its benefit as to any
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actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 16. AMENDMENTS; ETC.
No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by any Pledgor therefrom, shall
in any event be effective unless the same shall be in writing and signed by
Secured Party and, in the case of any such amendment or modification, by
Pledgors; PROVIDED that any Pledge Amendment in the form of SCHEDULE II annexed
hereto shall be effective upon execution by any Pledgor and Pledgors hereby
waive any requirement of notice of or consent to any such Pledge Amendment or
amendment. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
SECTION 17. NOTICES.
Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex (with received answerback), or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; PROVIDED that notices to Secured Party shall not be effective until
received. For the purposes hereof, the address of each party hereto shall be as
provided in subsection 10.1 of the Credit Agreement or as set forth under such
party's name on the signature pages hereof or such other address as shall be
designated by such party in a written notice delivered to the other parties
hereto.
SECTION 18. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of Secured Party in the exercise of any
power, right or privilege hereunder shall impair such power, right or privilege
or be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
any other or further
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exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
SECTION 19. SEVERABILITY.
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 20. HEADINGS.
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION 21. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITA TION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE
STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO
THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. UNLESS OTHERWISE DEFINED HEREIN OR IN THE CREDIT AGREEMTN,
TERMS USED IN ARTICLES 8 AND 9 OF THE UNIFORM COMMERCIAL CODE IN THE STATE OF
NEW YORK ARE USED HEREIN AS THEREIN DEFINED. THE RULES OF CONTSTRUCTION SET
FORTH IN SUBSECTION 1.3 OF THE CREDIT AGREEMENT SHALL BE APPLICABLE TO THIS
AGREEMENT MUTATIS MUTANDIS.
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SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PLEDGOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY
AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II)
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) IN THE CASE THAT SUCH PLEDGOR
IS FLAG ATLANTIC HOLDINGS, DESIGNATES AND APPOINTS FLAG TELECOM USA LIMITED WITH
OFFICES AT 570 LEXINGTON AVENUE, 38TH FLOOR, NEW YORK, NY 10022, AND IN THE CASE
THAT SUCH PLEDGOR IS GTS HOLDINGS, DESIGNATES AND APPOINTS NATIONAL CORPORATE
RESEARCH WITH OFFICES AT 225 W. 34TH ST., SUITE 2110, NEW YORK, NY 10122, OR
SUCH OTHER PERSONS LOCATED IN NEW YORK STATE AS MAY HEREAFTER BE SELECTED BY
SUCH PLEDGOR AND AGREE ING IN WRITING TO SO SERVE, AS ITS AGENT TO RECEIVE ON
ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY SUCH PLEDGOR TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO SUCH PLEDGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE
WITH SECTION 17 PROVIDED THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF SUCH
PROCESS. IF ANY AGENT APPOINTED BY SUCH PLEDGOR REFUSES TO ACCEPT SERVICE, SUCH
PLEDGOR HEREBY AGREES THAT SERVICE OF PROCESS SUFFICIENT FOR PERSONAL
JURISDICTION IN ANY ACTION AGAINST SUCH PLEDGOR IN THE STATE OF NEW YORK MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH PLEDGOR
AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 17, AND SUCH PLEDGOR HEREBY
ACKNOWLEDGES THAT SUCH SERVICE SHALL BE EFFECTIVE AND BINDING IN EVERY RESPECT;
(IV) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN ANY
20
<PAGE>
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH PLEDGOR IN
THE COURTS OF ANY OTHER JURISDIC TION; AND (V) AGREES THAT THE PROVISIONS OF
THIS SECTION 22 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND
ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS
LAW SECTION 5-1402 OR OTHERWISE.
SECTION 23. WAIVER OF JURY TRIAL.
PLEDGORS AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT
LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH PLEDGOR AND SECURED PARTY ACKNOWLEDGE
THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR PLEDGORS AND SECURED PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT PLEDGORS AND SECURED PARTY HAVE
ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH
PLEDGOR AND SECURED PARTY FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
SPECIFICALLY REFERRING TO THIS SECTION 23 AND EXECUTED BY EACH OF THE PARTIES
HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
SECTION 24. COUNTERPARTS.
This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one
21
<PAGE>
and the same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
SECTION 25. NON-RECOURSE.
Notwithstanding anything to the contrary in this Agreement or
any other Financing Document, the Secured Party's sole recourse against each
Pledgor for the breach of any representation or warranty by any such Pledgor
under this Agreement or the failure by any Pledgor to perform its obligations
under this Agreement shall be solely to the Pledged Collateral and shall not
extend to any other assets of such Pledgor, or to any shareholder, employee,
director, officer, representative or agent of such Pledgor or any Affiliates of
such Pledgor or its shareholders, employees, directors, officers,
representatives or agents.
[Remainder of page intentionally left blank]
22
<PAGE>
IN WITNESS WHEREOF, Pledgors and Secured Party have caused this
Agreement to be duly executed and delivered by their Responsible Officers
thereunto duly authorized as of the date first written above.
GTS TRANSATLANTIC HOLDINGS, LTD
By: /s/ Steven E. Andrews
------------------------------
Name: Steven E. Andrews
Title:
FLAG ATLANTIC HOLDINGS LIMITED
By: /s/ Edward McCormack
------------------------------
Name: Edward McCormack
Title:
S-1
<PAGE>
BARCLAYS BANK PLC,
as Secured Party
By: /s/ L. Peter Yetman
-------------------------------
Authorized Signatory
S-2
<PAGE>
Atlantic Cable Maintenance and Repair Agreement Exhibit 10.23
- --------------------------------------------------------------------------------
ATLANTIC CABLE MAINTENANCE
AND
REPAIR AGREEMENT
(ACMA)
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
ATLANTIC CABLE MAINTENANCE AND REPAIR AGREEMENT
This Agreement is made as of the 20th day of January 1998 between the Parties
which have signed this Agreement and which are identified in Schedule A
attached.
WHEREAS:
A. the Parties wish to provide an arrangement for the Repair and Maintenance and
Improvement of Scheduled Cables for which the Maintenance Authorities are
responsible within the Area;
B. the basis of this arrangement is intended to be co-operative action among the
Parties for the mutual benefit of the Parties;
C. the Ship Operators operate Cable Ships to which the Maintenance Authorities
wish to have access under the terms of this Agreement;
D. this Agreement sets out the terms and conditions governing the availability
of the Cable Ships and the calculation and allocation of the costs connected
with their employment as well as the operating procedures necessary to carry out
the purpose of this Agreement;
E. this Agreement is intended by the Parties to cancel and supersede the
previous Atlantic Cable Maintenance and Repair Agreement dated 1 April 1989.
NOW IT IS AGREED by and between the Parties as follows:
ARTICLE 1 DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Agreement the expressions set out below shall bear the following
meanings:
<TABLE>
<CAPTION>
<S> <C>
"Accounting Units" means units which are allocated to
Scheduled Cables and their respective
Maintenance Authorities; the values of
these units are derived as specified
in Schedule B and are listed in
Schedules B1 and B2 as may be revised
from time to time pursuant to this
Agreement;
"Affiliate" means in relation to any Party any
company or partnership which is a
Subsidiary of such Party or a company
or partnership of which such Party is
a Subsidiary; or a company or
partnership which is another
Subsidiary of a company or partnership
of which such Party is a Subsidiary;
</TABLE>
ACMA Page 2 of 55
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
"Agreement" means this Atlantic Cable Maintenance
and Repair Agreement (ACMA), including
the Schedules attached hereto and any
subsequent amendments made hereto
pursuant to the terms of this
Agreement;
"Agreement Year" means any period of twelve calendar
months ending on 31 December;
"Alternative Cable Ship" means a Cable Ship nominated as such
by a Ship Operator pursuant to
Articles 4.2.4(b) and 6;
"Area" means the ACMA area, the geographical
area which is the subject of this
Agreement and identified as such on
the map attached as Schedule D, which
is bounded in the North by latitude
64DEG.N, the east coast of Greenland
to Cape Farvell, and latitude 60DEG.N
from Cape Farvell to Cape Chidley in
Canada; in the South by latitude
40DEG.S; in the West by the eastern
mainland coasts of North, Central and
South America; and in the East by the
west coast of Norway, latitude 62DEG.N
to the Faeroe Islands, a direct line
from the Faeroe Islands to the
northernmost point of Great Britain,
the west cost of great Britain, a
direct line drawn from Falmouth in
England to Brest in France, the west
coast of France, the coast of
Portugal, the west coast of Spain to
Cape Trafalgar, a direct line drawn
from Cape Trafalgar to Cape Spartel,
the west coast of Africa to the Cape
of Good Hope and thence a direct line
due South to latitude 40DEG.S; the
Management Committee may also agree to
extend the Area further to include
additional Scheduled Cables as
requested by any Maintenance
Authority;
"Appointed Party" means any Party appointed by the
Management Committee to carry out
a specific function under this
Agreement, including but not limited
to: the Central Billing Party, the
Schedule B Party, the Schedule E
Party, the Schedule H Party, the
Schedule K Party and the Schedule L
Party;
"Assigned Port" means the port from which a Cable Ship
is at any given time required to
operate under this Agreement pursuant
to the Ships' Program and which may
include, where appropriate, its Base
Port;
</TABLE>
ACMA Page 3 of 55
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
"Authorised Shipboard
Representative" means the person so designated by a
Maintenance Authority pursuant to
Article 10.2;
"Authorised Shore
Representative" means the person so designated by a
Maintenance Authority
pursuant to Article 10.2;
"Available" means, for a Cable Ship, when it is
not unavailable for any of the reasons
described in Article 7.1 and
"Availability" shall be construed
accordingly;
"Available Ship Days" means those days during an Agreement
Year when the Cable Ships are
Available;
"Base Port" means the port identified as such in
Article 4.1.1, where the relevant
Cable Ship will normally be based;
"Bearer Capacity" means capacity in a Scheduled Cable
which is exclusive of capacity derived
by the use of digital circuit
multiplication equipment or similar
device;
"Cable Ship" means any of the following vessels;
BC Atlantida, which is owned and
operated by TEMASA;
CS Sir Eric Sharp, which is owned and
operated by CWM;
CS Global Link, which is owned by CS
Global Link, L.P. and operated through
its General Partner TCSC;
CS Global Mariner, which is owned by
CS Global Mariner, L.P. and operated
through its General Partner TCSC;
NC Leon Thevenin, which is owned by
FCR and operated by FT;
CS Sovereign, which is owned by BT and
operated by CWM; for the purpose of
this Agreement, BT shall be deemed to
be the Shipowner;
"Central Billing Party" means the Maintenance Authority
responsible for the performance of all
billing and associated functions under
this Agreement;
</TABLE>
ACMA Page 4 of 55
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
"Confidential Information" means any information related to this
Agreement in whatever form about or
concerning any Party or any of its
Affiliates and any of that Party's
contractors, sub-contractors,
employees, servants or agents
including, but not limited to,
business products and methods of work
of any of the aforesaid persons but
not including any such information
which:
(a) is or becomes generally
available to the public (other
than by reason of a breach of
this Agreement); and/or
(b) is known to the receiving or
acquiring party at the time of
its receipt or acquisition
without restriction; and/or
(c) is subsequently acquired from a
third party on terms that it
may be disclosed and/or used
where such third party is
lawfully entitled to disclose
on such terms; and/or
(d) is required to be disclosed by
a court of law, regulatory
authority or tribunal of
competent jurisdiction;
"C&MA" means, for any Scheduled Cable, the
construction and maintenance
agreement, or equivalent governing
agreement, which has been executed by
the owners of that Scheduled Cable;
"Constructive Total Loss" means a situation where the cost of
repairs to the Cable Ship and/or
replacement thereof equals or exceeds
the insured value;
"Eastern Zone" means that part of the Area which lies
to the East of a direct line drawn
from Reykjanes in south Iceland,
through the approximate geographical
mid-points of any transatlantic
Scheduled Cables which such direct
line crosses, to Belem in Brazil;
"Eastern Zone Party" means any of the Parties which are
listed in Schedule B2;
"Fuel Used In Port While means fuel and lubricating oil used
On Standby" while a Cable Ship is on Standby in
port and the coast of which is not
included in Standing Charges or
Running Costs;
</TABLE>
ACMA Page 5 of 55
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
"LIBOR" means the London Inter-Bank Offer Rate
being the arithmetic mean, rounded to
the nearest one sixteenth of one per
cent, of the offered interest rates
for US $10 million quoted by the
market of five reference banks at 11am
each working day; the banks are
National Westminster Bank, Bank of
Tokyo, Deutsche Bank, Banque Nationale
de Paris and Morgan Guarantee Trust;
"Maintenance and
Improvement" means work, other than a Repair, which
is carried out on an interruptible
basis on a Scheduled Cable by a Cable
Ship, and which is deemed by the
relevant Maintenance Authority to be
required in order to reduce the
susceptibility of that Scheduled Cable
to future service-affecting faults;
"Maintenance Authorities" means the Parties which are identified
in Schedule B1 and/or B2 as having
either sole or joint responsibility
for the maintenance of a Scheduled
Cable and "Maintenance Authority"
shall mean any one of such Parties;
"Management Committee" means the ACMA Management Committee
established pursuant to Article 3;
"Master" means the person designated as such by
the appropriate Ship Operator and
charged with the responsibility for
the safety and day-to-day operation of
its Cable Ship and safety of Cable
Ship personnel;
"Notional Capacity" means, for a Scheduled Cable, the
quantity of Bearer Capacity which is
identified as such in Schedule B1
and/or B2 and which is either:
(i) specified as the notional
capacity in the relevant
C&MA; or
(ii)for Scheduled Cables not
having a specified notional
capacity, the quantity of
Bearer Capacity which is agreed
as such between the Management
Committee and the relevant
Maintenance Authority in
accordance with the provisions
of Paragraph 3.1.1 of Schedule
B;
</TABLE>
ACMA Page 6 of 55
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
"Operation" means Repair, or Maintenance and
Improvement, or other work of an
interruptible nature performed under
this Agreement;
"Operational Distance" means the distance from its Assigned
Port to the place at which an
Operation is carried out by a Cable
Ship;
"Outside Work" means work outside the terms of
this Agreement carried out by a Cable
Ship and for which neither Standing
Charges nor Running Costs are
chargeable in any manner under this
Agreement;
"Parties" means the parties identified in
Schedule A which have signed this
Agreement on the signature pages
hereto; it includes any party which is
subsequently admitted under Article 27
and has signed an agreement in the
form provided in Schedule N hereto;
"Party" shall mean any one of such
Parties;
"Passage Time" means, as applicable:
(a) the period of elapsed time from
the departure time of a Cable
Ship from its Assigned or Base
Port until its arrival time at
the site of an Operation or
Outside Work; and/or
(b) the period of elapsed time from
the departure time of the Cable
Ship from the site of an
Operation or Outside Work until
its arrival time at its
Assigned or Base Port; and/or
(c) the period of elapsed time from
the departure time of the Cable
Ship from the site of an
Operation or Outside Work until
its arrival time at the site of
a different Operation or
Outside Work; and/or
(d) the period of elapsed time from
the departure time of the Cable
Ship from a specified point in
one Zone until its arrival time
at another specified point in
the same Zone; and/or
(e) the period of elapsed time from
the departure time of the Cable
Ship from a specified point in
one Zone until its arrival time
at a specified point in the
other Zone;
</TABLE>
ACMA Page 7 of 55
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
"Refit" means statutory maintenance work or
any other maintenance work carried out
on a Cable Ship and identified as
"Refit" in the Ships' Program;
"Repair" means work carried out on a Scheduled
Cable by a Cable Ship and which is
deemed by the relevant Maintenance
Authority to be required in order to
remedy a fault suffered by that
Scheduled Cable;
"RFS Date" means, for a Scheduled Cable, the date
at which the relevant Maintenance
Authority and/or its co-owners (if
any) agree to place such Scheduled
Cable into operation for customer
service;
"Running Costs" means incremental costs, which are
over and above Standing Charges and
the cost of Fuel Used In Port While On
Standby, WHICH ARE ASSOCIATED WITH A
SPECIFIC OPERATION OR ACTIVITY and
incurred in connection with the
operation of a Cable Ship and/or other
related activities, including but not
limited to the costs of the following:
DURING AN OPERATION - IN PORT
(a) fuel used;
(b) lubricating oils used;
(c) loading and unloading a
Maintenance Authority's cable,
plant and equipment at a depot
and on a board a Cable Ship;
(d) agency fees for attending
departure/arrival;
(e) immigration charges and local
taxes;
DURING AN OPERATION - AT SEA
(f) fuel used;
(g) lubricating oils used;
(h) additional personnel not
already included in Standing
Charges, and their associated
travel;
</TABLE>
ACMA Page 8 of 55
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
(i) officer and crew overtime;
(j) victualling (either in full if
not already included in
Standing Charges, or for
additional personnel);
(k) port entry/exit charges
(including pilotage, tonnage
dues and light dues);
(l) at-sea insurance premiums;
(m) the Cable Ship's operational
communications charges;
(n) communications charges for the
Maintenance Authority's
representatives;
(o) victualling for the Maintenance
Authority's representatives;
(p) specialist services for weather
forecasting and navigation;
(q) specialist hired services to
assist with an Operation
(including guard boats, barges
and beach equipment);
(r) consumable stores (including
rope, cable stoppers,
damage/lost equipment and
jointing consumables supplied
by the Ship Operator);
(s) insurance deductibles;
(t) special war risk insurance
premiums;
"SCARAB Users Agreement" means the SCARAB III and IV Users'
Agreement dated 28 February 1990;
"Schedule B Party" means the Party appointed, pursuant to
Article 13, to prepare, revise and
distribute Schedules B1 and B2;
"Schedule E Party" means the Party appointed, pursuant to
Article 9.5, to prepare, revise and
distribute Schedule E;
"Schedule H Party" means the Party appointed, pursuant to
Article 20.3, to prepare, revise and
distribute the Ships' Program in the
format given in Schedule H;
</TABLE>
ACMA Page 9 of 55
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Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
"Schedule K Party" means the Party appointed, pursuant to
Article 20.6, to prepare, revise and
distribute Schedules K1 to K5;
"Schedule L Party" means the Party appointed, pursuant to
Article 20.4 to prepare, revise and
distribute the "ACMA Fault Report" on
an annual basis;
"Scheduled Cables" means the submarine telecommunications
cables, or parts thereof, which are
subject to this Agreement and
identified as such in Schedules B1 and
B2; "Scheduled Cable" shall mean any
one of such Scheduled Cables;
"Ship Operators" means the Parties responsible for the
operation of the Cable Ships and
identified as such in this Article 1.1
for the relevant Cable Ship; "Ship
Operator" shall mean any one of such
Parties;
"Shipowner" means a Party which owns a Cable Ship
and which is identified as such in
this Article 1.1 for the relevant
Cable Ship;
"Ships' Program" means the graphical representation
provided pursuant to Article 4.3 and
20.3, and in the format of the pro
forma which is attached as Schedule H,
of the agreed Availability for the
Cable Ships and/or Alternative Cable
Ships (if any) for the relevant
Agreement Year;
"Ship Schedule" means any of the Schedules C1 to C6
inclusive which contain, among other
things:
(a) certain operating conditions
under which the Ship Operator
makes its Cable Ship available
for the purposes of this
Agreement;
(b) a performance specification for
the relevant Cable Ship; and
(c) certain information required
for the purpose of calculating
Cable Ship costs;
"Spare Submersible Plant" means spare cable, repeaters,
branching units, joint housings,
terminations, jointing kits and
consumables to be used in an
Operation;
</TABLE>
ACMA Page 10 of 55
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Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
"Specific Practices" means any submarine cable maintenance
practices and equipment which are not
included in Standard Practices;
"Specific Scheduled Cable" means a Scheduled Cable which is
identified as such in Annex 1 to
Schedule E and which is not a Standard
Scheduled Cable and which requires the
use of Specific Practices in its
maintenance;
"Standard Practices" means the submarine cable maintenance
practices and equipment which are
specified in Schedule E and which the
Cable Ships are capable of supporting;
"Standard Scheduled Cable" means a Scheduled Cable which is
identified as such in Annex 1 to
Schedule E and which is capable of
being maintained in accordance with
the Standard Practices;
"Standby" means any period when a Cable Ship is
not engaged on an Operation but is
Available;
"Standing Charges" means the annual charge as specified
in Schedule F, which is charged by a
Ship Operator in connection with its
Cable Ship and its associated
services; Standing Charges include in
particular, but are not limited to:
(a) depreciation on the capital
cost of the Cable Ship and
its equipment;
(b) interest on the capital cost of
the Cable Ship and its
equipment;
(c) the cost of repairs to the
Cable Ship and its equipment
and any essential renewals of
its equipment;
(d) the cost of Refit;
(e) the salaries, wages and
allowances (including liability
for pension contributions) and
travel costs of the permanent
officers and crew (as specified
in the relevant Ship Schedule)
of the Cable Ship;
(f) the cost of providing victuals,
water, shore power, stores and
other services to the normal
standards of each Ship
Operator;
</TABLE>
ACMA Page 11 of 55
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Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
(g) the cost of port charges and
agency fees not included in
Running Costs, Base Port
charges and associated
headquarters charges;
(h) the cost of insurance
(excluding "at sea" insurance
which is included in Running
Costs) against such risks as
the Ship Operator decides to
insure by contract; or where
the Ship Operator decides not
to insure, an amount in lieu of
the cost of insurance to
compensate the Ship Operator
for carrying its own risks;
(i) the cost of all universal
jointing and in-service repair
equipment for Standard
Scheduled Cables which is
required for the Cable Ship, as
specified in the relevant Ship
Schedule;
"Subsidiary" means a company which is a subsidiary
of another company if the latter owns
legally or beneficially, directly or
indirectly, the shares of the former,
such share having the right to 50% or
more of the voting rights under
ordinary circumstances in a general
meeting of shareholders; or a
partnership which is owned by another
entity if such entity owns at least
50% of the partnership's units;
"Total Loss" means a situation where the Cable Ship
is destroyed or so damaged as to cease
to be a thing of the kind insured, or
where the cost of repairs and/or
replacement equals or exceeds the
insured value;
"UJ" means universal jointing which is
required for the Cable Ships, as
specified in Schedule E;
"UQJ" means universal quick jointing which
is required for the Cable Ships, as
specified in Schedule E;
"Western Zone" means that part of the Area which lies
to the West of a direct line drawn
from Reykjanes in south Iceland,
through the approximate geographical
mid-points of any transatlantic
Scheduled Cables which such direct
line crosses, to Belem in Brazil;
"Western Zone Party" means any of the Parties which are
listed in Schedule B1;
</TABLE>
ACMA Page 12 of 55
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Atlantic Cable Maintenance and Repair Agreement
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<TABLE>
<CAPTION>
<S> <C>
"Wilful Misconduct" means any act (whether of commission
or omission), approval or
representation made by a Party
pursuant to this Agreement and where
such act, approval or representation
is based upon the intentional or
reckless disregard of good and prudent
submarine telecommunications cable
maintenance practice but shall not
include any error of judgement or
mistake made by any contractor,
employee, agent or director in the
exercise in good faith of any
function, authority or discretion
conferred upon a Party under this
Agreement;
"Zone" means either the Eastern Zone or the
Western one;
"Zone Party" means either an Eastern Zone Party or
a Western Zone Party..
</TABLE>
1.2 INTERPRETATION
1.2.1 The Schedules attached and listed above form part of this
Agreement and any Article which contains a reference to a Schedule
shall be read as if the Schedule were set out at length in the body of
the Article itself. Any reference to a Schedule is to a Schedule of
this Agreement. Except where expressly stated otherwise, where a
Schedule has been updated or amended pursuant to this Agreement any
reference to that Schedule is a reference to the Schedule then
currently in force.
1.2.2 The headings in this Agreement are inserted for convenience only
and shall be ignored in construing this Agreement.
1.2.3 Any reference to an Article is a reference to an Article of this
Agreement.
1.2.4 In this Agreement, where the sense requires, words denoting the
singular shall also include the plural and vice versa. References to
persons shall include firms and companies and vice versa. Reference to
the male shall include the female.
1.2.5 This Agreement represents the entire understanding between the
Parties in relation to the subject matter of this Agreement and
supersedes all prior provisions, undertakings and agreements, whether
oral or written, relating to these matters.
1.2.6 The Parties hereby agree that this Agreement cancels and
supersedes the previous Atlantic Cable Maintenance and Repair Agreement
dated 1 April 1989.
ARTICLE 2 GENERAL CONDITIONS
2.1 Subject to the terms of this Agreement, the Ship Operators agree to
provide, and the Maintenance Authorities agree to pay the costs (as
defined in Article 15) of, the Cable
ACMA Page 13 of 55
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Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
Ships and associated cable maintenance services which form the subject
of this Agreement.
2.2 The Parties warrant that they are duly authorised to enter into this
Agreement on behalf of themselves and on behalf of and in the name of
the co-owners of the Scheduled Cables for which they are the
Maintenance Authority and to give undertakings on behalf of and in the
name of themselves and their co-owners.
2.3 Subject to the terms herein, this Agreement shall be open to all
entities wishing to become a Party and which have responsibility for
the maintenance of a submarine telecommunications cable which has been
laid within the Area. Any entity wishing to become a Party and thereby
enter a cable into this Agreement must bring the whole of that part of
said cable which lies within the Area and for which it has maintenance
responsibility into the Agreement as a Scheduled Cable. The bringing of
any cable or part of a cable into this Agreement by any Party shall not
however create an obligation on that Party to bring any other cable for
which that entity has a maintenance responsibility, into this
Agreement.
2.4 A Maintenance Authority may propose for inclusion in this Agreement as
a Scheduled Cable a cable which is not situated within the Area. The
Management Committee shall then consider and either approve or not
approve the proposal.
2.5 Nothing in this Agreement shall prevent a Maintenance Authority from
arranging, outside of the terms of this Agreement and at such
Maintenance Authority's own expense, a repair or other work on a
Scheduled Cable for which it is responsible.
2.6 No cable shall be permitted to be brought into this Agreement as a
Scheduled Cable unless, at the date of its intended entry into this
Agreement, it is reasonably demonstrated to the Management Committee
that such cable is free of any fault in its submerged plant that would
affects its ability to carry telecommunications traffic.
2.7 The parties agree that where a cable is brought into this Agreement as
a Scheduled Cable and such Scheduled Cable has, at the date of its
entry into this Agreement, already been qualified for jointing by means
of existing UJ or UQJ technology, the Ship Operator shall implement the
necessary additional jointing training and/or tooling required by the
crew of a Cable Ship to permit that Cable Ship to carry out a Repair to
such Scheduled Cable. The costs of such additional training and/or
tooling is required by the crew of a Cable Ship assigned to the Western
Zone, in proportion to the Accounting Units allocated to them in
Schedule B1, or borne by the Eastern Zone Parties, if such additional
training and/or tooling is required by the crew of a Cable Ship
assigned to the Eastern Zone, in proportion to the Accounting Units
allocated to them in Schedule B2. The provisions of this Article 2.7
shall also apply to a Scheduled Cable which becomes qualified for
jointing by means of existing UJ or UQJ technology during the term of
this Agreement.
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2.8 Notwithstanding the provisions of Articles 6 and 14, in the event of
the Parties requiring a cable ship, in addition to those Cable Ships
listed in Article 1.1, to be permanently entered into this Agreement
such additional cable ship shall only be entered subject to the
following conditions:
2.8.1 an amendment shall required to this Agreement in accordance with
Article 27.1; and
2.8.2 such additional cable ship shall be selected for inclusion in
this Agreement only by means of an open tender invitation and
adjudication exercise which shall be offered to all known qualified
cable ship suppliers.
2.9 A cable shall be permitted to be brought into this Agreement as a
Scheduled Cable prior to its RFS Date but after the completion of its
laying operation. However, any Repair to such Scheduled Cable which is
carried out prior to its RFS Date shall be carried out on an
interruptible basis. The Standing Charges applicable to such Scheduled
Cable shall be calculated and billed to the relevant Maintenance
Authority on a pro rata daily basis for the period from its date of
introduction into this Agreement until the RFS Date of such Scheduled
Cable. Following the RFS Date of such Scheduled Cable, the normal
procedures for the calculation and billing of Standing Charges shall
apply.
2.10 Subject to Article 2.11, in the event that less than all of the parties
listed in Schedule A sign this Agreement, this Agreement shall be
effective only for those parties which have signed this Agreement.
Those parties listed in Schedule A that fail to sign this Agreement
shall not be deemed to be Parties to this agreement and none of the
cables for which they are the sole Maintenance Authority shall be
deemed to be Scheduled Cables. Any Scheduled Cable for which such
non-signing party is a joint maintenance authority shall be deemed to
be a Scheduled Cable only if such non-signing party's joint Maintenance
Authority HAS signed this Agreement and agrees, for the purpose of this
Agreement, to be deemed the sole Maintenance Authority for such
Scheduled Cable.
2.11 This Agreement shall not come into force until:
(a) all Ship Operators have signed this Agreement; and
(b) Maintenance Authorities listed in Schedule A having
responsibility for at least 95% of the Accounting Units have
also signed this Agreement.
2.12 The coming into force of this Agreement pursuant to Article 2.11 shall
be confirmed in writing to all Parties listed in Schedule A by the
chairman of the Management Committee.
ARTICLE 3 THE MANAGEMENT COMMITTEE
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3.1 Each Party shall be entitled to be represented on the Management
Committee.
3.2 Subject to the terms of this Agreement, the functions of the Management
Committee shall be as follows.
3.2.1 To co-ordinate and ensure the efficient management of all actions
required by this Agreement.
3.2.2 To ensure that each Cable Ship is appropriately assigned for the
purposes of this Agreement and in particular to inform the Parties of
the location of an Alternative Cable Ship if a Cable Ship if a Cable
Ship is not Available or is temporarily removed from this Agreement for
any reason.
3.2.3 To decide upon any applications by a Party or a third party as
required or permitted by this Agreement. For the avoidance of doubt,
with respect to applications by maintenance authorities to become
parties to this Agreement, the consent of the Management Committee
shall not be unreasonably withheld.
3.2.4 To provide the opportunity for any Party to advise the other
Parties on any difficulties experienced in maintaining Scheduled
Cables.
3.2.5 To discuss non-binding recommendations on the standardisation of
Repair techniques and the development of new techniques, and authorise
such recommendations as necessary.
3.2.6 To discuss non-binding recommendations for changes to the list of
Cable Ship basic facilities detailed in Schedule E, and authorise such
recommendations as necessary.
3.2.7 To appoint or remove at any time and from time to time the
Central Billing Party.
3.2.8 To appoint or remove at any time and from time to time the
Schedule B Party to be responsible for the preparation and revision of
Schedules B1 and B2 and the distribution of the same to the Parties and
the Central Billing Party pursuant to Article 13, and to review as
necessary and approve said Schedules.
3.2.9 To appoint or remove at any time and from time to time the
Schedule E Party to be responsible for the preparation and revision of
Schedule E and the distribution of the same to the Parties pursuant to
Article 9.5, and to review as necessary and approve said Schedule E.
3.2.10 To appoint or remove at any time and from time to time the
Schedule H Party to be responsible for the preparation, revision and
distribution of the Ships' Program.
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3.2.11 To review as necessary and approve the Ships' Program prepared
pursuant to Articles 4.3 and 20.3.
3.2.12 To appoint or remove at any time and from time to time the
Schedule K Party to be responsible for notifying the Maintenance
Authorities of relevant Cable Ship movements pursuant to Article 20.6.
3.2.13 To appoint or remove at any time and from time to time the
Schedule L Party to be responsible for the preparation, revision and
distribution of the annual "ACMA Fault Report" pursuant to Article
20.4.
3.2.14 To monitor the working of this Agreement and to discuss
non-binding recommendations for suggested amendments to this Agreement
and implement, such amendments as necessary in accordance with the
terms of this Agreement.
3.2.15 To monitor periodically, annually or as necessary, the
distribution of Cable Ship coverage as detailed in Article 4.
3.2.16 To perform annual budget reviews.
3.2.17 To agree with the relevant Maintenance Authority the quantity of
Bearer Capacity which will form the Notional Capacity applicable to any
Scheduled Cable not having a specified notional capacity.
3.3 To assist it in carrying out its functions, the Management Committee
may establish such sub-committees and working groups as it considers
necessary or appropriate.
3.4 The procedures of the Management Committee shall be as follows:
3.4.1 Management Committee meetings shall be held as often as
circumstances require, but not less than once a year, at a time and
place convenient to a majority of the members.
3.4.2 No meeting of the Management Committee may take place without a
quorum and a quorum for any Management Committee meeting shall consist
of at least 50% of all Maintenance Authorities, where such Maintenance
Authorities also have responsibility, or hold proxies for, at last 70%
of the total Accounting Units as shown in Schedules B1 and B2.
3.4.3 A Maintenance Authority shall be elected to serve as chairman for
a term of twelve months by a simple majority of the votes cast by the
members of the Management Committee present at the annual meeting in
accordance with Article 3.4.4. The Maintenance Authority which is
elected chairman shall not thereby lose its representation of the
Management Committee, but shall be entitled to have additional
representatives who may express the opinions of that Party and may cast
that Party's vote.
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3.4.4 Decisions by the Management Committee shall be subject, in the
first place, to consultation among the Parties which shall make all
reasonable effort to reach unanimous agreement with respect to the
matters to be decided. However, in the event that agreement cannot be
reached, the decision shall be taken on the basis of a vote. The vote
shall be carried by a two-thirds majority of the votes cast and the
number of votes cast by each Maintenance Authority, either in person at
the meeting or by proxy, shall be considered to be equal to the total
number of the Accounting Units in Schedules B1 and B2 which are
assigned to that Maintenance Authority.
3.4.5 If a Management Committee decision has to be taken before a
meeting can be held, the chairman shall consult with all of the Parties
inviting them to confirm their position in writing within 14 days of
the chairman's request. Such consultation and response shall be carried
out by fax, or such other medium as may be agreed by the Management
Committee. Any decision so taken may be implemented as if taken at a
meeting. Formal voting on such decision, in accordance with Article
3.4.4, shall only be required if requested by one or more of the
Parties. The chairman shall give prompt notice of the results of any
such decision taken by correspondence in this way, and any decision so
taken shall be binding on the Parties.
3.4.6 No decision of the Management Committee, or any sub-committee or
working group established by the Management Committee, shall over-ride
any provision of this Agreement or in any way diminish the rights of,
or prejudice the interests granted to, any Party to this Agreement.
3.4.7 Notwithstanding Articles 3.4.4 and 3.4.5 above, issues affecting
only the Eastern Zone shall be decided only by the Eastern Zone Parties
and issues affecting only the Western Zone shall be decided only by the
Western Zone Parties who shall reach a decision in accordance with the
provisions of Articles 3.4.4 and 3.4.5 but with the number of votes
cast by each Party being considered to be equal to the number of the
Accounting Units in either Schedule B1 OR B2 which are assigned to that
Party, depending on whether the matter to be decided is a Western Zone
matter or an Eastern Zone matter, respectively.
ARTICLE 4 CABLE SHIP PORTS, ASSIGNMENT AND SHIPS' PROGRAM
4.1 BASE PORTS
4.1.1 The Cable Ships and their respective Base Ports are as shown in
the following table:
<TABLE>
<CAPTION>
Cable Ship Base Port
---------- ---------
<S> <C>
BC Atlantida Vigo, Spain;
</TABLE>
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CS Sir Eric Sharp Ireland Island, Bermuda;
CS Global Link Baltimore, Maryland, USA;
CS Global Mariner Baltimore, Maryland, USA;
NC Leon Thevenin Brest, France;
CS Sovereign Portland, United Kingdom.
4.1.2 Any Ship Operator may change the Base Port of its Cable Ship
after having first obtained the necessary approval of the Management
Committee, the Eastern Zone Parties or the Western Zone Parties as
appropriate pursuant to Articles 3.4.4 to 3.4.7 inclusive, which
approval shall not be unreasonably withheld or delayed. Any additional
costs incurred by such Ship Operator as a result of such change of Base
Port shall be borne wholly by the relevant Ship Operator.
4.1.3 Given that new Scheduled Cables may be introduced into parts of
the Area not well-covered at the inception of this Agreement, a
Maintenance Authority may, after having first obtained the necessary
apporval of the Management Committee, the Eastern Zone Parties or the
Western Zone Parties as appropriate pursuant to Articles 3.4.4 to 3.4.7
inclusive, request a Ship Operator to change the Base Port of its Cable
Ship. Any change of Base Port shall also require the agreement of the
relevant Ship Operator which shall not be unreasonably withheld or
delayed and, upon being so requested, the relevant Ship Operator shall
be entitled upon application to the Management Committee to
re-imbursement of any reasonable and directly-incurred costs which
arise from such request. The cost of such re-imbursement shall be borne
by the Eastern Zone Parties in the event that such Cable Ship is
re-assigned to a Base Port in the Eastern Zone pursuant to this Article
4.1.3, or the Western Zone Parties in event that the Cable Ship is
re-assigned to a Base Port in the Western Zone pursuant to this Article
4.1.3, in proportion to the Accounting Units allocated to them in
Schedule B1 or B2 as appropriate.
4.1.4 A Ship Operator may assign a Cable Ship to another Assigned Port
on a temporary basis. Such assignment shall require the necessary
approval of the Management Committee, the Eastern Zone Parties or the
Western Zone Parties as appropriate pursuant to Articles 3.4.4 to 3.4.7
inclusive. In any case, such approval by the relevant Parties shall not
be unreasonably withheld or delayed.
4.1.5 After having first obtained the necessary approval of the
Management Committee, the Eastern Zone Parties or the Western Zone
Parties as appropriate pursuant to Articles 3.4.4 to 3.4.71 inclusive,
the Eastern Zone Parties or the Western Zone Parties may request the
Ship Operators to assign a Cable Ship to another Assigned Port on a
temporary basis. Such assignment shall require the agreement of the
relevant Ship
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Operator which shall not be unreasonably withheld or delayed. In the
event that such assignment to another Assigned Port, other than to the
relevant Base Port, is requested pursuant to this Article 4.1.5, the
relevant Ship Operator shall be entitled upon application to the
Management Committee to re-imbursement of any reasonable and
directly-incurred costs which arise from such request. The cost of such
re-imbursement shall be borne by the Eastern Zone Parties in the event
that the Cable Ship is re-assigned to an Assigned Port in the Eastern
Zone pursuant to this Article 4.1.5, or the Western Zone Parties in
event that the Cable Ship is re-assigned to an Assigned Port in the
Western Zone pursuant to this Article 4.1.5, in proportion to the
Accounting Units allocated to them in Schedule B1 or B2 as appropriate.
4.1.6 After having first obtained the necessary approval of the
Management Committee, the Eastern Zone Parties or the Western Zone
Parties as appropriate pursuant to Articles 3.4.4 to 3.4.7 inclusive,
any group of Maintenance Authorities may request a Ship Operator to
assign a Cable Ship to another Assigned Port on a temporary basis. Such
assignment shall require the agreement of the relevant Ship Operator
which shall not be unreasonably withheld or delayed. In the event that
such assignment to another Assigned Port, other than to the relevant
Base Port, is requested by such group of Maintenance Authorities, the
relevant Ship Operator shall be entitled upon application to the
Management Committee to re-imbursement of any reasonable and
directly-incurred costs which arise from such request. The cost of such
re-imbursement shall be borne by that group of Maintenance Authorities
requesting such Cable Ship re-assignment pursuant to this Article
4.1.6, in proportion to the Accounting Units allocated to them in
Schedule B1 or B2 as appropriate.
4.2 ASSIGNMENT OF CABLE SHIPS
4.2.1 Subject to the terms of Article 4.1, the assignment of Cable
Ships to Zones shall be as indicated in the following table:
<TABLE>
<CAPTION>
Eastern Zone Western Zone
------------ ------------
<S> <C>
CS Sovereign; CS Global Link
NC Leon Thevenin; CS Global Mariner;
BC Atlantida CS Sir Eric Sharp.
</TABLE>
4.2.2 Subject to the provisions of Article 4.2.3, not less than two nor
more than three Cable Ships shall be Available in each Zone for the
Repair or Maintenance and Improvement of Scheduled Cables.
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4.2.3 The Eastern Zone Parties may for the Eastern Zone, or the Western
Zone Parties may for the Western Zone, agree in writing and in advance,
that only one Cable Ship shall be Available in that Zone for periods
not exceeding 15 (fifteen) days.
4.2.4 In the circumstances when the minimum requirements specified in
Article 4.2.2 for the Availability of Cable Ships cannot be met, and no
agreement has been given in accordance with Article 4.2.3, the Ship
Operators shall propose to the Management Committee either:
(a) a temporary reassignment of Cable Ships between the Zones; or
(b) the assignment to the Agreement of an Alternative Cable Ship
as detailed in Article 6;
and any such temporary reassignment of a Cable Ship between Zones, or
use of an Alternative Cable Ship, shall be subject to the approval of
the Management Committee.
4.3 SHIPS' PROGRAM
4.3.1 Pursuant to Article 20.3 and not later than two months before the
beginning of each Agreement Year, the Schedule H Party shall prepare a
schedule of Availability for the Cable Ships. This schedule of
Availability shall take into account all periods of Standby, Refit and
Outside Work and shall indicate the level of Cable Ship coverage.
4.3.2 The schedule of Availability described in Article 4.3.1 shall,
pursuant to Article 20.3 and not later than two months before the
beginning of each Agreement Year, be presented to the Management
Committee in the form of a draft Ships' Program.
4.3.3 The Management Committee shall consider the draft Ships' Program
and either approve it as submitted or refer it back to the Schedule H
Party for revision. When approved, it shall become the Ships' Program.
4.3.4 Proposals to change the Ships' Program may be made by any of the
Maintenance Authorities and/or the Ship Operators to the Management
Committee which shall decide to approve or not approve such proposals.
4.3.5 All approved changes to the Ships' Program shall be reflected in
the next issue of the Ships' Program.
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ARTICLE 5 OPERATIONAL USE OF CABLE SHIPS
PRIMARY USE AND CHARGES
5.1 The primary use of the Cable Ships shall be for Repair. For the
duration of a Repair all Running Costs, including those for Passage
Time and any applicable loading and unloading time, or mobilisation and
de-mobilisation time, shall be borne by the Maintenance Authority
responsible for the Scheduled Cable undergoing such Repair. Standing
Charges shall be borne in accordance with the provisions of Article 16.
5.2 Subject, however, to the requirements of Articles 4.2.2 and 4.2.3 being
satisfied, other Cable Ship activities may include the following:
(a) Maintenance and Improvement, on an interruptible basis; or
(b) other work of an interruptible nature which work may include,
but not be limited to, the recovery and/or disposal of a
former Scheduled Cable; or
(c) cable working exercises; or
(d) movement between or within Zones: or
(e) Refit; or
(f) Outside Work;
and the Cable Ship costs and their apportionment applicable to each of these
types of activity shall be as follows.
MAINTENANCE AND IMPROVEMENT OF SCHEDULED CABLES
5.2.1 For the duration of an Operation for Maintenance and Improvement
all Running Costs, including those for Passage Time and any applicable
loading and unloading time, or mobilisation and de-mobilisation time,
shall be borne by the Maintenance Authority responsible for the
Scheduled Cable undergoing such Maintenance and Improvement. Standing
Charges shall be borne in accordance with the provisions of Article 16.
OTHER WORK OF AN INTERRUPTIBLE NATURE
5.2.2 For the duration of any other work of an interruptible nature as
approved by the Management Committee, all Running Costs, including
those for Passage Time and any applicable loading and unloading time,
or mobilisation and de-mobilisation time, shall be borne by the
Maintenance Authority responsible for such work or, in the case of the
recovery or disposal of a former Scheduled Cable, by the former
Maintenance Authority
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responsible for such work. In any event, Standing Charges shall be
borne in accordance with Article 16.
CABLE WORKING EXERCISES
5.2.3 A Ship Operator may perform a cable working exercise for the
purpose of crew training and/or equipment proving provided that:
(a) the relevant Ship Operator has provided the Management
Committee, in advance, with details of the nature and location
of the proposed cable working exercise; and
(b) approval has first been obtained from the Eastern Zone Parties
if the relevant Cable Ship is assigned to the Eastern Zone or
the Western Zone Parties if the relevant Cable Ship is
assigned to the Western Zone, which approval shall not be
unreasonably withheld or delayed; and
(c) for the duration of such cable working exercise, the
requirements of Articles 4.2.2 and 4.2.3 are satisfied; and
(d) the Cable Ship. for which such cable working exercise is being
requested, has not been involved in any relevant Operation or
Outside Work during the previous three months; and
(e) such cable working exercise is carried out on an interruptible
basis.
During such cable working exercise, Standing Charges and Running Costs
shall be borne in accordance with Articles 16 and 17. Such cable
working exercises performed by any one Cable Ship shall not exceed 20
(twenty) days in total for all exercises performed during any Agreement
Year.
MOVEMENT BETWEEN OR WITHIN ZONES
5.2.4 During periods of Availability for work on Scheduled Cables, and
when it becomes necessary for a Cable Ship, with the approval of the
Management Committee, to move between Zones, Standing Charges and
Running Costs shall be borne in accordance with Articles 16 and 17.
5.2.5 During periods of Availability for work on Scheduled Cables, and
when it becomes necessary for a Cable Ship, with the approval of the
relevant Zone Parties, to move within a Zone, Standing Charges and
Running Costs shall be borne in accordance with Articles 16 and 17.
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REFIT
5.2.6 Standing Charges for periods when a Cable Ship is undergoing
Refit shall be borne in accordance with Article 16. Any Running Costs
incurred during a period of Refit, commencing from the date of the
approval by the Management Committee of the release of the Cable Ship
from Availability and continuing until the date of written notification
by the relevant Ship Operator to the Management Committee that the
Cable Ship is again Available for work on Scheduled Cables, shall be
borne by the relevant Ship Operator. Such Refit periods shall not
exceed 90 (ninety) days in total for each of the Cable Ships during the
term of this Agreement. Any period of Refit for any one Cable Ship
which is in excess of 90 (ninety) days during the term of this
Agreement shall be considered as Outside Work and Standing Charges
and/or Running Costs for such excess period shall not be charged under
this Agreement
OUTSIDE WORK
5.2.7 Subject to the requirements of Articles 4.2.2 and 4.2.3 being
satisfied, a Cable Ship may be used with the consent of the Management
Committee which consent shall not be unreasonably withheld or delayed,
for Outside Work. In addition:
5.2.7.1 no such consent by the Management Committee shall be
required in the case of the requisition of a Cable Ship by
order of a government;
5.2.7.2 for the duration of such Outside Work including any
Passage Time and any applicable loading and unloading time
pursuant to Article 5.2.8, or mobilisation and de-mobilisation
time, Standing Charges and Running Costs shall not be charged
under this Agreement except as provided for in Article
5.2.8.2; additionally, a credit for Standing Charges for the
period of Outside Work, calculated in accordance with Article
16.5, shall be applied.
LOADING AND UNLOADING TIME FOR OUTSIDE WORK
5.2.8 In order to undertake Outside Work, it may be necessary for the
Cable Ship to unload, and subsequently to re-load, submersible plant
being held on board for the Repair of Scheduled Cables. In this event,
the Cable Ship costs and their apportionment applicable to such loading
and unloading time shall be as follows.
5.2.8.1 For the duration of such unloading period, Standing
Charges and Running costs shall not be charged under this
Agreement.
5.2.8.2 For the duration of such reloading period (when the
Cable Ship is Available for work on Scheduled Cables),
Standing Charges shall be charged under this Agreement and
borne in accordance with Article 16. Running Costs or
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Fuel Used In Port While On Standby incurred during such
re-loading period shall not be charged under this Agreement.
ARTICLE 6 USE OF ALTERNATIVE CABLE SHIPS
6.1 Subject to the approval of the Management Committee, and for such a
period as the Management Committee shall approve, a Ship Operator may
propose another cable ship from either its own fleet or another fleet
as an alternative to its Cable Ship.
6.2 Any such Alternative Cable Ship shall comply with the provisions of
Article 11.1 of this Agreement and shall be considered to be a Cable
Ship for the purposes of this Agreement for such period as is approved
by the Management Committee.
6.3 Any such Alternative Cable Ship shall throughout the period concerned
operate from the Base Port of the Cable Ship which it temporarily
replaces or from such other Assigned Port as may be approved by the
Management Committee.
6.4 The Standing Charges and Running Costs of the Alternative Cable Ship
shall not exceed those of the Cable Ship which it temporarily replaces
and shall, for the duration of the temporary replacement, be
substituted for the Standing Charges and Running Costs of the Cable
Ship being temporarily replaced.
6.5 If an Alternative Cable Ship is damaged to such an extent as to have to
undergo repairs, the provisions of Article 18 shall not apply to such
Alternative Cable Ship.
ARTICLE 7 AVAILABILITY OF CABLE SHIPS
7.1 Each Ship Operator shall operate its Cable Ship so as to have it
available for use at all times for work on Scheduled Cables, except in
the following circumstances:
7.1.1 while the Cable Ship is undergoing Refit, except as provided for
in Article 7.2; or
7.1.2 from the starting date of any Outside Work until its conclusion
in accordance with Articles 5.2.7 and 5.2.8; or
7.1.3 while the Cable Ship is unavailable due to circumstances outside
the control of the Ship Operator or by reason of force majeure which
shall include, but is not restricted to, acts of God or of the public
enemy, acts of governments, insurrections, fires, floods, epidemics,
quarantine restrictions, freight embargoes, strikes or unusually severe
weather; or
7.1.4 while the Cable Ship is damaged to the extent that it cannot
perform Repairs or Maintenance and Improvement as further detailed in
Articles 18 and 19, or it becomes a Total Loss or a Constructive Total
Loss.
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7.2 In the event that no other Cable Ship is available to carry out a
Repair, a Maintenance Authority may request that a Cable Ship interrupt
a period of Refit and be re-mobilised as soon as practicable to carry
out such Repair. Upon receiving such a request, the Ship Operator
concerned shall advise the Maintenance Authority of:
(a) the time necessary to bring the Cable Ship into class and
condition so that it can safely sail; and
(b) the estimated cost of releasing the Cable Ship from Refit; and
(c) an estimate of any incremental charges that may be incurred as
a result of the interruption to the Refit.
All costs incurred by the Ship Operator as a result of such an interruption to
Refit shall be charged as Running Costs and be borne by the Maintenance
Authority requesting the interruption.
ARTICLE 8 OPERATING PROCEDURES
8.1 CABLE SHIP NOTIFICATION PROCEDURE
8.1.1 A Maintenance Authority requiring a Cable Ship to carry out a
Repair shall notify the Ship Operator concerned in accordance with the
notification procedure contained in the relevant Ship Schedule and the
Ship Operator shall take the necessary action to ensure that the Cable
Ship mobilises and sails to the required site of the Repair in
accordance with the performance specification contained in the relevant
Ship Schedule. The Maintenance Authority concerned shall also copy such
notification by fax and without delay to the Management Committee. The
relevant Ship Operator shall confirm receipt of such notification in
accordance with the terms of the relevant Ship Schedule.
8.1.2 The relevant Maintenance Authority or a Ship Operator, as
appropriate, shall give the Management Committee as much advance
written notice as possible of any planned Operation, Outside Work,
Refit or any other expected change in the operational status of a Cable
Ship.
8.1.3 Not less than 1 (one) and not more than 2 (two) days prior to the
planned commencement date of any planned Operation, Outside Work, Refit
or any other expected change in the operational status of a Cable Ship
the relevant Ship Operator shall notify the Management Committee
thereof by fax, providing such information as is relevant and available
at that time.
CABLE SHIP ASSIGNMENT AND REPAIR PRIORITY
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8.2 If, at the time of receipt of notification from a Maintenance Authority
pursuant to Article 8.1, the chosen Cable Ship has already been
instructed to carry out another Repair, the Maintenance Authorities
concerned and the Ship Operators concerned shall consult with one
another to agree which Cable Ship should carry out which Operation.
8.3 If, pursuant to Article 8.2, no agreement is reached by the Maintenance
Authorities concerned and no other suitable Cable Ship is available,
first choice of Cable Ship to carry out the Repair shall be given to
the Maintenance Authority which is responsible for the Scheduled Cable
which has the higher aggregate number of Accounting Units in Schedules
B1 and B2 taken together. Such priority of choice may be exercised at
any time up to the point when the chosen Cable Ship has arrived at the
site of the Repair on the Scheduled Cable having the lower number of
Accounting Units and has engaged such Scheduled Cable on its grapnel or
other recovery device. In the event that such priority is exercised,
the chosen Cable Ship shall be obliged, if requested by the Maintenance
Authority not having been granted such priority, to return to its
Assigned Port for the purpose of off-loading Spare Submersible Plant
proper to the Scheduled Cable which has not been granted such priority.
8.4 Notwithstanding the provisions of Article 8.3, where a Scheduled Cable
concerned forms part of a multiple-segment cable system, the Accounting
Units to be considered for the purpose of Article 8.3 shall be the sum
of the Accounting Units for all Scheduled Cables that constitute such
multiple-segment cable system and whose traffic-carrying capacities are
adversely affected by the failure necessitating the Repair.
ARTICLE 9 OPERATIONAL RESPONSIBILITIES
9.1 The responsibility for planning and directing an Operation or part
thereof shall rest with the Ship Operator concerned unless the
Maintenance Authority concerned has elected in writing to assume that
responsibility and has nominated its Authorised Shipboard
Representative or its Authorised Shore Representative in accordance
with Article 10.2.
9.2 Whether or not such an election has been made pursuant to Article 9.1:
9.2.1 each Cable Ship shall at all times remain under the direct
control of the Ship Operator and nothing in this Agreement shall be
construed as a demise or charter of a Cable Ship to the Maintenance
Authority, jointly or severally; and
9.2.2 nothing in this Agreement shall be deemed to reduce, interfere
with, or otherwise impair the full authority and responsibility of the
Master of a Cable Ship for its safe operation and navigation, or for
the safety of those on board.
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REPAIR PRACTICES
9.3 Each Ship Operator shall ensure that its Cable Ship is capable of
carrying out any necessary Repair or Maintenance and Improvement on all
Standard Scheduled Cables.
9.4 For Specific Scheduled Cables, it shall be the responsibility of the
Maintenance Authority responsible for each such Specific Scheduled
Cable to instruct the Ship Operator to carry out any necessary Repair
or Maintenance and Improvement in accordance with relevant Specific
Practices supplied to that Ship Operator by the relevant Maintenance
Authority. If no such instructions on Specific Practices are received,
the normal practices of the Ship Operator shall be followed.
9.5 The Management Committee shall, with that Party's consent, appoint one
of the Parties to be the Schedule E Party whose function shall be to
prepare, revise and distribute Schedule E.
9.6 A Maintenance Authority which is responsible for a Specific Scheduled
Cable may apply to the Management Committee to have such Specific
Scheduled Cable re-categorised as a Standard Scheduled Cable and
included as such in Annex 1 to Schedule E. The Management Committee
shall then consider the costs and benefits deriving from the approval
of such application as well as the technical specification and state of
qualification of such Specific Scheduled Cable and either approve or
not approve such application. If required, the Management Committee
shall then instruct the Schedule E Party to revise Schedule E to take
account of any change to Standard Practices arising from the
re-categorisation of a Specific Scheduled Cable to a Standard Scheduled
Cable and thereafter to distribute such amended Schedule E to the
Parties.
AUTHORISATIONS AND CONSENTS
9.7 When an Operation takes place in waters which are regulated by a
government authority, it shall be the responsibility of the relevant
Ship Operator to declare, in writing and without any avoidable delay,
to the marine authority concerned the information necessary to obtain
such authorisations and consents as may be required, and to apply for
and obtain such authorisations and consents necessary to the carrying
out of the Operation. In addition:
9.7.1 unless authorised to do so by the relevant Maintenance Authority,
the Ship Operator shall not permit the relevant Cable Ship to sail
prior to the receipt of the necessary authorisations and consents;
9.7.2 the relevant Maintenance Authority shall provide all reasonable
support, as requested by the Ship Operator, in the obtaining of the
necessary authorisations and consents;
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9.7.3 the Ship Operator shall inform the relevant Maintenance Authority
if the necessary authorisations and consents have not been received
after 2 (two) working days from the date of making the application to
the relevant marine authority;
9.7.4 the Ship Operator shall not be liable for any delay which may
occur in the obtaining of the necessary authorisations and consents,
where the delay is caused by reasons beyond the control of the Ship
Operator.
QUALITY ASSURANCE
9.8 If so requested by a Maintenance Authority, a Ship Operator shall make
available for inspection its quality plan which addresses the quality
assurance requirements of this Agreement.
ARTICLE 10 REPRESENTATIVE OF THE MAINTENANCE AUTHORITIES
10.1 The Maintenance Authority for whom any Operation is being carried out
may assign to the Cable Ship concerned one or, if sufficient
accommodation is available, more than one representative for the
duration of that Operation. However, notwithstanding the provisions of
Article 22, permission for any such representative to board the Cable
Ship is subject to the acceptance by that representative and the
Maintenance Authority of the Ship Operator's waiver-of-liability
requirements as specified in the relevant Ship Schedule.
10.2 A Maintenance Authority which has elected to undertake the
responsibility for planning and directing any Operation shall designate
in writing, to the relevant Ship Operator, either its Authorised
Shipboard Representative or its Authorised Shore Representative.
10.3 The function of the Authorised Shipboard Representative or the
Authorised Shore Representative, as applicable, designated under
Article 10.2 shall be to communicate to the Ship Operator in writing,
or by confirmatory radio message if reasonably required, the
requirements of the Maintenance Authority in relation to the Operation;
these requirements shall relate only to the particular Operation on
which the Cable Ship is then engaged.
10.4 The Authorised Shipboard Representative or the Authorised Shore
Representative, as applicable, shall have authority to act in all
matters relating to the Operation for and in the name of the relevant
Maintenance Authority as if the acts of the Authorised Shipboard
Representative or the Authorised Shore Representative, as applicable,
were the acts of the Maintenance Authority.
10.5 As applicable, the Authorised Shipboard Representative's or the
Authorised Shore Representative's only function shall be that indicated
in Article 10.3 and neither they nor the Maintenance Authority
represented by them shall have any duty to ensure or procure
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the doing of anything for the benefit of the Shipowner or the Ship
Operator, or to prevent anything which may be to the detriment of the
Shipowner or the Ship Operator.
10.6 The Ship Operator shall provide any representatives of the Maintenance
Authority with the following facilities on board the Cable Ship:
(a) accommodation of a standard not less than that given to
officers on board and preferably with single occupancy;
(b) full victualling and linen supply whilst on board;
(c) access to the normal communication facilities of the Cable
Ship, as required;
(d) full access to any part of the vessel which the Maintenance
Authority's representative may reasonably deem it necessary
for the purpose of representing the Maintenance Authority;
(e) access to suitable office accommodation and services;
(f) access to the Ship Operator's nonconfidential operational
meetings and/or briefings.
ARTICLE 11 MAINTENANCE FACILITIES ON BOARD CABLE SHIPS
11.1 In order to be capable of fulfilling its obligations under this
Agreement, each Ship Operator shall ensure that its Cable Ship is
equipped with submarine telecommunications cable maintenance equipment
and fully-qualified personnel such that the Cable Ship is able to carry
out Repairs and Maintenance and Improvement on all Standard Scheduled
Cables. Unless the Management Committee otherwise agrees, the Standard
Practices which are listed in Schedule E shall be provided as a
minimum.
11.2 For Specific Scheduled Cables, it shall be the responsibility of the
relevant Maintenance Authorities to provide to the Ship Operators, in a
timely manner, any specialised equipment, expertise, training or
qualification instructions which are not included in Standard Practices
and which are necessary for the Repair or Maintenance and Improvement
of such Specific Scheduled Cables. Except as is provided for in Article
2.7, all costs arising from the provision of such specialised
equipment, expertise, training or qualification instructions to the
Ship Operators shall be borne by the relevant Maintenance Authority and
shall not be charged under this Agreement.
11.3 After receiving such specialised equipment, expertise, training or
qualification instructions from a Maintenance Authority pursuant to
Article 11.2, the Ship Operators shall review the detail of what has
been provided and within 2 (two) weeks confirm to the relevant
Maintenance Authority that the Cable Ships are equipped and their
personnel are
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qualified as necessary and capable to carry out Repairs or Maintenance
and Improvement on the relevant Specific Scheduled Cable.
11.4 The Ship Operators shall exercise due diligence in the safekeeping on
board the Cable Ships of any specialised equipment or documentation
provided by the Maintenance Authorities pursuant to Article 11.2.
11.5 The relevant Maintenance Authority shall be responsible for ensuring
that the Ship Operators are provided, in a timely manner, with the
documentation listed in Paragraph 10.1 of Schedule E. On an annual
basis, the Ship Operators shall check and ensure that they have been
provided with such documentation for all Scheduled Cables and, as
necessary, request the relevant Maintenance Authority, in writing, to
provide such documentation.
11.6 The relevant Maintenance Authority shall be responsible for the timely
provision of Spare Submersible Plant for each of the Scheduled Cables
for which it is responsible and for determining its required allocation
between shore depots and Cable Ships.
11.7 Normally, each Cable Ship shall store on board only sufficient Spare
Submersible Plant to meet the operational requirements of the relevant
Ship Operator. However, each Ship Operator may make available to the
Maintenance Authorities additional space on board its Cable Ship for
the storage of Spare Submersible Plant and specialised equipment for
use in connection with work on the Scheduled Cables in the Zone to
which that Cable Ship is assigned. Such storage space for Spare
Submersible Plant shall be that of the normal submersible plant storage
capacity of the Cable Ship, allocated by the Ship Operator:
(a) as agreed by the Eastern Zone Parties for a Cable Ship which
is assigned to the Eastern Zone; or
(b) as agreed by the Western Zone Parties for a Cable Ship which
is assigned to the Western Zone;
and in reaching agreement on such allocation the Western Zone Parties and the
Eastern Zone Parties shall take into account the proportionate number of
Accounting Units allotted to each Scheduled Cable as shown in Schedules B1 or B2
respectively.
ARTICLE 12 USE OF SPARE SUBMERSIBLE PLANT
12.1 If, in the case of a particular Repair, delay in carrying out that
Repair can be avoided or significantly reduced by the use by a Ship
Operator of Spare Submersible Plant belonging to a Maintenance
Authority which is not responsible for the Scheduled Cable requiring
Repair, such Spare Submersible Plant may be used to carry out the
Repair provided that:
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(a) the Maintenance Authority which is responsible for such Spare
Submersible Plant agrees in writing and confirmation of such
agreement has been communicated in writing to the relevant
Ship Operator, and
(b) such Spare Submersible Plant is considered by the Maintenance
Authority for the Scheduled Cable requiring Repair to be
technically-compatible with the submersible plant of the
Scheduled Cable requiring Repair.
12.2 Pursuant to Article 12.1, the Maintenance Authority having
responsibility for the Scheduled Cable under Repair and which has made
use of Spare Submersible Plant proper to another Scheduled Cable shall,
at the discretion of the Maintenance Authority responsible for the
Scheduled Cable to which such Spare Submersible Plant was proper,
either:
(a) replace such Spare Submersible Plant with similar, technically
compatible plant, as soon as practicable; or
(b) re-imburse the then-current cost of such Spare Submersible
Plant to the Maintenance Authority responsible for the
Scheduled Cable to which such Spare Submersible Plant was
proper; or
(c) employ such other method of replacement or re-imbursement as
may be agreed between the Maintenance Authorities responsible
for the Scheduled Cables concerned.
ARTICLE 13 PREPARATION AND REVISION OF SCHEDULES BI AND B2
13.1 The Management Committee shall, with that Maintenance Authority's
consent, appoint one of the Maintenance Authorities to be the Schedule
B Party whose function shall be to prepare, revise and distribute
Schedules B1 and B2. This appointment shall be notified to the Parties
in writing by the chairman of the Management Committee.
13.2 The Accounting Units for each Scheduled Cable shall be derived and
revised by the Schedule B Party in accordance with the provisions of
Schedule B. After the Accounting Units have been revised, the Schedule
B Party shall, in accordance with Schedule B, prepare and send to each
Party and the Central Billing Party the revised Schedules B1 and B2.
13.3 Any Maintenance Authority which has responsibility for:
(a) a new cable system constructed within the Area which is to be
introduced into this Agreement as a Scheduled Cable; or
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(b) a Scheduled Cable that will be introducing newly-equipped
spare capacity into service; or
(c) a Scheduled Cable that will be expanding or reducing its
Bearer Capacity; or
(d) a Scheduled Cable that will incur an expansion or reduction in
Notional Capacity; or
(e) a Scheduled Cable which is to be taken out of service;
shall promptly notify the chairman of the Management Committee who shall, in
turn. notify the Parties and the Schedule B Party of the relevant facts and
Schedules B1 and B2 shall be amended in accordance with Article 13.2.
13.4 A Maintenance Authority may only withdraw a Scheduled Cable from this
Agreement if such Scheduled Cable is permanently removed from
operational service.
ARTICLE 14 ACTION WHEN ALL CABLE SHIPS ARE UNAVAILABLE
14.1 If all Cable Ships are unavailable to undertake a Repair when requested
by a Maintenance Authority, the Maintenance Authority which requested
such Repair may, subject to the approval of the Management Committee,
charter, at a reasonable price agreed by the Management Committee, a
cable ship not subject to this Agreement and, in that event, may apply
to the Management Committee for re-imbursement of the costs of such
charter, pursuant to Article 14.2.
14.2 The cost of making re-imbursement pursuant to Article 14.1 shall be
borne by the Western Zone Parties, if such Repair is required within
the Western Zone, in proportion to the Accounting Units allocated to
them in Schedule B1, or borne by the Eastern Zone Parties, if such
Repair is required within the Eastern Zone, in proportion to the
Accounting Units allocated to them in Schedule B2. The reimbursible
amount shall not exceed the difference, as determined by the Management
Committee, between:
(a) the total costs paid for such charter, and
(b) the estimated Running Costs which would have been chargeable
to the relevant maintenance Authority had the Cable Ship whose
Base Port is closest to the site of such Repair actually made
the Repair;
except that no re-imbursement shall be payable if the amount described in
Article 14.2 (a) above does not exceed the amount described in Article 14.2 (b).
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ARTICLE 15 CABLE SHIP COSTS
15.1 Cable Ship costs consist of:
(a) Standing Charges;
(b) the cost of Fuel Used In Port While On Standby; and
(c) Running Costs.
15.2 The Standing Charges for the period of this Agreement for each Cable
Ship are fixed and are set out in Schedule F.
15.3 The cost of Fuel Used In Port While on Standby, if any, shall be
charged on a cost-incurred basis.
15.4 Running Costs shall be charged on a cost-incurred basis for each
Operation.
15.5 Subject to Articles 2.7 and 9.6, should there arise at any time a need
to modify or improve a Cable Ship or its equipment (including jointing
and associated equipment) or its manning arrangements or the training
of its personnel in order to satisfy an amended or new requirement of
the Maintenance Authorities, the Ship Operator concerned shall prepare
a suitable proposal together with any proposed amendment to the
relevant Standing Charges which shall be the subject of Management
Committee consideration and approval prior to the commencement of any
such modification or improvement.
ARTICLE 16 ALLOCATION OF STANDING CHARGES
16.1 With the exception of the CS Sir Eric Sharp which shall be subject to
the provisions of Article 16.2, each Cable Ship's Standing Charges
(adjusted as appropriate pursuant to Articles 5.2, 16.5, 18 and 19)
shall be allocated to the Zone to which such Cable Ship is assigned,
and shall be borne by the Western Zone Parties or the Eastern Zone
Parties in proportion to the Accounting Units allocated to them in
Schedule B1 or B2 as appropriate. If the use of an Alternative Cable
Ship is approved by the Management Committee, the Standing Charges of
such Alternative Cable Ship shall be allocated to the Zone to which
such Alternative Cable Ship is assigned, and shall be borne by the
Western Zone Parties or the Eastern Zone Parties in proportion to the
Accounting Units allocated to them in Schedule B1 or B2 as appropriate.
16.2 A percentage of the Standing Charges of the CS Sir Eric Sharp,
(adjusted as appropriate pursuant to Articles 5.2, 16.5, 18 and 19)
shall be allocated to the Western Zone and shall be borne by the
Western Zone Parties in proportion to the Accounting Units allocated to
them in Schedule B1. The remaining percentage of the Standing Charges
of the CS Sir Eric Sharp (adjusted as appropriate pursuant to Articles
5.2, 16.5, 18 and 19) shall be
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allocated to the Eastern Zone and shall be borne by the Eastern Zone
Parties in proportion to the Accounting Units allocated to them in
Schedule B2. The actual percentage figures to be used for the
allocation of the Standing Charges of the CS Sir Eric Sharp between the
Western Zone and the Eastern Zone shall be as indicated in Schedules B1
and B2.
16.3 Standing Charges for Passage Time shall be divided equally between the
Zones when the assignment of a Cable Ship requires it to move from one
Zone to the other Zone, either for Standby or an Operation, and shall
be borne by the Western Zone Parties and the Eastern Zone Parties in
proportion to the Accounting Units allocated to them in Schedule B1 or
B2 as appropriate.
16.4 Except as provided for in Article 16.5, for the purpose of calculating
the amount of Standing Charges applicable to any particular period of
time, the Standing Charges shall be divided by 365 (three hundred and
sixty five), or 366 (three hundred and sixty six) in the case of a leap
year, to give an appropriate daily rate.
16.5 Notwithstanding the provisions of Article 16.4, for the purpose of
calculating the amount of the credit arising from any period of Outside
Work in accordance with Articles 5.2.7 and 5.2.8, the relevant Standing
Charges shall be divided by 335 (three hundred and thirty five), or 336
(three hundred and thirty six) in the case of a leap year, to give an
appropriate daily rate.
16.6 Any reduction in Standing Charges credited under this Agreement
pursuant to Articles 5.2, 16.5, 18 and 19 shall be shared among the
Maintenance Authorities having Scheduled Cables in the Zone to which
such Cable Ship having caused the accrual of such Standing Charges
reduction is assigned and in proportion to the Accounting Units
allocated to such Maintenance Authorities in Schedule B1 or B2 as
appropriate. For the purpose of this Article 16.6, the Schedules B1 or
B2 to be used for sharing such credits among the Maintenance
Authorities shall be the Schedules B1 or B2 in force at the time of the
event which caused such reduction in Standing Charges.
16.7 The cost of Fuel Used In Port While On Standby, if any, for a Cable
Ship shall be allocated among the Maintenance Authorities on the same
basis as the relevant Standing Charges for that Cable Ship.
ARTICLE 17 ALLOCATION OF RUNNING COSTS
17.1 Subject to Articles 5 and 19, Running Costs shall be allocated in
accordance with the provisions of this Article 17. If the use of an
Alternative Cable Ship is approved by the Management Committee, the
Running Costs of such Alternative Cable Ship shall also be allocated in
accordance with the provisions of this Article 17.
17.1.1 Unless otherwise agreed by the relevant Maintenance Authorities,
where a Cable Ship undertakes a series of Operations on more than one
Scheduled Cable without
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returning to its Assigned Port, the Running Costs for Passage Time
shall be allocated among the several Operations concerned according to
the procedure set out below.
17.1.1.1 For the purpose of allocating Running Costs pursuant
to this Article 17.1.1, the Passage Time of the Cable Ship
from its Assigned Port to the site of the first Operation, the
Passage Time between the end of each Operation and the start
of the next, and the Passage Time from the end of the last in
the series of Operations to the arrival of the Cable Ship at
its Assigned Port is aggregated to arrive at the total Passage
Time.
17.1.1.2 For the purposes of this Article 17.1.1, references
to an Operation means all Operations on the same Scheduled
Cable, including multiple Repairs, and an Operation is
considered to end when the Cable Ship has cleared the site of
the Operation of any marker buoys and other equipment and
departs from the site of the Operation.
17.1.1.3 The allocation of Passage Time to each Operation is
that proportion of the total Passage Time (calculated pursuant
to Article 17.1.1.1) which is equal to the Operational
Distance, as calculated by the relevant Ship Operator, of each
Operation divided by the sum of all Operational Distances
involved in such series of Operations.
17.1.1.4 Weather delays which occur while the Cable Ship is on
passage shall be included in Passage Time.
17.1.1.5 Running Costs for weather delays which occur during
the course of an Operation shall be charged to such Operation.
17.1.2 Running Costs for Passage Time for Cable Ship movements within a
Zone in compliance with the Ships' Program, shall be allocated to the
Zone in which the movement takes place and shall be borne by the
Maintenance Authorities having Scheduled Cables in that Zone in
proportion to the Accounting Units allocated to them in Schedule B1 or
B2 as appropriate.
17.1.3 Running Costs for Passage Time between Zones in compliance with
the Ships' Program, shall be divided equally between the Zones and
shall be borne by the Maintenance Authorities in proportion to the
Accounting Units allocated to them in Schedule B1 or B2 as appropriate.
17.1.4 Running Costs for Cable Ship movements between Zones for the
purpose of an Operation, as approved by the Management Committee, shall
be charged to the Maintenance Authority requesting such Operation.
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17.1.5 Running Costs for a cable working exercise as provided for in
Article 5.2.3 shall be borne by the Maintenance Authorities having
Scheduled Cables in the Zone to which such Cable Ship is assigned, in
proportion to the Accounting Units allocated to them in Schedule B1 or
B2 as appropriate. Notwithstanding the other provisions of this Article
17.1.5, Running Costs for cable working exercises by C S Sir Eric Sharp
shall be apportioned between Zones using the percentages referred to in
Article 16.2.
17.1.6 If, pursuant to Article 8.3, a Maintenance Authority is given
priority as a result of competing claims for the services of a Cable
Ship and, as a result of such granting of priority, the Cable Ship is
required to interrupt and divert from a Repair in progress, the Running
Costs of the Cable Ship shall be borne as follows.
17.1.6.1 Starting from the time of such diversion, Running
Costs for the diverted Cable Ship shall be charged to the
Scheduled Cable which has been granted such Repair priority.
Such Running Costs shall be those applicable to any or all of
the following, as required:
(a) Passage Time for a return to the Assigned Port;
(b) any applicable loading and unloading time or mobilisation and
de-mobilisation time;
(c) Passage Time to the site of the Repair on the Scheduled Cable
which has been granted such Repair priority;
(d) the Repair on the Scheduled Cable which has been granted such
Repair priority;
(e) Passage Time to the site of the Repair on the Scheduled Cable
which was not granted such Repair priority, either via the
Assigned Port or directly;
(f) in the event that the Passage Time in 17.1.6.1 (e) above is
incurred via the Assigned Port, any applicable loading and
unloading time or mobilisation and de-mobilisation time
necessary for the Repair to the Scheduled Cable which was not
granted such Repair priority.
17.1.7 If the Cable Ship diverted pursuant to Article 8.3, is thereupon
required to undertake another Repair before returning to the Assigned
Port or to the site of the Repair to the Scheduled Cable which was not
granted such Repair priority, Running Costs for Passage Time shall be
apportioned between the Operations as shall be agreed by the
Maintenance Authorities concerned. If the Maintenance Authorities
concerned cannot agree, the Management Committee shall determine the
apportionment. Whilst awaiting such Management Committee decision, the
relevant Ship Operator may, for the purpose of interim billing, charge
such Running Costs in equal shares to the Maintenance
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Authorities whose Scheduled Cables were involved in such series of
Operations. Such interim billing shall be adjusted upon receipt of the
Management Committee's decision.
17.1.8 If another Cable Ship, other than the one diverted pursuant to
article 8.3, is dispatched to perform the Repair to the Scheduled Cable
which was not granted the Repair priority, the Running Costs for this
Cable Ship from the time of mobilisation until its arrival at the site
of the Repair to the Scheduled Cable which was not granted the Repair
priority shall be charged to the Scheduled Cable which has been granted
such Repair priority.
17.1.9 In addition to the payment of Running Costs pursuant to Articles
17.1.6 to 17.1.8, if, pursuant to Article 8.3, a Maintenance Authority
is given priority as a result of competing claims for the services of a
Cable Ship and, as a result of such granting of priority, the Cable
Ship is required to interrupt and divert from a Repair in progress, the
Maintenance Authority for the Scheduled Cable which has been granted
such Repair priority shall re-imburse the Maintenance Authority for the
Scheduled Cable which was not granted such Repair priority its
reasonable and directly-incurred incremental costs resulting from such
diversion, which costs shall include but not be limited to:
(a) any costs arising directly from the re-arrangement of a
planned Repair, but excluding restoration charges;
(b) the travel expenses of its associated shipboard and shore
representatives.
17.1.10 Notwithstanding any other provision of this Article 17.1, the
method of allocation of any Running Costs generated pursuant to
Articles 4.1.3 to 4.1.6 may be proposed by any Party and shall be
decided upon by either:
(a) the Maintenance Authorities having Scheduled Cables in the
affected Zone; or
(b) the Management Committee;
as appropriate pursuant to Articles 3.4.4 to 3.4.7 inclusive.
ARTICLE 18 CABLE SHIP COSTS IN CASE OF DAMAGE
18.1 Subject to Articles 6.5 and 18.2, if a Cable Ship is damaged to such an
extent that it requires repairs, the Maintenance Authorities shall bear
(as provided for in Article 16) its Standing Charges up to and not
exceeding 120 (one hundred and twenty) days from the date of such
damage.
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18.2 Notwithstanding the provisions of Article 18.1, if:
(a) at the time such damage to the Cable Ship occurred the Cable
Ship was engaged on Outside Work; and/or
(b) the damage to the Cable Ship was caused as a result of the
negligence or Wilful Misconduct of the relevant Ship Operator;
all Standing Charges, from the time such damage occurred until such time as the
damage has been repaired and the Cable Ship is again Available, shall be borne
by the relevant Ship Operator and shall not be charged under this Agreement.
18.3 If the necessity of repairs to a Cable Ship results from the deliberate
act or negligence of a third party, the relevant Ship Operator shall
diligently pursue all claims against such third party for the recovery
of Standing Charges which have been borne by the Maintenance
Authorities pursuant to Article 18.1, but without prejudice to such
Ship Operator's right to settle or compromise on terms which it
considers reasonable after first obtaining the approval of the
Management Committee which shall not be unreasonably withheld or
delayed. To the extent that any sums recovered by way of damages or in
settlement of claims include any Standing Charges which have been paid
by the Maintenance Authorities during the repair period, that amount
shall be credited to the Maintenance Authorities by the Ship Operator
and shall be shared among the Maintenance Authorities in proportion to
the Accounting Units allocated to them in Schedules B1 or B2 as
appropriate. For the purpose of this Article 18.3, the Schedules B1 or
B2 to be used for sharing such credits shall be the Schedules B1 or B2
in force at the time of the incident which necessitated such repairs to
the Cable Ship.
ARTICLE 19 CABLE SHIP COSTS DURING PERIODS OF UNAVAILABILITY
19.1 Standing Charges and Running Costs shall be borne by the relevant Ship
Operator and shall not be charged under this Agreement for periods
during which a Cable Ship is unavailable for work on Scheduled Cables
in any of the following circumstances:
19.1.1 from the time that it becomes a Total Loss or a Constructive
Total Loss; or
19.1.2 during the period from the 121st (one hundred and twenty first)
day after damage to a Cable Ship has occurred, as specified in Article
18.1, until repairs have been completed and the Cable Ship is again
Available; or
19.1.3 during any period while the Cable Ship is performing Outside
Work pursuant to Article 5.2.7, including any Passage Time associated
with such Outside Work.
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19.2 Provided that a Cable Ship is not engaged on Outside Work at the time
that the relevant event occurs, Standing Charges and Running Costs
shall continue to be borne by the relevant Maintenance Authorities in
any of the following events:
(a) while a Cable Ship is undergoing emergency ship or engine
repairs, subject to the limitations of Article 18.1;
(b) while a Cable Ship is unavailable for work on Scheduled Cables
owing to circumstances outside the control of the Ship
Operator or by reason of force majeure, which reasons include,
but are not restricted to. acts of God or of the public enemy,
acts of governments, insurrections, fires, floods, epidemics,
quarantine restrictions, freight embargoes, strikes or
unusually severe weather.
ARTICLE 20 RESPONSIBILITIES FOR THE SHIP SCHEDULES AND REPORTS
20.1 The terms and conditions for the operation of each Cable Ship within
this Agreement are set out in Schedules C1 through C6 inclusive.
ESTIMATES OF RUNNING COSTS AND FUEL USED IN PORT WHILE ON STANDBY
20.2 Not later than two months before the start of each Agreement Year, each
Ship Operator shall provide the Management Committee with an estimate
of Running Costs for its Cable Ship, in accordance with the format set
out in Schedule G, and an estimate of the cost of Fuel Used In Port
While On Standby.
SHIPS' PROGRAM
20.3 The Management Committee shall appoint, with that Ship Operator's
consent, a Ship Operator to be the Schedule H Party which shall be
responsible for the preparation, revision and distribution of the
Ships' Program in the format given in Schedule H. Not later than two
months before the beginning of each Agreement Year, the Ship Operators
shall each provide the Schedule H Party with their ship's program for
the succeeding Agreement Year. The Schedule H Party shall then
consolidate these ship's programs into the draft Ships' Program and
submit it to the Management Committee for its approval in accordance
with Article 4.3.
OPERATIONAL REPORTS
20.4 When a Ship Operator is notified to commence an Operation or when a
Cable Ship changes operational status, the Ship Operator shall notify
the Management Committee by facsimile, as specified below:
(a) Upon receipt by a Ship Operator of written notification that
its Cable Ship is required to carry out a Repair in accordance
with Article 8.1, the Ship Operator
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shall, within 24 (twenty four) hours, transmit to the
Management Committee a "Notification of Commencement of a
Cable Ship Operation" in accordance with Schedule 11.
(b) For the duration of the Repair, the relevant Ship Operator
shall provide the relevant Maintenance Authorities and, if
different, the terminal parties of the Scheduled Cable
undergoing Repair, with daily progress reports. Such daily
reports shall include:
(i) a log of the day's events;
(ii) an indication of the estimated number of hours
remaining until completion of the final splice;
(iii) an indication of the times when the Cable Ship is
likely to require co-operation from the terminal parties of
the Scheduled Cable undergoing Repair;
(iv) information on the nature of the fault, any possible
delays and any equipment and procedural problems encountered;
and the format of such daily reports shall follow as far as possible the steps
given in the pro forma "Repair Synopsis" attached as Schedule M.
(c) Upon completion of such Repair, the Ship Operator shall,
within 24 (twenty four) hours, transmit to the Management
Committee a "Notification of Completion of a Cable Ship
Operation" in accordance with Schedule 12.
(d) Upon a Cable Ship's change in operational status eg, Standby,
Repair, Maintenance and Improvement, Refit, Outside Work,
cable working exercise, etc, the Ship Operator shall transmit
to the Management Committee a notification of the change in
status in accordance with Schedules 11 and 12.
(e) Within 45 (forty five) days after the completion of a Repair,
the relevant Ship Operator shall provide to the relevant
Maintenance Authority a detailed repair report in the English
language.
(f) The Management Committee shall appoint, with that Maintenance
Authority's consent, a Maintenance Authority to be the
Schedule L Party which shall be responsible for the
preparation, revision and distribution of the annual "ACMA
Fault Report".
(g) Not later than 2 (two) months after the end of each Agreement
Year, each Maintenance Authority shall inform the Schedule L
Party of the number of faults on their respective Scheduled
Cables repaired during such Agreement Year. This
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information shall be given by facsimile in accordance with the
format given in Schedule L. Based upon the information
received, the Schedule L Party shall send the "ACMA Fault
Report" to each Party before the date of the next annual
Management Committee meeting.
(h) Within 1 (one) week of a Repair being completed, the relevant
Ship Operator shall provide to the relevant Maintenance
Authority the "Repair Synopsis" in accordance with the format
given in Schedule M. It shall then be the responsibility of
the relevant Maintenance Authority to communicate a copy of
the agreed "Repair Synopsis" to the Schedule L Party.
(i) Cable Ship reporting arrangements for Maintenance and
Improvement or other work of an interruptible nature shall be
as agreed between the relevant Ship Operator and the relevant
Maintenance Authority responsible for such work.
ESTIMATES OF CABLE SHIP RUNNING COSTS FOR OPERATIONS
20.5 In the case of a Ship Operator undertaking an Operation, and at the
request of the Maintenance Authority concerned, the Ship Operator shall
advise the Maintenance Authority, by facsimile, of the estimated
Running Costs of its Cable Ship for such Operation in accordance with
the format given in Schedule J. Any such request by the relevant
Maintenance Authority may be made prior to, during or following an
Operation.
ACTIVITY AND UTILISATION REPORTS AND SUMMARIES
20.6 The Management Committee shall appoint, with that Ship Operator's
consent, a Ship Operator to be the Schedule K Party, which shall be
responsible for the collection and dissemination of information on
Cable Ship and Alternative Cable Ship activities and utilisation. The
Schedule K Party shall advise the Maintenance Authorities as follows:
(a) by the second working day of each week, the Schedule K Party
shall provide the "Weekly Cable Ship Activity Report" in
accordance with the format given in Schedule K1;
(b) not later than 2 (two) months after the end of each quarter,
the Schedule K Party shall provide the "Quarterly Cable Ship
Activity Report" in accordance with the formats given in
Schedules K2 and K5;
(c) not later than 2 (two) months after the end of each quarter,
the Schedule K Party shall provide the "Quarterly Cable Ship
Utilization Report" in accordance with the format given in
Schedules K3 and K5;
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(d) not later than 2 (two) months after the end of each Agreement
Year, the Schedule K Party shall provide the Management
Committee with an "Annual Cable Ship Allocation Report" in
accordance with the format given in Schedule K4.
ARTICLE 21 BILLING PROCEDURES
21.1 Bills showing the amounts due to the Ship Operators from the
Maintenance Authorities for their respective shares of all Cable Ship
costs for each quarter shall be rendered to them by the Central Billing
Party on the 15th (fifteenth) working day of the month before the start
of each quarter. Such bills shall be based on information received by
the Central Billing Party under Article 21.2 and shall include but not
be limited to:
(a) Standing Charges in respect of the quarter;
(b) any reduction of Standing Charges in respect of Outside Work
forecast for the quarter;
(c) adjustments in respect of actual Outside Work in previous
quarters;
(d) Running Costs, as incurred and advised to the Central Billing
Party quarterly;
(e) the cost of Fuel Used In Port While On Standby, as incurred
and advised to the Central Billing Party quarterly;
(f) interest, pursuant to Article 21.5, on bills not paid when
due;
(g) a statement of the total Available Ship Days having been
charged under this Agreement, both on a quarterly basis and
cumulatively for the Agreement Year to date;
(h) Central Billing Party charges in respect of the quarter.
21.2 On or before the first working day of the last month preceding each
quarter, each Ship Operator shall advise the Central Billing Party of
the details of Standing Charges (including retrospective adjustments),
the cost of Fuel Used In Port While On Standby and Running Costs, to be
included in the bills next due to be rendered to the Maintenance
Authorities. Such details shall be advised in the currency of the Ship
Operator.
21.3 For billing purposes, all such costs notified to the Central Billing
Party under Article 21.2 shall be converted into the currency of the
Central Billing Party at the exchange rates pertaining to forward
foreign exchange contracts which the Central Billing Party will enter
into for the purchase of the amounts due to each Ship Operator in its
own currency on the first working day of the third month of the
quarter. Such exchange rate shall be shown on the associated bill along
with the date relevant to that exchange rate.
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21.4 Bills shall be rendered in the currency of the Central Billing Party
and shall be payable in that currency.
21.5 Bills shall be payable by the Maintenance Authorities to the Central
Billing Party by the last working day of the second month of the
quarter to which they relate, or if the issue of a bill is delayed, 70
(seventy) days from the date of issue, whichever is the later. Bills
not paid by the due date will incur a charge for simple interest at a
rate of 125 (one hundred and twenty five) per cent of the quarterly
LIBOR applicable on the date that the payment was overdue.
21.6 On the first working day of the third month of each quarter, the
Central Billing Party shall remit to or settle with each Ship Operator,
in the Ship Operator's own currency, the amounts notified by it under
Article 21.2.
BILLS UNDER DISPUTE
21.7 Should any bill or part thereof be under dispute as to its correctness,
then extended payment interest shall not accrue on the amount of the
bill pursuant to Article 21.5 provided always that:
(a) before the due date for payment the Central Billing Party
shall be advised by telex, facsimile or like means of
communication of the amount in dispute and the nature of that
dispute; and
(b) in this respect the Central Billing Party shall, if requested
by the billed Party within 30 (thirty) days of receipt of the
bill in dispute, issue a replacement bill omitting the amount
in dispute and such replacement bill shall become due for
payment within 21 (twenty-one) days from the date on which
such replacement bill was raised, or on the original due date
for payment, whichever is the later; and
(c) the amount in dispute shall be investigated by the relevant
Parties and any necessary bill with respect to such amount in
dispute shall be issued and paid in accordance with Article
21.5; and
(d) notwithstanding the foregoing, in the event that upon
investigation the amount in dispute or part thereof is found
to be correct, the billed Party shall pay interest in
accordance with Article 21.5 on the unpaid part which is found
to be correct from the day after the due date for payment for
the original bill in dispute until and including the day such
payment is received by the Central Billing Party.
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BILLS UNPAID FOR 180 DAYS
21.8 The Central Billing Party shall at all times make all reasonable effort
to ensure that all bills rendered to Maintenance Authorities are paid
as due. However, if a bill, not under dispute pursuant to Article 21.7,
for a Scheduled Cable remains unpaid for 180 days after the due date,
the other Maintenance Authorities having Scheduled Cables in the same
Zone as the defaulting Maintenance Authority shall reimburse the
Central Billing Party their proportionate shares of the unpaid bill,
including their proportionate shares of the interest incurred by the
Central Billing Party. The amounts paid by such Maintenance Authorities
shall be in proportion to their Accounting Units, as allocated to them
in Schedule B1 or Schedule B2, as appropriate within the applicable
Zone.
21.9 Nothing contained in this Article shall release a defaulting
Maintenance Authority from its obligations under this Agreement and a
defaulting Maintenance Authority shall continue to be billed its share
of all Cable Ship costs in proportion to the Accounting Units allocated
to it in Schedule B1 or B2, as appropriate, including interest for late
payment. However, if the defaulting Maintenance Authority fails to pay
any bill within 180 days of its due date, the Ship Operators shall,
unless the Management Committee agrees otherwise, be instructed by the
chairman of the Management Committee to carry out no further Operations
on any of the Scheduled Cables for which such defaulting Maintenance
Authority has responsibility until such time as full payment of
outstanding bills, including interest for late payment, is received by
the Central Billing Party from such defaulting Maintenance Authority or
its non-defaulting joint Maintenance Authority pursuant to Article
2.10. The chairman of the Management Committee shall give prompt notice
to such defaulting Maintenance Authority that he has so instructed the
Ship Operators. Furthermore, even when all outstanding balances,
including applicable interest for late payment, have been paid in full
by the defaulting Maintenance Authority or its non-defaulting joint
Maintenance Authority, the chairman of the Management Committee shall
advise such defaulting Maintenance Authority that any future Operation
on the Scheduled Cables for which such defaulting Maintenance Authority
has responsibility shall only be carried out following the prior
payment of a security deposit to the Central Billing Party. Such
security deposit shall be equal to the amount of the expected Running
Costs for such intended Operation, as estimated by the relevant Ship
Operator, plus any previous charges including interest for late payment
not paid by such defaulting Maintenance Authority.
21.10 In the event that a Maintenance Authority for a Scheduled Cable has
failed to pay a bill within 180 days of the due date and that Scheduled
Cable has two or more joint Maintenance Authorities as shown in
Schedule B1 or B2 as appropriate, the Central Billing Party shall
notify such other joint Maintenance Authority for that Scheduled Cable
of such default for non-payment. Notwithstanding Articles 21.8 and
21.9, such non-defaulting joint Maintenance Authority shall have the
option to pay any unpaid bill of its defaulting joint Maintenance
Authority including interest for late payment. The
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relevant provisions of Article 21.9 shall, however, continue to apply
to all Scheduled Cables for which such defaulting Maintenance Authority
has responsibility.
21.11 Upon receipt by the Central Billing Party from the defaulting
Maintenance Authority or from its joint Maintenance Authority (pursuant
to Article 21.9 or 21.10) of any amount previously reimbursed by the
other Maintenance Authorities having Scheduled Cables in the Zone in
accordance with Article 21.8, any such amounts, including any interest
for late payment, shall be distributed to such other Maintenance
Authorities in the Zone in the same proportions as those Maintenance
Authorities reimbursed the Central Billing Party under Article 21.8.
CENTRAL BILLING PARTY APPOINTMENT AND CHARGES
21.12 The Management Committee shall, with that Maintenance Authority's
consent, appoint a Maintenance Authority to act as the Central Billing
Party.
21.13 The Central Billing Party may impose a charge associated with the
performance of the Central Billing Party function. The charge made
under this Article 21.13 shall be approved by the Management Committee,
shall be included in the quarterly bills, shall be allocated equally
between the Zones and shall be borne by the Maintenance Authorities in
proportion to the Accounting Units allocated to them in Schedule B1 or
B2 as appropriate.
AUDITING AND KEEPING OF RECORDS
21.14 The Ship Operators shall, as appropriate, keep such records, vouchers,
accounts or reproductions thereof in whatever form of all costs
incurred in connection with the Running Costs and Fuel Used In Port
While On Standby of the relevant Cable Ship as well as the storage
costs and transfer costs of the relevant depot to support their billing
of such costs to and among the Maintenance Authorities, until a date
not less than 3 (three) years from the date of termination of this
Agreement and shall make such records, vouchers and accounts available
at all reasonable times for inspection by the relevant Maintenance
Authority, at that Maintenance Authority's cost if any.
ARTICLE 22 LIABILITY AND INDEMNITY
LIABILITY AND INDEMNITY OF SHIP OPERATORS
22.1 Each Ship Operator shall be liable for all direct damages arising in
the discharge of its obligations under this Agreement to the extent
that such damages have resulted from the negligence or Wilful
Misconduct of the Ship Operator, its agents or employees. The Ship
Operator shall indemnify and hold harmless the Maintenance Authority
concerned against all claims, actions, demands, or judgements for such
direct damages.
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22.2 Each Ship Operator shall be liable for injury or damages sustained by
its employees or agents in the course of their employment or agency to
the extent that such injury or damages are not caused by the negligence
or Wilful Misconduct of a Maintenance Authority and said Ship Operator
will indemnify and hold harmless the Maintenance Authorities against
all claims, actions, demands, or judgement for such injury or damages
by employees or agents of the Ship Operator to the extent that they are
not caused by the negligence or Wilful Misconduct of a Maintenance
Authority.
LIABILITY AND INDEMNITY OF MAINTENANCE AUTHORITIES
22.3 Each Maintenance Authority shall be liable for all direct damages
arising in the discharge of its obligations under this Agreement to the
extent that such damages have resulted from the negligence or Wilful
Misconduct of the Maintenance Authority, its agents or employees. The
Maintenance Authorities shall indemnify and hold harmless the Ship
Operator concerned against all claims, actions, demands or judgements
for such direct damages.
22.4 Each Maintenance Authority shall be liable for injury or damages
sustained by its employees or agents in the course of their employment
or agency to the extent that such injury or damages are not caused by
the negligence or Wilful Misconduct of a Ship Operator and said
Maintenance Authority will indemnify and hold harmless the Ship
Operators against all claims, actions, demands, or judgement for such
injury or damages by employees or agents of the Maintenance Authority
to the extent that they are not caused by the negligence or Wilful
Misconduct of a Ship Operator.
22.5 Except as stated in Articles 22.1 to 22.4, no Party shall be liable for
any other damages suffered by any other Party nor shall any Party be
required to indemnify or hold harmless any other Party against claims
made by any person or entity against any of them for damages arising
from the acts or omissions of any Party or its agents or employees in
the discharge of its obligations under this Agreement.
LIABILITY AND INDEMNITY OF THE APPOINTED PARTIES
22.6 Each Appointed Party shall each exercise due care, diligence and
promptness in the discharge of its duties and the Parties jointly and
severally shall indemnify and hold harmless each of the Appointed
Parties against any claims, actions, demands or judgements arising out
of each Appointed Party's performance, purported performance or
non-performance of its functions under this Agreement, except if such
claims, actions, demands or judgements arise out of the negligence or
Wilful Misconduct of the Appointed Party.
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EFFECT OF INDEMNITIES
22.7 The indemnities and undertakings to hold harmless in this Article 22
are given in full satisfaction of any liability of whatsoever nature
caused or arising out of an incident or series of incidents in any
manner connected with this Agreement and are in substitution for each
and every other right and remedy (whether arising generally at law,
under statute or otherwise) which any of the Parties might or would
otherwise have had against any other Party, in respect of the matters
covered thereby.
CONSEQUENTIAL LOSS
22.8 Notwithstanding the provisions of Articles 22.1 to 22.7, no Party shall
be liable to any other Party in contract, tort (including negligence or
breach of statutory duty) or otherwise for loss (whether direct or
indirect) of profits, production, business or anticipated savings or
for any indirect or consequential loss or damage whatsoever arising in
connection with the operation of this Agreement, howsoever caused.
ARTICLE 23 LIMIT OF LIABILITY
23.1 Notwithstanding the provisions of Articles 22.1 to 22.8, the total
liability of any of the Parties to the other Parties collectively
arising in any manner out of or in connection with this Agreement shall
be limited to the sum of 1 (one) million Pounds Sterling for any one
incident (or series of connected incidents) and 2 (two) million Pounds
Sterling in total for any incident or series of incidents, related or
unrelated, in any period of 12 (twelve) months, provided that the
limitations of liability in this Article 23.1 shall not apply to:
23.1.1 obligations to make payments in respect of Standing Charges or
Running Costs or any other costs and expenses payable under the terms
of this Agreement other than by way of indemnity; and/or
23.1.2 liability for the cost of replacement of lost or damaged Spare
Submersible Plant.
23.2 The Parties undertake that any policies of insurance that they hold in
connection with activities carried out under this Agreement shall
contain waivers of all rights of recovery or subrogation which would
otherwise negate the provisions of Article 23.1.
23.3 The Parties each agree to waive any rights of marine limitation to
which they may be entitled and which might otherwise limit or negate
the terms of this Agreement.
23.4 No party to this Agreement excludes or restricts liability for death or
personal injury resulting from its own negligence.
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ARTICLE 24 WAR RISKS
24.1 Unless the written consent of the Ship Operator is first obtained, a
Cable Ship shall not be ordered into or continue in any place or any
voyage nor be used on any service that will bring the Cable Ship within
a zone which is dangerous as a result of any actual or threatened acts
of war, hostilities, warlike operations, acts of piracy or of hostility
or malicious damage against the Cable Ship or any other vessel or its
cargo by any person, body of state whatsoever, revolution, civil war,
civil commotion or the operation of international law, nor be exposed
in any way to any risks or penalties whatsoever consequent upon the
imposition of sanctions, nor carry any goods that may in any way expose
the Cable Ship to any risks of seizure, capture, penalties or any other
interference of any kind whatsoever by the belligerent or fighting
powers or by any government or ruler.
24.2 Should the Cable Ship approach or be brought or ordered within such
zone, or be exposed in any way to the said risks, the Ship Operator
and/or the Shipowner shall be entitled from time to time to insure its
interests in the Cable Ship against any of the risks likely to be
involved thereby, on such terms as are reasonable and the Maintenance
Authority concerned shall re-imburse the Ship Operator and/or the
Shipowner for the additional premiums.
24.3 The Master shall have liberty to comply with any orders or directions
as to departure, arrival, routes, ports of call, stoppages,
destination. delivery or in any ways whatsoever given by the government
of the nation under whose flag the Cable Ship sails or any other
government or any person or body acting, or purporting to act, with the
authority of such government or by any committee or person having,
under the terms of the war risks insurance on the Cable Ship, the right
to give such orders or directions.
ARTICLE 25 RELATIONSHIP OF PARTIES
25.1 The relationship and common enterprise between and among the Parties
shall not be that of partners and shall be limited to the express
provsions of this Agreement. Nothing contained in this Agreement shall
be deemed to constitute a partnership or societe de fait between and
among the Parties or to merge their assets or their fiscal or other
liabilities or undertakings, nor shall it allow a Party to act as a
mandatory or agent of the other Parties or any of them, except to the
extent specifically permitted hereunder.
ARTICLE 26 ARBITRATION
26.1 All disputes arising in connection with this Agreement which cannot be
settled amicably shall be finally settled under the rules of
conciliation and arbitration of the International Chamber of Commerce
by one or more arbitrators appointed in accordance with said rules. The
results of any such arbitration shall be binding upon the Parties to
this
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Agreement. The language of arbitration shall be English and the
arbitration shall take place in Geneva, Switzerland.
ARTICLE 27 AMENDMENT OF AGREEMENT AND ADMISSION OF NEW PARTIES
27.1 Except as specifically permitted under this Agreement, no provision of
this Agreement may be amended except by the written agreement of all
Parties.
27.2 Other persons or entities which are or become responsible for the
maintenance of submarine telecommunications cables within the Area
shall, upon request, be admitted as Parties.
27.3 Upon such request pursuant to Article 27.2, the signature of the
chairman of the Management Committee on the document witnessing the
admission of the new Party shall have the effect of binding all the
other Parties as if each itself had signed such document and the
chairman of the Management Committee shall then transmit a certified
copy of the document to all the Parties. The document of admission of a
new Party shall be in the format given in Schedule N.
ARTICLE 28 APPROVALS AND CONSENTS
28.1 The performance of this Agreement by any Party is contingent upon the
obtaining and continuance of such approvals, consents, governmental
authorisations, licenses and permits as may be required and each Party
shall make all reasonable effort to obtain by 1 January 1998 and to
have continued in effect such approvals, consents, authorisations,
licenses and permits.
ARTICLE 29 PERIOD OF AGREEMENT
29.1 Notwithstanding any other date, this Agreement shall come into force
pursuant to the terms of Article 2.11, shall have an effective date of
1 January 1998 and shall be effective for a period of three years
terminating on 31 December 2000.
29.2 A Maintenance Authority shall, however, withdraw from this Agreement
prior to the end of this three-year period if the withdrawal of its
Scheduled Cable from this Agreement, pursuant to Article 13.4, results
in such Maintenance Authority having no remaining Maintenance Authority
responsibility for any Scheduled Cables. In this instance, the
effective date of withdrawal of such Maintenance Authority shall be
deemed to be the date at which its last Scheduled Cable was permanently
withdrawn from operational service. A withdrawing Maintenance Authority
shall not be relieved of any of its obligations incurred prior to the
effective date of such withdrawal, including the obligation to pay its
relevant share of all costs, billable under this Agreement, which are
incurred prior to the effective date of such withdrawal.
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ARTICLE 30 ASSIGNMENT AND SUCCESSORS BOUND
30.1 This Agreement, and the rights and obligations hereunder of the Parties
hereto, shall not be assigned in whole or in part by any Party without
the prior written consent of the other Parties which consent shall not
be unreasonably withheld or delayed; except that no consent of any kind
shall be required in the case of an assignment:
(a) to a successor to all or substantially all of the assigning
Party's business; or
(b) to an Affiliate;
and the assigning Party shall promptly give written notice to the other Parties
of any assignment permitted to be made without the other Parties' consent. Any
assignment hereunder shall not be valid unless the assignee/successor agrees in
writing to be bound by all the provisions hereof.
30.2 This Agreement shall be binding upon the Parties and their respective
successors and permitted assigns.
ARTICLE 31 GOVERNING LAW
31.1 The interpretation, validity and performance of this Agreement shall be
governed in all respects by the laws of Switzerland.
ARTICLE 32 WAIVER
32.1 The waiver of any breach of any term or condition of this Agreement
shall not be deemed to be a waiver of any other breach of the same or
any other term or condition of this Agreement. No waiver shall be valid
unless it is in writing and signed on behalf of the Party making the
waiver.
ARTICLE 33 INVALIDITY
33.1 If any provision of this Agreement is found by a irregulatory or
judicial authority having jurisdiction to be void or unenforceable,
such provision shall be deemed to be deleted from this Agreement and
the remaining provisions shall continue in full force and effect.
Notwithstanding the foregoing, the Parties shall thereupon negotiate in
good faith in order to agree upon the terms of a mutually satisfactory
provision to be substituted for the provision found to be void or
unenforceable.
ARTICLE 34 CONFIDENTIALITY
34.1 Subject as is provided in Article 34.2, the Parties undertake that they
will keep secret and confidential and will not disclose and will use
only for the purposes of this Agreement
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any Confidential Information which they may receive or acquire pursuant
to this Agreement.
34.2 Notwithstanding the provisions of Article 34.1 any Party may disclose
such Confidential Information to their Affiliates, and to their or
their Affiliates' contractors and sub-contractors, and to any of their
respective employees, servants or agents who need such Confidential
Information for the purpose of enabling the Party making disclosure to
perform any of their obligations or exercise any of their rights under
this Agreement provided that such aforementioned Affiliate, contractor,
subcontractor, employee, servant or agent shall have undertaken to keep
such Confidential Information confidential and not to disclose it or
use it for any other purpose.
ARTICLE 35 EXECUTION OF AGREEMENT
35.1 This Agreement and any amendment hereof shall be executed in three
counterparts in the English, French and Spanish languages, and each
such counterpart shall be an original, and such counterparts shall
together, as well as separately, constitute one and the same Agreement.
35.2 Certified photocopies of this Agreement and any amendment hereof shall
be distributed to the Parties by the chairman of the Management
Committee.
35.3 If any differences in interpretation should arise between the English,
French and Spanish versions of this Agreement or any amendment hereof,
the English version shall be decisive.
TESTIMONIUM
IN WITNESS, WHEREOF the undersigned, duly authorised, have signed this
Agreement.
FOR AND ON BEHALF OF ADMINISTRACION NACIONAL DE
TELECOMUNICACIONES
/s/ Name of Signatory 15/1/1998
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF ANTELECOM, TELECOMMUNICATION ADMINISTRATION,
NETHERLANDS ANTILLES
_________________________________________________ DATE ___________________
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FOR AND ON BEHALF OF AT&T CORP.
/s/ Name of Signatory 11/12/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF BAHAMAS TELECOMMUNICATIONS CORPORATION
/s/ Name of Signatory 11/12/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF BORD TELECOM EIREANN
/s/ Name of Signatory 12/3/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF BRITISH TELECOMMUNICATIONS plc
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF CABLE AND WIRELESS MARINE LIMITED
/s/ Name of Signatory 11/12/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF CABLE AND WIRELESS plc
/s/ Name of Signatory 11/12/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF COMPANIA DOMINICANA DE TELEFONOS, C. POR A.
/s/ Name of Signatory 12/10/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF COMPANHIA PORTUGUESA RADIO MARCONI, S.A.
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
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FOR AND ON BEHALF OF THE C.S. GLOBAL LINK, L.P., BY ITS GENERAL PARTNER
TRANSOCEANIC CABLE SHIP COMPANY, INC.
/s/ Name of Signatory 11/12/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF THE C.S. GLOBAL MARINER, L.P., BY ITS GENERAL PARTNER
TRANSOCEANOC CABLE SHIP COMPANY, INC.
/s/ Name of Signatory 11/12/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF DEUTSCHE TELEKOM AG
/s/ Name of Signatory 11/11/1997
_________________________________________________ DATE ___________________
<PAGE>
FOR AND ON BEHALF OF EMPRESA BRASILEIRA DE TELECOMUNICACOES S.A.
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF FLAG LIMITED
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF FRANCE TELECOM
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF FRANCE CABLES ET RADIO
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF GEMINI SUBMARINE CABLE SYSTEM LIMITED
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
ACMA Page 53 of 55
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
FOR AND ON BEHALF OF MERCURY COMMUNICATIONS LIMITED
/s/ Name of Signatory 11/12/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF NIGERIAN TELECOMMUNICATIONS LTD
________________________________________________ DATE ___________________
FOR AND ON BEHALF OF L'OFFICE NATIONAL DES TELECOMMUNICATIONS DE
COTE D'IVOIRE
/s/ Name of Signatory 13/1/1998
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF THE OFFICE NATIONAL DES POSTES ET TELECOMMUNICATIONS
/s/ Name of Signatory 4/1/1998
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF POST AND TELECOM ICELAND LTD
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF PRIVATE TRANSATLANTIC TELECOMMUNICATIONS SYSTEMS, INC.
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF SOCIETE MAROCAINE DE TELECOMMUNICATIONS PAR CABLES SOUS
MARINS
/s/ Name of Signatory 14/01/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF SOCIETE NATIONALE DES TELECOMMUNICATIONS DU SENEGAL
/s/ Name of Signatory 23/12/1997
_________________________________________________ DATE ___________________
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
FOR AND ON BEHALF OF TELEBERMUDA INTERNATIONAL LIMITED
/s/ Chickh Tidiane MBAYE 12/11/1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF TELECOMUNICACIONES INTERNACAIONALES DE ARGENTAIN
/s/ Name of Signatory Nov. 24, 1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF TELECOMUNICACIONES MARINAS, S.A.
/s/ Name of Signatory 12 Nov., 1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF TELECOMMUNICATIONS SERVICES OF TRINIDAD & TOBAGO LIMITED
/s/ Name of Signatory 28 Nov., 1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF TELE DANMARK A/S
/s/ Name of Signatory 12/11/1997
_________________________________________________ DATE ___________________
<PAGE>
FOR AND ON BEHALF OF TELEFONICA DE ESPANA, S.A.
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF TELEFONICA LARGA DISTANCIA DE PUERTO RICO INC.
/s/ Name of Signatory 12 Nov., 1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF TELEFONOS DE MEXICO S.A. DE C.V.
/s/ Name of Signatory 12 Nov., 1997
_________________________________________________ DATE ___________________
ACMA Page 54 of 55
<PAGE>
Atlantic Cable Maintenance and Repair Agreement
- --------------------------------------------------------------------------------
FOR AND ON BEHALF OF TELEGLOBE CANADA INC.
/s/ Name of Signatory 12 Nov., 1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF TELKOM SA LIMITED
/s/ Name of Signatory 15 Dec., 1997
_________________________________________________ DATE ___________________
FOR AND ON BEHALF OF TRANSOCEANIC CABLE SHIP COMPANY, INC.
/s/ Name of Signatory 12 Nov., 1997
_________________________________________________ DATE ___________________
ACMA Page 55 of 55
<PAGE>
SCARAB III AND IV
USERS AGREEMENT
<PAGE>
TABLE OF ARTICLES
ARTICLE
PREAMBLE PAGE
-------- ----
1. DEFINITIONS 2-4
2. INTERPRETATION 5
3. PURPOSE OF THIS AGREEMENT 5
4. PARTICIPATION OF OTHER PARTIES 5
5. OPERATING COMMITTEE 6-7
6. CENTRAL BILLING PARTY 7-8
7. PREPARATION AND AMENDMENT Or SCHEDULE C 8
8. USE OF SCARAB SYSTEMS AM CHARGES 9-11
9. SCARAB SYSTEM AVAILABILITY 11
10. OPERATING PROCEDURES 12
11. OPERATIONAL RESPONSIBILITIES 13-14
12. PRIORITY OF USE OF SCAM SYSTEMS 14-15
13. ALLOCATION OF COSTS 15
14. CAPITAL ADDITIONS AND COST ESCALATION 15
15. ESTIMATED STANDING CHARGES AND RUNNING COSTS 15-16
16. ALLOCATION OF STANDING CHARGES 17
17. ALLOCATION OF RUNNING COSTS 17-19
18. BILLING ARRANGEMENTS 24-28
19. ACTUALS ADJUSTMENT 22
<PAGE>
TABLE OF ARTICLES
ARTICLE
PREAMBLE PAGE
-------- ----
20. SCAM SYSTEM COSTS IN PARTICULAR CIRCUMSTANCES 22-23
21. TOTAL LOSS OR CONSTRUCTIVE TOTAL LOSS 23-24
22. KEEPING OF RECORDS 30
23. LIABILITY AND INDEMNITY 24-25
24. RELATIONSHIP AMONG THE PARTIES 25
25. PERFORMANCE OF AGREEMENT 25
26. AMENDMENTS TO AGREEMENT 26
27. ASSIGNMENT OR TRANSFER 26-27
28. TERM OF THIS AGREEMENT 33-34
29. AGREEMENT BINDING ON SUCCESSORS 27
30. EXECUTION OF AGREEMENT 27
31. TESTIMONIUM 28-29
<PAGE>
TABLE OF SCHEDULES
------------------
PAGE
----
SCHEDULE A SCARAB SYSTEM OWNERS 30
SCHEDULE B PROCEDURES FOR THE DERIVATION OF ACCOUNTING 31-32
UNITS FOR DESIGNATED CABLES
Schedule C Schedule of Cables and Accounting Units: 39-41
Schedule C1 - EAST ZONE 39-41
Schedule C2 - WEST ZONE 42-44
Schedule D Definition of STANDING CHARGES and 49-52
RUNNING COSTS.
Schedule E COMMITMENT AGREEMENT 55-56
Schedule F Telex/Fax Formats
Schedule Fl - Notification of Commencement of a SCARAB 57
operation.
Schedule F2 - Notification of Completion of a SCARAB 58
operation.
Schedule F3 - Notification of change of SCARAB System 59
operational status.
Schedule F4 - Estimate of RUNNING COSTS for SCARAB 60
System operation.
Schedule G SCARAB SYSTEM PERFORMANCE SPECIFICATIONS
Schedule Gl - SCARAB III 61-64
Schedule G2 - SCARAB IV 65-66
<PAGE>
SCARAB III AND IV USERS AGREEMENT
PREAMBLE
This SCARAB III & IV Users Agreement (hereinafter referred to as this
"AGREEMENT") made and entered into this 28 day of February 1990, between and
among American Telephone and Telegraph Company, a corporation organised and
existing under the laws of the State of New York and having an office at 412
Mount Kemble Avenue, Morristown, New Jersey, USA (herein called "AT&T");
Transpacific Communications, Incorporated, a corporation organised and existing
under the laws of the State of Delaware, and having an office at 412 Mount
Kemble Avenue, Morristown, New Jersey, USA (herein called "TRANSPACIFIC");
British Telecommunications ple, a public limited company, registered in England
(No: 1800000) whose registered office is at 81 Newgate Street, London EClA 7AJ,
England (herein called "British Telecom"or "BT"); BT(Marine) Ltd, having its
registered office at Berth 203, Western Docks, Southampton, SO1 0HH England
(herein called "BT(M)"); Ministere des Postes des Telecommunications et de
l'Espace de la Republique Francaise (herein called "FRANCE TELECOM"); Telefonica
de Espana S.A., a corporation organised and existing under the laws of Spain and
having its principal office at Gran Via 28, Madrid, Spain (herein called
"TELEFONICA"); Telecommunications Marinas S.A., whose registered office is at
Silva 2, 4th Floor, 28013 Madrid, Spain (herein called "TEMASA"); Teleglobe
Canada Inc., a Canadian business corporation having its registered office at 680
Sherbrooke Street West, Montreal, Quebec H3A 2S4, Canada (herein called
"TELEGLOBE") and Teleglobe Marine Inc, a Canadian business corporation having
its registered office at 2075 Rue Universite, Montreal, Quebec H3A 2L1, Canada
(herein called "TMI"), herein referred to collectively as the "PARTIES"
WITNESSETH:
WHEREAS the PARTIES all have an interest in the efficient and effective
construction, laying, installation, operation, maintenance and repair of
submarine cable systems in the Atlantic Ocean region including the Caribbean and
Mediterranean Seas and
WHEREAS the PARTIES all have an interest in the support and use of appropriate
work tools to assist in such activities and
WHEREAS the PARTIES or their parents were among the parties to the SCARAB I & II
Users Agreement made on 29 June 1984 effective from 1 July 1983, as amended
(herein called "the 1984 Users Agreement") and
WHEREAS the PARTIES or their parents were the parties to the Interim Agreement
to Plan for the Implementation of New SCARAB Systems entered into on 22
September 1988 (herein called "the Interim Agreement") and
<PAGE>
WHEREAS the PARTIES now wish to replace the Interim Agreement and to provide for
the support and use of SCARAB III and SCARAB IV and
WHEREAS the PARTIES now wish to replace the Interim Agreement and to provide for
the support and use of SCARAB III and SCARAB IV on similar terms to those of the
1984 Users Agreement.
NOW, THEREFORE, the PARTIES, in consideration of the mutual covenants herein
expressed, agree with each other as follows:
ARTICLE 1
DEFINITIONS
1. In this AGREEMENT, unless the context otherwise requires, the following
expressions have the meanings hereby assigned to them:
1.1 "ACCOUNTING UNITS" for DESIGNATED CABLES means the units
within a ZONE used to form the basis for allocating the costs
of the SCARAB SYSTEMS to DESIGNATED CABLES within a ZONE and
are calculated as described in Article 7.
1.2 "ATLANTIC CABLE MAINTENANCE AND REPAIR AGREEMENT"
(ACMA) means the agreement effective from 1 April 1989, or its
successor, between and among cable maintenance authorities and
ship owners for the maintenance of cables in the Atlantic
Area.
1.3 "CAPITAL ADDITIONS" means expenditures for enhancements or
additions of a capital nature to the SCARAB SYSTEMS that occur
after the INITIAL CAPITAL COST.
1.4 "CENTRAL BILLING PARTY" means the PARTY designated in
Article 6.
1.5 "COMMITMENT AGREEMENT" means the formal agreement defined in
Article 4 whereby an entity, not a signatory to this
AGREEMENT, participates in the use of the SCARAB SYSTEMS.
1.6 "DESIGNATED CABLES" means the cables entered into the ACMA
which are listed in Schedule C.
1.7 "FINANCIAL YEAR" means the period between the respective
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<PAGE>
OPERATIONAL DATE of each SCARAB SYSTEM and 31 March 1991 and
each subsequent period of twelve (12) months ending on 31
March each year.
1.8 "FORCE MAJEURE" means such circumstances or events that are
outside the control of the PARTIES, such circumstances or
events include, but would not be restricted to, acts of God,
or of the public enemy, acts of governments, insurrection,
fires, floods, epidemics, quarantine restrictions, freight
embargoes, strikes or adverse weather conditions.
1.9 "INITIAL CAPITAL COST" of each SCARAB SYSTEM means the total
construction cost of each SCARAB SYSTEM determined in
accordance with the relevant provisions of the SCARAB OWNERS
AGREEMENT and advised in writing to the PARTIES to this
AGREEMENT.
1.10 "MAINTENANCE & IMPROVEMENT" means work carried out on a
DESIGNATED CABLE, other than a REPAIR, involving the use of a
SCARAB SYSTEM and which is deemed by the relevant MAINTENANCE
AUTHORITY to be required in order to reduce the susceptibility
of the DESIGNATED CABLE to furnish service-affecting faults,
however caused.
1.11 "MAINTENANCE AUTHORITY", in relation to a DESIGNED CABLE,
means a telecommunications administration or recognised
private operating agency which is solely or jointly
responsible for the maintenance of that DESIGNATED CABLE as
shown in Schedule C.
1.12 "NON-DESIGNATED CABLES" means cables entered into the ACM
which are not listed in Schedule C.
1.13 "OPERATOR" means an OWNER who has been directly assigned by
the respective OWNERS to be responsible for the operation and
maintenance of a particular SCARAB SYSTEM.
1.14 "OPERATING COMMITTEE" means a committee established under
Article 5.
1.15 "OPERATING COSTS" means those costs incurred, excepting
Depreciation, Interest on Capital and RUNNING COSTS, in the
operation and maintenance of the SCARAB SYSTEMS.
1.16 "OPERATIONAL DATE" of each SCARAB SYSTEM means the date upon
which the respective SCARAB SYSTEM entered into service,
determined in accordance with the relevant provisions of the
SCARAB OWNERS AGREEMENT and advised in writing to the PARTIES
to this AGREEMENT.
1.17 "OUTSIDE WORK" means the categories of work defined in
Articles 8.3 and 8.4.
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<PAGE>
1.18 "OWNER" means a PARTY identified in Schedule A as having an
investment in the SCARAB SYSTEMS.
1.19 "PARTY" means a signatory to this AGREEMENT or to a COMMITMENT
AGREEMENT.
1.20 "PORT" means the port from which a ship departs or returns
with a SCARAB SYSTEM for an operation.
1.21 "REPAIR" means work carried out on a DESIGNATED CABLE
involving the use of a SCARAB SYSTEM and which is deemed by
the relevant MAINTENANCE AUTHORITY to be required in order to
remedy a service-affecting fault suffered by the DESIGNATED
CABLE, however caused.
1.22 "RUNNING COSTS" means costs, additional to STANDING CHARGES,
which are incurred specifically as a result of an individual
operation or operations, as defined in Schedule D.
1.23 "SCARAB III" means an unmanned submersible system together
with supporting ancillary equipment as further defined in
Schedule G1 and collectively owned and operated by the
relevant OWNERS listed in Schedule A.
1.24 "SCARAB IV" means an unmanned submersible system together with
supporting ancillary equipment as further defined in Schedule
G2 and collectively owned and operated by the relevant OWNERS
listed in Schedule A.
1.25 "SCARAB SYSTEM" means a reference equally applicable to either
or both SCARAB III and SCARAB IV.
1.26 "SCARAB OWNERS AGREEMENT" means the Agreement known as the
SCARAB III & IV Owners Agreement among the owners of the
SCARAB SYSTEMS.
1.27 "STANDING CHARGES" means the costs as defined in Schedule D.
1.28 "ZONE" means an operational area (as defined in the ACMA as
either "EAST" or "WEST") to which a SCARAB SYSTEM is primarily
assigned.
-4-
<PAGE>
ARTICLE 2
INTERPRETATION
2.1 Schedules A through to G2 attached hereto are an integral part
of this AGREEMENT and any reference herein to a Schedule is a
reference to a Schedule to this AGREEMENT.
2.2 The marginal titles of Articles do not form part of this
AGREEMENT.
2.3 Any reference herein to an Article, Paragraph or Sub-paragraph
is a reference to an Article, Paragraph or Sub-paragraph of
this AGREEMENT.
ARTICLE 3
PURPOSE OF THIS AGREEMENT
3.1 The purpose of this AGREEMENT is to provide the terms and
conditions for the support and use of the SCARAB SYSTEMS.
3.2 This AGREEMENT shall supersede and replace the Interim
Agreement in respect of each SCARAB SYSTEM with effect from
the respective OPERATIONAL DATE of each SCARAB SYSTEM and
shall from each such OPERATIONAL DATE govern the relationship
of the PARTIES in all respects as to the support and use of
the respective SCARAB SYSTEM.
3.3 The PARTIES hereby remise, release and discharge each other
from any claims upon each other for any deeds or actions
performed or not performed before the respective OPERATIONAL
DATE with respect to their interests in the respective SCARAB
SYSTEM.
ARTICLE 4
PARTICIPATION OF OTHER PARTIES
4.1 The OPERATING COMMITTEE may agree to invite other parties to
the ACMA to participate in the use of the SCARAB SYSTEMS under
the terms and conditions of this AGREEMENT. Such participation
shall be effected by such other party entering into a
COMMITMENT AGREEMENT, annexed as Schedule E, and thereby
sharing in the rights and obligations of this AGREEMENT.
4.2 The PARTIES shall hereby authorise the Chairman of the
OPERATING COMMITTEE to sign such COMMITTEE AGREEMENT for and
on their behalf.
-5-
<PAGE>
ARTICLE 5
OPERATING COMMITTEE
5.1 The OPERATING COMMITTEE is hereby established to supervise the
operation of this AGREEMENT and shall comprise a single
representative of each of the PARTIES.
5.2 The OPERATING COMMITTEE shall elect a Chairman annually from
among its members. All decisions of the OPERATING COMMITTEE,
including election of its Chairman, shall be subject in the
first instance to consultation among its members who shall
endeavour to make decisions by agreement. In the event it
fails to reach agreement, it shall make decisions by votes
cast at a meeting of the OPERATING COMMITTEE by its members
weighted in the same proportion as their percentage
contribution to STANDING CHARGES shown on Schedule C of this
AGREEMENT. Should the question before the OPERATING COMMITTEE
relate specifically to either the EAST ZONE or the WEST ZONE
SCARAB SYSTEM operations then votes shall be weighted in
accordance with the sum total of Schedule C applicable to that
ZONE. If the question before the OPERATING COMMITTEE relates
to both ZONES then votes will be in accordance with the
percentage contributions to STANDING CHARGES related to a
combination of Schedules C1 and C2. A concurring vote of at
least three (3) PARTIES representing over fifty (50) per cent
of the weighted voting rights for the affected ZONE, shall be
required to decide any question before the OPERATING
COMMITTEE. No vote shall be taken unless at least two (2)
weeks notice of the meeting has been given. However, on the
agreement of all PARTIES, the two (2) weeks written notice may
be waived, and voting may take place, by telex or facsimile.
5.3 The OPERATING COMMITTEE shall:
5.3.1 Meet as often as circumstances require, but not
less than once a year, to review the operation of
the AGREEMENT.
5.3.2 Share experiences of the effectiveness and
efficiency of SCARAB SYSTEM operations and review
the operational performance of the SCARAB SYSTEMS
and of the OPERATORS.
5.3.3 Approve the inclusion of CAPITAL ADDITIONS in the
calculation of the STANDING CHARGES of the SCARAB
SYSTEMS in accordance with the relevant
provisions of Article 14.
5.3.4 Approve the Estimated STANDING CHARGES and
Estimated RUNNING COSTS of the SCARAB SYSTEMS in
accordance with the relevant provisions of
Article 15.
-6-
<PAGE>
5.3.5 Appoint the CENTRAL BILLING PARTY in accordance with
Article 6.1.
5.3.6 Approve the estimated CENTRAL BILLING PARTY costs in
accordance with Article 6.4.
5.3.7 Appoint the Appointed Party in accordance with
Article 7.1.
5.3.8 Agree on an annual schedule of planned use of the
SCARAB SYSTEMS taking into account each MAINTENANCE
AUTHORITY'S respective contribution to STANDING
CHARGES in planning access to the SCARAB SYSTEMS.
5.3.9 Make decisions as to the participation of new parties
in accordance with the provisions of Article 4.
5.3.10 Resolve conflicts, if any, over use of SCARAB
SYSTEMS.
5.3.11 Establish such sub-committees and working parties as
it considers necessary to assist in carrying out its
functions.
ARTICLE 6
CENTRAL BILLING PARTY
6.1 The OPERATING COMMITTEE shall by agreement appoint one PARTY
to act as CENTRAL BILLING PARTY for the purpose of this
AGREEMENT. Unless and until otherwise decided by the OPERATING
COMMITTEE, BRITISH TELECOM shall act as CENTRAL BILLING PARTY
for the duration of this AGREEMENT.
6.2 The CENTRAL BILLING PARTY shall be responsible for the
submissions of billing, accounting and settlement of all
amounts due from the MAINTENANCE AUTHORITIES under this
AGREEMENT and for the disbursement and settlement of all
amounts due to the OWNERS under this AGREEMENT.
6.3 The CENTRAL BILLING PARTY shall also undertake the necessary
liaison with the Central Billing Party appointed under the
SCARAB OWNERS AGREEMENT.
6.4 At least two months before the beginning of each FINANCIAL
YEAR, the CENTRAL BILLING PARTY will provide an estimate of
the cost of carrying out the central billing functions during
that FINANCIAL YEAR for the approval of
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<PAGE>
the OPERATING COMMITTEE. The costs actually incurred by the
CENTRAL BILLING PARTY in carrying out the central billing
functions shall be charged to the MAINTENANCE AUTHORITIES as
described in Article 18.7.
6.5 Not more than two months after the end of each FINANCIAL YEAR,
the CENTRAL BILLING PARTY shall submit an Annual Report and
Accounts to the PARTIES describing and summarising its
activities in discharging the CENTRAL BILLING functions during
the FINANCIAL YEAR concerned.
ARTICLE 7
PREPARATION AND AMENDMENT OF SCHEDULE C
7.1 The OPERATING COMMITTEE shall appoint one of the PARTIES to
prepare and revise Schedule C semi-annually. Unless and until
otherwise decided by the OPERATING COMMITTEE, AT&T shall act
as the Appointed Party for the duration of this AGREEMENT.
7.2 The ACCOUNTING UNITS for each DESIGNATED CABLE shall be
derived and revised by the Appointed Party in accordance with
Schedule B. After the ACCOUNTING UNITS are revised, the
Appointed Party shall, in accordance with Schedule B, prepare
and send to each PARTY and the CENTRAL BILLING PARTY revised
Schedules Cl and C2. The revised Schedules C1 and C2 shall
become effective on 1 April, 1 October or such other dates as
required and specified in Schedule B.
7.3 Each MAINTENANCE AUTHORITY for (a) a new cable system which
when introduced into the ACMA will be included in this
AGREEMENT as a DESIGNATED CABLE, (b) a DESIGNATED CABLE that
will be introducing newly equipped spare capacity into
service, (c) a DESIGNATED CABLE that will be expanding or
reducing its Bearer Capacity, (d) a DESIGNATED CABLE which is
to be taken out of service, (e) a DESIGNATED CABLE that will
incur an expansion or reduction in Notional Capacity or (f) a
DESIGNATED CABLE in respect of which the number of buried
nautical miles has been significantly increased; shall
promptly notify the Chairman of the OPERATING COMMITTEE, the
PARTIES and the Appointed Party of the relevant facts, and
Schedules Cl and C2 shall be amended in accordance with
Schedule B.
ARTICLE 8
USE OF SCARAB SYSTEMS AND CHARGES
8.1 SCARAB III shall primarily be assigned to and operated in the
EAST ZONE and
-8-
<PAGE>
SCARAB IV shall primarily be assigned to and operated in the
WEST ZONE. The cost of each SCARAB SYSTEM shall be allocated
to its respective assigned ZONE on the basis defined in
Articles 16 and 17.
8.2 The SCARAB SYSTEMS shall be used primarily for the REPAIR of
DESIGNATED CABLES in order to insure the continuity of service
provided by such cables. Subject to such requirements being
satisfied, the SCARAB SYSTEMS shall be used for the
MAINTENANCE & IMPROVEMENT of the DESIGNATED CABLES on an
interruptible basis. The charges and their allocation
applicable to these categories of use and the basis of
availability shall be as follows:
8.2.1 REPAIR OF DESIGNATED CABLES: For the period of such
work, all RUNNING COSTS, including those for Passage
Time and, if applicable, mobilisation aboard the Host
Vessel and demobilisation, shall be borne by the
MAINTENANCE AUTHORITY responsible for the DESIGNATED
CABLE under REPAIR. STANDING CHARGES shall continue
to be allocated according to Article 16.
8.2.2 MAINTENANCE & IMPROVEMENT OF DESIGNATED CABLES:
a) For the period of such work, all RUNNING
COSTS, including those for Passage Time, and
if applicable, mobilisation and
demobilisation, shall be borne by the
MAINTENANCE AUTHORITY responsible for the
DESIGNATED CABLE concerned. STANDING CHARGES
shall continue to be allocated according to
Article 16.
b) In the event that the planned requirement of
the MAINTENANCE AUTHORITIES for MAINTENANCE
& IMPROVEMENT work at the beginning of the
FINANCIAL YEAR shall exceed the then
envisaged availability of the SCARAB
SYSTEMS, the OPERATING COMMITTEE shall
decide how the envisaged SCARAB SYSTEM
availability shall be allocated between the
MAINTENANCE AUTHORITIES. Such allocations
shall take into consideration: -
i) the number and aggregate duration
of the requirements of each
MAINTENANCE AUTHORITY for the
FINANCIAL YEAR in question, and
ii) the respective number of ACCOUNTING
UNITS of the DESIGNATED CABLES for
which MAINTENANCE & IMPROVEMENT
work is requested.
8.2.3 For the period of other activities of an
interruptible nature as approved by
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<PAGE>
the OPERATING COMMITTEE, all RUNNING COSTS, including
those for Passage Time and, if applicable,
mobilisation and demobilisation, shall be borne by
the MAINTENANCE AUTHORITY responsible for such
activity. STANDING CHARGES shall continue to be
allocated according to Article 16.
8.3 Provided that the availability of the SCARAB SYSTEMS to
undertake the REPAIR and MAINTENANCE & IMPROVEMENT of the
DESIGNATED CABLES is not thereby prejudiced, the SCARAB
SYSTEMS may be used, with the approval of the relevant OWNERS
and of the OPERATING COMMITTEE, which approval shall not be
unreasonably withheld, by the OWNERS on behalf of a
MAINTENANCE AUTHORITY for construction work, including survey,
on cable systems which, when introduced into the ACMA will be
included as DESIGNATED CABLES. For the period of such work,
including Passage Time and, if applicable, mobilisation and
demobilisation, STANDING CHARGES and RUNNING COSTS shall not
be charged to this AGREEMENT.
8.4 The use of a SCARAB SYSTEM by the relevant OWNERS or on behalf
of a MAINTENANCE AUTHORITY for purposes other than those
described in Articles 8.2 and 8.3 shall be subject to the
approval of the OPERATING COMMITTEE. For the period of such
use, including Passage Time and, if applicable, mobilisation
and demobilisation, STANDING CHARGES and RUNNING COSTS shall
not be charged to this AGREEMENT. The OPERATING COMMITTEE
shall determine the magnitude of any amount which the relevant
OWNERS or MAINTENANCE AUTHORITY concerned shall credit or
otherwise under this AGREEMENT in respect of such use.
8.5 For any period spent (with the consent of the OPERATING
COMMITTEE members that are a Maintenance Authority within the
affected ZONE) in exercising a SCARAB SYSTEM and in training
the OPERATOR'S team, the STANDING CHARGES and the RUNNING
COSTS, including those incurred during Passage Time and, if
applicable, mobilisation and demobilisation shall be allocated
as provided in Articles 16 and 17.
8.6 In the event of either SCARAB SYSTEM not being available for
the REPAIR of a DESIGNATED CABLE in its assigned ZONE, the
remaining SCARAB SYSTEM may, at the request of a MAINTENANCE
AUTHORITY and with the agreement of the MAINTENANCE
AUTHORITIES in the remaining SCARAB SYSTEM's assigned ZONE, be
transferred between ZONES to effect REPAIR to that DESIGNATED
CABLE save that:
i) The remaining SCARAB SYSTEM shall complete any
REPAIRS on a DESIGNATED CABLE to which it is
committed in its own ZONE before
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<PAGE>
such transfer is permitted.
ii) The remaining SCARAB SYSTEM may be immediately
recalled to its assigned ZONE in the event of a
REPAIR being required for a DESIGNATED CABLE in its
assigned ZONE with a greater number of ACCOUNTING
UMTS than the cable under REPAIR in the other ZONE.
iii) For the period of such transfer between ZONES,
STANDING CHARGES and RUNNING COSTS including, if
applicable, those for mobilisation and demolisation,
shall be allocated in accordance with Articles 16 and
17.
ARTICLE 9
SCARAB SYSTEM AVAILABILITY
9.1 The OPERATOR and the respective OWNERS of each SCARAB SYSTEM
shall use their beSt efforts to make the respective SCARAB
SYSTEM operationally available for use at all times for work
on the DESIGNATED CABLES except in the following
circumstances:-
9.1.1 whilst the SCARAB SYSTEM is undergoing periodic
maintenance or refurbishment.
9.1.2 from the starting date of any OUTSIDE WORK until its
conclusion.
9.1.3 whilst the SCARAB SYSTEM is unavailable by reason of
FORCE MAJEURE.
9.1.4 whilst the SCARAB SYSTEM is damaged to the extent
that it cannot perform REPAIRS or MAINTENANCE &
IMPROVEMENT work as envisaged in Article 20.1 or it
becomes a total loss or a constructive total loss.
9.2 Article 20 contains provisions concerning the treatment of
SCARAB SYSTEM costs for periods during which a SCARAB SYSTEM
is unavailable.
ARTICLE 10
OPERATING PROCEDURES
10.1 On receipt by an OPERATOR of notification by a MAINTENANCE
AUTHORITY that a SCARAB SYSTEM is required to undertake work
on a DESIGNATED CABLE, the OPERATOR shall take the necessary
action to ensure that the SCARAB SYSTEM is mobilised aboard
the nominated Host Vessel without avoidable delay. Where
notification is given by telephone, it shall
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be confirmed by telex or facsimile at the earliest
opportunity.
10.2 The MAINTENANCE AUTHORITY requesting the use of a SCARAB
SYSTEM shall be responsible for the nomination, engagement and
costs of a suitable Host Vessel. Notwithstanding the
foregoing, the OPERATOR of the respective SCARAB SYSTEM shall
be responsible for determining the suitability of any
nominated Host Vessel and the OPERATOR's decision in this
regard shall be final.
10.3 When an OPERATOR is notified to commence a SCARAB SYSTEM
operation under this AGREEMENT or when a SCARAB SYSTEM changes
operational status, the respective OPERATOR shall, within 24
hours, notify the MAINTENANCE AUTHORITIES in the ZONE and the
other OWNERS, by telex or facsimile, as specified below:
10.3.1 Upon receipt of notification by an OPERATOR that
the respective SCARAB SYSTEM is required to
undertake an operation, the OPERATOR shall
transmit a Notification of Commencement of a
SCARAB SYSTEM operation in accordance with
Schedule Fl.
10.3.2 After completion of the SCARAB SYSTEM operation,
the OPERATOR shall transmit a Notification of
Completion of a SCARAB SYSTEM operation in
accordance with Schedule F2.
10.3.3 Upon a SCARAB SYSTEM's change in operational
status (ie: standby, repairs, OUTSIDE WORK,
training exercises, etc.) the respective OPERATOR
shall transmit a notification of the change in
status in accordance with Schedule F3.
10.4 As soon as practicable after the completion of a SCARAB SYSTEM
operation under this AGREEMENT, the respective OPERATOR shall
advise the MAINTENANCE AUTHORITIES on whose behalf the
operation was undertaken, by telex or facsimile, of the
estimated RUNNING COSTS of the SCARAB SYSTEM on such operation
in the format of Schedule F4.
ARTICLE 11
OPERATIONAL RESPONSIBILITIES
11.1 The responsibility for planning and directing work on a
DESIGNATED CABLE shall rest with the OPERATOR of the
respective SCARAB SYSTEM unless the MAINTENANCE AUTHORITY
concerned has elected to take on that responsibility.
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11.2 Whether or not such an election has been made:-
11.2.1 each SCARAB SYSTEM shall at all times remain under
the direct control of the respective OPERATOR and
nothing in this AGREEMENT shall be construed as a
demise or charter of a SCARAB SYSTEM to the
MAINTENANCE AUTHORITIES, jointly or severally, and
11.2.2 nothing in this AGREEMENT shall be deemed to reduce,
interfere with, or otherwise impair the full
authority and responsibility of the OPERATOR of a
SCARAB SYSTEM for its safe operation and navigation,
or for the safety of the OPERATOR'S personnel. In
complying with any directions given by an Authorised
Shipboard Representative designated by a MAINTENANCE
AUTHORITY, the OPERATOR shall take full account of
the risk of impairing the safety of the SCARAB SYSTEM
and of the OPERATOR's personnel.
11.3 SCARAB SYSTEM operations shall be carried out in accordance
with the instructions supplied by the appropriate MAINTENANCE
AUTHORITY. If no such instructions are received, the normal
practices of the respective OPERATOR may be followed.
11.4 The MAINTENANCE AUTHORITY for whom any work is being carried
out may assign to the operation concerned one (or, if
accommodation is available, more than one) representative for
the duration of the work. However, permission to board the
Host Vessel by any such representative shall be subject to the
acceptance by the representative and the MAINTENANCE AUTHORITY
of the Host Vessel owner's waiver-of-liability requirements.
11.5 A MAINTENANCE AUTHORITY which has elected to undertake the
responsibility for planning and directing any work, shall
designate in writing its "Authorised Shipboard
Representative". If it does not do so, it shall designate in
writing an "Authorised Shore Representative".
11.6 The function of the Authorised Shipboard Representative or the
Authorised Shore Representative designated under Article 11.5
is to communicate to the OPERATOR (in writing, or by
confirmatory radio message, if reasonably required) the
requirements of the MAINTENANCE AUTHORITY concerning the work;
these requirements shall relate only to the particular
operation on which the SCARAB SYSTEM is then engaged.
11.7 The relevant MAINTENANCE AUTHORITY shall be responsible for
ensuring that the OPERATOR is provided with cable system
documentation and any
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specialised equipment and expertise identified by the OPERATOR
as necessary for the operation concerned. The OPERATOR shall
exercise due diligence for the safe keeping of any plant and
equipment provided by a MAINTENANCE AUTHORITY.
ARTICLE 12
PRIORITY OF USE OF SCARAB SYSTEMS
12.1 In the event of competing claims for the services of a SCARAB
SYSTEM to undertake REPAIR operations on two or more
DESIGNATED CABLES within a ZONE, the MAINTENANCE AUTHORITIES
concerned shall consult with one another having regard to the
consequences resulting from the failures and with a view to
agreeing on the sequence of SCARAB SYSTEM REPAIR operations.
If no agreement is reached, first priority shall be given to
the REPAIR of the DESIGNATED CABLE with the higher aggregate
number of ACCOUNTING UNITS in Schedules C1 and C2 taken
together. Where a DESIGNATED CABLE concerned forms part of a
branched cable system, the ACCOUNTING UNITS attributed to that
DESIGNATED CABLE for the purposes of this Paragraph shall be
the sum of the ACCOUNTING UNITS of the failed segment of the
DESIGNATED CABLE concerned and a proportion of the ACCOUNTING
UNITS of any other segments of the DESIGNATED CABLE forming
other parts of the same branched cable system in proportion to
the effect of the failed DESIGNATED CABLE on the
traffic-carrying capacity of said other DESIGNATED CABLES.
12.2 Subject to the overriding consideration of Article 12.1.,
priority for use of the SCARAB SYSTEMS shall be in the
following descending order:
12.2.1 Service interrupted in the buried sections of
DESIGNATED CABLES.
12.2.2 Service interrupted in the non-buried sections of
DESIGNATED CABLES.
12.2.3 Maintenance and Improvement work on DESIGNATED
CABLES.
12.2.4 OUTSIDE WORK as agreed by the OPERATING COMMITTEE.
12.3 If, while a SCARAB SYSTEM is committed to an operation, it is
required for an operation of higher priority, then the
MAINTENANCE AUTHORITY requiring the SCARAB SYSTEM on that
higher priority operation shall pay the transportation costs
of the SCARAB SYSTEM from its committed work site and back to
that work site, or to the PORT at the option of the
MAINTENANCE AUTHORITY of the lower priority operation.
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ARTICLE 13
ALLOCATION OF COSTS
13. SCARAB SYSTEM costs comprise:-
(i) STANDING CHARGES and
(ii) RUNNING COSTS.
as defined in Schedule D of this AGREEMENT.
ARTICLE 14
CAPITAL ADDITIONS AND COST ESCALATION
14.1 CAPITAL ADDITIONS in excess of an aggregated total in any
FINANCIAL YEAR of twenty-five thousand (25,000) Pounds
Sterling for each SCARAB SYSTEM shall not be included in the
calculation of STANDING CHARGES without the approval of the
OPERATING COMMITTEE.
14.2 Other than in the event of a designated OPERATOR failing to
comply with its contractual obligations or giving appropriate
notice of an intention to cease as OPERATOR, the respective
OWNERS may not change the OPERATOR, if such change is likely
to lead to a significant escalation in STANDING CHARGES or
RUNNING COSTS, without the approval of the OPERATING
COMMITTEE.
ARTICLE 15
ESTIMATED STANDING CHARGES AND RUNNING COSTS
15.1 Not later than two (2) months before the start of each
FINANCIAL YEAR, the OPERATORS and other OWNERS of each SCARAB
SYSTEM will provide the CENTRAL BILLING PARTY with SCARAB
SYSTEM cost estimates relating to the forthcoming FINANCIAL
YEAR in accordance with the relevant provisions of the SCARAB
OWNERS AGREEMENT.
15.2 Not later than one (1) month before the start of each
FINANCIAL YEAR, the CENTRAL BILLING PARTY shall, provide the
OPERATING COMMITTEE with:
15.2.1 the estimated STANDING CHARGE of each SCARAB
SYSTEM for the forthcoming FINANCIAL YEAR, in the
format defined in Schedule D.
15.2.2 the CAPITAL ADDITIONS included in the calculation
of Estimated
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STANDING CHARGES in accordance with the requirements
of Article 14.1.
15.2.3 the Estimated RUNNING COSTS of each SCARAB SYSTEM
appropriate to the forthcoming FINANCIAL YEAR, in the
format defined in Schedule D.
for the approval of the OPERATING COMMITTEE, which approval
shall not be unreasonably withheld.
15.3 When approved in accordance with the foregoing, the Estimated
STANDING CHARGES shall, in quarterly instalments based upon
the number of days in the quarter, form the basis of the
billing by the CENTRAL BILLING PARTY to the MAINTENANCE
AUTHORITIES during and in respect of the FINANCIAL YEAR. In
the event that the Estimated STANDING CHARGES or, if
applicable, the CAPITAL ADDITIONS included therein are not
approved by the OPERATING COMMITTEE, the Estimated STANDING
CHARGES shall form the basis of billing until the dispute is
resolved.
15.4 Not later than two (2) months after the approval of the
Estimated STANDING CHARGES for a FINANCIAL YEAR, the CENTRAL
BILLING PARTY shall provide the OPERATING COMMITTEE with
budgetary estimates of CAPITAL ADDITIONS and STANDING CHARGES
for the succeeding two (2) FINANCIAL YEARS.
15.5 In the event that during the course of a FINANCIAL YEAR the
CENTRAL BILLING PARTY determines that the STANDING CHARGES of
either SCARAB SYSTEM in that FINANCIAL YEAR will exceed the
approved Estimated STANDING CHARGES by more than ten (10)
percent, the CENTRAL BILLING PARTY shall provide the OPERATING
COMMITTEE with revised estimate of STANDING CHARGES for its
information.
ARTICLE 16
ALLOCATION OF STANDING CHARGES
16.1 The STANDING CHARGES of each SCARAB SYSTEM, adjusted as
appropriate pursuant to Articles 8.3 and 8.4., shall be
allocated to the ZONE to which it is assigned for the duration
of that assignment, and shall be shared among the MAINTENANCE
AUTHORITIES having direct responsibility for the DESIGNATED
CABLES in that ZONE in proportion to the ACCOUNTING UNITS
allocated to them in Schedule Cl or C2 as appropriate.
16.2 In the event that either SCARAB SYSTEM is transferred from its
assigned ZONE
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to the other ZONE in accordance with Article 8.6, one half of
the STANDING CHARGES applicable to the period of transfer
shall be borne by each ZONE.
16.3 For the purpose of calculating the STANDING CHARGES applicable
to any particular period of time, the annual STANDING CHARGES
shall be divided by 365 to give an appropriate daily rate.
16.4 Any additional amounts credited to this AGREEMENT in
accordance with Article 8.4 shall be shared among the
MAINTENANCE AUTHORITIES having direct responsibility for the
DESIGNATED CABLES in the ZONE to which the respective SCARAB
SYSTEM is assigned in proportion to the ACCOUNTING UNITS
allocated to them in Schedule Cl or C2 as appropriate.
ARTICLE 17
ALLOCATION OF RUNNING COSTS
17.1 The RUNNING COSTS of each SCARAB SYSTEM shall be allocated in
accordance with the following paragraphs of this Article 17
except where Article 8 provides otherwise.
17.2 If, pursuant to Article 12, a MAINTENANCE AUTHORITY is given
precedence in competing claims for the services of a SCARAB
SYSTEM, the MAINTENANCE AUTHORITIES concerned shall agree a
fair and reasonable apportionment of the RUNNING COSTS for the
Passage Time from the time of the commitment of mobilisation
of the SCARAB SYSTEM in its assigned PORT until the completion
of demobilisation upon its return to PORT. If the MAINTENANCE
AUTHORITIES concerned cannot agree, the OPERATING COMMITTEE
shall determine the apportionment. Whilst awaiting the
OPERATING COMMITTEE decision, the respective OPERATOR may, for
the purposes of interim billing, charge such RUNNING COSTS to
the MAINTENANCE AUTHORITY invoking the priority. Such interim
billing shall be adjusted upon receipt of the OPERATING
COMMITTEE's decision.
17.3 In the event that either SCARAB SYSTEM is transferred from its
assigned ZONE to the other ZONE in accordance with Article
8.6, the RUNNING COSTS and all associated transit costs shall
be charged to the MAINTENANCE AUTHORITY requesting the
transfer.
17.4 RUNNING COSTS in respect of SCARAB SYSTEM exercises and
training undertaken in accordance with Article 8.5 shall be
allocated to the ZONE to which the respective SCARAB SYSTEM is
assigned and shall be shared among the MAINTENANCE AUTHORITIES
having direct responsibility for the
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DESIGNATED CABLES in that ZONE in proportion to the ACCOUNTING
UNITS allocated to them in Schedule C1 or C2 as appropriate.
17.5 Should an operation be suspended due to the Host Vessel being
required to undertake other work (eg: an ACMA repair operation
not involving the SCARAB SYSTEM), the SCARAB SYSTEM operation
shall be deemed to have ended at the time of Host Vessel
diversion and from such time RUNNING COSTS shall be allocated
to the MAINTENANCE AUTHORITIES in the ZONE concerned in the
proportions of Schedule C1 or C2 as appropriate.
17.6 In the event that a SCARAB SYSTEM is used for a series of
operations without returning to its PORT, the MAINTENANCE
AUTHORITIES concerned may, if they wish, elect to share the
RUNNING COSTS during transit time on a basis different from
those outlined in Article 17.7. Any such election shall be
notified to the OPERATOR and CENTRAL BILLING PARTY as soon as
possible.
17.7 Where a SCARAB SYSTEM undertakes a series of operations
without returning to its PORT, each SCARAB SYSTEM'S RUNNING
COSTS shall be allocated pursuant to the provisions of the
paragraphs below. The RUNNING COSTS for transit time shall be
attributed separately to the several operations concerned
according to the procedure set out below. For this purpose,
transit time before work starts on the first operations,
transit time between the end of each operation and the start
of the next, and transit time from the end of the last in the
series of operations to the arrival of the SCARAB SYSTEM at
its PORT is aggregated to arrive at total transit time.
a) For the purposes of the following sub-paragraphs of
Article 17.7, references to an operation means all
work on the same cable including cut-ins and multiple
repairs. An operation ends when the SCARAB SYSTEM and
the Host Vessel have received permission from the
responsible MAINTENANCE AUTHORITY to leave the site
of the operation and have cleared the cable grounds.
b) the particular distance from the PORT of each
operation is hereinafter referred to as the
"operational distance."
c) The allocation of transit time to each operation is
that proportion of the total transit time which is
equal to the distance of each operation from the PORT
divided by the sum of all operational distances from
the PORT.
d) Weather delays which occur before work on a
particular operation starts, whether while actually
in transit or standing by on the cable ground, are
included in transit time.
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e) Weather delays which occur during the course of an
operation shall be charged to that particular
operation.
ARTICLE 18
BILLING ARRANGEMENTS
18.1 Bills showing the amounts due from the MAINTENANCE AUTHORITIES
for their respective shares of SCARAB SYSTEM costs for each
quarter shall be rendered to them by the CENTRAL BILLING PARTY
on or before the 20th day of the first month of each quarter.
Such bills shall be based on information received by the
CENTRAL BILLING PARTY under Paragraph 18.2 and on the approved
Estimated STANDING CHARGES and shall include:
(a) estimated STANDING CHARGES in respect of the quarter,
(b) a reduction of Estimated STANDING CHARGES in respect
of OUTSIDE WORK forecast for the quarter,
(c) adjustments in respect of previous quarters' actual
OUTSIDE WORK and/or Actual STANDING CHARGES,
(d) RUNNING COSTS, as incurred and advised to the CENTRAL
BILLING PARTY quarterly,
(e) interest, pursuant to Article 18.5, on bills not paid
when due, and
(f) CENTRAL BILLING PARTY charges in accordance with
Article 18.7.
18.2 On or before the fifteenth day of the last month preceding
each quarter, each OWNER shall advise the CENTRAL BILLING
PARTY as to the details of SCARAB SYSTEM activities (including
retrospective adjustments) and Running Costs, to be included
in the bills next due to be rendered to MAINTENANCE
AUTHORITIES. Such details shall be advised in the currency of
the OWNER.
18.3 For billing purposes, all such costs notified to the CENTRAL
BILLING PARTY shall be converted into the currency of the
CENTRAL BILLING PARTY at the exchange rates pertaining to
forward foreign exchange contracts which the CENTRAL BILLING
PARTY will enter into for the purchase of the amounts due to
each OWNER in its own currency on the first working day of the
third month of the quarter.
18.4 Bills shall be rendered in the currency of the CENTRAL BILLING
PARTY and
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shall be payable in that currency unless the CENTRAL BILLING
PARTY agrees otherwise.
18.5 Bills shall be payable by the last working day of the second
month of the quarter to which they relate, or if the issue of
a bill is delayed, seventy days from the date of issue,
whichever is the later. Bills not paid by the due date will
incur a quarterly compounded interest charge at a rate of one
hundred and twenty five (125%) percent of the *LIBOR
applicable on the first working day following the date by
which payment is due, which rate will be applied throughout
the period during which the payment is overdue.
*LIBOR is the London Interbank Offer Rate for Sterling as
published in the London Financial Times.
18.6 On the first working day of the third month of each quarter,
the CENTRAL BILLING PARTY shall remit to or settle with each
OWNER, in the OWNER's own currency, the amounts notified by it
under Article 18.2. Where appropriate, those amounts shall be
netted off against any amounts due from the OWNER in its
capacity as a MAINTENANCE AUTHORITY, such last-mentioned
amounts having been converted into the currency of the OWNER
concerned at rates prevailing at the time of settlement. Other
arrangements of a netting-off or similar nature are
permissible where agreed between the MAINTENANCE AUTHORITY or
MAINTENANCE AUTHORITIES concerned and the CENTRAL BILLING
PARTY. Such other arrangements will be reported upon annually
to the OPERATING COMMITTEE by the CENTRAL BILLING PARTY.
18.7 The CENTRAL BILLING PARTY shall charge the costs associated
with the performance of the Central Billing function. The
charges made shall be allocated equally between ZONES and
included in the quarterly bills to the MAINTENANCE AUTHORITIES
in proportion to the ACCOUNTING UNITS allocated to them in
Schedules Cl and C2.
18.8 The CENTRAL BILLING PARTY shall at all times use its best
efforts to ensure that all bills rendered to MAINTENANCE
AUTHORITIES are paid as due. If a bill for a DESIGNATED CABLE
remains unpaid for 180 days after the due date, the other
MAINTENANCE AUTHORITIES in the same ZONE as the defaulting
MAINTENANCE AUTHORITY shall reimburse the CENTRAL BILLING
PARTY a proportional share of the unpaid bill, including a
proportional share of the interest incurred by the CENTRAL
BILLING PARTY. The amounts paid by such MAINTENANCE
AUTHORITIES shall be in proportion to their ACCOUNTING UNITS
within the applicable ZONE.
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18.9 Nothing contained in this Article shall release the defaulting
MAINTENANCE AUTHORITY from its obligations under this
AGREEMENT. The defaulting MAINTENANCE AUTHORITY will continue
to be billed its share of all SCARAB SYSTEM costs in
proportion to the ACCOUNTING UNITS allocated to it in Schedule
C1 or C2, as appropriate, prepared pursuant to Article 7. If
the defaulting MAINTENANCE AUTHORITY fails to pay any bill
within 365 days of its due date, the owners shall be released
from any obligation to undertake work for that MAINTENANCE
AUTHORITY. At such time, the Appointed Party shall prepare and
issue a revised Schedule C which will exclude the defaulting
MAINTENANCE AUTHORITY. The defaulting MAINTENANCE AUTHORITY
will continue to be excluded from Schedule C until all
outstanding balances, including applicable interest, have been
paid in full by the defaulting MAINTENANCE AUTHORITY.
18.10 In the event that a MAINTENANCE AUTHORITY for a DESIGNATED
CABLE has failed to pay a bill within 180 days of the due
date, and that DESIGNATED CABLE has more than one MAINTENANCE
AUTHORITY (as shown in Schedule C), the CENTRAL BILLING PARTY
shall notify such other MAINTENANCE AUTHORITY(s) for that
cable of such default for nonpayment. Notwithstanding Article
18.9, a MAINTENANCE AUTHORITY for a DESIGNATED CABLE having
more than one MAINTENANCE AUTHORITY shall have the option, at
any time within 365 days of the due date of a bill, to pay any
unpaid bill of another MAINTENANCE AUTHORITY for that cable,
and upon such payment, the defaulting MAINTENANCE AUTHORITY
shall no longer be deemed to be in default for non-payment of
such bill and the cable involved shall not be excluded from
Schedule C. Such payment by another MAINTENANCE AUTHORITY on
behalf of a defaulting MAINTENANCE AUTHORITY shall not
prejudice the paying MAINTENANCE AUTHORITY'S legal rights
against the defaulting MAINTENANCE AUTHORITY.
18.11 Upon receipt by the CENTRAL BILLING PARTY from the defaulting
MAINTENANCE AUTHORITY or from another MAINTENANCE AUTHORITY
for a DESIGNATED CABLE having more than one MAINTENANCE
AUTHORITY (pursuant to Article 18.10) of any amount reimbursed
by the other MAINTENANCE AUTHORITIES in the ZONE in accordance
with Article 18.8, any such amounts shall be distributed to
such other MAINTENANCE AUTHORITIES in the ZONE in the same
proportions as those MAINTENANCE AUTHORITIES reimbursed the
CENTRAL BILLING PARTY under Article 18.8.
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ARTICLE 19
ACTUALS ADJUSTMENT
19.1 As soon as possible and not more than six (6) months after the
end of each FINANCIAL YEAR, each OWNER will advise the CENTRAL
BILLING PARTY (in the categories defined in Schedule D) of its
actual expenditure contributing towards STANDING CHARGES for
that FINANCIAL YEAR in accordance with the relevant provisions
of the SCARAB OWNERS AGREEMENT.
19.2 Not more than seven (7) months after the end of each FINANCIAL
YEAR, the CENTRAL BILLING PARTY shall provide the OPERATING
COMMITTEE with the Actual STANDING CHARGES for the FINANCIAL
YEAR concerned and make appropriate adjustments to amounts
billed under Article 18 on the basis of the corresponding
Estimated STANDING CHARGES. Such adjustments shall be
reflected to MAINTENANCE AUTHORITIES through the next
quarterly settlement.
ARTICLE 20
SCARAB SYSTEM COSTS IN PARTICULAR CIRCUMSTANCES
20.1 If a SCARAB SYSTEM is damaged to such an extent as to have to
undergo repairs, the MAINTENANCE AUTHORITIES shall continue to
share the STANDING CHARGES in the proportions of Schedule C1
or C2 as appropriate during a period of up to 120 days from
the date of the damage, unless, at the time of the damage, the
SCARAB SYSTEM was engaged in work under Article 8.4.
20.2 If the necessity of repair of a SCARAB SYSTEM results from the
deliberate act or negligence of a third party, the OWNERS
shall diligently pursue all claims against such third party,
but without prejudice to their right to settle or
compromise on terms which they consider reasonable. To the
extent that any sums recovered by way of damages or in
settlement of claims include the STANDING CHARGES paid by the
MAINTENANCE AUTHORITY during the repair period, that amount
shall be credited to the MAINTENANCE AUTHORITIES by the
OWNERS.
20.3 SCARAB SYSTEM costs shall cease to be shared among the
MAINTENANCE AUTHORITIES for periods during which a SCARAB
SYSTEM is unavailable in any of the following circumstances:
20.3.1 from the time that it becomes a total loss or a
constructive total loss, except to the extent
that the OWNERS are committed to expenses which
would normally be recovered in the STANDING
CHARGES or RUNNING COSTS but which are not
covered by insurance,
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20.3.2 during the period from the 120th day after damage to
a SCARAB SYSTEM has occurred, as specified in Article
20.1, until repairs have been completed and the
SCARAB SYSTEM is again available, or
20.3.3 during any period while the SCARAB SYSTEM is
performing work under Articles 8.3 and 8.4.
20.4 During periods of assignment to this AGREEMENT, SCARAB SYSTEM
costs shall continue to be shared among the MAINTENANCE
AUTHORITIES in the proportions of Schedule Cl or C2 as
appropriate for periods during which a SCARAB SYSTEM is
unavailable in any of the following circumstances:
20.4.1 while the SCARAB SYSTEM is undergoing emergency
repairs,
20.4.2 while the SCARAB SYSTEM is unavailable by reason of
FORCE MAJEURE.
ARTICLE 21
TOTAL LOSS OR CONSTRUCTIVE TOTAL LOSS
21.1 in the event of a total loss or constructive total loss of
either SCARAB SYSTEM, the remaining SCARAB SYSTEM shall assume
responsibility for the maintenance and repair of the
DESIGNATED CABLES in both ZONES and the Schedules C1 and C2
shall accordingly be combined to produce one Schedule C. Costs
shall be allocated among MAINTENANCE AUTHORITIES on the basis
of the now (combined) Schedule C from the date of such total
or constructive total loss (being retrospective if
applicable).
21.2 In the event of a total loss or constructive total loss of
both or the remaining SCARAB SYSTEM this AGREEMENT shall
terminate with effect from the date of such loss.
21.3 Notwithstanding Articles 21.1. and 21.2. each OPERATOR, as
applicable, may include any subsequent cost of terminating its
affairs as the OPERATOR as if such costs had been incurred on
the day of total loss or constructive total loss.
ARTICLE 22
KEEPING OF RECORDS
22. Each OPERATOR, other OWNER and the CENTRAL BILLING PARTY shall
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keep and maintain for a period of not less than five (5) years
from the date the applicable bill is rendered, copies of such
books, records, vouchers, accounts or other information
regarding its costs and calculations with respect to the bill
rendered, as may be appropriate to support the respective
billing or advice of any such costs to or by the CENTRAL
BILLING PARTY and shall at all reasonable times make them
available for the inspection of the other PARTIES.
ARTICLE 23
LIABILITY AND INDEMNITY
23.1 Each OWNER or OPERATOR shall be liable for all direct damages
to persons or property arising in the discharge of its
obligations under this AGREEMENT to the extent that such
damages have resulted from the intentional or negligent acts
or omissions of the OWNERS or OPERATOR, its agents or
employees. The OWNERS or OPERATOR shall indemnify and hold
harmless the MAINTENANCE AUTHORITY concerned against all
claims, actions, demands, or judgements for such direct
damages.
23.2 Each MAINTENANCE AUTHORITY shall be liable for all direct
damages to persons or property arising in the discharge of its
obligations under this AGREEMENT to the extent that such
damages have resulted from the intentional or negligent acts
or omissions of the MAINTENANCE AUTHORITY, its agents or
employees. The MAINTENANCE AUTHORITIES shall indemnify and
hold harmless the OWNERS and OPERATOR concerned against all
claims, actions, demands or judgements for such direct
damages.
23.3 Each OWNER or OPERATOR shall be liable for injury or damages
to persons or property sustained by its employees or agents in
the course of their employment or agency to the extent that
such injury or damages are not caused by the negligence or
intentional acts of a MAINTENANCE AUTHORITY and to that extent
will indemnify and hold harmless the MAINTENANCE AUTHORITY
against all claims, actions, demands, or judgement for damages
sustained by employees or agents of the OWNER or OPERATOR
except to the extent that such claims, actions, demands and
judgements arise out of the negligence or intentional acts of
a MAINTENANCE AUTHORITY.
23.4 The CENTRAL BILLING PARTY and the Appointed Party under
Article 7.1. shall each exercise due care, diligence and
promptness in the discharge of their respective duties and the
PARTIES jointly shall indemnify and hold harmless the CENTRAL
BILLING PARTY and the Appointed Party against any claims,
actions, demands or judgements arising out of the CENTRAL
BILLING PARTY'S andthe Appointed Party's performance,
purported performance or
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non-performance of its function under this AGREEMENT.
23.5 Except as stated in Articles 23.1., 23.2, 23.3 and 23.4, no
PARTY shall be liable for any other damages suffered by any
PARTY nor shall any PARTY be required to indemnify or hold
harmless any other PARTY against claims made by any person or
entity against any PARTY for damages arising from the acts or
omissions of any other PARTY in the discharge of their
respective obligations under this AGREEMENT.
ARTICLE 24
RELATIONSHIP AMONG THE PARTIES
24. The relationship between or among the PARTIES shall not be
that of partners and nothing herein contained shall be deemed
to constitute a partnership between them, and the common
enterprise among the PARTIES shall be limited to the express
provisions of this AGREEMENT.
ARTICLE 25
PERFORMANCE OF AGREEMENT
25. The performance of this AGREEMENT by the PARTIES is contingent
upon the obtaining and continuance of such approvals,
consents, governmental authorisations, licenses and permits as
may be required or be deemed necessary by the PARTIES and as
may be satisfactory to them, and the PARTIES shall use their
best efforts to obtain and to have continued in effect such
approvals, consents, authorisations, licenses and permits.
ARTICLE 26
AMENDMENTS TO AGREEMENT
26. This AGREEMENT and any of the provisions hereof may be altered
or added to only by an agreement, in writing, signed by a duly
authorised person on behalf of each of the PARTIES.
ARTICLE 27
ASSIGNMENT OR TRANSFER
27. During the continuance of this AGREEMENT, no PARTY shall,
without the written consent of the other PARTIES, sell,
assign, transfer or dispose of its rights or obligations under
this AGREEMENT, in whole or in part, except to a legal
successor or subsidiary of such PARTY or corporation
controlling, or under the same control as, such PARTY. Nothing
contained in this AGREEMENT shall
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restrict the right of the OPERATORS to subcontract or employ
such personnel or agents as they deem appropriate to fulfil
their obligations hereunder.
ARTICLE 28
TERM OF THIS AGREEMENT
28.1 This AGREEMENT shall come into force in respect of each SCARAB
SYSTEM with effect from the OPERATIONAL DATE of each SCARAB
SYSTEM and subject to Article 21.2 shall terminate no sooner
than 31 March 1997. It shall continue thereafter unless any
PARTY serves at least one (1) years notice in writing to the
other PARTIES of its intention to withdraw from this
AGREEMENT. Such withdrawal shall not become effective until
the 31 March at least one (1) year following the date upon
which said notice is served and shall not in any case become
effective before 31 March 1997.
28.2 As soon as practicable and in any event not more than three
(3) months after the serving of any such notice of withdrawal,
the other PARTIES will decide if this AGREEMENT should
continue in force without the withdrawing PARTY or if this
AGREEMENT will be terminated upon the effective date of such
withdrawal.
28.3 In the event that the non-withdrawing PARTIES agree that this
AGREEMENT shall continue in force without the withdrawing
PARTY and prior to the effective date of such withdrawal, the
non-withdrawing PARTIES shall forthwith make appropriate
amendments to the Schedules to this AGREEMENT and it shall
continue to be effective as provided in Article 28.1. Should
such an agreement not be reached, the AGREEMENT shall
terminate upon the first effective date of any notice of
withdrawal served in accordance with Article 28.1.
ARTICLE 29
AGREEMENT BINDING ON SUCCESSORS
29. This AGREEMENT shall be binding an the PARTIES, their
respective successors, and permitted assigns.
ARTICLE 30
EXECUTION OF AGREEMENT
30. This AGREEMENT shall be executed in nine (9) counterparts in
the English language and nine (9) counterparts in the Spanish
language,, and each such
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counterpart shall be an original, and such counterparts shall
together, as well as separately constitute one and the same
AGREEMENT. If any differences in interpretation should arise
between the English and Spanish language versions of this
AGREEMENT or any amendment hereof, the English language
version shall be decisive.
ARTICLE 31
Testimonium
31. IN WITNESS WHEREOF the PARTIES hereto have severally
subscribed these presents or caused them to be subscribed in
their names and on their behalf by their duly authorised
respective officers.
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
Date 1/29/90 By /s/ Name of Signatory
-----------------------------------------------
TRANSPACIFIC COMMUNICATIONS, INCORPORATED
Date 1/29/90 By /s/ Name of Signatory
-----------------------------------------------
BRITISH TELECOMMUNICATIONS plc.
Date 19/2/90 By /s/ Name of Signatory
-----------------------------------------------
BT(MARINE) LTD.
Date 16 Feb, 1990 By /s/ Name of Signatory
-----------------------------------------------
MINISTERE DES POSTES DES TELECOMMUNICATIONS
ET DE L'ESPACE.
Date 20 Feb, 1990 By /s/ Name of Signatory
-----------------------------------------------
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TELEFONICA DE ESPANA
Date 28/2/90 By /s/ Name of Signatory
-----------------------------------------------
TELECOMUNICATIONS MARINAS SA
Date 28/2/90 By /s/ Name of Signatory
-----------------------------------------------
TELEGLOBE CANADA INC.
Date 2 Feb., 1990 By /s/ Name of Signatory
-----------------------------------------------
TELEGLOBE MARINE INC.
Date Feb 1, 1990 By /s/ Name of Signatory
-----------------------------------------------
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form F-1 (File
No. 333- ) of our report dated January 17, 2000 on our audit of the
consolidated financial statements of FLAG Telecom Holdings Limited, and our
report dated December 30, 1999 on our audits of the consolidated financial
statements of FLAG Limited. We also consent to the references to our firm under
the Caption "Experts".
[LOGO]
Arthur Andersen & Co
Hamilton, Bermuda
January 18, 2000
