<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 2000
REGISTRATION NO. 333-94899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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. / /
--------------------------
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 FEBRUARY 2, 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
------------- ---------- ---------- ----------------- ----------------
(AS RESTATED)
<S> <C> <C> <C> <C> <C>
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(5)..... -- 4,600 37,931 5,114 17,419
Sales and marketing(5)............ 316 6,598 10,680 637 8,085
General and
administrative(2)(5)............ 12,345 30,339 21,674 2,870 12,788
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
------------- ---------- ---------- ----------------- ----------------
(AS RESTATED)
<S> <C> <C> <C> <C> <C>
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) Included in operating expenses for FLAG Telecom are the following non-cash
compensation expenses: $1,204 in operations and maintenance expenses; $750
in sales and marketing expenses; and $1,510 in general and administrative
expenses.
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
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<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 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, including
possible additional undersea cables such as a trans-Pacific cable, 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. We are presently in the
preliminary stages of evaluating various network expansion projects and cannot
assure you that we will proceed with any of those projects or that we will use
any of the proceeds of this offering in connection with those projects should we
decide to proceed with them.
The occurrence of unforeseen events or changed business conditions 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,
after giving effect to the shares which were issued on January 4, 2000 to Bell
Atlantic in connection with the exchange of its remaining stock in FLAG Limited,
was $470 million, or $4.44 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 $887 million, or $6.98 per
share. This represents an immediate increase in net tangible book value as
adjusted of $2.54 per share to existing shareholders, and an immediate dilution
in net tangible book value as adjusted of $14.02 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............................... $ 4.44
Increase attributable to new investors in
this offering.......................... 2.54
-----------------------
Net tangible book value as adjusted after
this offering.............................. 6.98
-----------------------
Dilution to new investors.................... $ 14.02
=======================
</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
----------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................. 105,966,057 83% $535,309,829 55% $ 5.05
New investors......................... 21,100,000 17% 443,100,000 45% $21.00
------------ --- ------------ ---
Total............................... 127,066,057 100% $978,409,829 100% $ 7.70
============ === ============ ===
</TABLE>
These calculations do not include shares reserved for issuance upon the
exercise of stock options.
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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
---------------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
(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>
<CAPTION>
FLAG
FLAG LIMITED TELECOM
------------------------------------------------------------------------------------ -------------
PERIOD FROM PERIOD FROM
JANUARY 1, INCORPORATION
YEAR ENDED AS OF DECEMBER 31, 1999 TO TO
--------------------------------------------------------------------- FEBRUARY 26, SEPTEMBER 30,
1994(1) 1995(2) 1996(3) 1997 1998 1999 1999
------------- ------------- ------------- --------- --------- ------------ -------------
(AS RESTATED) (AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C> <C> <C> <C>
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(8)........... -- -- -- 4,600 37,931 5,114 17,419
Sales and marketing(8)..... -- 10,253 316 6,598 10,680 637 8,085
General and
administrative(4)(8)..... 6,621 10,178 12,345 30,339 21,674 2,870 12,788
Depreciation and
amortization............. 278 381 121 276 844 233 5,220
-------- -------- --------- --------- --------- --------- ---------
6,899 20,813 12,782 238,003 172,417 17,148 87,311
-------- -------- --------- --------- --------- --------- ---------
Operating income (loss).... (6,899) (20,813) (12,782) 101,990 35,831 12,864 30,672
-------- -------- --------- --------- --------- --------- ---------
Interest expense........... -- -- -- 20,193 61,128 9,758 31,264
Interest income............ 110 439 2,408 6,637 14,875 1,825 4,924
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 4,332
Minority interest.......... -- -- -- -- -- -- 1,919
Provision for income
taxes.................... -- -- -- 8,991 1,260 171 1,098
-------- -------- --------- --------- --------- --------- ---------
Net income (loss) before
extraordinary item....... (14,389) (20,374) (10,374) 79,443 (11,682) 4,760 1,315
Extraordinary item(5)...... -- -- -- -- (59,839) -- --
-------- -------- --------- --------- --------- --------- ---------
Net income (loss).......... (14,389) (20,374) (10,374) 79,443 (71,521) 4,760 1,315
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 $ 1,315
======== ======== ========= ========= ========= ========= =========
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) $ -- $ 0.02
STATEMENT OF CASH FLOW
DATA:
Cash flow from
operating activities..... -- (14,155) (12,103) 285,156 88,831 (23,104) 62,113
Cash flow from
financing activities..... -- 84,206 342,011 245,677 97,818 21,230 41,453
Cash flow from
investing activities..... -- (70,635) (329,886) (528,653) (186,144) 601 (102,636)
</TABLE>
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND NOTES)
<TABLE>
<CAPTION>
FLAG
FLAG LIMITED TELECOM
--------------------------------------------------------------------------------------- -------------
AS OF DECEMBER 31, AS OF AS OF
------------------------------------------------------------------------ FEBRUARY 26, SEPTEMBER 30,
1994(1) 1995(2) 1996(3) 1997 1998 1999 1999
------------- ------------- ------------- ----------- ---------- ------------ -------------
(AS RESTATED) (AS RESTATED) (AS 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.
(8) Included in operating expenses for FLAG Telecom are the following non-cash
compensation expenses: $1,204 in operations and maintenance expenses; $750
in sales and marketing expenses; $1,510 in general and administrative
expenses.
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 $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 (including non-cash compensation
expense of $1,204)........................................ 22,533
Sales and marketing (including non-cash compensation expense
of $750).................................................. 8,722
General and administrative (including non-cash compensation
expense of $1,510)........................................ 15,658
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
26
<PAGE>
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.
During the nine months ended September 30, 1999, we incurred $22.5 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 $8.7 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 $15.7 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.
Costs for the nine months ended September 30, 1999 noted above include
charges in respect of awards under our long term incentive plan. These charges
are required under US accounting standards and are purely accounting charges
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
28
<PAGE>
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,
which may change the timing and methods of the recognition of revenues and the
related costs. 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 75% 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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<PAGE>
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 75 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, MAC
and PAC). 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, 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
Abdul Latif Ghurab................... 57 Director(1)
Edward J. McQuaid.................... 44 Director Nominee(2)
Adnan Omar........................... 47 Director
Daniel Petri......................... 51 Director
Philip Seskin........................ 36 Director Nominee(2)
Umberto Silvestri.................... 67 Director
Jonathan Solomon..................... 60 Director
Dr. Lim Lek Suan..................... 50 Director(1)
Fumio Uehara......................... 49 Director(1)
Dr. Vallobh Vimolvanich.............. 58 Director
</TABLE>
- ------------------------
(1) Expected to resign upon closing of this offering.
(2) 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 has been a member of our Board since
January 2000. 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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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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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 Holding Company
(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 Holding Company is the parent of a wholly-owned subsidiary,
Rathburn Limited, which directly owns our shares. 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 recently entered into a Primary Supplier Agreement with Bell Atlantic
Global Systems under which Bell Atlantic Global Systems has agreed 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 may 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 Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System and Clearstream Banking S.A.
(formerly Cedelbank) 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
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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 recently-promulgated 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
76
<PAGE>
treated as ordinary 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 (including non-cash
compensation expense of $1,204)......................... 17,419
Sales and marketing (including non-cash compensation
expense of $750)........................................ 8,085
General and administrative (including non-cash
compensation expense of $1,510)......................... 12,788
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) Impairment of Long-Lived Assets
The Group periodically reviews events and changes in circumstances to
determine whether the recoverability of the carrying value of long-lived assets
should be reassessed. Should events or circumstances indicate that the carrying
value may not be recoverable based on undiscounted future cash flows, an
impairment loss measured by the difference between the discounted cash flows and
the carrying value of long-lived assets would be recognized by the Group.
n) 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.
o) 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
-------- --------- --------- -------------
(AS RESTATED)
<S> <C> <C> <C> <C>
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
-------- --------- --------- -------------
(AS RESTATED)
<S> <C> <C> <C> <C>
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
---------------------- ------------------------- ------------------------- -----------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A
-------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
-----------
CLASS B
-----------
<S> <C>
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.
11. 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)
11. 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)
11. 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.
12. 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.......................................... 95,000
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................................ 880,000
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 Form of share certificate*
4.2 Letter to GE Capital Project Finance VI Ltd. from FLAG
Telecom regarding registration rights**
4.3 Letter to AT&T Capital Corporation from FLAG Telecom
regarding registration rights**
4.4 Grant of options to Andres Bande pursuant to the Long-Term
Incentive Plan of FLAG Telecom**
4.5 Grant of options to Edward McCormack pursuant to the
Long-Term Incentive Plan of FLAG Telecom**
4.6 Grant of options to Stuart Rubin pursuant to the Long-Term
Incentive Plan of FLAG Telecom**
4.7 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 18, 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 (filed as part of
Exhibit 5)
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.
** Previously filed.
+ 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 Amendment No. 1 to its 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 2nd day of
February, 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 Amended
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>
* Chairman and Chief Executive
------------------------------------------- Officer (Principal February 2, 2000
Andres Bande Executive Officer)
Chief Financial Officer
* (Principal Financial and
------------------------------------------- Accounting Officer) and February 2, 2000
Edward McCormack Director
/s/ STUART RUBIN General Counsel and
------------------------------------------- Assistant Secretary February 2, 2000
Stuart Rubin
/s/ MICHAEL FITZPATRICK Director
------------------------------------------- February 2, 2000
Michael Fitzpatrick
* Director
------------------------------------------- February 2, 2000
Abdul Latif Ghurab
* Director
------------------------------------------- February 2, 2000
Adnan Omar
* Director
------------------------------------------- February 2, 2000
Daniel Petri
* Director
------------------------------------------- February 2, 2000
Umberto Silvestri
* Director
------------------------------------------- February 2, 2000
Jonathan Solomon
* Director
------------------------------------------- February 2, 2000
Dr. Lim Lek Suan
* Director
------------------------------------------- February 2, 2000
Fumio Uehara
* Director
------------------------------------------- February 2, 2000
Dr. Vallobh Vimolvanich
</TABLE>
*By: /s/ STUART RUBIN
- -------------------------------------------
Stuart Rubin,
as Attorney-in-fact
II-7
<PAGE>
Exhibit 3.2
BYE-LAWS
of
FLAG Telecom Holdings Limited
I HEREBY CERTIFY that the within written Bye-laws are a true copy of the
Bye-laws of FLAG TELECOM HOLDINGS LIMITED approved in accordance with the
terms of the written resolutions of the Shareholders of the above Company
passed on the 24th day of February, 1999, to become effective on the date
determined in the written resolutions.
Director
<PAGE>
<TABLE>
<CAPTION>
I N D E X
---------
<S> <C>
INTERPRETATION.............................................................4
REGISTERED OFFICE..........................................................6
SHARE RIGHTS...............................................................6
MODIFICATION OF RIGHTS.....................................................7
SHARES.....................................................................7
CERTIFICATES...............................................................8
LIEN.......................................................................8
CALLS ON SHARES...........................................................10
FORFEITURE OF SHARES......................................................11
REGISTER OF SHAREHOLDERS..................................................12
REGISTER OF DIRECTORS AND OFFICERS........................................12
TRANSFER OF SHARES........................................................12
TRANSMISSION OF SHARES....................................................13
INCREASE OF CAPITAL.......................................................13
ALTERATION OF CAPITAL.....................................................14
REDUCTION OF CAPITAL......................................................14
GENERAL MEETINGS AND WRITTEN RESOLUTIONS..................................15
NOTICE OF GENERAL MEETINGS................................................15
GENERAL MEETINGS AT MORE THAN ONE PLACE...................................16
PROCEEDINGS AT GENERAL MEETINGS...........................................16
VOTING....................................................................17
PROXIES AND CORPORATE REPRESENTATIVES.....................................18
APPOINTMENT AND REMOVAL OF DIRECTORS......................................19
RESIGNATION AND DISQUALIFICATION OF DIRECTORS.............................21
ALTERNATE DIRECTORS.......................................................22
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES..................23
DIRECTORS' INTERESTS......................................................23
POWERS AND DUTIES OF THE BOARD............................................24
MATTERS REQUIRING SPECIAL APPROVAL........................................24
BUSINESS PLAN.............................................................26
GRATUITIES, PENSION AND INSURANCE.........................................24
DELEGATION OF THE BOARD'S POWERS..........................................28
PROCEEDINGS OF THE BOARD..................................................28
OFFICERS..................................................................30
EXECUTIVE DIRECTORS.......................................................31
MINUTES...................................................................31
SECRETARY AND RESIDENT REPRESENTATIVE.....................................32
THE SEAL..................................................................32
DIVIDENDS AND OTHER PAYMENTS..............................................32
RESERVES..................................................................33
CAPITALIZATION OF PROFITS.................................................34
RECORD DATES..............................................................34
ACCOUNTING RECORDS........................................................34
AUDIT.....................................................................35
SERVICE OF NOTICES AND OTHER DOCUMENTS....................................35
DESTRUCTION OF DOCUMENTS..................................................35
UNTRACED SHAREHOLDERS.....................................................36
WINDING UP................................................................37
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEMNITY.................................................37
INDEX
-----
<S> <C>
AMALGAMATION..............................................39
CONTINUATION..............................................39
ALTERATION OF BY-LAWS.....................................39
BUSINESS COMBINATIONS.....................................39
</TABLE>
<PAGE>
BYE-LAWS
OF
FLAG TELECOM HOLDINGS LIMITED
INTERPRETATION
1. (1) In these Bye-laws unless the context otherwise requires -
"Associated Person" means, in relation to any
Shareholder, (i) any
subsidiary company or
holding company of such
Shareholder or any other
subsidiary company of any
such holding company, (ii)
any company in which such
Shareholder or any holding
company of such Shareholder
holds or controls directly
or indirectly not less than
20% of the issued share
capital and (iii) any other
affiliate of, or other
person controlling,
controlled by or under
common control with, such
Shareholder (the
expressions "subsidiary
company", "holding
company", and "control"
having respectively the
meanings given to them in
Section 86 of the Companies
Act of 1981 of Bermuda, as
amended);
"Bermuda" means the Islands of
Bermuda;
"Board" means the Board of
Directors of the Company or
the Directors present at a
meeting of Directors at
which there is a quorum;
"Business Plan" means, as of any date, the
business plan in effect as
of such date in accordance
with the provisions of
Bye-laws 98 and 99;
"the Companies Acts" means every Bermuda statute
from time to time in force
concerning companies
insofar as the same applies
to the Company;
"Company" means the company
incorporated in Bermuda
under the name of FLAG
TELECOM HOLDINGS LIMITED on
the day 3rd of February,
1999;
"Entire Board" means, at any time, all of
the Directors then in
office;
"FLAG Project" means the project for the
development, construction,
operation and maintenance
of, and the ownership and
sale of capacity in, an
undersea fibre
communication system,
constructed and operated by
FLAG Limited, linking
several countries in
Europe, the Middle East and
Asia;
<PAGE>
"Officer" means a person appointed by
the Board pursuant to
Bye-law 117 of these
Bye-laws and shall not
include an auditor of the
Company;
"paid up" means paid up or credited
as paid up;
"person" means any individual,
corporation, partnership,
firm, joint venture,
association, joint-stock
company, trust,
unincorporated
organisation, governmental
body or other entity;
"Register" means the Register of
Shareholders of the
Company;
"Registered Office" means the registered office
for the time being of the
Company;
"Resident Representative" means the person (or, if
permitted in accordance
with the Companies Acts,
the company) appointed to
perform the duties of
resident representative set
out in the Companies Acts
and includes any assistant
or deputy Resident
Representative appointed by
the Board to perform any of
the duties of the Resident
Representative;
"Resolution" means a resolution of the
Shareholders or, where
required, of a separate
class or separate classes
of Shareholders, adopted
either in general meeting
or by written resolution,
in accordance with the
provisions of these
Bye-laws;
"Seal" means the common seal of
the Company and includes
any duplicate thereof;
"Secretary" includes a temporary or
assistant or deputy
Secretary and any person
appointed by the Board to
perform any of the duties
of the Secretary;
"Security Interest" means any lien, option,
security, mortgage, charge
(whether fixed or
floating), pledge,
assignment, title retention
arrangement, hypothecation,
encumbrance, or other right
by way of security (and any
agreement or arrangement
having substantially the
same economic effect as any
of the foregoing);
"Shareholder" means a Shareholder or
member of the Company;
"Specified Place" means the place, if any,
specified in the notice of
any meeting of the
Shareholders, or adjourned
meeting of the
Shareholders, at which the
chairman of the meeting
shall preside;
"Stock Exchange" means any stock exchange on
which shares of the Company
may be listed from time to
time; and
<PAGE>
"these Bye-laws" means these Bye-laws in
their present form or as
from time to time amended.
(2) For the purposes of these Bye-laws a corporation shall be
deemed to be present in person if its representative duly
authorised pursuant to the Companies Acts is present.
(3) Words importing only the singular number include the plural
number and vice versa.
(4) Words importing only the masculine gender include the feminine
and neuter genders respectively.
(5) Words importing persons include companies or associations or
bodies of persons, whether corporate or un-incorporate.
(6) Reference to writing shall include typewriting, printing,
lithography, photography and other modes of representing or
reproducing words in a legible and non-transitory form.
(7) Any words or expressions defined in the Companies Acts in
force at the date when these Bye-laws or any part thereof are
adopted shall bear the same meaning in these Bye-laws or such
part (as the case may be).
(8) In these Bye-laws: (a) powers of delegation shall not be
restrictively construed but the widest interpretation shall be
given thereto; (b) the word "Board" in the context of the
exercise of any power contained in these Bye-laws includes any
committee consisting of one or more Directors, any Director
holding executive office and any local or divisional Board,
manager or agent of the Company to which or, as the case may
be, to whom the power in question has been delegated; (c) no
power of delegation shall be limited by the existence or,
except where expressly provided by the terms of delegation,
the exercise of that or any other power of delegation; and (d)
except where expressly provided by the terms of delegation,
the delegation of a power shall not exclude the concurrent
exercise of that power by any other body or person who is for
the time being authorised to exercise it under these Bye-laws
or under another delegation of the powers.
REGISTERED OFFICE
2. The Registered Office shall be at such place in Bermuda as the Board
shall from time to time appoint.
SHARE RIGHTS
3. Subject to any special rights conferred on the holders of any share or
class of shares, any share in the Company may be issued with or have
attached thereto such preferred, deferred, qualified or other special
rights or such restrictions, whether in regard to dividends, voting,
return of capital or otherwise, as the Company may by Resolution
determine or, if there has not been any such determination or so far as
the same shall not make specific provision, as the Board may determine.
4. (1) Subject to the Companies Acts, any preference shares may,
with the sanction of a resolution of the Board, be issued on
terms:
<PAGE>
(a) that they are to be redeemed on the happening of a
specified event or on a given date; and/or,
(b) that they are liable to be redeemed at the option of
the Company; and/or,
(c) if authorised by the memorandum/Incorporating Act of
the Company, that they are liable to be redeemed at
the option of the holder.
The terms and manner of redemption shall be provided for in
such resolution of the Board and shall be attached to but
shall not form part of these Bye-laws.
(2) The Board may, at its discretion and without the sanction of a
Resolution, authorise the purchase by the Company of its own
shares, of any class, at any price (whether at par or above or
below par), and so that any shares to be so purchased may be
selected in any manner whatsoever, upon such terms as the
Board may in its discretion determine PROVIDED ALWAYS that
such purchase is effected in accordance with the provisions of
the Companies Acts.
MODIFICATION OF RIGHTS
5. Subject to the Companies Acts, all or any of the special rights for the
time being attached to any class of shares for the time being issued
may from time to time (whether or not the Company is being wound up) be
altered or abrogated with the consent in writing of the holders of not
less than 75% of the issued shares of that class or with the sanction
of a resolution passed at a separate general meeting of the holders of
such shares voting in person or by proxy. To any such separate general
meeting, all the provisions of these Bye-laws as to general meetings of
the Company shall MUTATIS MUTANDIS apply, but so that the necessary
quorum shall be two or more persons holding or representing by proxy
the majority of the shares of the relevant class and that every holder
of shares of the relevant class shall be entitled to one vote for every
such share held by him; provided, however, that if the Company or a
class of Shareholders shall have only one Shareholder, one Shareholder
present in person or by proxy shall constitute the necessary quorum.
6. For the purposes of this Bye-law, unless otherwise expressly provided
by the rights attached to any shares or class of shares, those rights
shall be deemed to be altered (a) by the reduction of the capital paid
up on those shares otherwise than by a purchase or redemption by the
Company of its own shares, and (b) by the allotment of other shares
ranking in priority for payment of a dividend or in respect of capital
or which confer on the holders voting rights more favourable than those
conferred by such first mentioned shares but shall not otherwise be
deemed to be altered by the creation or issue of further shares ranking
PARI PASSU therewith or by the purchase or redemption by the Company of
any of its own shares.
SHARES
7. Subject to the provisions of these Bye-laws, the unissued shares of the
Company (whether forming part of the original capital or any increased
capital) shall be at the disposal of the Board, which may offer, allot,
grant options over or otherwise dispose of them to such persons, at
such times and for such consideration and upon such terms and
conditions as the Board may determine.
8. The Board may in connection with the issue of any shares exercise all
powers of paying commission and brokerage conferred or permitted by
law. Subject to the provisions of the
<PAGE>
Companies Acts, any such commission or brokerage may be satisfied by
the payment of cash or by the allotment of fully or partly paid shares
or partly in one way and partly in the other.
9. Except as ordered by a court of competent jurisdiction or as required
by law, no person shall be recognised by the Company as holding any
share upon trust and the Company shall not be bound by or required in
any way to recognise (even when having notice thereof) any equitable,
contingent, future or partial interest in any share or any interest in
any fractional part of a share or (except only as otherwise provided in
these Bye-laws, or by law) any other right in respect of any share
except an absolute right to the entirety thereof in the registered
holder.
CERTIFICATES
10. The preparation, issue and delivery of certificates shall be governed
by the Companies Acts. In the case of a share held jointly by several
persons, delivery of a certificate to one of several joint holders
shall be sufficient delivery to all.
11. If a share certificate is defaced, lost or destroyed it may be replaced
without fee but on such terms (if any) as to evidence and indemnity and
to payment of the costs and out of pocket expenses of the Company in
investigating such evidence and preparing such indemnity as the Board
may think fit and, in case of defacement, on delivery of the old
certificate to the Company.
12. All certificates for share or loan capital or other securities of the
Company (other than letters of allotment, scrip certificates and other
like documents) shall, except to the extent that the terms and
conditions for the time being relating thereto otherwise provide, be
issued under the Seal. The Board may by resolution determine, either
generally or in any particular case, that any signatures on any such
certificates need not be autographic but may be affixed to such
certificates by some mechanical means or may be printed thereon or that
such certificates need not be signed by any persons, and may determine
that a representation of the Seal may be printed on any such
certificates.
13. Nothing in these Bye-laws shall prevent title to any securities of the
Company from being evidenced and/or transferred without a written
instrument in accordance with regulations made from time to time in
this regard under the Companies Acts, and the Board shall have power to
implement any arrangements which it may think fit for such evidencing
and/or transfer which accord with those regulations.
LIEN
14. The Company shall have a first and paramount lien on every share (not
being a fully paid share) for all monies, whether presently payable or
not, called or payable at a date fixed by or in accordance with the
terms of issue of such share in respect of such share, and the Company
shall also have a first and paramount lien on every share (other than a
fully paid share) standing registered in the name of a Shareholder,
whether singly or jointly with any other person, for all the debts and
liabilities of such Shareholder or his estate to the Company, whether
the same shall have been incurred before or after notice to the Company
of any interest of any person other than such Shareholder, and whether
the time for the payment or discharge of the same shall have actually
arrived or not, and notwithstanding that the same are joint debts or
liabilities of such Shareholder or his estate and any other person,
whether a Shareholder or not. The Company's lien on a share shall
extend to all dividends payable thereon. The Board may at any time,
either generally or in any particular case, waive any lien that has
arisen or declare any share to be wholly or in part exempt from the
provisions of this Bye-law.
<PAGE>
15. The Company may sell, in such manner as the Board may think fit, any
share on which the Company has a lien but no sale shall be made unless
some sum in respect of which the lien exists is presently payable nor
until the expiration of fourteen days after a notice in writing,
stating and demanding payment of the sum presently payable and giving
notice of the intention to sell in default of such payment, has been
served on the holder for the time being of the share.
16. The net proceeds of sale by the Company of any shares on which it has a
lien shall be applied in or towards payment or discharge of the debt or
liability in respect of which the lien exists so far as the same is
presently payable, and any residue shall (subject to a like lien for
debts or liabilities not presently payable as existed upon the share
prior to the sale) be paid to the person who was the holder of the
share immediately before such sale. For giving effect to any such sale
the Board may authorise some person to transfer the share sold to the
purchaser thereof. The purchaser shall be registered as the holder of
the share and he shall not be bound to see to the application of the
purchase money, nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings relating to the sale.
17. Whenever any law for the time being of any country, state or place
imposes or purports to impose any immediate or future or possible
liability upon the Company to make any payment or empowers any
government or taxing authority or government official to require the
Company to make any payment in respect of any shares registered in any
of the Company's registers as held either jointly or solely by any
Shareholder or in respect of any dividends, bonuses or other monies due
or payable or accruing due or which may become due or payable to such
Shareholder by the Company on or in respect of any shares registered as
aforesaid or for or on account or in respect of any Shareholder and
whether in consequence of:-
(1) the death of such Shareholder;
(2) the non-payment of any income tax or other tax by
such Shareholder;
(3) the non-payment of any estate, probate, succession,
death, stamp, or other duty by the executor or
administrator of such Shareholder or by or out of his
estate; or
(4) any other act or thing;
in every such case (except to the extent that the rights conferred upon
holders of any class of shares render the Company liable to make
additional payments in respect of sums withheld on account of the
foregoing):-
(a) the Company shall be fully indemnified by such
Shareholder or his executor or administrator from all
liability;
(b) the Company shall have a lien upon all dividends and
other monies payable in respect of the shares
registered in any of the Company's registers as held
either jointly or solely by such Shareholder for all
monies paid or payable by the Company in respect of
such shares or in respect of any dividends or other
monies as aforesaid thereon or for or on account or
in respect of such Shareholder under or in
consequence of any such law together with interest at
such rate as the Board may determine from the date of
payment to the date of repayment and may deduct or
set off against such dividends or other monies
payable as aforesaid any monies paid or payable by
the Company as aforesaid together with interest as
aforesaid;
<PAGE>
(c) the Company may recover as a debt due from such
Shareholder or his executor or administrator wherever
constituted any monies paid by the Company under or
in consequence of any such law and interest thereon
at the rate and for the period aforesaid in excess of
any dividends or other monies as aforesaid then due
or payable by the Company; and
(d) the Company may if any such money is paid or payable
by it under any such law as aforesaid refuse to
register a transfer of any shares by any such
Shareholder or his executor or administrator until
such money and interest as aforesaid is set off or
deducted as aforesaid or in case the same exceeds the
amount of any such dividends or other monies as
aforesaid then due or payable by the Company until
such excess is paid to the Company.
Subject to the rights conferred upon the holders of any class of
shares, nothing herein contained shall prejudice or affect any right or
remedy which any law may confer or purport to confer on the Company and
as between the Company and every such Shareholder as aforesaid, his
executor, administrator and estate wheresoever constituted or situate,
any right or remedy which such law shall confer or purport to confer on
the Company shall be enforceable by the Company.
CALLS ON SHARES
18. The Board may from time to time make calls upon the Shareholders in
respect of any monies unpaid on their shares (whether on account of the
par value of the shares or by way of premium or to reimburse the
Company for any payments it may have made as a result of a request made
of the Company from any governmental agency or taxing authority to make
payments in respect of its shares) and not by the terms of issue
thereof made payable at a date fixed by or in accordance with such
terms of issue, and each Shareholder shall (subject to the Company
serving upon him at least 14 days notice specifying the time or times
and place of payment) pay to the Company at the time or times and place
so specified the amount called on his shares. A call may be revoked or
postponed as the Board may determine.
19. A call may be made payable by instalments and shall be deemed to have
been made at the time when the resolution of the Board authorising the
call was passed.
20. The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof.
21. If a sum called pursuant to Bye-law 18 in respect of the share shall
not be paid before or on the day appointed for payment thereof the
person from whom the sum is due shall pay interest on the sum from the
day appointed for the payment thereof to the time of actual payment at
such rate as the Board may determine, but the Board shall be at liberty
to waive payment of such interest wholly or in part.
22. Any sum which, by the terms of issue of a share, becomes payable on
allotment or at any date fixed by or in accordance with such terms of
issue, whether on account of the nominal amount of the share or by way
of premium, shall for all the purposes of these Bye-laws be deemed to
be a call duly made, notified and payable on the date on which, by the
terms of issue, the same becomes payable and, in case of non-payment,
all the relevant provisions of these Bye-laws as to payment of
interest, forfeiture or otherwise shall apply as if such sum had become
payable by virtue of a call duly made and notified.
<PAGE>
23. The Board may on the issue of shares differentiate between the
allottees or holders as to the amount of calls to be paid and the times
of payment.
FORFEITURE OF SHARES
24. If a Shareholder fails to pay any call or instalment of a call on the
day appointed for payment thereof, the Board may at any time thereafter
during such time as any part of such call or instalment remains unpaid
serve a notice on him requiring payment of so much of the call or
instalment as is unpaid, together with any interest which may have
accrued.
25. The notice shall name a further day (not being less than 14 days from
the date of the notice) on or before which, and the place where, the
payment required by the notice is to be made and shall state that, in
the event of non-payment on or before the day and at the place
appointed, the shares in respect of which such call is made or
instalment is payable will be liable to be forfeited. The Board may
accept the surrender of any share liable to be forfeited hereunder and,
in such case, references in these Bye-laws to forfeiture shall include
surrender.
26. If the requirements of any such notice as aforesaid are not complied
with, any share in respect of which such notice has been given may at
any time thereafter, before payment of all calls or instalments and
interest due in respect thereof has been made, be forfeited by a
resolution of the Board to that effect. Such forfeiture shall include
all dividends declared in respect of the forfeited shares and not
actually paid before the forfeiture.
27. When any share has been forfeited, notice of the forfeiture shall be
served upon the person who was before forfeiture the holder of the
share; but no forfeiture shall be in any manner invalidated by any
omission or neglect to give such notice as aforesaid.
28. A forfeited share shall be deemed to be the property of the Company and
may be sold, re-offered or otherwise disposed of either to the person
who was, before forfeiture, the holder thereof or entitled thereto or
to any other person upon such terms and in such manner as the Board
shall think fit, and at any time before a sale, re-allotment or
disposition the forfeiture may be cancelled on such terms as the Board
may think fit.
29. A person whose shares have been forfeited shall thereupon cease to be a
Shareholder in respect of the forfeited shares but shall,
notwithstanding the forfeiture, remain liable to pay to the Company all
monies which at the date of forfeiture were presently payable by him to
the Company in respect of the shares with interest thereon at such rate
as the Board may determine from the date of forfeiture until payment,
and the Company may enforce payment without being under any obligation
to make any allowance for the value of the shares forfeited.
30. An affidavit in writing that the deponent is a Director of the Company
or the Secretary and that a share has been duly forfeited on the date
stated in the affidavit shall be conclusive evidence of the facts
therein stated as against all persons claiming to be entitled to the
share. The Company may receive the consideration (if any) given for the
share on the sale, re-allotment or disposition thereof and the Board
may authorise some person to transfer the share to the person to whom
the same is sold, re-allotted or disposed of, and he shall thereupon be
registered as the holder of the share and shall not be bound to see to
the application of the purchase money (if any) nor shall his title to
the share be affected by any irregularity or invalidity in the
proceedings relating to the forfeiture, sale, re-allotment or disposal
of the share.
<PAGE>
REGISTER OF SHAREHOLDERS
31. The Company shall establish and maintain the Register in the manner
prescribed by the Companies Acts. Unless the Board otherwise
determines, the Register shall be open to inspection in the manner
prescribed by the Companies Acts between 9:00 a.m. and 5:00 p.m. on
every working day. Unless the Board so determines, no Shareholder or
intending Shareholder shall be entitled to have entered in the Register
any indication of any trust or any equitable, contingent, future or
partial interest in any share or any interest in any fractional part of
a share and if any such entry exists or is permitted by the Board it
shall not be deemed to abrogate any of the provisions of Bye-law 9.
32. Subject to the provisions of the Companies Acts, the Company may keep
one or more overseas or branch registers in any place, and the Board
may make, amend and revoke any such regulations as it may think fit
respecting the keeping of such registers.
REGISTER OF DIRECTORS AND OFFICERS
33. The Secretary shall establish and maintain a register of the Directors
and Officers of the Company as required by the Companies Acts. The
register of Directors and Officers shall be open to inspection in the
manner prescribed by the Companies Acts between 9:00 a.m. and 5:00 p.m.
on every working day.
TRANSFER OF SHARES
34. Any Shareholder may transfer all or any of his shares by an instrument
of transfer in the usual common form or in any other form which the
Board may approve.
35. The instrument of transfer of a share shall be signed by or on behalf
of the transferor and where any share is not fully-paid, the transferor
shall be deemed to remain the holder of the share until the name of the
transferee is entered in the Register in respect thereof. All
instruments of transfer when registered may be retained by the Company.
The Board may, in its absolute discretion and without assigning any
reason therefor, decline to register any transfer of any share which is
not a fully-paid share. The Board may also decline to register any
transfer unless:-
(1) the instrument of transfer is duly stamped and lodged with the
Company, at such place as the Board shall appoint for the
purpose, accompanied by the certificate for the shares (if any
has been issued) to which it relates, and such other evidence
as the Board may reasonably require to show the right of the
transferor to make the transfer;
(2) the instrument of transfer is in respect of only one class of
share; and
(3) where applicable, the permission of the Bermuda Monetary
Authority with respect thereto has been obtained.
Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under
this Bye-law and Bye-laws 34 and 36.
36. If the Board declines to register a transfer it shall, within three
months after the date on which the instrument of transfer was lodged,
send to the transferee notice of such refusal.
<PAGE>
37. No fee shall be charged by the Company for registering any transfer,
probate, letters of administration, certificate of death or marriage,
power of attorney, distringas or stop notice, order of court or other
instrument relating to or affecting the title to any share, or
otherwise making an entry in the Register relating to any share.
TRANSMISSION OF SHARES
38. In the case of the death of a Shareholder, the survivor or survivors,
where the deceased was a joint holder, and the estate representative,
where he was sole holder, shall be the only person recognised by the
Company as having any title to his shares; but nothing herein contained
shall release the estate of a deceased holder (whether the sole or
joint) from any liability in respect of any share held by him solely or
jointly with other persons. For the purpose of this Bye-law, estate
representative means the person to whom probate or letters of
administration has or have been granted in Bermuda or, failing any such
person, such other person as the Board may in its absolute discretion
determine to be the person recognised by the Company for the purpose of
this Bye-law.
39. Any person becoming entitled to a share in consequence of the death of
a Shareholder or otherwise by operation of applicable law may, subject
as hereafter provided and upon such evidence being produced as may from
time to time be required by the Board as to his entitlement, either be
registered himself as the holder of the share or elect to have some
person nominated by him registered as the transferee thereof. If the
person so becoming entitled elects to be registered himself, he shall
deliver or send to the Company a notice in writing signed by him
stating that he so elects. If he shall elect to have his nominee
registered, he shall signify his election by signing an instrument of
transfer of such share in favour of his nominee. All the limitations,
restrictions and provisions of these Bye-laws relating to the right to
transfer and the registration of transfer of shares shall be applicable
to any such notice or instrument of transfer as aforesaid as if the
death of the Shareholder or other event giving rise to the transmission
had not occurred and the notice or instrument of transfer was an
instrument of transfer signed by such Shareholder.
40. A person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law shall (upon
such evidence being produced as may from time to time be required by
the Board as to his entitlement) be entitled to receive and may give a
discharge for any dividends or other monies payable in respect of the
share, but he shall not be entitled in respect of the share to receive
notices of or to attend or vote at general meetings of the Company or,
save as aforesaid, to exercise in respect of the share any of the
rights or privileges of a Shareholder until he shall have become
registered as the holder thereof. The Board may at any time give notice
requiring such person to elect either to be registered himself or to
transfer the share and, if the notice is not complied with within 60
days, the Board may thereafter withhold payment of all dividends and
other monies payable in respect of the shares until the requirements of
the notice have been complied with.
41. Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under
Bye-laws 38, 39 and 40.
INCREASE OF CAPITAL
42. The Company may from time to time increase its capital by such sum to
be divided into shares of such par value as the Company by Resolution
shall prescribe.
43. The Company may, by the Resolution increasing the capital, direct that
the new shares or any of them shall be offered in the first instance
either at par or at a premium or (subject to the
<PAGE>
provisions of the Companies Acts) at a discount to all the holders for
the time being of shares of any class or classes in proportion to the
number of such shares held by them respectively or make any other
provision as to the issue of the new shares.
44. The new shares shall be subject to all the provisions of these Bye-laws
with reference to lien, the payment of calls, forfeiture, transfer,
transmission and otherwise.
ALTERATION OF CAPITAL
45. The Company may from time to time by Resolution:-
(1) divide its shares into several classes and attach thereto
respectively any preferential, deferred, qualified or special
rights, privileges or conditions;
(2) consolidate and divide all or any of its share capital into
shares of larger par value than its existing shares;
(3) sub-divide its shares or any of them into shares of smaller
par value than is fixed by its memorandum, so, however, that
in the sub-division the proportion between the amount paid and
the amount, if any, unpaid on each reduced share shall be the
same as it was in the case of the share from which the reduced
share is derived;
(4) make provision for the issue and allotment of shares which do
not carry any voting rights;
(5) cancel shares which, at the date of the passing of the
resolution in that behalf, have not been taken or agreed to be
taken by any person, and diminish the amount of its share
capital by the amount of the shares so cancelled; and
(6) change the currency denomination of its share capital.
Where any difficulty arises in regard to any division, consolidation,
or sub-division under this Bye-law, the Board may settle the same as it
thinks expedient and, in particular, may arrange for the sale of the
shares representing fractions and the distribution of the net proceeds
of sale in due proportion amongst the Shareholders who would have been
entitled to the fractions, and for this purpose the Board may authorise
some person to transfer the shares representing fractions to the
purchaser thereof, who shall not be bound to see to the application of
the purchase money nor shall his title to the shares be affected by any
irregularity or invalidity in the proceedings relating to the sale.
46. Subject to the Companies Acts and to any confirmation or consent
required by law or these Bye-laws, the Company may by Resolution from
time to time convert any preference shares into redeemable preference
shares.
REDUCTION OF CAPITAL
47. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these Bye-laws, the Company may from time to
time by Resolution authorise the reduction of its issued share capital
or any share premium or contributed surplus account in any manner.
<PAGE>
48. In relation to any such reduction, the Company may by Resolution
determine the terms upon which such reduction is to be effected
including in the case of a reduction of part only of a class of shares,
those shares to be affected.
GENERAL MEETINGS AND WRITTEN RESOLUTIONS
49. (1) The Board shall convene and the Company shall hold general
meetings as Annual General Meetings in accordance with the
requirements of the Companies Acts at such times and places as
the Board shall appoint. The Board may, whenever it thinks
fit, and shall, when requisitioned by Shareholders pursuant to
the provisions of the Companies Acts, convene general meetings
other than Annual General Meetings which shall be called
Special General Meetings.
(2) Except in the case of the removal of auditors and Directors,
anything which may be done by resolution of the Company in
general meeting or by resolution of a meeting of any class of
the Shareholders of the Company may, without a meeting and
without any previous notice being required, be done by
resolution in writing, signed by all of the Shareholders or
their proxies, or, in the case of a Shareholder that is a
corporation (whether or not a company within the meaning of
the Companies Acts), on behalf of such Shareholder, being all
of the Shareholders of the Company who at the date of the
resolution in writing would be entitled to attend such meeting
and vote on the resolution. Such resolution in writing may be
signed by, or, in the case of a Shareholder that is a
corporation (whether or not a company within the meaning of
the Companies Acts), on behalf of, all the Shareholders of the
Company, or any class thereof, in as many counterparts as may
be necessary.
(3) For the purposes of this Bye-law, the date of the resolution
in writing is the date when the resolution is signed by, or in
the case of a Shareholder that is a corporation (whether or
not a company within the meaning of the Companies Acts), on
behalf of, the last Shareholder to sign and any reference in
any enactment to the date of passing of a resolution is, in
relation to a resolution in writing made in accordance with
this section, a reference to such date.
(4) A resolution in writing made in accordance with this Bye-law
is as valid as if it had been passed by the Company in general
meeting or, if applicable, by a meeting of the relevant class
of Shareholders of the Company, as the case may be. A
resolution in writing made in accordance with this section
shall constitute minutes for the purposes of the Companies
Acts and these Bye-laws.
NOTICE OF GENERAL MEETINGS
50. An Annual General Meeting shall be called by not less than 20 days
notice in writing and a Special General Meeting shall be called by not
less than 20 days notice in writing. The notice shall be exclusive of
the day on which it is served or deemed to be served and of the day
for which it is given, and shall specify the place, day and time of
the meeting, and the nature of the business to be considered. Notice
of every general meeting shall be given in any manner permitted by
Bye-laws 140 and 141 to all Shareholders other than such as, under the
provisions of these Bye-laws or the terms of issue of the shares they
hold, are not entitled to receive such notice from the Company and to
each Director, and to any Resident Representative who or which has
delivered a written notice upon the Registered Office requiring that
such notice be sent to him or it.
<PAGE>
51. The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental
omission to send such instrument of proxy to, or the non-receipt of
notice of a meeting or such instrument of proxy by, any person entitled
to receive such notice shall not invalidate the proceedings at that
meeting.
52. A Shareholder present, either in person or by proxy, at any meeting of
the Company or of the holders of any class of shares in the Company
shall be deemed to have received notice of the meeting and, where
requisite, of the purposes for which it was called.
GENERAL MEETINGS AT MORE THAN ONE PLACE
53. (1) The provisions of this Bye-law shall apply if any general
meeting is convened at or adjourned to more than one place.
(2) The notice of any meeting or adjourned meeting may specify the
Specified Place and the Board shall make arrangements for
simultaneous attendance and participation at other places
(whether adjoining the Specified Place or in a different and
separate place or places altogether or otherwise) by
Shareholders, provided that persons attending at any
particular place shall be able to see and hear and be seen and
heard (whether by audio visual links or otherwise howsoever
enabling the same) by persons attending at the other places at
which the meeting is convened.
(3) The Board may from time to time make such arrangements for the
purpose of controlling the level of attendance at any such
place (whether involving the issue of tickets or the
imposition of some means of selection or otherwise) as they
shall in their absolute discretion consider appropriate, and
may from time to time vary any such arrangements or make new
arrangements in place of them, provided that a Shareholder who
is unable to attend, in person or by proxy, at any particular
place because the number of attendees at such place is too
great shall be entitled so to attend at one of the other
places; and the entitlement of any Shareholder so to attend
the meeting or adjourned meeting at such place shall be
subject to any such arrangements as may be for the time being
in force and by the notice of meeting or adjourned meeting
stated to apply to the meeting.
(4) For the purposes of all other provisions of these Bye-laws any
such meeting shall be treated as being held at the Specified
Place.
(5) If a meeting is adjourned to more than one place, notice of
the adjourned meeting shall be given notwithstanding any other
provision of these Bye-laws.
PROCEEDINGS AT GENERAL MEETINGS
54. No business shall be transacted at any general meeting unless a quorum
is present when the meeting proceeds to business, but the absence of a
quorum shall not preclude the appointment, choice or election of a
chairman which shall not be treated as part of the business of the
meeting. Save as otherwise provided by these Bye-laws, at least two
Shareholders present in person or by proxy and entitled to vote
representing the holders of more than 50.1% of the issued shares shall
be a quorum for all purposes; provided, however, that if the Company or
a class of Shareholders shall have only one Shareholder, one
Shareholder present in person or by proxy shall constitute the
necessary quorum.
55. If within five minutes (or such longer time as the chairman of the
meeting may determine to wait) after the time appointed for the
meeting, a quorum is not present, the meeting, if convened
<PAGE>
on the requisition of Shareholders, shall be dissolved. In any other
case, it shall stand adjourned to such other day and such other time
and place as the chairman of the meeting may determine and at such
adjourned meeting two Shareholders present in person or by proxy and
entitled to vote and representing the holders of more than 50.1% of the
issued shares shall be a quorum, provided that if the Company or a
class of Shareholders shall have only one Shareholder, one Shareholder
present in person or by proxy shall constitute the necessary quorum.
The Company shall give not less than seven days notice of any meeting
adjourned through want of a quorum and such notice shall state that the
sole Shareholder or, if more than one, two Shareholders present in
person or by proxy and entitled to vote and representing the holders of
more than 50.1% of the issued shares shall be a quorum. If at the
adjourned meeting a quorum is not present within fifteen minutes after
the time appointed for holding the meeting, the meeting shall be
dissolved.
56. The Resident Representative, if any, upon giving the notice referred to
in Bye-law 50 above, shall be entitled to attend any general meeting of
the Company and each Director shall be entitled to attend and speak at
any general meeting of the Company.
57. The Chairman (if any) of the Board or (the President) or in his
absence, the Deputy Chairman of the Board (or the Vice-President) shall
preside as chairman at every general meeting. If there is no such
Chairman or President, or if at any meeting neither the Chairman nor
the President is present within five minutes after the time appointed
for holding the meeting, or if neither of them is willing to act as
chairman, the Directors present shall choose one of their number to act
or if one Director only is present he shall preside as chairman if
willing to act. If no Director is present, or if each of the Directors
present declines to take the chair, the persons present and entitled to
vote shall elect one of their number to be chairman.
58. The chairman of the meeting may, with the consent of a majority of the
persons present and entitled to vote at any meeting at which a quorum
is present (and shall if so directed by such persons), adjourn the
meeting from time to time and from place to place but no business shall
be transacted at any adjourned meeting except business which might
lawfully have been transacted at the meeting from which the adjournment
took place. When a meeting is adjourned for three months or more or for
an indefinite period, a notice shall be given as in the case of the
original meeting.
59. Save as expressly provided by these Bye-laws, it shall not be necessary
to give any notice of an adjournment or of the business to be
transacted at an adjourned meeting.
VOTING
60. If an amendment shall be proposed to any resolution under consideration
but shall in good faith be ruled out of order by the chairman of the
meeting, the proceedings on the substantive resolution shall not be
invalidated by any error in such ruling. With the consent of the
chairman of the meeting, an amendment may be withdrawn by its proposer
before it is voted upon.
61. Save where a greater majority is required by the Companies Acts or
these Bye-laws, any question proposed for consideration at any general
meeting shall be decided on by a simple majority of votes cast.
62. Subject to any rights or restrictions attached to any class of shares,
at any meeting of the Company, each Shareholder present in person or by
proxy shall be entitled to one vote for each share held by him.
63. At any general meeting, a resolution put to the vote of the meeting
shall be decided on a poll.
<PAGE>
64. Votes may be cast either personally or by proxy and a person entitled
to more than one vote need not use all his votes or cast all the votes
he uses in the same way.
65. In the case of an equality of votes at a general meeting, the chairman
of such meeting shall not be entitled to a second or casting vote and
the resolution shall fail.
66. In the case of joint holders of a share, the vote of the senior who
tenders a vote, whether in person or by proxy, shall be accepted to the
exclusion of the votes of the other joint holders, and for this purpose
seniority shall be determined by the order in which the names stand in
the Register in respect of the joint holding.
67. A Shareholder who is a patient for any purpose of any statute or
applicable law relating to mental health or in respect of whom an order
has been made by any Court having jurisdiction for the protection or
management of the affairs of persons incapable of managing their own
affairs may vote by his receiver, committee, CURATOR BONIS or other
person in the nature of a receiver, committee or CURATOR BONIS
appointed by such Court and such receiver, committee, CURATOR BONIS or
other person may vote, and may otherwise act and be treated as such
Shareholder for the purpose of general meetings.
68. No Shareholder shall, unless the Board otherwise determines, be
entitled to vote at any general meeting unless all calls or other sums
presently payable by him in respect of shares in the Company have been
paid.
69. If:
(a) any objection shall be raised to the qualification of
any voter; or
(b) any votes have been counted which ought not to have
been counted or which might have been rejected; or
(c) any votes are not counted which ought to have been
counted,
the objection or error shall not vitiate the decision of the meeting or
adjourned meeting on any resolution unless the same is raised or
pointed out at the meeting or, as the case may be, the adjourned
meeting at which the vote objected to is given or tendered or at which
the error occurs. Any objection or error shall be referred to the
chairman of the meeting and shall only vitiate the decision of the
meeting on any resolution if the chairman decides that the same may
have affected the decision of the meeting. The decision of the chairman
on such matters shall be final and conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
70. The instrument appointing a proxy shall be in writing under the hand of
the appointor or of his attorney authorised by him in writing or, if
the appointor is a corporation, either under its seal or under the hand
of an officer, attorney or other person authorised to sign the same.
71. Any Shareholder may appoint a standing proxy or (if a corporation)
representative by depositing at the Registered Office, or at such place
or places as the Board may otherwise specify for the purpose, a proxy
or (if a corporation) an authorisation and such proxy or authorisation
shall be valid for all general meetings and adjournments thereof or,
resolutions in writing, as the case may be, until notice of revocation
is received at the Registered Office, or at such place or places as the
Board may otherwise specify for the purpose. Where a standing proxy or
authorisation exists, its operation shall be deemed to have been
suspended at any
<PAGE>
general meeting or adjournment thereof at which the Shareholder is
present or in respect to which the Shareholder has specially appointed
a proxy or representative. The Board may from time to time require such
evidence as it shall deem necessary as to the due execution and
continuing validity of any such standing proxy or authorisation and the
operation of any such standing proxy or authorisation shall be deemed
to be suspended until such time as the Board determines that it has
received the requested evidence or other evidence satisfactory to it. A
person so authorised as a representative of a corporation shall be
entitled to exercise the same power on behalf of the grantor of the
authority as the grantor could exercise if it were an individual
Shareholder of the Company and the grantor shall for the purposes of
these Bye-laws be deemed to be present in person at any such meeting if
a person so authorised is present at it.
72. Subject to Bye-law 71, the instrument appointing a proxy together with
such other evidence as to its due execution as the Board may from time
to time require, shall be delivered at the Registered Office (or at
such place or places as may be specified in the notice convening the
meeting or in any notice of any adjournment or, in either case or the
case of a written resolution, in any document sent therewith) not less
than two hours or such other period as the Board may determine, prior
to the holding of the relevant meeting or adjourned meeting at which
the person named in the instrument proposes to vote or, in the case of
a written resolution, prior to the effective date of the written
resolution and in default the instrument of proxy shall not be treated
as valid.
73. Instruments of proxy shall be in any common form or in such other form
as the Board may approve and the Board may, if it thinks fit, send out
with the notice of any meeting or any written resolution forms of
instruments of proxy for use at that meeting or in connection with that
written resolution. The instrument of proxy shall be deemed to confer
authority to vote on any amendment of a written resolution or amendment
of a resolution put to the meeting for which it is given as the proxy
thinks fit. The instrument of proxy shall unless the contrary is stated
therein be valid as well for any adjournment of the meeting as for the
meeting to which it relates.
74. A vote given in accordance with the terms of an instrument of proxy
shall be valid notwithstanding the previous death or unsoundness of
mind of the principal, or revocation of the instrument of proxy or of
the authority under which it was executed, provided that no intimation
in writing of such death, insanity or revocation shall have been
received by the Company at the Registered Office (or such other place
as may be specified for the delivery of instruments of proxy in the
notice convening the meeting or other documents sent therewith) at
least one hour before the commencement of the meeting or adjourned
meeting or the day before the effective date of any written resolution,
at or on which the instrument of proxy is used.
75. Subject to the Companies Acts, the Board may at its discretion waive
any of the provisions of these Bye-laws related to proxies or
authorisations and, in particular, may accept such verbal or other
assurances as it thinks fit as to the right of any person to attend and
vote on behalf of any Shareholder at general meetings or to sign
written resolutions.
APPOINTMENT AND REMOVAL OF DIRECTORS
76. At the first Annual General Meeting after the initial public offering
of shares all the Directors shall retire from office, and at every
subsequent Annual General Meeting one-third of the Directors who are
subject to retirement by rotation or, if their number is not three or a
multiple of three, the number nearest to one-third shall retire from
office; but, if there is only one Director who is subject to retirement
by rotation, he shall retire.
<PAGE>
77. Subject to the provisions of the Companies Acts and these Bye-laws, the
Directors to retire by rotation shall be those who have been longest in
office since their last appointment or reappointment, but as between
persons who became or were last reappointed Directors on the same day
those to retire shall (unless they otherwise agree among themselves) be
determined by lot. The Directors to retire on each occasion (both as to
number and identity) shall be determined by the composition of the
Board at the date of the notice convening the Annual General Meeting
and no Director shall be required to retire or be relieved from
retiring or be retired by reason of any change in the number or
identity of the Directors after the date of the notice but before the
close of the meeting.
78. If the Company, at the meeting at which a Director retires by rotation
or otherwise, does not fill the vacancy, the retiring Director shall,
if willing to act, be deemed to have been reappointed unless at the
meeting it is resolved not to fill the vacancy or unless a resolution
for the reappointment of the Director is put to the meeting and lost.
79. Except as provided in Bye-law 82, no person other than a Director
retiring by rotation shall be appointed a Director at any general
meeting unless he is recommended by the Board or he is nominated in
accordance with the procedures set out in the Companies Acts and as
provided by applicable U.S. securities laws.
80. All Directors, upon appointment, must provide written acceptance of
their appointment, in such form as the Board may think fit, by notice
in writing to the Registered Office within thirty days of their
appointment.
81. The Company shall at the Annual General Meeting and may by Resolution
determine the minimum number of Directors, which shall be not less than
two (ten for so long as Bell Atlantic Network Systems Company holds no
more than 10% of the issued and outstanding shares and one of the
Directors has been designated by Bell Atlantic Network Systems Company
pursuant to Bye-law 82), and the maximum number of Directors and may by
Resolution determine that one or more vacancies in the Board shall be
deemed casual vacancies for the purposes of these Bye-laws. Without
prejudice to the power of the Company by Resolution in pursuance of any
of the provisions of these Bye-laws to appoint any person to be a
Director, the Board, so long as a quorum of Directors remains in
office, shall have power at any time and from time to time to appoint
any individual to be a Director so as to fill a casual vacancy. A
Director so appointed shall hold office only until the next following
Annual General Meeting and shall not be taken into account in
determining the Directors who are to retire by rotation at the meeting.
If not reappointed at such Annual General Meeting, he shall vacate
office at the conclusion thereof.
82. Each Shareholder holding at least 9% of the issued and outstanding
shares shall have the right from time to time for each 9% of the issued
and outstanding shares held by such Shareholder to designate one
Director (which may be a retiring Director) by notice to the Company.
If such procedures do not result in the appointment of at least one
Director designated by each of Bell Atlantic Network Systems Company
and/or Rathburn Limited, for so long as Bell Atlantic Network Systems
Company owns any shares it shall have the right to designate one
Director by notice to the Company and for so long as Rathburn Limited
owns any shares it shall have the right to designate one Director by
notice to the Company. Further, if such procedures do not result in the
appointment of at least one Director designated by Marubeni Telecom
Development Limited, for so long as it would be an event of default
under any of FLAG Limited's credit facilities if Marubeni Corporation
ceased to directly or indirectly own at least 5% of the issued and
outstanding voting stock of FLAG Limited, Marubeni Telecom Development
Limited shall have the right to designate one Director by notice to the
Company.
<PAGE>
83. (1) Any Shareholder or class of Shareholders designating a
Director may by notice in writing to the Company and to the
other Shareholders request the removal of such Director and
designate another person to be elected in his place in
accordance with Bye-law 82. Upon the sale or transfer of
shares held by a Shareholder with the result that such
Shareholder ceases to hold such percentage of the issued and
outstanding shares that entitled it to designate such total
number of Directors calculated pursuant to Bye-law 82, there
shall be delivered to the Company, upon the closing of such
sale or transfer, written resignations of such number of
Directors as such Shareholder is no longer entitled to
designate pursuant to Bye-law 82. Without prejudice to the
generality of the foregoing, upon the sale or transfer of
shares held by Bell Atlantic Network Systems Company or
Rathburn Limited with the result that Bell Atlantic Network
Systems Company or, as the case may be, Rathburn Limited
ceases to hold any of the issued and outstanding shares, there
shall be delivered to the Company, upon the closing of such
sale or transfer, written resignations of all Directors
serving upon the designation of Bell Atlantic Network Systems
Company or, as the case may be, Rathburn Limited.
(2) Any Shareholder may, by notice to the Company, request the
removal of any Director or Directors designated pursuant to
Bye-law 82 by a Shareholder that, at the time of such request,
does not hold such percentage of the issued and outstanding
shares that entitled it to designate such Director or
Directors under Bye-law 82.
(3) The Company shall in a special general meeting or class
meeting called for that purpose remove a Director whose
removal is requested pursuant to Bye-law 83(1); provided that
notice of any such meeting shall be served upon the Director
concerned not less than 14 days before the meeting. Any
vacancy created by the removal of a Director and a special
general meeting or class meeting may be filled at the meeting
by the election of another Director in his place.
84. If any Director is removed in accordance with the provisions of Bye-law
83, the Shareholder (or Shareholders, jointly and severally, if more
than one) who designated such Director shall be responsible for and
shall hold harmless the other Shareholders and the Company from and
against any claim for compensation arising out of such removal and any
reasonable costs and expenses incurred in defending such proceedings,
including, without limitation, the fees, disbursements and related
charges of counsel.
85. The Company may in a Special General Meeting called for that purpose
remove a Director provided notice of any such meeting shall be served
upon the Director concerned not less than 14 days before the meeting
and he shall be entitled to be heard at that meeting. Any vacancy
created by the removal of a Director at a Special General Meeting may
be filled at the Meeting by the election of another Director in his
place or, in the absence of any such election, by the Board.
RESIGNATION AND DISQUALIFICATION OF DIRECTORS
86. The office of a Director shall be vacated upon the happening of any of
the following events:
(1) he resigns his office by notice in writing delivered to the
Registered Office or tendered at a meeting of the Board;
(2) he becomes of unsound mind or a patient for any purpose of any
statute or applicable law relating to mental health and the
Board resolves that his office is vacated;
<PAGE>
(3) he becomes bankrupt under the laws of any country or compounds
with his creditors;
(4) he is prohibited by law from being a Director;
(5) he ceases to be a Director by virtue of the Companies Acts or
these Bye-laws or is removed from office pursuant to these
Bye-laws;
(6) he shall for more than six consecutive months have been absent
without permission of the Board from meetings of the Board
held during that period and his Alternate Director (if any)
shall not during such period have attended in his stead and
the Board resolves that his office be vacated; or
(7) he is requested to resign in writing by not less than three
quarters of the other Directors. In calculating the number of
Directors who are required to make such a request to the
Director (a) there shall be excluded any Alternate Director
appointed by him acting in his capacity as such, and (b) a
Director and any Alternate Director appointed by him and
acting in his capacity as such shall constitute a single
Director for this purpose, so that the signature of either
shall be sufficient.
ALTERNATE DIRECTORS
87. Any Director (other than an Alternate Director) may appoint any other
Director, or any other person approved by resolution of the Board and
willing to act, to be an Alternate Director and may remove from office
an Alternate Director so appointed by him. Any appointment or removal
of an Alternate Director by a Director shall be effected by depositing
a notice of appointment or removal with the Secretary at the Registered
Office, signed by such Director, and such appointment or removal shall
become effective on the date of receipt of such notice by the
Secretary. Any Alternate Director may also be removed by resolution of
the Board. An Alternate Director may also be a Director in his own
right and may act as alternate to more than one Director.
88. An Alternate Director shall cease to be an Alternate Director:-
(1) if his appointor ceases to be a Director, but, if a Director
retires by rotation or otherwise but is reappointed or deemed
to have been reappointed at the meeting at which he retires,
any appointment of an Alternate Director made by him which was
in force immediately prior to his retirement shall continue
after his reappointment;
(2) on the happening of any event which, if he were a Director,
would cause him to vacate his office as Director;
(3) if he is removed from office pursuant to Bye-law 87; or
(4) if he resigns his office by notice to the Company.
89. An Alternate Director shall be entitled to receive notices of all
meetings of Directors, to attend, be counted in the quorum and vote at
any such meeting at which any Director to whom he is alternate is not
personally present, and generally to perform all the functions of any
Director to whom he is alternate in his absence.
<PAGE>
90. Every person acting as an Alternate Director shall (except as regards
powers to appoint an alternate and remuneration) be subject in all
respects to the provisions of these Bye-laws relating to Directors and
shall alone be responsible to the Company for his acts and defaults and
shall not be deemed to be the agent of or for any Director for whom he
is alternate. An Alternate Director may be paid expenses and shall be
entitled to be indemnified by the Company to the same extent MUTATIS
MUTANDIS as if he were a Director. Every person acting as an Alternate
Director shall have one vote for each Director for whom he acts as
alternate (in addition to his own vote if he is also a Director). The
signature of an Alternate Director to any resolution in writing of the
Board or a committee of the Board shall, unless the terms of his
appointment provides to the contrary, be as effective as the signature
of the Director or Directors to whom he is alternate.
DIRECTORS' FEES AND
ADDITIONAL REMUNERATION AND EXPENSES
91. Each such Director shall be paid a fee (which shall be deemed to accrue
from day to day) at such rate as may from time to time be determined by
the Board. Each Director may be paid his reasonable travel, hotel and
incidental expenses in attending and returning from meetings of the
Board or committees constituted pursuant to these Bye-laws or general
meetings and shall be paid all expenses properly and reasonably
incurred by him in the conduct of the Company's business or in the
discharge of his duties as a Director. Any Director who, by request,
goes or resides abroad for any purposes of the Company or who performs
services which in the opinion of the Board go beyond the ordinary
duties of a Director may be paid such extra remuneration (whether by
way of salary, commission, participation in profits or otherwise) as
the Board may determine, and such extra remuneration shall be in
addition to any remuneration provided for by or pursuant to any other
Bye-law.
DIRECTORS' INTERESTS
92. (1) A Director may hold any other office or place of profit
with the Company (except that of auditor) in conjunction with
his office of Director for such period and upon such terms as
the Board may determine, and may be paid such extra
remuneration therefor (whether by way of salary, commission,
participation in profits or otherwise) as the Board may
determine, and such extra remuneration shall be in addition to
any remuneration provided for by or pursuant to any other
Bye-law.
(2) A Director may act by himself or his firm in a professional
capacity for the Company (otherwise than as auditor) and he or
his firm shall be entitled to remuneration for professional
services as if he were not a Director.
(3) Subject to the provisions of the Companies Acts, a Director
may notwithstanding his office be a party to, or otherwise
interested in, any transaction or arrangement with the Company
or in which the Company is otherwise interested; and be a
director or other officer of, or employed by, or a party to
any transaction or arrangement with, or otherwise interested
in, any body corporate promoted by the Company or in which the
Company is interested. The Board may also cause the voting
power conferred by the shares in any other company held or
owned by the Company to be exercised in such manner in all
respects as it thinks fit, including the exercise thereof in
favour of any resolution appointing the Directors or any of
them to be directors or officers of such other company, or
voting or providing for the payment of remuneration to the
directors or officers of such other company.
<PAGE>
(4) So long as, where it is necessary, he declares the nature of
his interest at the first opportunity at a meeting of the
Board or by writing to the Directors as required by the
Companies Acts, a Director shall not by reason of his office
be accountable to the Company for any benefit which he derives
from any office or employment to which these Bye-laws allow
him to be appointed or from any transaction or arrangement in
which these Bye-laws allow him to be interested, and no such
transaction or arrangement shall be liable to be avoided on
the ground of any interest or benefit.
(5) Subject to the Companies Acts and any further disclosure
required thereby, a general notice to the Directors by a
Director or Officer declaring that he is a director or officer
or has an interest in a person and is to be regarded as
interested in any transaction or arrangement made with that
person, shall be a sufficient declaration of interest in
relation to any transaction or arrangement so made.
(6) For the purposes of these Bye-laws, without limiting the
generality of the foregoing, a Director or Officer is deemed
to have an interest in a transaction or arrangement with the
Company if he is the holder of or beneficially interested in
1% or more of any class of the equity share capital of any
body corporate or of the voting rights available to members of
the relevant body corporate with which the Company is
proposing to enter into a transaction or arrangement, provided
that there shall be disregarded any shares held by such
Director or Officer as bare or custodian trustee and in which
he has no beneficial interest, any shares comprised in a trust
in which the Director's or Officer's interest is in reversion
or remainder if and so long as some other person is entitled
to receive the income thereof, and any shares comprised in an
authorised unit trust in which the Director or Officer is only
interested as a unit holder. For the purposes of this Bye-law,
an interest of a person who is connected with a Director or
Officer shall be treated as an interest of the Director or
Officer.
POWERS AND DUTIES OF THE BOARD
93. Subject to the provisions of the Companies Acts and these Bye-laws and
to any directions given by the Company by Resolution, the Board shall
manage the business of the Company and may pay all expenses incurred in
promoting and incorporating the Company and may exercise all the powers
of the Company. No alteration of these Bye-laws and no such direction
shall invalidate any prior act of the Board which would have been valid
if that alteration had not been made or that direction had not been
given. The powers given by this Bye-law shall not be limited by any
special power given to the Board by these Bye-laws and a meeting of the
Board at which a quorum is present shall be competent to exercise all
the powers, authorities and discretions for the time being vested in or
exercisable by the Board.
94. The Board may exercise all the powers of the Company to borrow money
and to mortgage or charge all or any part of the undertaking, property
and assets (present and future) and uncalled capital of the Company and
to issue debentures and other securities, whether outright or as
collateral security for any debt, liability or obligation of the
Company or of any other persons.
95. All cheques, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not, and all
receipts for money paid to the Company shall be signed, drawn,
accepted, endorsed or otherwise executed, as the case may be, in such
manner as the Board shall from time to time by resolution determine.
MATTERS REQUIRING SPECIAL APPROVAL
<PAGE>
96. The Company shall not take any of the following actions (or permit any
of its subsidiary companies to take any of the following actions)
unless such action is approved by resolution validly passed by the
Board:-
(1) adopt or amend fundamental accounting policies;
(2) appoint or replace the auditors of the Company or any of its
subsidiary companies;
(3) make or permit any material change to the nature or scope of
the FLAG Project;
(4) make any composition or arrangement with its creditors, move
for insolvency,
(5) receivership or administration or do or permit or suffer to be
done any act or thing whereby the Company or any of its
subsidiary companies may be wound up (whether voluntarily or
compulsorily);
(6) create any Security Interest over the whole or any material
part of the business, property or assets (tangible or
intangible) of the Company or any of its subsidiary companies;
(7) incur indebtedness exceeding $5,000,000 in the aggregate;
(8) subject to Bye-law 97, make any loan or advance or give any
credit (other than normal trade credit) to any person other
than a subsidiary company of the Company in excess of an
amount equal to 1% of the total paid up capital (nominal
amount plus share premium) of the Company from time to time;
(9) give any guarantee, indemnity or security to secure the
liabilities or obligations of any other person, other than a
subsidiary company of the Company;
(10) sell, transfer, lease, assign, dispose of or part with control
of any interest in all or any material part of the business,
property or assets (tangible or intangible) of the Company or
any of its subsidiary companies, other than the sale or lease
of cable capacity on arm's length terms (whether by a single
transaction or a series of transactions), or contract to do so
or acquire or contract to acquire any business, property or
assets (tangible or intangible) or any interest therein which
would, following such acquisition constitute a material part
of the business, property or assets of the Company or any of
its subsidiary companies (and for the purposes of this Bye-law
96(9), any such business, property or assets accounting for,
or which would following such acquisition by the Company or
any of its subsidiary companies account for, 5% or more of the
net income or net asset value of the Company shall be deemed
material);
(11) make or agree to make any change to the authorised share
capital from time to time of the Company or any of its
subsidiary companies (including without limitation, the
creation of any class of share capital, any increase in the
number of authorised shares of any class of share capital or
any change in the par value of any class of share capital) or
grant any option over, or issue any investment carrying rights
of conversion into, any share capital of the Company or any of
its subsidiary companies;
(12) repurchase, redeem (otherwise than in accordance with the
terms of redemption established at the time of issue of the
relevant share capital or loan stock), reorganise,
consolidate, subdivide, cancel, reduce or convert (otherwise
than in accordance with
<PAGE>
the terms of conversion established at the time of issue of
the relevant share capital or loan stock) any of the share
capital or loan stock of the Company or any of its subsidiary
companies or in any way alter the rights attaching thereto;
(13) acquire, purchase or subscribe for any shares, loan stock,
debentures, mortgages or securities (or any interest therein)
or any other interest in any company, trust or other body or
person, other than the Company or a wholly owned subsidiary
company, provided that this Bye-law 96(12) shall not apply to
the acquisition of short-term investment grade securities for
cash management purposes;
(14) make any general delegation of Directors' powers, except in
accordance with these Bye-laws;
(15) subject to Bye-law 97, enter into or make any material
amendment to any contract that provides for aggregate payments
by the Company or any of its subsidiary companies in excess of
$5,000,000;
(16) make any amendment of the Memorandum of Association or
Bye-laws of the Company;
(17) establish the terms and conditions of the issuance of any
shares or any share in the share capital of any of the
Company's subsidiary companies;
(18) declare any dividend on any share capital of the Company or
any of its subsidiary companies (other than by way of any
capitalisation of share premium account);
(19) participate in or facilitate any public offering of any shares
whether by the Company or any other person; or
(20) designate a Director or Directors of FLAG Limited pursuant to
the Bye-laws thereof.
97. The Company shall not (and shall not permit any of its subsidiary
companies to) enter into, amend in any material respect or terminate
any agreement or transaction involving aggregate payments or other
consideration with an aggregate value in excess of $1 million with any
person in which a Shareholder or any of its Associated Persons has an
interest unless such action is approved by at least two-thirds (a
simple majority in the case of a vote to terminate an agreement or
transaction) of the votes cast at a meeting of the Board, excluding for
all purposes of such calculation all votes exercisable by the
Director(s) designated by such interested Shareholder, and any such
action with respect to any agreement or transaction involving payments
or other consideration with an aggregate value of $1 million or less
shall require approval by the affirmative vote of the Directors
representing a majority of the total voting power of the Entire Board,
excluding for all purposes of such calculation all votes exercisable by
any Director appointed by the interested Shareholder. The Company shall
not (and shall not permit any of its subsidiary companies to) make any
loan or advance or give any credit (other than normal trade credit) to
any Shareholder or Director or any relative or Associated Person of a
Shareholder or Director unless such loan, advance or credit is approved
by the affirmative vote of at least two-thirds of the votes cast at a
meeting of the Board, excluding for all purposes of such calculation
all votes exercisable by any Director appointed by an interested
Shareholder. In case of doubt, the Board shall determine by majority
vote, excluding for all purposes of such calculation all votes
exercisable by the Director appointed by the potentially interested
Shareholder whether a Shareholder is an interested Shareholder by
virtue of it or any of its Associated Persons having an interest in any
agreement or transaction of a nature requiring approval as provided in
this Bye-law.
<PAGE>
BUSINESS PLAN
98. The Board shall meet at least three months before the end of each
financial year to approve a Business Plan for the following three
financial years. Each such Business Plan shall deal with the following
matters:
(1) the activities to be undertaken by the Company and its
subsidiary companies;
(2) a budget setting out the expected revenues, expenses and
capital requirements of the Company and each of its subsidiary
companies;
(3) the manner in which the anticipated capital requirements of
the Company and its subsidiary companies will be funded
including the proportions to be funded by way of external
borrowings, Shareholders' loans or guarnatees and/or equity
contributions; and
(4) such other matters as the Shareholders may determine should be
dealt with in the Business Plan from time to time.
99. Business Plans shall be approved, and any Business Plan may be amended
by the affirmative vote of at least a majority of the Entire Board. If
the Board is unable to approve any Business Plan, the Business Plan
then in effect shall continue to be operative until the earlier to
occur of (i) the expiration of the period covered by such Business Plan
and (ii) adoption by the Board of a subsequent Business Plan.
GRATUITIES, PENSIONS AND INSURANCE
100. (1) The Board may (by establishment of or maintenance of schemes
or otherwise) provide benefits, whether by the payment of
gratuities or pensions or by insurance or otherwise, for any
past or present Director or employee of the Company or any of
its subsidiary companies or any body corporate associated
with, or any business acquired by, any of them, and for any
member of his family (including a spouse and a former spouse)
or any person who is or was dependent on him, and may (as well
before as after he ceases to hold such office or employment)
contribute to any fund and pay premiums for the purchase or
provision of any such benefit.
(2) Without prejudice to the provisions of Bye-laws 146 and 147,
the Board shall have the power to purchase and maintain
insurance for or for the benefit of any persons who are or
were at any time Directors, Officers, or employees of the
Company, or of any other Company which is its holding company
or in which the Company or such holding company has any
interest whether direct or indirect or which is in any way
allied to or associated with the Company, or of any subsidiary
undertaking of the Company or any such other company, or who
are or were at any time trustees of any pension fund in which
employees of the Company or any such other company or
subsidiary undertaking are interested, including (without
prejudice to the generality of the foregoing) insurance
against any liability incurred by such persons in respect of
any act or omission in the actual or purported execution or
discharge of their duties or in the exercise or purported
exercise of their powers or otherwise in relation to their
duties, powers or offices in relation to the Company or any
such other company, subsidiary undertaking or pension fund.
(3) No Director or former Director shall be accountable to the
Company or the Shareholders for any benefit provided pursuant
to this Bye-law and the receipt of any
<PAGE>
such benefit shall not disqualify any person from being or
becoming a Director of the Company.
DELEGATION OF THE BOARD'S POWERS
101. The Board may, subject to Bye-law 96, by power of attorney appoint any
company, firm or person or any fluctuating body of persons, whether
nominated directly or indirectly by the Board, to be the attorney or
attorneys of the Company for such purposes and with such powers,
authorities and discretions (not exceeding those vested in or
exercisable by the Board under these Bye-laws) and for such period and
subject to such conditions as it may think fit, and any such power of
attorney may contain such provisions for the protection and convenience
of persons dealing with any such attorney and of such attorney as the
Board may think fit, and may also authorise any such attorney to
sub-delegate all or any of the powers, authorities and discretions
vested in him.
102. The Board may entrust to and confer upon any Director, Officer or,
subject to Bye-law 96 and without prejudice to the provisions of
Bye-law 103, other individual any of the powers exercisable by it upon
such terms and conditions with such restrictions as it thinks fit, and
either collaterally with, or to the exclusion of, its own powers, and
may from time to time revoke or vary all or any of such powers but no
person dealing in good faith and without notice of such revocation or
variation shall be affected thereby.
103. The Board may delegate, subject to Bye-law 96, any of its powers,
authorities and discretions to committees, consisting of such person or
persons (whether a member or members of its body or not) as it thinks
fit. Any committee so formed shall, in the exercise of the powers,
authorities and discretions so delegated, and in conducting its
proceedings conform to any regulations which may be imposed upon it by
the Board.
PROCEEDINGS OF THE BOARD
104. The Board may meet for the despatch of business, adjourn and otherwise
regulate its meetings as it thinks fit. Questions arising at any
meeting shall be determined by a majority of votes (two-thirds in the
case of resolutions required under Bye-law 96). In the case of an
equality of votes the motion shall be deemed to have been lost. A
Director may, and the Secretary on the requisition of a Director shall,
at any time summon a meeting of the Board.
105. Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given to him personally or by word of mouth or sent
to him by post, cable, telex, telecopier or other mode of representing
or reproducing words in a legible and non-transitory form at his last
known address or any other address given by him to the Company for this
purpose. A Director may retrospectively waive the requirement for
notice of any meeting by consenting in writing to the business
conducted at the meeting.
106. (1) The quorum necessary for the transaction of the business
of the Board may be fixed by the Board and, unless so fixed at
any other number, shall be the majority of Directors from time
to time serving on the Board. Any Director who ceases to be a
Director at a meeting of the Board may continue to be present
and to act as a Director and be counted in the quorum until
the termination of the meeting if no other Director objects
and if otherwise a quorum of Directors would not be present.
(2) The Resident Representative, if any, shall, upon delivering
written notice of an address for the purposes of receipt of
notice, to the Registered Office, be entitled to receive
notice of, attend and be heard at, and to receive minutes of
all meetings of the Board.
<PAGE>
107. So long as a quorum of Directors remains in office, the continuing
Directors may act notwithstanding any vacancy in the Board but, if no
such quorum remains, the continuing Directors or a sole continuing
Director may act only for the purpose of calling a general meeting.
108. The Chairman (or President) or, in his absence, the Deputy Chairman (or
Vice-President), shall preside as chairman at every meeting of the
Board. If at any meeting the Chairman or Deputy Chairman (or the
President or Vice-President) is not present within five minutes after
the time appointed for holding the meeting, or is not willing to act as
chairman, the Directors present may choose one of their number to be
chairman of the meeting.
109. The meetings and proceedings of any committee consisting of two or more
members shall be governed by the provisions contained in these Bye-laws
for regulating the meetings and proceedings of the Board so far as the
same are applicable and are not superseded by any regulations imposed
by the Board.
110. A resolution in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of the Board or by all the
members of a committee for the time being shall be as valid and
effectual as a resolution passed at a meeting of the Board or, as the
case may be, of such committee duly called and constituted. Such
resolution may be contained in one document or in several documents in
the like form each signed by one or more of the Directors or members of
the committee concerned.
111. A meeting of the Board or a committee appointed by the Board may be
held by means of such telephone, electronic or other communication
facilities as permit all persons participating in the meeting to
communicate with each other simultaneously and instantaneously and
participation in such a meeting shall constitute presence in person at
such meeting and any such meeting shall be deemed a valid meeting as
long as a quorum is present throughout.
112. All acts done by the Board or by any committee or by any person acting
as a Director or member of a committee or any person duly authorised by
the Board or any committee, shall, notwithstanding that it is
afterwards discovered that there was some defect in the appointment of
any member of the Board or such committee or person acting as aforesaid
or that they or any of them were disqualified or had vacated their
office, be as valid as if every such person had been duly appointed and
was qualified and had continued to be a Director, member of such
committee or person so authorised.
113. Save as otherwise provided by these Bye-laws, no contract or
transaction between the Company and one or more of the Directors or
Officers, or between the Company and any other company, partnership,
association, or other organisation in which one or more of Directors or
Officers are directors or officers, or have a financial interest, shall
be void or voidable solely for this reason, or solely because the
Director or Officer is present at or participates in the meeting of the
Board or committee which authorises the contract or transaction, or
solely because his or their votes are counted for such purpose if (a)
the material facts as to his or their relationship or interest and as
to the contract or transaction are disclosed or are known to the Board
or the committee, and the Board or committee in good faith authorises
the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be
less than a quorum; or (b) the material facts as to his or their
relationship or interest and as to the contract or transaction are
disclosed or are known to the Shareholders entitled to vote thereon,
and the contract or transaction is specifically approved in good faith
by vote of the Shareholders, or (c) the contract or transaction is fair
as to the Company as of the time it is authorised, approved or
ratified, by the Board, a committee thereof or the Shareholders.
<PAGE>
114. The Company may by Resolution suspend or relax to any extent, either
generally or in respect of any particular matter, any provision of
these Bye-laws prohibiting a Director from voting at a meeting of the
Board or of a committee of the Board, or ratify any transaction not
duly authorised by reason of a contravention of any such provisions.
115. Where proposals are under consideration concerning the appointment
(including fixing or varying the terms of appointment) of two or more
Directors to offices or employment with the Company or any body
corporate in which the Company is interested, the proposals may be
divided and considered in relation to each Director separately and in
such cases each of the Directors concerned shall be entitled to vote
and be counted in the quorum in respect of each resolution except that
concerning his own appointment.
116. If a question arises at a meeting of the Board or a committee of the
Board as to the entitlement of a Director to vote or be counted in a
quorum, the question may, before the conclusion of the meeting, be
referred to the chairman of the meeting and his ruling in relation to
any Director other than himself shall be final and conclusive except in
a case where the nature or extent of the interests of the Director
concerned have not been fairly disclosed. If any such question arises
in respect of the chairman of the meeting, it shall be decided by
resolution of the Board (on which the chairman shall not vote) and such
resolution will be final and conclusive except in a case where the
interests of the chairman have not been fairly disclosed.
OFFICERS
117. (1) The Officers of the Company shall include a President and a
Vice-President or a Chairman and a Deputy Chairman who shall
be Directors and shall be elected by the Board as soon as
possible after the statutory meeting and each Annual General
Meeting. The President or Chairman, as the case may be, shall
be the chief executive officer of the Company and, subject to
the control of the Board, shall have general charge and
control of all its business and affairs and shall have all
powers and shall perform all duties incident to the office of
President or Chairman, as the case may be.
Each Vice-President or Deputy Chairman, as the case may be,
shall have the powers and shall perform all duties incident to
the office of Vice-President or Deputy Chairman, as the case
may be, and shall have such other duties and perform such
other duties as may from time to time be assigned by these
Bye-laws or by the Board or the President or Chairman, as the
case may be.
(2) In addition, the Board may appoint any person whether or not
he is a Director to hold such office as the Board may from
time to time determine. Any person elected or appointed
pursuant to this Bye-law shall hold office for such period and
upon such terms as the Board may determine and the Board may
revoke or terminate any such election or appointment. Any such
revocation or termination shall be without prejudice to any
claim for damages that such Officer may have against the
Company or the Company may have against such Officer for any
breach of any contract of service between him and the Company
which may be involved in such revocation or termination. Save
as provided in the Companies Acts or these Bye-laws, the
powers and duties of the Officers of the Company shall be such
(if any) as are determined from time to time by the Board.
<PAGE>
EXECUTIVE DIRECTORS
118. (1) Subject to the provisions of the Companies Acts, the Board
may appoint one or more of its body to be the holder of any
executive office (except that of auditor) under the Company
and may enter into any agreement or arrangement with any
Director for his employment by the Company or for the
provision by him of any services outside the scope of the
ordinary duties of a Director. Any such appointment, agreement
or arrangement may be made upon such terms, including terms as
to remuneration, as the Board determines, and any remuneration
which is so determined may be in addition to or in lieu of any
ordinary remuneration as a Director. The Board may revoke or
vary any such appointment but without prejudice to any rights
or claims which the person whose appointment is revoked or
varied may have against the Company by reason thereof.
(2) Any Director holding executive office shall not be subject to
retirement by rotation. Any Director who is not subject to
retirement by rotation shall be disregarded in determining
which Directors are subject to retirement by rotation under
the provisions of these Bye-laws.
119. Any appointment of a Director to an executive office shall terminate if
he ceases to be a Director but without prejudice to any rights or
claims which he may have against the Company by reason of such
cessation. A Director appointed to an executive office shall not IPSO
FACTO cease to be a Director if his appointment to such executive
office terminates.
120. The emoluments of any Director holding executive office for his
services as such shall be determined by the Board, and may be of any
description, and (without limiting the generality of the foregoing) may
include admission to or continuance of membership of any scheme
(including any share acquisition scheme) or fund instituted or
established or financed or contributed to by the Company for the
provision of pensions, life assurance or other benefits for employees
or their dependants, or the payment of a pension or other benefits to
him or his dependants on or after retirement or death, apart from
membership or any such scheme or fund.
MINUTES
121. The Board shall cause minutes to be made and books kept for the purpose
of recording -
(1) all appointments of Officers made by the Board;
(2) the names of the Directors and other persons (if any) present
at each meeting of the Board and of any committee;
(3) all proceedings at meetings of the Company, of the holders of
any class of shares in the Company, of the Board and of
committees appointed by the Board or the Shareholders; and
(4) all proceedings of its managers (if any).
Shareholders shall only be entitled to see the Register of Directors
and Officers, the Register, the financial information provided for in
Bye-law 138 and the minutes of meetings of the Shareholders of the
Company.
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SECRETARY AND RESIDENT REPRESENTATIVE
122. The Secretary (including one or more deputy or assistant secretaries)
and, if required, the Resident Representative, shall be appointed by
the Board at such remuneration (if any) and upon such terms as it may
think fit and any Secretary and Resident Representative so appointed
may be removed by the Board. The duties of the Secretary and the duties
of the Resident Representative shall be those prescribed by the
Companies Acts and by these Bye-laws, together with such other duties
as shall from time to time be prescribed by the Board.
The Secretary shall keep the minutes of all meetings of the Board and
the minutes of all meetings of the Shareholders in books provided for
that purpose. The Secretary shall attend to the giving or serving of
all notices of the Company; shall have custody of the corporate seal of
the Company and shall affix the same to such documents and other
papers, in accordance with the terms of these Bye-laws; and shall have
charge of the share certificate books, transfer books and share ledgers
and such other books and papers as the Board or the President or
Chairman, as the case may be, shall direct.
123. A provision of the Companies Acts or these Bye-laws requiring or
authorising a thing to be done by or to a Director and the Secretary
shall not be satisfied by its being done by or to the same person
acting both as Director and as, or in the place of, the Secretary.
THE SEAL
124. (1) The Seal shall consist of a circular metal device with the
name of the Company around the outer margin thereof and the
country and year of incorporation across the centre thereof.
Should the Seal not have been received at the Registered
Office in such form at the date of adoption of this Bye-law
then, pending such receipt, any document requiring to be
sealed with the Seal shall be sealed by affixing a red wafer
seal to the document with the name of the Company, and the
country and year of incorporation type written across the
centre thereof.
(2) The Board shall provide for the custody of every Seal. A Seal
shall only be used by authority of the Board or of a committee
constituted by the Board. Subject to these Bye-laws, any
instrument to which a Seal is affixed shall be signed by
either two Directors, or by the Secretary and one Director, or
by the Secretary and/or by any one person whether or not a
Director or Officer, who has been authorised either generally
or specifically to affirm the use of a Seal; provided that the
Secretary or a Director may affix a Seal over his signature
alone to authenticate copies of these Bye-laws, the minutes of
any meeting or any other documents requiring authentication.
DIVIDENDS AND OTHER PAYMENTS
125. The Board may from time to time declare dividends or distributions out
of contributed surplus to be paid to the Shareholders according to
their rights and interests including such interim dividends as appear
to the Board to be justified by the position of the Company. The Board,
in its discretion, may determine that any dividend shall be paid in
cash or shall be satisfied, subject to Bye-law 133, in paying up in
full shares in the Company to be issued to the Shareholders credited as
fully paid or partly paid or partly in one way and partly the other.
The Board may also pay any fixed cash dividend which is payable on any
shares of the Company half yearly or on such other dates, whenever the
position of the Company, in the opinion of the Board, justifies such
payment.
126. Except insofar as the rights attaching to, or the terms of issue of,
any share otherwise provide:-
<PAGE>
(1) all dividends or distributions out of contributed surplus may
be declared and paid according to the amounts paid up on the
shares in respect of which the dividend or distribution is
paid, and an amount paid up on a share in advance of calls may
be treated for the purpose of this Bye-law as paid-up on the
share;
(2) dividends or distributions out of contributed surplus may be
apportioned and paid pro rata according to the amounts paid-up
on the shares during any portion or portions of the period in
respect of which the dividend or distribution is paid.
127. The Board may deduct from any dividend, distribution or other monies
payable to a Shareholder by the Company on or in respect of any shares
all sums of money (if any) presently payable by him to the Company on
account of calls or otherwise in respect of shares of the Company.
128. No dividend, distribution or other monies payable by the Company on or
in respect of any share shall bear interest against the Company.
129. Any dividend, distribution or interest, or part thereof payable in
cash, or any other sum payable in cash to the holder of shares may be
paid by cheque or warrant sent through the post addressed to the holder
at his address in the Register or, in the case of joint holders,
addressed to the holder whose name stands first in the Register in
respect of the shares at his registered address as appearing in the
Register or addressed to such person at such address as the holder or
joint holders may in writing direct. Every such cheque or warrant
shall, unless the holder or joint holders otherwise direct, be made
payable to the order of the holder or, in the case of joint holders, to
the order of the holder whose name stands first in the Register in
respect of such shares, and shall be sent at his or their risk and
payment of the cheque or warrant by the bank on which it is drawn shall
constitute a good discharge to the Company. Any one of two or more
joint holders may give effectual receipts for any dividends,
distributions or other monies payable or property distributable in
respect of the shares held by such joint holders.
130. Any dividend or distribution out of contributed surplus unclaimed for a
period of six years from the date of declaration of such dividend or
distribution shall be forfeited and shall revert to the Company and the
payment by the Board of any unclaimed dividend, distribution, interest
or other sum payable on or in respect of a share into a separate
account shall not constitute the Company a trustee in respect thereof.
131. The Board may also, in addition to its other powers, direct payment or
satisfaction of any dividend or distribution out of contributed surplus
wholly or in part by the distribution of specific assets, and in
particular of paid-up shares or debentures of any other company, and
where any difficulty arises in regard to such distribution or dividend
the Board may settle it as it thinks expedient, and in particular, may
authorise any person to sell and transfer any fractions or may ignore
fractions altogether, and may fix the value for distribution or
dividend purposes of any such specific assets and may determine that
cash payments shall be made to any Shareholders upon the footing of the
values so fixed in order to secure equality of distribution and may
vest any such specific assets in trustees as may seem expedient to the
Board provided that such dividend or distribution may not be satisfied
by the distribution of any partly paid shares or debentures of any
company without the sanction of a Resolution.
RESERVES
132. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it
thinks proper as reserves which shall, at the
<PAGE>
discretion of the Board, be applicable for any purpose of the Company
and pending such application may, also at such discretion, either be
employed in the business of the Company or be invested in such
investments as the Board may from time to time think fit. The Board may
also without placing the same to reserve carry forward any sums which
it may think it prudent not to distribute.
CAPITALIZATION OF PROFITS
133. The Board may, from time to time resolve to capitalise all or any part
of any amount for the time being standing to the credit of any reserve
or fund which is available for distribution or to the credit of any
share premium account and accordingly that such amount be set free for
distribution amongst the Shareholders or any class of Shareholders who
would be entitled thereto if distributed by way of dividend and in the
same proportions, on the footing that the same be not paid in cash but
be applied either in or towards paying up amounts for the time being
unpaid on any shares in the Company held by such Shareholders
respectively or in paying up in full of unissued shares, debentures or
other obligations of the Company, to be allotted and distributed
credited as fully paid amongst such Shareholders, or partly in one way
and partly in the other, provided that for the purpose of this Bye-law,
a share premium account may be applied only in paying up of unissued
shares to be issued to such Shareholders credited as fully paid and
provided further that any sum standing to the credit of a share premium
account may only be applied in crediting as fully paid shares of the
same class as that from which the relevant share premium was derived.
134. Where any difficulty arises in regard to any distribution under the
last preceding Bye-law, the Board may settle the same as it thinks
expedient and, in particular, may authorise any person to sell and
transfer any fractions or may resolve that the distribution should be
as nearly as may be practicable in the correct proportion but not
exactly so or may ignore fractions altogether, and may determine that
cash payments should be made to any Shareholders in order to adjust the
rights of all parties, as may seem expedient to the Board. The Board
may appoint any person to sign on behalf of the persons entitled to
participate in the distribution any contract necessary or desirable for
giving effect thereto and such appointment shall be effective and
binding upon the Shareholders.
RECORD DATES
135. Notwithstanding any other provisions of these Bye-laws, the Company may
by Resolution or the Board may fix any date as the record date for any
dividend, distribution, allotment or issue and for the purpose of
identifying the persons entitled to receive notices of general
meetings. Any such record date may be on or at any time not more than
60 days before any date on which such dividend, distribution, allotment
or issue is declared, paid or made or not more than 60 days nor less
than 10 days before the date of any such meetings.
ACCOUNTING RECORDS
136. The Board shall cause to be kept accounting records sufficient to give
a true and fair view of the state of the Company's affairs and to show
and explain its transactions, in accordance with the Companies Acts.
137. The records of account shall be kept at the Registered Office or at
such other place or places as the Board thinks fit, and shall at all
times be open to inspection by the Directors: PROVIDED that if the
records of account are kept at some place outside Bermuda, there shall
be kept at an office of the Company in Bermuda such records as will
enable the Directors to ascertain with reasonable accuracy the
financial position of the Company at the end of each three-month
<PAGE>
period. No Shareholder (other than an Officer of the Company) shall
have any right to inspect any accounting record or book or document of
the Company except as conferred by law or authorised by the Board or by
Resolution.
138. A copy of every balance sheet and statement of income and expenditure,
including every document required by law to be annexed thereto, which
is to be laid before the Company in general meeting, together with a
copy of the auditors' report, shall be sent to each person entitled
thereto in accordance with the requirements of the Companies Acts.
AUDIT
139. Save and to the extent that an audit is waived in the manner permitted
by the Companies Acts, auditors shall be appointed and their duties
regulated in accordance with the Companies Acts, any other applicable
law and such requirements not inconsistent with the Companies Acts as
the Board may from time to time determine.
SERVICE OF NOTICES AND OTHER DOCUMENTS
140. Any notice or other document (including a share certificate) may be
served on or delivered to any Shareholder by the Company either
personally or by sending it through the post (by airmail where
applicable) in a pre-paid letter addressed to such Shareholder at his
address as appearing in the Register or by delivering it to or leaving
it at such registered address. In the case of joint holders of a share,
service or delivery of any notice or other document on or to one of the
joint holders shall for all purposes be deemed as sufficient service on
or delivery to all the joint holders. Any notice or other document if
sent by post shall be deemed to have been served or delivered seven
days after it was put in the post, and in proving such service or
delivery, it shall be sufficient to prove that the notice or document
was properly addressed, stamped and put in the post.
141. Any notice of a general meeting of the Company shall be deemed to be
duly given to a Shareholder, or other person entitled to it, if it is
sent to him by cable, telex, telecopier or other mode of representing
or reproducing words in a legible and non-transitory form at his
address as appearing in the Register or any other address given by him
to the Company for this purpose. Any such notice shall be deemed to
have been served twenty-four hours after its despatch.
142. Any notice or other document delivered, sent or given to a Shareholder
in any manner permitted by these Bye-laws shall, notwithstanding that
such Shareholder is then dead or bankrupt or that any other event has
occurred, and whether or not the Company has notice of the death or
bankruptcy or other event, be deemed to have been duly served or
delivered in respect of any share registered in the name of such
Shareholder as sole or joint holder unless his name shall, at the time
of the service or delivery of the notice or document, have been removed
from the Register as the holder of the share, and such service or
delivery shall for all purposes be deemed as sufficient service or
delivery of such notice or document on all persons interested (whether
jointly with or as claiming through or under him) in the share.
DESTRUCTION OF DOCUMENTS
143. The Company shall be entitled to destroy all instruments of transfer of
shares which have been registered, and all other documents on the basis
of which any entry is made in the register, at any time after the
expiration of six years from the date of registration thereof and all
dividend mandates or variations or cancellations thereof and
notifications of change of address at any time after the expiration of
two years from the date of recording thereof and all share certificates
which have been cancelled at any time after the expiration of one year
from the date
<PAGE>
of cancellation thereof and all paid dividends, warrants and cheques at
any time after the expiration of one year from the date of actual
payment thereof and all instruments of proxy which have been used for
the purpose of a poll at any time after the expiration of one year from
the date of such use and all instruments of proxy which have not been
used for the purpose of a poll at any time after one month from the end
of the meeting to which the instrument of proxy relates. It shall
conclusively be presumed in favour of the Company that every entry in
the register purporting to have been made on the basis of an instrument
of transfer or other document so destroyed was duly and properly made,
that every instrument of transfer so destroyed was a valid and
effective instrument duly and properly registered, that every share
certificate so destroyed was a valid and effective certificate duly and
properly cancelled and that every other document hereinbefore mentioned
so destroyed was a valid and effective document in accordance with the
recorded particulars thereof in the books or records of the Company,
provided always that:-
(1) destruction of a document is in good faith and without notice
of any claim (regardless of the parties thereto) to which the
document might be relevant;
(2) nothing herein contained shall be construed as imposing upon
the Company any liability in respect of the destruction of any
such document earlier than as aforesaid or in any other
circumstances which would not attach to the Company in the
absence of this Bye-law; and
(3) references herein to the destruction of any document include
references to the disposal thereof in any manner.
UNTRACED SHAREHOLDERS
144. (1) The Company shall be entitled to sell, at the best price
reasonably obtainable, the shares of a Shareholder or the
shares to which a person is entitled by virtue of transmission
on death, bankruptcy, or otherwise by operation of law if and
provided that:-
(a) during the period of 12 years prior to the date of
the publication of the advertisements referred to in
paragraph (b) below (or, if published on different
dates, the first thereof) at least three dividends in
respect of the shares in question have been declared
and all dividends, warrants and cheques which have
been sent in the manner authorised by these Bye-laws
in respect of the shares in question have remained
uncashed; and
(b) the Company shall as soon as practicable after expiry
of the said period of 12 years have inserted
advertisements both in a national daily newspaper and
in a newspaper circulating in the area of the last
known address of such Shareholder or other person
giving notice of its intention to sell the shares;
and
(c) during the said period of 12 years and the period of
three months following the publication of the said
advertisements the Company shall have received no
indication either of the whereabouts or of the
existence of such Shareholder or person; and
(d) if the shares are listed on a Stock Exchange, notice
shall have been given to the Quotations Department of
such Stock Exchange of the Company's intention to
make such sale prior to the publication of
advertisements.
<PAGE>
If, during any 12-year period referred to in paragraph (a)
above, further shares have been issued in right of those held
at the beginning of such period or of any previously issued
during such period and all the other requirements of this
Bye-law (other than the requirement that they be in issue for
twelve years) have been satisfied in regard to the further
shares, the Company may also sell the further shares.
(2) To give effect to any such sale, the Board may authorise some
person to execute an instrument of transfer of the shares sold
to, or in accordance with the directions of, the purchaser and
an instrument of transfer executed by that person shall be as
effective as if it had been executed by the holder of, or
person entitled by transmission to, the shares. The transferee
shall not be bound to see to the application of the purchase
money, nor shall his title to the shares be affected by any
irregularity in, or invalidity of, the proceedings in
reference to the sale.
(3) The net proceeds of sale shall belong to the Company which.
for the period of six years after the sale, shall be obliged
to account to the former Shareholder or other person
previously entitled as aforesaid for an amount equal to such
proceeds and shall enter the name of such former Shareholder
or other person in the books of the Company as a creditor for
such amount. No trust shall be created in respect of the debt,
no interest shall be payable in respect of the same and the
Company shall not be required to account for any money earned
on the net proceeds, which may be employed in the business of
the Company or invested in such investments as the Board from
time to time thinks fit.
WINDING UP
145. If the Company shall be wound up, the liquidator may, with the sanction
of a Resolution of the Company and any other sanction required by the
Companies Acts, divide amongst the Shareholders in specie or kind the
whole or any part of the assets of the Company (whether they shall
consist of property of the same kind or not) and may for such purposes
set such values as he deems fair upon any property to be divided as
aforesaid and may determine how such division shall be carried out as
between the Shareholders or different classes of Shareholders. The
liquidator may, with the like sanction, vest the whole or any part of
such assets in trustees upon such trust for the benefit of the
contributories as the liquidator, with the like sanction, shall think
fit, but so that no Shareholder shall be compelled to accept any shares
or other assets upon which there is any liability.
INDEMNITY
146. Subject to the proviso below, every Director, Officer of the Company
and member of a committee constituted under Bye-law 103 and any
Resident Representative shall be indemnified out of the funds of the
Company against all liabilities, loss, damage or expense (including but
not limited to liabilities under contract, tort and statute or any
applicable foreign law or regulation and all reasonable legal and other
costs and expenses properly payable) incurred or suffered by him as
such Director, Officer, committee member or Resident Representative and
the indemnity contained in this Bye-law shall extend to any person
acting as a Director, Officer, committee member or Resident
Representative in the reasonable belief that he has been so appointed
or elected notwithstanding any defect in such appointment or election
PROVIDED ALWAYS that the indemnity contained in this Bye-law shall not
extend to any matter which would render it void pursuant to the
Companies Acts.
147. Every Director, Officer, member of a committee duly constituted under
Bye-law 103 or Resident Representative of the Company shall be
indemnified out of the funds of the Company
<PAGE>
against all liabilities incurred by him as such Director, Officer,
committee member or Resident Representative in defending any
proceedings, whether civil or criminal, in which judgement is given in
his favour, or in which he is acquitted, or in connection with any
application under the Companies Acts in which relief from liability is
granted to him by the court.
148. To the extent that any Director, Officer, member of a committee duly
constituted under Bye-law 103 or Resident Representative is entitled to
claim an indemnity pursuant to these Bye-laws in respect of amounts
paid or discharged by him, the relative indemnity shall take effect as
an obligation of the Company to reimburse the person making such
payment or effecting such discharge.
149. Each Shareholder and the Company agree to waive any claim or right of
action he or it may at any time have, whether individually or by or in
the right of the Company, against any Director, Officer, or member of a
committee duly constituted under Bye-law 103 on account of any action
taken by such Director, Officer, or member of a committee or the
failure of such Director, Officer, or member of a committee to take any
action in the performance of his duties with or for the Company
PROVIDED HOWEVER that such waiver shall not apply to any claims or
rights of action arising out of the fraud of such Director, Officer, or
member of a committee duly constituted under Bye-law 103 or to recover
any gain, personal profit or advantage to which such Director, Officer,
or member of a committee duly constituted under Bye-law 103 is not
legally entitled.
150. Subject to the Companies Acts, expenses incurred in defending any civil
or criminal action or proceeding for which indemnification is required
pursuant to Bye-laws 146 and 147 shall be paid by the Company in
advance of the final disposition of such action or proceeding upon
receipt of an undertaking by or on behalf of the indemnified party to
repay such amount if it shall ultimately be determined that the
indemnified party is not entitled to be indemnified pursuant to
Bye-laws 146 and 147 PROVIDED THAT no monies shall be paid hereunder
unless payment of the same shall be authorised in the specific case
upon a determination that indemnification of the Director or Officer or
member of a committee duly constituted under Bye-law 103 would be
proper in the circumstances because he has met the standard of conduct
which would entitle him to the indemnification thereby provided and
such determination shall be made:
(1) by the Board, by a majority vote at a meeting duly constituted
by a quorum of Directors not party to the proceedings or
matter with regard to which the indemnification is, or would
be, claimed; or
(2) in the case such a meeting cannot be constituted by lack of a
disinterested quorum, by independent legal counsel in a
written opinion; or
(3) by a Resolution.
Each Shareholder of the Company, by virtue of its acquisition and
continued holding of a share, shall be deemed to have acknowledged and
agreed that the advances of funds may be made by the Company as
aforesaid, and when made by the Company under this Bye-law 150 are made
to meet expenditures incurred for the purpose of enabling such
Director, Officer, or member of a committee duly constituted under
Bye-law 103 to properly perform his or her duties as an officer of the
Company.
<PAGE>
AMALGAMATION
151. Any resolution proposed for consideration at any general meeting to
approve the amalgamation of the Company with any other company,
wherever incorporated, shall require the approval of a simple majority
of votes cast at such meeting and the quorum for such meeting shall be
that required in Bye-law 54.
CONTINUATION
152. Subject to the Companies Act, the Shareholders may by Resolution
approve the discontinuation of the Company in Bermuda and the
continuation of the Company in a jurisdiction outside Bermuda. The
Shareholders, having resolved to approve the discontinuation of the
Company, may by Resolution further resolve not to proceed with any
application to discontinue the Company in Bermuda or may vary such
application as they see fit.
ALTERATION OF BY-LAWS
153. Subject to Bye-law 162, these Bye-laws may be amended from time to time
by the Board, subject to approval by Resolution, provided that in the
case of any amendment or repeal of Bye-law 82, 96, 97, 98 or 99, such
amendment or repeal shall be approved only if at least 75% of the votes
cast are in favor of such amendment or repeal.
BUSINESS COMBINATIONS
154. The following definitions shall apply with respect to the provisions of
Bye-laws 154 to 162, inclusive:
(1) "the Act" means the Securities Exchange Act of 1934 of the
United States of America, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing
the Act, rules or regulations).
(2) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Act, as in effect on November 8, 1990
(the term "registrant" in said Rule 12b-2 meaning in this case
the Company).
(3) A person shall be a "beneficial owner" of any Voting Shares:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; (b) which such
person or any of its Affiliates or Associates has, directly or
indirectly (i) the right to acquire (whether such rights is
exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding
or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding; or
(c) beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of such
Voting Shares. For the purposes of determining whether a
person is an Interested Shareholder pursuant to paragraph (8)
of this Bye-law 154, the number of Capital Shares deemed to be
outstanding shall include shares deemed beneficially owned by
such person through application of this paragraph (3) of this
Bye-law 154, but shall not include any other Capital Shares
that may be issuable
<PAGE>
pursuant to an agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or
otherwise.
(4) "Business Combination" means:
(a) any merger, consolidation or amalgamation of the
Company or any Subsidiary with (i) any Interested
Shareholder, or (ii) any other company (whether or
not itself an Interested Shareholder) which is or
after such merger, consolidation or amalgamation
would be an Affiliate or Associate of an Interested
Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition or security arrangement,
investment, loan, advance, guarantee, agreement to
purchase, agreement to pay, extension of credit,
joint venture participation or other arrangement (in
one transaction or a series of transactions) with or
for the benefit of any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder
involving any assets, securities or commitments of
the Company, any Subsidiary or any Interested
Shareholder or any Affiliate or Associate of any
Interested Shareholder (except for any arrangement,
whether as employee, consultant or otherwise, other
than as a Director, pursuant to which any Interested
Shareholder or any Affiliate of Associate thereof
shall, directly or indirectly, have any control over
or responsibility for the management of any aspect of
the business or affairs of the Company, with respect
to which arrangements the value tests set forth below
shall not apply), together with all other such
arrangements (including all contemplated future
events), has an aggregate Fair Market Value and/or
involves aggregate commitments of $5,000,000 or more
or constitutes more than 5% of the book value of the
total assets (in the case of transactions involving
assets or commitments other than Capital Shares) or
5% of the Shareholders' equity (in the case of
transactions in Capital Shares) of the entity in
question (the "Substantial Part"), as reflected in
the most recent fiscal year and consolidated balance
sheet of such entity existing at the time the
Shareholders of the Company would be required to
approve or authorise the Business Combination
involving the assets, securities and/or commitments
constituting any Substantial Part; or
(c) the adoption of any plan or proposal for the
liquidation or dissolution of the Company or for any
amendment to these Bye-laws; or
(d) any reclassification of securities (including any
reverse stock split), or recapitalisation of the
Company, or any merger, consolidation or amalgamation
of the Company with any of its Subsidiaries or any
other transaction (whether or not with or into or
otherwise involving an Interested Shareholder) that
has the effect, directly or indirectly, of increasing
the proportionate share of any class or series of
Capital Shares, or any securities convertible into
Capital Shares or into equity securities of any
Subsidiary, that is beneficially owned by an
Interested Shareholder or any Affiliate or Associate
of any Interested Shareholder; or
(e) any agreement, contract or other arrangement
providing for any one or more of the actions
specified in the foregoing clauses (a) to (d).
<PAGE>
(5) "Capital Shares" means all shares of the Company authorised to
be issued from time to time, "Common Shares" shall mean all
common shares of the Company authorised to be issued from time
to time, and the term "Voting Shares" shall mean all Capital
Shares which by their terms may be voted on all matters
submitted to Shareholders of the Company generally.
(6) "Continuing Director' means any member of the Board while such
person is a member of the Board who is not an Affiliate or
Associate or representative of the Interested Shareholder and
was a member of the Board prior to the time that the
Interested Shareholder became an Interested Shareholder, and
any successor of a Continuing Director while such successor is
a member of the Board, who is not an Affiliate or Associate or
representative of the Interested Shareholder and is
recommended or elected to succeed the Continuing Director by a
majority of Continuing Directors.
(7) "Fair Market Value" means: (a) in the case of cash, the amount
of such cash; (b) in the case of shares, the highest closing
sale price during the 30-day period immediately preceding the
date in question of a share on the Composite Tape for New York
Stock Exchange Listed Stocks, or, if such shares are not
quoted on the Composite Tape, on the New York Stock Exchange,
or, if such shares are not listed on such Exchange, on the
principal United States securities exchange registered under
the Act on which such shares are listed or, if such shares are
not listed on any such exchange, the highest closing bid
quotation with respect to such shares during the 30-day period
preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System, in the
pink sheets of the National Quotation Bureau or any similar
system then in use, or if no such quotations are available,
the fair market value on the date in question of a share as
determined by a majority of the Continuing Directors in good
faith; and (c) in the case of property other than cash or
shares, the fair market value of such property on the date in
question as determined in good faith by a majority of the
Continuing Directors.
(8) "Interested Shareholder" means any person (other than the
Company or any Subsidiarysubsidiary company, or any profit
sharing, employee share ownership or other employee benefit
plan of the Company or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in such
capacity and other than a Shareholder at the date of the
adoption of these Bye-laws unless such Shareholder acquires
Voting Shares representing 15% or more in additional voting
power) who (a) is or has announced or publicly disclosed a
plan or intention to become the beneficial owner of Voting
Shares representing 15% or more of the vote entitled to be
cast by the holders of all then outstanding Voting Shares, or
(b) is an Affiliate or Associate of the Company and at any
time within the two-year period immediately prior to the date
in question was the beneficial owner of Voting Shares
representing 15% or more of the votes entitled to be cast by
the holders of all then outstanding Voting Shares.
(9) "person" means any individual, firm, company or other entity
and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or
Associate of such person has any agreement, arrangement or
understanding directly or indirectly, for the purpose of
acquiring, holding, voting or disposing of Capital Shares.
<PAGE>
(10) "ProposedAction" means a Business Combination or any proposal
to amend, repeal or adopt any provision of these Bye-laws
inconsistent with these Bye-laws 154 through 162.
(11) "Subsidiary" means any company, wherever organised, of which a
majority of any class of equity security is beneficially owned
by the Company; provided, however, that for the purposes of
the definition of Interested Shareholder set forth in
paragraph (8) of this Bye-law 154, the term "Subsidiary" shall
mean only a company of which a majority of each class of
equity security is beneficially owned by the Company.
155. In addition to any affirmative vote required by law or these Bye-laws,
and except as otherwise expressly provided in Bye-law 156, a Business
Combination with, or proposed by or on behalf of, any Interested
Shareholder or any Affiliate or Associate of any Interested Shareholder
or any person who thereafter would be an Affiliate or Associate of such
Interested Shareholder shall require the affirmative vote of not less
than 66-2/3% of the votes entitled to be cast by the holders of all the
then outstanding Voting Shares, voting together as a single class,
excluding Voting Shares beneficially owned by such Interested
Shareholder or any Affiliate or Associate of such Interested
Shareholder. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or
separate class vote may be specified, by law or in any agreement with
any national securities exchange or otherwise.
156. The provisions of Bye-law 155 shall not be applicable to any particular
Business Combination, and such Business Combination shall require only
such affirmative vote, if any, as is required by law or any other
provision of these Bye-laws, if all of the conditions specified in
either of the following paragraph (1) or (2) are met:
(1) The Business Combination shall have been approved by a
majority of the Continuing Directors.
(2) All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of Common Shares in such
Business Combination shall be at least equal to the
highest amount determined under clauses (i) and (ii)
below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by or on behalf of
the Interested Shareholder for beneficial ownership
of Common Shares acquired by it (x) within the
two-year period immediately prior to the first public
announcement of the proposed Business Combination
(the "Announcement Date") or (y) in the transaction
in which it became an Interested Shareholder,
whichever is higher, in either case as adjusted for
any subsequent stock split, stock dividend,
subdivision or reclassification with respect to the
Common Shares; and
(ii) the Fair Market Value per share of Common Shares on
the Announcement Date or on the date on which the
Interested Shareholder became an Interested
Shareholder (the "Determination Date"), whichever is
higher, as adjusted for
<PAGE>
any subsequent stock split, stock dividend,
subdivision or reclassification with respect to the
Common Shares.
(b) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of shares of any class or
series of outstanding Capital Shares, other than Common
Shares, shall be at least equal to the highest amount
determined under clauses (i), (ii) and (iii) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by or on behalf of
the Interested Shareholder for any such class or
series of Capital Shares in connection with the
acquisition by the Interested Shareholder of
beneficial ownership of shares of such class or
series of Capital Shares (x) within the two-year
period immediately prior to the Announcement Date or
(y) in the transaction in which it became an
Interested Shareholder, whichever is higher, in
either case as adjusted for any subsequent share
split, share dividend, subdivision or
reclassification with respect to such class or series
of Capital Shares; .
(ii) the Fair Market Value per share of such class or
series of Capital Shares on the Announcement Date or
on the Determination Date, whichever is higher, as
adjusted for any subsequent share split, subdivision
or reclassification with respect to such class or
series of Capital Shares; and.
(iii)(if applicable) the highest preferential amount per
share to which the holders of shares of such class or
series of Capital Shares would be entitled in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Company regardless of whether the Business
Combination to be consummated constitutes such an
event. .
(c) The consideration to be received by holders of a
particular class or series of outstanding Capital
Shares shall be in cash or in the same form as
previously has been paid by or on behalf of the
Interested Shareholder in connection with its direct
or indirect acquisition of beneficial ownership of
shares of such class or series of Capital Shares. If
the consideration so paid for shares of any class or
series of Capital Shares varied as to form, the form
of consideration for such class or series of Capital
Shares shall be either cash or the form used to
acquire beneficial ownership of the largest number of
shares of such class or series of Capital Shares
previously acquired by the Interested Shareholder.
(d) After the Determination Date and prior to the consummation
of such Business Combination, (i) except as approved by a
majority of the Continuing Directors, there shall have
been no failure to declare and pay at the regular date
therefor any full quarterly dividends (whether or not
cumulative) payable in accordance with the terms of any
outstanding Capital Shares, (ii) there shall have been no
reduction in the annual rate of dividends paid on the
Common Shares (except as necessary to reflect any stock
split, stock dividend or subdivision of the Common
Shares), except as approved by a majority of the
Continuing Directors, (iii) there shall have been an
increase in the annual rate of dividends paid on the
Common Shares as necessary to reflect any reclassification
(including any reverse stock split), recapitalisation,
reorganisation or any similar transaction that has the
<PAGE>
effect of reducing the number of outstanding shares of
Common Shares, unless the failure so to increase such
annual rate is approved by a majority of the Continuing
Directors, and (iv) such Interested Shareholders shall not
have become the beneficial owner of any additional shares
of Capital Shares except as part of the transaction that
results in such Interested Shareholder becoming an
Interested Shareholder and except in a transaction that,
after giving effect thereto, would not result in any
increase in the Interested Shareholder's percentage
beneficial ownership of any class or series of Capital
Shares.
(e) A proxy or information statement describing the proposed
Business Combination and complying with the requirements
of the Act shall be mailed to all Shareholders if required
by the Act at least 30 days prior to the consummation of
such Business Combination. The proxy or information
statement shall contain on the first page thereof, in a
prominent place, any statement as to the advisability (or
inadvisability) of the Business Combination that the
Continuing Directors, or any of them, may choose to make
and, if deemed advisable by a majority of the Continuing
Directors, an opinion of an investment banking firm
selected by a majority of the Continuing Directors as to
the fairness (or unfairness) of the terms of the Business
Combination from a financial point of view to the holders
of the outstanding shares of Capital Shares other than the
Interested Shareholder and its Affiliates or Associates,
such investment banking firm to be paid a reasonable fee
for its services by the Company.
(f) Such Interested Shareholder shall not have made any major
change in the Company's business or equity capital
structure without the approval of a majority of the
Continuing Directors.
The provisions of this paragraph (2) shall be required to be
met with respect to every class or series of outstanding
Capital Shares, whether or not the Interested Shareholder has
previously acquired beneficial ownership of any shares of a
particular class or series of Capital Shares.
157. In the event of any Business Combination in which the Company survives,
the phrase "consideration other than cash to be received" as used in
paragraphs (2)(a) and (2)(b) of Bye-law 156 shall include the Common
Shares and/or the shares of any other class or series of Capital Shares
retained by the holders of such shares.
158. A majority of the Continuing Directors shall have the power and duty to
determine for the purpose of these Bye-laws 154 through 162, on the
basis of information known to them after reasonable inquiry, all
questions arising under these Bye-laws 154 through 162 including,
without limitation, (a) whether a person is an Interested Shareholder,
(b) the number of Capital Shares or other securities beneficially owned
by any person, (c) whether a person is an Affiliate or Associate of
another, (d) whether a Proposed Action is with, or proposed by, or on
behalf of an Interested Shareholder or an Affiliate or Associate of an
Interested Shareholder, (e) whether the assets that are the subject of
any Business Combination have, or the consideration to be received for
the issuance or transfer of securities by the Company or any Subsidiary
in any Business Combination has, an aggregate Fair Market Value of
$5,000,000 or more and (f) whether the assets or securities that are
the subject of any Business Combination constitute a Substantial Part.
The good faith determination of a majority of the Continuing Directors
on such matters shall be conclusive and binding on all parties for all
purposes of these Bye-laws 154 through 162.
<PAGE>
159. Nothing contained in these Bye-laws 154 through 162 shall be construed
to relieve any Interested Shareholder from any fiduciary obligation
imposed by law.
160. The fact that any Business Combination complies with the provisions of
these Bye-laws 154 through 162 shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board or any member
thereof, to approve such Business Combination or recommend its adoption
or approval to the Shareholders of the Company, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the
Board or any member thereof, with respect to evaluations of or actions
and responses taken with respect to such Business Combination.
161. A Proposed Action is presumed to have been proposed by, or on behalf
of, an Interested Shareholder or a person who thereafter would become
such or an Affiliate or Associate thereof if (a) after the Interested
Shareholder became such, the Proposed Action is proposed following the
election of any Director who with respect to such Interested
Shareholder or an Affiliate or Associate thereof, would not qualify to
serve as a Continuing Director, or (b) such Interested Shareholder or
an Affiliate or Associate thereof votes for or consents to the adoption
of any such Proposed Action, unless as to such Interested Shareholder
or an Affiliate or Associate thereof a majority of the Continuing
Directors makes a good faith determination that such Proposed Action is
not proposed by or on behalf of such Interested Shareholder or an
Affiliate or Associate thereof, based on information known to them
after reasonable inquiry.
162. Notwithstanding any other provisions of these Bye-laws (and
notwithstanding the fact that a lesser percentage or separate class
vote may be specified by law or these Bye-laws), any proposal to amend,
repeal or adopt any provision of these Bye-laws inconsistent with these
Bye-laws 154 through 162 which is proposed by or on behalf of an
Interested Shareholder or an Affiliate or Associate of an Interested
Shareholder shall require the affirmative vote of the holders of not
less than 66-2/3% of the votes entitled to be cast by the holders of
all the then outstanding Voting Shares, voting together as a single
class, excluding Voting Shares beneficially owned by such Interested
Shareholder; provided, however, that this Bye-law 162 shall not apply
to, and such 66-2/3% vote shall not be required for, any amendment,
repeal or adoption unanimously recommended by the Board if all of the
Directors on the Board are persons who would be eligible to serve as
Continuing Directors within the meaning of Bye-law 154(6).
<PAGE>
Exhibit 5
JC 121325.5
Direct e-mail: [email protected]
J. Collis
Partner February 2, 2000
Flag Telecom Holdings Limited
Emporium Building
69 Front Street
Hamilton HM 12
Dear Sirs
FLAG TELECOM HOLDINGS LIMITED
We have acted as legal counsel in Bermuda to the Company in connection with
the preparation and filing by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities
Act"), of a Registration Statement of Form F-1 in relation to an offer by the
Company and certain Selling Shareholders of an aggregate 30,360,000 ordinary
shares of par value US$.0006 each (the "Common Shares") (including the
3,960,000 additional shares which are subject to an over-allotment option. Of
the 30,360,000 Common Shares, 22,420,000 shares (including 1,320,000 shares
subject to an over-allotment option) are being offered by the Company (the
"Company Shares") and 7,940,000 shares (including 2,640,000 shares subject to
an over-allotment option) are being offered by the Selling Shareholders (the
"Selling Shareholder Shares").
Unless otherwise defined in this opinion or the Schedules to it, capitalised
terms have the meanings assigned to them in the Prospectus.
For the purposes of this opinion we have examined and relied upon the
documents listed (which, in some cases, are also defined) in Schedule I to
this opinion (the "Documents").
ASSUMPTIONS
In stating our opinion we have assumed:
(a) the authenticity, accuracy and completeness of all Documents
(including, without limitation, public records) submitted to
us as
<PAGE>
originals and the conformity to authentic original Documents
of all Documents submitted to us as certified, conformed,
notarised or photostatic copies;
(b) the genuineness of all signatures on the Documents;
(c) the authority, capacity and power of each of the persons
signing the Documents (other than the Company);
(d) that any factual statements made in any of the Documents are
true, accurate and complete;
(e) that the Resolutions are in full force and effect and have
not been rescinded, either in whole or in part and accurately
record the resolutions passed by the Board of Directors of
the Company or the Shareholders, as the case may be, at
meetings which were duly convened and at which duly constituted
quorums were present and voting throughout and accurately
record the resolutions adopted by the Directors and
Shareholders of the Company;
(f) that when executed any document presented to us in draft will
not differ in any material way from the draft which we have
examined.
OPINION
Based upon and subject to the foregoing and subject to the reservations set
out below and to any matters not disclosed to us, we are of the opinion that:
(1) The Company is an exempted company incorporated with limited
liability and existing under the laws of Bermuda and is in good
standing under the laws of Bermuda.
(2) The Company Shares have been duly authorised and when issued and paid
for as contemplated by the Prospectus will be duly authorised, validly
issued, fully paid and non-assessable.
(3) The Selling Shareholder Shares recorded in the Share Register of the
Company as fully paid, are duly authorised, validly issued and
non-assessable shares of the Company.
RESERVATIONS
We have the following reservations:
(a) We express no opinion as to any law other than Bermuda law
and none of the opinion express herein relates to compliance
with or
<PAGE>
matters governed by the laws of any jurisdiction except
Bermuda. This opinion is limited to Bermuda law as applied by
the Courts of Bermuda at the date hereof.
(b) Where an obligation is to be performed in a jurisdiction
other than Bermuda, the courts of Bermuda may refuse to
enforce it to the extent that such performance would be
illegal under the laws of, or contrary to public policy of,
such other jurisdiction.
(c) Any reference in this opinion to shares being "non-assessable"
shall mean, in relation to fully-paid shares of the Company
and subject to any contrary provision in any agreement in
writing between the Company and the holder of shares, that;
no shareholder shall be obliged to contribute further amounts
to the capital of the Company, either in order to complete
payment for their shares, to satisfy claims of creditors of
the Company, or otherwise; and no shareholder shall be bound
by an alteration of the Memorandum of Association or Bye-laws
of the Company after the date on which he became a shareholder,
if and so far as the alteration requires him to take, or
subscribe for additional shares, or in any way increases his
liability to contribute to the share capital of, or otherwise
to pay money to the Company.
DISCLOSURE
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm in the Prospectus under the
captions "Legal Matters" and "Tax Considerations--Bermuda Tax Considerations
and Taxation of Shareholders--Bermuda Tax Considerations" in the Prospectus.
This opinion is governed by and is to be construed in accordance with Bermuda
law. It is given on the basis that it will not give rise to any legal
proceedings with respect thereto in any jurisdiction other than Bermuda.
Yours faithfully
APPLEBY SPURLING & KEMPE
<PAGE>
Exhibit 10.1
FLAG TELECOM HOLDINGS LIMITED
LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this Long-Term Incentive Plan (the "Plan")
of FLAG Telecom Holdings Limited, a Bermuda company (the "Company"), is to
advance the interests of the Company and its stockholders by providing a means
to attract, retain and reward officers and employees of and consultants of and
service providers to the Company and its subsidiaries and to enable such persons
to acquire or increase a proprietary interest in the Company, thereby promoting
a closer identity of interests between such persons and the Company's
stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs, Restricted Stock, Deferred Stock, Stock granted as a bonus or in
lieu of other awards, Dividend Equivalents and Other Stock-Based Awards are set
forth in Section 6 of the Plan. Such awards, together with any other right or
interest granted to a Participant under the Plan, are termed "Awards." For
purposes of the Plan, the following additional terms shall be defined as set
forth below:
(a) "Award Agreement" means any written agreement, contract,
certificate, notice or other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means, with respect to a Participant, any of the following
by such Participant: (i) material breach of any of such Participant's covenants
or obligations under any applicable employment agreement or non-compete
agreement; (ii) continued failure after written notice from the Company or any
applicable subsidiary to perform job responsibilities with full-time and
good-faith efforts or to follow the reasonable instructions of such
Participant's superiors; (iii) commission of a crime constituting a felony (or
its equivalent) under the laws of any jurisdiction in which the Company or any
applicable subsidiary conducts its business or other crime involving moral
turpitude; or (iv) material violation of any material law or regulation
(including, without limitation, the Foreign Corrupt Practices Act or any similar
non-U.S. statute) or any policy or code of conduct adopted by the Company or
engaging in any other form of misconduct which, if it were made public, could
reasonably be expected to adversely affect the business reputation or affairs of
the Company. Notwithstanding the foregoing, if any Participant is party to an
employment or consulting agreement governing the terms of his employment or
consultancy with the Company or any of its subsidiaries, and such agreement
includes a definition of cause, then for purposes hereof, cause shall have the
meaning ascribed thereto in such agreement.
1
<PAGE>
(e) "Code" means the United States Internal Revenue Code of 1986, as
amended from time to time. References to any provision of the Code shall be
deemed to include regulations thereunder and successor provisions and
regulations thereto.
(f) "Committee" means the committee appointed by the Board to
administer the Plan, or if no committee is appointed, the Board.
(g) "Fair Market Value" means with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, provided, however, that (i) if the Stock is listed on an
established securities exchange or quoted in an interdealer quotation system,
the Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading or
quotation) as provided by one of such organizations, and (ii) the Fair Market
Value of Stock on the date on which shares of Stock are first issued and sold
pursuant to a registration statement filed with and declared effective by the
United States Securities and Exchange Commission shall be the public offering
price of the shares so issued and sold, as set forth in the first final
prospectus used in such offering. Notwithstanding the foregoing, the
determination of Fair Market Value shall be made in compliance with the
requirements of applicable laws (including laws that afford favorable tax
treatment to Participants).
(h) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(i) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(j) "Stock" means the Ordinary Share capital, par value $.0001 per
share, of the Company and such other securities as may be substituted for Stock
or such other securities pursuant to Section 4.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by
the Committee. The Committee shall have full and final
authority to take the following actions, in each case subject
to and consistent with the provisions of the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to
each such person;
2
<PAGE>
(iii) to determine the number of Awards to be granted, the
number of shares of Stock to which an Award will relate, the terms and
conditions of any Award granted under the Plan (including, but not
limited to, any exercise price, grant price or purchase price, any
restriction or condition, any schedule for lapse of restrictions or
conditions relating to transferability or forfeiture, exercisability or
settlement of an Award, and waivers or accelerations thereof,
performance conditions relating to an Award, based in each case on such
considerations as the Committee shall determine), and all other matters
to be determined in connection with an Award;
(iv) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price of an
Award may be paid, in cash, Stock, other Awards, or other property, or
an Award may be canceled, forfeited, or surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property payable with
respect to an Award will be deferred either automatically, at the
election of the Committee or at the election of the Participant;
(vi) to determine the rights and restrictions, if any, to
which Stock received upon exercise or settlement of an Award shall be
subject (including lock-ups, rights of first refusal, call rights and
"drag-along" rights), and may condition the delivery of such Stock upon
the execution by the Participant of any agreement (including a
stockholders agreement) providing for such restrictions;
(vii) to prescribe the form of each Award Agreement, which
need not be identical for each Participant;
(viii) to adopt, amend, suspend, waive and rescind such rules
and regulations and appoint such agents as the Committee may deem
necessary or advisable to administer the Plan;
(ix) to correct any defect or supply any omission or reconcile
any inconsistency in the Plan and to construe and interpret the Plan
and any Award, rules and regulations, Award Agreement or other
instrument hereunder; and
(x) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan
Other provisions of the Plan notwithstanding, the Board may perform any
function of the Committee under the Plan. In any case in which the Board is
performing a function of the Committee under the Plan, each reference to the
Committee herein shall be deemed to refer to the Board.
3
<PAGE>
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
by modified by the Committee (subject to Section 8(e)). The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of the Company or any subsidiary
of the Company the authority, subject to such terms as the Committee shall
determine, to perform such functions as the Committee may determine, to the
extent permitted under applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. STOCK SUBJECT TO PLAN.
(a) AMOUNT OF STOCK RESERVED. The total number of shares of Stock that
may be delivered pursuant to the exercise or settlement of all Awards shall not
exceed 40,582,746; PROVIDED, HOWEVER, that shares subject to Awards shall not be
deemed delivered if such Awards are forfeited, expire or otherwise terminate
without delivery of shares to the Participant. If an Award valued by reference
to Stock may only be settled in cash, the number of shares to which such Award
relates shall be deemed to be Stock subject to such Award for purposes of this
Section 4(a). Any shares of Stock delivered pursuant to an Award may consist, in
whole or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's account.
(b) ADJUSTMENTS. In the event that the Committee shall determine that
any recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, Stock dividend or other special, large and non-recurring dividend or
distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock reserved and available for Awards
under Section 4(a), (ii) the number and kind of shares of outstanding Restricted
4
<PAGE>
Stock or other outstanding Award in connection with which shares have been
issued, (iii) the number and kind of shares that may be issued in respect of
other outstanding Awards and (iv) the exercise price, grant price or purchase
price relating to any Award (or, if deemed appropriate, the Committee may make
provision for a cash payment with respect to any outstanding Award). In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including, without
limitation, cancellation of unexercised or outstanding Awards, or substitution
of Awards using stock of a successor or other entity) in recognition of unusual
or nonrecurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any subsidiary or the financial
statements of the Company or any subsidiary, or in response to changes in
applicable laws, regulations, or accounting principles.
5. ELIGIBILITY. Persons who are officers or employees of the Company
and its subsidiaries, and persons who provide consulting or other services to
the Company or its subsidiaries deemed by the Committee to be of substantial
value to the Company, are eligible to be granted Awards under the Plan;
PROVIDED, HOWEVER, that no person who is not an employee of the Company or its
subsidiaries shall be eligible to be granted Awards under the Plan if such
eligibility would result in a violation of applicable law or require the Company
to comply with burdensome securities registration requirements. In addition,
persons who have been offered employment by the Company or any of its
subsidiaries, and persons employed by an entity that the Committee reasonably
expects to become a subsidiary of the Company, are eligible to be granted an
Award under the Plan; PROVIDED, HOWEVER, that such Award shall be canceled if
such person fails to commence such employment, or such entity fails to become a
subsidiary, and no payment of value may be made in connection with such Award
until such person has commenced such employment or until such entity becomes a
subsidiary.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant.
(b) OPTIONS. The Committee is authorized to grant options to purchase
Stock (including "reload" options automatically granted to offset specified
exercises of Options) on the following terms and conditions ("Options"):
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part, the methods by which the exercise price may be paid
or deemed to be paid, the form of such payment, including, without
limitation, cash, Stock, other Awards or awards granted under other
Company plans or other property (including notes or other contractual
obligations of Participants to
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<PAGE>
make payment on a deferred basis, such as through "cashless exercise"
arrangements, to the extent permitted by applicable law), and the
methods by which Stock will be delivered or deemed to be delivered to
Participants.
(iii) TERMINATION OF EMPLOYMENT. The Committee shall determine
the period, if any, during which Options shall be exercisable following
a Participant's termination of employment with the Company and its
subsidiaries. For this purpose, any sale of a subsidiary of the Company
pursuant to which it ceases to be a subsidiary of the Company shall be
deemed to be a termination of employment by any Participant employed by
such subsidiary. Unless otherwise determined by the Committee, (i)
during any period that an Option is exercisable following termination
of employment, it shall be exercisable only to the extent it was
exercisable upon such termination of employment, and (ii) if such
termination of employment is for Cause, all Options held by the
Participant shall immediately terminate.
(iv) SALE OF THE COMPANY. All Options outstanding under the
Plan (including ISOs) shall terminate upon the consummation of any
transaction whereby the Company (or any successor to the Company or
substantially all of its business) becomes a wholly-owned subsidiary of
any corporation, unless such other corporation shall continue or assume
the Plan as it relates to Options then outstanding (in which case such
other corporation shall be treated as the Company for all purposes
hereunder, and, pursuant to Section 4(b), the Committee of such other
corporation shall make appropriate adjustment in the number and kind of
shares of Stock subject thereto and the exercise price per share
thereof to reflect consummation of such transaction). If the Plan is
not to be so assumed, the Company shall notify the Participant of
consummation of such transaction at least ten days in advance thereof.
(v) OPTIONS PROVIDING FAVORABLE TAX TREATMENT. The Committee
may grant Options that may afford a Participant with favorable
treatment under the tax laws applicable to such Participant, including,
but not limited to ISOs (as set forth in Section 6(c)).
(c) ISOS. The Committee is authorized to grant ISOs under the Plan to a
person who is a natural person employed by the Company or a subsidiary thereof
(including employees who are also directors and including persons expected to
become employees, in which case such Option shall be effective as of the date
such person is first treated as an employee for payroll purposes) and who at the
time of grant of the Option is or reasonably expects to be subject to United
States income taxation. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including but
not limited to the requirement that no ISO shall be granted with an exercise
price less than 100% (110% for an individual described in Section 422(b)(6) of
the Code) of the Fair Market Value of a share of Stock on the date of grant and
granted no more than ten years after the effective date of the Plan. Anything in
the Plan to the contrary notwithstanding, no term of the Plan relating to ISOs
shall be interpreted, amended, or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the Plan or any
ISO under Section 422 of the Code, unless requested by the affected Participant.
If Stock acquired by exercise of an ISO is sold or
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<PAGE>
otherwise disposed of within two years after the date of grant of the ISO or
within one year after the transfer of such Stock to the Participant, the holder
of the Stock immediately prior to the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the disposition as the Company may reasonably
require in order to secure any deduction then available against the Company's or
any other corporation's taxable income. Each Option granted as an ISO shall be
designated as such in the Award Agreement relating to such Option.
(d) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
stock appreciation rights on the following terms and conditions ("SARs"):
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant
to whom it is granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value of one share of Stock on the date
of exercise (or, if the Committee shall so determine in the case of any
such right other than one related to an ISO, the Fair Market Value of
one share at any time during a specified period before or after the
date of exercise), over (B) the grant price of the SAR as determined by
the Committee as of the date of grant of the SAR, which, except as
provided in Section 7(a), shall be not less than the Fair Market Value
of one share of Stock on the date of grant.
(ii) OTHER TERMS. The Committee shall determine the time or
times at which an SAR may be exercised in whole or in part, the method
of exercise, method of settlement, form of consideration payable in
settlement, method by which Stock will be delivered or deemed to be
delivered to Participants, whether or not an SAR shall be in tandem
with any other Award, and any other terms and conditions of any SAR.
(e) RESTRICTED STOCK. The Committee is authorized to grant Stock that
is subject to restrictions based on continued employment on the following terms
and conditions ("Restricted Stock"):
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject
to such restrictions on transferability and other restrictions, if any,
as the Committee may impose, which restrictions may lapse separately or
in combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee may determine. Except to
the extent restricted under the terms of the Plan and any Award
Agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock or
the right to receive dividends thereon.
(ii) FORFEITURE. Except as otherwise determined by the
Committee, upon termination of employment or service (as determined
under criteria established by the Committee) during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company;
PROVIDED, HOWEVER, that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture
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<PAGE>
conditions relating to Restricted Stock will be waived in whole or in
part in the event of termination resulting from specified causes.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are registered
in the name of the Participant, such certificates may bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock, the Company may retain physical
possession of the certificate, and the Participant shall have delivered
a stock power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall be
either paid at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of
such dividends, or the payment of such dividends shall be deferred
and/or the amount or value thereof automatically reinvested in
additional Restricted Stock, other Awards, or other investment
vehicles, as the Committee shall determine or permit the Participant to
elect. Stock distributed in connection with a Stock split or Stock
dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or other property
has been distributed, unless otherwise determined by the Committee.
(f) DEFERRED STOCK. The Committee is authorized to grant units
representing the right to receive Stock at a future date subject to the
following terms and conditions ("Deferred Stock"):
(i) AWARD AND RESTRICTIONS. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred
Stock by the Committee (or, if permitted by the Committee, as elected
by the Participant). In addition, Deferred Stock shall be subject to
such restrictions as the Committee may impose, if any, which
restrictions may lapse at the expiration of the deferral period or at
earlier specified times, separately or in combination, in installments
or otherwise, as the Committee may determine.
(ii) FORFEITURE. Except as otherwise determined by the Committee, upon
termination of employment or service (as determined under criteria established
by the Committee) during the applicable deferral period or portion thereof to
which forfeiture conditions apply (as provided in the Award Agreement evidencing
the Deferred Stock), all Deferred Stock that is at that time subject to such
forfeiture conditions shall be forfeited; PROVIDED, HOWEVER, that the Committee
may provide, by rule or regulation or in any Award Agreement, or may determine
in any individual case, that restrictions or forfeiture conditions relating to
Deferred Stock will be waived in whole or in part in the event of termination
resulting from specified causes.
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<PAGE>
(g) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Committee
is authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash under other plans or compensatory
arrangements.
(h) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Awards
entitling the Participant to receive cash, Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of shares of
Stock ("Dividend Equivalents"). Dividend Equivalents may be awarded on a
free-standing basis or in connection with another Award. The Committee may
provide that Dividend Equivalents shall be paid or distributed when accrued or
shall be deemed to have been reinvested in additional Stock, Awards or other
investment vehicles, and subject to such restrictions on transferability and
risks of forfeiture, as the Committee may specify.
(i) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(i) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(i).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with or in substitution for any other
Award granted under the Plan or any award granted under any other plan of the
Company, any subsidiary or any business entity to be acquired by the Company or
a subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Awards granted in addition to or in tandem with other
Awards or awards may be granted either as of the same time as or a different
time from the grant of such other Awards or awards.
(b) TERM OF AWARDS. The term of each Award shall be for such period as
may be determined by the Committee; PROVIDED, HOWEVER, that in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code), and in no event shall an Option that is granted
to a resident of the United Kingdom have a term that exceeds seven years from
the date of its grant.
9
<PAGE>
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
subsidiary upon the grant, exercise or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single payment
or transfer, in installments or on a deferred basis. Such payments may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant or crediting of
Dividend Equivalents in respect of installment or deferred payments denominated
in Stock.
(d) LOAN PROVISIONS. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the requirements of any
applicable securities law, any requirement under any listing agreement between
the Company and any securities exchange or automated quotation system or any
other law, regulation or contractual obligation of the Company until the Company
is satisfied that such laws, regulations, and other obligations of the Company
have been complied with in full. Certificates representing shares of Stock
issued under the Plan will be subject to such stop-transfer orders and other
restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) LIMITATIONS ON TRANSFERABILITY. Awards and other rights under the
Plan will not be transferable by a Participant except by will or the laws of
descent and distribution or to a Beneficiary in the event of the Participant's
death, shall not be pledged, mortgaged, hypothecated or otherwise encumbered, or
otherwise subject to the claims of creditors, and, in the case of ISOs and SARs
in tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; PROVIDED,
HOWEVER, that if permitted by applicable law, such Awards and other rights
(other than ISOs and SARs in tandem therewith) may be transferred to one or more
transferees during the lifetime of the Participant to the extent and on such
terms as then may be permitted by the Committee.
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<PAGE>
(c) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee or other
person the right to be retained in the employ or service of the Company or any
of its subsidiaries, nor shall it interfere in any way with the right of the
Company or any of its subsidiaries to terminate any employee's employment or
other person's service at any time.
(d) TAXES. The Company and any subsidiary is authorized to withhold
from any Award granted or to be settled, any delivery of Stock in connection
with an Award, any other payment relating to an Award or any payroll or other
payment to a Participant amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and
to take such other action as the Committee may deem advisable to enable the
Company and Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Participant's tax
obligations.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Committee's authority to grant
Awards under the Plan without the consent of stockholders or Participants,
except that any such action shall be subject to the approval of the Company's
stockholders at or before the next annual meeting of stockholders for which the
record date is after such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to him
(as such rights are set forth in the Plan and the Award Agreement). The
Committee may waive any conditions or rights under, or amend, alter, suspend,
discontinue, or terminate, any Award theretofore granted and any Award Agreement
relating thereto; PROVIDED, HOWEVER, that, without the consent of an affected
Participant, no such action may materially impair the rights of such Participant
under such Award (as such rights are set forth in the Plan and the Award
Agreement). The Board or the Committee shall also have the authority to
establish separate sub-plans under the Plan with respect to Participants
resident in a particular jurisdiction (the terms of which shall not be
inconsistent with those of the Plan) if necessary or desirable to comply with
the applicable laws of such jurisdiction.
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<PAGE>
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. The grant of an Award
to a Participant shall not confer upon such Participant the right to receive an
additional Award, and there is no obligation for uniformity of treatment of
Participants and employees. No Award shall confer on any Participant any of the
rights of a stockholder of the Company unless and until Stock is duly issued or
transferred and delivered to the Participant in accordance with the terms of the
Award or, in the case of an Option, the Option is duly exercised.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
PROVIDED, HOWEVER, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) GOVERNING LAW. The validity, construction and effect of the Plan,
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of Bermuda, without giving effect to
principles of conflicts of laws, and applicable federal law.
(k) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective
as of the date of its adoption by the Board and approval of the Company's
stockholders, and shall continue in effect until terminated by the Board.
<PAGE>
EXECUTION COPY
================================================================================
FLAG LIMITED,
as Issuer
and
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
------------------------------------
INDENTURE
Dated as of January 30, 1998
------------------------------------
8 1/4% Senior Notes due 2008
================================================================================
<PAGE>
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF JANUARY 30, 1998*/
TRUST INDENTURE INDENTURE SECTION
ACT SECTION
ss.310(a)(1) ................................................ 608
(a)(2) ................................................ 608
(b) ................................................ 609
ss.312(a) ................................................ 701
(c) ................................................ 702
ss.313(a) ................................................ 703
(c) ................................................ 703
ss.314(a)(4) ................................................ 1010(a)
(c)(1) ................................................ 102
(c)(2) ................................................ 102
(e) ................................................ 102
ss.315(a) ................................................ 601(a)
(b) ................................................ 602
(c) ................................................ 601(b)
(d) ................................................ 601(c), 603
ss.316(a)(1)(A) ................................................ 502, 512
(a)(1)(B) ................................................ 513
(b) ................................................ 508
(c) ................................................ 104(d)
ss.317(a)(1) ................................................ 503
(a)(2) ................................................ 504
(b) ................................................ 1003
ss.318(a) ................................................ 111
- ----------
*/ Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS**/
Page
----
{{ Table of Contents will generate here }}
EXHIBITS
Exhibit Form of Supplemental Indenture To Be Delivered by Guarantors
- ----------
**/ Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
i
<PAGE>
INDENTURE, dated as of January 30,1998, between FLAG LIMITED,
a Bermuda company (the "Company"), having its principal office at Richmond
House, 5th Floor, 12 Par-la-Ville Road, Hamilton HMO8 Bermuda, and IBJ SCHRODER
BANK & TRUST COMPANY, a New York banking corporation, as trustee (the
"Trustee"), having its corporate trust office at One State Street, New York, New
York 10004.
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance
of (i) the Company's 8 1/4% Senior Notes due 2008 (the "Senior Notes" or the
"Initial Notes") and (ii) if and when issued in exchange for Senior Notes as
provided in the Registration Agreement, the Company's 8 1/4% Senior Notes due
2008 (the "Exchange Notes") (collectively, the Senior Notes and the Exchange
Notes are referred to herein as the "Notes"), of substantially the tenor and
amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to, and shall be governed by, the provisions of the
TIA, that are required or deemed to be part of and to govern indentures
qualified thereunder.
All things necessary have been done to make the Notes, when
executed and duly issued by the Company and authenticated and delivered
hereunder by the Trustee, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the Holders (as defined herein) thereof, it is mutually covenanted
and agreed, for the equal and proportionate benefit of all Holders of the Notes,
as follows:
ARTICLE 1. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and words in the singular include the plural
as well as the singular, and words in the plural include the singular as well as
the plural;
(b) all other terms used herein which are defined in the TIA,
either directly or by reference therein, or defined by Commission rule and not
otherwise defined herein have the meanings assigned to them therein, and the
terms "cash transaction" and "self-liquidating paper", as used in TIA Section
311, have the meanings assigned to them in the rules of the Commission adopted
under the TIA;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
<PAGE>
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import to this Indenture as a whole and not to any particular
Article, Section or other subdivisions
(e) the word "or" is not exclusive; and
(f) provisions of this Indenture apply to successive events
and transactions.
Certain terms, used principally in Articles Two, Ten, Eleven
and Twelve are defined those Articles.
"ACT", when used with respect to any Holder, shall have the
meaning assigned thereto Section 104.
"ADDITIONAL AMOUNTS" shall have the meaning assigned thereto
in Section 1022.
"ADDITIONAL ASSETS" means (i) any property or assets (other
than Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or a Restricted Subsidiary of the Company; or (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary of the Company; PROVIDED, HOWEVER, that in the case of
clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a
Related Business.
"AFFILIATE"of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"AGENT MEMBERS" shall have the meaning assigned thereto in
Section 306.
"ASSET DISPOSITION" means any sale, lease, transfer, issuance
or other disposition (or series of related sales, leases, transfers, issuances
or dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any Sale/Leaseback Transaction and any sale of receivables and any disposition
by means of a merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) the sale of Cash
Equivalents or Temporary Cash Investments in the ordinary course of business,
(iii) a disposition of inventory (including the disposition of capacity) in the
ordinary course of business, (iv) a disposition of obsolete or worn out
equipment or equipment that is no longer useful in the conduct of the business
of the Company and its Restricted Subsidiaries and that is disposed of in each
case in the ordinary course of business, (v) transactions permitted under
Section 801, (vi) for purposes of Section 1016 only, a disposition subject to
Section 1009, (vii) a disposition of capacity that is traded on a reciprocal
basis pursuant to reciprocal restoration agreements entered into by the Company
in the ordinary course of
2
<PAGE>
business and (viii) dispositions to landing parties pursuant to and in
accordance with the provisions of the C&MA.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale/Leaseback
Transaction by a Person means, as at the time of determination, the present
value (discounted at a rate consistent with accounting guidelines, as determined
in good faith by the responsible accounting officer of such Person) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"AVERAGE LIFE" means, as of the date of determination, with
respect to any Indebtedness, the quotient obtained by dividing (i) the sum of
the products of the numbers of years from the date of determination to the date
of each successive scheduled principal payment of such Indebtedness or
redemption multiplied by the amount of such payment by (ii) the sum of all such
payments.
"BANK INDEBTEDNESS" means any and all amounts, whether
outstanding on the Issue Date or thereafter incurred, payable by the Company
under or in respect of the New Credit Facility and any related notes, collateral
documents, letters of credit and guarantees, including principal, premium, if
any, interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"BOARD OF DIRECTORS" means, as to any Person, the board of
directors of such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, as to any Person, a resolution
adopted by the Board of Directors of such Person or by any duly authorized
committee thereof.
"BUSINESS DAY" means a day other than a Saturday, Sunday or
other day on which commercial banking institutions are authorized or required by
law to close in The City of New York.
"C&MA" means the Construction and Maintenance Agreement, dated
December 14, 1994 between the Company, the landing parties and the other
licensed international carriers purchasing capacity on the Company's fiberoptic
cable system, as the same has been and may be amended, supplemented or otherwise
modified from time to time.
"CAPITAL EXPENDITURES" means, with respect to any Person, for
any period, on a consolidated basis for such Person and its Restricted
Subsidiaries, the aggregate of all expenditures during such period which, as
determined in accordance with GAAP, are required to be included in capacity
available for sale or a fixed asset account.
"CAPITAL STOCK" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"CAPITALIZED LEASE OBLIGATIONS" means an obligation that is
required to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the
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amount of Indebtedness represented by such obligation shall be the capitalized
amount of such obligation determined in accordance with GAAP, and the stated
maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date such lease may be terminated
without penalty.
"CASH EQUIVALENTS" means (i) securities issued or directly and
fully guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's
Ratings, or "A" or the equivalent thereof by Moody's Investors Service. Inc.,
and having capital and surplus in excess of $500 million; (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i), (ii) and (iii) entered into with any bank
meeting the qualifications specified in clause (iii) above; (v) commercial paper
rated at the time of acquisition thereof at least "A-2" or the equivalent
thereof by Standard & Poor's Ratings or "P-2" or the equivalent thereof by
Moody's Investors Service, Inc., or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of investments, and in either case maturing within 270
days after the date of acquisition thereof; and (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"CHANGE OF CONTROL" means the occurrence of any of the
following events:
(i) prior to the first public offering of Voting
Stock of the Company (or its successor by merger, consolidation or
purchase of all or substantially all of its assets), the Permitted
Holders cease to be the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act), directly or indirectly, of at least
a majority of the voting power of the Voting Stock of the Company (or
its successor by merger consolidation or purchase of all or
substantially all of its assets), whether as a result of issuance of
securities of the Company (or its successor by merger, consolidation or
purchase of all or substantially all of its assets), any merger,
consolidation, liquidation or dissolution of the Company (or its
successor by merger, consolidation or purchase of all or substantially
all of its assets), any direct or indirect transfer of securities by
any Permitted Holder or otherwise (for the purposes of this clause, a
Permitted Holder will be deemed to beneficially own any Voting Stock of
a specified corporation held by a parent corporation so long as such
Permitted Holder beneficially owns (as so defined), directly or
indirectly, at least a majority of the voting power of the Voting Stock
of the parent corporation);
(ii) following the first public offering of Voting
Stock of the Company, (A) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that such person
shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 35% of the total
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voting power of the Voting Stock of the Company (or its successor by
merger, consolidation or purchase of all or substantially all of its
assets); and (B) the Permitted Holders "beneficially own" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, in the aggregate a lesser percentage of the total voting
power of the Voting Stock of the Company (or its successor by merger,
consolidation or purchase of all or substantially all of its assets)
than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company or such successor
(for the Purposes of this clause, such other person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person "beneficially owns" (as
defined in clause (A) above), directly or indirectly, more than 35% of
the voting power of the Voting Stock of such parent corporation and the
Permitted Holders "beneficially own" (as defined in this clause (B)),
directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of
such parent corporation); or
(iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by
the shareholders of the Company was approved by a vote of at least a
majority of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved or is a designee of
any one of the Permitted Holders or any combination thereof or was
nominated or elected by any such Permitted Holder or Permitted Holders
or any of their designees) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or
(iv) the adoption of a plan relating to the
liquidation or dissolution of the Company; or
(v) Bell Atlantic Corporation or any one or more
wholly-owned subsidiaries of Bell Atlantic Corporation shall cease, for
any reason, to "beneficially own" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, such number of shares
as constitute in the aggregate at least 20% of the fully diluted total
voting power of the Voting Stock of the Company (or its successor by
merger, consolidation or purchase of all or substantially all of its
assets) as of the Issue Date.
"CODE" means the United States Internal Revenue Code of 1986,
as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" means FLAG Limited, a Bermuda company and any and
all successors thereto.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request
or order signed in the name of the Company by its Chairman of the Board, its
Chief Executive Officer or its Chief Financial Officer (or any other officer
identified by any one of the foregoing officers in a certificate to be an
executive
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officer of the Company) and by its Controller, its Treasurer or its Financial
Manager, and delivered to the Trustee.
"CONSOLIDATED CAPITAL RATIO" of any Person as of any date
means the ratio of (i) the aggregate consolidated principal amount of
Indebtedness of such Person then outstanding to (ii) the greater of (x) the
aggregate consolidated paid-in capital of such Person as of such date and (y)
the Consolidated Net Worth of such Person as of such date, in each case, as
shown on the consolidated balance sheet of such Person in accordance with GAAP.
"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" for any
period means the Consolidated Net Income for such period, plus the following to
the extent deducted in calculating such Consolidated Net Income: (i) income tax
expense, (ii) Consolidated Interest Expense and (iii) Consolidated Non-cash
Charges. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the interest, depreciation and amortization of, a
Restricted Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow Available for Fixed Charges of such Person only
to the extent (and in the same proportion) that the net income of such
Subsidiary was included in Calculating the Consolidated Net Income of such
Person.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the
total interest expense of the Company and its consolidated Subsidiaries, plus,
to the extent not included in such interest expense, (i) interest expense
attributable to Capitalized Lease Obligations and the interest component of rent
expense associated with Attributable Indebtedness in respect of the relevant
lease giving rise thereto, determined as if such lease were a capitalized lease
in accordance with GAAP, (ii) amortization of debt discount and debt issuance
cost, (iii) capitalized interest, (iv) non-cash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) interest actually paid by the
Company or any such Subsidiary under any Guarantee of Indebtedness or other
obligation of any other Person, (vii) net costs associated with Hedging
Obligations, if any (including amortization of fees), (viii) Preferred Stock
dividends in respect of all Preferred Stock of Subsidiaries and Disqualified
Stock of the Company, in each case, held by Persons other than the Company or a
Wholly-Owned Subsidiary and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness incurred by such plan or trust;
PROVIDED, HOWEVER, that there shall be excluded therefrom any such interest
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted Subsidiary. For purposes
of the foregoing, total interest expense shall be determined after giving effect
to any net payments made or received by the Company and its Subsidiaries with
respect to Interest Rate Agreements. Notwithstanding the foregoing, the
Consolidated Interest Expense with respect to any Restricted Subsidiary of the
Company that was not a Wholly-Owned Subsidiary shall be included only to the
extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income.
"CONSOLIDATED NET INCOME" means, for any period, the net
income (loss) of the Company and its consolidated Subsidiaries; PROVIDED,
HOWEVER, that there shall not be included in such Consolidated Net Income: (i)
any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that (A) subject to the limitations contained in (iv) below,
the Company's equity in the net income of any such Person for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to the Restricted
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Subsidiary, to the limitations contained in clause (iii) below) and (B) the
Company's equity in a net loss of any such Person (other than an Unrestricted
Subsidiary) for such period shall be included in determining such Consolidated
Net Income to the extent such loss has been funded with cash from the Company or
a Restricted Subsidiary; (ii) any net income (loss) of any Person acquired by
the Company or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that (A)
subject to the limitations contained in (iv) below the Company's equity in the
net income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in the case of
a dividend to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (loss) realized upon the sale or other disposition of
any property, plant or equipment of the Company or its consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business and any gain realized
upon the sale or other disposition of any Capital Stock of any Person; (v) any
extraordinary gain or loss; and (vi) the cumulative effect of a change in
accounting principles.
"CONSOLIDATED NET WORTH" means the total of the amounts shown
on the balance sheet of the Company and its Restricted Subsidiaries, determined
on a consolidated basis in accordance with GAAP, as of the end of the most
recent fiscal quarter of the Company ending prior to the taking of any action
for the purpose of which the determination is being made, as (i) the aggregate
paid-in capital relating to such Capital Stock plus (ii) any retained earnings
or earned surplus less (A) any accumulated deficit (B) any amounts attributable
to Disqualified Stock.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to the
Company for any period, the aggregate depreciation, amortization and other
non-cash expenses of the Company and the Restricted Subsidiaries (including any
non-cash charges related to any employee stock ownership plan) reducing
Consolidated Net Income of the Company and the Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such charges constituting an extraordinary gain or loss, or any such charge
which requires an accrual of or a reserve for cash charges for any future
period).
"CORPORATE TRUST OFFICE" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at One State Street, New York, New York 10004.
"CT" shall have the meaning assigned thereto in Section 116.
"CURRENCY AGREEMENT" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"DEFAULT" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"DEFAULTED INTEREST" shall have the meaning assigned thereto
in Section 311.
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"DEPOSITARY" means The Depository Trust Company, its nominees
and their respective successors and assigns, or such other depository
institution hereinafter appointed by the Company.
"DISQUALIFIED STOCK" means, with respect to any Person, any
Capital Stock of such Person which by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock (excluding capital stock which is convertible
or exchangeable solely at the option of the Company or a Restricted Subsidiary)
or (iii) is redeemable at the option of the holder thereof, in whole or in part,
in each case on or prior to the Stated Maturity of the Notes, PROVIDED, that
only the portion of Capital Stock which so matures or is mandatorily redeemable,
is so convertible or exchangeable or is so redeemable at the option of the
Holder thereof prior to such Stated Maturity shall be deemed to be Disqualified
Stock.
"EQUITY OFFERING" means an offering for cash by the Company of
its common stock, or options, warrants or rights with respect to its common
stock.
"EVENT OF DEFAULT" shall have the meaning assigned thereto in
Section 501.
"EXCESS CASH FLOW" means, with respect to the Company for any
fiscal year, the amount by which the sum of Consolidated Net Income, other
Consolidated Non-cash Charges reducing Consolidated Net Income, non-cash
accruals or reserves for charges to be paid in a future period, and cash
collections on items which increased Consolidated Net Income in prior periods
and were excluded from the calculation of Excess Cash Flow in prior periods
pursuant to clause (i) herein exceeds the sum of (i) consolidated non-cash items
increasing Consolidated Net Income, plus (ii) Capital Expenditures, plus (iii)
principal payments required to be made or funds required or elected by the
Company to be deposited in a reserve account or accounts by the Company and its
Restricted Subsidiaries pursuant to the New Credit Facility, plus (iv) scheduled
maturities of any Indebtedness of the Company and its Restricted Subsidiaries in
effect as of the Issue Date, plus (v) cash payments made in connection with
accruals or reserves which decreased Consolidated Net Income in prior periods
and were excluded from the calculation of Excess Cash Flow for such prior
periods and plus/minus (vi) the increase/decrease in Working Capital in such
period.
"EXCESS CASH FLOW OFFER" shall have the meaning assigned
thereto in Section 1023.
"EXCESS CASH FLOW PAYMENT DATE" shall have the meaning
assigned thereto in Section 1023.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXISTING AFFILIATE TRANSACTIONS" means the Program Management
Services Agreement dated April 19, 1994, between the Company and NYNEX Network
Systems (or any of NYNEX Network Systems's successors or assignees thereto), the
Marketing Services Agreement dated April 19, 1994, between the Company and Bell
Atlantic Network Systems (Bermuda) Limited and any other agreements with
Affiliates of the Company, existing on the Issue Date and listed on a schedule
to this Indenture.
"FAIR MARKET VALUE" means, with respect to any asset or
property, the sale value that would be obtained in an arm's-length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy, as determined in good
faith by the Board of Directors.
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"FLAG SYSTEM" means the Company's digital fiberoptic cable
system connecting (as of the date hereof) the United Kingdom, Spain, Italy,
Egypt, the United Arab Emirates, India, Malaysia, Thailand, Hong Kong, China,
Korea and Japan, as it may subsequently be reconfigured.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date of this Indenture,
including those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations based on GAAP
contained in this Indenture shall be computed in conformity with GAAP.
"GLOBAL NOTES" shall have the meaning assigned thereto in
Section 201.
"GOVERNMENT OBLIGATIONS" means securities that are (a) direct
obligations (or certificates representing an ownership interest in such
obligations) of the United States of America (including any agency or
instrumentality thereof) for the payment of which the full faith and credit of
the United States of America is pledged, (b) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or (c) obligations of a
Person the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in each case, are not
callable or redeemable at the issuer's option.
"GUARANTEE" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"GUARANTOR" means any Subsidiary of the Company which executes
a Note Guarantee in accordance with the covenant described in Section 1019, and
their respective successors and assigns.
"HEDGING OBLIGATIONS" of any Person means the obligations of
such Person pursuant to any Interest Rate Agreement or Currency Agreement.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a Note
is registered in the Register.
"INCUR" means issue, assume, Guarantee, incur or otherwise
become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of
a Person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary; PROVIDED FURTHER, that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness
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<PAGE>
shall not be deemed an Incurrence of such Indebtedness and that neither the
accrual of interest nor the accretion of original issue discount shall be deemed
an Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any Person on any date
of determination (without duplication), (i) the principal of and premium (if
any) in respect of indebtedness of such Person for borrowed money; (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property (other than property received or owed prior to or on the Issue Date) or
services (except trade payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person; (vi) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary,
any Preferred Stock (but excluding, in each case, any accrued dividends); (vii)
all Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; PROVIDED, HOWEVER,
that the amount of such Indebtedness shall be the lesser of (A) the Fair Market
Value of such asset at such date of determination and (B) the amount of such
Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to
the extent Guaranteed by such Person; and (ix) to the extent not otherwise
included in this definition, net obligations of such Person under Currency
Agreements and Interest Rate Agreements (the amount of any such obligations to
be equal at any time to the termination value of such agreement or arrangement
giving rise to such obligation that would be payable by such Person at such
time). The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; PROVIDED,
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP.
"INDENTURE" means this Indenture as amended or supplemented
from time to time.
"INITIAL PURCHASERS" means Salomon Brothers Inc, Barclays de
Zoete Wedd Limited and Morgan Stanley & Co. Incorporated.
"INTEREST PAYMENT DATE" means the date specified in the Notes
as the fixed date on which any specified scheduled installment of interest on
the Notes is due and payable.
"INTEREST RATE AGREEMENT" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"INVESTMENT" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts payable on the balance sheet of such
Person) or other extension of credit (including by way of Guarantee or similar
arrangement, but excluding any debt or extension of credit represented by a bank
deposit other than a time deposit) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
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<PAGE>
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by, such Person.
For purposes of Section 1009, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in a Restricted Subsidiary to be
designated as an Unrestricted Subsidiary) of the Fair Market Value of the net
assets of such Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time that such Subsidiary is so re-designated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its Fair Market Value at the time of such
transfer, in each case as determined in good faith by the Board of Directors of
the Company.
"ISSUE DATE" means the date on which the Initial Notes are
originally issued.
"LIEN" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof).
"NET AVAILABLE CASH" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring person of Indebtedness or other
obligations relating to the properties or assets that are the subject of such
Asset Disposition or received in any other noncash form) therefrom, in each case
net of (i) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal or
state, if any, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset, Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be repaid out the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made minority interest Holders in Subsidiaries or joint ventures
as a result of such Asset Disposition and (iv) the deduction of appropriate
amounts to be provided by the seller as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed of in such Asset
Disposition and retained by the Company or any Restricted Subsidiary after such
Asset Disposition.
"NET CASH PROCEEDS", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"NEW CREDIT FACILITY" means (i) the Credit Agreement to be
entered into among the Company, Barclays Bank PLC, as Administrative Agent,
International Trust Company of Bermuda Limited, as Collateral Trustee, and the
lenders parties thereto from time to time, as the same may be amended,
supplemented or otherwise modified from time to time and (ii) any renewal,
extension, refunding, restructuring, replacement or refinancing thereof (whether
with the original Administrative Agent and
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lenders or another administrative agent or agents or other lenders and whether
provided under the original Credit Agreement or any other credit or other
agreement or indenture).
"NOTE GUARANTEE" means any guarantee which may from time to
time be executed and delivered by a Subsidiary of the Company pursuant to the
provisions of the covenant described under Section 1019. Each such Note
Guarantee shall be a senior obligation (unless as otherwise allowed pursuant to
the provisions of the covenant described under Section 1019) of such Subsidiary.
"NOTE REGISTER" shall have the meaning ascribed thereto in
Section 305.
"NOTE REGISTRAR" or "REGISTRAR" shall have the meaning
ascribed to either term in Section 305.
"NOTEHOLDERS' PRO RATA SHARE" means a fraction, (i) the
numerator of which is the aggregate principal amount of Notes outstanding on the
date that is two Business Days prior to the date that the applicable Excess Cash
Flow Offer is made, and (ii) the denominator of which is the sum of (x) the
aggregate principal amount of Notes outstanding on such date and (y) the
aggregate principal amount of other Indebtedness (other than Bank Indebtedness)
which requires the Company to apply the applicable Excess Cash Flow to repay or
repurchase such Indebtedness that is outstanding on such applicable date.
"O&M PAYMENTS" means operations and maintenance payments made
to the Company consisting of standby maintenance payments and repair maintenance
payments.
"OFFICER" means the Chairman of the Board, the President, the
Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer, any Vice President, the Treasurer or the Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two
Officers.
"OPINION OF COUNSEL" means a written opinion from legal
counsel who is acceptable to the Trustee (which opinion may be subject to
customary assumptions and exclusions). The counsel may be an employee of or
counsel to the Company or the Trustee.
"PAYING AGENT" means any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Notes on behalf of
the Company. The Company hereby initially appoints the Trustee as Paying Agent
for the Notes.
"PERMITTED HOLDERS" means Bell Atlantic Corporation, Dallah Al
Baraka, Telecom Asia Corporation Public Co. Ltd., Marubeni Corporation, The
Asian Infrastructure Fund, Gulf Associates, AT&T Capital Corporation and GE
Capital Corporation and their respective Affiliates.
"PERMITTED INVESTMENT" means an Investment by the Company or
any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related Business;
(iii)
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Cash Equivalents and Temporary Cash Investments; (iv) receivables owing to the
Company or any Restricted Subsidiary, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; PROVIDED, HOWEVER, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances; (v) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (viii) a
Permitted Joint Venture in an aggregate amount not to exceed $25 million; (ix)
obligations under Interest Rate or Currency Agreements; PROVIDED, HOWEVER, that
such Currency Agreements and Interest Rate Agreements are entered into for bona
fide hedging purposes of the Company or its Restricted Subsidiaries (as
determined in good faith by the Board of Directors or senior management of the
Company) and correspond in terms of notional amount, duration, currencies and
interest rates, as applicable, to Indebtedness of the Company or its Restricted
Subsidiaries on customary terms entered into in the ordinary course of business;
and (x) any Investment by the Company or a Wholly Owned Subsidiary of the
Company in a Receivables Entity or any Investment by a Receivables Entity in any
other Person, in connection with a Qualified Receivables Transaction; PROVIDED
that any Investment in a Receivables Entity is in the form of a Purchase Money
Note or an equity interest.
"PERMITTED JOINT VENTURE" means a corporation, partnership or
other entity engaged in one or more Related Businesses over which the Company
has, directly or indirectly, the power to direct the Policies, management and
affairs.
"PERMITTED LIENS" means:
(i) any Lien on assets of the Company or any
Subsidiary thereof securing only the Notes equally and ratably;
(ii) any Lien arising under this Indenture in favor
of the Trustee or any prior Trustee;
(iii) any Lien existing as of the date of this
Indenture and listed on a schedule hereto;
(iv) any Lien arising by reason of (1) any judgment,
decree or order of any court, so long as such Lien is adequately bonded
and any appropriate legal proceedings which may ha been duly initiated
for the review of such judgment, decree or order shall not have been
finally terminated or the period within which such proceedings may be
initiated shall not have expired; (2) taxes, assessments, governmental
charges or levies not yet delinquent or which are being contested in
good faith; (3) security for payment of workers' compensation or other
insurance; (4) good faith deposits in connection with tenders, leases
and contracts (other than contracts for the payment of money) in the
ordinary course of business; (5) zoning restrictions, easements,
licenses reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title
(and with respect to leasehold interests, mortgages, obligations, liens
and other encumbrances incurred, created, assumed or permitted to exist
and arising by, through or under a landlord or owner of the leased
property, with or without consent of the lessee), none of which
materially impairs the use of
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any parcel of property material to the operation of the business of the
Company or any Subsidiary or the value of such property for the purpose
of such business; (6) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds; (7) certain surveys,
exceptions, title defects, encumbrances, easements, reservations of, or
rights of others, for, rights of way, sewers, electric lines, telegraph
or telephone lines and other similar purposes or zoning or other
restrictions as to the use of real property not interfering with the
ordinary conduct of the business of the Company or any of its
Subsidiaries; or (8) operation of law in favor of mechanics,
materialmen, laborers, employees or suppliers, incurred in the ordinary
course of business for sums which are not yet delinquent or are being
contested in good faith by negotiations or by appropriate proceedings
which suspend the collection thereof;
(v) any Lien securing Indebtedness under the New
Credit Facility incurred by the Company or any Restricted Subsidiary in
compliance with Section 1010;
(vi) Liens securing purchase money Indebtedness,
incurred in compliance with this, Indenture; PROVIDED that such Liens
do not extend to any assets other than the assets so acquired and the
principal amount of such Indebtedness shall at no time exceed the
original purchase price of the property or assets purchased;
(vii) any Lien securing Indebtedness created prior to
(and not created in connection with, or in contemplation of) the
incurrence of such Indebtedness by the Company or any Restricted
Subsidiary, in each case which Indebtedness is permitted under the
provisions of Section 1010; PROVIDED that any such Lien extends only to
the assets that were subject to such Lien securing such Indebtedness
prior to the related transaction by the Company or its Restricted
Subsidiaries;
(viii) any Lien securing Indebtedness incurred
pursuant to clause (vii) of the second paragraph in Section 1010;
(ix) Liens on assets transferred to a Receivables
Entity or on assets of a Receivables Entity, in either case incurred in
connection with a Qualified Receivables Transaction;
(x) Liens incurred on property which is the subject
of a Sale/Leaseback Transaction incurred in compliance with this
Indenture; and
(xi) any extension, renewal, refinancing or
replacement, in whole or in part, of any Lien described in the
foregoing clauses (i) through (x) so long as the amount of security is
not increased thereby.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"PREFERRED STOCK", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
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A "PUBLIC MARKER" exists at any time with respect to the
common stock of the Company, if (i) the common stock of the Company is then
registered with the Commission pursuant to Section 12(b) or 12(g) of Exchange
Act and traded either on a national securities exchange or in the National
Association of Securities Dealers Automated Quotation System and (ii) at least
15% of the total issued and outstanding common stock of the Company has been
distributed prior to such time by means of an effective registration statement
under the Securities Act.
"PURCHASE MONEY NOTE" means a promissory note of a Receivables
Entity evidencing a line of credit, which may be irrevocable, from the Company
or any Subsidiary of the Company in connection with a Qualified Receivables
Transaction to a Receivables Entity, which note shall be repaid from cash
available to the Receivables Entity, other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest, principal and other amounts owing to such Investors and
amounts owing to such investors and amounts paid in connection with the purchase
of receivables.
"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or
series of transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any of its Subsidiaries may sell,
convey or otherwise transfer to (a) a Receivables Entity (in the case of a
transfer by the Company or any of its Subsidiaries) and (b) any other Person (in
the case of a transfer by a Receivables Entity), or may grant a security
interest in, any receivables (whether now existing or arising in the future) of
the Company or any of its Subsidiaries, and any assets related thereto
including, without limitation, all collateral securing such receivables, all
contracts and all guarantees or other obligations in respect of such
receivables, and the proceeds of such receivables.
"RECEIVABLES ENTITY" means a Wholly Owned Subsidiary of the
Company (or another Person in which the Company or any Subsidiary of the Company
may make an Investment and to which the Company or any Subsidiary of the Company
transfers receivables and related assets) which engages in no activities other
than in connection with the financing of receivables and which is designated by
the Board of Directors of the Company (as provided below) as a Receivables
Entity, (a) no portion of the Indebtedness or any other obligations (contingent
or otherwise) of which (i) is guaranteed by the Company or any Subsidiary of the
Company (excluding guarantees of obligations (other than the principal of, and
interest on, Indebtedness) pursuant to Standard Securitization Undertakings),
(ii) is recourse to or obligates the Company or any Subsidiary of the Company in
any way other than pursuant to Standard Securitization Undertakings or (iii)
subjects any property or asset of the Company or any Subsidiary of the Company,
directly or indirectly, contingently or otherwise, to the satisfaction thereof,
other than pursuant to Standard Securitization Undertakings, (b) with which
neither the Company nor any Subsidiary of the Company has any material contract,
agreement, arrangement or understanding other than on terms no less favorable to
the Company or such Subsidiary than those that might be obtained at the time
from Persons that are not Affiliates of the Company, other than fees payable in
the ordinary course of business in connection with servicing receivables, and
(c) to which neither the Company nor any Subsidiary of the Company has any
obligation to maintain or preserve such entity's financial condition or cause
such entity to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the resolution of the Board of
Directors of the Company giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
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"REDEMPTION DATE" means, when used with respect to any Note to
be redeemed, the date fixed for such redemption by or pursuant to this
Indenture.
"REFINANCING" means the collective reference to the issuance
by the Company of the Notes and the entrance into the New Credit Facility and
borrowings thereunder.
"REFINANCING INDEBTEDNESS" means Indebtedness that is Incurred
to refund, refinance replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinance" and "refinances"
and "refinanced" shall have a correlative meaning) any Indebtedness existing on
the date of this Indenture or Incurred in compliance with this Indenture
(including Indebtedness of the Company that refinances Indebtedness of any
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness, PROVIDED, HOWEVER, that (i) the
Refinancing Indebtedness has a stated maturity no earlier than the earlier of
(A) the first anniversary of the Stated Maturity of the Notes and (B) the stated
maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is incurred that
is equal to or greater than the lesser of (A) the Average Life of the Notes and
(B) the Average Life of the Indebtedness being refinanced, (iii) such
Refinancing Indebtedness is Incurred in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal to
(or 101% of, in the case of a refinancing of Notes in connection with a Change
of Control) or less than the sum of the aggregate principal amount (or if issued
with original issue discount, the aggregate accreted value) then outstanding
(plus fees and expenses, including any premium and defeasance costs) of the
Indebtedness being refinanced and (iv) if such Refinancing Indebtedness is
Incurred to refinance any Subordinated Obligations, unless such Refinancing
Indebtedness shall be subordinated to the Notes to at least the same extent as
such Subordinated Obligations.
"REGISTRATION AGREEMENT" means the Registration Agreement
dated as of January 30,1998 between the Company and the Initial Purchasers.
"REGULAR RECORD DATE" means, with respect to any Interest
Payment Date, the January 15 or July 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"RELATED BUSINESS" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Company on
the date of this Indenture.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Subsidiary
leases it from such Person.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHELF REGISTRATION STATEMENT" shall have the meaning assigned
thereto in the Registration Agreement.
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"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"SPECIAL RECORD DATE" shall have the meaning assigned thereto
in Section 311.
"SPECIAL INTEREST PAYMENT DATE" shall have the meaning
assigned thereto in Section 311.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations,
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company which are reasonably customary in securitization of
receivables transactions.
"STATED MATURITY" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
"SUBORDINATED OBLIGATION" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"SUBSIDIARY" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or Indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of the Company.
"SUCCESSOR COMPANY" shall have the meaning assigned thereto in
Section 801.
"TEMPORARY CASH INVESTMENTS" means any of the following: (i)
any Investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or any
agency thereof, (ii) Investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $250 million (or the foreign currency
equivalent thereof) and whose long-term debt, or whose parent holding company's
long-term debt, is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act), (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) Investments in commercial paper, maturing not more than
180 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Ratings, (v) Investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States of
America, or by any political
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subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings or "A" by Moody's Investors Service, Inc. and (vi) Investments in
mutual funds whose investment guidelines restrict such funds' investments to
those satisfying the provisions of clauses (i) through (v) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect the date of this Indenture.
"TRUSTEE" means the party named as such in this Indenture
until a successor replaces and, thereafter, means the successor.
"TRUST OFFICER" means an officer of the Trustee assigned by
the Trustee to administer corporate trust matters or to any other officer of the
Trustee to whom such matter is referred because his knowledge of and familiarity
with the particular subject.
"UNIFORM COMMERCIAL CODE" means the New York Uniform
Commercial Code as in effect from time to time.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the
Company that at the time determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Company or any Restrict
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so
designated has total consolidated assets of $10,000 or 1ess or (B) if such
Subsidiary has consolidated assets greater than $10,000, then such designation
would be permitted under Section 1009. The Board of Directors may designate any
Unrestricted Subsidiary to be Restricted Subsidiary; PROVIDED, HOWEVER, that
immediately after giving effect to such designation (x) the Company could incur
$1.00 of additional Indebtedness under clause (a) of Section 1010 and (y) no
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"VOTING STOCK" of a corporation means all classes of Capital
Stock of such corporation then outstanding and normally entitled to vote in the
election of directors.
"WHOLLY-OWNED SUBSIDIARY" means a Restricted Subsidiary of the
Company, all of the Capital Stock of which (other than directors'qualifying
shares) is owned by the Company or another Wholly-Owned Subsidiary.
"WORKING CAPITAL" means, at any date of designation, the
consolidated assets of the Company and its Restricted Subsidiaries which are
classified as current assets in accordance with GAAP LESS the consolidated
liabilities of the Company and the Restricted Subsidiaries which are classified
as current liabilities in accordance with GAAP; PROVIDED that current assets
shall exclude cash and Equivalents and current liabilities shall exclude any
indebtedness classified as current.
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SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company and any
Guarantor (if applicable) and any other obligor the Notes (if applicable) shall
furnish to the Trustee an Officers' Certificate in form and substance reasonably
acceptable to the Trustee stating that all conditions precedent, if any,
provided for in this Indenture (including any covenant compliance with which
constitutes a condition precedent) relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture to
such particular application or request, no additional certificate or opinion
need be furnished.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1021(a)) shall include:
(1) a statement that each individual or firm signing
such certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such
individual or such firm, he or it has made such examination or
investigation as is necessary to enable him or it to express an
informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company, any
Guarantor (if applicable) or other obligor on the Notes may be based, insofar as
it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company, any Guarantor or
other obligor on the Notes stating that the information with respect to such
factual matters is in the possession of the Company, any Guarantor or other
obligor on the Notes unless such counsel knows, or in the exercise of reasonable
care should know, that the certificate or opinion or representations with
respect to such matters are erroneous.
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Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section 104.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee, deems sufficient.
(c) The principal amount and serial numbers of Notes held by
any Person, and date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so. Notwithstanding TIA Section 316(c),
such record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 30 days prior the
first solicitation of Holders generally in connection therewith and not later
than the date such solicitation is completed. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
Act may be given before or after such record date, but only the Holders of
record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the outstanding Notes shall be computed as of such record
date; PROVIDED that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eight months after
the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind every future
Holder of the same Note and the Holder of every Note
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issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof (including in accordance with Section 310) in respect of anything
done, omitted or suffered to be done by the Trustee, any Paying Agent or the
Company or any Guarantor in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 105. NOTICES, ETC., TO TRUSTEE, THE COMPANY AND ANY
GUARANTOR.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company or
any Guarantor or any other obligor on the Notes shall be sufficient for
every purpose hereunder if in writing and mailed, first-class postage
prepaid, or delivered by hand (including recognized overnight courier),
to or with the Trustee and received at its Corporate Trust Office,
Attention: Corporate Trust Administration.
(2) the Company or any Guarantor by the Trustee or by
any Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, or delivered by hand (including recognized
overnight courier) to the Company or such Guarantor addressed to it and
received at the address of its principal office specified in the first
paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company or such Guarantor.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice.
Neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice mailed to a Holder in the manner herein
prescribed shall be conclusively deemed to have been received by such Holder,
whether or not such Holder actually receives such notice. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
If the Company mails any notice or communication to any
Holder, it shall mail a copy to the Trustee at the same time.
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SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 108. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 109. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 110. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person (other than the parties hereto, any agent and their
successors hereunder and each of the Holders) any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 111. GOVERNING LAW.
THIS INDENTURE AND THE NOTES WILL BE GOVERNED BY, AND
CONSTRUED ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK EXCLUDING (TO THE
GREATEST EXTENT PERMISSIBLE BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE
APPLICATION THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. UPON
THE ISSUANCE OF THE EXCHANGE NOTES OR THE EFFECTIVENESS OF THE SHELF
REGISTRATION STATEMENT, THIS INDENTURE SHALL BE SUBJECT TO THE PROVISIONS OF THE
TRUST INDENTURE ACT THAT ARE REQUIRED TO BE PART OF THIS INDENTURE AND SHALL, TO
THE EXTENT APPLICABLE, BE GOVERNED BY SUCH PROVISIONS.
SECTION 112. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, any date
established for payment of Defaulted Interest pursuant to Section 311 or any
redemption date or Stated Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of principal (or premium, if any) or interest need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date or date established for payment of
Defaulted Interest pursuant to Section 311, Redemption Date, or at the Stated
Maturity of the Notes; PROVIDED that no interest shall accrue for the period
from and after such Interest Payment Date, redemption date or date established
for payment of Defaulted Interest pursuant to Section 311, Stated Maturity of
the Notes, as the case may be, to the next succeeding Business Day.
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SECTION 113. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES, STOCKHOLDERS OR INCORPORATORS.
No director, officer, employee, incorporator or stockholders
of the Company, as such, any Guarantor of the Notes shall have any liability for
any obligations of the Company or such Guarantor under the Notes, this Indenture
or any Guarantee of the Notes or for any claim based on, in respect of, or by
reason of, such obligations or their creations. Each Holder by accepting a Note
waives and releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
SECTION 114. COUNTERPARTS.
This Indenture may be signed in any number of counterparts
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Indenture.
SECTION 115. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Trustee, the Note Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 116. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
To the fullest extent permitted by applicable law, the Company
irrevocably submits to the jurisdiction of any U.S. federal or New York state
court in the Borough of Manhattan, City and State of New York, United States of
America, in any suit or proceeding based on or arising under the Notes or this
Indenture (solely in connection with any such suit or proceeding), and
irrevocably agrees that all claims in respect of such suit or proceeding may be
determined in any such court. The Company irrevocably and fully waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company hereby irrevocably designates and appoints CT Corporation System,
1633 Broadway, New York, New York 10019, U.S.A. ("CT"), as the authorized agent
of the Company upon whom process may be served in any such suit or proceeding,
it being understood that the designation and appointment of CT as such
authorized agent shall become effective immediately without any further action
on the part of the Company. The Company represents that it has notified CT of
such designation and appointment and that CT has accepted the same in writing.
The Company hereby irrevocably authorizes and directs CT to accept such service.
The Company further agrees that service of process upon CT and written notice of
said service to the Company mailed by prepaid registered first class mail or
delivered to CT at its principal office, shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
Nothing herein shall affect the right of the Holders, the Trustee or any Person
representing the Holders or the Trustee to serve process in any other manner
permitted by law. The Company further agrees to take any and all action,
including the execution and filing of any and all such documents and Instruments
as may be necessary to continue such designation and appointment of CT in full
force and effect so long as the Company has any outstanding obligations under
the Notes or this Indenture. To the extent that the Company has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service of note, attachment prior to judgment, attachment in
aid of execution, executor or otherwise) with respect to itself or its property,
the Company hereby irrevocably waives such immunity in respect of its
obligations under the Notes and this Indenture, to the extent permitted by law.
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SECTION 117. CURRENCY INDEMNITY.
U.S. dollars are the sole currency of account and payment for
all sums payable by the Company under or in connection with the Notes, including
damages. Any amount received or recovered in a currency other than dollars
(whether as a result of, or the enforcement of, a judgment or order of a Court
of any jurisdiction, in the winding-up or dissolution of the Company or
otherwise) by any Holder of a Note in respect of any sum expressed to be due to
it from the Company shall only constitute a discharge to the Company to the
extent of the dollar amount which the recipient is able to purchase with the
amount so received or recovered in that other currency on the date of that
receipt or recovery (or, if it is not practicable to make that purchase on that
date, on the first date on which it is practicable to do so). If that dollar
amount is less than the dollar amount expressed to be due to the recipient under
any Note, the Company shall indemnify it against any loss sustained by it as a
result. In any event, the Company shall indemnify the recipient against the cost
of making any such purchase. For the purposes of this Section 117, it will be
sufficient for the Holder of a Note to certify in a satisfactory manner
(indicating the sources of information used) that it would have suffered a loss
had an actual purchase of dollars been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a purchase of dollars
or such date had not been practicable, on the first date on which it would have
been practicable, it being required that the need for a change of date be
certified in the manner mentioned above). These indemnities constitute a
separate and independent obligation from the Company's other obligations, shall
give rise to a separate and independent cause of action, shall apply
irrespective of any indulgence granted by any Holder of a Note and shall
continue in full force and effect despite any other judgment, order, class or
proof for a liquidated amount in respect of any sum due under any Note.
ARTICLE 2. NOTE FORMS
SECTION 201. FORMS GENERALLY.
The Notes and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of certification and such legends or endorsements placed thereon as
may be required to comply with applicable laws or the rules of any securities
exchange or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution of the Notes. Any portion
of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note. Each Note shall be dated
the date of its authentication.
Initial Notes offered and sold to qualified institutional
buyers (as defined in Rule 144A under the Securities Act) ("QIBs") in the United
States of America ("Rule 144A Note") will be issued on the Issue Date in the
form of a permanent global Note, without interest coupons, substantially in the
form set forth in Section 203 (a "Rule 144A Global Note") deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The Rule 144A Global Note
may be represented by more than one certificate, if so required by the
Depositary's rules regarding the maximum principal amount to be represented by a
single certificate. The aggregate principal amount of the Rule 144A Global Note
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
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Initial Notes offered and sold outside the United States of
America ("Regulation S Note" in reliance on Regulation S shall be issued in the
form of a permanent global Note, without interest coupons, substantially in the
form set forth in Section 203 (a "Regulation S Global Note"). The Regulation S
Global Note will be deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The Regulation S Global Note may be represented by more than one
certificate, if so required by the Depositary's rules regarding the maximum
principal amount to be represented by a single certificate. The aggregate
principal amount of the Regulation S Global Note may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
Initial Notes offered and sold to institutional "accredited
investors" (as defined in Rule 501 (a)(1), (2), (3) and (7) under the Securities
Act) ("Institutional Accredited Investors") in the United States of America
("Institutional Accredited Investor Note") will be issued in the form of a
permanent global Note substantially in the form set forth in Section 203 (an
"Institutional Accredited Investor Global Note"). The institutional Accredited
Investor Global Note will be deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The Institutional Accredited Investor Global Note may be
represented by more than one certificate, if so required by the Depositary's
rules regarding the maximum principal amount to be represented by a single
certificate. The aggregate principal amount of the Institutional Accredited
Investor Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depositary
or its nominee, as hereinafter provided.
Exchange Notes exchanged for interests in the Rule 144A Note,
the Regulation S Note and the Institutional Accredited Investor Note will be
issued in the form of a permanent Global Note, without interest coupons,
substantially in the form set forth in Section 203 (an "Exchange Global Note").
The Exchange Global Note will be deposited with the Trustee, as custodian for
the Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The Exchange Global Note may be represented by more than
one certificate, if so required by the Depositary's rules regarding the maximum
principal amount to be represented by a single certificate.
The Rule 144A Global Note, the Regulation S Global Note, the
Institutional Accredited Investor Global Note and the Exchange Global Note are
sometimes collectively herein referred to as the "Global Notes."
The definitive Notes shall be printed, lithographed or
engraved on steel-engraved borders or may be produced in any other manner, all
as determined by the officers of the Company executing such Notes, as evidenced
by their execution of such Notes.
SECTION 202. RESTRICTIVE LEGENDS.
Unless and until (i) an Initial Note is sold under an
effective Registration Statement or (ii) an Initial Note is exchanged for an
Exchange Note in connection with an effective Registration Statement, in each
case pursuant to the Registration Agreement, such Initial Note shall bear the
following legend (the "Private Placement Legend") on the face thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF
ANY
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STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE RE-OFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER, (B)
PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN "ACCREDITED
INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL
AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION
IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE ISSUER'S, THE INITIAL PURCHASERS' AND
THE TRUSTEE'S RIGHT, PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT
TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE.
The Global Notes, whether or not an Initial Note, shall also
bear the following legend on the face thereof:
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
GLOBAL NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER REPRESENTATIVE OF DTC AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
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OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
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SECTION 203. FORM OF NOTE.
No.____ Principal Amount $_______________
CUSIP NO. ______________
8 1/4% Senior Note due 2008
FLAG Limited, a Bermuda company, promises to pay to
________________ or registered assigns, the principal sum of __________________
Dollars on January 30, 2008.
Interest Payment Dates: January 30 and July 30.
Record Dates: January 15 and July 15.
Additional provisions of this Note are set forth on the other
side of this Note.
Dated:
FLAG LIMITED
By:_______________
[Title]
By:_______________
[Title]
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee, certifies
that this is one of the
Notes referred to
in the Indenture.
By______________________________
Authorized Signatory
Dated:
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[FORM OF REVERSE SIDE OF NOTE]
8 1/4% Senior Note due 2008
1. INTEREST
FLAG Limited, a Bermuda company (such company, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount hereof
at the rate per annum shown above.
The Company will pay interest semiannually in cash and in
arrears on January 30 and July 30 of each year, commencing July 30, 1998 to
Holders of record at the close of business on the January 15 and July 15
immediately preceding the Interest Payment Date. Interest on the Notes will
accrue from the most recent date to which interest has been paid on the Notes
or, if no interest has been paid, from January 30, 1998. The Company shall pay
interest on overdue principal and premium, if any, and interest on overdue
installments of interest, to the extent lawful, at a rate per annum equal to the
rate of interest applicable to the Notes. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT
By at least 1 1:00 a.m. Eastern Standard Time on the date on
which any principal, premium, if any, or interest on the Notes is due and
payable, the Company shall irrevocably deposit with the Trustee or the Paying
Agent money sufficient to pay such principal, premium, if any, and/or interest.
The Company will pay interest (except Defaulted Interest) to the Persons who are
registered Holders of Notes at the close of business on the January 15 or JULY
15 next preceding the Interest Payment Date even if the Notes are cancelled,
repurchased or redeemed after the record date and on or before the Interest
Payment Date. Holders must surrender Notes to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Company may pay interest by check payable in
such money. It may mail an interest check to a Holder's registered address.
3. TRUSTEE, PAYING AGENT AND REGISTRAR
Initially, IBJ Schroder Bank & Trust Company, a New York
banking corporation (the "Trustee"), will act as Trustee, Paying Agent and
Registrar. The Company may appoint and change any Paying Agent, Registrar or
co-registrar without notice to any Noteholder. The Company or any of its
Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Notes under an Indenture dated as of
January 30, 1998 (as it may be amended or supplemented from time to time in
accordance with the terms thereof, the "Indenture"), between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. ss.ss. 77aaa77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Notes are subject to all such terms, and
Noteholders are referred to the Indenture and the Act for a statement of those
terms.
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The Notes are general unsecured senior obligations of the
Company limited to $430 million aggregate principal amount (subject to Section
310 of the Indenture). This Note is one of the [Initial]1/ Notes referred to in
the Indenture. The Notes include the Initial Notes and any Exchange Notes issued
in exchange for the Initial Notes pursuant to the Indenture and the Registration
Agreement. The Initial Notes and the Exchange Notes are treated as a single
class of securities under the Indenture. The Indenture imposes certain
limitations on the Incurrence of Indebtedness by the Company and its Restricted
Subsidiaries, the payment of dividends on, and the purchase or redemption of,
Capital Stock of the Company and its Restricted Subsidiaries, certain purchases
or redemptions of Subordinated Indebtedness, the sale or transfer of assets and
Capital Stock of Restricted Subsidiaries, investments of the Company and its
Restricted Subsidiaries and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and its Subsidiaries to restrict
distributions and dividends from Restricted Subsidiaries.
5. OPTIONAL TAX REDEMPTION
The Notes will be subject to redemption at the option of the
Company at any time on and after January 30, 2003 and prior to maturity, in
whole or in part at the following redemption prices (expressed as percentages of
principal amount), plus accrued interest to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant Interest Payment Date):
If redeemed during the 12-month period commencing on January
30 of the years set forth below:
<TABLE>
<CAPTION>
Period Redemption Price
- ------ ----------------
<S> <C>
2003.................................................. 104.125%
2004.................................................. 102.750%
2005.................................................. 101.375%
2006 and thereafter................................... 100.00%
</TABLE>
In addition, at any time and from time to time prior to
January 30, 2001, the Company may redeem in the aggregate up to 33 1/3% of the
original principal amount of the Notes with the proceeds of one or more Equity
Offerings received by the Company so long as there is a Public Market at the
time of such redemption, at a redemption price (expressed as a percentage of
principal amount) of 108.25% plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant Interest Payment Date);
PROVIDED, HOWEVER, that at least 66 2/3% of the original principal amount of the
Notes must remain outstanding after each such redemption.
6. OPTIONAL TAX REDEMPTION
The Notes will be subject to redemption at the option of the
Company or a successor corporation at any time, in whole but not in part, at a
redemption price equal to the principal amount thereof plus accrued and unpaid
interest, if any, to the redemption date if, as a result of any change in or
amendment to the laws or any regulations or ruling promulgated thereunder of (x)
Bermuda or any political subdivision or governmental authority thereof or
therein having power to tax, (y) any jurisdiction, other than the United
- ----------
1/ Include only for the Initial Notes.
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States, from or through which payment on the Notes is made by the Company or a
successor corporation, or its paying agent in its capacity as such or any
political subdivision or governmental authority thereof or therein having the
power to tax or (z) any other jurisdiction, other than the United States, in
which the Company or a successor corporation is organized, or any political
subdivision or governmental authority thereof or therein having the power to tax
or any change in the official application or interpretation of such laws,
regulations or rulings, or any change in the official application or
interpretation of, or any execution of or amendment to, any treaty or treaties
affecting taxation to which such jurisdiction (or such political subdivision or
taxing authority) is a party (a "Change in Tax Law"), which becomes effective on
or after the date of the Indenture, the Company or a successor corporation is or
would be required on the next succeeding Interest Payment Date to pay Additional
Amounts with respect to the Notes, and the payment of such Additional Amounts
cannot be avoided by the use of any reasonable measures available to the Company
or a successor corporation.
In addition, the Notes will be subject to redemption at the
option of the Company at any time, in whole, but not in part, at a redemption
price equal to the principal amount thereof plus accrued and unpaid interest, if
any, to the redemption date if the Person formed by a consolidation or
amalgamation of the Company or into which the Company is merged or to which the
Company conveys, transfers or lease its properties and assets substantially as
an entirety is required pursuant to the Indenture, as a consequence of such
consolidation, amalgamation, merger, conveyance, transfer or lease and as a
consequence of a Change in Tax Law occurring after the date of such
consolidation, amalgamation merger, conveyance, transfer or lease, to pay
Additional Amounts in respect of any tax, assessment or governmental charge
imposed on any Holder.
7. SELECTION
In the case of any partial redemption, selection of the Notes
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
8. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at his registered address. Notes in denominations of principal amount
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued and
unpaid interest on all Notes (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Notes (or such portions thereof) called for redemption.
9. EXCESS CASH FLOW OFFER
If the Company has Excess Cash Flow for any fiscal year
(commencing with fiscal 2001), the Company shall make an offer to purchase on a
Business Day not later than 150 days following the end of such fiscal year, from
all Holders of Notes, up to a maximum principal amount (expressed as a multiple
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of $1,000) of Notes equal to (A) the Noteholders' Pro Rata Share of 50% of such
Excess Cash Flow in such fiscal year, minus (B) the principal amount of Notes
theretofore purchased by the Company in the open market and the principal amount
of Notes theretofore redeemed by the Company pursuant to the Indenture and not
theretofore credited against the Company's obligation to make an Excess Cash
Flow Offer for a prior fiscal year. The purchase price of Notes to be purchased
pursuant to an Excess Cash Flow Offer shall be equal to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the Excess
Cash Flow Payment Date. Notwithstanding the foregoing, the Company will not be
required to make an Excess Cash Flow Offer for any fiscal year if the amount of
such Excess Cash Flow Offer would be less than $5.0 million (which amount shall
be carried forward for purposes of determining whether an Excess Cash Flow Offer
is required with respect to subsequent fiscal years). To the extent an Excess
Cash Flow Offer is not fully subscribed to by Holders of the Notes, the
unsubscribed portion of such Excess Cash Flow may be retained by the Company
and/or used for any purpose, subject to the covenants contained in the
Indenture, and shall be excluded from the calculation of Excess Cash Flow for
any subsequent period.
10. PUT PROVISIONS
(a) Upon the occurrence of a Change of Control, each Holder
will have the right to require the Company to repurchase all or any part of such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on a record date to receive interest
on the relevant Interest payment Date) and (b) upon an Asset Disposition, the
Company may be obligated to make an offer to purchase Notes at par plus accrued
and unpaid interest, if any, thereon, to the date of purchase with a portion of
the Net Available Cash.
11. DENOMINATIONS; TRANSFER; EXCHANGE
The Notes are in registered form without coupons in
denominations of principal amount of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not register the transfer of
or exchange of (i) any Note selected for redemption (except, in the case of a
Note to be redeemed in part, the portion of the Note not to be redeemed) for a
period beginning 15 days before a selection of Notes to be redeemed and ending
on the date of such selection or (ii) any Notes for a period beginning 15 days
before an Interest Payment Date and ending on such Interest Payment Date.
12. PERSONS DEEMED OWNERS
The registered Holder of this Note may be treated as the owner
of it for all purposes.
13. UNCLAIMED MONEY
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment back to the Company, Holders entitled to the
money must look only to the Company and not to the Trustee for payment.
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14. DEFEASANCE
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the Notes
and the Indenture if the Company deposits with the Trustee money or Government
Obligations for the payment of principal and interest on the Notes to redemption
or maturity, as the case may be. The Company in its sole discretion can defease
the Notes.
15. AMENDMENT, WAIVER
Subject to certain exceptions, the Indenture may be amended
with the consent of the Holders of a majority in aggregate principal amount of
the Notes then outstanding and any past default or compliance with any
provisions may be waived with the consent of the Holders of a majority in
aggregate principal amount of the Notes then outstanding. Without the consent of
any Holder, the Company and the Trustee may amend the Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor corporation, partnership, trust or limited liability company of the
obligations of the Company under the Indenture, or to provide for uncertificated
Notes in addition to or in place of certificated Notes, to add Guarantees with
respect to the Notes, to secure the Notes, to add to the covenants of the
Company for the benefit of the Holders or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any Holder or to comply with any requirement of the Commission in
connection with the qualification of the Indenture under the Trust Indenture
Act, or to confirm and evidence the release and discharge of any Guarantee or
Lien with respect to or securing the Notes when such release and discharge is
permitted by and provided for under the Indenture.
16. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) a default
in any payment of interest on any Note when due, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated Maturity,
upon optional redemption, upon required purchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under Article 8
of the Indenture, (iv) the failure by the Company to comply for 30 days after
written notice with any of its obligations under Sections 1009 through 1020 and
1023 of the Indenture (in each case other than a failure to purchase Notes when
required under Section 1015, 1016 or 1023 of the Indenture which shall
constitute an Event of Default under clause (ii) above), (v) the failure by the
Company to comply for 60 days after written notice with its other agreements
contained in the Indenture, (vi) Indebtedness of the Company or any Restricted
Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $5 million, (vii)
certain events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary, (viii) any judgment or decree for the payment of money
(not fully covered by insurance) in excess of $5 million is rendered against the
Company or a Significant Subsidiary and such judgment or decree shall not have
been paid, vacated, discharged, stayed or bonded pending appeal for a period of
60 days after such judgment becomes final and non-appealable. However, a default
under clause (iv) or (v) will not constitute an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Notes notify the Company of the default in writing and the Company
does not cure such default within the time specified in clause (iv) or (v), as
applicable, after receipt of such written notice.
Noteholders may not enforce the Indenture or the Notes except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or
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security. Subject to certain limitations, Holders of a majority in aggregate
principal amount of the outstanding Notes may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Noteholders notice of any
continuing Default or Event of Default (except a Default or Event of Default in
payment of principal or interest) if it determines that withholding notice is in
their interest.
17. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations set forth in the Indenture, the
Trustee under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of Notes and may otherwise deal with and collect
obligations owed to it by the Company or its affiliates and may otherwise deal
with the Company or its affiliates with the same rights it would have if it were
not Trustee.
18. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Notes or the Indenture or for any claim based on, in respect of or by reason
of such obligations or their creation. By accepting a Note, each Noteholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Notes.
19. AUTHENTICATION
This Note shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent acting on its behalf) manually signs the
certificate of authentication on the other side of this Note.
[20. REGISTRATION RIGHTS
The Holder of this Note is entitled to the benefits of the
Registration Agreement, dated as of January __, 1998 (the "Registration
Agreement"), between the Company and the Initial Purchasers named therein. If
(i) within 60 days after the Issue Date, the Exchange Offer Registration
Statement (as defined in the Registration Agreement) or a Shelf Registration
Statement, as the case may be, has not been filed with the Commission (or in the
case of a Shelf Registration Statement required to be filed pursuant to any
change in law or applicable interpretations thereof by the Commission's staff,
within 60 days after publication of the change in law or interpretation); (ii)
within 150 days after the Issue Date, either the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, has not been
declared effective (or in the case of a Shelf Registration Statement required to
be filed pursuant to any change in law or applicable interpretations thereof by
the Commission's staff, if later, within 60 days after publication of the change
in law or interpretation); (iii) within 180 days after the Issue Date, the
Registered Exchange Offer (as defined in the Registration Agreement) has not
been consummated; or (iv) after the Shelf Registration Statement has been
declared effective, such Shelf Registration Statement thereafter ceases to be
effective or usable in connection with resales of Notes or Exchange Notes in
accordance with and during the periods specified in the Registration Agreement
(because either (A) any event occurs as a result of which the related Prospectus
forming part of such Shelf Registration Statement would include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein in the light of the circumstances under which they
were made not misleading or (B) it shall be necessary to amend such Shelf
Registration Statement or supplement the related prospectus, to comply with the
Securities Act or the Exchange Act or the respective rules thereunder) without,
in the case of (A) or (B), being succeeded within 60 days by an amended or an
additional Shelf Registration Statement filed and declared effective (each such
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<PAGE>
event referred to in clauses (i) through (iv) a "Registration Default"), Special
Interest (as defined in the Registration Agreement) will accrue and be payable
semi-annually on the Notes and the Exchange Notes (in addition to the stated
interest on the Notes and the Exchange Notes) from and including the date such
Registration Default occurs to but excluding the date, as applicable, on which
the applicable Registration Statement is filed or is declared effective, the
Registered Exchange Offer is consummated or the Shelf Registration Statement
again becomes effective, as the case may be. During the time that Special
Interest is accruing continuously the rate of such Special Interest shall be
0.25% per annum during the first 30-day period and shall increase by 0.25% per
annum for each subsequent 30-day period, but in no event shall such rate exceed
1.50% per annum in the aggregate regardless of the number of Registration
Defaults. If, after the cure of a Registration Default, there is a subsequent
Registration Default, the Special Interest rate for such subsequent Registration
Default shall initially be 0.25%, regardless of the Special Interest rate in
effect with respect to any prior Registration Default at the time of the cure of
each Registration Default.]2/
21. ABBREVIATIONS
Customary abbreviations may be used in the name of a
Noteholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to
Minors Act).
22. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Noteholder. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
23. GOVERNING LAW
THIS NOTE WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT
PERMISSIBLE BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
The Company will furnish to any Noteholder upon written
request and without charge to the Noteholder a copy of the Indenture. Requests
may be made to:
FLAG Limited
Richmond House, 5th Floor
12 Par-la-Ville Road
Hamilton HM08 Bermuda
Attention of Secretary
- ----------
2/ Include only for the Initial Notes.
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<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint __________________________, as agent to
transfer this Note on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date:__________________ Signature:__________________
Signature Guarantee:________________________________
(Signature must be guaranteed)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Note.
The signature(s) should be guaranteed by an eligible guarantor institution
(bank, stockbroker, savings and loan association and credit union) with
membership in the Securities Transfer Agents Medallion Program ("STAMP") or such
other signature guarantee medallion program as may be approved by the Note
Registrar in addition to or substitution for, STAMP, pursuant to S.E.C. Rule
17Ad-15.
(In connection with any transfer or exchange of any of the Notes evidenced by
this certificate occurring prior to the date that is two years after the later
of the date of original issuance of such Notes and the last date, if any, on
which such Notes were owned by the Company or any Affiliate of the Company, the
undersigned confirms that such Notes are being:
CHECK ONE BOX BELOW:
1 |_| acquired for the undersigned's own account, without transfer;
or
2 |_| transferred to the Company; or
3 |_| transferred pursuant to an effective registration statement
under the Securities Act of 1933, as amended; or
4 |_| transferred pursuant to and in compliance with Rule 144A under
the Securities Act of 1933, as amended; or
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<PAGE>
5 |_| transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933, as amended; or
6 |_| transferred to an institutional "accredited
investor" (as defined in Rule 501(a)(1) (2), (3) or
(7) under the Securities Act of 1933, as amended),
that has furnished to the Company and the Initial
Purchasers a signed letter containing certain
representations and agreements (the form of which
letter appears in Section 308 of the Indenture); or
7 |_| transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933, as amended.
Unless one of the boxes is checked, the Trustee may refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; PROVIDED, HOWEVER, that if box (5), (6) or (7) is
checked, the Trustee or the Company may require, prior to registering any such
transfer of the Notes, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company may
reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended, such as the exemption
provided by Rule 144 under such Act.
-----------------------
Signature
Signature Guarantee:
--------------------------------------------------
(Signature must be guaranteed)
--------------------------------------------------
Signature
The signature(s) should be guaranteed by an eligible guarantor institution
(bank, stockbroker, savings and loan association and credit union) with
membership in STAMP or such other signature guarantee medallion program as may
be approved by the Note Registrar in addition to or substitution for STAMP
pursuant to S.E.C. Rule 17Ad-15].3/
- ----------
3/ Include only for the Initial Notes.
37
<PAGE>
[TO BE ATTACHED TO GLOBAL NOTES)
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have
been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount Signature of
decrease in increase in of this Global Note authorized
Date of Principal Amount Principal Amount following such signatory of Trustee
Exchange of this Global Note of this Global Note decrease or increase or Notes Custodian
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 1015, 1016, or 1023 of the Indenture, check the box:
|_|
If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 1015, 1016 or 1023 of the Indenture, state
the amount in principal amount (must be integral multiple of $1,000): $
Date:_______________________ Signature_______________________________________
(Sign exactly as your name appears on
the other side of the Note)
Signature Guarantee:___________________________________
(Signature must be guaranteed)
The signature(s) should be guaranteed by an eligible guarantor institution
(bank, stockbroker, savings and loan association and credit union) with
membership in STAMP or such other signature guarantee medallion program as may
be approved by the Note Registrar in addition to or substitution for STAMP,
pursuant to S.E.C. Rule 17Ad-15.
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<PAGE>
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL 144A CERTIFICATES]
In connection with any transfer of this Note occurring prior
to the date that is the earlier of the date of an effective Registration
Statement (as defined in the Registration Agreement dated as of January 30,
1998) and January 30, 2000, the undersigned confirms that without utilizing any
general solicitation or general advertising:
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance with
(a) above and documents are being furnished that comply with the
conditions of transfer set forth in this Note and the Indenture.
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date:________________________ _____________________________________________
SIGNATURE: The signature must correspond with
the name as written upon the face
of the within-mentioned instrument
in every particular, without
alteration or any change
whatsoever.
Signature Guarantee:_____________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Date:________________________ _____________________________________________
SIGNATURE: To be executed by an executive
officer.
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<PAGE>
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication shall be in
substantially the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Notes referred to in the within-mentioned
Indenture.
IBJ Schroder Bank & Trust Company,
as Trustee
By__________________________________
Authorized Signatory
Dated:_________________
ARTICLE 3. THE NOTES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is limited to $430 million,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes pursuant to Section 304, 305,
306, 307, 310, 906, 1015, 1016 or 1108 or pursuant to the Registration
Agreement.
The Initial Notes shall be known and designated as the "8 1/4%
Senior Notes due 2008" and the Exchange Notes shall be known as the "8 1/4%
Senior Exchange Notes due 2008" of the Company. The Stated Maturity of the Notes
shall be January 30, 2008, and they shall bear interest at the rate of 8 1/4%
per annum from January 30, 1998, or from the most recent Interest Payment Date
to which interest has been paid or duly provided for, payable semiannually in
cash and in arrears on January 30 and July 30 of each year, commencing July 30,
1998, to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the January 15 and July 15 immediately
preceding the Interest Payment Date. Interest will be computed until the
principal thereof is paid or duly provided for. Interest on any overdue
principal, interest (to the extent lawful) or premium, if any, shall be payable
on demand.
The principal of, premium, if any, and interest on the Notes
shall be payable at the office or agency of the Company maintained for such
purpose in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee in New York, New York) except that,
at the option of the Company, payment of interest may be made by check mailed to
the address of each Holder as such address appears in the Note Register.
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<PAGE>
Holders shall have the right to require the Company to
purchase their Notes, in whole or in part, in the event of (i) a Change of
Control, pursuant to Section 1015 and (ii) the existence of Excess Cash Flow
pursuant to Section 1023.
The Notes shall be subject to repurchase by the Company
pursuant to an Asset Disposition as provided in Section 1016.
The Notes shall be redeemable as provided in Article Eleven
and in the Notes.
At the election of the Company, the Company's obligations
under the Notes or certain of the Company's liabilities and covenants and
certain Events of Default thereunder may be defeased as provided in Article
Twelve.
The Notes will be senior unsecured obligations of the Company,
ranking PARI PASSU in right of payment with all other existing and future senior
unsecured obligations of the Company and will rank senior in right of payment to
all existing and future subordinated indebtedness of the Company, if any.
SECTION 302. DENOMINATIONS.
The Notes shall be issuable only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple of $1,000.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Notes shall be executed on behalf of the Company by two
Officers, of which at least one Officer shall be the President or the Chief
Financial Officer of the Company. The signature of any Officer on the Notes may
be manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Notes or did
not hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Initial Notes executed by
the Company to the Trustee for authentication, together with a Company Order
directing the Trustee to authenticate the Notes, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Initial Notes. On
Company Order, the Trustee shall authenticate for original issue Exchange Notes
in an aggregate principal amount not to exceed $430 million; provided that such
Exchange Notes shall be issuable only upon the valid surrender for cancellation
of Initial Notes of a like aggregate principal amount in accordance with the
Registration Agreement. The Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company that it may reasonably
request in connection with such authentication of Notes. Such order shall
specify the Amount of Notes to be authenticated and the date on which the
original issue of Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
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<PAGE>
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the Notes
authenticated or delivered prior to such consolidation, merger, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Notes executed in the name of the
successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Notes surrendered
for such exchange and of like principal amount; and the Trustee, upon Company
Request of the successor Person, shall authenticate and deliver Notes as
specified in such request for the purpose of such exchange. If Notes shall at
any time be authenticated and delivered in any new name of a successor Person
pursuant to this Section 303 in exchange or substitution for or upon
registration of transfer of any Notes, such successor Person, at the option of
the Holders but without expense to them, shall provide for the exchange of all
Notes at the time outstanding for Notes authenticated and delivered in such new
name.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes on behalf of the Trustee. Unless limited by
the terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Note Registrar or Paying Agent
to deal with the Company and its Affiliates.
SECTION 304. TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed typewritten, mimeographed or
otherwise produced, in any authorized denomination. Temporary Notes shall be
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Notes may determine, as conclusively
evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company designated for such purpose pursuant to Section 1002, without
charge to the Holders. Upon, surrender for cancellation of any one or more
temporary Notes, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
43
<PAGE>
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND
EXCHANGE.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers and exchanges of Notes. The Note Register
shall be in written form or any other form capable of being converted into
written form within a reasonable time. At all reasonable times, the Note
Register shall be open to inspection by the Trustee. The Trustee is hereby
initially appointed as security registrar (the Trustee in such capacity,
together with any successor of the Trustee in such capacity, the "Note
Registrar" or "Registrar") for the purpose of registering Notes and transfers
and exchanges of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denomination or denominations of a like aggregate principal amount.
Furthermore, any Holder of a Global Note shall, by acceptance
of such Global Note, agree that transfers of beneficial interests in such Global
Note may be effected only through a book-entry system maintained by the Holder
of such Global Note (or its agent), and that ownership of a beneficial interest
in the Note shall be required to be reflected in a book entry.
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denomination and of a like aggregate principal amount,
upon surrender of the Notes to be exchanged at such office or agency. Whenever
any Notes are so surrendered for exchange (including an exchange of Initial
Notes for Exchange Notes), the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled to receive; PROVIDED that no exchange of Initial Notes for Exchange
Notes shall occur until an Exchange Offer Registration Statement shall have been
declared effective by the Commission, the Trustee shall have received an
Officers' Certificate confirming that the Exchange Offer Registration Statement
has been declared effective by the Commission and the Initial Notes to be
exchanged for the Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Note
Registrar) be duty endorsed, or be accompanied by a written Instrument of
transfer, in form satisfactory to the Company and the Note Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith, other than exchanges pursuant to Section 304,
906, 1015, 1016 or 1108, not involving any transfer.
44
<PAGE>
The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the selection of Notes to be redeemed under Section 1104
and ending at the close of business on the day of such mailing of the relevant
notice of redemption or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
The Register shall be in written form in the English language
or in any other form including computerized records, capable of being converted
into written form within a reasonable time.
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES.
(a) Each Global Note initially shall (i) be registered in the
name of the Depositary for such Global Note or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of beneficial interest in any Note.
(b) Transfers of a Global Note shall be limited to transfers
of such Global Note in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in a Global Note
may be transferred in accordance with the rules and procedures of the Depositary
and the provisions of Section 307. If required to do so pursuant to any
applicable law or regulation, beneficial owners may obtain Notes in definitive
form ("Physical Notes") in exchange for their beneficial interests in a Global
Note upon written request in accordance with the Depositary's and the
Registrar's procedures. If (i) (x) the Depositary notifies the Company and the
Company notifies the Trustee in writing that the Depositary is no longer willing
or able to act as Depositary or (y) the Depositary ceases to be registered as a
clearing agency under the Exchange Act, and a successor depositary is not
appointed within 90 days of such notice or cessation or, (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of Physical Notes hereunder or (iii) an Event of Default has occurred and is
continuing and the Note Registrar has received a request from the Depositary,
then, upon surrender by the Depositary of the Global Notes, certificated Notes
will be issued to each person that the Depositary identifies as the beneficial
owner of the Notes represented by the Global Notes. Neither the Company, any
Guarantor, nor the Trustee shall be liable for any delay by the Depositary or
any participant or indirect participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from the Depositary for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Notes to be issued).
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in another
Global Note will, upon transfer, cease to be an interest in the first Global
Note and, accordingly, will be subject to all transfer restrictions, if any, and
other
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procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
(d) In connection with any transfer of a portion of the
beneficial interest in a Global Note pursuant to subsection (b) of this Section
to beneficial owners who are required to hold Physical Notes, the Note Registrar
shall reflect on its books and records the date and a decrease in the principal
amount of such Global Note in an amount equal to the principal amount of the
beneficial interest in the Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more Physical
Notes of like tenor and amount.
(e) In connection with the transfer of an entire Global Note
to be beneficial owners pursuant to subsection (b) of this Section, such Global
Note shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in such Global Note, an equal aggregate principal amount of Physical
Notes of authorized denominations.
(f) Any Physical Note delivered in exchange for an interest in
a Global Note pursuant to subsection (d) or subsection (e) of this Section
shall, unless such exchange is made on or after the Resale Restriction
Termination Date and except as otherwise provided in Section 307, bear the
applicable legend regarding transfer restrictions applicable to the Physical
Note set forth in Section 202.
(g) The registered Holder of a Global Note may grant proxies
and otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take an, action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 307. SPECIAL TRANSFER PROVISIONS.
(a) The following provisions shall apply with respect to any
proposed transfer of a Rule 144A Note or an Institutional Accredited Investor
Note prior to the expiration of the Resale Restriction Termination Date (as
defined in Section 202 hereof):
(i) a transfer of a Rule 144A Note or an
Institutional Accredited Investor Note or a beneficial interest therein
to a QlB shall be made upon the representation of the transferee that
it is purchasing the Note for its own account or an account with
respect to which it exercises sole investment discretion and that it
and any such account is a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A;
(ii) a transfer of a Rule 144A Note or an
Institutional Accredited Investor Note or a beneficial interest therein
to an Institutional Accredited Investor shall be made upon receipt by
the Company and the Initial Purchasers of a certificate substantially
in the form set forth in Section 308 hereof from the proposed
transferee and, if requested by the Company, the Initial Purchasers or
the Trustee, the delivery of an opinion of counsel, certification
and/or other information satisfactory to each of them; and
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(iii) a transfer of a Rule 144A Note or an
Institutional Accredited Investor Note or a beneficial interest therein
to a Non-U.S. Person shall be made upon receipt by the Trustee or its
agent of a certificate substantially in the form set forth in Section
309 hereof from the proposed transferee and, if requested by the
Company or the Trustee, the delivery of an opinion of counsel,
certification and/or other information satisfactory to each of them.
(b) The following provisions shall apply with respect to any
proposed transfer of a Regulation S Note prior to the expiration of the
Restricted Period (as defined in Regulation S of the Securities Act):
(i) a transfer of a Regulation S Note or a beneficial
interest therein to a QIB shall be made upon the representation of the
transferee that it is purchasing the Note for its own account or an
account with respect to which it exercises sole investment discretion
and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that has received such information regarding the Company
as it has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided Rule 144A;
(ii) a transfer of a Regulation S Note or a
beneficial interest therein to an Institutional Accredited Investor
shall be made upon receipt by the Company and the Initial Purchasers of
a certificate substantially in the form set forth in Section 308 hereof
from the proposed transferee and, if requested by the Company, the
Initial Purchasers or the Trustee, the delivery of an opinion of
counsel, certification and/or other information satisfactory to each of
them; and
(iii) a transfer of a Regulation S Note or a
beneficial interest therein to a Non-U.S. Person shall be made upon, if
requested by the Company or the Trustee, receipt by the Trustee or its
agent of an opinion of counsel, certification and/or other information
satisfactory to each of them.
After the expiration of the Restricted Period, interests in
the Regulation S Note may be transferred without requiring certification set
forth in Section 308 or any additional certification.
(c) Upon the transfer, exchange or replacement of Notes not
bearing the Private Placement Legend, the Note Registrar shall deliver Notes
that do not bear the Private Placement Legend. Upon the transfer, exchange or
replacement of Notes bearing the Private Placement Legend, the Note Registrar
shall deliver only Notes that bear the Private Placement Legend unless there is
delivered to the Note Registrar an Opinion of Counsel reasonably satisfactory to
the Company and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.
(d) By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
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The Note Registrar shall retain copies of all letters, notices
and other written communications received pursuant to Section 306 or this
Section 307. The Company shall have the right to inspect and make copies of all
such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Note Registrar.
(e) (i) The Trustee shall have no responsibility or obligation
to any beneficial owner of a Global Note, a member of, or a participant in the
Depositary or other Person with respect to any ownership interest in the Notes,
with respect to the accuracy of the records of the Depositary or its nominee or
of any participant or member thereof or with respect to the delivery to any
participant, member, beneficial owner or other Person (other than the
Depositary) of any notice (including any notice of redemption) or the payment of
any amount, under or with respect to such Notes. All notices and communications
to be given to the Holders and all payments to be made to Holders under the
Notes shall be given or made only to the registered Holders (which shall be the
Depositary or its nominee in the case of a Global Note). The rights of
beneficial owners in any Global Note in global form shall be exercised only
through the Depositary subject to the applicable rules and procedures of the
Depositary. The Trustee may rely and shall be fully protected and indemnified
pursuant to Section 607 in relying upon information furnished by the Depositary
with respect to any beneficial owners, its members and participants.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer imposed
under this Indenture or under applicable law with respect to any transfer of any
interest in any Note (including without limitation any transfers between or
among Depositary participants, members or beneficial owners in any Global Note)
other than to require delivery of such certificates and other documentation of
evidence as are expressly required by, and to do so if and when expressly
required by, the terms of this Indenture, and to examine the same to determine
substantial compliance as to form with the express requirements hereof.
SECTION 308. FORM OF LETTER TO BE DELIVERED IN CONNECTION WITH
TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS.
FLAG Limited
Richmond House
5th Floor
12 Par-La-Ville Road
Hamilton, HM 08
Bermuda
and
Salomon Brothers Inc
Barclays de Zoete Wedd Limited
Morgan Stanley & Co. Incorporated
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
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Dear Sirs:
In connection with our proposed purchase of $ aggregate principal
amount of the 8 1/4% SeniOR Notes due 2008 (the "Notes") of FLAG Limited, a
Bermuda company (the "Company"), we confirm that:
1. We understand that the Notes have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, unless so
registered, may not be sold except as permitted in the following sentence. We
agree on our own behalf and on behalf of any investor account for which we are
purchasing Notes to offer, sell or otherwise transfer such Notes prior to the
date which is two years after the later of the date of original issue and the
last date on which the Company or any affiliate of the Company was the owner of
such Notes (or any predecessor thereto) (the "Resale Restriction Termination
Date") only (A) to the Company, (B) pursuant to a registration statement that
has been declared effective under the Securities Act, (C) for so long as the
Notes are eligible for resale pursuant to Rule 144A under the Securities Act
("Rule 144A"), to a person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (D) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (E)
to an institutional "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act that is purchasing for its own account
or for the account of such an institutional "accredited investor," in each case,
in a minimum principal amount of $250,000, or (F) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or accounts
be at all times within our or their control. The foregoing restrictions on
resale will not apply subsequent to the Resale Restriction Termination Date. If
any resale or other transfer of the Notes is proposed to be made pursuant to
clause (E) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the form
of this letter to the Company and the Initial Purchased (as defined in the
Indenture relating to the Notes), which shall provide, among other things, that
the transferee is an institutional "accredited investor" within the meaning of
Rule 501 (a)(1), (2), (3) or (7) under the Securities Act and that it is
acquiring such Notes for investment purposes and not for distribution in
violation of the Securities Act. Each purchaser acknowledges that the Company,
the Initial Purchasers and the Trustee (as defined in the Indenture relating to
the Notes) reserve the right prior to the offer, sale or other transfer prior to
the Resale Termination Date of the Notes pursuant to clause (D), (E) or (F)
above to require the delivery of an opinion of counsel, certifications or other
information satisfactory to Company, the Initial Purchasers and the Trustee.
2. We are an institutional investor and are an "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) and we have such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of our investment in the
Notes, and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
3. We are acquiring the Notes in a minimum principal amount of
$250,000 purchased by us for our own account or for one or more investor
accounts as to each of which we exercise sole investment discretion and we are
acquiring such Notes for investment purposes and not for distribution in
violation of the Securities Act.
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4. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
---------------------------------
(Name of Purchaser)
By:
------------------------------
Date:
----------------------------
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SECTION 309. FORM OF LETTER TO BE DELIVERED IN CONNECTION WITH
TRANSFERS PURSUANT TO REGULATIONS.
[date]
IBJ Schroder Bank & Trust Company, as Trustee
One State Street
New York, New York 10004
Attention: Corporate Trust Administration
Re: FLAG Limited (the "Company")
8 1/4% Senior Notes due 2008 (the "Notes")
------------------------------------------
Ladies and Gentlemen:
In connection with our sale of $________ aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, we represent that:
(a) the offer of the Notes was not made to a person in the
United States;
(b) either (i) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States or (ii) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(c) no directed selling efforts were made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(d) the transaction was not part of a plan or scheme to evade
the registration requirements of the Securities Act.
In addition, if the sale was made during a restricted period
and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are
applicable thereto, we confirm that such sale was made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(1).
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You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:__________________________ ________________________
Authorized Signature Signature Medallion Guaranteed
SECTION 310. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If (i) any mutilated Note is surrendered to the Trustee, or
(ii) the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered by the Company,
any Guarantor (if applicable) and the Trustee such security or indemnity, in
each case, as may be required by them to save each of them harmless, then, in
the absence of notice to the Company, any Guarantor or the Trustee that such
Note has been acquired by a bona fide purchaser, the Company shall execute, and
upon Company Order the Trustee shall authenticate and deliver, in exchange for
any such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a
new Note of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, any Guarantor and other
obligor upon the Notes, whether or not the mutilated, destroyed, lost or stolen
Note shall be at any time enforceable by anyone, and shall be entitled to all
benefits of this Indenture equally and proportionately with any and all other
Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 311. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Note (or one or more predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 1002;
PROVIDED, HOWEVER, that each
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installment of interest may at the Company's option be paid by (i) mailing a
check for such interest, payable to or upon the written order of the Person
entitled thereto pursuant to Section 312, to the address of such Person as it
appears in the Note Register or (ii) wire transfer to an account located in the
United States maintained by such Person.
Any interest on any Note which is payable, but is not paid
when the same becomes due and payable and such nonpayment continues for a period
of 30 days shall forthwith cease to be payable to the Holder on the Regular
Record Date by virtue of having been such Holder, and such defaulted interest
and (to the extent lawful) interest on such defaulted interest at the rate borne
by the Notes (such defaulted interest and interest thereon herein collectively
called "Defaulted Interest") shall be paid by the Company, at its election in
each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes are registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest,
which shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid on
each Note and the date of the proposed payment (the "Special Interest Payment
Date"), and at the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a
record date (the "Special Record Date") for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior to
the Special Interest Payment Date and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date and Special Interest Payment Date
therefor to be given in the manner provided for in Section 106, not less than 10
days prior to such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date and Special Interest Payment Date
therefor having been so given, such Defaulted Interest shall be paid on the
Special Interest Payment Date to the Persons in whose names the Notes are
registered at the close of business on such Special Record Date and may no
longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 312. PERSONS DEEMED OWNERS.
Prior to the due presentment of a Note for registration of
transfer, the Company, the Trustee and any agent of the Company, any Guarantor
or the Trustee may treat the Person in whose name such Note is registered as the
owner of such Note for the purpose of receiving payment of principal of (and
premium,
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if any) and (subject to Sections 305 and 311) interest on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and none of the
Company, any Guarantor, the Trustee nor any agent of the Company, any Guarantor
or the Trustee shall be affected by notice to the contrary.
SECTION 313. CANCELLATION.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. If the
Company shall acquire any of the Notes other than as set forth in the preceding
sentence, the acquisition shall not operate as a redemption or satisfaction of
the Indebtedness represented by such Notes unless and until the same are
surrendered to the Trustee for cancellation pursuant to the Section 313. No
Notes shall be authenticated in lieu of or in exchange for any Notes cancelled
as provided in this Section, except as expressly permitted by this Indenture.
All cancelled Notes held by the Trustee shall be destroyed by the Trustee and
the Trustee shall send a certificate of such destruction to the Company.
SECTION 314. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
SECTION 315. CUSIP NUMBERS.
The Company in issuing Notes may use "CUSIP" numbers (if then
generally in use) in addition to serial numbers; if so, the Trustee shall use
such "CUSIP" numbers in addition to serial numbers in notices of redemption and
repurchase as a convenience to Holders; PROVIDED that any such notice may state
that no representation is made as to the correctness of such CUSIP numbers,
either as printed on the Notes or as contained in any notice of a redemption or
repurchase and that reliance may be placed only on the serial or other
identification numbers printed on the Notes, and any such redemption or
repurchase shall not be affected by any defect in or omission of such CUSIP
numbers. The Company will promptly notify the Trustee of any change in the CUSIP
numbers.
ARTICLE 4. SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Notes expressly provided for herein or pursuant hereto) and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture when
(i) either
(A) all Notes theretofore authenticated and
delivered (other than (1) Notes which have been lost, stolen
or destroyed and which have been replaced or paid as provided
in Section 310 and (2) Notes for whose payment money has
theretofore been deposited in trust with the Trustee or any
Paying Agent or segregated and held in trust by
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the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(B) all Notes not theretofore delivered to the
Trustee for cancellation
(1) have become due and payable by reason of
the making of a notice of redemption or otherwise; or
(2) will become due and payable at their
Stated Maturity within one year; or
(3) are to be called for redemption within
one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the
Company,
and the Company in the case of (1), (2) or (3) above, has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount in
cash or Government Obligations sufficient to pay and discharge
the entire indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal of
(and premium, if any) and interest to the date of such deposit
(in the case of Notes which have become due and payable) or to
the Stated Maturity or Redemption Date thereof, as the case
may be;
(ii) no Default or Event of Default with respect to
this Indenture or the Notes shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and
such deposit will not result in a breach or violation of, or constitute
a default under, any other instrument or agreement to which the Company
or any Guarantor of the Notes is a party or by which it is bound;
(iii) the Company or any Guarantor has paid or caused
to be paid all sums payable hereunder by the Company or any Guarantor
in connection with all the Notes including all fees and expenses of the
Trustee;
(iv) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the
payment of such Notes at maturity or the Redemption Date, as the case
may be; and
(v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture and the termination of the Company's
obligation hereunder have been satisfied.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 607 and,
if money shall have been deposited with the Trustee Pursuant to subclause (B) of
clause (i) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive any such satisfaction and
discharge.
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SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee Pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
If the Trustee or Paying Agent is unable to apply any money or
Government Obligations in accordance with this Section by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and any Guarantor's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 401; PROVIDED that if the Company has made any payment of principal of,
premium, if any, or interest on any Notes because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money or Government Obligations held
by the Trustee or Paying Agent.
ARTICLE 5. REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) a default in any payment of interest on any Note
when due, continued for 30 days;
(ii) a default in the payment of principal of any
Note when due at its Stated Maturity upon optional redemption, upon
required purchase, upon declaration or otherwise;
(iii) the failure by the Company to comply with its
obligations under Article Eight;
(iv) the failure by the Company to comply for 30 days
after the notice specified below with any of its obligations under
Sections 1009 through 1020 and 1023 (in each case other than a failure
to purchase Notes when required under Sections 1015, 1016 and 1023
which shall constitute an Event of Default under clause (ii) above);
(v) the failure by the Company to comply for 60 days
after the notice specified below with any of its other agreements
contained in this Indenture;
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(vi) Indebtedness of the Company or any Restricted
Subsidiary is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default
and the total amount of such Indebtedness unpaid or accelerated exceeds
$5 million;
(vii) (1) the Company or any Significant Subsidiary
pursuant to or within the meaning of any bankruptcy law:
(A) commences a voluntary case;
(B) consents to the entry of an order for
relief against it in an involuntary case:
(C) consents to the appointment of a
custodian of it or for any substantial part of its property;
(D) makes a general assignment for the
benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(2) a court of competent jurisdiction enters an order
or decree under any bankruptcy law that:
(A) is for relief against the Company or any
Significant Subsidiary in an involuntary case;
(B) appoints a custodian of the Company or
any Significant Subsidiary or for any substantial part of its property;
or
(C) orders the winding up or liquidation of
the Company or any Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or decree
remains unstayed and in effect for 90 days; or
(viii) any judgment or decree for the payment of
money (not fully covered by insurance) in excess of $5 million is
rendered against the Company or a Significant Subsidiary and such
judgment or decree shall not have been paid, vacated, discharged,
stayed or bonded pending appeal for a period of 60 days after such
judgment becomes final and non-appealable.
A Default under clause (iv) or (v) will not constitute an
Event of Default until the Trustee of the Holders of at least 25% in aggregate
principal amount of the outstanding Notes notify the Company of the Default in
writing and the Company does not cure such Default within the time specified in
clause (iv) or (v), as applicable, after receipt of such notice. Such notice
must specify the Default, demand that is to be remedied and state that such
notice is a "Notice of Default."
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SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND
ANNULMENT.
If an Event of Default (other than by reason of an Event of
Default specified in Section 501 (vii) occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the outstanding
Notes by written notice to the Company and the Trustee may declare the principal
of, and accrued interest on, all the Notes to be due and payable. Upon such a
declaration, such principal and accrued and unpaid interest shall be due and
payable immediately. Notwithstanding the foregoing, in the case an Event of
Default specified in Section 501 (vii) occurs and is continuing, then the
principal of and accrued and unpaid interest on all the Notes will become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders.
The Holders of a majority in aggregate principal amount of the
outstanding Notes by notice to the Trustee may rescind any such acceleration
with respect to the Notes and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of acceleration. The Trustee may rely upon such notice of
rescission without any independent investigation as to the satisfaction of the
conditions in the preceding sentence. No such rescission shall affect subsequent
any Default or Event of Default or impair any right consequent thereto.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE.
If an Event of Default specified in Section 501(i) or 501(ii)
occurs and is continuing, the Trustee, in its own name as trustee of an express
trust, may institute a judicial proceeding for the collection of the sums so due
and unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any Guarantor (in accordance with the
applicable Guarantee of the Notes) or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company, any Guarantor or any other obligor upon
the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders under this Indenture or any Guarantee of the Notes by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, including seeking recourse against any
Guarantor pursuant to the terms of any Guarantee of the Notes, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy
including, without limitation, seeking recourse against any Guarantor pursuant
to the terms of a Guarantee of the Notes, or to enforce any other proper remedy,
subject however to Section 513. No recovery of any such judgment upon any
property of the Company or any Guarantor shall affect or impair any rights
powers or remedies of the Trustee or the Holders.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor,
including any Guarantor, upon the Notes or the property of the Company or of
such other obligor, the Trustee (irrespective of whether the principal of the
Notes shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made
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any demand on the Company for the payment of overdue principal, premium, if any,
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Notes, to take such other actions (including
participating as a member, voting or otherwise, of any official
committee of creditors appointed in such matter) and to file such other
papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable
compensation, expenses disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed) in such judicial
proceeding, and
(ii) to collect and receive any moneys or other
property payable or deliverable on any such claims and to distribute
the same;
and any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding; PROVIDED, HOWEVER,
that the Trustee may, on behalf of such Holders, vote for the election of a
trustee in bankruptcy or other similar official.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
NOTES.
All rights of action and claims under this Indenture, the
Notes or the Guarantees of the Notes may be prosecuted and enforced by the
Trustee without the possession of any of the Notes or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name and as trustee of an express trust, and
any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the Notes
in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, on the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Notes and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect
of which or for the benefit of which such
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money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Notes for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company, any Guarantor or any other obligor on
the Notes, as their interests may appear or as a court of competent
jurisdiction may direct, PROVIDED that all sums due and owing to the
Holders and the Trustee have been paid in full as required by this
Indenture.
SECTION 507. LIMITATION ON SUITS.
Except to enforce the right to receive payment of principal,
premium, if any, or interest when due, no Holder may pursue any remedy with
respect to this Indenture or the Notes unless:
(i) such Holder has previously given the Trustee
notice that an Event of Default is continuing;
(ii) Holders of at least 25% in principal amount of
the outstanding Notes have requested the Trustee to pursue the
remedy;
(iii) such Holders have offered the Trustee
reasonable security or indemnity against any loss, liability
or expense;
(iv) the Trustee has not complied with such request
within 60 days after the receipt the request and the offer of
security or indemnity; and
(v) the Holders of a majority in principal amount of
the outstanding Notes have not given the Trustee a direction
that, in the opinion of the Trustee, is inconsistent with such
request with such 60-day period;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Note or any Guarantee of the Notes to affect, disturb or
prejudice the rights of any other Holders, or to obtain or to seek to obtain
priority or preference over any other Holders or to enforce any right under this
Indenture, any Note or any Guarantee of the Notes, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, applicable, Article Eleven) and
in such Note of the principal of (and premium, if any) and (subject to Section
311) interest on such Note on the respective Stated Maturities expressed in such
Note (or, in the case of redemption or purchase, on the Redemption Date or
purchase) and to institute suit for the enforcement of any such payment, and
such rights shall not be impaired without the consent of such Holder.
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SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Guarantee of the Notes
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to the Trustee or to such Holder, then and in every
such case, subject to any determination in such proceeding, the Company, any
Guarantor, any other obligor on the Notes, the Trustee and the Holders shall be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 310, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. CONTROL BY HOLDERS.
Subject to certain restrictions, the Holders of a majority in
principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee,
PROVIDED that
(i) such direction shall not be in conflict with any
rule of law or this Indenture;
(ii) the Trustee need not take any action which might
be unduly prejudicial to the rights of any other Holder or
would involve the Trustee in personal liability; and
(iii) subject to the provisions of TIA Section 3l5,
the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Prior to taking any action under this Indenture, the Trustee
shall be entitled to indemnification satisfactory to it in its sole discretion
against all losses and expenses caused by taking or not taking such action.
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SECTION 513. WAIVER OF PAST DEFAULTS.
Subject to Sections 508 and 902, the Holders of a majority in
aggregate principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes) may
on behalf of the Holders of all the Notes, by written notice to the Trustee,
waive any existing Default or Event of Default and its consequences under this
Indenture or any Guarantee of the Notes except a continuing Default or Event of
Default in the payment of interest on, premium, if any, of the principal of, any
such Note held by a non-consenting Holder, or in respect of a covenant or a
provision which cannot be amended or modified without the consent of all
Holders.
In the event that any Event of Default specified in Section
501 (vi) shall have occurred and be continuing, such Event of Default and all
consequences thereof (including without limitation any acceleration or resulting
payment default) shall be annulled, waived and rescinded, automatically and
without any action by the Trustee or the Holders of the Notes, if within 30 days
after such Event of Default arose (i) the Indebtedness that is the basis for
such Event of Default has been discharged, or (ii) the holders thereof have
rescinded or waived the acceleration, notice or action (as the case may be)
giving rise to such Event of Default, or (iii) if the default that is the basis
for such Event of Default has been cured.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.
The Company, the Guarantors and any other obligors upon the
Notes, covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which would prohibit or forgive the Company, any
Guarantor or any such obligor from paying all or any portion of the principal
of, premium, if any, or interest on the Notes contemplated herein or in the
Notes or which may affect the covenants or the performance of this indenture;
and each of the Company, any Guarantor and any such obligor (to the extent that
it may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 515. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any
Note by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees and expenses, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the outstanding Notes, or to
any suit instituted by any Holder for the enforcement of the payment of the
principal, premium, if any, or interest on any Note on or
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after the respective Stated Maturities expressed in such Note (or, in the case
of redemption or purchase, on or after the Redemption Date or purchase).
ARTICLE 6. THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture, and
the Trustee should not be liable except for the performance of such
duties as specifically set forth in this Indenture and no others; and
no implied covenants or obligations shall be read into this Indenture
against the Trustee, and
(ii) in the absence of bad faith or willful
misconduct on its part, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture, but not to verify the contents thereof.
(b) In case an Event of Default has occurred and is continuing
of which a Trust Officer of the Trustee has actual knowledge or of which written
notice of such Event of Default shall have been given to the Trustee by the
Company, any other obligor of the Notes or by any Holder, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct or bad faith, except
that
(i) this paragraph (c) shall not be construed to
limit the effect of paragraph (a) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it shall be
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a majority in aggregate
principal amount of the outstanding Notes relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture.
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(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section and to the TIA.
SECTION 602. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Default hereunder,
the Trustee shall transmit in the manner and to the extent provided in TIA
Section 313(c), notice of such Default hereunder actually known to a Trust
Officer of the Trustee, unless such Default shall have been cured or waived;
PROVIDED, HOWEVER, that, except in the case of a Default in the payment of
principal of, premium, if any, or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding notice is in the interests of the Holders.
Notwithstanding anything to the contrary expressed in this Indenture, the
Trustee shall not be deemed to have knowledge of any Default or Event of Default
hereunder unless and until the Trustee shall have received written notice
thereof from the Company at its principal Corporate Trust Office as specified in
Section 105, except in the case of an Event of Default under Section 501(i) or
501(ii) (provided that the Trustee is the Paying Agent).
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
(a) Subject to the provisions of TIA Sections 315(a) through
315(d):
(i) the Trustee may conclusively rely and shall be
protected in acting or refraining from acting upon (whether in its
original or facsimile form) any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties and the Trustee need not
investigate any fact or matter stated in the documents;
(ii) any request or direction of the Company
mentioned herein shall be sufficiently evidenced by a Company Request
or Company Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(iii) whenever in the administration of this
lndenture the Trustee shall deem it desirable that a matter be proved
or established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith or willful misconduct on
its part, request and rely upon an Officers' Certificate and/or an
Opinion of Counsel and shall not liable for any action it takes or
omits to take in good faith reliance on such Officer's Certificate
and/or Opinion of Counsel;
(iv) the Trustee may consult with counsel of its
selection and any advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and
in reliance thereon;
(v) the Trustee will be under no obligation to
exercise any of the rights or powers vested in it by this Indenture at
the request or direction of any of the Holders pursuant to the
Indenture, unless such Holders shall have offered to the Trustee
reasonable indemnity or security
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satisfactory to the Trustee against any loss, liability or expense
which might be incurred by it in compliance with such request or
direction;
(vi) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine
to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or
by agent or attorney (the Trustee being required to maintain
confidentiality upon such inquiry but only to the extent not
inconsistent with the Trustee's duties hereunder);
(vii) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(viii) the Trustee shall not be liable for any action
taken, suffered or omitted by it in good faith and reasonably believed
by it to be authorized or within the discretion or rights or powers
conferred upon it by this Indenture; PROVIDED, HOWEVER, that the
Trustee's conduct does not constitute willful misconduct, bad faith or
negligence.
(b) The Trustee shall not be required to expend or risk its
own funds or otherwise incur any financial liability in the performance of any
of its duties hereunder, or in the exercise of any of its lights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 604. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE
OF NOTES.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the. statements of
the Company, and the Trustee assumes no responsibility for their correctness and
it shall not be responsible for the Company's use of the proceeds from the
Notes. The Trustee makes no representations as to the validity or sufficiency of
this Indenture or of the Notes, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the Notes
and perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall not
be accountable for the use or application by the Company of the proceeds of the
Notes.
SECTION 605. MAY HOLD NOTES.
The Trustee, any Paying Agent, any Note Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Note Registrar or such other agent.
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SECTION 606. MONEY HELD IN TRUST.
All moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust hereunder for the purposes for
which they were received, but need not be segregated from other funds except to
the extent required by law. The Trustee shall be under no liability for interest
on any money received by it hereunder except as otherwise agreed in writing with
the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(i) to pay to the Trustee from time to time such
compensation as shall be agreed to in writing between the Company and
the Trustee for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(ii) except as otherwise expressly provided herein,
to reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents, consultants and counsel and costs and expenses of collection),
except any such expense, disbursement or advance as may be attributable
to its willful misconduct, bad faith or negligence; and
(iii) to indemnify each of the Trustee or any
predecessor Trustee (and their respective directors, officers,
stockholders, employees and agents) for, and to hold them harmless
against, any and all loss, damage, claim, liability or expense,
including taxes (other than taxes based on the income of the Trustee)
incurred without negligence, willful misconduct or bad faith on their
part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of
defending themselves against any claim or liability in connection with
the exercise or performance of any of the Trustee's powers or duties
hereunder.
The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a lien prior to the Holders
of the Notes upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the payment of principal of (and premium,
if any) or interest on particular Notes.
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When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(vii), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1), and which shall have an
office in the Borough of Manhattan, in The City of New York and shall have a
combined capital and surplus of at least $50,000,000. If the Trustee does not
have an office in the Borough of Manhattan, in The City of New York, the Trustee
may appoint an agent in the Borough of Manhattan, in The City of New York
reasonably acceptable to the Company to conduct any activities which the Trustee
may be required under this Indenture to conduct in the Borough of Manhattan, in
The City of New York. If such corporation publishes reports of condition at
least annually pursuant to law or to the requirements of federal, state,
territorial or District of Columbia supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF
SUCCESSOR.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 610.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. Upon receiving such notice of resignation, the
Company shall promptly appoint a successor trustee by written instrument
executed by authority of the Board of Directors of the Company, a copy of which
shall be delivered to the resigning Trustee and a copy to the successor Trustee.
If an instrument of acceptance required by this Section shall not have been
delivered to the resigning Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition, at the expense of the
Company, any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the outstanding
Notes, delivered to the Trustee and to the Company. The Trustee so removed may,
at the expense of the Company, petition any court of competent jurisdiction for
the appointment of a successor Trustee if no successor Trustee is appointed
within 30 days of such removal.
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(d) If at any time:
(i) the Trustee shall fail to comply with the
provisions of TIA Section 310(b) after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Note for
at least six months, or
(ii) the Trustee shall cease to be eligible under
Section 608 and shall fail to resign after written request therefor by
the Company or by any Holder who has been a bona fide Holder of a Note
for at least six months, or
(iii) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a custodian of the Trustee
or of its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (A) the Company, by a Board Resolution, may remove the
Trustee, or (B) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, of the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Note for at least six
months may, at the expense of the Company on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the manner provided for in Section 106. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon
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the resignation or removal of the retiring Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Trustee; but, on request of the Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder.
Notwithstanding the replacement of the Trustee pursuant to this Section, the
Company's obligations under Section 607 shall continue for the benefit of the
retiring Trustee with regard to expenses and liabilities incurred by it and
compensation earned by it prior to such replacement or otherwise under this
Indenture. Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust success of the Trustee, shall be the successor of the Trustee
hereunder, PROVIDED such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee; PROVIDED, HOWEVER, that
the right to adopt the certificate of authentication of any predecessor Trustee
or to authenticate Notes in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
SECTION 612. TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE
COMPANY.
Any application by the Trustee for written instructions from
the Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under the Indenture and the date
on and/or after which such action shall be taken or such omission shall be
effective Subject to Section 610, the Trustee shall not be liable for any action
taken by, or omission of the Trustee in accordance with a proposal included in
such application on or after the date specified in such application (which date
shall not be less than three Business Days after the
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date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to any earlier date) unless prior
to taking any such action (or the effective date in the case of an omission),
the Trustee shall have received written instructions in response to such
application specifying the action to be taken or omitted.
ARTICLE 7. HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES.
The Company will furnish or cause to be furnished to the
Trustee
(a) semiannually, not more than 10 days after each Regular
Record Date, a list, such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request
in writing, within 30 days after receipt by the Company of any such request, a
list of similar form and content to that in Subsection (a) hereof as of a date
not more than 15 days prior to the time such list is furnished; PROVIDED,
HOWEVER, that if and so long as the Trustee shall be the Note Registrar, no such
list need be furnished.
SECTION 702. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Every Holder of Notes, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 703. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Notes, the Trustee shall transmit to
the Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such May 15 if required by TIA Section 313(a).
The Trustee also shall comply with TIA Section 313(b). A copy
of each report at the time of its mailing to Holders shall be filed by the
Trustee with the Commission and each stock exchange (if any) on which the Notes
are listed. The Company agrees to notify promptly the Trustee whenever the Notes
become listed on any stock exchange and of any delisting thereof.
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ARTICLE 8. MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS.
The Company shall not in a single transaction or series of
related transactions consolidate with or merge with or into, or convey, transfer
or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person
(the "Successor Company") shall be a corporation, partnership, trust or
limited liability company organized and existing under the laws of
Bermuda, the United Kingdom or the United States of America, any State
or political subdivision thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under
the Notes and this Indenture;
(ii) immediately after giving effect to such
transaction (and treating any Indebtedness that becomes an obligation
of the Successor Company or any Subsidiary of the Successor Company as
a result of such transaction as having been incurred by the Successor
Company or such Subsidiary at the time of such transaction), no Default
or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such
transaction, the Consolidated Net Worth of the Company or the Successor
Company, as the case may be, is not less than that of the Company
immediately prior to the transaction;
(iv) immediately after giving effect to such
transaction, the Successor Company would at the time of such
transaction or series of transactions, after giving pro forma effect to
such transaction be able to Incur at least $1.00 of Indebtedness
pursuant to paragraph (a) of Section 1010.
(v) the Company shall have delivered to the Trustee
(A) an Officers' Certificate, stating that (1) such Officers are not
aware of any Default or Event of Default that shall have happened and
be continuing and (2) such consolidation, merger or transfer and such
supplemental indenture comply with this Indenture; PROVIDED that no
Officers' Certificate will be required as to matters described in
clause (A)(1) of this clause (v) for a consolidation, merger or
transfer described in the last paragraph of this Section 801, and (B)
an Opinion of Counsel, stating that such consolidation, merger or
transfer and such supplemental indenture comply with this Indenture,
both in the form required by this Indenture; PROVIDED that (1) in
giving such opinion such counsel may rely on such officer's certificate
as to any matters of fact (including without limitation as to
compliance with the foregoing clauses (ii) and (iii)), and (2) no such
Opinion of Counsel will be required for a consolidation, merger or
transfer described in the last paragraph of this Section 801; and
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(vi) Each Guarantor, if any, unless it is the other
party to the transactions described above, shall have confirmed by
supplemental Indenture that its Note Guarantee shall apply to such
Person's obligations under this Indenture and the Notes.
Notwithstanding the foregoing, (x) any Restricted Subsidiary of the Company may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (y) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other benefits. This Section 801 does not
prohibit the formation of a holding company which would hold stock of the
Company.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with or merger of the
Company with or into any other corporation or any conveyance, transfer, lease or
other disposition of all or substantially all of the assets of the Company to
any Person in accordance with Section 801, the Successor Company will succeed
to, and be substituted for, and may exercise every right and power of, the
Company hereunder and thereafter the predecessor Company shall be released from
all obligations and covenants hereunder, but, in the case of a lease of all or
substantially all its assets, the predecessor Company will not be released from
the obligation to pay the principal of and interest on the Notes.
ARTICLE 9. SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS.
Without the consent of any Holders, the Company, the
Guarantors, if any (with respect to a Guarantee of the Notes to which it is a
party), and the Trustee, at any time and from time to time, may enter into one
or more indentures supplemental hereto, in form satisfactory to the Trustee, for
any of the following purposes:
(i) to cure any ambiguity, omission, defect or
inconsistency; or
(ii) to provide for the assumption by a successor
corporation, partnership, trust or limited liability company
of the obligations of the Company hereunder; or
(iii) to provide for uncertificated Notes in addition
to or in place of certificated Notes (PROVIDED that the
uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code); or
(iv) to add Guarantees with respect to the Notes; or
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(v) to secure the Notes; or
(vi) to add to the covenants of the Company for the
benefit of the Holders or to surrender any right or power
conferred upon the Company; or
(vii) to make any other change that does not
adversely affect the rights of any Holder; or
(viii) to comply with any requirement of the
Commission in connection with the qualification of this
Indenture under the TIA; or
(ix) to confirm and evidence the release and
discharge of any Guarantee or Lien with respect to or securing
the Notes when such release and discharge is permitted by and
provided for hereunder.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of at least a majority in
aggregate principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes), the
Company and the Trustee may enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; PROVIDED, HOWEVER, that
no such supplemental indenture shall, without the consent of each Holder
affected thereby (with respect to any Notes held by such Holder):
(i) reduce the amount of Notes whose Holders must
consent to an amendment; or
(ii) reduce the stated rate of or extend the stated
time for payment of interest on any Note; or
(iii) reduce the principal of or extend the Stated
Maturity (other than the extension or elimination of the
Excess Cash Flow Payment Date) of any Note; or
(iv) reduce the premium payable upon the redemption
or purchase of any Note or change the time at which any Note
may be redeemed as described in Section 1101; or
(v) make any Note payable in money other than that
stated in the Note; or
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(vi) impair the right of any Holder to receive
payment of principal of and interest on such Holder's Notes on
or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's
Notes; or
(vii) make any change in the amendment provisions
which require each Holder's consent or in the waiver
provisions.
The consent of the Holders is not necessary under this
Indenture to approve the particular form of any proposed supplemental indenture.
It is sufficient if such consent approves the substance of the proposed
supplemental indenture.
SECTION 903. SUPPLEMENTAL INDENTURES AFFECTING THE TRUSTEE;
EXECUTION OF SUPPLEMENTAL INDENTURES.
The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities, as determined by the Trustee in its sole discretion under this
Indenture or otherwise. In signing or refusing to sign any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and shall
be fully protected in relying upon, an Officers' Certificate and the Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby (except as provided in Section 902).
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the TIA as then in effect.
SECTION 906. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company or the Trustees
shall so determine, new Notes so modified as to conform to any such supplemental
indenture may be prepared and executed by the Company, and the Company shall
issue and the Trustee shall authenticate a new Note that reflects the changed
terms, the cost and expense of which will be borne by the Company, in exchange
for outstanding Notes.
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SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 902, the
Company shall give notice thereof to the Holders of each affected Note then
outstanding, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. The failure to give such
notice to all the Holders, of any defect therein, will not impair or affect the
validity of the supplemental indenture.
ARTICLE 10. COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND
INTEREST.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any) and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the Borough of Manhattan, The
City of New York, an office or agency where the Notes may be presented or
surrendered for payment, where, if applicable, the Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served. The
Corporate Trust Office of the Trustee shall be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company will give prompt written
notice to the Trustee of any change in the location of any such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Notes may be presented or surrendered for any or all such purposes and may from
time to time rescind any such designation; PROVIDED, HOWEVER, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York for such purposes. The Company will give prompt written notice to
the Trustee of any such designation or rescission and any change in the location
of any such other office or agency.
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SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure to so act.
Whenever the Company shall have one or more Paying Agents for
the Notes, it will, on or before each due date of the principal of (or premium,
if any) or interest on any Notes, deposit with a Paying Agent a sum in same day
funds that shall be available to the Trustee by 11:00 a.m. Eastern Standard Time
an such due date sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of such
action or any failure to so act.
The Company will cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of the
principal of (and premium, if any) or interest on Notes in trust for
the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the
Company (or any other obligor upon the Notes) in the making of any
payment of principal (and premium, if any) or interest; and
(iii) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company in trust for the payment of the principal of (or
premium, if any) or interest on any Note and remaining unclaimed for two years
after such principal, premium or interest has become due and
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payable shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharge from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER that the Trustee or such
Paying Agent, before being required to make any such repayment to the Company,
may at the expense of the Company cause to be published once, in a leading daily
newspaper (if practicable, THE WALL STREET JOURNAL (Eastern Edition)) printed in
the English language and of general circulation in The City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence of the Company and that of each Restricted Subsidiary and
the corporate rights (charter and statutory), licenses and franchises of the
Company and each Restricted Subsidiary; PROVIDED, HOWEVER, that the Company
shall not be required to preserve any such right, license or franchise, or the
existence of any Restricted Subsidiary, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and each of its Restricted Subsidiaries,
taken as a whole, and that the loss thereof is not, and will not be,
disadvantageous in any material respect to the Holders.
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary and (ii) all lawful claims for labor, materials and supplies, which,
if unpaid, might by law become a material liability or lien upon the property of
the Company or any Restricted Subsidiary; PROVIDED HOWEVER, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which
appropriate reserves, if necessary (in the good faith judgment of management of
the Company) are being maintained in accordance with GAAP.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all material properties owned by the
Company or any Restricted Subsidiary or used or held for use in the conduct of
its business or the business of any Restricted Subsidiary to be maintained and
kept in normal condition, repair and working order and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
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thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly conducted at all
times; PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company
or any of its Restricted Subsidiaries from discontinuing the maintenance of any
of such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Restricted
Subsidiary and not adverse in any material respect to the Holders.
SECTION 1007. INSURANCE.
To the extent available at commercially reasonable rates, the
Company will maintain, and will cause its Restricted Subsidiaries to maintain,
insurance with insurers of recognized financial responsibility, against such
risks and in such amounts, and with such deductibles, retentions, self-insured
amounts and co-insurance provisions, as are prudent, including professional and
general liability, property and casualty loss, and workers' compensation
insurance. In the event the Company determines that insurance satisfying the
first sentence of this Section 1007 is not available at commercially available
rates, it shall provide an Officers' Certificate to such effect to the Trustee
and the Trustee may conclusively rely on the determinations set forth therein.
SECTION 1008. COMPLIANCE WITH LAWS.
The Company shall comply, and shall cause each of its
Restricted Subsidiaries to comply, with all applicable statutes, rules,
regulations, orders and restrictions of all governmental bodies, domestic or
foreign, in respect of the conduct of their respective businesses and the
ownership of their respective properties, except for such noncompliances as
could not in the aggregate reasonably be expected to have a material adverse
effect on the financial condition or results of operations of the Company and
its Restricted Subsidiaries, taken as a whole.
SECTION 1009. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) except (A) dividends or
distributions payable in its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to purchase such Capital Stock, and (B)
dividends or distributions payable to the Company or a Restricted Subsidiary of
the Company (and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary,
to its other Holders of Capital Stock on a pro rata basis), (ii) purchase,
redeem, retire or otherwise acquire for value any Capital Stock of the Company
(other than the redemption of the 13% Series A Preferred Stock of the Company in
connection with the Refinancing) held by Persons other than a Restricted
Subsidiary of the Company or any Capital Stock of a Restricted Subsidiary of the
Company held by any Affiliate of the Company, other than another Restricted
Subsidiary (in either case, other than in exchange for its Capital Stock (other
than Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled maturity,
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scheduled repayment or scheduled sinking fund payment, any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of purchase, repurchase or acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to in clauses (i) through (iv) as
a "Restricted Payment"), if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and
be continuing (or would result therefrom); or (2) the Company is not able to
incur an additional $1.00 of Indebtedness pursuant to paragraph (a) under
Section 1010; or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made subsequent to the Issue Date would
exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from April 1, 1998 to the end of the
most recent fiscal quarter ending prior to the date of such Restricted Payment
as to which financial results are publicly available (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) or other capital contributions
subsequent to the Issue Date (other than net proceeds received from an issuance
or sale of such Capital Stock to a Subsidiary of the Company or an employee
stock ownership plan or similar trust); (C) the amount by which Indebtedness of
the Company is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the Issue
Date of any Indebtedness of the Company convertible or exchangeable for Capital
Stock of the Company (less the amount of any cash, or other property,
distributed by the Company upon such conversion or exchange); (D) the amount
equal to the net reduction in Investments made by the Company or any of its
Restricted Subsidiaries in any Person resulting from the purchases or
redemptions of such Investments by such Person, proceeds realized upon the sale
of such Investment to an unaffiliated purchaser, repayments of loans or advances
or other transfers of assets by such Person to the Company or any Restricted
Subsidiary of the Company or (ii) the redesignation of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments; PROVIDED, HOWEVER, that no
amount shall be included under this clause (D) to the extent it is already
included in Consolidated Net Income; and (E) $5 million.
(b) The provisions of paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or similar trust); PROVIDED, HOWEVER, that (A) such purchase or
redemption shall be excluded in subsequent calculations of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from clause (3) (B) of paragraph (a); (ii) any purchase or redemption
of Subordinated Obligations of the Company made by exchange for, or out of the
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proceeds of the substantially concurrent sale of, Subordinated Obligations of
the Company; PROVIDED, HOWEVER, that such purchase or redemption shall be
excluded in subsequent calculations of the amount of Restricted Payments; (iii)
dividends paid within 60 days after the date of declaration if at such date of
declaration such dividend would have complied with this provision; PROVIDED,
HOWEVER, that such dividend shall be included in subsequent calculations of the
amount of Restricted Payments; (iv) the purchase of the 13% Series A Preferred
Stock of the Company with the proceeds from the Refinancing, provided that such
purchase takes place no later than 30 days after the Issue Date (v) loans to
employees of the Company for the purpose of the purchase of Capital Stock of the
Company in an aggregate outstanding amount not to exceed $1 million in any
twelve-month period and (vi) the retirement of any Capital Stock or options to
acquire Capital Stock of the Company or any Restricted Subsidiary of the Company
held by any directors, officers or employees of the Company or any Restricted
Subsidiary, provided that the aggregate price paid for all such retirements
shall not exceed, in the aggregate, the sum of $5.0 million plus the aggregate
cash proceeds received by the Company subsequent to the Issue Date from
issuances of Capital Stock or options to acquire Capital Stock by the Company to
directors, officers, or employees of the Company and its Subsidiaries.
(c) Not later than the date of making any Restricted Payment,
the Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 1009 were computed, which calculations may
be based upon the Company's latest available financial statements. The Trustee
shall have no duty to recompute or recalculate or verify the accuracy of the
information set forth in such Officers' Certificate.
SECTION 1010. LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness except that the Company and
any of its Restricted Subsidiaries may Incur Indebtedness if after giving effect
to the application of the proceeds thereof, no Default or Event of Default would
occur as a consequence of such Incurrence or be continuing following such
Incurrence and either (i) the ratio of (x) the aggregate consolidated principal
amount of Indebtedness of the Company outstanding as of the most recent publicly
available quarterly or annual balance sheet, after giving PRO FORMA effect to
the incurrence of such Indebtedness and any other Indebtedness Incurred or
repaid since such balance sheet date and the receipt and application of the
proceeds thereof, to (y) Consolidated Cash Flow Available for Fixed Charges for
the four full fiscal quarters immediately preceding the Incurrence of such
Indebtedness for which consolidated financial statements of the Company are
publicly available, determined on a PRO FORMA basis as if any such Indebtedness
had been Incurred and the proceeds thereof had been applied at the beginning of
such four fiscal quarters, would be less than 5.5 to 1.0 for such four-quarter
periods ending on or prior to December 31, 2001 and 5.0 to 1.0 for such periods
ending thereafter or (ii) the Company's Consolidated Capital Ratio as of the
most recent publicly available quarterly or annual balance sheet, after giving
PRO FORMA effect to the Incurrence of such Indebtedness and any other
Indebtedness Incurred or repaid since
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such balance sheet date and the receipt and application of the proceeds thereof,
is less than 2.5 to 1.0.
(b) Notwithstanding the foregoing paragraph (a), the Company
and its Restricted Subsidiaries may Incur the following Indebtedness: (i)
Indebtedness Incurred pursuant to the New Credit Facility of (a) up to $50
million in revolving credit borrowings less the amount of any reductions in the
commitments thereunder and (b) up to $320 million in term loan borrowings less
the amount of any payments thereunder, minus (in the case of both (a) and (b))
the amount then outstanding under Qualified Receivables Transactions pursuant to
which O&M Payments receivables have been sold, conveyed or otherwise
transferred, and (ii) Indebtedness of the Company owing to and held by any
Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and
held by the Company or any Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any
subsequent issuance or transfer of any Capital Stock or any other event which
results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to the
Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the Issuer thereof; (iii)
Indebtedness represented by (x) the Notes and any Guarantee thereof, (y) any
Indebtedness (other than the Indebtedness described in clauses (i) and (ii))
outstanding on the Issue Date and (z) any Refinancing Indebtedness Incurred in
respect of any Indebtedness described in this clause (iii) or Incurred pursuant
to paragraph (a) of this Section 1010; (iv) (1) Indebtedness of a Restricted
Subsidiary Incurred and outstanding on the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Subsidiary or
was otherwise acquired by the Company); PROVIDED, HOWEVER, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have been
able to Incur $1.00 of additional Indebtedness pursuant to the foregoing
paragraph (a) above after giving effect to the Incurrence of such Indebtedness
pursuant to this clause (iv) and (2) any Refinancing Indebtedness incurred in
respect of any Indebtedness described in this clause (iv); (v) Indebtedness
under Currency Agreements and Interest Rate Agreements; PROVIDED, HOWEVER, that
such Currency Agreements and Interest Rate Agreements are entered into for bona
fide hedging purposes of the Company or its Restricted Subsidiaries (as
determined in good faith by the Board of Directors or senior management of the
Company) and correspond in terms of notional amount, duration, currencies and
interest rates, as applicable, to Indebtedness of the Company or its Restricted
Subsidiaries Incurred without violation of this Indenture or to business
transactions of the Company or its Restricted Subsidiaries on customary terms
entered into in the ordinary course of business; (vi) obligations in respect of
performance and surety bonds and completion guarantees provided by the Company
or any Restricted Subsidiary of the Company in the ordinary course of business;
(vii) Indebtedness arising from Guarantees to suppliers, lessors, licensee,
contractors, franchisees or customers of obligations (other than Indebtedness)
incurred in the ordinary course of business; (viii) Indebtedness of a
Receivables Entity in a Qualified Receivables Transaction and any renewal,
extension, refinancing or refunding thereof in an amount which, together with
any principal amount of all such Indebtedness remaining outstanding or
available, does not exceed the aggregate principal amount of such Indebtedness
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immediately prior to such renewal, extension, refinancing or refunding; and (ix)
Indebtedness (other than Indebtedness described in clauses (i) - (viii)) in a
principal amount which, when taken together with the principal amount of all
other Indebtedness Incurred pursuant to this clause (ix) and then outstanding,
will not exceed $25 million.
SECTION 1011. LIMITATION ON SALE/LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, direct or indirectly, enter into, assume, Guarantee
or otherwise become liable with respect to any Sale/Leaseback Transaction (other
than a Sale/Leaseback Transaction between the Company or a Restricted Subsidiary
on the one hand and a Restricted Subsidiary or the Company on the other hand),
unless (i) the only property subject to such Sale/Leaseback Transaction is
capacity which is or will be held for restoration on, on the FLAG System and the
amount of such capacity, when combined with the amount of all other capacity
subject to a Sale/Leaseback Transaction, is no greater than 25% of the FLAG
System's capacity, (ii) the Company or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Sale/Leaseback Transaction at
least equal to the Fair Market Value (as evidenced by a Board Resolution
delivered to the Trustee) of the property subject to such transaction; (iii) the
Attributable Indebtedness of the Company or such Restricted Subsidiary with
respect thereto is included as Indebtedness and would be permitted under Section
1010; and (iv) the Sale/Leaseback Transaction is treated as an Asset Disposition
and all of the conditions of this Indenture described under Section 1016
(including the provisions concerning the application of the Net Available Cash)
are satisfied with respect to such Sale/Leaseback Transaction, treating all of
the consideration received in such Sale/Leaseback Transaction as Net Available
Cash for purposes of such covenant.
SECTION 1012. LIMITATION ON AFFILIATE TRANSACTIONS.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to directly or indirectly, enter into or conduct any
transaction (including the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless: (i) the terms of such Affiliate Transaction are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could be obtained at the time of such transaction in arm's length
dealings with a Person who is not such an Affiliate; (ii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $5 million, the
terms of such transaction have been approved by a majority of the members of the
Board of Directors of the Company and by a majority of the members of such Board
having no personal stake in such transaction, if any (and such majority or
majorities, as the case may be, determines that such Affiliate Transaction
satisfies the criteria in (i) above); and (iii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $25 million the Company
has received a written opinion from an independent accounting, appraisal or
investment banking firm of nationally recognized standing that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
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(b) The foregoing paragraph (a) shall not apply to (i) any
Restricted Payment permitted to be made pursuant to Section 1009, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors of the
Company, (iii) loans or advances to employees in the ordinary course of business
of the Company or any of its Restricted Subsidiaries, (iv) any transaction
between the Company and a Wholly-Owned Subsidiary or between Wholly-Owned
Subsidiaries, (v) a transaction pursuant to an Existing Affiliate Transaction,
including any amendments or extensions thereto entered into after the Issue
Date, provided that the terms of any such amendment or extension are not taken
as whole, less favorable to the Company than the terms of the relevant agreement
prior to such amendment, (vi) transactions with respect to capacity (including
sales, leases, or the other provision thereof) between the Company or any
Restricted Subsidiary and any Affiliate; provided, in any case, that such
transaction is on terms that are no less favorable, taken as a whole, to the
Company or the relevant Restricted Subsidiary than those that could have been
obtained at the time of such transaction in arm's length dealings with a Person
who was not such an Affiliate, or (vii) any agreement or arrangement with
respect to the compensation of a director or officer of the Company or any
Restricted Subsidiary approved by a majority of the disinterested members of the
Board of Directors of the Company or such Restricted Subsidiary, as applicable
and consistent with industry practice.
SECTION 1013. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to the Company, (ii)
make any loans or advances to the Company or (iii) transfer any of its property
or assets to the Company, except (a) any encumbrance or restriction pursuant to
an agreement in effect at or entered into on the date of this Indenture
(including, without limitation, the New Credit Facility but only with respect to
restrictions set forth in such facility that are of the type set forth in
clauses (ii) and (iii)); (b) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by a Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (c) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement effecting a refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (a) or (b) of this covenant or this clause (c)
or contained in any amendment to an agreement referred to in clause (a) or (b)
of this covenant or this clause (c); PROVIDED, HOWEVER, that the encumbrances
and restrictions with respect to such Restricted Subsidiary contained in any
such agreement or amendment are no less favorable to the Holders of the Notes
than encumbrances and restrictions contained in such agreements; (d) in the case
of clause (iii) above, any encumbrance or
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restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, or the assignment or transfer of any such lease, license or
other contract, (B) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of the Company or
any Restricted Subsidiary not otherwise prohibited by this Indenture, (C)
contained in mortgages, pledges or other security agreements securing
Indebtedness of a Restricted Subsidiary to the extent such encumbrance or
restrictions restrict the transfer of the property subject to such mortgages,
pledges or other security agreements or (D) pursuant to customary provisions
restricting dispositions of real property interests set forth in any reciprocal
easement agreements of the Company or any Restricted Subsidiary; and (e) with
respect to a Restricted Subsidiary (or any of its property or assets) imposed
pursuant to an agreement entered into for the direct or indirect sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary (or the property or assets that are subject to such
restriction) pending the closing of such sale or disposition.
SECTION 1014. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly create, incur, affirm or suffer to exist
any Lien of any kind (other than Permitted Liens) against or upon any of its
property or assets (including any intercompany notes), owned as of the date
hereof or later acquired or any income or profits therefrom, except if the Notes
are effectively secured equally and ratably with or prior to in the case of
Liens with respect to Subordinated Obligations) the obligation or liability
secured by such Lien for so long as such obligations or liabilities are so
secured.
SECTION 1015. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder
will have the right to require the Company to purchase all or any part of such
Holder's Notes (the "Change of Control Offer") at a purchase price in cash equal
to 101 % of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant Interest Payment
Date) (the "Change of Control Payment").
(b) Within 30 days following any Change of Control, unless the
Company has mailed a redemption notice with respect to all the outstanding Notes
as described in Section 1105, the Company shall mail a notice to each Holder
with a copy to the Trustee stating:
(i) that a Change of Control has occurred and that
such Holder has the right to require the Company to purchase such
Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase (subject to the right of Holders of record on a
record date to receive interest on the relevant Interest Payment Date);
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(ii) the purchase date (which shall be no earlier
than 30 days nor later than 60 days from the date such notice is
mailed) (the "Change of Control Payment Date");
(iii) the procedures determined by the Company,
consistent with this Indenture, that a Holder must follow in order to
have its Notes purchased;
(iv) that any Note not tendered shall continue to
accrue interest, if any;
(v) that, unless the Company defaults in the payment
of the Change of Control Payment, all Notes accepted for payment
pursuant to any Change of Control Offer shall cease to accrue interest,
if any, after the Change of Control Payment Date;
(vi) that Holders electing to have any Notes
purchased pursuant to a Change of Control Offer shall be required to
surrender the Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes completed, or transfer by
book-entry transfer to the Company, a Depositary, if appointed by the
Company, or a Paying Agent at the address specified in the notice prior
to the close of business on the third Business Day preceding the Change
of Control Payment Date;
(vii) that Holders shall be entitled to withdraw
their election if the Company, the Depositary or the Paying Agent as
the case may be, receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex facsimile transmission or letter setting forth the name
of the Holder, the principal amount of Notes delivered for purchase,
and a statement that such Holder is withdrawing his election to have
the Notes purchased; and
(viii) that Holders whose Notes are being purchased
only in part shall be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple
thereof.
(c) The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other applicable
laws or regulations in connection with the purchase of Notes pursuant to this
covenant. To the extent that the provisions of any applicable laws or
regulations conflict with provisions of this Indenture, the Company will comply
with the applicable laws and regulations and shall not be deemed to have
breached its obligations described in this Indenture by virtue thereof.
(d) On a Business Day that is no earlier than 30 days nor
later than 60 days from the date that the Company mails or causes to be mailed
notice of the Change of Control to the Holders, the Company shall, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all the Notes or
portions thereof so
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tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate principal
amount of such Notes or portions thereof being purchased by the Company. The
Paying Agent shall promptly mail to each Holder of the Notes so tendered the
Change of Control Payment for such Notes, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note shall be in a principal
amount of $1,000 or an integral multiple thereof. The Company shall publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
SECTION 1016. LIMITATION ON ASSET DISPOSITIONS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any Asset Disposition unless (i) the Company or
such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the Fair Market Value, as determined in good faith
by the Board of Directors (including as to the value of all non-cash
consideration), of the shares and assets subject to such Asset Disposition, (ii)
at least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
FIRST, to the extent the Company or any Restricted Subsidiary, as the case may
be, elects (or is required by the terms thereof, to prepay, repay, purchase or
cash collateralize, Bank Indebtedness to the extent that the Net Available Cash
may be or is required to be applied to cash collateralize or repay such Bank
Indebtedness as required by the terms of the New Credit Facility (unless such
requirement has been waived by the lenders parties thereto) or Indebtedness
(other than any Preferred Stock) of a Wholly Owned Subsidiary (in each case
other than Indebtedness owed to the Company or an Affiliate of the Company)
within 360 days from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash (such period, the "application period"); (B)
SECOND, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), at the Company's election to invest
in Additional Assets within the application period; (C) THIRD, to the extent of
the balance of such Net Available Cash after application in accordance with
clauses (A) and (B), not later than 30 days after the end of the application
period, to make an offer to purchase (an "Offer") Notes and other PARI PASSU
debt obligations subject to a similar covenant (such other PARI PASSU debt
obligations, the "PARI PASSU Notes") at par plus accrued and unpaid interest, if
any, thereon; and (D) FOURTH, to the of the extent balance of such Net Available
Cash after application in accordance with clauses (A), (B) and (C) for other
general corporate purposes not prohibited by this Indenture; PROVIDED, HOWEVER,
that, in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A) above, the Company or such Restricted Subsidiary shall
retire such Indebtedness and shall cause the related loan commitment (if any) to
be permanently reduced extent of the required by such Indebtedness in an amount
equal to the principal amount so prepaid, repaid or purchased. Notwithstanding
the foregoing provisions, the Company and its Restricted Subsidiaries shall not
be required to apply any Net Available Cash in accordance herewith except to the
extent that the aggregate Net Available Cash from all Asset Dispositions which
is not applied
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in accordance with this covenant exceeds $10 million. The Company shall not be
required to make an Offer for Notes and PARI PASSU Notes pursuant to this
covenant if the Net Available Cash available therefor (after application of the
proceeds as provided in clauses (A) and (B)) is less than $10 million for any
particular Asset Disposition (which lesser amount shall be carried forward for
purposes of determining whether an Offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
If the aggregate principal amount of Notes and PARI PASSU
Notes validly tendered and not withdrawn in connection with an Offer pursuant to
clause (C) above exceeds the funds available therefor ("Offer Proceeds"), the
Offer Proceeds will be apportioned between the Notes and such PARI PASSU Notes,
with the portion of the Offer Proceeds payable in respect of the Notes equal to
the lesser of (i) the Offer Proceeds amount multiplied by a fraction, the
numerator of which is the outstanding principal amount of the Notes and the
denominator of which is the sum of the outstanding principal amount of the Notes
and the outstanding principal amount (or accreted value, as applicable) of the
relevant PARI PASSU Notes, (ii) the aggregate principal amount of Notes validly
tendered and not withdrawn.
For the purposes of this covenant, the following will be
deemed to be cash: (x) the assumption by the transferee of Indebtedness of any
Restricted Subsidiary of the Company and the release of such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition (in which case the Company shall, without further action, be deemed
to have applied such assumed Indebtedness in accordance with clause (A) of the
second preceding paragraph) and (y) securities received by the Company or any
Restricted Subsidiary of the Company from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the
purchase of Notes pursuant to clause (a)(iii)(C), the Company will be required
to purchase Notes tendered pursuant to an offer by the Company for the Notes at
a purchase price of 100% of their principal amount plus accrued and unpaid
interest, if any, to the purchase date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in this
Indenture. If the aggregate purchase price of the PARI PASSU Notes tendered
pursuant to the offer is less than the Net Available Cash allotted to the
purchase of the PARI PASSU Notes, the Company will apply the remaining Net
Available Cash in accordance with clause (a)(iii)(D) above.
(c) The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other applicable
laws or regulations in connection with the purchase of Notes pursuant to this
Indenture. To the extent that the provisions of any applicable laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable laws and regulations and will not be deemed to have breached
its obligations under this Indenture by virtue thereof.
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SECTION 1017. LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK
OF RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted
Subsidiary of the Company to, issue, transfer, convey, sell or otherwise dispose
of any Capital Stock of any Restricted Subsidiary to any Person (other than the
Company or a Wholly Owned Subsidiary), unless (i) such transfer, conveyance,
sale or other disposition is of either all or not more than 20% of the Capital
Stock of such Restricted Subsidiary and (ii) the Net Cash Proceeds from any such
issuance transfer, conveyance, sale or other disposition are applied in
accordance with Section 1016.
SECTION 1018. COMMISSION REPORTS.
Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the Commission, and within 15 days after such reports are filed,
provide the Trustee and the Holders (at their addresses as set forth in the
register of Notes) with the annual reports and the information, documents and
other reports which are otherwise required pursuant to Section 13 and 15(d) of
the Exchange Act.
SECTION 1019. FUTURE NOTE GUARANTORS.
The Company will cause each Restricted Subsidiary which Incurs
Indebtedness pursuant to clause (a) of Section 1010 or which is a guarantor of
Indebtedness Incurred pursuant to clause (b)(i) of Section 1010 to execute and
deliver to the Trustee a Note Guarantee, substantially in the form of the
supplemental Indenture in Exhibit A hereto, pursuant to which such Restricted
Subsidiary will Guarantee, jointly and severally, to the Holders and the
Trustee, the full and prompt payment of the Notes in accordance with the terms
of this Indenture. Each Note Guarantee will be limited in amount to an amount
not to exceed the maximum amount that can be Guaranteed by that Restricted
Subsidiary without rendering the Note Guarantee, as it relates to such
Restricted Subsidiary, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
SECTION 1020. LIMITATION ON LINES OF BUSINESS.
The Company will not, and will not permit any Restricted
Subsidiary to, engage in any business other than a Related Business.
SECTION 1021. STATEMENT BY OFFICERS AS TO DEFAULT.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Restricted Subsidiaries during
the preceding fiscal year has been made under the supervision of the signing
officers with a view to determining whether it has kept, observed, performed and
fulfilled, and has caused each of its Restricted Subsidiaries to keep, observe,
perform and fulfill its
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obligations under this Indenture and further stating, as to each such officer
signing such certificate, that, to the best of his or her knowledge, the Company
during such preceding fiscal year has kept, observed, performed and fulfilled,
and has caused each of its Restricted Subsidiaries to keep, observe, perform and
fulfill each and every such covenant contained in this Indenture and no Default
or Event of Default occurred during such year and at the date of such
certificate there is no Default or Event of Default which has occurred and is
continuing or, if such signers do know of such Default or Event of Default, the
certificate shall describe its status, with particularity and that, to the best
of his or her knowledge, no event has occurred and remains by reason of which
payments on the account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action each is taking or proposes to take with respect thereto. The Officers'
Certificate shall also notify the Trustee should the Company elect to change the
manner in which it fixes its fiscal year end. For purposes of this Section 1021
(a), such compliance shall be determined without regard to any period of grace
or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the Holder of any other evidence of
Indebtedness of the Company or any Significant Subsidiary gives any notice or
takes any other action with respect to a claimed default (other than with
respect to Indebtedness in the principal amount of less than $5 million), the
Company shall deliver to the Trustee by registered or certified mail or
facsimile transmission an Officers' Certificate specifying such event, notice or
other action within ten Business Days of its occurrence. The Company also is
required to deliver to the Trustee, within 30 days after the occurrence thereof,
written notice of any events that would constitute an Event of Default under
clause (iii), (iv) or (vii) of Section 501, their status and what action the
Company is taking or proposes to take in respect thereof.
SECTION 1022. PAYMENT OF ADDITIONAL AMOUNTS.
(a) If any deduction or withholding for any present or future
taxes, assessments or other governmental charges of (x) Bermuda or any political
subdivision or governmental authority thereof or therein having power to tax,
(y) any jurisdiction, other than the United States, from or through which
payment on the Notes is made by the Company or a successor corporation, or its
paying agent in its capacity as such or any political subdivision or
governmental authority thereof or therein having the power to tax or (z) any
other jurisdiction, other than the United States, in which the Company or a
successor corporation is organized, or any political subdivision or governmental
authority thereof or therein having the power to tax shall at any time be
required by such jurisdiction (or any such political subdivision or taxing
authority) in respect of any amounts to be paid by the Company or a successor
corporation under the Notes, the Company or a successor corporation will pay to
each Holder of a Note as additional interest such additional amounts
("Additional Amounts") as may be necessary in order that the net amounts paid to
such Holder of such Note who, with respect to any such tax, assessment or other
governmental charge, is not resident in, or a citizen of, such jurisdiction,
after such deduction or withholding, shall be not less than the amount specified
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in such Note to which such Holder is entitled; PROVIDED, HOWEVER, the Company or
a successor corporation shall not be required to make any payment of Additional
Amounts for or on account of:
(i) Any tax, assessment or other governmental charge
which would not have been imposed but for (a) the existence of any
present or former connection between such Holder (or between a
fiduciary, settlor, beneficiary, member or shareholder of, or possessor
of a power over such Holder, if such Holder is an estate, trust
partnership, limited liability company or corporation) and the taxing
jurisdiction or any political subdivision or territory or possession
thereof or are subject to its jurisdiction, including, without
limitation, such Holder (or such fiduciary, settlor, beneficiary,
member, shareholder or possessor) being or having been a citizen or
resident thereof or being or having been present or engaged in trade or
business therein or having or having had a permanent establishment
therein, (b) the presentation of a Note (where presentation is
required) for payment on a date more than 30 days after (x) the date on
which such payment became due and payable or (y) the date on which
payment thereof is duly provided for, whichever occurs later or (c) the
presentation of a Note for payment in Bermuda or any political
subdivision thereof or therein, unless such Note could not have been
presented for payment elsewhere;
(ii) Any estate, inheritance, gift, sales, transfer,
personal property or similar tax, assessment or other governmental
charge;
(iii) Any tax, assessment or other governmental
charge which is payable otherwise than by withholding from payment of
principal of, premium, if any, or any interest on, the Notes;
(iv) Any tax, assessment or other governmental charge
that is imposed or withheld by reason of the failure by the Holder or
the beneficial owner of the Note to comply with a request of the
Company addressed to the Holder (a) to provide information, documents
or other evidence concerning the nationality, residence or identity of
the Holder or such beneficial owner or (b) to make and deliver any
declaration or other similar claim (other than a claim for refund of a
tax, assessment or other governmental charge withheld by the Company)
or satisfy any information or reporting requirements, which, in the
case of (a) or (b), is required or imposed by a statute, treaty,
regulation or administrative practice of the taxing jurisdiction as a
precondition to exemption from all or part of such tax, assessment or
other governmental charge; or
(v) Any combination of items. (i), (ii), (iii) and
(iv) above;
nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any premium or interest on, any Note to any Holder who is a
fiduciary or partnership or limited liability company or other than the sole
beneficial owner of such payment to the extent such payment would be required by
the laws of (x) Bermuda or any political subdivision or governmental authority
thereof or therein having power to tax, (y) any jurisdiction, other than the
United States, from or
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through which payment on the Notes is made by the Company or a successor
corporation, or its paying agent in its capacity as such or any political
subdivision or governmental authority thereof or therein having the power to tax
or (z) any other jurisdiction, other than the United States, in which the
Company or a successor corporation is organized, or any political subdivision or
governmental authority thereof or therein having the power to tax to be included
in the income for tax purposes of a beneficiary or settlor with respect to such
fiduciary or a member of such partnership, limited liability company or
beneficial owner who would not have been entitled to such Additional Amounts had
it been the Holder of such Note.
(b) The Company shall provide the Trustee with the official
acknowledgment of the relevant taxing authority (or, if such acknowledgment is
not available, a certified copy thereof) evidencing the payment of the
withholding taxes, if any, by the Company. Copies of such documentation shall be
made available to the Holders of the Notes or the Paying Agents, as applicable,
upon request therefor.
(c) The Company shall pay any present or future stamp, court
or documentary taxes or any other excise or property taxes, charges or similar
levies that arise in any jurisdiction from the execution, delivery or
registration of the Notes or any other document or instrument referred to herein
or in the Notes, excluding any such taxes, charges or similar levies imposed by
any jurisdiction outside of Bermuda.
SECTION 1023. EXCESS CASH FLOW OFFER.
(a) If the Company has Excess Cash Flow for any fiscal year
(commencing with fiscal 2001), the Company shall make an offer to purchase (the
"Excess Cash Flow Offer"), on a Business Day (the "Excess Cash Flow Payment
Date") not later than 150 days following the end of such fiscal year, from all
Holders of Notes, up to a maximum principal amount (expressed as a multiple of
$1,000) of Notes equal to (A) the Noteholders' Pro Rata Share of 50% of such
Excess Cash Flow in such fiscal year, minus (B) the principal amount of Notes
theretofore purchased by the Company in the open market and the principal amount
of Notes theretofore redeemed by the Company pursuant to clause (a) of Section
1101 and not theretofore credited against the Company's obligation to make an
Excess Cash Flow Offer for a prior fiscal year. The purchase price of Notes to
be purchased pursuant to an Excess Cash Flow Offer shall be equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Excess Cash Flow Payment Date. The Excess Cash Flow Offer is required to
remain open for 20 Business Days and payment pursuant to the Excess Cash Flow
Offer will be made on the Excess Cash Flow Payment Date.
(b) Notwithstanding the foregoing, the Company will not be
required to make an Excess Cash Flow Offer for any fiscal year if the amount of
such Excess Cash Flow Offer would be less than $5.0 million (which amount shall
be carried forward for purposes of determining whether an Excess Cash Flow Offer
is required with respect to subsequent fiscal years). To the extent an Excess
Cash Flow Offer is not fully subscribed to by Holders of the Notes, the
unsubscribed portion of such Excess Cash Flow may be retained by the Company
and/or used for
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any purpose, subject to the covenants herein, and shall be excluded from the
calculation of Excess Cash Flow for any subsequent period.
(c) Notice of each Excess Cash Flow Offer shall be mailed or
caused to be mailed by first class mail, not less than 20 Business Days before
the Excess Cash Flow Payment Date to all Holders of Notes at their last
registered address, with a copy to the Trustee. The notice shall contain all
instructions and materials necessary to enable such Holder to tender Notes
pursuant to the Excess Cash Flow Offer and shall state the following terms:
(i) that the Excess Cash Flow Offer is being made
pursuant to this Section 1023 and that all Notes tendered and not
withdrawn will be accepted for payment; PROVIDED, HOWEVER, that if the
aggregate principal amount of Notes tendered in an Excess Cash Flow
Offer plus accrued interest at the expiration of such offer exceeds the
aggregate amount as contemplated by the first paragraph of this Section
1023, the Company shall select the Notes to be purchased on a PRO RATA
basis;
(ii) the purchase price (including the amount of
accrued interest, if any) and the excess Cash Flow Payment Date and
that the Excess Cash Flow Offer is required to remain open for at least
20 Business Days and until the close of business on the Excess Cash
Flow Payment Date;
(iii) that any Note not tendered will continue to
accrue interest;
(iv) that unless the Company defaults in making
payments therefor, any Note accepted for payment pursuant to the Excess
Cash Flow Offer shall cease to accrue interest on and after the Excess
Cash Flow Payment Date;
(v) that Holders electing to have a Note purchased
pursuant to an Excess Cash Flow Offer will be required to surrender
such Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the
Excess Cash Flow Payment Date;
(vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the 10th Business
Day prior to the Excess Cash Flow Payment Date, a facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Notes the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such
Notes purchased; and
(vii) that Holders whose Notes are purchased only in
part will be issued new Notes in a principal amount equal to the
unpurchased portion of the Notes surrendered.
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(d) On or before the Excess Cash Flow Payment Date, the
Company shall (1) accept for payment Notes or portions thereof tendered pursuant
to the Excess Cash Flow Offer which are to be purchased in accordance with item
(i) above, (2) deposit with the Paying Agent an amount sufficient to pay the
purchase price plus accrued interest, if any, of such Notes or the relevant
portions thereof and (3) deliver to the Trustee such Notes together with an
Officers' Certificate stating the Notes or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail to the Holders of such Notes
payment in an amount equal to the purchase price plus accrued and unpaid
interest, if any, and the Trustee shall promptly authenticate and mail to such
Holders new Notes equal in principal amount to any unpurchased portion of the
Notes surrendered. For purposes of this Section 1023, the Trustee shall act as
the Paying Agent.
(e) Any amounts remaining after the purchase of Notes pursuant
to an Excess Cash Flow offer shall be returned by the Trustee to the Company.
(f) The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other applicable
laws or regulations in connection with the purchase of Notes pursuant to this
covenant. To the extent that the provisions of any applicable laws or
regulations conflict with the provisions herein, the Company will comply with
the applicable laws and regulations and shall not be deemed to have breached its
obligations described under this Section 1023 by virtue thereof.
SECTION 1024. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in Sections 1007 through 1023,
inclusive, if before or after the time for such compliance the Holders of a
majority in principal amount of the outstanding Notes, by Act of such Holders,
waive such compliance in such instance with such term, provision or condition,
but no such waiver shall extend to or affect such term, provision or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.
ARTICLE 11. REDEMPTION OF NOTES
SECTION 1101. OPTIONAL REDEMPTION; OPTIONAL TAX REDEMPTION.
(a) The Notes will be subject to redemption at the option of
the Company at any time on and after January 30, 2003 and prior to maturity, in
whole or in part, at the following redemption prices (expressed as percentages
of principal amount), plus accrued interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant Interest Payment Date):
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If redeemed during the 12-month period commencing on January
30 of the years set forth below:
<TABLE>
<CAPTION>
Period Redemption Price
------ ----------------
<S> <C>
2003............................................... 104.125%
2004............................................... 102.750%
2005............................................... 101.375%
2006 and thereafter................................ 100.00%
</TABLE>
In addition, at any time and from time to time prior to
January 30, 2001, the Company may redeem in the aggregate up to 331/3% of the
original principal amount of the Notes with the proceed of one or more Equity
Offerings received by the Company so long as there is a Public Market at the
time of such redemption, at a redemption price (expressed as a percentage of
principal amount) of 108.25% plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant Interest Payment Date);
PROVIDED, HOWEVER, that at least 662/3% of the original principal amount of the
Notes must remain outstanding after each such redemption.
(b) The Notes will be subject to redemption at the option of
the Company or a successor corporation at any time, in whole but not in part, at
a redemption price equal to the principal amount thereof plus accrued and unpaid
interest, if any, to the redemption date if, as a result of any change in an
amendment to the laws or any regulations or ruling promulgated thereunder of (x)
Bermuda or any political subdivision or governmental authority thereof or
therein having power to tax, (y) any jurisdiction, other than the United States,
from or through which payment on the Notes is made by the Company or a successor
corporation, or its paying agent in its capacity as such or any political
subdivision or governmental authority thereof or therein having the power to tax
or (z) any other jurisdiction, other than the United States, in which the
Company or a successor corporation is organized, or any political subdivision or
governmental authority thereof or therein having the power to tax or any change
in the official application or interpretation of such laws, regulations or
rulings, or any change in the official application or interpretation of, or any
execution of or amendment to, any treaty or treaties affecting taxation to which
such jurisdiction (or such political subdivision or taxing authority) is a party
(a "Change in Tax Law"), which becomes effective on or after the date of this
Indenture, the Company or a successor corporation is or would be required on the
next succeeding Interest Payment Date to pay Additional Amounts with respect to
the Notes, and the payment of such Additional Amounts cannot be avoided by the
use of any reasonable measures available to the Company or a successor
corporation.
(c) The Notes will be subject to redemption at the option of
the Company at any time, in whole, but not in part, at a redemption price equal
to the principal amount thereof plus accrued interest to the redemption date if
the Person formed by a consolidation or amalgamation of the Company or into
which the Company is merged or to which the Company conveys, transfers or leases
its properties and assets, substantially as an entirety is required (pursuant to
Section 1022 of
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this Indenture), as a consequence of such consolidation, amalgamation, merger,
conveyance, transfer or lease and as a consequence of a Change in Tax Law
occurring after the date of such consolidation, amalgamation, merger,
conveyance, transfer or lease, to pay Additional Amounts in respect of any tax,
assessment or governmental charge, imposed on any Holder. Prior to the giving of
notice of redemption of such Notes pursuant to this Indenture, such Successor
Company will deliver to the Trustee an Officers' Certificate, stating that such
Person is entitled to effect such redemption and setting forth in reasonable
detail a statement of circumstances showing that the conditions precedent to the
right of such Person to redeem such Notes pursuant to this Section 1101 have
been satisfied.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Notes at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 90 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.
If less than all the Notes are to be redeemed at any time
pursuant to an optional redemption, the particular Notes to be redeemed shall be
selected not more than 90 days prior to the Redemption Date by the Trustee, from
the outstanding Notes not previously called for redemption, in compliance with
the requirements of the principal securities exchange, if any, on which such
Notes are listed, or, if such Notes are not so listed, on a pro rata basis, by
lot or by such other method as the Trustee in its sole discretion shall deem
fair and appropriate (and in such manner as complies with applicable legal
requirements) and which may provide for the selection for redemption of portions
of the principal of the Notes; PROVIDED, HOWEVER, that no such partial
redemption shall reduce the portion of the principal amount of a Note not
redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Notes shall relate,
in the case of any Note redeemed or to be redeemed only in part, to the portion
of the principal amount of such Note which has been or is to be redeemed.
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SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided for
in Section 106 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed. The Trustee shall give notice of
redemption in the Company's name and at the Company's expense; PROVIDED,
HOWEVER, that the Company shall deliver to the Trustee, at least 45 days prior
to the Redemption Date, an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information to be stated in such notice
as provided in the following items.
All notices of redemption shall state:
(i) the Redemption Date,
(ii) the redemption price and the amount of accrued
interest to the Redemption Date payable as provided in Section 1107, if
any,
(iii) if less than all outstanding Notes are to be
redeemed, the identification of the particular Notes (or portion
thereof) to be redeemed, as well as the aggregate principal amount of
Notes to be redeemed and the aggregate principal amount of Notes to be
outstanding after such partial redemption,
(iv) in case any Note is to be redeemed in part only,
the notice which relates to such Note shall state that on and after the
Redemption Date, upon surrender of such Note, the Holder will receive,
without charge, a new Note or Notes of authorized denominations for the
principal amount thereof remaining unredeemed,
(v) that on the Redemption Date the redemption price
(and accrued and unpaid interest, if any, to the Redemption Date
payable as provided in Section 1107) will become due and payable and,
unless the Company defaults in making the redemption payment, that
interest of Notes called for redemption (or the portion thereof) will
cease to accrue on and after said date.
(vi) the place or places where such Notes are to be
surrendered for payment of the redemption price and accrued interest,
if any,
(vii) the name and address of the Paying Agent,
(viii) that Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price,
(ix) the CUSIP number, and that no representation is
made as to the accuracy or correctness of the CUSIP number, if any,
listed in such notice or printed on the Notes, and
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(x) the paragraph of the Notes or Section of this
Indenture pursuant to which the Notes are to be redeemed.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money sufficient to pay the redemption price of, and accrued and unpaid
interest on, all the Notes which are to be redeemed on that date.
SECTION 1107. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Notes
so to be redeemed shall on the Redemption Date, become due and payable at the
redemption price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the redemption price and accrued
interest) such Notes shall cease to bear interest. Upon surrender of any such
Note for redemption in accordance with said notice, such Note shall be paid by
the Company at the redemption price, together with accrued and unpaid interest,
if any, to the Redemption Date; PROVIDED, HOWEVER, that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Notes registered as such at close of business on the
relevant Regular Record Date or Special Record Date, as the case may be,
according to their terms and the provisions of Section 311.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1108. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holder's attorney duly authorized in writing),
and the Company shall execute, and the Trustee shall authenticate and deliver to
the Holder of such Note at the expense of the Company, a new Note or Notes, of
any authorized denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Note so surrendered, PROVIDED, that, each such new Note will be
in a principal amount of $1,000 or integral multiple thereof.
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SECTION 1109. OFFER TO PURCHASE BY APPLICATION OF EXCESS
PROCEEDS.
In the event that, pursuant to Section 1016 hereof, the
Company shall be required to commence an offer to all Holders of Notes and, to
the extent required by the terms thereof, to all holders or lenders of other
PARI PASSU Notes, to purchase Notes and any such PARI PASSU Notes (an "Asset
Disposition Offer"), it shall follow the procedures specified below.
The Asset Disposition Offer shall remain open for a period of
20 Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Asset Disposition Offer
Period"). No later than five Business Days after the termination of the Offer
Period (the "Asset Disposition Offer Purchase Date"), the Company shall purchase
the principal amount of Notes required to be purchased pursuant to Section 1016
hereof, giving effect to any related offer for PARI PASSU Notes pursuant to
Section 1016 (the "Asset Disposition Offer Amount") or, if less than the Asset
Disposition Offer Amount has been tendered, all Notes tendered in response to
the Asset Disposition Offer. Payment for any Notes so purchased shall be made in
the same manner as interest payments are made.
If the Asset Disposition Offer Purchase Date is on or after an
interest record date and on or before the related Interest Payment Date, any
accrued and unpaid interest shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest shall be payable to Holders who tender Notes pursuant to the Asset
Disposition Offer.
Upon the commencement of an Asset Disposition Offer, the
Company shall send, by first class mail, a notice to the Trustee and each of the
Holders. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to the Asset Disposition Offer. The
Asset Disposition Offer shall be made to all Holders. The notice, which shall
govern the terms of the Asset Disposition Offer, shall state:
(i) that the Asset Disposition Offer is being made
pursuant to this Section and Section 1016 hereof and the length of time
the Asset Disposition Offer shall remain open;
(ii) the Asset Disposition Offer Amount, the purchase
price and the Asset Disposition Offer Purchase Date;
(iii) that any Note not tendered or accepted for
payment shall continue to accrue interest;
(iv) that, unless the Company defaults in making such
payment, any Note accepted for payment pursuant to the Asset
Disposition Offer shall cease to accrue interest after the Asset Offer
Purchase Date;
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(v) that Holders electing to have a Note purchased
pursuant to an Asset Disposition Offer may only elect to have all of
such Note purchased and may not elect to have only a portion of such
Note purchased;
(vi) that Holders electing to have a Note purchased
pursuant to any Asset Disposition Offer shall be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, or transfer by book-entry
transfer, to the Company, a Depositary, if appointed by the Company, or
a Paying Agent at the address specified in the notice at least three
Business Days before the Asset Disposition Offer Purchase Date;
(vii) that Holders shall be entitled to withdraw
their election if the Company, the Depositary or the Paying Agent, as
the case may be, receives, not later than the expiration of the Asset
Disposition Offer Period, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of
the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(viii) that, if the aggregate principal amount of
Notes surrendered by Holders exceeds the Asset Disposition Offer
Amount, the Company shall select the Notes to be purchased on a PRO
RATA basis (with such adjustments as may be deemed appropriate by the
Company so that only Notes in denominations of $1,000, or integral
multiples thereof, shall be purchased) in the manner provided in
Section 1016; and
(ix) that Holders whose Notes were purchased only in
part shall be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered (or transferred by
book-entry transfer).
If any of the Notes subject to an Asset Disposition Offer is
in the form of a Global Note, then such notice may be modified in form but not
substance to the extent appropriate to accord with the procedures of the
Depositary applicable to repurchases.
On or before the Asset Disposition Offer Purchase Date, the
Company shall, to the extent lawful, accept for payment, on a pro rata basis to
the extent necessary, the Asset Disposition Offer Amount of Notes or portions
thereof tendered pursuant to the Asset Disposition Offer, or if less than the
Asset Disposition Offer Amount has been tendered, all Notes tendered, and shall
deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section. The Company, the Depositary or the Paying Agent, as the
case may be, shall promptly (but in any case not later than five days after the
Asset Disposition Offer Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Note, and the Trustee, upon receipt of a Company Order directing the Trustee to
authenticate the new Note, shall authenticate
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and mail or deliver such new Note to such Holder, in a principal amount equal to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Disposition Offer on
the Asset Sale Offer Purchase Date.
Other than as specifically provided in this Section, any
purchase pursuant to this Section shall be made pursuant to the applicable
provisions of this Article Eleven.
ARTICLE 12. LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. COMPANY'S OPTION TO EFFECT LEGAL DEFEASANCE OR
COVENANT DEFEASANCE.
The Company and the Guarantors, if any, may, at their option,
at any time, with respect to the Notes, elect to have either Section 1202 or
Section 1203 be applied to all outstanding Notes upon compliance with the
conditions set forth in this Article Twelve. The Company in its sole discretion
can defease the Notes.
SECTION 1202. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company and any Guarantor shall be deemed
to have been discharged from its obligations with respect to all outstanding
Notes on the date the conditions set forth in Section 1204 are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Company and any such Guarantor shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes, which
shall thereafter be deemed to be "outstanding" only for the purposes of Section
1205 and the other Sections of this Indenture referred to in (i) and (ii) below,
and to have satisfied all its other obligations under such Notes and this
Indenture insofar as such Notes are concerned (and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of outstanding Notes to receive, solely
from the trust fund described in Section 1204 and as more fully set forth in
such Section, payments in respect of the principal of (and premium, if any, on)
and interest on such Notes when such payments are due, (ii) the Company's
obligations with respect to such Notes under Sections 304, 305, 310, 1002 and
1003, (iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, and the Company's obligations in connection therewith and (iv) this
Article Twelve.
If the Company or any Guarantor exercises its Legal Defeasance
Option, payment of the Notes may not be accelerated because of an Event of
Default.
100
<PAGE>
Subject to compliance with this Article Twelve, the Company or
any Guarantor may exercise its option under this Section 1202 notwithstanding
the prior exercise of its option under Section 1203 with respect to the Notes.
SECTION 1203. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203 the Company may terminate (i) its obligations
under any covenant contained in Sections 1004 through 1023, (ii) the operation
of Section 501(vi), Section 501(vii) (with respect only to Significant
Subsidiaries), and Section 501 (viii) and (iii) the limitations contained in
Section 801 (iii) and (iv) with respect to the outstanding Notes on and after
the date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Notes shall thereafter be deemed not to be "outstanding"
for the purposes of any direction, waiver, consent or declaration or Act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder
(it being understood that such Notes will not be outstanding for accounting
purposes). If the Company exercises its covenant defeasance option, payment of
the Notes may not be accelerated because of an Event of Default specified under
Section 501 (iii) (but only with respect to the Company's failure to comply with
clause (iii) or (iv) of Section 801), (iv), (v) (but only with respect to
defaults relating to failure to comply with its obligations under Sections 1004
through 1008, 1021 and 1022), (vi), (vii) (with respect only to Significant
Subsidiaries), or (viii). For this purpose, such Covenant Defeasance means that,
with respect to the outstanding Notes, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document. Except
as specified above, the remainder of this Indenture and such Notes shall be
unaffected by the provisions of this Section.
SECTION 1204. CONDITIONS TO LEGAL DEFEASANCE OR COVENANT
DEFEASANCE.
The following shall be the conditions to application of either
Section 1202 or Section 1203 to the outstanding Notes:
(i) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trustee satisfying
the requirements of this Indenture who shall agree to comply with the
provisions of this Article Twelve applicable to it) as trust funds in
trust money or Government Obligations, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants selected by the Company, to pay the
principal of, premium, if any, and interest due on the outstanding
Notes on the Stated Maturity or on the applicable Redemption Date or
purchase date as the case may be, of such principal, premium, if any,
or interest on the outstanding Notes;
(ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee (A) an Opinion of Counsel in the
United States reasonably acceptable to the
101
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Trustee confirming that (1) the Company has received from, or there has
been published by, the United States Internal Revenue Service a ruling
or (2) since the Issue Date, there has been a change in the applicable
U.S. federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel in the United States shall
confirm that the Holders of the outstanding Notes will not recognize
income, gain or loss for U.S. federal income tax purposes as a result
of such Legal Defeasance and will be subject to U.S. federal income tax
on the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred and (B) an
Opinion of Counsel in the Company's jurisdiction of incorporation (if
other than the United States) reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for tax purposes in the Company's jurisdiction of
incorporation as a result of such Legal Defeasance and discharge and
will be subject to such taxes, if any, on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred.
(iii) in the case of Covenant Defeasance, the Company
shall have delivered to the Trustee (A) an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of such Covenant
Defeasance and will be subject to such tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred and (B) an Opinion of Counsel in
the Company's jurisdiction of incorporation (if other than the United
States) reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income gain or loss
for tax purposes in the Company's jurisdiction of incorporation as a
result of such Covenant Defeasance and will be subject to such taxes,
if any, on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not
occurred.
(iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned,
at any time in the period ending on the 123rd day after the date of
deposit;
(v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default
under, any material agreement or instrument (other than this Indenture)
to which the Company or any Guarantor is a party or by which the
Company or any Guarantor is bound;
(vi) the Company shall have delivered to the Trustee
an Opinion of Counsel to the effect that, as of the date of such
opinion following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally under any applicable
U.S. federal or state
102
<PAGE>
law, and that the Trustee has a perfected security interest in such
trust funds for the ratable benefit of the Holders;
(vii) the Company shall have delivered to the Trustee
an Officers' Certificate stating that the deposit was not made by the
Company with the intent of defeating, hindering, delaying or defrauding
any creditors of the Company or any Guarantor or others;
(viii) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent provided for or relating to the
Legal Defeasance or the Covenant Defeasance, as the case may be, have
been complied with; and
(ix) the Company shall have delivered to the Trustee
the opinion of a nationally recognized firm of independent public
accountants stating the matters set forth in paragraph (i) above.
SECTION 1205. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section
1003, all money and Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1205, the "Trustee") pursuant to Section 1204 in
respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of principal
(and premium, if any) and interest, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the Government
Obligations deposited pursuant to Section 1204 or the principal and interest
received in respect thereof.
Anything in this Article Twelve to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or Government Obligations held by it as
provided in Section 1204 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent legal defeasance or covenant
defeasance, as applicable, in accordance with this Article.
103
<PAGE>
SECTION 1206. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any
money or Government Obligations in accordance with Section 1205 by reason of any
legal proceeding or by any reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1202 or 1203, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1205; PROVIDED, HOWEVER, that if the Company makes any payment of principal of
(or premium, if any) or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money and Government Obligations
held by the Trustee or Paying Agent.
104
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above written.
FLAG LIMITED
By /s/ NAME OF SIGNATORY
----------------------------------
Name: Edward McCormack
Title: Chief Financial Officer
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By
----------------------------------
Name:
Title:
105
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above written.
FLAG LIMITED
By
----------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By /s/ NAME OF SIGNATORY
----------------------------------
Name: Stephen J. Giurlando
Title: Assistant Vice President
106
<PAGE>
Dated ____________________________ 1999
(1) FLAG ATLANTIC HOLDINGS LIMITED
(2) GTS TRANSATLANTIC HOLDINGS, LTD.
-------------------------------------
FURTHER RESTATED SHAREHOLDERS AGREEMENT
-------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION.......................................................................1
2. PURPOSE............................................................................................5
3. INCORPORATION, CAPITALIZATION AND COMPLETION......................................................5
4. GOVERNANCE........................................................................................10
5. TRANSFER OF SHARES................................................................................14
6. CONSTRUCTION OF THE SYSTEM........................................................................17
7. CAPACITY PURCHASE.................................................................................18
8. SYSTEM MARKETING..................................................................................21
9. DIVIDEND AND INVESTMENT POLICIES..................................................................22
10. AUDITORS AND ACCOUNTS.............................................................................23
11. DEADLOCK..........................................................................................24
12. BUSINESS PLAN.....................................................................................26
13. BUSINESS PRACTICES................................................................................27
14. TERM AND TERMINATION..............................................................................28
15. CONFIDENTIALITY...................................................................................31
16. PROPRIETARY RIGHTS................................................................................32
17. MUTUAL CO-OPERATION...............................................................................33
18. RESTRICTIONS ON ANNOUNCEMENTS.....................................................................34
19. NO PARTNERSHIP....................................................................................34
20. REMEDIES..........................................................................................34
21. REPRESENTATIONS AND WARRANTIES....................................................................35
22. ASSIGNMENT........................................................................................35
23. ENTIRE AGREEMENT..................................................................................36
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
24. VARIATION.........................................................................................36
25. NOTICES...........................................................................................36
26. WAIVER............................................................................................38
27. GOVERNING LAW AND DISPUTE RESOLUTION..............................................................38
28. SEVERABILITY......................................................................................39
29. SURVIVAL..........................................................................................39
</TABLE>
ANNEXES
Annex 1 -........Description of System
Annex 2 -........Terms For Customer Marketing Agreement
Annex 3 -........Form of Capacity Right of Use Agreement
Annex 4 -........Technical Specifications for Subsea Element
Annex 5 -........Technical Specifications for Backhaul Elements
Annex 6 -........Key Commercial Terms
Annex 7 -........Code of Business Conduct
Annex 8 -........Arbitration Agreement
<PAGE>
RESTATED SHAREHOLDERS AGREEMENT
THIS AGREEMENT is made the ____ day of ___________________ 1999, by and between
FLAG Atlantic Holdings Limited, a company incorporated in Bermuda ("FLAG") and
GTS TransAtlantic Holdings, Ltd., a company incorporated in Bermuda ("GTS" and
together with FLAG the "Shareholders").
WITNESSETH:
WHEREAS, the Shareholders wish to participate in the construction, ownership and
commercial exploitation of a transatlantic cable system as described in Annex 1
hereto (as it may be amended from time to time) (the "System") and for such
purpose have established a joint venture company in Bermuda with the name of
FLAG Atlantic Limited (the "Company"); and
WHEREAS, the Shareholders executed a Shareholders Agreement dated 12 January
1999 which sets forth the terms on which the Company will be capitalized and
managed and defines the Shareholders respective rights and obligations as
shareholders of the Company, which Shareholders Agreement was restated in its
entirety on 8 July 1999; and
WHEREAS, the Shareholders wish to further restate and amend such Shareholders
Agreement in its entirety.
NOW, THEREFORE, in consideration of the premises the Shareholders hereby agree
as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 For purposes of this Agreement, the following terms shall have the
following meanings and terms defined elsewhere in this Agreement shall have the
meanings ascribed thereto:
Page 1 of 42
<PAGE>
"Affiliate" shall mean, with respect to any entity, any company or other
entity controlling, controlled by or under common control with such first
entity. For purposes of this Agreement, "control" means the possession
directly or indirectly through Beneficial Ownership or otherwise of the
power to direct or cause the direction of the management or policies of a
company or other entity, whether through the ownership of voting
securities, by contract or otherwise and cognate terms shall have a
corresponding meaning. For purposes of this Agreement (other than Clause
5.2), each shareholder of GTS and all Affiliates of such shareholder
shall be deemed to be Affiliates of GTS.
"Agreement" shall mean this Agreement and the Annexes hereto.
"Ancillary Agreements" shall mean the Supply Contract, the Capacity
Agreements between the Company and any Shareholder or any Affiliate of a
Shareholder, and the agreements referred to in Clauses 3.3 (a)-(e) and
3.4.2.
"Beneficial Owner" shall mean with respect to any security any person
who, directly or indirectly, through any contract, or other legally
enforceable and irrevocable arrangement, understanding or relationship
(including, without limitation, by virtue of the control of any other
person) has or shares: (a) voting power which includes the power to vote,
or direct the voting of, such security: and/or (b) investment power which
includes the power to dispose, or to direct the disposition of, such
security. A person shall be deemed to be the Beneficial Owner of a
security if that person has the right to acquire beneficial ownership of
such security, as defined above, within 60 days of the date Beneficial
Ownership is determined, including but not limited to any right to
acquire (i) through the exercise of any option, warrant or right; (ii)
through the conversion of a security; or (iii) pursuant to the power to
revoke a trust, discretionary account, or similar arrangement; and
"Beneficial Ownership" has a similar meaning.
Page 2 of 42
<PAGE>
"Board" shall mean the Board of Directors of the Company constituted in
accordance with the provisions of this Agreement.
"Capacity Agreements" shall mean the agreements entered into pursuant to
Clause 7.1 and the other agreements pursuant to which the Products (as
such term is defined in clause 8.2) of the Company are sold, such other
agreements being substantially in the form of Annex 3 as from time to
time amended or as otherwise approved by the Board.
"Construction Management Agreements" shall mean the contracts with FLAG,
GTS or any of their Affiliates referred to in Clause 3.3(a).
"Date of Financial Closure" shall mean the date on which the conditions
precedent specified in Clause 3.6 have been met and the Project Finance
is in place.
"Deadlock" shall mean any situation which has persisted for not less than
60 days in which
(i) by virtue of a substantial disagreement between the
Shareholders, whether at Board or Shareholder level or both,
and which is manifested by an equality of votes at any meeting
of the Board or, as the case may be, the Shareholders; or
(ii) by virtue of an inability to form a quorum at any meeting or
adjourned meeting of the Board or Shareholders
a matter which is reserved to the Board or the Shareholders in accordance
with Clause 4.9 or 4.10 cannot be resolved.
"Expert" shall mean an independent consulting firm or individual chosen
in accordance with Clause 11.4.
"European Backhaul Element" shall be as described in Annex 5.
Page 3 of 42
<PAGE>
"Facilities Management Agreement" shall mean the contract with FLAG, GTS
or any of their Affiliates referred to in Clause 3.3 (d).
"Landing Station" shall mean a facility forming part of the Subsea
Element at and through which the subsea cable interfaces with the
European or United States Backhaul Element, as relevant.
"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.
"Project Finance" shall mean debt financing non-recourse to the
Shareholders provided to the Company by one or more reputable financial
institutions which will allow the Company to draw down up to such amount
as provided for in the initial Business Plan in order to finance the
construction of the System.
"Subsea Element" shall be as described in Annex 4.
"Supplier" shall mean Alcatel Submarine Networks.
"Supply Contract" shall mean the construction contract between the
Company and the Supplier for the construction of the Subsea Element
(excluding Landing Station construction) dated 20 September 1999 under
which the Supplier has (amongst other things) committed to increase the
capacity of the System to 2.4 terabits.
"United States Backhaul Element" shall be as described in Annex 5.
Page 4 of 42
<PAGE>
1.2 References to any document (including this Agreement) are
references to that document as amended, consolidated,
supplemented, novated or replaced from time to time.
1.3 In the event of any conflict or inconsistency between this
Agreement and any Ancillary Agreement, this Agreement shall take
precedence except to the extent that such Ancillary Agreement
expressly provides otherwise.
2. PURPOSE
The purpose of the Company shall be the construction, ownership,
maintenance and operation of the System and such other ancillary
activities as the Shareholders may agree in writing.
3. INCORPORATION, CAPITALIZATION AND COMPLETION
3.1 The Shareholders have incorporated the Company under the laws of
Bermuda and have adopted Bye-Laws consistent with this Agreement.
In the event of any inconsistency between the terms of this
Agreement and the Memorandum of Association or Bye-Laws of the
Company, the terms of this Agreement shall prevail and the
Memorandum of Association or Bye-Laws, as relevant, shall be
amended to eliminate such inconsistency.
3.2 The authorized capital of the Company is initially US$12,000,
divided into 12,000 shares of US$1.00 each (the "Shares"). Each
Shareholder has on 12 January 1999 subscribed for 6,000 Shares at
par. Subject to satisfaction of the conditions precedent set forth
in Clause 3.6, each Shareholder shall make capital contributions
(or, if requested by the Board, subordinated loans), up to a
maximum of US$100,000,000 per Shareholder, pursuant to capital
calls made in accordance with the schedule to be agreed in
accordance with Clause 3.6(f) ("Committed Capital Contributions").
On the Date of Financial Closure each Shareholder shall deliver to
the Company an irrevocable letter of credit acceptable to the
Company's lenders to secure its obligations to
Page 5 of 42
<PAGE>
make Committed Capital Contributions as required (the
"Irrevocable Letters of Credit").
3.3 The Shareholders shall use reasonable commercial endeavours to, or
shall cause the Company and/or their appropriate Affiliates to use
reasonable commercial endeavours to, as the case may be, take the
following actions or enter into the following agreements:
(a) construction management contracts between the Company and:
(i) FLAG, or an Affiliate of FLAG, pursuant to which
FLAG or such Affiliate will, to standards set
forth in the agreement, oversee the construction
of the Subsea Element (the "FLAG Construction
Management Agreement");
(ii) GTS, or an Affiliate of GTS, pursuant to which
GTS or such Affiliate will, to standards set
forth in the agreement, oversee the construction,
acquisition and/or installation of the European
and the United States Backhaul Elements (the "GTS
Construction Management Agreement");
(b) a customer marketing agreement, under which FLAG and/or
Affiliates of FLAG and GTS and /or Affiliates of GTS agree
to market the Products in accordance with terms set forth
in Annex 2;
(c) an arbitration agreement among the Shareholders and all
other parties (other than the Supplier) to the other
Ancillary Agreements, substantially in the form of Annex 8;
(d) a facilities management agreement among (1) FLAG or an
Affiliate of FLAG, (2) GTS or an Affiliate of GTS and (3)
the Company, under which FLAG, GTS and/or such Affiliates,
will operate, manage and maintain the System and under
which FLAG or its Affiliate will provide accounting and
administrative services to the Company;
(e) by 31 March 2000, backhaul agreements among the Company,
FLAG, GTS and Affiliates of FLAG and GTS, providing for the
acquisition by
Page 6 of 42
<PAGE>
FLAG and GTS and/or their Affiliates of additional dark
fibre and/or duct space and/or wavelengths for purposes not
related to the Company in the European and United States
Backhaul Elements ***;
(f) a Capacity Agreement between the Company and GTS or an
Affiliate of GTS providing for the purchase by GTS or such
Affiliate of rights of use in the System as provided in
Clause 7.1;
(g) Capacity Agreements between the Company and FLAG or an
Affiliate of FLAG and/or such other purchasers as FLAG has
procured providing for the purchase of capacity in the
System as provided in Clause 7.2;
(h) develop and agree an optimum plan for System upgrades based
on foreseeable demand and the time required to effectuate
such upgrades, including appropriate trigger events; and
(i) agree and approve the initial Business Plan and the
construction budget as provided in Clause 12.
3.4
3.4.1 FLAG shall use its reasonable commercial endeavours in
co-operation with GTS to arrange Project Finance on behalf
of the Company; provided that agreement to the terms and
conditions of such Project Finance is subject to the
unanimous approval of the Shareholders.
3.4.2 GTS shall use its reasonable commercial endeavours to
arrange for the execution and delivery of construction or
acquisition or lease contracts between the Company and
third parties pursuant to which the ducts, fibre and
accommodations for the European Backhaul Element and United
States Backhaul Element will be constructed or acquired or
leased by such time as is necessary for the timely
completion of the construction of the System or such
earlier date as may be required in order to satisfy the
requirements of Clause 3.6(b).
Page 7 of 42
<PAGE>
3.5
3.5.1 The Shareholders shall make shareholder loans to and/or
provide security on behalf of the Company (the "Loans") as
required for the period from 12 January 1999 up to the Date
of Financial Closure (up to a maximum aggregate amount of
US$5.5 million for each Shareholder), in order to satisfy
the Company's obligations under the Supply Contract and to
finance the costs of the DGMs referred to in Clause 8.5.
The Loans shall be repayable by the Company upon the Date
of Financial Closure.
3.5.2 The assets of the Company (including the work done under
the Supply Contract) shall be security for the Loans. In
the event that both parties have fulfilled their
obligations under this Clause 3.5 but Project Finance is
not secured and the Supplier terminates the Supply Contract
pursuant to the terms thereof, the work transferred to the
Company under the Supply Contract shall be jointly owned by
the Shareholders and each shall be free to use it as it
wishes.
3.6 The obligations of each Shareholder to make its Committed Capital
Contributions as provided in Clause 3.2, and of each Shareholder
and its Affiliates to proceed further with the construction of the
System and to purchase capacity on the System are subject to the
satisfaction of the following conditions by 12 October 1999:
(a) the delivery of the Irrevocable Letters of Credit;
(b) Project Finance is available subject only to conditions
precedent and the conditions precedent required to make the
first drawings under such Project Finance are satisfied;
(c) the Supplier shall have delivered a parent company
guarantee and a performance bond acceptable to each
Shareholder securing its obligations to the Company under
the Supply Contract;
Page 8 of 42
<PAGE>
(d) the documents and agreements set forth in Clause 3.3 (other
than those agreements to be entered into pursuant to Clause
3.3(e)) have been executed or agreed and remain valid and
binding;
(e) letters of credit in favour of the Company as required by
Clause 7.3 shall have been delivered in respect of the
Capacity Agreements referred to in Clauses 3.3(f) and (g);
(f) the Shareholders have developed and agreed a schedule for
Committed Capital Contributions;
(g) there shall have been no change in control of the other
Shareholder from the date hereof;
(h) US$100 million of capacity sales (in addition to those
covered by Clauses 7.1 and 7.2), shall have been concluded;
and
(i) Global Telesystems Group Inc. ("GTSG") have received a
commitment, in a form satisfactory to GTSG, from the five
largest shareholders of FLAG Telecom Holdings Limited that
any change prior to 31 October 1999 (or termination of this
Agreement, if earlier) of more than 50% in the Beneficial
Ownership of FLAG will be subject to the purchaser being
willing to have the construction, operation and maintenance
of the System proceed in accordance with the terms hereof.
In the event that any condition precedent is not satisfied by the
date set forth above for such condition precedent, or such later
date as the Shareholders may agree in writing, the Shareholders
agree to terminate this Agreement as provided herein.
3.7 The Company may, with the approval of the Board, establish one or
more subsidiary companies for the purpose of fulfilling its
obligations as contemplated by this Agreement and the Ancillary
Agreements. Such subsidiary companies may own portions of the
System for regulatory and tax purposes.
Page 9 of 42
<PAGE>
3.8 Each Shareholder shall pay its respective costs and expenses
relating to the consummation of the transactions contemplated
hereby. The costs of incorporation of the Company, including but
not limited to legal fees and expenses and registration fees, and
expenses incurred in negotiating and concluding agreements between
the Company and third parties, shall be borne by the Company.
4. GOVERNANCE
4.1 The Company shall be managed by a Board consisting of ten
Directors, half of whom shall be nominated by each Shareholder. A
quorum for Board meetings shall be two Directors appointed by each
Shareholder. The right to nominate a Director shall include the
right to require the removal of such Director and the right to
nominate a replacement for such Director.
4.2 One Director nominated by each Shareholder shall be co-chairman of
the Board, but for Bermuda law purposes, the Board shall name one
co- chairman as Chairman and one co-chairman as Deputy Chairman.
For the first year, the co-chairman nominated by FLAG shall be
Chairman and the co-chairman nominated by GTS shall be Deputy
Chairman. For each subsequent year, the positions shall be rotated
such that the positions of Chairman and Deputy Chairman are held
by nominees of the Shareholders in turn. Neither the Chairman nor
the Deputy Chairman shall have a casting vote.
4.3 The Shareholders shall vote their Shares to elect the persons
nominated by the Shareholders pursuant hereto and to remove any
Director where removal has been requested by the Shareholder that
nominated that Director. Each of the Shareholders further agrees
that (a) it will vote or cause to be voted all Shares owned by
such Shareholder, and otherwise act and in all other respects use
its reasonable commercial endeavours so as to comply, to cause its
Affiliates to comply, and to cause the Company to comply with and
act in
Page 10 of 42
<PAGE>
a manner contemplated by the provisions of this Agreement and so
as to implement this Agreement; and (b) if any Director who is the
nominee of a Shareholder pursuant to this Clause for any reason
refuses to exercise his discretion in accordance with the terms of
this Agreement, such Shareholder shall forthwith take all action
within its power or control to remove and replace such Director.
4.4 Actions by the Board shall require the affirmative vote of a
majority of the Directors present at a duly organized meeting,
provided that such majority shall, except as provided in Clause
4.9(e), include at least two Directors nominated by each of the
Shareholders. The Board may also act by means of a written
resolution signed by all of the Directors.
4.5 The management of the Company shall be vested in the Board, which
may exercise all such powers and do all such things as may be
exercised or done by the Company and are not expressly or directly
required to be exercised or done by the Shareholders.
4.6 (a) The Board shall meet at such times as it shall determine, but
in any event not less than four times in any twelve month period
and, in addition, whenever requested in writing by at least one
Director, on not less than seven days' notice, such request to
specify the subjects to be addressed at such meeting. All
meetings of the Board of Directors shall be held in such place
(or by telephone conference call) as the Board shall determine.
(b) Each Shareholder shall nominate a Director, both of whom shall
meet as frequently as necessary but at least bi-weekly during the
construction of the System to review the operations of the
Company and provide the full Board with a report thereon and
appropriate recommendations.
Page 11 of 42
<PAGE>
4.7 Except as otherwise provided in the incorporating documents, the
Shareholders shall meet at least once a year.
4.8 The Company may contract out (to the Shareholders, Affiliates of
the Shareholders or third parties) such activities of the Company
as it deems appropriate.
4.9 The making or taking of any of the following decisions or actions,
as the case may be, or the implementation of any of the following
matters by the Company shall require the consent of the Board:
(a) changing the provisioning and/or implementation of System
upgrades (other than as agreed in accordance with Clause
3.3(h));
(b) change of pricing and Product range (provided that failure
to agree on a change of Product range shall not constitute
a Deadlock);
(c) purchases of assets other than in the ordinary course of
business and declaration and distribution of dividends
(other than as set forth herein);
(d) changing the marketing arrangements;
(e) managing and enforcing the Company's contractual rights and
obligations (except to the extent that authority has been
specifically delegated under the Ancillary Agreements),
including agreeing on appropriate amendments and waivers to
any of the Ancillary Agreements and initiating or settling
any significant litigation, provided that with respect to
litigation involving the Company and a Shareholder or the
Affiliate of a Shareholder, the Directors nominated by such
Shareholder shall not be entitled to vote;
(f) execution by the Company of any agreement with a
Shareholder or an Affiliate of a Shareholder or with a
term of more than one year or likely to require payments
by or to the Company or which may impose upon the Company
liabilities exceeding in the aggregate
Page 12 of 42
<PAGE>
US$2,000,000, other than in accordance with the Business
Plan or as set forth herein;
(g) grants of Liens on the Company's assets;
(h) appointment and removal of officers of the Company;
(i) risk management issues; and
(j) the adoption of accounting policies and changes thereto.
4.10 Notwithstanding anything contained elsewhere in this Agreement to
the contrary, the making or taking of any of the following
decisions or actions, as the case may be, or the implementation
of any of the following matters by the Company shall require the
unanimous agreement of the Shareholders:
(a) annual updates and any interim amendments to the Business
Plan;
(b) capital calls in addition to Committed Capital
Contributions;
(c) acceleration of or any significant variation in the
schedule for Committed Capital Contributions;
(d) issuances of notes, guarantees or other forms of
indebtedness not provided for in the Business Plan;
(e) pursuit of an activity or transaction outside the scope of
Clause 2, such as a new line of business, material
acquisition, joint venture or disposition of assets of the
Company;
(f) approval of any transfer or issuance of shares of the
Company except as provided for in Clause 5 or Clause 14.3;
(g) amalgamation, reorganisation or continuation, statutory or
otherwise, liquidation, winding-up, statutory or otherwise,
dissolution or termination of the existence of the Company
other than as provided for in this Agreement;
(h) admission of new shareholders other than as permitted in
accordance with Clause 5 or Clause 14.3;
(i) decommissioning of the System; and
Page 13 of 42
<PAGE>
(j) agreeing to any variation, amendment or waiver of any
documentation, including but not limited to the credit
agreement, with respect to Project Finance.
5. TRANSFER OF SHARES
5.1 Neither Shareholder shall sell, assign, encumber, pledge or
otherwise transact with any of its Shares or any interest therein
except in accordance with this Clause 5 without the prior written
consent of the other Shareholder.
5.2 Either Shareholder may sell, transfer or otherwise dispose of all,
but not less than all, of its Shares to any Affiliate of such
Shareholder ("Permitted Transferee") which agrees in writing to be
bound by the terms of this Agreement as if the Permitted
Transferee were an original Shareholder, provided that the
obligations of such Affiliate hereunder shall be guaranteed by the
transferring Shareholder if required by the Company's lenders and
if the Permitted Transferee shall cease to be an Affiliate of such
Shareholder it shall be required to transfer such Shares back to
such Shareholder. Each Shareholder shall pledge its Shares to
lenders to the Company as security for the obligations of the
Company to such lenders if so required under the terms of the
Project Finance and, subject to any such pledge, may further
pledge its Shares to other lenders in order to raise funds
necessary for the fulfilment of its obligations under this
Agreement.
5.3
5.3.1 If, after the Date of Financial Closure, one Shareholder
(the "Offeror") wishes to sell, transfer or otherwise
dispose of any or all of its Shares (the "Offered Shares")
other than in accordance with Clause 5.2, the Offeror shall
by notice first offer the Offered Shares to the other
Shareholder (the "Offeree"). Such offer shall set out the
price and all other terms and conditions and state that
such offer shall be
Page 14 of 42
<PAGE>
deemed to be rejected if not accepted within 60 days of
notice of the offer to the Offeree.
5.3.2 The Offeree may within the validity period of the offer
notify the Offeror that the Offeree rejects the offer or
accepts the offer in its entirety. If the Offeree accepts
the offer, it shall within a period of 30 days after
notification of such acceptance purchase the Offered
Shares.
5.3.3 If the Offered Shares shall have been rejected or deemed
rejected in accordance with the foregoing, or if the
Offeree fails to purchase the Offered Shares in accordance
with the foregoing, then the Offeror shall, within a period
of 90 days thereafter, be at liberty to sell, transfer or
otherwise dispose of the Offered Shares to a third party on
terms no less favourable to the Offeror than those offered
to the Offeree, provided that such third party shall be
acceptable to the Offeree acting reasonably and to the
lenders to the Company and shall agree in writing to be
bound by the terms of this Agreement as if it were an
original party hereto. The Shareholders agree that it is
reasonable for an Offeree to withhold approval of a third
party it determines in good faith is not a suitable
business partner.
5.4 FLAG acknowledges and agrees that up to 50% of the Beneficial
Ownership of GTS may be transferred to IXC Communications Services
Europe Limited ("IXC") or its Affiliate or another United States
telecommunications operator acceptable to FLAG (acting reasonably
as provided in Clause 5.3.3). In such case IXC or such other
operator may assume GTS's rights and obligations regarding the
United States Backhaul Element and may become a party to the
customer marketing agreement executed in accordance with Clause
3.3(b).
5.5 If a Shareholder ceases to own at least 50% of the Shares in the
Company (except pursuant to Clause 5.2), then the following
provisions shall apply:
Page 15 of 42
<PAGE>
(a) The first sentence of Clause 4.1 shall be deleted and the
following substituted therefor:
The Company shall be managed by a Board consisting of ten
Directors. The owner of the majority of Shares of the
Company shall be entitled to appoint one Director for each
10% of the Shares or fraction thereof held by it; and the
owner of the minority of the Shares shall be entitled to
appoint the remaining Directors; provided that the owner of
the minority of the Shares shall in any event be entitled
to appoint at least two Directors.
(b) Notwithstanding Clause 3.2, the obligation to make
Committed Capital Contributions shall be adjusted so that,
going forward, each Shareholder's percentage contribution
to the total Committed Capital Contributions required on a
given date shall be equal to its then current percentage
Share ownership.
(c) The following provisions shall be deleted: (i) the proviso
in the first sentence of Clause 4.4, (ii) Clauses 4.10 (a)
and (d) and (iii) Clause 12.4.
5.6 The Shareholders acknowledge and agree that (i) the Project
Finance is intended to be non-recourse to the Shareholders, except
to the extent of Share pledges, equity contribution obligations up
to US$100 million each, guarantees of up to US$100 million of the
Project Finance and the obligations of each to arrange a letter of
credit to support its equity contribution and guarantee and (ii)
with regard to such Share pledges, equity contribution
obligations, guarantees and letters of credit, it is intended that
the Shareholders be treated by the lenders, and treat one another,
equally. In the event that, notwithstanding the foregoing, the
lenders exercise any right or remedy under any such Share pledge,
guarantee or letter of credit and the effect of such exercise is
that (x) either Shareholder (the "Disfavoured Party") pays or
contributes an amount in excess of the amount paid or contributed
by the other Shareholder (the "Favoured Party") or (y) a greater
number of the
Page 16 of 42
<PAGE>
Shares pledged by the Disfavoured Party are foreclosed upon or
sold than those pledged by the Favoured Party, the Shareholders
will make such adjustments between themselves as may be
appropriate so that the Shareholders shall be treated equally
after giving effect to such exercise of rights and remedies by the
lenders, including the making of a balancing payment by the
Favoured Party to the Disfavoured Party, the contribution by the
Favoured Party of additional amounts to the capital of the Company
and/or transfer by the Favoured Party of Shares in the Company to
the Disfavoured Party.
6. CONSTRUCTION OF THE SYSTEM
6.1 SUBSEA ELEMENT - FLAG or an Affiliate of FLAG, on behalf of the
Company, shall negotiate all contracts, in addition to the Supply
Contract, necessary for the construction of the Subsea Element.
FLAG will keep GTS fully informed on the progress of negotiations
for such contracts and in particular of any deviations from the
agreed design specifications of such contracts. FLAG or such
Affiliate shall be responsible, on behalf of the Company, to apply
for all necessary wayleaves, easements, permits, licenses and
consents required for the subsea element. FLAG or such Affiliate
will also construction manage the delivery of the Subsea Element
as provided in the FLAG Construction Management Agreement. The
Company shall pay FLAG or such Affiliate for providing these
services such portion of the project management fee for
construction of the System as the Shareholders may agree.
6.2 EUROPEAN BACKHAUL ELEMENT - GTS or an Affiliate of GTS, on behalf
of the Company, shall negotiate all construction, installation and
acquisition contracts for the European Backhaul Element. Such
contracts shall provide that such facilities shall comply with the
design specifications set forth in Annex 5. GTS will keep FLAG
fully informed on the progress of negotiations of the acquisition,
construction and installation contracts. GTS
Page 17 of 42
<PAGE>
or such Affiliate shall be responsible, on behalf of the Company,
to apply for all necessary wayleaves, easements, permits,
licenses and consents required for the installation of the
European Backhaul Element. GTS or such Affiliate will also
construction manage the European Backhaul Element as
provided in the relevant GTS Construction Management Agreement.
The Company shall pay GTS or such Affiliate for providing these
services such portion of the project management fee for
construction of the System as the Shareholders may agree.
6.3 US BACKHAUL ELEMENT - GTS or an Affiliate of GTS, on behalf of the
Company, shall negotiate all construction, installation and
acquisition contracts for the United States Backhaul Element. Such
contracts shall provide that such facilities shall comply with the
design specifications set forth in Annex 5. GTS will keep FLAG
fully informed on progress of negotiations of the acquisition,
construction and installation contracts. GTS or such Affiliate
shall be responsible, on behalf of the Company, to apply for all
necessary wayleaves, easements, permits, licenses and consents
required for the installation or the United States Backhaul
Element. GTS or such Affiliate will also construction manage the
United States Backhaul Element as provided in the relevant GTS
Construction Management Agreement. The Company shall pay GTS or
such Affiliate for providing these services such portion of the
project management fee for construction of the System as the
Shareholders may agree.
7. CAPACITY PURCHASE
7.1(a) GTS or an Affiliate shall purchase the exclusive right to use
a dark fibre pair and other rights set out in Annex 6 Part I for
the lifetime of the System *** in accordance with the key
commercial terms as set out in Annex 6 Part I. The payment
schedule shall be agreed between the Shareholders and set forth in
the relevant purchase agreement. All payments will be made free
and clear of all withholding taxes.
Page 18 of 42
<PAGE>
(b) Subject to the following terms, FLAG or an affiliate of
FLAG is hereby granted the following options: either (i)
the option to purchase the products set out in Annex 6 Part
I on the same terms as those set out in clause 7.1(a) (the
"Fibre Option"); or (ii) the option to purchase up to ***
of the Company's Products on the System in accordance with
the key commercial terms as set out in Annex 6 Part II (the
"Capacity Option"). FLAG may exercise the Capacity Option
or the Fibre Option as follows:
(A) The Capacity Option
(i) The Capacity Option shall subsist from the
date of this Agreement until ***;
(ii) The Capacity Option is exercisable from time
to time by notice in writing to the Company;
(iii) The Capacity Option may only be exercised in
lots; being four lots of *** and a final lot
***;
(iv) The timing and proportion of payments for the
capacity shall be the same as that agreed
under Clause 7.1(a). ***
(B) The Fibre Option
(i) The Fibre Option shall subsist from the date
of this Agreement until ***.
(ii) The Fibre Option is exercisable from time to
time by notice in writing to the company.
(iii) Upon exercise of the Fibre Option, the
Capacity Option and any agreements entered
into pursuant to the exercise of the Capacity
Option shall be immediately terminated.
(iv) Any payments made by FLAG or an Affiliate of
FLAG under the Capacity Option (or any
agreement entered into pursuant to the
exercise of the Capacity Option) shall be
credited towards the purchase price of the
Fibre Option.
(v) The timing and proportions of payments under
the Fibre Option shall be the same as agreed
under Clause 7.1(a). ***
Page 19 of 42
<PAGE>
7.2 FLAG shall buy, or bring purchasers to the Company for, the
Company's Products (as defined below) of value US$100 million
(excluding DGM sales) on arm's length commercial terms, paying for
this in accordance with a schedule to be agreed between the
Shareholders prior to the Date of Financial Closure. All payments
will be made free and clear of all withholding taxes. FLAG may
exercise its option in Clause 7.1 in satisfying any of its
obligations under this clause.
7.3 All presales referred to in Clauses 7.1, 7.2 and 7.6 shall be
documented under Capacity Agreements and secured with an
appropriate irrevocable letter of credit acceptable to the
Company's lenders (unless the purchaser is investment grade).
7.4 Each Shareholder and its Affiliates shall have the right to
acquire additional dark fibre and/or access to spare duct space
and/or wavelengths in the Backhaul Elements for purposes not
related to the Company ***.
7.5 Each Shareholder and its Affiliates shall have the right to
acquire additional fibres and/or capacity in the European
Interconnection Link of the Subsea Element as described in Annex 4
upon payment to the Company ***.
7.6
7.6.1 The Shareholders recognise that it would be valuable for
the Company to secure a major purchase commitment from Bell
Atlantic Corporation and/or its Affiliates ("Bell
Atlantic") and/or GTE, Inc. and/or its Affiliates ("GTE"
and together with Bell Atlantic "Bell Atlantic/GTE").
7.6.2 The commitment by Bell Atlantic/GTE to purchase *** of
capacity will be a part of FLAG's US$100,000,000 commitment
under Clause 7.2 and will be on terms similar to those
outlined in Annex 6 Part II.
Page 20 of 42
<PAGE>
8. SYSTEM MARKETING
8.1 ***
8.2 The Company's products ("Products") are defined as and shall be
limited to rights of use or other non-ownership rights *** of
capacity and:
(a) between any of the following locations:
(i) London and New York;
(ii) Paris and New York;
(iii) New York and a European Landing Station;
(iv) London or Paris and a US Landing Station;
(v) Either US Landing Station and either European
Landing Station;
(b) of the following capacity sizes: (i) protected ring STM-1,
STM-4, STM-16 and STM-64 and (ii) ring STM-64 optical
channels; and such modified or additional products as the
Board may at any time determine.
8.3
8.3.1 Except for sales pursuant to Clause 7 and at DGMs, the
Company will set prices as follows: the prices for the
STM-1 Product will be set as *** (the "Base Price"). ***
8.3.2 Any Director may at any time request a review of prices,
including a change in the Base Price, the multipliers or
the pricing formula. The Board shall decide on such request
within 14 days of the same having been submitted. In the
event that the Board is unable to reach a decision on a
change in pricing, then the matter shall be referred to an
Expert chosen in accordance with Clause 11.4 for decision
who, notwithstanding Clause 11.6, shall decide the issue
within 30 days and whose determination will be binding on
the parties.
Page 21 of 42
<PAGE>
8.4 FLAG and GTS will be free to sell the Company's Products as
described in Clause 8.2(a)(iii) to (v) to customers who will
provide their own backhaul to or from a Landing Station and shall
cause the Company to permit such customers to connect their own
backhaul at the relevant Landing Station to the Subsea Element.
8.5 *** FLAG and GTS will be present at each DGM. At the DGM the
Company will make available and target to sell such portion of the
capacity of the System as the Board shall determine. Each DGM will
be held at a mutually convenient location.
8.6 ***
8.7 Notwithstanding anything in Clause 8.6 to the contrary, any of the
Company's Products purchased or to be purchased by FLAG, GTS or
their Affiliates pursuant to Clause 7.1 or 7.2 may be used at any
time as a currency with which to acquire equity in other entities.
9. DIVIDEND AND INVESTMENT POLICIES
9.1 Subject to the requirements of Clauses 9.3 and 9.4, the Company's
lenders, the Business Plan and applicable law, the Board, upon
receipt of the Company's audited annual accounts for each year,
shall meet to declare and authorize the distribution of dividends,
which shall, unless the Board unanimously decides otherwise, be
the maximum amount distributable in respect of the earnings for
such year and available retained earnings from prior years.
9.2 Enhancements, upgrades and improvements to the System shall be
made in accordance with the schedule to be agreed as provided in
Clause 3.3(h), unless the Board otherwise agrees.
Page 22 of 42
<PAGE>
9.3 There shall be no declaration or distribution of dividends until
either:
(a) all funds advanced to the Company pursuant to the Project
Finance have been repaid; or
(b) the Shareholders have been released from any restrictions
imposed by the terms of the Project Finance on their
freedom to re-sell the capacity purchased by them (or their
Affiliates) in accordance with Clause 7.1(a) and (b);
9.4 The Shareholders shall procure that the Company promptly directs
any cash available to the Company under Clause "ninth" of section
8.12(b) of the Project Finance credit agreement towards the
re-payment of the "Term Loans" (as defined therein).
10. AUDITORS AND ACCOUNTS
10.1 The auditors of the Company shall be Arthur Andersen, or such
other first-class firm of accountants as may be agreed to by the
Shareholders.
10.2 The Company shall keep true and accurate accounts and records in
accordance with generally accepted accounting principles in the
United States and consistent with those adopted by the
Shareholders and their Affiliates. In the event of any
inconsistencies in such accounting policies, the policies
recommended by the Company's auditors shall be followed. The
Shareholders shall cause the Company to prepare and submit to each
Shareholder, as soon as practicable, but not later than three
months after the end of each financial year, complete annual
financial statements including the balance sheet and profit and
loss statements of the Company in respect of such financial year,
certified by the Company's auditors and prepared in accordance
with such accounting principles and practices.
10.3 The financial year of the Company shall end on 31 December of each
year.
<PAGE>
10.4 The Company shall provide the Shareholders with monthly
management accounts and other information on the Company's
financial performance and the Shareholders' interests. Further,
the Company shall provide the Shareholders with the necessary
information and documentation for the Shareholders to determine
their tax liabilities relating to any distributions (or deemed
distributions) with respect to Shareholders' Shares, or for
other purposes that may be required by any applicable government
regulations. Such documentation and information shall include,
but not be limited to, information with respect to the Company's
tax liabilities and copies of tax returns.
10.5 Within 30 days after the close of each quarterly period during
its financial year, the Company shall submit to each of the
Shareholders the unaudited balance sheet and profit and loss
statement of the Company in respect of such quarterly period.
10.6 All accounts and records of the Company shall be in English and
open to inspection by each of the Shareholders or by its duly
authorized representative during regular business hours.
11. DEADLOCK
11.1 In the event of a Deadlock, each Shareholder shall, within seven
days of the Deadlock having arisen, cause its nominees on the
Board to prepare and circulate to the other Shareholder a
memorandum setting out its position on the dispute and its
reasons for adopting such a position. Each such memorandum shall
be considered by the Chief Executive Officer of each Shareholder
who shall meet together within seven days of receipt of the
memoranda and shall use reasonable endeavours to resolve the
Deadlock.
11.2 If such Chief Executive Officers do so agree, they shall jointly
issue a statement setting out the terms of such agreement and
each Shareholder shall
<PAGE>
exercise the voting rights and other powers of control available
to it in relation to the Company to procure that the terms of
such Agreement are implemented and the Company shall do all
things within its power to implement such terms.
11.3 If such Chief Executive Officers do not so agree within 14 days
of their initial meeting, either Shareholder shall have the right
to refer the following matters to the relevant Expert, while a
failure to agree on matters which are not referred to below or
otherwise specifically provided for herein shall mean that the
status quo prevails with respect to such matters:
(a) Operational matters, including but not limited to the
selection of suppliers and acceptance of key deliverables;
and
(b) pricing and costing matters, including but not limited to
issues arising under Clause 8.
11.4 Whenever a matter is to be referred to an Expert for
determination, the matter in question shall be referred to an
Expert agreed between the Shareholders or, in default of
agreement, if in relation to an operational matter, an Expert
nominated by the President of the Institute of Electrical
Engineers, or if in relation to pricing, costing or marketing
matters, an Expert nominated by the President of the Institute of
Chartered Accountants of England and Wales.
11.5 Each of the Shareholders shall be entitled to provide the Expert
with such information and such written representations as may be
necessary to assist in the determination of the matter in
question provided such information and/or representations are
made within 30 days of the date of referral. Each Shareholder
shall simultaneously send copies of any correspondence with the
Expert to the other Shareholder.
<PAGE>
11.6 The Expert shall be entitled to seek expert evidence at his
discretion as to the circumstances in which the matter has arisen
and the most expeditious method of its resolution and to rely
upon the same but before doing so shall disclose such evidence to
the Shareholders and give them an opportunity to make
representations with respect to the same. The Expert shall be
required by the Shareholders to reach a determination of the
issues referred to him as soon as is reasonably practicable and,
in any event unless the Shareholders otherwise agree, within 45
days of his appointment.
11.7 The Expert shall act as an expert and not as an arbitrator and
his decision shall be notified to both Shareholders
simultaneously and implemented as soon as is practicable upon
notification. Unless both Shareholders agree in writing prior to
the appointment of the Expert, the Expert's decision shall be
final and binding upon the Shareholders except in the case of
fraud or manifest error and his fees shall be paid by the
Shareholders in equal shares unless the Expert decides otherwise.
12. BUSINESS PLAN
12.1 FLAG shall in consultation with GTS prepare a rolling five-year
business plan for the Company together with an annual operating
budget (the "Business Plan") on an annual basis.
12.2 The initial Business Plan and construction budget shall be agreed
and approved by the Shareholders as provided in Clause 3.3(i).
The Business Plan will be revised each financial year and shall
be submitted to the Shareholders for approval not later than 30
October of each year and shall include a revised pro forma
consolidated balance sheet, a revised budgeted consolidated
income statement, and a revised pro forma consolidated statement
of changes in financial position of the Company for each month of
the first financial year and each quarter of each subsequent
financial year and shall be accompanied by a statement of all
budgeted capital expenditures to be incurred in such
<PAGE>
financial year, all presented on the same basis, together with
revised consolidated statements of change in financial position
of the Company for the next five years in order to complete the
Business Plan for the rolling five year period, and shall be
supported by the explanations, notes and information upon which
the projections underlying such Business Plan have been based and
how it is proposed to finance such capital and other
expenditures.
12.3 The Shareholders shall meet to discuss and agree such Business
Plan for the forthcoming year no later than 30 November of each
year. In the event that the Shareholders are unable to agree a
Business Plan, the Company will operate in accordance with the
existing Business Plan until such time as a new Business Plan is
agreed. No Deadlock shall exist with respect to failure to agree
a Business Plan until the expiration of the full five year term
of the last approved Business Plan.
12.4 If the Shareholders agree that an additional capital contribution
is required to finance the Business Plan, they will contribute
that capital equally.
13. BUSINESS PRACTICES
13.1 The Company shall at all times comply with all applicable laws
and regulations and shall conduct its business in accordance with
the code of business conduct attached hereto as Annex 7, in
accordance with the U.S. Foreign Corrupt Practices Act of 1977,
as amended, and in accordance with the U.S. Communications Act of
1934, as amended by the U.S. Telecommunications Act of 1996 (the
"Communications Act"). Each Shareholder shall ensure that its and
its Affiliates' employees, agents and representatives who provide
services to or act for and on behalf of the Company are familiar
with and act in accordance with the code of business conduct set
forth in Annex 7. The Company shall obtain all necessary
licences, approvals, permits and authorizations necessary for the
operation of its business.
<PAGE>
13.2 The Company will permit officers and designated representatives
of any Shareholder to visit and inspect any of the properties of
the Company, and to examine and audit the books of record and
account of the Company and discuss the affairs, finances and
accounts of the Company with, and be advised as to the same by,
its officers, all at such reasonable times and intervals and to
such reasonable extent as such Shareholder may request.
13.3 The Company will pay all taxes, assessments and other
governmental charges of any kind imposed on or in respect of its
income or any of its businesses or assets, or in respect of taxes
and other amounts it is required by law to withhold from amounts
paid by it to its employees, before any penalty or interest
accrues on the amount payable and before any Lien on any of its
property exists as a result of non-payment; provided, however
that the Company shall not be required by this Clause 13.3 to pay
any amount if it is diligently contesting its alleged obligation
to pay that amount in good faith through appropriate proceedings
and maintains appropriate reserves or other provisions in respect
of the contested amount as may be required under generally
accepted accounting principles in the United States.
14. TERM AND TERMINATION
14.1 Unless earlier terminated pursuant to Clause 3.6, this Agreement
shall remain in effect until the earliest of (i) termination by
mutual consent, (ii) such time as all Shares are owned by one
Shareholder and/or its Affiliates and (iii) the dissolution of
the Company.
14.2 In the event that this Agreement is terminated except pursuant to
Clause 14.1 (ii) or the Company is to be wound-up or liquidated
pursuant to this Clause, the following shall apply:
<PAGE>
14.2.1 the Company shall undertake no new business or obligation
other than that already commenced or incurred or necessary
for the fulfilment of another obligation already incurred;
14.2.2 the Company shall diligently complete all obligations
and projects that may be outstanding at the date of
termination to the extent that such obligations are not
assumed by one or both of the Shareholders by mutual
agreement;
14.2.3 upon completion of the obligations and projects in
accordance with Clause 14.2.2, the Company shall have no
right to or to the use of any intellectual property derived
from either Shareholder (or any Affiliate thereof) or
previously used by or in the course of business of the
Company and the Company shall promptly return to the
originating Shareholder all property (including without
limitation all confidential information and documents)
belonging to such Shareholder; and
14.2.4 on completion of the obligations and matters set out in
Clauses 14.2.1 through 14.2.3, the Shareholders shall
forthwith take all necessary and appropriate steps to
wind-up and liquidate the Company in such a way as to
maximise the return to the Shareholders.
14.3
14.3.1 If the Company's (or its relevant Affiliate's) application
for a cable landing licence by the FCC has been denied, or
the FCC has raised objections to granting such licence, then
(i) FLAG shall promptly notify GTS, (ii) the Shareholders
shall use their reasonable commercial endeavours to resolve
the objections of the FCC and (iii) FLAG may, and upon
receipt of notice given by GTS shall, take or cause to be
taken such action (which may include divesting itself of a
sufficient number of Shares without application of Clause 5,
except that the transferee shall be acceptable to GTS acting
reasonably and to the lenders of the Company and shall agree
in writing to become a party to this Agreement with such
amendments as may be appropriate
<PAGE>
in the circumstances. FLAG agrees that it is reasonable for
GTS to withhold approval of a third party it determines in
good faith is not a suitable business partner) as is
necessary to ensure that the Company is not deemed an
affiliate of Bell Atlantic Corporation for purposes of
section 271 of the Communications Act. If such licence has
not been granted by 31 March 2000, then GTS may require
FLAG, by notice in writing to FLAG within 14 days of that
date, to sell to GTS such number of Shares as is necessary
to ensure that the Company is not deemed an affiliate of
Bell Atlantic Corporation for purposes of section 271 of the
Communications Act at a price equal to fair market value.
Such fair market value of such Shares will be determined by
an independent investment banking firm of international
repute (the "Valuer") agreed by the Shareholders, or in
default of agreement within five days of such notice,
appointed by the President of the Institute of Chartered
Accountants of England and Wales. In determining such fair
market value, the Valuer will value the Company as a going
concern, taking into consideration the dilution or
departure, as the case may be, of FLAG as a shareholder and
the obligations of FLAG set forth in Clause 14.3.2, if
applicable. The Valuer will be instructed to render its
decision within 30 days or as soon as is practicable
thereafter. The purchase price shall be paid and the Shares
transferred as provided herein within seven days after
receipt by the Shareholders of the Valuer's report. The
foregoing, shall not apply if (a) FLAG can promptly
establish, to GTS's reasonable satisfaction, that the delay
in the Company's (or its Affiliate's) obtaining, or the
Company's (or its Affiliate's) failure to obtain, the
required cable landing licence from the FCC was not caused
by the fact that the Company is an affiliate of Bell
Atlantic Corporation or (b) if on or before the deadline for
FLAG to take or cause to be taken the necessary action, the
Company or its Affiliate is granted the requested cable
landing licence or Bell Atlantic
<PAGE>
Corporation or its Affiliate is granted relief by the FCC
from the restrictions contained in section 271 of the
Communications Act.
14.3.2 In the event that FLAG is required to sell all of its
Shares to GTS as provided in Clause 14.3.1, FLAG agrees that
it and its Affiliates will continue to fully co-operate with
the Company and provide such assistance to the Company as
may be required for the commercial success of the Company.
The Company shall compensate FLAG and its Affiliates on
reasonable arm's length commercial terms for such assistance
as is provided.
14.4 In no circumstances shall either Shareholder be liable to the
other Shareholder, whether in contract, tort or otherwise, for
loss (whether direct or indirect) of profits, business or
anticipated savings or for any indirect or consequential loss
whatsoever.
15. CONFIDENTIALITY
15.1 Each Shareholder undertakes that it and its Affiliates, and its
and its Affiliates' employees, agents and representatives shall
not, without limit in point of time, divulge or communicate to
any third party (except as may be necessary for the performance
of its obligations under this Agreement or any Ancillary
Agreement or to enforce its rights hereunder; or as may be
required by law or regulatory process or by any stock exchange;
or as may be required in connection with any potential sale by a
Shareholder of its Shares as permitted herein, unless the
potential purchaser is a competitor of the Company, the other
Shareholder or any Affiliates thereof), or use for its own
purpose any information about the private affairs of the Company
or the other Shareholder or its Affiliates, except such
information as may have come into public knowledge otherwise than
by reason of a breach of this undertaking.
<PAGE>
15.2 Notwithstanding the foregoing, the Shareholders are entitled to
disclose the existence and terms of this Agreement to their
Affiliates, the Supplier and potential and actual lenders to and
financial advisers of the Company, the Shareholders and their
Affiliates, and GTS is entitled to disclose the terms of this
Agreement to IXC, provided that each of those parties has entered
into the same obligations of confidentiality as those contained
herein. Any other disclosure is subject to the prior written
agreement of the other Shareholder.
16. PROPRIETARY RIGHTS
16.1 Except as otherwise may be agreed in writing by the relevant
parties, no Shareholder or Affiliate of such Shareholder shall
have any interest in or right to use any name, trademark or logo
belonging to the other Shareholder or any of its Affiliates,
except that the name and domain name FLAG Atlantic may be used in
connection with the marketing and sale of the Company's Products.
16.2 In the event that a Shareholder and its Affiliates no longer own
Shares, any name, trademark or logo belonging to such Shareholder
or any of its Affiliates which was previously permitted to be
used shall no longer be used in connection with the Company.
16.3 For the purposes of this Clause "Intellectual Property" means any
and all patents, trade marks, rights in designs, copyrights and
topography rights, (whether registered or not and any
applications to register or rights to apply for registration of
any of the foregoing), rights in inventions, know-how, trade
secrets and other confidential information, rights in databases
and all other intellectual property rights of a similar or
corresponding character which may now or in the future subsist in
any part of the world.
16.4 Each Shareholder shall, and shall cause its Affiliates to,
provide to the Company on a royalty-free basis such Intellectual
Property as the Company
<PAGE>
may require for the optimal performance of the System to the
extent that such Shareholder or any of its Affiliates owns, or
otherwise has a right to license, such Intellectual Property. The
other Shareholder and its Affiliates shall not have any interest
in or right to use any such Intellectual Property and no
Shareholder or its Affiliates shall by virtue of this Agreement
or its ownership of Shares have any interest in or right to use
any Intellectual Property developed by, or provided by third
parties to, the Company except in the performance of an Ancillary
Agreement.
16.5 In the event that a Shareholder and its Affiliates no longer own
Shares, the Company shall continue to have the right to use on a
royalty-free basis for the life of the System any Intellectual
Property essential to operation and maintenance of the System
belonging to such Shareholder or its Affiliates which was used by
the Company when such Shareholder or any of its Affiliates' owned
any Shares and to require physical or electronic transfer of such
Intellectual Property to a location specified by the other
Shareholder in a manner causing minimum disruption to the
continuing operation of the System.
17. MUTUAL CO-OPERATION
17.1 Each of the Shareholders agrees that it will use all reasonable
commercial endeavours to promote the business and profitability
of the Company.
17.2 Each of the Shareholders shall do and execute or procure to be
done and executed all such acts, deeds, documents and things as
may be within its power including (without prejudice to the
generality of the foregoing) the passing of resolutions (whether
by the Board or in general meeting of the Company) to give full
effect to this Agreement and to procure that all provisions of
this Agreement are observed and performed.
<PAGE>
17.3 Each of the Shareholders agrees with the other that this
Agreement is entered into between them and will be performed by
each of them in a spirit of mutual co-operation, trust and
confidence and that it will use all means reasonably available to
it (including its voting power whether direct or indirect, in
relation to the Company) to give effect to the objectives of this
Agreement and to ensure compliance by the Company with its
obligations.
18. RESTRICTIONS ON ANNOUNCEMENTS
Each of the Shareholders undertakes that it will not, and that it
will cause its Affiliates not to (save as required by law or any
applicable regulatory body or stock exchange), make any
announcement in connection with this Agreement without the prior
written consent of the other Shareholder (which consent may not
be unreasonably withheld and may be given either generally or in
a specific case or cases and may be subject to conditions).
19. NO PARTNERSHIP
Nothing contained or implied in this Agreement shall constitute
or be deemed to constitute a partnership between the Shareholders
and neither Shareholder shall have any authority to bind or
commit the other.
20. REMEDIES
Each Shareholder acknowledges and agrees that if either of them
shall breach any of the warranties, representations, indemnities,
covenants, agreements, undertakings, and obligations (for the
purposes of this Clause referred to as the "Agreed Terms") on
each of their parts contained in this Agreement or any other
agreement entered into pursuant to it, damages may not be an
adequate remedy, in which case the Agreed Terms shall be
enforceable by injunction, order for specific performance or such
other equitable relief as a court of competent jurisdiction may
see fit.
<PAGE>
21. REPRESENTATIONS AND WARRANTIES
Each of the Shareholders represents and warrants to the other
that:
21.1 Such Shareholder is duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it
has been organized; and
21.2 The execution, delivery and performance by such Shareholder
or any of its Affiliates of this Agreement and such
Ancillary Agreements to which it is or will be a party have
or will have been duly authorized by all requisite corporate
action, and this Agreement and such Ancillary Agreements
will not violate the provisions of such Shareholder's or
such Affiliate's, as relevant, constitutional documents; or
violate or constitute a material breach or constitute an
event of default under the provisions of any note of which
such Shareholder or such Affiliate is the maker or of any
indenture, agreement or other instrument to which such
Shareholder or such Affiliate is a party, or by which it is
bound; or result in the creation or imposition of any Lien
of any nature whatsoever upon any of its property or assets
except as required to secure Project Finance; or, to the
best of such Shareholder's knowledge, of any applicable law,
regulation or order, including without limitation any law,
regulation or order relating to competition or securities
matters; and this Agreement constitutes a legal, valid and
binding obligation of such Shareholder, enforceable in
accordance with its terms.
22. ASSIGNMENT
Save as otherwise provided herein, the benefits and obligations conferred
by this Agreement upon each of the Shareholders are personal to that
Shareholder and shall not be, and shall not be capable of being,
assigned, delegated, transferred or otherwise disposed of without the
prior written consent of the other Shareholder save an assignment to a
Permitted Transferee of that Shareholder's Shares which has complied with
Clause 5 and any attempted assignment, delegation, transfer or other
disposition in violation of this Clause shall be void.
<PAGE>
23. ENTIRE AGREEMENT
This Agreement (together with any documents referred to herein)
constitutes the whole agreement between the Shareholders and supersedes
any previous agreements, arrangements or understandings between them
relating to the subject matter hereof including but not limited to the
Shareholders Agreement dated 12 January 1999 as amended prior to the date
hereof. Each of the Shareholders acknowledges that it is not relying on
any statements, warranties or representations given or made by any of
them relating to the subject matter hereof, save as expressly set out in
this Agreement. This Agreement may be executed in counterparts, each of
which shall constitute an original, but all of which when taken together
shall constitute a single contract.
24. VARIATION
No variation or amendment to this Agreement shall be effective unless in
writing signed by authorised representatives of each of the Shareholders.
25. NOTICES
25.1 Any notice, request, demand or other communication required or
permitted hereunder shall be in writing and shall be sufficiently
given if in English, and delivered by hand or sent by prepaid
registered or certified mail (air mail if international), by
facsimile or by prepaid international courier of international
reputation addressed to the appropriate party at the following
address or to such other address or place as such party may from
time to time designate:
<PAGE>
if to FLAG: FLAG Atlantic Holdings Limited
The Emporium Building
69 Front Street - 4th Floor
Hamilton HM12, Bermuda
Attention: Chairman and CEO
Tel: 1 441 296 0909
Fax: 1 441 296 0938
with a copy to: FLAG Telecom Limited
103 Mount Street - 3rd Floor
London W1Y 5HE
U.K.
Attention: General Counsel
Tel: 44 171 317 0800
Fax: 44 171 317 0808
if to GTS: GTS TransAtlantic Holdings, Ltd.
Conyers, Dill & Pearman
Clarendon House
Church Street
Hamilton HM11, Bermuda
Attention: Graeme Collis
Tel: 1 441 295 1422
Fax: 1 441 292 4720
with a copy to: GTS
Terhulpsesteenweg 6A
Hoeilaart 1560
Belgium
Attention: Legal Director
<PAGE>
Tel: 322 658 5200
Fax: 322 658 5100
25.2 Any notice, request, demand or other communication given or made
pursuant to Clause 25.1 shall be deemed to have been received (i)
in the case of hand delivery or courier, on the date of receipt
as evidenced by a receipt of delivery from the recipient, (ii) in
the case of mail delivery, on the date which is seven days after
the mailing thereof and (iii) in the case of transmission by
facsimile, on the date of transmission with confirmed answer
back. Each such communication sent by facsimile shall be promptly
confirmed by notice in writing hand-delivered or sent by courier,
mail or air mail as provided herein, but failure to send such a
confirmation shall not affect the validity of such communication.
26. WAIVER
No failure of either Shareholder to exercise, and no delay in exercising,
any right or remedy in respect of any provision of this Agreement shall
operate as a waiver of such right or remedy.
27. GOVERNING LAW AND DISPUTE RESOLUTION
27.1 This Agreement shall be governed by and construed in accordance
with the laws of England and Wales without regard to the laws of
England and Wales governing conflicts of laws.
27.2 Except as otherwise provided herein, any dispute or controversy
arising under or in connection with this Agreement shall be
finally settled under the Rules of Arbitration of the
International Chamber of Commerce by one arbitrator appointed in
accordance with such Rules. The place of arbitration shall be
London. The arbitration shall be conducted in English. The
decision and award resulting from such arbitration shall be final
and binding on the
<PAGE>
parties. Judgment upon the arbitration award may be rendered by
any court of competent jurisdiction, or application may be made
to such court for a judicial acceptance of the award and an order
of enforcement. Insofar as permissible under the applicable laws,
the parties hereby waive all rights to object to any action for
judgment or execution which may be brought before a court of
competent jurisdiction on an arbitration award or on a judgment
rendered thereon. This clause shall not restrict the right of
either Shareholder to seek injunctive relief, specific
performance or other equitable relief in any court of competent
jurisdiction, as provided in Clause 20.
28. SEVERABILITY
The invalidity or unenforceability for any reason of any part of this
Agreement shall not prejudice or affect the validity or enforceability of
the remainder of this Agreement. If further lawful performance of this
Agreement or any part of it shall be impossible due to a breach of any
applicable competition or anti-trust legislation or other applicable law,
the parties shall forthwith use their best endeavours to agree amendments
to this Agreement so as to comply with such legislation or other law.
29. SURVIVAL
The provisions of Clauses 14, 15, 16, 18, 20, 26 and 27 shall survive the
termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF the parties have entered into this Agreement the date and
year first above written.
FLAG ATLANTIC HOLDINGS GTS TRANSATLANTIC
LIMITED HOLDINGS, LTD.
/s/ Ed McCormack /s/ Steven E. Andrews
By___________________ By___________________
Name: Ed McCormack Name: Steven E. Andrews
Title: Chief Financial Officer Title: Authorized Signatory
<PAGE>
Exhibit 10.5
EXCHANGE AGREEMENT
AND PLAN OF REORGANIZATION
THIS AGREEMENT, dated as of the 26th day of February 1999, between Bell Atlantic
Network Systems Company ("Bell") and FLAG Telecom Holdings Limited (the
"Company")
WITNESSETH:
WHEREAS, pursuant to an exchange of Shares made contemporaneously herewith, Bell
has exchanged 21,996,928 Shares in FLAG Limited ("FLAG") solely in exchange for
21,996,928 Shares in the Company as an element of a larger transaction that is
intended to qualify as a tax-free exchange under Section 351 of the United
States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Bell owns an additional 217,536,730 Shares in FLAG, which Bell wishes
to transfer in exchange for, and which the Company wishes Bell to transfer in
exchange for, 217,536,730 Shares in the Company, if and when Bell obtains
Regulatory Approval as described in Clause 2.1; and
WHEREAS, the Company has agreed to issue 217,536,730 Shares of the Company to
Bell in exchange for Bell's transferring to the Company all of Bell's remaining
Shares in FLAG.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 For purposes of this Agreement, the following terms shall have the
following meanings and terms defined elsewhere in this Agreement shall
have the meanings ascribed thereto:
"Affiliate" shall mean, with respect to any entity, any company or
other entity controlling, controlled by or under common control with
such first entity. For purposes of this Agreement, "control" means the
possession directly or indirectly through beneficial ownership or
otherwise of the power to direct or cause the direction of the
management or policies of a company or other entity, whether through
the ownership of voting securities, by contract or otherwise and
cognate terms shall have a corresponding meaning.
"Credit Agreement" shall mean the credit agreement dated 28 January
1998, among FLAG, the lenders from time to time parties thereto,
Barclays Bank PLC, as administrative agent, and the International Trust
Company of Bermuda Limited, as collateral trustee (the "Collateral
Trustee").
<PAGE>
"Regulatory Approval" shall mean (i) the approval by the United States
Federal Communications Commission ("FCC") of an application by Bell
Atlantic Corporation or its Affiliate to provide interLATA
telecommunications services in New York State under section 271 of the
Communications Act of 1934, as amended, and (ii) any additional
approval which Bell and the Company jointly determine is required from
the FCC in the event that the exchange of Shares contemplated in Clause
2.1(b) will or may result in a change of control of the Company.
"Shares" shall mean shares of ordinary voting common stock of FLAG or
the Company, as relevant.
"Stock Option Plan" shall mean the FLAG Limited 1998 Long-Term
Incentive Plan, as assumed by the Company.
1.2 References to any document (including this Agreement) are references to
that document as amended, consolidated, supplemented, novated or
replaced from time to time.
2. EXCHANGE OF SHARES
2.1 As soon as is practicable, but in no event more than five days, after
the receipt by Bell or its Affiliate of Regulatory Approval:
(a) the Company shall apply to the Bermuda Monetary Authority for
consent for the transfer by Bell to the Company of Bell's
Shares in FLAG; and
(b) as soon as such consent is obtained,
(i) Bell shall transfer 217,536,730 Shares in FLAG (being
all of Bell's remaining Shares in FLAG) to the
Company; and
(ii) the Company shall in exchange for the Shares
transferred to it pursuant to (i) issue to Bell or
its Affiliate 217,536,730 (or such other number of
Shares as may be required pursuant to Clause 3.2)
Shares in the Company.
The exchange described in this Clause is intended to constitute, and
shall be treated by the parties as, a tax-free reorganization under
Section 368 of the Code.
2.2 Simultaneously with the exchange of Shares referred to in Clause
2.1(b), Bell shall procure the immediate resignation from the board of
directors of FLAG of all directors nominated by Bell.
2.3 In the event that neither Bell nor any of its Affiliates shall have
obtained Regulatory Approval within three years after the date hereof,
the obligation of Bell to exchange its Shares in FLAG for Shares in the
Company and the obligation of the Company to issue Shares in the
Company in exchange for Bell's Shares in FLAG as provided herein, each
shall terminate and all rights and obligations hereunder shall become
null and void.
<PAGE>
2.4 The parties acknowledge that the Shares in FLAG held by Bell and the
Company are subject to security interests in favour of the Collateral
Trustee under the Credit Agreement and agree that the transfer of
Shares in FLAG provided for herein shall be subject to any subsisting
security interests required in accordance with the terms of the Credit
Agreement.
2.5 The obligations set forth in Clause 2.1 shall continue after any
initial public offering by the Company or an Affiliate thereof.
3. OBLIGATIONS CONCERNING SHARES
3.1 Prior to the completion of the transfers referred to in Clause 2.1(b),
the Company shall not issue any additional shares or other interests in
the Company except for:
(a) additional shares issued in connection with an initial public
offering of the Shares in the Company; and
(b) additional shares or other interests which represent common
stock (or options or warrants to purchase the same) issued by
the Company under the Stock Option Plan.
3.2 In the event of any recapitalisation, forward or reverse split, stock
dividend, reorganisation, merger, consolidation, spin-off, combination,
repurchase or exchange of Shares of the Company, the number of Shares
in the Company which the Company shall issue to Bell in exchange for
Bell's Shares in FLAG in accordance with Clause 2.1(b) shall be
adjusted proportionately so as to prevent dilution or enlargement of
Bell's rights in the Company, other than any dilution which may result
from the issuance of Shares of the Company as provided in Clause 3.1.
3.3 The Company covenants that it will at all times reserve and keep
available free from any pre-emptive rights out of its authorised but
unissue share capital a sufficient number of Shares for issue pursuant
to the exchange described in Clause 2.1(b).
3.4 The Company covenants that if any Shares required to be reserved for
purposes of this Agreement require registration with or approval of any
governmental authority or listing on any securities exchange before
such Shares may be issued, the Company will in good faith and as
expeditiously as possible use its reasonable endeavours to cause such
Shares to be duly registered, approved or listed, as the case may be.
3.5 All Shares allotted pursuant to this Agreement shall rank pari passu in
all respects with the Shares of the Company in issue at that time and
shall accordingly entitle Bell to participate in full in all dividends
or other distributions paid or made on the issued Shares
<PAGE>
of the Company after the date of allotment other than any dividend or
other distribution previously declared or recommended or resolved to be
paid or made if the record date therefor shall be before the date of
allotment.
4. ASSIGNMENT
Save as otherwise provided herein, the benefits and obligations
conferred by this Agreement upon each of the parties are personal to
that party and shall not be, and shall not be capable of being,
assigned, delegated, transferred or otherwise disposed of and any
attempted assignment, delegation, transfer or other disposition in
violation of this Clause shall be void, except that Bell may assign,
delegate, transfer or otherwise dispose of its interest herein to an
Affiliate of Bell, as long as such Affiliate (i) acquires from Bell all
of Bell's Shares in both FLAG and the Company and (ii) agrees to be
bound by the terms of this Agreement.
5. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties and
supersedes any previous agreements, arrangements or understandings
between them relating to the subject matter hereof.
Each party acknowledges that it is not relying on any statements,
warranties or representations given or made by the other party relating
to the subject matter hereof, save as expressly set out in this
Agreement.
6. VARIATION
No variation or amendment to this Agreement shall be effective unless
in writing signed by authorised representatives of each of the parties.
7. NOTICES
Any notice, request, demand or other communication required or
permitted hereunder shall be in writing and shall be sufficiently given
if in English, and delivered by hand or sent by prepaid international
courier of international reputation addressed to the appropriate party
at the following address or to such other address or places as such
party may from time to time designate:
<PAGE>
if to the Company: FLAG Telecom Holdings Limited
The Emporium Building
69 Front Street -- 4th floor
Hamilton HM12, Bermuda
Attention: Chairman and CEO
Tel: 1 441 296 0909
Fax: 1 441 296 0938
with a copy to: FLAG Telecom Limited
103 Mount Street -- 3rd Floor
London W1Y 5HE
U.K.
Attention: General Counsel
Tel: 44 171 317 0800
Fax: 44 171 317 0800
if to Bell: Bell Atlantic
1095 Avenue of the Americas
New York, NY 10036
USA
Attention: President --
International Group
with a copy to: Bell Atlantic
1095 Avenue of the Americas
New York, NY 10036
USA
Attention: Associate General
Counsel--International
Tel: 1 212 395 2376
Fax: 1 212 764 2739
Any notice, request, demand or other communication given or made
pursuant to this Clause shall be deemed to have been received (i) in
the case of hand delivery or courier, on the date of receipt as
evidenced by a receipt of delivery from the recipient, (ii) in the case
of mail delivery, on the date which is seven days after the mailing
thereof and (iii) in the case of transmission by facsimile, on the date
of transmission with confirmed answer back. Each such communication
sent by facsimile shall be promptly confirmed by notice in writing
hand-delivered or sent by courier, mail or air mail as provided herein,
but failure to send such a confirmation shall not affect the validity
of such communication.
<PAGE>
8. COUNTERPARTS
This Agreement may be executed in counterparts. Any single counterpart
or set of counterparts signed, in either case, by both Parties herein
shall constitute a full and original agreement for all purposes.
9. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of New York without regard to the laws of New York governing
conflicts of law.
IN WITNESS WHEREOF the parties have entered into this Agreement as of the date
and year first above written.
FLAG TELECOM HOLDINGS LIMITED BELL ATLANTIC NETWORK SYSTEMS
COMPANY
By: /s/ Judith Collis By: /s/ Daniel C. Petri
-------------------------------- ---------------------------
Name: Judith Collis Name: Daniel C. Petri
Title: Deputy Chairperson Title: President
<PAGE>
Exhibit 10.6
TAX AGREEMENT
This Agreement is made as of the 26th day of February 1999 by and among Bell
Atlantic Corporation, a Delaware corporation ("BAC"), Bell Atlantic Network
Systems Company, a Delaware corporation ("BANS"), and FLAG Telecom Holdings
Limited, a limited company organized under the laws of Bermuda ("FLAG
Holdings").
WHEREAS, BANS currently owns approximately 38% of common stock of FLAG Limited,
a limited company organized under the laws of Bermuda ("FLAG"); and
WHEREAS, BANS has agreed to exchange 21,996,928 shares of its FLAG common stock
for 21,996,928 shares of the common stock of FLAG Holdings (the "First
Exchange"), to be followed, upon satisfaction of certain regulatory conditions,
by a second exchange by BANS of the remaining 217,536,730 shares of its FLAG
common stock for 217,536,730 shares of the common stock of FLAG Holdings (the
"Second Exchange"); and
WHEREAS, BANS' agreement to undertake these exchanges is conditioned, among
other things, on each exchange not resulting in gain or loss to BANS or BAC for
United States income tax purposes; and
WHEREAS, to avoid such recognition of gain or loss, (i) the First Exchange must
qualify as a transfer to FLAG Holdings within the meaning of Section 351(a) of
the Internal Revenue Code of 1986 (the "Code"); (ii) the Second Exchange must
qualify as a corporate reorganization within the meaning of Section 368(a)(1)(B)
of the Code; and (iii) with respect to each exchange, BAC (as the parent of the
affiliated group of corporations that includes BANS) must enter into a "gain
recognition agreement" with the Internal Revenue Service pursuant to Section
1.367(a)-8 of the Treasury Regulations; and
WHEREAS, under each gain recognition agreement, BAC will be required to
recognize gain or loss in connection with the applicable exchange if, within the
five full taxable years of BAC following the year in which the exchange occurs,
FLAG Holdings disposes of any FLAG shares, or FLAG disposes of substantially all
of its assets; and
WHEREAS, the parties wish to assure that neither BAC nor BANS will be required
to recognize gain or loss with respect to either the First Exchange or the
Second Exchange and, to that end, the parties have requested an opinion of
counsel from Morgan, Lewis & Bockius, as tax counsel to FLAG ("Tax Counsel"),
that neither exchange will result in gain or loss to BAC, BANS, or other U.S.
shareholders of FLAG.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
<PAGE>
1. FIRST EXCHANGE
With respect to the First Exchange, FLAG Holdings agrees that:
(a) it will make such representations regarding itself, its
shareholders, and FLAG as are necessary to enable Tax Counsel
to render an opinion that the First Exchange will qualify as a
transfer described in section 351(a) of the Code; and
(b) during the five full taxable years of BAC following the year
in which the First Exchange occurs, it will not dispose of any
FLAG shares and it will neither cause nor permit FLAG to
dispose of substantially all of FLAG's assets within the
meaning of Sections 1.367(a)-8(e)(1), (2), and (3) of the
Treasury Regulations (or any successor Treasury Regulations).
2. SECOND EXCHANGE
With respect to the Second Exchange, FLAG Holdings agrees that:
(a) it will make such representations regarding itself, its
shareholders, and FLAG as are necessary to enable Tax Counsel
to render an opinion that the Second Exchange will qualify as
a corporate reorganization described in section 368(a)(1)(B)
of the Code; and
(b) during the five full taxable years of BAC following the year
in which the Second Exchange occurs, it will not dispose of
any FLAG shares and it will neither cause nor permit FLAG to
dispose of substantially all of its assets within the meaning
of Sections 1.367(a)-8(e)(1), (2), and (3) of the Treasury
Regulations (or any successor Treasury Regulations).
3. INDEMNIFICATION
If FLAG Holdings or FLAG or any shareholder of either company (other
than BANS) should breach any of the agreements or representations
provided for in Sections 1 and 2 above, FLAG Holdings shall promptly
notify BAC and BANS of such breach and shall promptly indemnify BAC and
BANS for (i) any Federal, State or local income tax cost incurred by
BAC or BANS as a result of such breach, and (ii) any other costs or
expenses incurred by BAC or BANS in connection with such breach,
provided, further, that any such indemnification payment under clause
(i) shall be in accordance with the following provisions:
2
<PAGE>
(a) the payment shall be grossed-up so that the net amount
realized by the indemnified party, after taking into account
income taxes incurred by such party with respect to the
indemnification payment, is equal to the tax cost described in
clause (i) above;
(b) if, at the time of such payment, BAC or BANS is a shareholder
of FLAG Holdings, BAC or BANS shall receive, in addition to
the amount calculated in accordance with Section 3(a) above
(the "Section 3(a) amount"), a further amount equal to (x) the
Section 3(a) amount, multiplied by (y) the percentage of FLAG
Holdings shares owned by BAC or BANS;
(c) any payment obligations arising under Sections 3(a) and (b)
above after the Second Exchange may be settled by the issuance
of common stock of FLAG Holdings if, in the opinion of Tax
Counsel, payment in cash will result in the second exchange
not qualifying as a corporate reorganization within the
meaning of Section 368(a)(1)(B) of the Code, provided that, if
payment is made in common stock, the value of such stock shall
be equal to the amount of cash that would have been paid under
Sections 3(a) and (b), calculated as if the payment under
Section 3(a) was fully taxable to BAC to BANS; and
(d) if, subsequent to an indemnification under this Section,
either BAC or BANS realizes a U.S. tax benefit from any
increased basis in FLAG Holdings shares attributable to a
breach of Sections 1 or 2 above that resulted in such
indemnification payment, BAC or BANS shall promptly repay to
FLAG Holdings that portion of such indemnification payment
equal to the tax benefit realized (together with the related
gross-up amounts calculated in accordance with Sections 3(a)
and (b) above).
4. ENTIRE AGREEMENT/SUCCESSORS AND ASSIGNS
This Agreement constitutes the entire agreement between the parties and
supersedes any previous agreements, arrangements or understandings
between them relating to the subject matter hereof. Each party
acknowledges that it is not relying on any statements, warranties or
representations given or made by the other party relating to the
subject matter hereof, save as expressly set out in this Agreement. The
rights and obligations of each party to this Agreement shall apply to
and be assumed by the party's successors or assigns (if any).
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5. VARIATION/SURVIVAL
No variation or amendment to this Agreement shall be effective unless
in writing signed by authorized representatives of each of the parties.
This Agreement and the obligations of the parties hereto shall remain
in full force and effect, notwithstanding any disposition by BAC or
BANS of any shares of FLAG Holdings or FLAG.
6. NOTICES
Any notice, request, demand or other communication required or
permitted hereunder shall be in writing and shall be sufficiently given
if in English, and delivered by hand or sent by prepaid registered or
certified mail (airmail if international) by facsimile or by prepaid
international courier of international reputation addressed to the
appropriate party at the following address or to such other address or
place as such party may from time to time designate:
If to FLAG Holdings or FLAG:
FLAG Telecom Holdings Limited
The Emporium Building
69 Front Street - 4th Floor
Hamilton HM12 Bermuda
Attention: Chairman and CEO
Tel: 1 441 296 0909
Fax: 1 441 296 0938
with copy to:
FLAG Telecom Limited
103 Mount Street - 3rd Floor
London W1Y 5HE
U.K.
Attention: General Counsel
If to BAC or BANS:
Bell Atlantic
1095 Avenue of the Americas
New York, NY 10036
Attention: President - International Group
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with copy to:
Bell Atlantic
1095 Avenue of the Americas
New York, NY 10036
Attention: Associate General Counsel - International
Tel: 212 395-2376
Fax: 212 764-2739
Any notice, request demand or other communication given or made
pursuant to this Section shall be deemed to have been received (i) in
the case of hand delivery, on the date of receipt as evidenced by a
receipt of delivery from the recipient, (ii) in the case of mail
delivery, on the date which is seven days after the mailing thereof,
and (iii) in the case of transmission by facsimile, on the date of
transmission with confirmed answer back. Each such communication sent
by facsimile shall be promptly confirmed by notice in writing
hand-delivered or sent by courier, mail or air mail as provided herein,
but failure to send such a confirmation shall not affect the validity
of such communication.
7. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which as so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
8. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of New York without regard to the laws of New York governing
conflicts of laws.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
and year first above written.
FLAG TELECOM BELL ATLANTIC NETWORK
HOLDINGS LIMITED SYSTEMS COMPANY
By: /s/ Judith Collis By: /s/ Daniel C. Petri
------------------------------ ----------------------------
Name: Judith Collis Name: Daniel C. Petri
Title: Deputy Chairperson Title: President
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BELL ATLANTIC CORPORATION
By: /s/ Name of Signatory
----------------------------
Name:
Title: Secretary
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Exhibit 10.7
ML&B DRAFT 12/18/99
VI B. (14)(b)
MARKETING TRANSITION AGREEMENT
This Marketing Transition Agreement is entered into this 14th day of May, 1998
(the "Effective Date") by and between Bell Atlantic Network Systems (Bermuda)
Limited, formerly NNS (Bermuda) Limited, a Bermuda corporation with offices at
The Emporium Building, 69 Front Street - Fourth Floor, Hamilton HM12, Bermuda
("BANSB"), NYNEX Network Systems Company, a Delaware Corporation with offices at
4 West Red Oak Lane, White Plains, New York 10604 ("NNS") and FLAG Limited, a
Bermuda Corporation with offices at Richmond House, 12 Par-la- Ville Road,
Hamilton, HM08, Bermuda ("FLAG"). BANSB, NNS and FLAG are hereinafter also
referred to individually as "Party" and collectively as the "Parties."
RECITALS
WHEREAS, On April 19, 1994, BANSB and FLAG entered into a Marketing Services
Agreement (the "Agreement"), pursuant to which BANSB secured the exclusive right
to provide certain marketing services for FLAG for the operating life of the
FLAG cable (the "Marketing Services"); and
WHEREAS, with the closure of FLAG's permanent financing and movement to an
operating entity, FLAG believes that it is now better positioned to devote its
attention to the marketing and sale of
<PAGE>
FLAG capacity and BANSB is willing to transition its obligations under the
Agreement to FLAG; and
WHEREAS, FLAG and BANSB desire to describe the terms and conditions under which
an orderly transition of BANSB's obligations under the Agreement to FLAG should
occur, with such terms and conditions including, INTER ALIA, (i) a discussion of
how FLAG intends to market and sell FLAG capacity, (ii) an implementation plan
for the transition of BANSB functions to FLAG in a manner that is seamless to
the industry, (iii) various payments to BANSB, and (iv) the continued
involvement of NNS in the activities of FLAG, in recognition of Bell Atlantic
Corporation's strategic importance as not only FLAG's largest investor but as
one of the largest telecommunications companies in the world.
NOW, THERFORE, in consideration of the mutual promises set forth herein, the
Parties agree as follows:
1. TRANSITION
(a) The Agreement shall terminate on the seventh day after the
Effective Date (the "Termination Date"). In advance of said Termination
Date, the Parties agree that continuity and stability are essential if
the sales, marketing and support functions presently being performed by
BANSB are to be transitioned to FLAG in an orderly and efficient
manner. The Parties shall jointly develop a transition plan aimed at
completing the transition by the
2
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Termination Date in a manner that is transparent to the customer.
During this transition period, BANSB will cooperate to implement with
FLAG personnel decisions of FLAG regarding the personnel named on
Schedule 1 hereto. BANSB and FLAG will use best efforts to ensure all
sales related processes necessary to accomplish a smooth transition
will be in place prior to the Termination Date. Without limiting the
generality of the foregoing, BANSB will transfer to FLAG in a timely
manner all operating procedures and work product in a usable manner and
will provide FLAG-designated personnel with appropriate orientation.
All costs accruing after the Termination Date with respect to BANSB
personnel who transfer to FLAG will become the obligation of FLAG,
other than commissions on sales for which FLAG must pay commissions to
BANSB.
(b) All expenses associated with the transition of BANSB obligations to
FLAG ("Transition Expenses") up to the amount set forth in Schedule 2
hereto, shall be paid by FLAG, provided that Transition Expenses shall
not include expenses (other than overhead set forth in Schedule 2
between the Effective Date and the Termination Date) to be agreed upon
by the Parties which would in any event have been incurred by BANSB
even without such transition. These Transition Expenses include, INTER
ALIA, the costs associated with (i) consultant terminations (severance
costs associated with consultants will be determined by reference to
that consultant's contract and paid by FLAG and will include those
consultants who are offered a position with FLAG but who determine not
to join FLAG), (ii) BANSB employee terminations (severance costs
associated with BANSB employees will be determined by BANSB and FLAG),
(iii) lease terminations in Bermuda (both the Front
3
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Street office as well as apartment leases of specified BANSB personnel)
and Hong Kong, (iv) equipment leases, (v) the costs associated with the
closure of BANSB's Amsterdam and Hong Kong office, and (vi) losses on
the disposal of certain fixed assets calculated by reference to said
assets written down value. Beyond the amounts described in Section 2,
FLAG shall have no responsibility for any expenses associated with the
winding up of BANSB and BANSB will indemnify and hold harmless FLAG
from any additional Transition Expenses and causes of action relating
thereto.
(c) Although there is no right of assignment under the various
consultant agreements that BANSB has with its sales force, BANSB will
work with FLAG in an effort to secure such assignment to FLAG, if FLAG
so requests, but FLAG will have no obligation to take over any such
agreements.
(d) FLAG shall identify those BANSB and NNS employees that FLAG wishes
to have in its organization. BANSB and NNS will work with FLAG and
these employees to attempt to secure the most appropriate arrangement,
either through secondment or direct hire by FLAG.
(e) FLAG and BANSB will use best efforts to minimize Transition
Expenses. Without limiting the generality of the foregoing, BANSB will
act promptly in issuing notices of termination of relevant agreements
and other arrangements.
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(f) Neither BANSB nor any of the BANSB personnel will incur any
obligations or take any other actions for which FLAG could be liable
without FLAG's prior written consent.
2. BELL ATLANTIC SERVICES
(a) BANSB and NNS are affiliates of Bell Atlantic Corporation ("Bell
Atlantic"). Recognizing Bell Atlantic's position as one of the largest
telecommunication companies in the owrld, FLAG and NNS will work
together after the termination of the Agreement to jointly secure the
objectives of FLAG. NNS's work with FLAG (hereinafter, "Bell Atlantic
Services"), shall include, but not be limited to, (i) working together
to secure commitments from telecommunications carriers for capacity,
(ii) working together on strategic initiatives, including new products,
services and pricing, (iii) providing input to FLAG on industry trends
and evaluating the impact of those trends on FLAG, (iv) providing
technical support to FLAG, (v) providing legal and regulatory support
as needed, and (vi) providing communications support.
(b) The Chief Executive Officer of FLAG and a designee of NNS shall
discuss the Bell Atlantic Services and other ways for Bell Atlantic to
assist FLAG in achieving its goals once every two weeks.
(c) FLAG shall provide monthly reports to NNS and the Board of
Directors of FLAG (the "FLAG Board") regarding the marketing activities
performed by FLAG and the amount of capacity on the FLAG cable for
which forecasts or commitments have been received.
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<PAGE>
Such reports shall be in such form and contain such details as may
reasonably requested by NNS or the FLAG Board, and shall include
tracking for prospective customers, including size, close date and
probability of success. FLAG shall keep detailed records of all
material activities performed in relation to the provision of marketing
services and on reasonable notice, FLAG shall make the same available
for inspection by the FLAG Board. NNS shall provide monthly reports to
FLAG regarding the Bell Atlantic Services. NNS shall keep detailed
records of such Bell Atlantic Services and, on reasonable notice, shall
make the same available for inspection by FLAG.
(d) FLAG shall maintain records of all Bell Atlantic Services performed
by NNS or an affiliate. For incidental services (E.G., setting up an
Embassy meeting or discussing market conditions) NNS will not bill
FLAG. For any longer term, discrete work efforts performed by NNS for
FLAG, FLAG shall reimburse NNS for all costs and out-of-pocket expenses
incurred by NNS. Costs associated with these discrete work efforts will
be agreed upon in writing, in advance by FLAG and NNS.
(e) The Chief Executive Officer of FLAG, one representative from NNS
and one representative from the FLAG Board will form a Committee (the
"Goals and Objectives Committee") to provide guidance to FLAG
management on strategic matters relating to the marketing and sale of
FLAG capacity. FLAG management shall discuss all material strategic and
pricing matters which require FLAG Board approval with the Goals and
Objectives Committee in advance of presentation to the Board.
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<PAGE>
(f) NNS shall be and shall serve as an independent contractor. Neither
FLAG on the one hand, nor NNS, on the other hand, shall have any
authority to bind or commit the other or to represent itself as an
agent of the other.
3. BANSB COMMISSION
Consistent with Section 2 of the Agreement, BANSB shall be entitled to
all commissions due and owing, to the extent that a capacity sales
and/or credit agreement has been executed by the Effective Date. In
addition, with respect to capacity sales and/or credit agreements which
have been executed by the Effective Date, and under which FLAG has the
right to render invoices after the Effective Date, BANSB will be
entitled to commissions on the cash amount payable under each such
invoice which may be rendered by FLAG within twenty four (24) months
after the Effective Date. BANSB will also be entitled to commissions,
up to a maximum of $3,000,000, of 3% of the cash amount payable by any
carriers set forth in Schedule 3 hereto under invoices which FLAG may
render within one year after the Effective Date under capacity sales
and/or credit agreements executed by FLAG with such carriers within
such one year period. Except as provided for in this Section, BANSB
shall not be entitled to any commissions under the Agreement or this
Marketing Transition Agreement.
4. SALES AGENT
(a) The Parties recognize that BANSB will be transferring to FLAG its
rights and obligations under the Agreement just at a time when the FLAG
system has become
7
<PAGE>
opreational and before BANSB, as sales agent, has an opportunity to
gain significant strategic value and enjoy fuller exposure in the
marketplace.
(b) As of the Termination Date, BANSB or an affiliate of BANSB shall,
for the life of the FLAG system, be FLAG's non-exclusive sales agent
for the sale of four ("4") whole DS- 3s or, in the aggregate, 84 E-1s
of capacity on the FLAG system from the United Kingdom to Japan. The
total bandwidth provided may be dividable across any combination of
terminal pairs. BANSB shall bear any and all expenses associated with
the marketing of these four DS-3s. FLAG shall have the right to accept
or reject any offers to purchase capacity ("purchase" being defined
under the Agreement) which are presented by BANSB to FLAG, but FLAG
shall not unreasonably refuse to accept such offers. FLAG and BANSB
shall divide equally the net sale proceeds of the purchase price from
any such sale of capacity. No additional commission will be earned
pursuant to Section 3 of this Marketing Transition Agreement with
respect to any capacity sold pursuant to this Section 4. The marketing
activities as to the four DS-3s will be coordinated with FLAG.
5. OUTSTANDING BILLS
There are certain outstanding bills (the "Outstanding Bills") that
BANSB or NNS have sought payment from FLAG. These Outstanding Bills
include, INTER ALIA (i) certain publicity, and promotional work
performed for FLAG, (ii) legal fees from the firm of Paul, Weiss,
Rifkind, Wharton and Garrison, and (iii) miscellaneous expenses
associated with the Program Management Services Agreement between FLAG
and NNS. In full settlement of
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<PAGE>
these Outstanding Bills, FLAG will make a payment to BANSB on the
Effective Date of $750,000.
6. RELEASE
(a) FLAG, on behalf of itself, FLAG's shareholders, its heirs, legal
representatives, subsidiaries and assigns agrees not to sue and does
hereby release and forever discharge BANSB and its subsidiaries and
affiliates, successors and assigns, and their past and present
officers, directors, employees, agents, and the heirs, legal
representatives and assigns of any of said persons (the "BANSB
Releases") of and from any and all, and all manner of, actions and
causes of action, suit, debts, dues, expenses, accounts, bonds,
covenants, agreements, judgments, claims, damages, counterclaims and
demands whatsoever, in law or equity, that FLAG and its shareholders
had, have, or may have against the BANSB Releasees based upon the
Agreement and the performance of the BANSB Releasees thereunder, with
the exception of those actions and causes of action, suit, debts, dues,
expenses, accounts, bonds, covenants, agreements, judgments, claims,
damages, counterclaims and demands which arise from the gross
negligence or willful misconduct of BANSB.
(b) BANSB on behalf of itself, BANSB's Shareholder, its heirs, legal
representatives, affiliates, parent company, subsidiary and assigns
agrees not to sue and does hereby release and forever discharge (i)
FLAG and its subsidiaries and affiliates, successors and assigns, (ii)
the Administrative Agent, the Collateral Trustee and the Lenders from
time to time
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<PAGE>
parties to the Credit Agreement dated as of January 28, 1998 among
FLAG, the Administrative Agent, the Collateral Trustee and the Lenders
(the "Credit Agreement"), and (iii) their past and present officers,
directors, employees, agents, and the heirs, legal representatives and
assigns of any of said persons (the "FLAG Releasees") of an from any
and all, and all manner of, actions and causes of action, suit, debts,
dues, expenses, accounts, bonds, covenants, agreements, judgments,
claims, damages, counterclaims and demands whatsoever, in law or
equity, that BANSB had, has, or may have against the FLAG Releasees
based upon the Agreement and the performance of the FLAG Releasees
thereunder, with the exception of those actions and causes of action,
suit, debts, dues, expenses, accounts, bonds, covenants, agreements,
judgments, claims, damages, counterclaims and demands which arise from
the gross negligence or willful misconduct of FLAG.
7. REPRESENTATIONS
The signatories represent that they have been granted by their
respective principals full power and authority to compromise and settle
all claims related to the Agreement, to agree to the confidentiality
provisions herein and to execute this Marketing Transition Agreement.
8. CONFIDENTIALITY
It is understood and mutually agreed that:
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(a) Except as required by law, the Parties shall keep strictly
confidential this Marketing Transition Agreement, any facts, claims,
allegations or terms and conditions relating to all or a part of this
Marketing Transition Agreement, any statements, negotiations,
proceedings or opinions in connection therewith and any information
made available by one Party to another Party pursuant to the terms of
this Marketing Transition Agreement;
(b) Except as required by law or regulation, no Party will seek or
create any publicity or make any statement to anyone concerning the
other Parties to this Marketing Transition Agreement or any of their
affiliates, or present or former officers, directors, employees or
agents;
(c) The restrictions under clauses (a) and (b) immediately above shall
not apply to the Administrative Agent, the Collateral Trustee and the
Lenders from time to time parties to the Credit Agreement dated as of
January 28, 1998 among FLAG, the Administrative Agent, the Collateral
Trustee and the Lenders; and
(d) Any press releases concerning this Marketing Transition Agreement
must be reviewed in advance and approved by both FLAG and BANSB.
9. ORAL MODIFICATIONS
This Marketing Transition Agreement may not be changed orally.
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<PAGE>
10. GOVERNING LAW
This Marketing Transition Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving
effect to the principles of conflicts of laws thereof.
11. SURVIVAL
Obligations under this Marketing Transition Agreement which, by their
nature, would continue beyond the termination of this Marketing
Transition Agreement, shall survive such termination.
12. WAIVER
The failure of any Party to exercise any right provided for herein
shall not be deemed a waiver of such right and the wiaver of any right
provided for herein shall not be deemed a waiver of any other right
hereunder.
13. BINDING NATURE
This Marketing Transition Agreement shall be binding upon, and inure to
the benefit of, each of the Parties and their respective successors and
permitted assigns, provided that no Party may assign this Marketing
Transition Agreement without the prior written consent of the other
Parties, and any attempted assignment without such consent shall be
null and void; provided, further, however, that FLAG may pledge and
assign this marketing Transition Agreement to the Collateral Trustee
for the benefit of the Secured Parties, as defined in the
12
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Credit Agreement. Nothing contained in this Marketing Transition
Agreement, express or implied, shall be deemed to confer any right or
remedy upon, or obligate any Party to, any person or entity other than
the Parties. Notwithstanding the foregoing, and consistent with Section
6.11 of the Credit Agreement, in the event that the Majority Lenders
(as defined under the Credit Agreement) do not find this Marketing
Transition Agreement reasonably satisfactory, then the Parties shall
jointly take such action as is necessary to satisfy said Majority
Lenders.
14. ENFORCEABILITY
If any term in or provision of this Marketing Transition Agreement
shall be held to be illegal, invalid or unenforceable, in whole or in
part, under any applicable enactment or rule of law, such term or
provision or part thereof shall to that extent be deemed not to form
part of this Marketing Transition Agreement and the validity and
enforceability of the remainder of this Marketing Transition Agreement
shall not be affected. The Parties undertake in good faith to replace
any invalid or unenforceable provision with one which leads to the same
economic result.
15. NOTICES
Any notices required or permitted to be sent under this Marketing
Transition Agreement shall be sent by registered mail, return receipt
requested or by express mail, telecopy, or hand delivery to the address
of the Party in this Section. Notices sent by registered mail shall be
deemed effective on the third business day following mailing and if
sent by express mail,
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<PAGE>
telecopied, or hand delivered, shall be deemed effective on receipt.
Any Party may change its address and/or recipient for notices by
notifying the other Party in accordance with this Section.
Any notice required to be delivered to BANSB or NNS shall be sent to:
NYNEX Network Systems Company
Attn: Senior Vice President
4 West Red Oak Lane
White Plains, NY 10604
Facsimile: 914-644-6977
With a copy to:
Bell Atlantic
Legal Department
Attn: Richard G. Warren, Esq.
1095 Avenue of the Americas
New York, NY 10036
Facsimile: 212-764-2739
Any notice required to be delivered to FLAG shall be sent to:
FLAG Limited
Richmond House
12 Par-la-Ville Road
Hamilton HM08 Bermuda
Attention: Chief Executive Officer
16. COUNTERPARTS
This Marketing Transition Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the Parties have caused this Marketing Transition Agreement
to be executed by their duly authorized representatives effective as of the day
and year first above written.
FLAG Limited Bell Atlantic Network Network Systems
(Bermuda) Limited
By: /s/ Andres Bande By: /s/ John C. Perry
------------------------------- --------------------------------
Andres Bande John C. Perry
Chief Executive Officer President
NYNEX Network Systems Company
By: /s/ Daniel C. Petri
--------------------------------
Daniel C. Petri
Authorized Signator
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Exhibit 10.8
BELL ATLANTIC EMPLOYEE SERVICES AGREEMENT
THIS AGREEMENT is made as of May 21,1998 BETWEEN
(1) BELL ATLANTIC GLOBAL SYSTEMS COMPANY, a Delaware corporation with
an office at 4 West Red Oak Lane, White Plains, New York 10604, USA
("Bell Atlantic"): and
(2) FLAG LIMITED, a Bermuda company, with its registered office at 12
Par-La-Ville Road, Richmond House, 5th Floor, Hamilton HM 08 Bermuda
("FLAG").
WHEREAS:
(A) FLAG is in the business of operating and maintaining an undersea
fiber optic cable system linking multiple countries from Europe to Asia
(the "System").
(B) Pursuant to the terms and conditions contained in that certain
Marketing Transition Agreement among Bell Atlantic, FLAG and Bell
Atlantic Network Systems (Bermuda) Limited dated May 14, 1998 (the
"Transition Agreement"), Bell Atlantic has agreed to provide the
services of those employees set forth in Exhibit A (the "Bell Atlantic
Employees") to FLAG, and Bell Atlantic, will be compensated for
providing such Bell Atlantic Employees to FLAG.
<PAGE>
NOW THEREFORE, IT IS HEREBY AGREED as follows:
1. BELL ATLANTIC OBLIGATIONS
1.1 During the term hereof, the Bell Atlantic Employees shall provide
services to FLAG on a full time basis for the respective periods set forth in
Exhibit A. The services rendered by the Bell Atlantic Employees shall be
rendered under the direction and control of FLAG's senior management. If
requested by FLAG, the Bell Atlantic Employees shall work out of such office of
FLAG or any of its subsidiaries as FLAG may reasonably request. In the event of
an international assignment, FLAG shall pay associated international assignment
expenses on a basis to be agreed upon by FLAG and Bell Atlantic prior to the
assignment.
1.2 The Bell Atlantic Employees' respective salaries, fees and any
related agreements have been reviewed and accepted by FLAG. FLAG may by notice
require Bell Atlantic to remove any Bell Atlantic Employee at any time for
unsatisfactory performance, allowing for a reasonable time in light of the
circumstances of the removal and the need to substitute a replacement employee.
Bell Atlantic shall use its best efforts to ensure that any replacement for any
Bell Atlantic Employee shall possess suitable technical, managerial or other
appropriate qualifications commensurate with his or her functions. Bell Atlantic
shall submit the name, salary, fees and any related agreement of any such
replacement to FLAG for its written approval (such approval not to be
unreasonably withheld or delayed). Any such replacement employee shall be a Bell
Atlantic Employee for
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purposes hereof.
2. FLAG PAYMENTS
2.1 In respect of each Bell Atlantic Employee providing services to
FLAG during a calendar month (or any part thereof) during the term of this
Agreement, Bell Atlantic shall invoice FLAG following the end of such calendar
month for the pre-approved employee costs incurred by Bell Atlantic during
that month for such Bell Atlantic Employee, such costs to include such Bell
Atlantic Employee's (i), salary and (ii), benefits, vacation pay, annual
incentive award and payroll costs (the costs of (ii) being an agreed upon
fixed percentage of salary); provided that the determination of whether any
Bell Atlantic Employee is entitled to receive an annual incentive award
outside of the target range within Bell Atlantic Corporation shall be made by
FLAG and Bell Atlantic, and provided further that nothing shall prevent FLAG
from awarding any supplemental bonus directly to any Bell Atlantic Employee.
FLAG shall within 45 days of the receipt of such invoice pay Bell Atlantic the
amount of such invoice.
2.2 FLAG shall promptly reimburse each Bell Atlantic Employee for out
of pocket expenses incurred by such Bell Atlantic Employee in providing
services pursuant hereto in accordance with FLAG's expense reimbursement
policy.
2.3 FLAG shall pay interest at a rate per annum equal to the prime
rate of Chase Manhattan Bank plus three percent on the amount of any invoice
which is not paid by its due
3
<PAGE>
date in full, except to the extent FLAG is disputing in good faith such
amount. Such interest shall accrue on the undisputed overdue amount from the
due date until payment in full. If FLAG disputes in good faith any invoice or
part thereof, FLAG shall pay all undisputed portions of the invoice.
2.4 All payments made to Bell Atlantic hereunder shall be made in
U.S. dollars in same day available funds to such bank account as Bell Atlantic
shall notify to FLAG from time to time.
2.5 All payments to be made by FLAG hereunder, other than following a
termination of this Agreement due to a breach by Bell Atlantic, shall be made
without set-off or counterclaim except to the extent that any deduction or
withholding is required by law. Bell Atlantic shall be entitled to any refunds
thereof.
3. DURATION
3.1 This Agreement shall be effective as of the date hereof and
unless sooner terminated in accordance with the provisions of Section 4 hereof
shall continue in force for a period of three years.
4. TERMINATION
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<PAGE>
4.1 If either party commits, a material breach of this Agreement and
either such breach is not cured within 30 days after notice from the other
party specifying the breach or, if not reasonably curable during such period,
such party has not commenced and diligently continued its efforts to effect a
cure or has not fully cured such breach within 60 days after such notice, the
other party shall be entitled to terminate this Agreement.
4.2 FLAG may terminate this Agreement for any or all of the Bell
Atlantic Employees without cause at any time by giving 30 days' prior notice
to Bell Atlantic. In the event any Bell Atlantic Employee does not wish to
continue to provide services to FLAG pursuant hereto, Bell Atlantic shall give
FLAG as much notice as practicable and shall, if requested by FLAG, provide a
replacement in accordance with Section 1.2 hereof.
4.3 Except as otherwise set forth in this Agreement, termination
shall be in addition to, and not in lieu of, other rights and remedies. The
rights and obligations of either party that have accrued prior to such
termination, including but not limited to the right to payment for the Bell
Atlantic Employees, shall not be affected thereby.
5. LIABILITY
5.1 Each party shall indemnify and bold the other party harmless
against any losses, damages, liabilities, claims or demands, including all
costs, expenses and reasonable attorney's fees on account thereof or in
connection with any investigation or preparation related thereto or the
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enforcement of this indemnification provision, that may be made or incurred as
a result of the negligent or willful acts or omissions of the indemnifying
party. However, Bell Atlantic shall not be responsible in any way, and FLAG
shall indemnify Bell Atlantic, for losses, damages, claims, or demands that
may be made or incurred as a result of the acts or omissions of the Bell
Atlantic Employees to the extent that they act pursuant to the instructions of
FLAG. The indemnified party agrees to notify the indemnifying party promptly
of any written claims or demands against the indemnified party for which the
indemnifying party would be responsible for hereunder. The Indemnified party
shall not settle or compromise any such claims or demands without the prior
consent of the indemnifying party.
5.2 THE PARTIES AGREE THAT NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY FOR ANY SPECIAL DAMAGES, INCIDENTAL DAMAGES, CONSEQUENTIAL DAMAGES OR
LOSS OF PROFITS ARISING OUT OF THIS AGREEMENT.
6. MISCELLANEOUS
6.1 Except for the Transition Agreement, this Agreement supersedes
and merges all prior proposals, understandings and any other agreements, oral
or written, between the parties relating to the subject matter of this
Agreement. This Agreement may not be modified or altered except by written
instrument duly executed by the parties.
6
<PAGE>
6.2 This Agreement shall be binding upon, and inure to the benefit
of, each of the parties hereto and their respective successors and permitted
assigns, provided that no party hereto may assign this Agreement without the
prior written consent of the other party, and any attempted assignment without
such consent shall be null and void and provided further that FLAG may assign
any of its rights and/or obligations to any appropriate subsidiary of FLAG.
Nothing contained herein, express or implied, shall be deemed to confer any
right or remedy upon, or obligate any party to any person or entity other than
the parties hereto.
6.3 Neither party shall be considered an agent of the other party or
shall have the right, power or authority to create any obligation or duty,
express or implied, on behalf of the other party.
6.4 This Agreement may be entered into in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument.
6.5 This Agreement shall be governed by and construed in accordance
with the laws of the state of New York, without giving effect to the
principles of conflicts of laws thereof.
6.6 Unless settled by mutual agreement, any dispute or difference
whatsoever that might arise from the performance or as to the meaning of this
Agreement or as to any matter or items of whatsoever nature howsoever arising
out of or in connection with this Agreement shall be submitted to arbitration
in accordance with and subject to the Rules of Conciliation and Arbitration of
the
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International Chamber of Commerce and finally settled by three arbitrators
appointed in accordance with such rules, unless the parties agree upon a
single arbitrator under such rules. The place of arbitration shall be New York
City, and the language of the arbitration shall be English. Any decision or
award of the arbitral tribunal shall be final and binding upon the parties.
The costs of such arbitration shall be borne in equal proportions by the
parties provided that each party shall bear the cost of its own legal counsel.
6.7 Each notice, demand or other communication given or made under
this Agreement shall be in writing and delivered or sent to the relevant party
at its address or fax number set out below (or such other address or fax
number as the addressee has by five days' prior notice specified to the
sending party):
Any notice required to be delivered to Bell Atlantic shall be sent
to:
Bell Atlantic Global Systems Company
Attn.: Director of Human Resources
4 West Red Oak Lane
White Plains, NY 10604
Facsimile: 914-644-6977
With a copy to:
Bell Atlantic
Legal Department
Attn: Richard G. Warren, Esq.
1095 Avenue of the Americas
New York, NY 10036
Facsimile: 212-764-2739
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Any notice required to be delivered to FLAG shall be sent to:
FLAG Limited
Richmond House
12 Par-la-Ville Road
Hamilton HM08 Bermuda
Attn.: Chief Executive Officer
Facsimile: 441-296-0938
7. CONFIDENTIALITY
It is understood and mutually agreed that:
(a) Except as required by law or regulation, the parties hereto shall
keep strictly confidential this Agreement and any facts, claims, allegations
or terms and conditions relating to all or part hereof, any statements,
negotiations, proceedings or opinions in connection herewith and any
information made available by either party to the other (including by FLAG or
any of its subsidiaries to any Bell Atlantic Employee) pursuant hereto; and
(b) Except as required by law or regulation, neither party hereto shall
create any publicity or make any statement to anyone concerning the other
party to this Agreement or any of their affiliates, or present or former
officers, directors, employees or agents. IN WITNESS WHEREOF, the Parties have
caused this Agreement to be executed by their duly authorized representatives
effective as of the day and year first written above.
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<PAGE>
FLAG LIMITED BELL ATLANTIC GLOBAL
SYSTEMS COMPANY
By: /s/ Andres Bandi By: /s/ Daniel C. Petri
---------------------------- ----------------------------
Name: Andres Bandi Name: Daniel C. Petri
-------------------------- --------------------------
Title: Chairman & CEO Title: President
------------------------- -------------------------
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FIBER OPTIC LINK AROUND THE GLOBE (FLAG)
CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE
AGREEMENT
<PAGE>
FIBER OPTIC LINK AROUND THE GLOBE (FLAG) CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE AGREEMENT
This Agreement is made and entered into this ______ day of ______________ 199_,
between and among the Signatories identified in Schedule A attached hereto;
WHEREAS, the Founding Signatory wishes to provide a fiber optic submarine cable
system to be called the "FLAG 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 Republic of
Korea and Japan, and
WHEREAS, the Signatories have recognized the need for high capacity fiber optic
cable facilities providing a direct telecommunications link connecting Europe
and the Far East through the Indian Ocean Region, and
WHEREAS, the following Signatories have signed a Memorandum of Understanding
dated as of July 19, 1993, for the purpose of jointly planning the
implementation of the FLAG Cable System in advance of this Agreement; Arab
Republic of Egypt National Telecommunications Organization; The Communications
Authority of Thailand; Emirates Telecommunications Corporation; FLAG Limited;
The Government of Gibraltar; Hong Kong Telecom International Limited;
International Digital Communications Inc.; IRITEL S.p.A. (the predecessor
corporation to TELECOM ITALIA S.p.A.); Korea Telecom; Mercury Communications
Limited; PT (PERSERO) Indonesia Satellite Corporation; SPT Telecom, a.s.;
<PAGE>
Telef6nida de Espana S.A.; Telekom Malaysia Berhad; and Videsh Sanchar Nigam
Limited, and
WHEREAS, the Signatories have agreed to set forth the terms and conditions upon
which the FLAG Cable System shall be owned, constructed, maintained and
operated.
NOW WITNESSETH that, in consideration of the mutual covenants and conditions
contained herein, the Signatories hereby covenant and agree with each other as
follows:
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1. DEFINITIONS AND INTERPRETATIONS
1.1 The following definitions shall apply (except where the context
otherwise requires) to certain terms used in this Agreement:
1.1.1. AFFILIATE: An Affiliate shall mean, with. respect to an
entity, any other entity that controls, is controlled by or is
under common control with that entity, control being defined
as ownership of more than fifty percent (50%) in value of the
outstanding voting stock, or other form of interest in the
capital of, or of a partnership interest in, an entity.
1.1.2. BASIC SYSTEM MODULE: A Basic System Module shall
consist of an STM 1digial line signal at 155,520 Kilobits per
second (Kbps) with interface signal in accordance with ITU-TS
Recommendations G707 to G709.
1.1.3. BEACH JOINT A Beach Joint shall be the physical
connection between the submersible portion of the Submarine
System and the land-based portion of the Submarine System.
1.1.4. BIT SEQUENCE INDEPENDENCE: The property of a binary
transmission channel, telecommunication circuit or connection
that permits all sequences of binary signal elements to be
conveyed over it at its specified bit rate, without change to
the value of any signal elements in accordance with the
appropriate ITU-TS Recommendations.
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1.1.5. BRANCHING UNIT: A Branching Unit is a junction point
for the FLAG Cable System, and includes a housing and any
associated plant and equipment.
1.1.6. CABLE LANDING POINT: A Cable Landing Point shall be the
Beach Joint or, if there is no Beach Joint in a particular
Country, the high water mark as shown on the nautical charts
of that Country.
1.1.7. CAPACITY: Capacity in the FLAG Cable System shall be
defined as follows:
1.1.7.1. Design Capacity: Design Capacity is the
Capacity which each Segment S and Segments
X-1 and X-2 can ultimately provide. The
Design Capacity of each fiber pair consists
of thirty-two (32) Basic System Modules,
with each Basic System Module providing
sixty-three (63) MIUs, for a Design Capacity
of two thousand sixteen (2,016) MIUs.
1.1.7.2. Assignable Capacity: Assignable Capacity is
Capacity in Segment S and in Segments X-1
and X-2 which: (i) has been conveyed by the
Founding Signatory by sale or lease and is
assigned to Signatories or to International
Telecommunications Entities, or (ii) is
owned by the Founding Signatory and is
expected to be conveyed to Signatories or
International Telecommunications Entities by
sales or leases during a reasonable future
period.
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That portion of Assignable Capacity which is held on
an ownership basis is used to compute the voting
interests of the Signatories as specified in Schedule
C.
1.1.7.3. Latent Capacity: Latent Capacity is the
Design Capacity less the Assignable
Capacity. The Latent Capacity is owned by
the Founding Signatory and is capacity held
in reserve for future sale or lease. Latent
Capacity may be used for restoration
purposes.
1.1.8. COUNTRY: Country shall mean a country, territory or
place, as appropriate.
1.1.9. FLAG CABLE SYSTEM: The cable system described in
Paragraph 2 and Schedule B, together with its associated plant
and equipment.
1.1.10. FLAG INTERFACE POINT: The 155,520 kilobits per second
(Kbps) digital input/output ports on the digital distributing
frame (including the digital distribution frame itself) shall
be the FLAG Interface Point where the Submarine System
connects with other transmission facilities or equipment.
1.1.11. FOUNDING SIGNATORY: Founding Signatory refers to FLAG
Limited, a company incorporated in Bermuda with its principal
place of business office in Bermuda.
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1.1.12. INTERNATIONAL TELECOMMUNICATIONS ENTITY: Any entity
authorized or permitted under the laws and regulations of its
Country to acquire and use facilities for the provision of
international telecommunications services.
1.1.13. ITU-TS: The International Telecommunications Union -
Telecommunication Standardization Sector (previously referred
to as CCITT).
1.1.14. ITU-TS RECOMMENDATION: A recommendation approved in
accordance with the procedure laid down in Resolution No. 2
(IXTH Plenary Assembly, Melbourne, November 1988).
1.1.15. LANDING PARTY SIGNATORY: A Landing Party Signatory is
a Signatory. that is so identified in Schedule A.
1.1.16. LONDON INTERBANK OFFERED RATE (LIBOR): LIBOR shall
mean the London Interbank Offered Rate for ninety (90) day
loans, being the arithmetic mean of the averages, rounded to
the nearest one-sixteenth, of the bid and offered rates for
10,000,000 (ten million) U.S. dollars quoted by the reference
bank at 11:00 a.m. local time each working day. The reference
bank is Morgan Guaranty Trust Company or such other bank as
may be specified by the Management Committee, as necessary.
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<PAGE>
1.1.17. LICENSES: All governmental approvals, consents,
authorizations, licenses and permits and other authorizations
which are necessary to enable the FLAG Cable System to be
landed, installed, operated and maintained.
1.1.18. MINIMUM INVESTMENT UNIT OR MIU: A unit designated as
the minimum unit of investment in any Segment representing 30
bearer channels and allowing the effective use of 2,048 Kbps.
1.1.19. NON-LANDING PARTY SIGNATORY: A Non-Landing Party
Signatory is a Signatory that is so identified on Schedule A.
1.1.20. READY FOR PROVISIONAL ACCEPTANCE (RFPA) DATE: The date
on which Segment S and Segments X-1 and X-2, as described in
Paragraph 2, are accepted by the Founding Signatory, pursuant
to the terms and conditions set forth in the Supply Contract.
The RFPA Date is presently contemplated to be March 2, 1997.
1.1.21. READY FOR CUSTOMER SERVICE (RFCS) DATE: The date on
which the FLAG Cable System shall be available for customer
service. That date shall be at least thirty (30) days after
the RFPA Date. The RFCS Date is presently contemplated to be
April 2, 1997.
1.1.22. SCHEDULING: Any document attached hereto and
identified as a Schedule which is made part hereof, as it may
be amended from time to time in accordance with this
Agreement.
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1.1.23. SEGMENT: A Segment described in Paragraph 2 and
identified by the letters S, X-1, X-2 or T.
1.1.24. SIGNATORIES: Those entities identified in Schedule A,
and such other entities that may subsequently become parties
to this Agreement pursuant to Paragraph 30.
1.1.25. SUBMARINE SVSTEM: The Submarine System shall comprise
all plant and equipment, including spare plant and test
equipment, forming Segment S and connecting the FLAG Interface
Points so as to provide the Basic System Modules described in
Paragraph 5.
1.1.26. SUOPLY CONTRACT: The contract entered into by the
Founding Signatory as described in Paragraph 7.
1.2 Unless the context otherwise requires, the singular shall be taken
to mean the plural and the plural shall be taken to mean the singular.
1.3 The captions of the paragraphs and the initial recitals are for
convenience only, and do not form a part of this Agreement and shall
not have any effect on the interpretation thereof.
1.4 All Schedules and Appendices attached to this Agreement are deemed
to be fully incorporated herein by this reference for all purposes, as
though fully set forth at length herein.
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2. FLAG CABLE SYSTEM SEGMENTS
In accordance with the arrangements contained in this Agreement, the
FLAG Cable System shall be engineered, provided, constructed,
maintained and operated between and among a terminal in the United
Kingdom, a terminal in Spain, a terminal in Italy, a terminal in
Alexandria, Egypt, a terminal in Suez, Egypt, a terminal in the United
Arab Emirates, a terminal in India, a terminal in Malaysia, a terminal
in Thailand, a terminal in Hong Kong, a terminal in the Republic of
Korea and a terminal in Japan. For purposes of this Agreement, the FLAG
Cable System shall be regarded as consisting of the following Segments:
2.1 SEGMENTS T
Segment T-1 A cable station at Porthcurno, the United Kingdom
connecting the United Kingdom to Spain by Segment
S-1.
Segment T-2 A cable station at Estepona, Spain connecting Spain
to the United Kingdom by Segment S-11, and connecting
Spain to Italy by Segment S-2.
Segment T-3 A cable station at Palermo, Italy connecting Italy to
Spain by Segment S-2, and connecting Italy to
Alexandria, Egypt by Segment S-3.
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Segment T-4 A cable station at Alexandria, Egypt connecting Egypt
to Italy by Segment S-3, and connecting Alexandria,
Egypt to Suez, Egypt by Segment X-1 and Segment S-4.
Segment T-5 A cable station at Suez, Egypt connecting Suez, Egypt
to Alexandria, Egypt by Segment X-1 and Segment S-4,
and connecting Suez, Egypt to the United Arab
Emirates by Segment S-5.
Segment T-6 A cable station at Fujairah, the United Arab Emirates
connecting the United Arab Emirates to Suez, Egypt by
Segment S-5, and connecting the United Arab Emirates
to India by Segment S-6.
Segment T-7 A cable station at Bombay, India connecting India to
the United Arab Emirates by Segment S-6, and
connecting India to Malaysia by Segment S-7.
Segment T-8 A cable station at Penang, Malaysia, connecting
Malaysia to India by Segment S-7, and connecting
Malaysia to Songkhla, Thailand by Segment S-8 and
Segment X-2.
Segment T-9 A cable station at Songkhla, Thailand connecting
Thailand to Malaysia by Segment X-2 and Segment S-8,
and connecting Thailand to Hong Kong by Segment S-9.
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Segment T-10 A cable station at Lantau Island, Hong Kong
connecting Hong Kong to Thailand by Segment S-9, and
connecting Hong Kong to the Republic of Korea by
Segment S-10.
Segment T-11 A cable station at Keoje, Korea connecting the
Republic of Korea to Hong Kong by Segment S-10, and
connecting the Republic of Korea to Japan by Segment
S-11.
Segment T-12 A cable station at Miura, Japan connecting Japan to
the Republic of Korea by Segment S-11.
Each aforementioned Segment T shall consist of:
(i) an appropriate share of land, civil works, equipment and
buildings at the specified locations for the cable landing and
for the cable route, including cable rights-of-way and ducts
between a cable station and its respective Cable Landing Point
and an appropriate share of common services and equipment at
each of those locations, together with equipment (other than
multiplex equipment described in (iii) below), including but
not limited to, heating, ventilating, air conditioning, alarm
and station ground systems, in each of those cable stations
which is solely associated with the FLAG Cable System, but not
a part of Segment S; and
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(ii) an appropriate share of AC and DC power including back up
power systems as required; and
(iii) multiplex equipment, if necessary, to establish transmission
rates below the STM-1 (155,520 Kbps) level down to the E-1
(2,048 Kbps) level in each of the cable stations, associated
solely and directly with Assignable Capacity in the FLAG Cable
System.
2.2 SEGMENTS S:
The whole of the submarine cable system provided between and among, and
including, the FLAG Interface Points at the cable stations at
Porthcurno, the United Kingdom; Estepona, Spain; Palermo, Italy;
Alexandria, Egypt; Suez, Egypt; Fujairah, the United Arab Emirates;
Bombay, India; Penang, Malaysia; Songkhla, Thailand; Lantau Island,
Hong Kong; Keoje, Korea and Miura, Japan, consisting of the following
Segments:
Segment S-1 That part of Segment S between the FLAG Interface
Point at the cable station at Porthcurno, the United
Kingdom and the FLAG Interface Point at the cable
station at Estepona, Spain.
Segment S-2 That part of Segment S between the FLAG Interface
Point at the cable station at Estepona, Spain and the
FLAG Interface Point at the cable station at Palermo,
Italy.
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Segment S-3 That part of Segment S between the FLAG Interface
Point at the cable station at Palermo, Italy and the
FLAG Interface Point at the cable station at
Alexandria, Egypt.
Segment S-4 That part of Segment S between the FLAG Interface
Point at the cable station at Alexandria, Egypt and
the point where the digital input/output ports of the
Basic System Module on the digital distribution frame
(including the digital distribution frame itself) of
the Submarine System connect with Segment X-1 at Port
Said, Egypt.
Segment S-5 That part of Segment S between the FLAG Interface
Point at the cable station at Suez, Egypt and the
FLAG Interface Point at the cable station at
Fujairah, the United Arab Emirates.
Segment S-6 That part of Segment S between the FLAG Interface
Point at the cable station at Fujairah, the United
Arab Emirates and the FLAG Interface Point at the
cable station at Bombay, India.
Segment S-7 That part of Segment S between the FLAG Interface
Point at the cable station at Bombay, India and the
FLAG Interface Point at the cable station at Penang,
Malaysia.
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Segment S-8 That part of Segment S between the FLAG Interface
Point at the cable station at Penang, Malaysia and
the point where the digital input/output ports of the
Basic System Module on the digital distribution frame
(including the digital distribution frame itself) of
the Submarine System connect with Segment X-2 at
Satun, Thailand.
Segment S-9 That part of Segment S between the FLAG Interface
Point at the cable station at Songkhla, Thailand and
the FLAG Interface Point at the cable station at
Lantau Island, Hong Kong.
Segment S-10 That part of Segment S between the FLAG Interface
Point at the cable station at Lantau Island, Hong
Kong and the FLAG Interface Point at the cable
station at Keoje, Korea.
Segment S-11 That part of Segment S between the FLAG Interface
Point at the cable station at Keoje Korea and the
FLAG Interface Point at the cable station at Miura,
Japan.
Segments S-1 and S-2 shall each include a one-half
portion of Branching Unit 1 (BU1), as shown in
Schedule B-1, and a one half portion of the Submarine
System between BU1 and Segment T-2.
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Segments S-5 and S-6 shall each include a one-half
portion of Branching Unit 2 (BU2), as shown in
Schedule B-1, and a one-half portion of the Submarine
System between BU2 and Segment T-6.
Segments S-7 and S-8 shall each include a one-half
portion of Branching Unit 3 (BU3), as shown in
Schedule B-1, and a one half portion of the Submarine
System between BU3 and Segment T-8.
2.3 SEGMENT X-1:
That part of the FLAG Cable System between the cable station at
Alexandria, Egypt and the cable station at Suez, Egypt, wholly
dedicated to the provision of the FLAG Cable System, and connecting the
following Segments:
T-4 to T-5; and
S-4 to T-5.
Segment X-1 will consist of dedicated fiber pairs, in two
geographically diverse buried terrestrial cables laid across Egypt,
each providing sufficient capacity for accommodating the whole capacity
required between Alexandria and Suez, Egypt.
SEGMENT X-2:
That part of the Cable System between the cable station at Songkhla,
Thailand, and the point where Segment S-8 connects with Segment X-2 at
Satun, Thailand,
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wholly dedicated to the provision of the FLAG Cable System, and
connecting the following Segments:
S-8 to T-9.
Segment X-2 will consist of dedicated fiber pairs, in two
geographically diverse buried terrestrial cables laid across Thailand,
each providing sufficient capacity for accommodating the whole capacity
required between Segments S-8 and T-9.
2.4 Each aforementioned Segment S shall also include:
(i) all transmission, power feeding and test equipment
directly associated with Segment S;
(ii) the transmission cable equipped with appropriate
repeaters and joint housings between the cable
stations;
(iii) the power feed earth system or an appropriate share
thereof; and
(iv) digital cross connect system equipment, dedicated to
the FLAG Cable System, used to interconnect
Assignable Capacity transiting the FLAG Cable System
through a Segment T and also for Assignable Capacity
accessing a Segment T at the 155,520 Kbps level.
2.5 Segments X-1 and X-2 shall also include:
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(i) all transmission, power feeding and test equipment
directly associated with such Segments X-1 and X-2;
(ii) the power equipment provided wholly for use with the
equipment listed in (i) above; and
(iii) the transmission system including cable equipped with
appropriate repeaters, if required, between the
Segments as defined in Paragraph 2.3.
2.6 ALL SEGMENTS:
In this Agreement, references to any Segment however expressed, shall
include, unless the context otherwise requires, additional property
incorporated therein by agreement of the Founding Signatory and the
Landing Party Signatories. Each Segment shall be regarded as including
its related spare and standby units and components, including, but not
limited to, repeaters, cable lengths and terminal equipment, or an
appropriate share thereof.
3. OWNERSHIP
3.1 Each Segment S shall be owned by the respective Signatories,
retroactive to the RFPA Date, in common and undivided shares in the
proportions set out in Schedule D in respect of such Segment upon
payment to the Founding Signatory in accordance with terms and
conditions of applicable capacity sales agreements. Each Signatory
shall have the right to activate and use its Assignable Capacity in
each relevant Segment S as of the RFPA Date and shall be responsible as
of that date for all obligations arising as an
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incident of ownership in the FLAG Cable System, including, without
limitation, payment of operation and maintenance charges pursuant to
Paragraph 11, provided, however, that if payment for such Assignable
Capacity is not received within thirty (30) days of the due date under
the applicable capacity sales agreement, ownership will not vest
retroactively, and the Founding Signatory may, without prejudice to any
other remedies it may have, deactivate such Assignable Capacity.
3.2 As an incident of ownership of Segment S, each Signatory shall have
the right to use such part of the Assignable Capacity in each relevant
Segment in accordance with Paragraph 13 for the duration of this
Agreement.
3.3. Each Segment T and Segments X-1 and X-2 shall be owned by the
Landing Party Signatory in whose Country the relevant Segment is
physically situated.
3.4. Each Signatory may deal with its ownership share in any Segment S
and the right to use its part of the Assignable Capacity in accordance
with the terms of this Agreement, but no Signatory shall otherwise have
or exercise in relation to any such Segment any right incident to a
right of ownership of property except jointly with all other
Signatories.
4. ESTABLISHMENT OF MANAGEMENT COMMITTEE
4.1. For the purpose of directing the engineering, provision,
installation, bringing into service, continued operation, maintenance
and coordination of exploitation of the FLAG
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Cable System, the Signatories shall form a Management Committee
(hereinafter called the "MC'), which shall continue to exist during the
term of this Agreement and shall consist of a representative of each of
the Signatories. The MC shall make or cause to be made all decisions on
behalf of the Signatories to implement the purposes of this Agreement,
except with respect to matters expressly reserved to the Founding
Signatory pursuant to this Agreement. Although each Signatory must
designate a single representative, each Signatory may bring expert
assistance to the meetings of the MC. Two or more Signatories may
designate the same person to serve as their representative at specific
meetings of the MC and its subcommittees established pursuant to
Paragraph 4.3. In the event of voting as specified pursuant to
Paragraphs 4.5 and 4.6, such person representing more than one
Signatory shall separately vote the interest to which each Signatory
represented is entitled.
4.2. Until the day following the RFPA Date, the chairman of the MC
shall be appointed by the Founding Signatory. Thereafter, the members
of the MC shall appoint a chairman from among the Founding Signatory
and the Landing Party Signatories, for periods determined by them,
provided that the first chairman of the MC appointed after the RFPA
Date shall be selected from among the Landing Party Signatories.
4.3. The MC may form subcommittees to aid in the performance of its
duties. Terms of reference
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for specified subcommittees are attached in Appendix A. Terms of
reference for other subcommittees shall be decided by the MC. The
subcommittees shall consist of representatives of the Founding
Signatory and the other Signatories. The subcommittees shall reach
agreement by consensus. If consensus is not achieved, the matter shall
be referred to the MC for decision. The MC shall be authorized to
dissolve a subcommittee formed pursuant to this paragraph.
4.4. No decisions of the MC or its subcommittees shall override any
provisions of this Agreement or diminish in any way the rights granted
to any Signatory under this Agreement.
4.5. Meetings of the MC may be convened at the discretion of the
chairman and additionally shall be convened by the chairman when
requested to do so by one or more Signatories representing at least
five percent (5%) of the total voting interests. The voting interest of
each Signatory shall be as specified in Schedule C. The chairman shall
in normal circumstances give at least thirty (30) days notice to all
members of the convening of a meeting of the MC and at that time shall
furnish an agenda therefor. In extraordinary circumstances, the period
of notice may be reduced where at least two-thirds (2/3) of the voting
interests is in agreement. The quorum for any meeting of the MC or any
subcommittee shall be the Founding Signatory and two or more
representatives of other Signatories together representing not less
than five percent (5%) of the total voting interests.
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4.6. All decisions made by the MC shall be subject, in the first
instance, to consultation among its members, who shall make every
effort to reach agreement by consensus. Except as otherwise provided in
Paragraph 23, in the event that consensus cannot be reached, the
decisions will be carried on the basis of an affirmative vote of the
representatives of Signatories representing at least a simple majority
of the total voting interests represented at the meeting, provided,
however, that in the case of decisions pursuant to Paragraph 9.1 and
other decisions that may have a financial impact on the rounding
Signatory with respect to contractual obligations incurred by the
Founding Signatory under this Agreement, such simple majority shall
include the Founding Signatory. On and prior to the RFPA Date, if such
vote results in a tie, the chairman of the MC shall cast the deciding
vote.
5. CONFIGURATION OF THE FLAG CABLE SYSTEM
5.1. As shown in Schedule B-1, the FLAG Cable System shall consist of
thirty-two (32) 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 Republic of Korea, and the Republic of Korea and
Japan.
5.2. As shown in Schedule B-1, the FLAG Cable System shall also consist
of thirty-two (32) 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
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United Arab Emirates, the United Arab Emirates and India, India and
Malaysia, Malaysia and Thailand, Thailand and Hong Kong, Hong Kong and
the Republic of Korea, and the Republic of Korea and Japan.
6. OBLIGATIONS OF THE SIGNATORIES
6.1. Except as otherwise provided in Paragraphs 6.2 and 6.6, all costs
incurred under the Supply Contract for the provision and installation
of the Submarine System and Segments X-1 and X-2 shall be borne by the
Founding Signatory.
6.2. The costs of additional equipment and services requested by the
Landing Party Signatories to be procured under the Supply Contract
pursuant to Paragraph 7.3, which are not included in the Submarine
System or Segments X-1 and X-2, shall be borne by the Landing Party
Signatories.
6.3. Appendix B contains a list of the initial costs associated with
the FLAG Cable System in addition to costs arising under the Supply
Contract. Appendix B specifies which of the Signatories is responsible
for the performance and costs of the specified items.
6.4. Each of the Landing Party Signatories shall provide and install
the Segment T located in its respective country in sufficient time to
permit the FLAG Cable System to be placed in operation by the RFPA
Date.
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6.5. Arab Republic of Egypt National Telecommunications Organization
(ARENTO) and the Communications Authority of Thailand (CAT) shall
furnish all necessary and appropriate assistance to the Founding
Signatory in the provision of Segments X-1 and X- 2, respectively, in
sufficient time to permit the FLAG Cable System to be placed in
operation by the RFPA Date.
6.6. The Founding Signatory shall pay for two-thirds of the costs of
the digital cross connect system equipment, as described in Paragraph
2.4 (iv), with each of the Landing Party Signatories paying for the
remaining one-third of such costs of such equipment placed in each of
their respective cable stations and in consideration for such payment
the Landing Parties shall receive Indefeasible Right of Use (IRU) in
such equipment.
6.7. All Signatories shall provide full cooperation with each other in
matters concerning the FLAG Cable System and the promotion of the best
interests of the FLAG Cable System.
6.8. All Signatories shall, as necessary and practical, enter into
agreements for utilizing alternative capacity for restoration purposes
in the event of failure of part or all of the FLAG Cable System.
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7. SUPPLY CONTRACT
7.1. The Founding Signatory shall develop the technical design of the
FLAG Cable System in accordance with good engineering practice and
appropriate international technical and operating standards, shall
ensure the technical compliance of the FLAG Cable System at the FLAG
Interface Points with appropriate ITU-TS Recommendations, and shall
compile a specification of the FLAG Cable System.
7.2. The Founding Signatory shall cause to be conducted a survey of the
submarine route for the Submarine System.
7.3. The Founding Signatory shall have sole responsibility for the
provision and installation of the Submarine System and Segments X-1 and
X-2 and, to that end, shall enter into the Supply Contract with one or
more suppliers for services, plant and equipment and for the
engineering, provision and installation of the Submarine System and
Segments X-1 and X-2. At the request of the Landing Party Signatories
and after consultation with the relevant subcommittee, the Founding
Signatory may include in the Supply Contract equipment and services
which are associated with the FLAG Cable System, but which are not
included in the Submarine System or Segments X-1 and X-2. The costs of
services, plant, and equipment procured under the Supply Contract shall
be allocated as specified in Paragraph 6.
7.4. The Founding Signatory shall ensure that the Supply Contract shall
afford the Founding Signatory or its designated representatives
reasonable rights of access to
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examine, test and inspect all engineering, provisioning and
installation activities and equipment, material and supplies
7.5. The Founding Signatory shall make available to the Landing Party
Signatories on a timely basis technical information relating to the
construction, provision and operation of the FLAG Cable System which
may be required to discharge the responsibilities of the Landing Party
Signatories to obtain and maintain in force Licenses, provide their
respective Segment T and transiting facilities, and connect the FLAG
Cable System to inland systems. The Landing Party Signatories shall
afford confidential treatment to such information.
7.6. The Founding Signatory shall ensure that the Supply Contract shall
require the supplier(s) with whom that Supply Contract is placed to
provide plant, equipment and services necessary to allow the Submarine
System and Segments X-1 and X-2 to be placed into operation on the RFPA
Date, and shall take any and all actions as may be necessary and
appropriate to enforce the terms of the Supply Contract. The Founding
Signatory does not warrant or guarantee that the supplier(s) under the
Supply Contract will place into operation the Submarine System and
Segments X-1 and X-2 either at all or by any particular date.
7.7. The Founding Signatory shall ensure that the Supply Contract shall
require the supplier(s) with whom the Supply Contract is placed to
provide a performance guarantee and warranty in accordance with good
engineering practice and relevant international
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technical and operating standards and which will result in the
technical compliance of the FLAG Cable System at the FLAG Interface
Points with appropriate ITU-TS Recommendations.
7.8. If the costs to correct a failure, breakdown or interruption of
the FLAG Cable System are covered by a warranty under the Supply
Contract, the Founding Signatory shall credit the running charges
otherwise payable by the Signatories based on the share of such costs
allocable to each Signatory, pursuant to Paragraph 11.2, with the
amount received from the supplier under its warranty, less the
reasonable costs expended by the Founding Signatory to pursue such
warranty claim.
7.9. The Signatories acknowledge that the Founding Signatory does not
warrant or guarantee the performance of the Submarine System by reason
of the supplier's failure to perform the terms and conditions of the
Supply Contract. The Founding Signatory shall take any and all actions
as may be necessary and appropriate to enforce the terms of the Supply
Contract.
8. RIGHT OF USE OF SEGMENTS X-1 AND X-2 AND SEGMENT T
8.1. ARENTO grants the right of use of Segment X-1, at no charge to
Signatories and to other International Telecommunication Entities which
have acquired Assignable Capacity, pursuant to Paragraph 13, on
Segments S-3 and S-4 that interconnect with Segment S-5 via Segment X-1
for the purpose of transiting Egypt by the FLAG Cable System.
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CAT grants the right of use of Segment X-2, at no charge to Signatories
and to other International Telecommunication Entities which have
acquired Assignable Capacity, pursuant to Paragraph 13 on Segment S-8
that interconnects with Segment S-9 via Segment X-2 for the purpose of
transiting Thailand by the FLAG Cable System or terminating in Thailand
via Segment S-8.
8.2. Each of the Landing Party Signatories grants to other Signatories,
except the Founding Signatory, to whom Assignable Capacity in the FLAG
Cable System is conveyed, the right of use of the Segment T owned by
the relevant Landing Party Signatory for such Assignable Capacity
entering the FLAG Cable System at the relevant Segment T as specified
in Schedule K. For the right of use granted under this Paragraph 8.2,
each Signatory shall pay the consideration as specified in Paragraph
8.5 in the proportion as set forth in Schedule L. The consideration
payable for the right of use in a Segment T shall be based on a
Signatory's pro-rata share of the notional capacity of the relevant
Segment T as specified in Schedule K and shall be used to recover the
capital and other costs, by a nonrecurrent charge, and the operation
and maintenance costs, by recurrent charges, as defined in Paragraph
8.5.
8.3. Each of the Landing Party Signatories shall make necessary
equipment in its Segment T available to the Founding Signatory on
reasonable terms and conditions so as
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to enable the Founding Signatory to lease Assignable Capacity to
International Telecommunications Entities.
8.4. Each of the Landing Party Signatories shall be obligated to allow
Signatories and other International Telecommunications Entities
acquiring Assignable Capacity the use of the relevant Segment T, at no
charge, solely for the purpose of transiting through the FLAG Cable
System in accordance with this Agreement, other than the Segment T used
for entering the FLAG Cable System.
8.5. The consideration payable by Signatories granted a right of use
pursuant to Paragraph 8.2 shall consist of the following charges:
8.5.1 Non-recurrent charge for capital and other costs as used
in this Paragraph 8 with reference to the provision of each
Segment T including land, access roads, cable rights-of-way,
ducts and buildings at such stations, or to causing them to be
provided and constructed, or to installing or causing to be
installed cable station equipment, shall include all
expenditures incurred which shall be fair and reasonable in
amount and either shall have been directly and reasonably
incurred for the purpose of, or to be properly chargeable in
respect of, such provision, construction, and installation,
including, but not limited to, the purchase costs of land,
building costs, amounts incurred for development, engineering
design, materials, manufacturing, procurement and inspection,
installation, removing (with
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appropriate reduction for salvage), testing associated with
installation, custom duties, taxes (except income tax imposed
upon the income of a Landing Party Signatory), financial
charges attributable to other parties' shares of costs,
supervision, overheads and insurance or a reasonable allowance
in lieu thereof. Losses against which insurance was not
provided, or for which an allowance in lieu thereof was not
taken, shall constitute capital costs.
8.5.2. Recurrent charge for operation and maintenance costs as
used in this Paragraph 8 with reference to each Segment T
shall include costs reasonably incurred in maintaining and
operating the facilities involved, including, but not limited
to, the costs of attendance, testing, adjustments, repairs and
replacements, customs duties, taxes (except income taxes
imposed upon the income of the Landing Party Signatory) paid
in respect of such facilities, administrative costs, financial
charges attributable to other parties' shares of costs, and
costs and expenses reasonably incurred on account of claims
made by or against other persons or entities in respect of
such facilities or any part thereof and damages or
compensation payable by the Landing Party Signatory owning a
Segment T on account of such claims. Costs, expenses, damages,
or compensation payable to such owner on account of such
claims made against other persons shall be shared by the
Signatories and other parties in the same proportions as they
share the costs of maintaining and operating a Segment T.
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8.5.3. Included in the non-recurrent charge and the recurrent
charge specified in Paragraph 8.5 are one-third of the
capital, operation and maintenance costs of the digital cross
connect system equipment as described in Paragraph 2.4 (iv),
located in the Segment T involved.
8.6. Where a cable station, land or buildings or certain equipment
situated therein that is not part of the Submarine System, such as
power supply or testing and maintenance equipment, is or will be shared
by the FLAG Cable System and other communications systems terminating
at the cable station, the capital, operation and maintenance costs of
such shared cable station, land or buildings or equipment (not solely
attributable to a particular communications system or systems) shall be
allocated among the systems involved in the proportions in which they
use the cable station, land or buildings or equipment in order to
determine what charge is reasonable in respect of the right of use
granted in this Paragraph 8. For such purposes, the proportionate use
of a shared cable station, land or buildings or equipment therein
attributable to a particular cable system shall be determined on the
basis of the ratio of: (i) the installed costs of the cable station
equipment (excluding shared equipment) associated with the particular
cable system to (ii) the installed costs of the cable station
'equipment (excluding shared equipment) associated with all systems,
including the FLAG Cable System, which make use of the shared cable
station, land, building or equipment.
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8.7. Payments due under this Paragraph 8 shall be made in accordance
with the following principles and such other billing and payment
procedures as may be determined by the MC from time to time:
8.7.1. On or around sixty (60) days before the RFPA Date the
Landing Party Signatory owning the relevant Segment T (or the
Central Billing Party (CBP) if there shall be one) shall
render the bill to each of the other Signatories as specified
in Schedule L of the amount receivable as a non-recurrent
charge in payment of capital and other costs which are due to
other parties which participate in other communications
systems sharing the Segment T and which are entitled to share
such payments at the time the right of use interests commence
pursuant to Paragraph 8.11 hereof. In the case of preliminary
bills, appropriate adjustments will be made as soon as
practicable after the actual costs are determined.
8.7.2. Each billed Signatory shall pay its bill to the billing
Landing Party Signatory (or the CBP if there shall be one) on
or before the date on which the right of use in the relevant
Segment T becomes effective under Paragraph 8.1 1. As soon as
practicable after receiving such payments, each Landing Party
Signatory shall distribute the portion of said payments among
the parties to the other communications systems sharing the
same cable station in the proportions to which they are
entitled.
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8.7.3. The Signatories shall be billed individually for, and
shall each pay its proportionate share of any additional
capital costs of the Segment T allocable to this Agreement
incurred after the grant to the Signatories of the right of
use interests in each of the Segment Ts becomes effective, and
of the portion of the recurrent charge of the Segment T for
operation and maintenance costs commencing at the time such
right of use becomes effective. Such bills shall be rendered
in accordance with Schedule L but not more frequently than
once a month.
8.7.4. For the purpose of this -Agreement, financial charges
shall be computed at a rate equal to the lowest publicly
announced rate or minimum commercial lending rate for ninety
(90) day loans, however described, in the currency of the
relevant Landing Party Signatory's Country, or the currency of
billing, as applicable, charged by established commercial
banks in the Country concerned on the fifteenth (15th) day of
the month in which the costs were incurred by the billing
Signatory. If such a day is not a business day, the rate
prevailing on the next business day shall be used.
8.7.5. The billing currencies and computation of extended
payment charges, which shall accrue from the day on which
payment was due until paid in the case that all or a part of
amounts billed were not paid, of each Landing Party Signatory
shall be set forth in Appendix C.
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8.8. For the purpose of effectuating the assignment or transfer of
Assignable Capacity in Segment S pursuant to Paragraph 13, the
following principles shall apply to the Right of Use transactions of
Segment T:
8.8.1. Each of the Landing Party Signatories shall make its
underwritten capacity in the relevant Segment T held by such
Landing Party Signatory, over and above its requirements as
specified in Schedule K, available to other Signatories and
International Telecommunications Entities to whom Assignable
Capacity in the FLAG Cable System is made available by the
Signatories pursuant to Paragraph 13, but not to the Founding
Signatory, on a right of use basis or such a basis other than
transfer of ownership interests, for such Capacity entering
the FLAG Cable System at the relevant Segment T.
8.8.2. For the transfer of right of use interests pursuant to
this Paragraph 8.8, the non-recurrent charge shall be
determined in accordance with Paragraphs 8.5.1 and 8.5.3 and
any additional capital costs incurred subsequent to the RFPA
Date together with, but not limited to, cost factors for
accumulated operation and maintenance costs, financial charges
and depreciation, all to provide a reasonable return to each
Landing Party Signatory for its investment in the underwritten
capacity in its Segment T. The recurrent charges payable shall
be as specified in Paragraphs 8.5.2. and 8.5.3.
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8.8.3. Schedules K and L shall be appropriately modified to
reflect the changes in the Signatories' proportionate shares
in the relevant Segment T pursuant to Paragraphs 8 and 30.
8.9. Each of the Landing Party Signatories shall, in consultation with
the Founding Signatory, increase the national capacity of the relevant
Segment T at the time all the underwritten capacity held by the
relevant Landing Party Signatory is disposed of and additional
requirements exceeding the then notional capacity are identified or
such other occasions as may be determined by the relevant Landing Party
Signatories and Schedules K and L shall be modified as appropriate.
8.10. In the case that the notional capacity of a Segment T is
increased after the RFPA Date, appropriate financial adjustments shall
be made between and among the Signatories, other International
Telecommunications Entities and the Landing Party Signatory involved to
adjust the non-recurrent and recurrent charges paid and to be paid for
the Segment T involved to ensure that each party involved shall bear
its proper share of such charges as provided in this Paragraph 8.
8.11. The right of use granted under Paragraphs 8.1 and 8.2 shall
commence on the RFPA Date or the date a Signatory places any of its
Assignable Capacity into operation, whichever occurs first. The right
of use granted under Paragraphs 8.8 shall commence on the date on which
such Capacity is acquired or placed into operation, whichever occurs
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first. The right of use granted under this Paragraph shall continue for
the term of this Agreement.
8.12. Each Landing Party Signatory shall notify the Founding Signatory.
in writing of the charges it makes in respect of the right of use
granted under Paragraphs 8.2 and 8.8 and of the changes in such charges
sixty (60) days before such changes are implemented.
8.13. If any Segment T, or portion thereof, is not available for any
reason, the relevant Landing Party Signatory, in agreement with the
other Signatories hereto, shall take all necessary measures to ensure
that another suitable cable station shall be made available as a
substitute for such Segment T, on fair and equitable terms not
deviating substantially from the terms contained in this Agreement.
8.14. Nothing contained herein shall be deemed to vest in any Signatory
other than the owner of a particular Segment T, any salvage rights in
such Segment or any cable station substituted therefor.
8.15. Notwithstanding Paragraphs 8.2 and 8.8 the Signatories may, prior
to the commencement of the right of use, elect to renounce their right
of use entitlement and to instead have use of a Segment T for the
duration of this Agreement on such terms and conditions as are agreed
upon between the Signatories concerned.
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9. ADDITIONAL CAPITAL COSTS OF THE SUBMARINE SYSTEM AND SEGMENTS X-1 AND
X-2
9.1. If, subsequent to the RFPA Date, additional work or property is
incorporated in the Submarine System or Segments X-1 and X-2 to
enhance, optimize or increase the efficiency of either the Submarine
System or Segments X-1 and X-2 in accordance with the approval and
directions of the MC, the capital costs thereof shall be borne by all
the Signatories in proportion to their respective Assignable Capacity
in the affected Segment of the FLAG Cable System, as set forth in
Schedule G.
10. OPERATION AND MAINTENANCE DUTIES AND RIGHTS
10.1. The FLAG Cable System shall be jointly operated and maintained in
efficient working order and operation by the Founding Signatory and the
Landing Party Signatories as provided in this Paragraph 10.
10.2. On behalf of all the Signatories, the Founding Signatory and the
Landing Party Signatories shall jointly prepare, and update from time
to time as necessary, a FLAG Operation and Maintenance Plan (FOMP). The
FOMP shall contain detailed procedures that reflect the
responsibilities of the Founding Signatory and the Landing Party
Signatories as defined in this Paragraph 10. The FOMP shall be made
available to all Signatories.
10.3. The Founding Signatory shall be solely responsible for
negotiating, executing, and administering contracts, for the
maintenance and repair of the submersible portion of
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Segment S. The Founding Signatory and the Landing Party Signatories
concerned shall use their best efforts to ensure that the FLAG Cable
System shall be included in the appropriate Maintenance Zone Agreements
on terms no less favorable than those applicable to other fiber optic
cable systems.
10.4. The FLAG Network Operations Center (FNOC) for the FLAG Cable
System shall be provided under a supply contract and will be operated
and maintained by the Founding Signatory in coordination with all
relevant Landing Party Signatories.
10.5. The FNOC shall provide overall network surveillance and overall
coordination of maintenance and repair operations of the FLAG Cable
System. The Founding Signatory shall coordinate the deployment of
vessels for repair and maintenance operations in accordance with the
procedures defined in the FOMP.
10.6. Each Landing Party Signatory shall be responsible for the
operation and maintenance of that portion of Segment S located in its
Country between the Cable Landing Point and the FLAG Interface Point,
and shall use all reasonable efforts to operate and maintain such
portion of Segment S in efficient working order and operation.
10.7. Each Landing Party Signatory shall be responsible for the
operation and maintenance of Segment T located in its Country, and
shall use all reasonable efforts to operate and maintain such Segment
in efficient working order and operation.
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10.8. ARENTO and CAT shall, in addition, be responsible for the
operation and maintenance of Segments X-1 and X-2, respectively, and
shall use all reasonable efforts to maintain such Segments in efficient
working order and operation.
10.9. The Founding Signatory shall, upon suitable notification and in
compliance with applicable laws and regulations, have the right of
reasonable access to Segments S, X-1, X-2 and T located within each
Landing Party Signatory's Country for the purposes of installation,
inspection, testing, training of Landing Party Signatory and Founding
Signatory personnel, and other functions, all in coordination with the
respective Landing Party Signatory. The Founding Signatory shall
identify to the respective Landing Party Signatory the
representative(s) who will be granted access under this Paragraph.
10.10. A Landing Party Signatory shall, upon suitable notification and
in compliance with applicable laws and regulations, have reasonable
access to the FNOC for observation and training of its personnel, in
coordination with the Founding Signatory. The Landing Party Signatory
shall identify to the Founding Signatory the representative(s) who will
be granted access under this Paragraph.
10.11. Should conditions exist in any Segment S or Segments X-1 and X-2
that may impair the integrity of the FLAG Cable System, as identified
by the Founding Signatory or any Landing Party Signatory, the Founding
Signatory shall initiate and coordinate planned maintenance on such
relevant Segment S, which may include the deactivation of such Segment.
Prior to the initiation of such planned maintenance operations, the
Founding
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Signatory shall coordinate, where appropriate, with the other
Signatories. The Founding Signatory shall, to the extent possible,
advise the other Signatories in writing sixty (60) days, or such
shorter period as may be agreed by the Signatories, prior to initiating
a planned maintenance operation, of the timing, scope, and costs of
such planned maintenance operations of Segments S, X-1 and X-2. Should
one or more Signatories representing at least ten percent (10%) of the
total voting interest , specified in Schedule C, wish to review or
change such an operation prior to its occurrence, the Founding
Signatory shall be notified in writing within thirty (30) days of such
advice. Upon such notification, the Founding Signatory shall convene an
ad hoc meeting of the Signatories. to consider such review or change.
10.12. Should a Landing Party Signatory believe a maintenance activity
will require an interruption of service to Segments T, X-1 and X-2 or
that portion of Segment S between the Cable Landing Point and the FLAG
Interface Point, the Landing Party Signatory shall notify the Founding
Signatory. The Landing Party Signatory, in consultation with the
Founding Signatory, shall determine whether an interruption of service
is warranted and, if so, the timing and duration of an interruption.
The Landing Party Signatory shall, to the extent possible, advise the
other Signatories in writing sixty (60) days, or such shorter period as
may be agreed by the Signatories, prior to initiating a planned
maintenance operation, of the timing, scope, and costs of such planned
maintenance operations of Segments T or X-1 and X-2. Should one or more
Signatories representing at least ten percent (10%) of the total voting
interest, specified in Schedule C, wish to review or
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change such an operation prior to its occurrence, the Founding
Signatory shall be notified in writing within thirty (30) days of such
advice. Upon such notification, the Founding Signatory shall convene an
ad hoc meeting of the Signatories to consider such review or change.
10.13. Should a Landing Party Signatory become aware of any dangerous
activities, attributable to a third party, which may cause an
interruption of service to Segments T, X-1 and X-2 or that portion of
Segment S between the Cable Landing Point and the FLAG Interface Point,
the Landing Party Signatory shall notify the Founding Signatory.
10.14. In the event of disruption of service due to Force Majeure
pursuant to Paragraph 29 or other emergency, the Founding Signatory and
the appropriate Landing Party Signatories shall cooperate in restoring
service as quickly as possible and such Signatories shall, to the
extent that it is practicable to do so, take such measures as are
necessary to attain that objective.
10.15. If the Founding Signatory fails to repair those facilities for
the maintenance of which it is responsible under Paragraph 10.3, within
a reasonable time after being called upon to do so by a Landing Party
Signatory, the Landing Party Signatory may, to the extent that it is
practicable to do so, perform the necessary duties and responsibilities
of the Founding Signatory and charge the Founding Signatory the costs
reasonably incurred in doing so.
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10.16. If a Landing Party Signatory fails to repair those facilities
for the maintenance of which it is responsible under Paragraphs 10.6,
10.7 and 10.8, within a reasonable time after being called upon to do
so by the Founding Signatory, the Founding Signatory may, to the extent
that it is practicable to do so, perform the necessary duties and
responsibilities of the Landing Party Signatory, and charge the
relevant Landing Party Signatory the costs reasonably incurred in doing
so.
10.17. Notwithstanding the foregoing, no Signatory shall be liable to
any other Signatory for any loss or damage sustained by reason of any
failure in or breakdown of the facilities constituting the FLAG Cable
System or any interruption of service, regardless of the cause of such
failure, breakdown or interruption, and regardless of how long it shall
last.
10.18. The Founding Signatory may pursue claims arising before the RFPA
Date in the event of any damage or loss to the Submarine System, and
may file appropriate law suits or other proceedings. The Founding
Signatory may settle claims for its own account arising before the RFPA
Date and execute any releases and settlement agreements necessary to
effect a settlement. In the case of claims arising on or subsequent to
the RFPA Date, the Founding Signatory shall be authorized to pursue
such claims in its own name, on behalf of the Signatories, in the event
of any damage or loss to the Submarine System, provided however that
the Founding Signatory shall give suitable written notification to the
Signatories when such claim arises. Subject to obtaining the prior
concurrence of the MC, the Founding Signatory may settle any such
post-RFPA claims and execute any releases and settlement agreements on
behalf of the Signatories as
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necessary to effect a settlement. The proceeds of a settlement or
judgment, less the reasonable costs incurred by the Founding Signatory
to effect such settlement or judgment, shall be shared by the
Signatories in the percentages specified in Schedule F for the Segment
S of the FLAG Cable System involved.
10.19. The Founding Signatory may defend against any claims arising
before the RFPA Date asserted by a third party involving the Submarine
System. The Founding Signatory may settle such claims arising before
the RFPA Date and execute any releases and settlement agreements as
necessary to effect a settlement. In the case of claims arising on or
subsequent to the RFPA Date brought against the Signatories, the
Founding Signatory shall be authorized to defend against such claims on
behalf of the Signatories, provided however that the Founding Signatory
shall give suitable written notification to the Signatories when such a
claim arises. Subject to obtaining the prior concurrence of the MC, the
Founding Signatory may settle any such post-RFPA Date claims and
execute any releases and settlement agreements on behalf of the
Signatories as necessary to effect a settlement. The cost of any
judgment or other remedy or settlement resulting from any such
post-RFPA Date claim, plus the reasonable costs incurred by the
Founding Signatory to effect such judgment or settlement, shall be
shared by the Signatories in the percentages specified in Schedule F
for the Segment S of the FLAG Cable System involved.
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10.20. Notwithstanding Paragraph 10.19, where a claim is brought in
respect of a sacrificed anchor and/or loss of, or damage to fishing
gear, the Founding Signatory may, in its sole discretion, settle each
individual claim for an amount no greater than twenty-five thousand
U.S. dollars ($25,000) for each incident, and the cost of such
settlement shall be allocated in accordance with Paragraph 10.19.
10.21. Notwithstanding Paragraphs 10.18, 10.19 and 10.20, when a claim
on behalf of or against the Signatories arises on or subsequent to the
RFPA Date in the Country, including the territorial waters, of a
Landing Party Signatory, as a result of damage or loss to or alleged to
be caused by the Submarine System, the Landing Party Signatory in whose
Country the claim arises shall be authorized to pursue or defend
against such claim in its own name, on behalf of the Signatories,
provided, however, that such Landing Party Signatory shall give
suitable written notification to the Signatories when such a claim
arises. The relevant Landing Party Signatory shall coordinate its
handling of the claim with the Founding Signatory. Subject to obtaining
the prior concurrence of the MC, the relevant Landing Party Signatory
may settle any such post- RFPA claims and execute any releases and
settlement agreements on behalf of the Signatories as necessary to
effect a settlement. The proceeds or costs of a settlement or judgment,
together with the reasonable costs incurred by the relevant Landing
Party Signatory to effect such settlement or judgment, shall be shared
by the Signatories in the percentages specified in Schedule F for the
Segment S of the FLAG Cable System involved.
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11. RESPONSIBILITY FOR OPERATION AND MAINTENANCE COSTS
11.1. The cost of standby maintenance of Segments S, X-1 and X-2,
including, but not limited to, the maintenance of Segments S, X-1 and
X-2, the FNOC, the procurement of cable ship services covering, inter
alia, ship depreciation, ship retrofit, crew, insurance (except
insurance at sea), in-port expenses, the storage of submersible plant,
remotely operated vehicles and other devices when included in the wet
maintenance zone agreement standby charges, shall be recovered by the
Founding Signatory through fixed charges payable by the Signatories and
other holders of Assignable Capacity, in accordance with Schedules H-1
through H-55 and. J, adjusted to reflect inflation.
11.2. The cost of running charges, which shall be limited to recovery
of the direct incremental costs incurred in connection with a repair
operation involving Segment S or Segment X-1 or Segment X-2, including,
but not limited to, the cost of fuel, at sea insurance, additional crew
at sea, crew overtime, victualling, telecommunications, mobilization
and de-mobilization expenses, consumables, replenished equipment, and
remotely operated vehicles, to the extent not included in the wet
maintenance agreement standby charges, shall be apportioned among
Signatories (excluding the Founding Signatory) and other holders of
Assignable Capacity on the affected Segment S, or Segment X-1 or
Segment X-2 in accordance with Schedule F. Notwithstanding the
foregoing:
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(i) the Founding Signatory shall be responsible for the
proportionate share of running charges attributable
to a repair operation involving Segment X-1 or
Segment X-2 or a Segment S occurring during the term
of a lease of the Founding Signatory's Assignable
Capacity in Segment X-1 or Segment X- 2 or such
Segment S; and
(ii) the Founding Signatory shall be responsible for the
payment of three percent (3%) of the running charges,
if any, incurred in connection with repair operations
in each of the two maintenance regions of the FLAG
Cable System, commencing with the second repair
operation in a given maintenance region in each
one-year period commencing on the RFPA Date.
11.3. The Founding Signatory shall reimburse each of the Landing Party
Signatories for costs reasonably incurred in carrying out their
respective responsibilities under Paragraph 10.6, with the exception of
one-third the operation and maintenance costs of the digital cross
connect system equipment, as described in Paragraph 2.4 (iv), which
one-third shall be borne by the respective Landing Party Signatories.
The amount to be reimbursed shall be determined by multiplying the
total cost incurred by a Landing Party Signatory in operating and
maintaining FLAG Cable System equipment located in the Country of the
relevant Landing Party Signatory by the ratio of (i) the installed cost
of that portion of the Submarine System between the Cable Landing Point
and the FLAG Interface Point located in the Country of the respective
Landing Party Signatory, less one-third of the
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capital costs of the digital cross connect system equipment as
described in Paragraph 2.4 (iv), to (ii) the sum of the installed cost
of the relevant Segment T and the cost defined in Paragraph 11.3. (i).
11.4. The Founding Signatory shall pay to ARENTO and CAT such charges
for carrying out of their respective responsibilities under Paragraph
10.8 as may be agreed between the Founding Signatory and ARENTO or CAT,
as the case may be.
11.5. Accounts for operation and maintenance costs for Segment S and
Segments X-1 and X-2 shall be rendered not more frequently than monthly
in accordance with procedures to be established by the Founding
Signatory. On the basis of such accounts, each Signatory shall pay such
amounts as may be owed by the end of the calendar month following the
calendar month in which the accounts are rendered.
11.6. Accounts between the Founding Signatory and the other Signatories
not paid when due will accrue additional costs for extended payment
from the day following the date payment of such account was due until
it is paid, said additional costs to accrue at an annual rate of three
(3) percentage points greater than LIBOR.
11.7. An account shall be deemed to have been accepted by the Signatory
to whom it is rendered if that Signatory does not present a written
objection on or before the date when payment is due. If such objection
is made, the Signatories shall make every reasonable effort to settle
the dispute concerning the account in question promptly. If they are
unable to do so, the matter shall be referred to the MC (or any
appropriate subcommittee
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designated by it) for decision. If the objection is sustained and the
billed Signatory has paid the disputed account, the agreed upon
overpayment shall be refunded to the objecting Signatory by the billing
Signatory promptly together with any extended payment charges
calculated thereon at a rate determined in accordance with Paragraph
11.6 from the date of payment of the account to the date on which the
refund is transmitted to the objecting Signatory. If the objection is
not sustained and the billed Signatory has not paid the disputed
account, said Signatory shall pay such account promptly together with
any extended payment charges calculated thereon at a rate determined in
accordance with Paragraph 11.6 from the date on which payment of the
account was due until paid.
11.8. Credits for refunds of financial charges and bills for extended
payment charges shall not be rendered if the amount of the charges is
less than one hundred (100) U.S. dollars (or the equivalent in the
relevant currency of payment) for credits or bills rendered by the
billing Signatories. In the case of bills containing costs billed on a
preliminary billing basis, appropriate adjustments will be made in
subsequent bills promptly after the actual costs involved are
determined.
12. BOOKS, RECORDS AND VOUCHERS
12.1. The Founding Signatory shall retain records relevant to running
charges assessed pursuant to Paragraph 11.2 for a period of not less
than five (5) years from the date of the record. Each Signatory against
whom such running charges are assessed shall have a right to inspect
such records from time to time with reasonable notice and at its own
expense.
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12.2. The Landing Party Signatories shall retain records relevant to
the performance of their obligations regarding operation and
maintenance pursuant to Paragraphs 10.6, 10.7 and 10.8 for a period of
not less than five (5) years from the date of the record. Signatories
owning Assignable Capacity in the relevant Segments of the FLAG Cable
System operated and maintained pursuant to Paragraphs 10.6, 10.7 and
10.8 and the Founding Signatory shall have the right to inspect such
records from time to time -with reasonable notice and at their own
expense.
12.3. The Founding Signatory shall ensure that the Supply Contract
requires the supplier to maintain during the lifetime of the FLAG Cable
System all drawings and documents held by the supplier at final system
acceptance and to allow the Founding Signatory reasonable access to
such documents.
13. ASSIGNMENT AND USE OF CAPACITY
13.1. The Assignable Capacity owned by each Signatory is described in
Schedule D. Assignable Capacity shall be purchased and sold or
otherwise disposed of (including by way of the grant of IRU) only by
way of half or whole interests in MIUs and in accordance with this
Paragraph 13.
13.2. Either before or after the RFPA Date, the Founding Signatory may
convey interests in its Assignable Capacity as shown in Schedule D to
other Signatories and/or other International Telecommunications
Entities by sale of ownership, grant of IRU, lease, rental or such
other basis as may be agreed between the Founding Signatory and the
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acquiring party. International Telecommunications Entities acquiring
OWNERSHIP INTERESTS shall become Signatories pursuant to Paragraph
30.3. The Founding Signatory shall not make Assignable or Latent
Capacity available directly to the public or to any International
Telecommunications Entity that is not authorized under the laws and
regulations of the Country of the Landing Party Signatory where such
Capacity terminates, and shall not make Assignable Capacity available
to an Affiliate of the Founding Signatory except at a price that
reflects fair market value.
13.3. A Signatory (other than the Founding Signatory) shall not,
without the consent of the Founding Signatory, transfer to other
Signatories and/or other International Telecommunications Entities,
Assignable Capacity between two given FLAG Interface Points, unless all
of the Design Capacity between the same FLAG Interface Points has been
transferred by the Founding Signatory to other Signatories or
International Telecommunications Entities, except as provided for in
Paragraphs 13.4, 13.5 and 13.6. In a case where transfer is authorized
under this Paragraph, the transfer shall be on such basis, other than
an ownership basis, as the parties concerned may agree.
13.4. A Signatory shall be entitled to assign, transfer or dispose of
its Assignable Capacity to an Affiliate of such Signatory, subject to
any applicable laws and regulations (including laws and regulations
relating to Registered Private Operating Agency status). A Signatory
exercising its rights under this Paragraph 13.4 shall give written
notice to the Founding Signatory in a timely manner of such assignment,
transfer or disposition, and shall guarantee by a written instrument
reasonably satisfactory in form and substance to
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the Founding Signatory, all of the obligations hereunder assigned,
transferred or disposed of to such Affiliate.
13.5. A Signatory shall be entitled to transfer its Assignable Capacity
assigned to that Signatory to another Signatory or international
Telecommunications Entity located in the Country of that Signatory. A
Signatory exercising its rights under this Paragraph 13.5 shall give
written notice to the Founding Signatory in a timely manner of such
transfer.
13.6. Assignable Capacity in any Segment of the FLAG Cable System that
is wholly assigned to one Signatory or International Telecommunications
Entity shall be considered as consisting of two half-interests in a
MIU. A Signatory or International Telecommunications Entity to which
such Capacity is assigned may make available to other Signatories or
international Telecommunications Entities a half- interest in such
wholly assigned MIUS.
13.7. Assignable Capacity that is jointly assigned may not be
transferred without the consent of each Signatory or International
Telecommunications Entity to whom such Capacity is jointly assigned.
13.8. Any Signatory and any other International Telecommunications
Entity in the Country of a Landing Party Signatory may not acquire
Assignable Capacity that does not access the FLAG Cable System in the
Country of such Landing Party Signatory or other International
Telecommunication Entity without the consent of the Founding Signatory,
which consent shall not be unreasonably withheld. The Assignable
Capacity to which a
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Signatory is entitled shall be made available, and may be terminated,
only at those points prescribed in Schedules H-1 through H-55.
13.9. The Assignable Capacity of the FLAG Cable System shall be subject
to the provisions as set forth hereunder.
13.9.1 On the effective date of this Agreement, the Founding
Signatory, on the one hand, and the other Signatories, on the
other hand, shall each have assigned to them fifty percent
(50%) of Assignable Capacity, and such percentages shall
thereafter be adjusted as follows:
(i) On or before the RFPA Date, as the Founding Signatory
conveys interests in its Assignable Capacity by sale
of ownership pursuant to Paragraph 13.2, there shall
be transferred from the Latent Capacity to the
Founding Signatory's holdings in Assignable Capacity
a number of MIUs required to maintain the Founding
Signatory's fifty percent (50%) share of Assignable
Capacity.
(ii) After the RFPA Date, as the Founding Signatory
conveys interests in its Assignable Capacity by sale
of ownership pursuant to Paragraph 13.2, such
interests shall be deducted from the Founding
Signatory's then-current holdings in Assignable
Capacity.
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(iii) After the RFPA Date, if and whenever as a result of
such conveyances the Founding Signatory's holdings in
Assignable Capacity fall below twenty percent (20%)
of the Assignable Capacity then owned in the
aggregate by all Signatories including the Founding
Signatory, at the election of the Founding Signatory
there shall be transferred from the Latent Capacity
to the Founding Signatory's holdings in Assignable
Capacity such additional MIUs (if available) as are
necessary to retain the Founding Signatory's holdings
in Assignable Capacity at twenty percent (20%) of the
Assignable Capacity then assigned in the aggregate to
all Signatories.
(iv) After the RFPA Date, if the Founding Signatory's
holdings in Assignable Capacity exceed such twenty
percent (20%) of the aggregate capacity due to the
grant of IRU or lease, the Founding Signatory's
voting interest shall be deemed to be twenty percent
(20%).
13.9.2 Notwithstanding the foregoing, the Founding Signatory
shall remain fully responsible for the payment of running
charges related to leased capacity, as provided in Paragraph
11-20(i).
13.9.3. the Founding Signatory shall provide timely written
notice to the MC of any increase in Assignable Capacity due to
a withdrawal from Latent Capacity. Whenever Assignable
Capacity is so increased, the Schedules shall be appropriately
modified to reflect such increase.
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13.10. In order to ensure that Assignable Capacity is utilized in an
efficient and effective manner, the MC, or its nominated subcommittee,
shall assist the FLAG Network Administrator in coordinating the
allocation of Assigriable Capacity that has been conveyed pursuant to
Paragraph 13.2.
14. Obligation to Provide Transiting and Other
FACILITIES TO EXTEND FLAG CABLE SYSTEM CAPACITY
14.1. Except as provided in this Paragraph, each of the Signatories
shall use all reasonable efforts to furnish and maintain or cause to be
furnished and maintained in efficient working order for (i) the
Signatories, and (ii) other International Telecommunications Entities
acquiring Assignable Capacity, for the duration of this Agreement, such
facilities in its respective Country as may be reasonably required for
extending Assignable Capacity in the FLAG Cable System assigned to
Signatories and other International Telecommunications Entities for the
purpose of handling communications transiting its respective Country.
No Signatory shall be required under this Agreement to furnish such
facilities in its Country to Signatories and other International
Telecommunications Entities of its own Country. Notwithstanding the
foregoing, each Landing Party 8ignatory shall provide suitable
interconnection arrangements to Signatories and other International
Telecommunications Entities of its own Country. The provision of such
facilities and interconnection arrangements shall be the subject of
separate agreements.
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14.2. The facilities provided pursuant to Paragraph 14.1 shall be
furnished and maintained on terms and conditions which shall be no less
favorable to the users of the FLAG Cable System than those granted to
other International Telecommunications Entities for transmission
facilities of similar type and quality transiting the location
involved. Such terms and conditions shall be consistent with applicable
governmental regulations in the location in which the facilities are
located.
14.3. The obligations to provide facilities under this Paragraph 14
shall not necessarily require the provision of intrinsically digital
facilities, nor the provision of facilities which are Bit Sequence
Independent at rates other than 2,048 and 155,520 Kbps, or at such
other rates as may be mutually agreed with the Landing Parties
concerned.
15. OBLIGATION TO CONNECT THE FLAG CABLE SYSTEM WITH INLAND SYSTEMS
15.1. Each of the Signatories at its own expense, on or before the RFPA
Date shall do, or cause to be done, all such acts and things as may be
necessary within its operating territory to provide suitable connection
of the FLAG Cable System with its appropriate inland telecommunications
system in its operating territory.
16. RELATIONSHIP OF THE SIGNATORIES
16.1. This Agreement shall not be construed so as to create a
partnership or joint venture among or between the Signatories, and no
Signatory shall have authority or power to act unilaterally as agent
for any other Signatory. Each Signatory shall be individually
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responsible for payment of any income or other taxes which may be
imposed on any of the proceeds, income or revenue that such Signatory
may derive from the FLAG Cable System.
16.2 Each of the Signatories may obtain policies of insurance to cover
its respective interest in the FLAG Cable System, and any such insured
Signatory may pursue and settle claims arising under such policies of
insurance in its sole discretion and for its own benefit.
17. DURATION OF THE AGREEMENT
17.1. This Agreement shall become effective on the day and year first
above written and, subject to the provisions of Paragraph 23, shall
continue in operation until terminated by the MC not less than
twenty-five (25) years from the RFPA Date. However, any Signatory may
terminate its participation in this Agreement at the end of twenty-five
(25) years from the RFPA Date or any time thereafter by giving at least
one year prior notice in writing to the MC.
17.2. Subject to alternative arrangements being agreed by the MC, upon
the effective date of the termination of participation by a Signatory,
the Schedules of this Agreement shall be appropriately modified.
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18. OBTAINING LICENSES
18.1. The performance of this Agreement by the Signatories is
contingent upon the continuance of all Licenses. If a License obtained
by one or more Signatories is rescinded, the MC may decide to make any
appropriate changes in the FLAG Cable System configuration, or, in the
alternative, to terminate this Agreement pursuant to Paragraph 23.1.
18.2. Each Landing Party Signatory represents and warrants to each
other Signatory that it has obtained or shall obtain all Licenses as
may be required in its Country for the construction, operation and
maintenance of the FLAG Cable System, and that it will for the duration
of this Agreement maintain all such Licenses in full force and effect
and will obtain or grant and maintain all such additional Licenses as
may at any time hereafter be required in its Country for the
construction, operation and maintenance of the FLAG Cable System.
18.3. The costs incurred in obtaining and maintaining all Licenses
required in connection with the construction, operation and maintenance
of the Segment T located in the territory of a Landing Party
Signatory's Country shall be the responsibility of the relevant Landing
Party Signatory.
18.4. The costs incurred in obtaining and maintaining survey and
installation permits, cable and pipeline crossing agreements and all
Licenses required in connection with the construction, operation and
maintenance of the submersible portion of the Submarine System shall be
the responsibility of the Founding Signatory.
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18.5. All Signatories will cooperate with each other in obtaining and
maintaining in force all Licenses and other permits required pursuant
to this Agreement.
19. CURRENCY AND PLACE OF PAYMENT
19.1. All amounts due under this Agreement shall be payable (i) to the
Founding Signatory from any other Signatory in U.S. dollars and at the
designated office of the Founding Signatory; (ii) to a Landing Party
Signatory from the Founding Signatory in the currency of the Country of
the Landing Party Signatory and at the designated office of the Landing
Party Signatory; and (iii) to a Landing Party Signatory from another
Signatory (other than the Founding Signatory) as specified in Paragraph
8.7.5.
20. ASSIGNMENT AND TRANSFER
20.1. Except as otherwise provided in Paragraph 13, during the
continuance of this Agreement, no Signatory shall without the consent
of the other Signatories (which consent shall not be unreasonably
withheld) sell, assign, transfer, or dispose of its rights or
obligations under this Agreement or of any interest in the FLAG Cable
System except:
(i) in the case of a Signatory other than the Founding
Signatory, to a successor or Affiliate of such
Signatory, in which case written notice shall be
given to the other Signatories in a timely manner by
the Signatory making said sale, assignment, transfer
or disposition, and
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(ii) in the case of the Founding Signatory, upon written
notice to the other Signatories in a timely manner:
(a) to a successor of the Founding Signatory,
(b) to an Affiliate having adequate financial
resources.
20.2 Notwithstanding Paragraph 20.1, the Founding Signatory may
transfer to a Landing Party Signatory, pursuant to an agreement between
the Founding Signatory and such Landing Party Signatory, all or a
portion of its ownership of Segment S within the territory of the
Country of such Landing Party Signatory, provided, however, that such
transfer shall in no way limit the rights and obligations of
Signatories and of other International Telecommunications Entities to
whom Assignable Capacity in Segment S has been or is conveyed.
21. SUCCESSORS AND ASSIGNS
21.1. This Agreement shall be binding upon the respective successors
and permitted assigns of each Signatory.
22. DEFAULT
22.1. In the event that the Founding Signatory fails to fulfill its
obligations under this Agreement by defaulting on its obligations to
pay the Supplier for the provision and installation of the Submarine
System or Segment X-1 or Segment X-2 or to pay to have
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the Submarine System or Segment X-1 or Segment X-2 maintained, the
Founding Signatory, at the request of one or more Landing Party
Signatories, shall enter into negotiations with such Landing Party
Signatories to determine whether there exists a mutually acceptable
basis upon which such Landing Party Signatories would assume all of the
rights and obligations of the Founding Signatory with respect to the
FLAG Cable System.
23. TERMINATION OF AGREEMENT
23.1. This Agreement may be terminated by the unanimous consent of the
Founding Signatory and the Landing Party Signatories.
23.2 In the event that this Agreement is terminated on or after the
RFPA Date, the net assets of the Submarine System as they then exist
will be disposed of and any proceeds or costs divided among the
Signatories in proportion to each Signatory's share of the Design
Capacity as set forth in Schedule D.
23.3. The terms of this Agreement shall continue to bind the
Signatories for such time and to such extent as may be necessary to
give effect to their respective rights and obligations under this
Paragraph 23.
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24. ARBITRATION
24.1. Unless settled by mutual agreement, any dispute or difference
whatsoever that might arise from the performance or as to the meaning
of this Agreement or as to any matter or items of whatsoever nature
howsoever arising out of or in connection with this Agreement shall be
submitted to arbitration in accordance with and subject to the Rules of
Arbitration and Conciliation of the International Chamber of Commerce
and finally settled by three arbitrators appointed in accordance with
such rules, unless the parties to the arbitration agree upon a single
arbitrator under such rules. The place of arbitration shall be The
Hague, The Netherlands, and the language of the arbitration shall be
English. Any decision or award of the arbitral tribunal shall be final
and binding upon the parties to the arbitration proceeding. 'The costs
of such arbitration shall be borne in equal proportions by the parties
to the arbitration, provided that each party shall bear the cost of its
own legal counsel.
24.2 If any disputes or differences hereunder concern or involve more
than two Signatories to this Agreement, the arbitration may proceed as
a multi-party arbitration under the appropriate rules and guidelines of
the International Chamber of Commerce. Any Signatory may intervene in
any arbitration involving two or more Signatories and any Signatory
that is a respondent in an arbitration under this Agreement may join
any other Signatory in such arbitration.
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25. GOVERNING LAW
25.1. This Agreement shall be construed and governed in accordance with
the substantive laws in force in the State of New York, United States
of America, without regard to the law of New York governing conflicts
of law.
25.2. The Signatories shall comply with all applicable laws of all
nations having jurisdiction over the activities performed under or
contemplated by this Agreement.
25.3. If any provision of this Agreement is found by a regulatory 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 Signatories 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.
26. WAIVER OF IMMUNITY
26.1. The Signatories hereto acknowledge that this Agreement is
commercial in nature, and each Signatory expressly and irrevocably
waives any claim or right which it may have to immunity (whether
sovereign immunity or otherwise) for itself or with respect to any of
its assets in connection with an arbitration, arbitral award or other
proceeding to enforce this Agreement, including, without limitation,
immunity from service of process,
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immunity of any of its assets from pre- or post-judgment attachment or
execution and immunity from the jurisdiction of any court or arbitral
tribunal.
27. NOTICES
27.1. Any notice or other communication given or made under this
Agreement shall be in writing and shall be delivered by hand or
transmitted by pre-paid first-class recorded-delivery post (by airmail,
if overseas) or by facsimile. The address of each Signatory shall be
its principal place of business as identified in Schedule A to this
Agreement or such other address as has been previously notified to the
other Signatories.
27.2. A notice or other communication shall be deemed to have been duly
delivered:
27.2.1. if delivered by hand at the time of delivery;
27.2.2. if posted, at the expiration of seven (7) days after
the envelope containing the same shall have been deposited in
the post maintained for such purpose, postage prepaid;
27.2.3. if sent by facsimile, at the date of transmission if
receipt is followed by postal notice in accordance with
Paragraph 27.2.2.
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28. WAIVER
28.1. The waiver by any Signatory of a breach or default of any
provision of this Agreement or the failure of any Signatory on one or
more occasions to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder shall not thereafter be
construed as a waiver of any subsequent breach or default of a similar
nature or as a general waiver of any such provision, right or privilege
hereunder.
29. FORCE MAJEURE
29.1. A Signatory shall not be liable to any other Signatory for any
loss or damage which may be suffered by that other Signatory by reason
of any circumstances beyond the control of such first-mentioned
Signatory and having a material adverse effect on the provision of any
part of the FLAG Cable System in which such other Signatory is entitled
to Assignable Capacity or has any other right or interest under this
Agreement, including without limitation, any act of God, war, riot,
fishing activity, fish bite, anchor damage, environmental conditions
including, without limitations, severe weather conditions, or any
order, act, fault, omission, sanction or request of any government,
government authority or other public telecommunications authority,
other than that of such first-mentioned Signatory.
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30. AMENDMENTS AND ADDITIONS
30.1. Except as otherwise provided in this Paragraph 30, this Agreement
and any of its provisions may be amended or added to only by amendatory
agreement in writing signed by an authorized representative on behalf
of each Signatory.
30.2. Only one original of any amendatory agreement shall be executed.
The Founding Signatory shall retain such executed original amendatory
agreement and shall promptly distribute certified copies thereof to all
other Signatories. Such certified copies shall be used in lieu of the
executed original amendatory agreement in any arbitration, forum or
proceeding.
30.3. (i) This Agreement may be amended to allow for the
participation by additional Non-Landing Party
Signatories or for Signatories to increase their
Assignable Capacity by amendatory agreements executed
solely by the Founding Signatory and such additional
Non-Landing Party Signatories or such Signatories
acquiring additional Assignable Capacity. In such
case, the Schedules shall be appropriately amended.
(ii) This Agreement and all Schedules hereto may be
amended to provide for the participation of the Saudi
Arabian Telecommunication Ministry of Posts,
Telegraphs & Telephones ("MOPT") as a Landing Party
Signatory owning a Segment T located in Jeddah, Saudi
Arabia and served via a Branching Unit, by an
amendatory agreement executed solely by the Founding
Signatory and the MOPT, provided that
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participation by the MOPT shall not cause the RFPA
Date to be delayed. Such amendatory agreement shall
provide that the MOPT shall have the same rights and
obligations as the existing Landing Party
Signatories.
(iii) This Agreement and all Schedules hereto may be
amended to provide for the participation of PT
(PERSERO) Indosat as a Landing Party Signatory owning
a Segment T to be located in Medan, Indonesia, served
via a fiber optic cable from Penang, Malaysia, or to
another landing point in Indonesia served via a
Branching Unit located on the FLAG Cable System
between Thailand and Hong Kong, by an amendatory
agreement executed solely by the Founding Signatory
and PT (PERSERO) Indosat, provided that participation
by PT (PERSERO) Indosat shall not cause the RFPA Date
to be deiayed. Such amendatory agreement shall
provide that PT (PERSERO) Indosat shall have the same
rights and obligations as the Landing Party
Signatories and shall participate in all
Subcommittees, including the Procurement
Subcommittee.
30.4. Schedules K and L of this Agreement may be amended, as
appropriate, to reflect transactions occurring pursuant to Paragraph 8.
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30.5. The Founding Signatory shall promptly distribute to all other
Signatories certified copies of all amendatory agreements and
amendments to the Schedules thereto made pursuant to Paragraphs 30.3
and 30.4.
31. EXECUTON OF AGREEMENT
31.1. This Agreement is executed in one (1) original in the English
language by all Signatories. The Founding Signatory shall retain such
original and shall promptly distribute certified copies thereof to all
other Signatories. Such certified copies shall be used in lieu of the
executed original Agreement in any arbitration, forum or proceeding.
31.2. This agreement shall not come into force and effect unless and
until it has been executed by the Arab Republic of Egypt National
Telecommunications Organization ("ARENTO") and Videsh Sanchar Nigam
Limited ("VSNL"). In the event that such execution does not occur by
March 31, 1995, this Agreement shall be null and void and no Signatory
shall have any liability to any other Signatory with respect to the
provisions set forth herein. In the event that this Agreement comes
into force and effect, this Paragraph 31.2 shall be considered as
automatically removed from the text of this Agreement.
32. MEMORANDUM OF UNDERSTANDING SUPERSEDED
32.1. This Agreement shall supersede in its entirety the Memorandum of
Understanding dated as of July 19, 1993 entered ihto by and among the
Founding Signatory and the following Signatories: Arab Republic of
Egypt National Telecommunications
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Organization; The Communications Authority of Thailand; Emirates
Telecommunications Corporation; the Government of Gibraltar; Hong Kong
Telecom International Limited; International Digital Communications
Inc.; IRITEL S.p.A. (the predecessor corporation to TELECOM ITALIA
S.p.A.; Korea Telecom; Mercury Communications Limited; PT (PERSERO)
Indonesia Satellite Corporation; SPT Telecom, a.s.; Telef6nica de
Espana S.A.; Telekom Malaysia Berhad; and Videsh Sanchar Nigam Limited.
-68-
<PAGE>
AS WITNESS the hands of the duly authorized -representatives of the Signatories
hereto the day and year first above written:
For FLAG Limited
/s/ Name of Signatory
- ---------------------
For Arab Republic of Egypt National Telecommunications Organization
/s/ Name of Signatory 27/12/94
- -----------------------------------
For The Communications Authority of Thailand
/s/ Name of Signatory
- ---------------------
For Emirates Telecommunications Corporation
/s/ Name of Signatory
- ---------------------
For Hong Kong Telecom International Limited
/s/ Name of Signatory
- ---------------------
For International Digital Communications Inc.
/s/ Name of Signatory
- ---------------------
-69-
<PAGE>
For BAHRAIN TELECOMMUNICATIONS COMPANY BSC
/s/ Name of Signatory
- ---------------------
For Belgacom
/s/ Name of Signatory
- ---------------------
For Cellular Communications Network (MALAYSIA) SDN, BHD
/s/ Name of Signatory
- ---------------------
/s/ Name of Signatory
- ---------------------
For Deutsche Bundepost Telekom
/s/ Name of Signatory
- ---------------------
For Eastern Telecommunications Philippines, Incorporated
/s/ Name of Signatory
- ---------------------
For General Directorate of Turkish PTT
/s/ Name of Signatory
- ---------------------
-70-
<PAGE>
For Gibraltar NYNEX Communications United
/s/ Name of Signatory
- ---------------------
For Korea Telecon
/s/ Name of Signatory
- ---------------------
For Mercury Communications Limited
/s/ Name of Signatory
- ---------------------
For TELECOM ITALIA S.p.A.
/s/ Name of Signatory
- ---------------------
For Telefonica de Espana S.A.
/s/ Name of Signatory
- ---------------------
For Telekom Malaysia Berhad
/s/ Name of Signatory
- ---------------------
For Videsh Sanchar Nigam Limited
/s/ Name of Signatory
- ---------------------
-71-
<PAGE>
For AT&T Corp.
/s/ Name of Signatory
- ---------------------
For Hungarian Telecommunications Company Ltd.
/s/ Name of Signatory
- ---------------------
/s/ Name of Signatory
- ---------------------
For International Telecom Japan Inc.
/s/ Name of Signatory
- ---------------------
For International Telecommunication Development Corporation
/s/ Name of Signatory
- ---------------------
For Kokusai Denshin Denwa Co., Ltd.
/s/ Name of Signatory
- ---------------------
For Office Des Telephones
/s/ Name of Signatory
- ---------------------
For OPTUS Networks Pty Limited
/s/ Name of Signatory
- ---------------------
-72-
<PAGE>
For Pacific Gateway Exchange
/s/ Name of Signatory
- ---------------------
For Philippine Long Distance Telephone Company
/s/ Name of Signatory
- ---------------------
For Polish Telecom
/s/ Name of Signatory
- ---------------------
For PT SATELIT PALAPA INDONESIA
/s/ Name of Signatory
- ---------------------
For PTT Telecom BV
/s/ Name of Signatory
- ---------------------
For ROSTELECOM Joint Stock Company
/s/ Name of Signatory
- ---------------------
For Singapore Telecommunications Limited
- ---------------------
-73-
<PAGE>
For Sprint Communications Company L.P.
/s/ Name of Signatory
- ---------------------
For Swiss Telecom PTT
/s/ Name of Signatory
- ---------------------
For Telecom Denmark A/S
/s/ Name of Signatory
- ---------------------
For Teleglobe Canada Inc.
/s/ Name of Signatory
- ---------------------
For Telkom SA Limited
- ---------------------
For Telemalta Corporation
/s/ Name of Signatory
- ---------------------
For Televerket A/S (Norwegian Telecom Ltd.)
/s/ Name of Signatory
- ---------------------
-74-
<PAGE>
For Telia AB
/s/ Name of Signatory
- ---------------------
For Transoceanic Communications, Incorporated
/s/ Name of Signatory
- ---------------------
For Ukrainian Enterprise of Long-distance International and
Telecommunications and TV
/s/ Name of Signatory
- ---------------------
-75-
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of October 8, 1999 (as amended,
supplemented or otherwise modified from time to time, this "AGREEMENT"), among
FLAG ATLANTIC LIMITED, a company organized and existing under the laws of
Bermuda (the "COMPANY"), the Lenders (as defined herein), BARCLAYS CAPITAL, as
lead arranger (in such capacity, the "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 for the Lenders and as security agent for the
Secured Parties (in such capacities, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, capitalized terms used in these recitals shall have
the meanings ascribed thereto in Section 1.1;
WHEREAS, the Company proposes to develop, construct, own,
provide, operate and sell Capacity on a 12,000 kilometer, six fiber pair,
submarine fiber optic cable system connecting the United States to Europe,
together with backhaul systems (some of which may be leased from existing
systems) related thereto (collectively, the "PROJECT");
WHEREAS, in order to finance project costs associated with the
design, engineering, construction and installation of the Project, the Sponsors
have severally agreed to make cash equity contributions to the Company in the
aggregate amount of U.S. $200,000,000, and to fund or otherwise to obtain
Sponsor Pre-Sale Capacity Commitments in the aggregate amount of U.S.
$300,000,000;
WHEREAS, in order (a) to finance the remaining project costs
associated with the design, engineering, construction and installation of the
Project, (b) to pay transaction, legal, financing (including interest expense
and fees) and other related costs, (c) to fund operating and maintenance costs
and expenses and working capital requirements and (d) to the extent of any
remaining availability, to fund the Reserve Accounts, the Company has requested
that the Lenders provide certain extensions of credit hereunder to the Company
consisting of Construction Loan Commitments in an aggregate principal amount of
up to $575,000,000;
<PAGE>
WHEREAS, the Company has requested that the Lenders make
Revolving Credit Commitments in an aggregate principal amount of up to
$25,000,000; and
WHEREAS, in order to secure and support the Company's
obligations to the Lenders under the Financing Documents, the Company, its
Subsidiaries, and the Sponsors 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. Capitalized terms used herein
shall have the meanings assigned to them as follows (such definitions to be
equally applicable to both the singular and plural forms of the terms defined).
Any term defined by reference to an agreement, instrument or other document
shall have the meaning so assigned to it whether or not such agreement,
instrument or other document is in effect.
"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.
"ACCEPTANCE" shall mean any of Acceptance (Phase 1) or
Acceptance (Phase 2).
"ACCEPTANCE (PHASE 1)" means the earlier to occur of (i) the
tendering by the Company to the Contractor (with the consent of the Independent
Engineer) of the Certificate of Commercial Acceptance (Phase 1) or (ii) the
provision of the Certificate of Provisional Acceptance (Phase 1).
"ACCEPTANCE (PHASE 2)" means the earlier to occur of (i) the
tendering by the Company to the Contractor (with the consent of the Independent
Engineer) of the Certificate of Commercial Acceptance (Phase 2) or (ii) the
provision of the Certificate of Provisional Acceptance (Phase 2).
2
<PAGE>
"ACCOUNTS" shall be the collective reference to the Revenue
Account, the Current Account, the Construction Account, the Equity Proceeds
Account, the Pre-Sale Proceeds Account, the Debt Proceeds Account, the Debt
Reserve Account, the Operating Reserve Account, the Insurance Proceeds Account,
the Special Payment Account, the Sales and Issuances Proceeds Account, the
Maintenance Reserve Account, the Excess Revenue Account, the Permitted Sources
Account, the VAT Account, the Capacity Upgrades Reserve Account and each other
account established and maintained pursuant to Article VIII.
"ADDITIONAL BORROWING AMOUNT" shall mean as defined in Section
4.2(b).
"ADDITIONAL CONTRACT" shall mean each contract entered into by
the Company or any Subsidiary thereof after the Closing Date (other than
Capacity Sales Agreements, employment contracts and contracts involving payments
by or to the Company of less than $1,000,000 annually).
"ADJUSTED LIBO RATE" shall mean, with respect to any
Eurodollar Loan 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 hereof, 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 is under common Control with the Person
specified.
"ALCATEL" shall mean Alcatel, a corporation organized under
the laws of France.
"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
3
<PAGE>
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 (including all export laws and regulations related
thereto), 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 in PART
I OF SCHEDULE 1.1.(VIII) annexed hereto.
"APPLICABLE PERCENTAGE" shall mean, with respect to (i) the
Revolving Credit Commitment, if any, of any Lender at any time of determination,
the percentage of the total unused Revolving Credit Commitments and outstanding
Revolving Credit Loans represented by such Lender's unused Revolving Credit
Commitment and outstanding Revolving Credit Loans, and (ii) the Construction
Loan Commitment of any Lender at any time of determination, the percentage of
the total unused Construction Loan Commitments and outstanding Construction
Loans represented by such Lender's unused Construction Loan Commitment and
outstanding Construction Loans. To the extent applicable, if either of the
Commitments has terminated or expired, the Applicable Percentages shall be
determined based upon the applicable 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.
"ASSIGNED DOCUMENTS" shall be the collective reference to each
agreement which is being assigned by the Company or any Subsidiary of the
Company to the Administrative Agent pursuant to the relevant 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
4
<PAGE>
accordance with Section 10.4, substantially in the form of EXHIBIT A or any
other form approved by the Administrative Agent.
"BACKHAUL AGREEMENTS" means those agreements described in
Subsection 3.4.2 of the Shareholders Agreement.
"BACKHAUL ELEMENTS" means, collectively, the European Backhaul
Element and the U.S. Backhaul Element.
"BOARD" shall mean the Board of Governors of the Federal
Reserve System of the United States of America.
"BORROWING" shall mean Loans of the same Class and Type, made,
converted or continued on the same date and (in the case of Eurodollar Loans) as
to which a single Interest Period is in effect.
"BORROWING DATE" shall mean (a) with respect to Construction
Loans only, prior to the Conversion Date, initially, the Closing Date, and
thereafter, the last Business Day of each month, unless another Business Day is
otherwise specified to be the Borrowing Date for any calendar month by the
Company in a written notice at least thirty (30) days prior to such newly
specified Business Day, in which case such specified Business Day shall be the
Borrowing Date for that calendar month for all purposes of the Financing
Documents (including the making of Construction Loans under this Agreement) and
(b) with respect to Revolving Credit Loans only, the date specified in a
Borrowing Notice delivered to the Administrative Agent pursuant to Section 2.3.
"BORROWING NOTICE" shall mean a notice from the Company,
executed by a Responsible Officer of the Company, substantially in the form of
EXHIBIT B.
"BUDGET CATEGORY" shall mean each of the categories under the
Project Budget.
"BUDGET CATEGORY AMOUNT" shall mean the maximum aggregate
amount which may be drawn down under the Construction Funding Facilities in
respect of any Budget Category.
"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
5
<PAGE>
"BUSINESS DAY" shall also exclude any day on which banks are not open for
dealings in dollar deposits in the London interbank market.
"CAPACITY" shall mean the service offered by the Project
consisting of the right of use of a defined portion of the Project for
telecommunication (including sales of fiber pairs (or capacity thereon)), or,
where the context so requires, the fraction of total capacity for
telecommunication service available on the Project on the relevant segment of
the Project referred to in the context of which the term is used.
"CAPACITY COMMITMENTS" shall mean the aggregate amount of the
cash payments in Dollars that the Sponsors, Capacity Purchasers or other Persons
are obligated to make to the Company or its Subsidiaries for the purchase of
Capacity pursuant to Capacity Sales Agreements.
"CAPACITY PURCHASER" 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.
"CAPACITY SALES AGREEMENTS" shall mean all agreements for the
sale, lease or other disposition of Capacity entered into in accordance with
Section 6.13 in each case as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
"CAPACITY UPGRADES" shall mean (a) any and all physical
additions, improvements or upgrades to the Project that are contemplated by the
Construction Contract or the System Configuration to upgrade Capacity in
increments of at least 40 gigabits per second, and (b) any other physical
additions, improvements or upgrades to the Project that the Independent Engineer
certifies to the Administrative Agent will add to the overall value of the
Project, PROVIDED that in the case of (b), such addition, improvement or upgrade
(i) 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
Project, (ii) will not require the Company to enter into any Additional Contract
or otherwise amend any Project Document, except as permitted by Sections 6.10
and 6.12, (iii) will not otherwise result in a Default or Event of Default and
(iv) could not reasonably be expected to have a Material Adverse Effect.
"CAPACITY UPGRADES RESERVE ACCOUNT" shall mean the special
account designated by that name established by the Administrative Agent pursuant
to Article VIII.
6
<PAGE>
"CAPACITY UPGRADES RESERVE REQUIRED BALANCE" shall mean, as of
any date of determination, an amount equal to the product of (i) in the case of
the first upgrade of the Project to be done by the Company, (x) $147,000 (or
such lesser amount as the Company and the Independent Engineer agree represents
the then per unit cost of upgrading 1024 STM-1's) times the first 615 STM-1's
sold by the Company in respect of which cash proceeds shall have been received
in full PLUS (y) $88,000 (or such lesser amount as the Company and the
Independent Engineer shall agree is the then per unit cost of upgrading 1024
STM-1's) TIMES any subsequent STM-1's sold by the Company in respect of which
cash proceeds shall have been received in full and (ii) in the case of any
subsequent upgrade of the Project, $88,000 (or such lesser amount as the Company
and the Independent Engineer shall agree is the then per unit cost of upgrading
1024 STM-1's) TIMES any subsequent STM-1's sold by the Company in respect of
which cash proceeds shall have been received in full by the Company, in each
case LESS the aggregate amount of expenditure with regard to the relevant
upgrade of Capacity from September 30, 1999; PROVIDED, that sales of fiber pairs
shall be excluded for the purposes of this calculation.
"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.
"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.
"CASH EQUITY CONTRIBUTION AMOUNT" shall mean $200,000,000.
"CASH EQUITY CONTRIBUTIONS" shall mean the cash equity
contributions required to be made by the Sponsors to the Company pursuant to the
Equity Contribution Agreements, including any such amounts on deposit in a cash
collateral account or the Equity Proceeds Account.
"CASH OPERATING EXPENSES" shall mean, for any period, the sum
(without duplication) of the following for the Company and its Subsidiaries: (a)
all salaries, employee benefits and other compensation paid during such period,
PLUS (b) insurance
7
<PAGE>
premiums paid during such period, PLUS (c) the costs of operating and
maintaining the Project paid during such period, PLUS (d) property and other
taxes (except income taxes) paid during such period, PLUS (e) fees for
accounting, legal and other professional services paid during such period, PLUS
(f) all selling, general and administrative expenses paid during such period,
PLUS (g) all other cash expenditures relating to operation, maintenance and
administrative costs of the Project paid during such period.
"CASUALTY PROCEEDS" shall mean all payments and proceeds of
each insurance policy maintained by the Company or any Subsidiary thereof (or
with respect to which the Company or one of its Subsidiaries is the named
insured, a co-insured or a loss payee) and all compensation, awards, 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 8.17(a).
"CERTIFICATE OF COMMERCIAL ACCEPTANCE" shall have the meaning
ascribed thereto in the Construction Contract.
"CERTIFICATE OF COMMERCIAL ACCEPTANCE (PHASE 1)" shall mean
the Certificate of Commercial Acceptance issued in connection with commercial
acceptance of Phase 1 pursuant to the terms of the Construction Contract.
"CERTIFICATE OF COMMERCIAL ACCEPTANCE (PHASE 2)" shall mean
the Certificate of Commercial Acceptance issued in connection with commercial
acceptance of Phase 2 pursuant to the terms of the Construction Contract.
"CERTIFICATE OF PROVISIONAL ACCEPTANCE" shall have the meaning
ascribed thereto in the Construction Contract.
"CERTIFICATE OF PROVISIONAL ACCEPTANCE (PHASE 1)" shall mean
the Certificate of Provisional Acceptance issued in connection with the
Provisional Acceptance Date (Phase 1).
"CERTIFICATE OF PROVISIONAL ACCEPTANCE (PHASE 2)" shall mean
the Certificate of Provisional Acceptance issued in connection with the
Provisional Acceptance Date (Phase 2).
8
<PAGE>
"CERTIFICATE OF RESOLUTIONS AND INCUMBENCY" shall mean, with
respect to any Person, a certificate of a Responsible Officer and, in the case
of (b) below, the Secretary or an Assistant Secretary of such Person, certifying
(a) that the resolutions of the Board of Directors (or similar governing body)
of such Person (copies of which shall be attached to such certificate) that
authorize the execution, delivery and performance by such Person of each
Transaction Document to which it is or is to become a party and authorize such
Person to enter into the transactions contemplated hereby and thereby are in
full force and effect and have not been amended, modified or supplemented since
the date of their adoption, and (b) the incumbency of the Person or Persons
authorized to execute and deliver such documents on its behalf, together with
exemplary signatures thereof.
"CHANGE IN CONTROL" shall mean and shall be deemed to have
occurred if any of the following occurs: (a) FLAG Telecom Holdings Limited shall
cease to directly or indirectly own at least 50% of the issued and outstanding
voting stock of FLAG Atlantic Holdings; or (b) GTS Carrier Services, Inc. shall
cease to directly or indirectly own at least 50% of the issued and outstanding
voting stock of GTS TransAtlantic Holdings; PROVIDED, HOWEVER, that no "Change
of Control" shall be deemed to occur if (i) a successor or transferee of any of
the foregoing stock is a person (or whose (direct or indirect) 100% parent is a
person) whose debt is rated at least "investment grade" by S&P and Moody's (or,
if rated by one only of S&P and Moody's, by such rating agency) or as a result
of any transaction entered into in accordance with Section 6.7 or 6.8 or (ii)
there shall occur any change in the relative ownership levels of the Sponsors
(or any permitted successor or assignee thereof) solely in connection with a
change in the respective shareholdings of the Sponsors (or any permitted
successor or assignee thereof) under Section 14.3 of the Shareholders Agreement.
"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).
"CHARGE OVER BUSINESS AGREEMENT" shall mean the charge over
the business (NANTISSEMENT DE FONDS DE COMMERCE) substantially in the form set
out in Exhibit L to be entered into between the Administrative Agent and FLAG
Atlantic France S.A.R.L.
9
<PAGE>
"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, Construction Loans or Term Loans and, when used in
reference to any Commitment, refers to whether such Commitment is a Revolving
Credit Commitment or a Construction Loan Commitment.
"CLOSING DATE" shall mean the date of this Agreement.
"CO-ARRANGERS" means Barclays Capital as Lead Arranger,
Dresdner Bank AG, New York and Grand Cayman Branches, as Documentation Agent and
Westdeutsche Landesbank Girozentrale, New York Branch, as Syndication Agent.
"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
"Security" as such term is defined in any Security Agreement, (c) the Pledged
Stock and (d) all other property, if any, in which a Lien is, or is purported to
be, granted to secure the Obligations (or any portion thereof).
"COMMITMENTS" shall mean the Revolving Credit Commitments or
the Construction 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.
"COMPANY" shall have the meaning ascribed thereto in the
preamble hereof.
"COMPANY'S EXCESS CASH FLOW ACCOUNT" shall have the meaning
ascribed thereto in Section 6.24.
"COMPANY SECURITY AGREEMENTS" shall mean the collective
reference to the Company Security Agreement (U.S.), the Company Security
Agreement (England), the Company Security Agreements (France) and the Company
Security Agreement (Bermuda).
10
<PAGE>
"COMPANY SECURITY AGREEMENT (BERMUDA)" shall mean the Security
Agreement, dated as of the Closing Date, substantially in the form of EXHIBIT
E-4, made by the Company in favor of the Administrative Agent, for the benefit
of the Secured Parties, as amended, supplemented or otherwise modified from time
to time in accordance with the terms hereof.
"COMPANY SECURITY AGREEMENTS (FRANCE)" shall mean the Security
Agreements, dated as of the Closing Date, substantially in the forms of EXHIBITS
E-3A and E-3B, made by the Company and/or any of its Subsidiaries in France in
favor of the Administrative Agent, for the benefit of the Secured Parties, as
amended, supplemented or otherwise modified from time to time in accordance with
the terms hereof.
"COMPANY SECURITY AGREEMENT (ENGLAND)" shall mean the Security
Agreement, dated as of the Closing Date, substantially in the form of EXHIBIT
E-2A, EXHIBIT E-2B, EXHIBIT E-2C, made by the Company in England in favor of the
Administrative Agent, for the benefit of the Secured Parties, as amended,
supplemented or otherwise modified from time to time in accordance with the
terms hereof.
"COMPANY SECURITY AGREEMENT (U.S.)" shall mean the Security
Agreement, dated as of the Closing Date, substantially in the form of EXHIBIT
E-1, made by the Company and any of its Subsidiaries in the U.S. in favor of the
Administrative Agent, for the benefit of the Secured Parties, as amended,
supplemented or otherwise modified from time to time in accordance with the
terms hereof.
"CONFIDENTIAL MATERIALS" shall have the meaning ascribed
thereto in Section 10.16.
"CONSENTS" shall be the collective reference to the Guarantor
Consent, the Contractor Consent and each other consent to assignment, in the
form of EXHIBIT G as the case may be, to be executed and delivered by each party
(other than the Company) to any Additional Contract which are required to be
obtained and delivered to the Administrative Agent in accordance with Section
6.12 or the Security Agent in accordance with the Security Documents.
"CONSOLIDATED ADJUSTED EBITDA" shall mean without duplication,
for any period, Cumulative Capacity Sales Revenues (with respect to the Interest
Coverage Ratio, calculation, for the four-fiscal quarter period then ended) PLUS
other revenues received in cash at any date of determination for such period
from continuing operations, MINUS Cash Operating Expenses.
11
<PAGE>
"CONSOLIDATED CASH INTEREST EXPENSE" shall mean, for any
period, Consolidated Interest Expense for such period, excluding any amounts not
payable in Cash.
"CONSOLIDATED INTEREST EXPENSE" shall mean, for any period,
the amount of interest expense, both expensed and capitalized, of the Company
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.
"CONSTRUCTION ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent pursuant to
Article VIII.
"CONSTRUCTION CONTRACT" shall mean the FLAG Atlantic Fibre
Optic Cable System Contract, dated as of September 20, 1999, between the Company
its Subsidiaries and the Contractor (including all schedules and appendices
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 hereof.
"CONSTRUCTION CONTRACT GUARANTY" shall mean the Guaranty,
dated on or before the date hereof, made by Alcatel in favor of the Company, 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 hereof.
"CONSTRUCTION FUNDING FACILITIES" shall mean, collectively,
and without duplication, the following:
(a) all funds on deposit in the Equity
Proceeds Account (or any cash collateral account into which
the equity proceeds are otherwise paid) and the Debt Proceeds
Account;
(b) all amounts available to be funded under
this Agreement, the Limited Guarantee Agreements and the
Equity Contribution Agreements;
(c) all amounts available under (i) the
Sponsor Pre-Sale Capacity Commitments, (ii) Qualifying
Pre-Sale Capacity Commitments to the extent such amounts are
payable prior to the Conversion Date and (iii) any other
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Capacity Commitments, to the extent such amounts are received
prior to the Conversion Date;
(d) all other funds which are available for
the payment of Project Costs from a source and on terms
acceptable in all respects to the Administrative Agent; and
(e) to the extent not included in (a)
through (c) above, all other amounts on deposit in the
Construction Account or the Pre-Sale Proceeds Account.
"CONSTRUCTION LOAN COMMITMENT" shall mean, as to any
Construction Loan Lender, the obligation of such Lender to make Construction
Loans to the Company in an aggregate amount not to exceed, at any one time
outstanding, the amount set forth opposite such Construction Loan Lender's name
on SCHEDULE 1.1(II) under the heading "Construction Loan Commitment" or, in the
case of any Construction Loan Lender that is an assignee, the amount of the
assigning Construction Loan Lender's Construction Loan Commitment assigned to
such assignee pursuant to Section 10.4, in each case as such amount may be
adjusted or reduced from time to time as provided herein.
"CONSTRUCTION LOAN COMMITMENT PERIOD" shall mean the period
from and including the Closing Date to and including the Construction Loan
Commitment Termination Date.
"CONSTRUCTION LOAN COMMITMENT TERMINATION DATE" shall mean the
earliest of (a) the date on which the then outstanding Construction Loans equal
the Construction Loan Commitments then in effect, (b) the Conversion Date and
(c) the date on which the Commitments shall terminate under the terms of the
Financing Documents.
"CONSTRUCTION LOAN LENDERS" shall mean, at any time of
determination, Lenders having outstanding Construction Loans or unused
Construction Loan Commitments.
"CONSTRUCTION LOAN NOTES" shall have the meaning ascribed
thereto in Section 2.7(f).
"CONSTRUCTION LOANS" shall have the meaning ascribed thereto
in Section 2.1(a)(i).
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"CONSTRUCTION MANAGEMENT AGREEMENTS" shall mean, collectively,
(i) the Construction Management Agreement, dated on or before the date hereof
between the Company and GTS Carrier Services Inc. to provide for the management
of construction of the U.S. and European Backhaul Elements and (ii) the
Construction Management Agreement, dated on or before the date hereof between
the Company and FLAG Telecom Group Services Ltd. to provide for management of
construction of the Subsea Element, as each may be further amended, supplemented
or otherwise modified from time to time in accordance with the terms of this
Agreement.
"CONSTRUCTION PROGRESS REPORT" shall mean a report to be
submitted by the Company to the Administrative Agent no later than fifteen days
prior to the applicable Borrowing Date in relation to Construction Loans, or
prior to a proposed Equity Withdrawal under Section 4.5, providing (a) an
assessment by the Company of the overall construction progress and cost of the
Project since the date of the last such report and since the Closing Date,
together with an assessment of how such progress and cost compare to the Plan of
Work, the Project Timetable and the Project Budget (including, without
limitation, the Additional Borrowing Amount), (b) a detailed description of any
and all material problems (including, but not limited to, actual and anticipated
cost overruns or delays, if any) encountered or anticipated in connection with
the Project since the date of the last such report, together with an assessment
of any impact of any such problems on the Plan of Work, the Project Timetable
and the Project Budget, (c) a detailed description of the proposed solutions to
the problems referred to in clause (b) above, (d) a statement as to the
anticipated delivery dates of major equipment or Supplies for the Project,
together with an assessment of how such delivery dates will impact the Project
Timetable and (e) an analysis of such other matters relating to the Project as
the Administrative Agent or the Independent Engineer shall request.
"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
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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 F, which may be contained in the Borrowing Notice or otherwise,
and which shall be executed by a Responsible Officer of the Company.
"CONTRACT VARIATION" 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" shall mean Alcatel Submarine Networks, Alcatel
Submarine Networks Inc. and Alcatel Submarine Networks Limited each a direct or
indirect Subsidiary of Alcatel.
"CONTRACTOR CONSENT" shall mean the consent to and notice of
assignment, in the form of EXHIBIT G, made by the Contractor in favor of the
Administrative Agent, as the case may be.
"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.
"CONTRACTUAL RIGHTS" means all representations, covenants,
guarantees, indemnities and other contractual provisions in favour of the
Administrative Agent (other than any such made or granted solely for its own
benefit) made or granted in or pursuant to any of the Financing Documents.
"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 25% or more of the securities having
ordinary voting power for the election of directors of a Person. "CONTROLLED"
shall have the meaning correlative thereto.
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"CONVERSION DATE" shall mean the date on which the conditions
precedent set forth in Section 4.4 have been satisfied and the Construction
Loans are converted into Term Loans in accordance with the terms hereof.
"CRITICAL TIMETABLE EVENT" shall mean each event set forth in
the Project Timetable under the heading "Critical Timetable Event".
"CUMULATIVE CAPACITY SALES REVENUE" shall mean, for any
period, (a) the aggregate cash amount of Capacity Commitments received from
September 30, 1999, up to and including the end of such period in respect of the
sale, lease and/or other disposition of Capacity which are not subject to return
to the applicable Capacity Purchaser (net of any amount received which is
subject to a rebate obligation) LESS (b) that portion of the aggregate cash
amount referred to in the preceding clause (a) which is in respect of the
Sponsor Pre-Sale Capacity Commitments.
"CURRENT ACCOUNT" shall mean the special account designated by
that name established by the Administrative Agent pursuant to Article VIII.
"DEBT PROCEEDS ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent pursuant to
Article VIII.
"DEBT RESERVE ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent 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 then in effect.
"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 mean any document submitted by the
Company and requested by the Independent Engineer as justification that the
design and/or installation of the Project (or any portion thereof) meets the
requirements and specifications set forth in the Construction Contract and the
Backhaul Agreements.
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"DESIGNATED EVENT" shall mean, as of any date of
determination, the failure of the Company and its Subsidiaries to be in
compliance with Section 6.28, 6.29 or 6.30 as of such date, as set forth in the
certificate delivered by the Company to the Administrative Agent in accordance
with Section 5.3(b), or the failure of the Company to deliver such certificate
when required.
"DOCUMENTATION AGENT" as defined in the preamble hereto.
"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 Company 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 5.20(a).
"EQUITY CONTRIBUTION AGREEMENTS" shall mean the Equity
Contribution Agreement made by each Sponsor in favor of the Company and the
Administrative Agent, dated as of the Closing Date, substantially in the form of
EXHIBIT H, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms hereof.
"EQUITY CONTRIBUTION LETTERS OF CREDIT" shall mean the
irrevocable standby letters of credit issued or confirmed by financial
institutions which constitute Qualifying Banks (as of the date of such issuance
or confirmation) in favor of the Administrative Agent, supporting the
obligations of the Sponsors under, and in accordance with the terms of,
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the Equity Contribution Agreements, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"EQUITY PROCEEDS ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent pursuant to
Article VIII.
"EQUITY WITHDRAWAL" shall mean the making of transfers out of
the Equity Proceeds Account.
"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 Company, 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) 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 Company 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 Company 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 Company 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 Company 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.
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"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.
"EUROPEAN BACKHAUL ELEMENT" shall have the meaning ascribed
thereto in Annex 5 of the Shareholders Agreement.
"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, (b) the loss, destruction, damage or
constructive loss of a material portion of the Project (by way of condemnation,
expropriation or otherwise), (c) the cessation or material impairment of the
operation of the Project 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 Company 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, all cash revenue received by the Company
during such period and available after the application of clauses first through
EIGHTH of Section 8.12(b) in accordance with the terms of Article VIII.
"EXCESS REVENUE ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent pursuant to
Article VIII.
"EXCLUDED TAXES" shall mean, with respect to the
Administrative Agent the Lead 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 or the Administrative Agent, 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).
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"EXPENSE CERTIFICATE" shall mean a certificate of the Company
substantially in the form of EXHIBIT J.
"FACILITIES MANAGEMENT AGREEMENT" shall mean the Facilities
Management Agreement dated on or before the date hereof among the Company, GTS
Carrier Services, Inc. and FLAG Telecom Group Services Ltd.
"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 Closing Date, among the Company, the Lead 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.
"FINAL MATURITY DATE" shall mean April 30, 2007.
"FINANCING DOCUMENTS" shall be the collective reference to
this Agreement, the Notes, the Security Documents, the Interest Hedging
Agreements, the Subsidiary Guarantee Agreements, the Limited Guarantee
Agreements, the Equity Contribution Agreements and the Consents.
"FIRST AMENDMENT" means the First Amendment, dated as of
December 14, 1999, to this Agreement, by and among Company, the Lenders party
thereto, Lead Arranger, Syndication Agent, Documentation Agent and
Administrative Agent.
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"FIRST AMENDMENT CLOSING DATE" means the "First Amendment
Closing Date", as such term is defined in the First Amendment.
"FLAG ATLANTIC HOLDINGS" shall mean FLAG Atlantic Holdings
Limited, a company organized and existing under the laws of Bermuda.
"GAAP" shall mean generally accepted accounting principles in
the United States of America, as in effect from time to time.
"GTS TRANSATLANTIC HOLDINGS" shall mean GTS TransAtlantic
Holdings Limited, a company organized and existing under the laws of Bermuda.
"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, permits, licenses, authorities and approvals for
the Company's cable to cross other telecommunications cables, pipelines, and the
like, to rest or be buried in any inland waters, territorial waters, continental
shelf, contiguous zones, Exclusive Economic Zones (as defined in the 1982
Convention on the Law of the Sea) and permissions to cross any beach or land and
all other 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
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) on the Term Loans, in each case for the next succeeding
twelve months, PROVIDED that the amount set forth in clause (b) shall in no
event exceed the aggregate principal amount of the Term Loans outstanding as of
such date.
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"GROSS MAINTENANCE RESERVE REQUIRED AMOUNT" shall mean, as of
any date of determination, an amount (not less than zero) equal to the
difference of (a) the actual Operating Expenses for the preceding six-month
period ending on such date, LESS (b) 50% of the aggregate of all Operating
Payments received by the Company during the immediately preceding twelve-month
period ending on such date (or, for any date prior to the first anniversary of
the Conversion Date, 50% of the aggregate of all Operating Payments received by
the Company since the Conversion Date, annualized to an annual period).
"GUARANTOR" shall mean Alcatel and its permitted successors
and assigns.
"GUARANTY" 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 Guaranty shall not include
endorsements for collection or deposit in the ordinary course of business.
"GUARANTOR CONSENT" shall mean the consent to and notice of
assignment, dated as of the Closing Date, made by Alcatel in favor of the
Administrative Agent, in the form of EXHIBIT G, as amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
"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.
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"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; PROVIDED, HOWEVER, that refunds or credits
which the Company may from time to time be obligated to pay or make under any
Capacity Sales Agreement shall not be considered "Indebtedness", (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 the lesser of (x) the fair market
value of such property and (y) the amount of such Indebtedness of others, (e)
all Guaranties 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 (other than trade-related letters of
credit or letters of guaranty entered into in the ordinary course of business),
(h) all net obligations of such Person under any Hedging Agreement (including
all net Interest Hedging Obligations) and (i) all obligations, contingent or
otherwise, of such Person in respect of bankers' acceptances; PROVIDED, HOWEVER,
that for the avoidance of doubt, the Company's payment obligations under the
Project Documents shall not constitute "Indebtedness".
"INDEMNIFIED TAXES" shall mean Taxes other than Excluded
Taxes.
"INDEMNITEE" shall have the meaning ascribed thereto in
Section 10.3(c).
"INDEPENDENT ENGINEER" shall mean BT Worldwide or such other
engineer or engineering firm as may be appointed by the Administrative Agent in
accordance with Section 10.15.
"INITIAL PRINCIPAL PAYMENT DATE" shall mean the first
scheduled Interest Payment Date in respect of Eurodollar Loans falling after the
Conversion Date (or, in the event
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that all of the Loans in existence at such time are ABR Loans, the first
scheduled Interest Payment Date in respect of ABR Loans falling after the
Conversion Date).
"INSURANCE ADVISOR" shall mean Hobbs Group, LLC., or any
successor thereof.
"INSURANCE PROCEEDS ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent 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 COVERAGE RATIO" means the ratio, as of the last day
of any fiscal quarter of the Company (and its Subsidiaries, on a consolidated
basis) following the fiscal quarter in which the Conversion Date occurs (but, in
any event, no earlier than the last quarter of 2001), of (i) Consolidated
Adjusted EBITDA for the four-fiscal quarter period then ended, to (ii)
Consolidated Cash Interest Expense for such four-fiscal quarter period, in each
case as set forth in the most recent certificate delivered by the Company to the
Administrative Agent pursuant to Section 5.3(b) in respect of such fiscal
period; PROVIDED that for purposes of calculating the Interest Coverage Ratio as
of the last day of each of the first, second and third fiscal quarters occurring
after the fiscal quarter in which the Conversion Date occurs, such ratio shall
be determined by multiplying each of Consolidated Adjusted EBITDA and
Consolidated Cash Interest Expense for the period commencing on the first day of
the first full fiscal quarter following the Conversion Date, and ending as of
the end of such fiscal quarter by (i) 4, in the case of the first fiscal
quarter, (ii) 2, in the case of the second fiscal quarter, and (iii) 4/3, in the
case of the third fiscal quarter.
"INTEREST HEDGING AGREEMENT" means any Hedging Agreement
evidencing an Interest Hedging Transaction.
"INTEREST HEDGING COUNTERPARTY" shall mean (a) Barclays
Capital, any other Lender 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
institution's entry into an Interest Hedging Transaction with the Company.
"INTEREST HEDGING OBLIGATIONS" shall mean all indebtedness,
liabilities and obligations of the Company under any agreement or agreements
entered into by the
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Company 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 Company with an Interest
Hedging Counterparty to hedge the Company's interest rate exposure with respect
to the Loans.
"INTEREST PAYMENT DATE" shall mean (a) with respect to any ABR
Loan, the last day of each month commencing with the Closing Date (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, the day that occurs three months after the first day of such Interest
Period (or, if such day is not a Business Day, the next succeeding Business Day
(unless such next succeeding Business Day would fall in the next calendar month
in which case such payment date shall fall on the next preceding Business Day)).
"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 (or, if available as determined by the Administrative
Agent, seven (7) days) as the Company may elect in accordance with the terms
hereof; 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 or seven (7) days, (e) any Interest Period for a Construction Loan that
would otherwise extend beyond the Construction Loan Commitment Termination Date,
shall end on the Construction Loan Commitment Termination Date, (f) any Interest
Period for a Revolving Credit Loan that would otherwise extend beyond the
Revolving Credit Commitment Termination Date, shall end on the Revolving Credit
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Commitment Termination Date and (g) any Interest Period that would otherwise
extend beyond the Final Maturity Date, shall end on the Final 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.
"LANDING LICENSE" shall mean each material license or permit
required by Applicable Law specifically for the landing and/or operating of the
Project in England, the United States and France as identified on Schedule
3.7(b) hereto, and any other country in which the Project may be situated.
"LEAD ARRANGER" shall mean Barclays Capital.
"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 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
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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.
"LIMITED GUARANTEE AGREEMENTS" shall mean, collectively, the
Limited Guarantee Agreement (FLAG) and the Limited Guarantee Agreement (GTS).
"LIMITED GUARANTEE AGREEMENT (FLAG)" shall mean the Guarantee
Agreement, dated as of the Closing Date, substantially in the form of EXHIBIT
P-1, made by FLAG Atlantic Holdings in favor of the Administrative Agent, for
the benefit of the Secured Parties, as amended, supplemented, or otherwise
modified from time to time in accordance with the terms hereof.
"LIMITED GUARANTEE AGREEMENT (GTS)" shall mean the Guarantee
Agreement, dated as of the Closing Date, substantially in the form of EXHIBIT
P-2, made by GTS TransAtlantic Holdings in favor of the Administrative Agent,
for the benefit of the Secured Parties, as amended, supplemented, or otherwise
modified from time to time in accordance with the terms hereof.
"LOANS" shall mean, collectively, (a) at any time prior to the
Conversion Date, the Construction Loans and the Revolving Credit Loans and (b)
at any time on or after the Conversion Date, the Term Loans and the Revolving
Credit Loans.
"MAINTENANCE RESERVE ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent 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.
"MAJORITY LENDERS" shall mean, at any time of determination,
one or more Lenders having 51% or more of the aggregate of (i) (a) at any time
prior to the Conversion Date, the Construction Loan Commitments then in effect;
(b) at any time on or after the Conversion Date, the Term Loans then outstanding
and (ii)(a) at any time prior to the Revolving Credit Commitment Termination
Date, the Revolving Credit Commitments then in effect; and (b) at any time on or
after the Revolving Credit Commitment Termination Date, the Revolving Credit
Loans then outstanding.
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"MARKET CONSULTANT" shall mean Arthur D. Little or such other
market consultant as may be appointed by the Administrative Agent in accordance
with Section 10.15.
"MARKETING AGREEMENT" shall mean the Customer Marketing
Agreement, dated on or before the date hereof among the Company, FLAG Atlantic
Holdings (or an Affiliate) and GTS TransAtlantic Holdings (or an Affiliate), as
the same may be further 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 business, operations, condition (financial or otherwise), or property
or prospects of the Company and its Subsidiaries, taken as a whole, or the
Project, (b) the ownership, use or operation of the Project, (c) the ability of
the Company 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 Administrative Agent 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) excluding Capacity
Sales Agreements entered into by Sponsors) or the availability of the remedies
of the Administrative Agent 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.
"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 Company in respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the Company
would be required to pay if such Hedging Agreement were terminated at such time.
"MATERIAL REAL ESTATE ASSET" means (i) any fee-owned Real
Estate Asset (a) having a fair market value in excess of $1,000,000 as of the
date of the acquisition thereof, or (b) on which any of the landing stations or
points of presence are located, or (ii) any Leasehold Property (as defined in
SCHEDULE 5.26) (a) on which any of the landing stations or points of presence
are located or (b) (i) with respect to which the aggregate annual payments under
the lease are in excess of $500,000, (ii) that have personal property located
thereon with an aggregate value in excess of $1,000,000 or
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(iii) that relate to a site the loss of which would have a material adverse
effect on the operation of the business of the Company and of its Subsidiaries,
taken as a whole; PROVIDED, HOWEVER, that Rights-of-Way and Real Estate Assets
with respect to which the Company (or its Subsidiaries) has a subsea permit
(each a "SUBSEA REAL ESTATE ASSET") shall be excluded from the term "Material
Real Estate Asset," in the event that the granting of a mortgage lien on such
Subsea Real Estate Asset would not be recognized or effective under applicable
law.
"MINIMUM CREDIT RATING" shall mean, with respect to any
Person, a rating of such Person's senior long-term debt of at least BBB or
higher by S&P and Baa2 or higher by Moody's or if only one of S&P and Moody's
rates such Person, the applicable rating specified in this definition.
"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 as follows:
(a) with respect to the sale, transfer,
lease or other dispositions of any asset (excluding
dispositions of Capacity other than after the Conversion Date
sales of Capacity constituting the sale of fiber pairs of the
Project), an amount certified in reasonable detail by a
Responsible Officer of the Company 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 Company in connection with such sale, transfer, lease
or other disposition and (D) provision for taxes payable by
the Company and which are directly attributable to such sale,
transfer, lease or other disposition (as estimated by the
Company in good faith within one month of such sale to be
payable by the Company, PROVIDED that to the extent such
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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 Company or either Sponsor, as
applicable 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
Company or either Sponsor, as applicable, 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 Company 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 Company
in connection with such incurrence of Indebtedness.
"NOTES" shall be the collective reference to the Revolving
Credit Notes and (i) prior to the Conversion Date, the Construction Loan Notes,
and (ii) on and after the Conversion Date, the Term Loan Notes.
"OBLIGATIONS" shall mean (a) all the unpaid principal amount
of, and accrued interest on, the Loans, and all other obligations of the
Company, 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, administration (whether judicial or not) 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), 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 or
refunding of any indebtedness referred to in clause (a) above.
"OBLIGORS" shall mean the Company and the Company's
Subsidiaries.
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"OFFICERS' CERTIFICATE" shall mean, with respect to any
Person, a certificate of a Responsible Officer of such Person, which states:
(a) the representations and warranties of
such Person contained in Article III and/or in each other
Financing Document to which it is a party are true and
accurate on and as of the date such certificate is required to
be delivered 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);
(b) the representations and warranties of
such Person contained in each Project Document to which it is
a party are true and accurate in all material respects on and
as of the date such certificate is required to be delivered
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);
(c) in the case of the Officers' Certificate
to be provided by the Company, no event or condition has
occurred and is continuing, or would result from the
consummation of any transaction contemplated by the
Transaction Documents to which it is a party, which
constitutes a default by the Company under any of such
Transaction Documents or a Default or Event of Default;
(d) each Transaction Document to which it is
a party remains in full force and effect; and
(e) in the case of the Officers' Certificate
to be provided by the Company, there has been no material
adverse change in the financial condition or results of
operations of such Person since the date of the financial
statements referred to in Section 4.1(x), except as
specifically contemplated by the Project Budget.
"OPERATING BUDGET" shall have the meaning ascribed thereto in
Section 5.24.
"OPERATING EXPENSE TRANSFER DATE" shall have the meaning
ascribed thereto in Section 8.12(a).
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"OPERATING EXPENSES" shall mean, with respect to any period,
all operation, administration and maintenance expenses with respect to such
period which are payable by the Company or any Subsidiary of the Company in such
period, 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 Company (excluding income taxes) in respect of operating the
Project; PROVIDED, HOWEVER, in no event shall "Operating Expenses" include (a)
any payments made by the Company to purchasers or lessees of Capacity relating
to such purchase or lease or (b) any payments made by the Company not related to
the transfer of Capacity or other Project Activities.
"OPERATING PAYMENTS" means all payments made to the Company or
any Subsidiary with respect to, or that are allocated to restoration services or
to maintenance and repair of the Project.
"OPERATING PLAN" shall have the meaning ascribed thereto in
Section 5.24.
"OPERATING PROJECTIONS" shall have the meaning ascribed
thereto in Section 4.1(t).
"OPERATING RESERVE ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent pursuant to
Article VIII.
"OPERATING RESERVE MAXIMUM BALANCE" shall mean $20,000,000.
"OPERATING YEAR" shall mean initially, the period from the
Conversion Date to the following December 31st and, thereafter, each ensuing
calendar year.
"OPERATIONS AND MAINTENANCE PLAN" shall mean the plan prepared
in accordance with the Facilities Management Agreements.
"ORGANIZATIONAL DOCUMENTS" means (a) with respect to any
corporation, its certificate or articles of incorporation, as amended, and its
by-laws, or its memorandum and articles of association, as amended, (b) with
respect to any limited partnership, its certificate of limited partnership, as
amended, and its partnership agreement, as amended, (c) with respect to any
general partnership, its partnership agreement, as amended, (d) with respect to
any limited liability company, its articles of organization, as amended, and its
operating agreement, as amended, and (e) with respect to any US
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or Bermuda entity, a good standing certificate and a certificate of compliance,
respectively. In the event any term or condition of this Agreement or any other
Financing Document requires any Organizational Document to be certified by a
secretary of state or similar governmental official, the reference to any such
"Organizational Document" shall only be to a document of a type customarily
certified by such governmental official.
"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.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA and any successor entity performing similar
functions.
"PARTICIPANT" shall have the meaning ascribed thereto in
Section 10.4(e).
"PERFORMANCE BOND" shall mean the letter of credit, dated
October 8, 1999 issued by Credit Commercial de France, in favor of the Company
in accordance with Section 48 of the Construction Contract, as amended,
supplemented or otherwise modified prior to the Closing Date and as the same may
be further amended, supplemented or otherwise modified, or replaced from time to
time in accordance with the terms hereof.
"PERMITTED INVESTMENTS" shall mean the following:
(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 certificates of deposit,
banker's acceptances and time deposits maturing within one
hundred eighty (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;
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(c) fully collateralized repurchase
agreements with a term of not more than thirty (30) days for
securities described in clause (a) above and entered into with
a financial institution satisfying the criteria described in
clause (b) above; and
(d) 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.
"PERMITTED LIENS" shall mean the following:
(a) Liens imposed by law for Taxes that are
either not yet due or that are subject to a Contest;
(b) materialmen's, mechanics', workers',
repairmen's, employees', carriers', warehousemen's and other
like Liens relating to the construction of the Project or
otherwise arising in the ordinary course of business for
amounts that either are not more than sixty (60) days past due
or are subject to a Contest;
(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 Capacity Purchasers
with respect to portions of the Project;
(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
definition of the term "Contest";
(f) subordinated Liens granted by Sponsors
in favor of other Sponsors (or guarantors of either Sponsor)
on the Capital Stock of the Company on terms satisfactory to
the Administrative Agent;
(g) subordinated Liens on the Capital Stock
of the Company granted by a Sponsor to the issuing bank of an
Equity Contribution Letter of Credit or to any other Person
providing financing to a Sponsor in connection with such
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Sponsor's investment in the Company, in each case on terms
satisfactory to the Administrative Agent;
(h) [Deliberately omitted]
(i) Liens created by or arising out of the
Security Documents;
(j) pledges and deposits made in the
ordinary course of business in compliance with workers'
compensation, unemployment insurance and other social security
laws or regulations;
(k) 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 the ordinary conduct of business of
the Company or of the Project;
(l) Liens arising in connection with
Permitted Sale Leasebacks;
(m) Liens arising in connection with Capital
Lease Obligations permitted under Section 6.15; and
(n) any Lien over or conditional assignment
of the Company's rights, including without limitation the
right to receive payment, under a Capacity Sales Agreement, to
the extent that such Lien or conditional assignment is in
favor of a financial institution providing a letter of credit
supporting the relevant Capacity Purchaser's payment
obligations under such Capacity Sales Agreement.
"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 Company, (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 with Section 2.9.
"PERMITTED SOURCES" shall mean, so long as no Event of Default
shall have occurred and be continuing, the following sources (so long as the
funds from any such
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source has not been provided for or otherwise allocated to another purpose in
accordance with the terms hereof):
(a) funds received by the Company after the
Closing Date in respect of the issuance of Capital Stock of
the Company 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 actually made available to the
Company for its sole benefit after the application of clauses
"first" through "eighth" of Section 8.12(b) and which are
being maintained on deposit in the Permitted Sources Account
or the Company's Excess Cash Flow 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
(c) funds made available by parties other
than the Company and its Subsidiaries without any recourse to
the Company, its assets (other than to Capacity to the extent
conveyed in accordance with the terms hereof), 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).
"PERMITTED SOURCES ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent pursuant to
Article VIII.
"PERSON" shall mean any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"PHASE" shall mean any of Phase 1 or Phase 2.
"PHASE 1" shall have the meaning ascribed thereto in the
Construction Contract.
"PHASE 2" shall have the meaning ascribed thereto in the
Construction Contract.
"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 Company or
any ERISA Affiliate is
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(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.
"PLAN OF WORK" shall mean, collectively, (i) the plan of work
in relation to the Subsea Element, as reflected in Annex 3 to the Construction
Contract and (ii) in respect of the Backhaul Element, the plans of work
contained in the Backhaul Agreements calling for the delivery, construction
and/or installation of any portion of the Backhaul Element.
"PLEDGED STOCK" shall mean all Capital Stock of the Company
and of each of the Company's Subsidiaries, together with all other related
"Pledged Collateral" as defined in the Shareholder Pledge Agreement and all
other related "Collateral" or "Security" as defined in the Company Security
Agreements.
"PRE-SALE CAPACITY AGREEMENT LETTERS OF CREDIT" shall mean the
letters of credit to be issued or confirmed by financial institutions which
constitute Qualifying Banks (as of the date of such issuance or confirmation) on
behalf of certain Capacity Purchasers to support such Capacity Purchaser's
payment obligations under the Capacity Sales Agreement to which such Capacity
Purchaser is a party, such letters of credit to be in the form of EXHIBIT M-1 or
EXHIBIT M-2, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms hereof.
"PRE-SALE PROCEEDS" shall mean all cash proceeds received by
the Company prior to the Conversion Date in respect of the purchase of Capacity
under any Capacity Sales Agreement.
"PRE-SALE PROCEEDS ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent pursuant to
Article VIII.
"PRESENT VALUE COVERAGE RATIO" shall have the meaning ascribed
thereto on SCHEDULE 1.1(I).
"PRICING SCHEDULE" shall mean the price lists for the sale,
lease or other disposition of Capacity by the Company, including any discounts
for aggregated purchases, as the same may be amended by the Company 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
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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 subsequent date set forth on SCHEDULE 1.1(III), or if any
such day is not a Business Day, the preceding Business Day.
"PRINCIPAL PROJECT DOCUMENTS" shall be the collective
reference to the following agreements (to the extent such agreements are in
effect and have not been terminated or replaced in accordance with the terms
hereof): the Construction Management Agreements, the Construction Contract, the
Construction Contract Guaranty, each Capacity Sales Agreement, the Facilities
Management Agreement, the Backhaul Agreements, the Marketing Agreement and the
Performance Bond, and any replacement of any of the foregoing in accordance with
the terms hereof.
"PROCEEDS" means all receipts or recoveries by the
Administrative Agent (or by any of the Obligors and paid over to the
Administrative Agent) pursuant to, and upon enforcement of, any of the rights
and all other monies which are by the terms of any of the Financing Documents to
be applied in accordance with Section 11.3, after deducting (to the extent not
already deducted or retained prior to such receipt of recovery by the
Administrative Agent):
(a) all sums which are by Applicable Law or
contract payable to any Receiver;
(b) all sums which the Administrative Agent
is required by the terms of any Security Document to pay to
any other person before distributing any such receipts or
recoveries to any of the Secured Parties and/or discharging
any of the Secured Obligations;
(c) all sums which the Administrative Agent
is by Applicable Law required to pay to any person in priority
to the Secured Parties;
(d) (in the case of any proceeds of
insurance), all sums to be applied in accordance with Section
5.20.
"PROJECT" shall have the meaning ascribed thereto in the
recitals hereof, as the same is modified from time to time in accordance with
the terms hereof.
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"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 and (c) all activities related
or incidental to any of the foregoing.
"PROJECT BUDGET" shall mean the budget, substantially in the
form of SCHEDULE 1.1(IV), as it may be amended in accordance with Section 6.9.
"PROJECT COSTS" shall mean all costs and expenses (without
duplication) incurred or to be incurred by the Company or any of its
Subsidiaries in connection with any Project Activity, including:
(a) the Total Contract Price and any other
amounts payable by the Company pursuant to the Construction
Contract;
(b) all costs and expenses payable by the
Company in connection with the performance by it of its
covenants in the Construction Contract;
(c) all costs and expenses payable by the
Company or its Subsidiaries in connection with the Backhaul
Agreements;
(d) the cost of insurance;
(e) program management expenses, selling,
general and administrative expenses, in each case to the
extent set forth in the Project Budget and legal, accounting,
engineering and financing fees and expenses;
(f) interest expense;
(g) other fees and expenses payable by the
Company or any of its Subsidiaries to the Administrative Agent
and the Lenders pursuant to the Financing Documents;
(h) all Taxes;
(i) the cost of establishing an inventory of
spare parts for the Project;
(j) recording and filing fees;
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(k) funding of the Debt Reserve Account and
the other accounts as provided in Section 5.12 to the extent
required; and
(l) all other costs related to any Project
Activities.
"PROJECT DOCUMENTS" shall mean the Shareholders Agreement,
each of the Principal Project Documents, the Consents and each Additional
Contract.
"PROJECT REVENUES" shall, for any applicable period, mean all
revenues received by the Company and its Subsidiaries including, without
limitation, all revenues and proceeds received from (a) sales, leases or other
dispositions of Capacity (whether in respect of direct or indirect sales of
Capacity), (b) the sale, lease, transfer or other disposition of any assets, (c)
any Person in connection with the performance under any Project Document, (d)
joint marketing agreements or joint venture or similar agreements and (e) any
other source (including Operating Payments, but not including Special Payments);
PROVIDED, HOWEVER, that Project Revenues shall not, in any event, include
proceeds of the Construction Funding Facilities.
"PROJECT TIMETABLE" shall mean the project timetable,
substantially in the form of SCHEDULE 1.1(VI), as it may be amended with the
consent of the Independent Engineer to the extent reasonably required to be
consistent with the Plan of Work, and as it may be otherwise amended,
supplemented or modified from time to time in accordance with the terms hereof.
"PROVISIONAL ACCEPTANCE DATE" shall mean any of Provisional
Acceptance Date (Phase 1) or Provisional Acceptance Date (Phase 2).
"PROVISIONAL ACCEPTANCE DATE (PHASE 1)" shall mean the RFPA
for Phase 1.
"PROVISIONAL ACCEPTANCE DATE (PHASE 2)" shall mean the RFPA
for Phase 2.
"PUBLIC DEBT RATING" shall mean, with respect to any Person
and at any time of determination, the lowest rating that has been most recently
announced at such time by either S&P or Moody's, as the case may be, for any
class of long-term senior unsecured debt issued by such Person.
"QUALIFYING BANK" shall mean a commercial bank with an office
for the presentation of drafts and certificates under a letter of credit located
in the City of New York or London whose long term unsecured debt securities are
rated "A" or better by
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S&P and "A2" or better by Moody's (or whose credit is otherwise acceptable to
the Administrative Agent).
"QUALIFYING CAPACITY PURCHASERS" shall mean, at any time of
determination, (i) any Capacity Purchasers with at least a Minimum Credit Rating
at the time of entry into a Capacity Sales Agreement, PROVIDED that if such
Purchaser shall only have a BBB rating from S&P or a Baa2 rating by Moody's,
then such purchaser shall not be on "negative credit watch" of any credit rating
agency at the time of its entry into a Capacity Sales Agreement and (ii) other
Capacity Purchasers, to the extent their payment obligations under their
respective Capacity Sales Agreements are supported by a Pre- Sale Capacity
Agreement Letter of Credit issued or confirmed by a bank which constitutes a
Qualifying Bank at the time of such issuance or confirmation.
"QUALIFYING PRE-SALE CAPACITY COMMITMENTS" shall mean the
Dollar amount of Capacity Commitments under executed Capacity Sales Agreements
entered into with Qualifying Capacity Purchasers no later than the date which is
three (3) years after the Conversion Date; PROVIDED, HOWEVER, that "Qualifying
Pre-Sale Capacity Commitments" shall exclude (i) Capacity Commitments by such
Persons which are used to satisfy the Sponsor Pre-Sale Capacity Commitments and
(ii) any unexercised options to purchase capacity; PROVIDED, FURTHER, that such
Qualifying Pre-Sale Capacity Commitments shall be due and payable within three
(3) years of the Conversion Date.
"QUALIFYING PRE-SALE CAPACITY RECEIVABLES" shall mean the
Dollar amount of Qualifying Pre-Sale Capacity Commitments (including, without
limitation, the Requisite Qualifying Pre-Sales), LESS any amount of cash paid to
the Company to satisfy Qualifying Pre-Sale Capacity Commitments, LESS any amount
of Qualifying Pre-Sale Capacity Commitments (i) deemed uncollectible by the
Company or (ii) that are in excess of 90 days past due (upon which the entire
unpaid portion of the Qualifying Pre- Sale Capacity Commitment (including,
without limitation, the unpaid portion of the Requisite Qualifying Pre-Sales) of
the relevant Capacity Purchaser (to the extent not supported by a Pre-Sale
Capacity Agreement Letter of Credit) shall be deemed uncollectible in accordance
with (i) above).
"RFPA" shall have the meaning ascribed thereto in the
Construction Contract.
"REAL ESTATE ASSET" means any interest in real property
(whether leasehold, fee or freehold, Right-of-Way or otherwise) or any interest
in on or over land of a third party that at any time of determination may be
owned by the Company or any Subsidiary thereof or have been granted to the
Company or any Subsidiary thereof.
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"RECEIVER" shall have the meaning ascribed thereto in the
Subsidiary Debenture and the Company Security Agreement (England).
"REFERENCE LENDER" shall be the reference to Barclays Bank
Plc.
"REGISTER" shall have the meaning ascribed thereto in Section
10.4(c).
"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.
"RELEASE" shall mean any release, burial, disposal, discharge,
emission, injection, spillage, leakage, seepage, leaching, dumping, pumping,
pouring, escaping, emptying or placement.
"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 ss. 2615.
"REQUIRED APPLICABLE ACCEPTANCE DATE" shall mean (a) with
respect to Phase 1, June 30, 2001 and (b) with respect to Phase 2, September 30,
2001.
"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, (b) with respect to the Maintenance
Reserve Account, the Maintenance Reserve Required Balance and (c) with respect
to the Capacity Upgrades Reserve Account, the Capacity Upgrades Reserve Required
Balance.
"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.
"REQUISITE QUALIFYING PRE-SALES" shall mean (a) cash proceeds
under Capacity Sales Agreements received prior to the Conversion Date PLUS (b)
Capacity Commitments
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under executed Capacity Sales Agreements entered into with Requisite Qualifying
Capacity Purchasers no later than the date immediately preceding the date on
which the Company draws Loans resulting in there being in excess of $190,000,000
of Loans outstanding; PROVIDED, HOWEVER, that "Requisite Qualifying Pre-Sales"
shall exclude (i) Capacity Commitments by such Persons which are used to satisfy
the Sponsor Pre-Sale Capacity Commitments and (ii) any unexercised options to
purchase capacity; PROVIDED, FURTHER, that such Requisite Qualifying Pre-Sales
shall be due and payable in full by the Conversion Date.
"REQUISITE QUALIFYING CAPACITY PURCHASERS" shall mean, at any
time of determination, (i) any Capacity Purchasers with at least a Minimum
Credit Rating at the time of entry into a Capacity Sales Agreement, and (ii)
other Capacity Purchasers, to the extent their payment obligations under their
respective Capacity Sales Agreements are supported by a Pre-Sale Capacity
Agreement Letter of Credit issued or confirmed by a bank which constitutes a
Qualifying Bank at the time of such issuance or confirmation.
"RESPONSIBLE OFFICER" shall mean, with respect to any Person,
the Chairman, Chief Financial Officer, President, Treasurer or other authorized
representative of any such Person.
"RESTRICTED PAYMENT" shall mean (i) any dividend or
distribution (whether in cash, securities or other property) with respect to any
shares of any class of Capital Stock of the Company, (ii) 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 Company
or any option, warrant or other right to acquire any such shares of Capital
Stock of the Company and (iii) any payment by the Company to a Related Party of
the Company or either Sponsor under any Project Document to which such Related
Party is also a party.
"REVENUE ACCOUNT" shall mean the special account designated by
that name established by the Administrative Agent 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 Commitment Termination Date.
"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
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Company 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
1.1(II) 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 10.4, in each case as such amount may be adjusted or reduced
from time to time as provided herein.
"REVOLVING CREDIT COMMITMENT TERMINATION DATE" shall mean the
earlier to occur of (a) April 30, 2006 and (b) the date on which the Commitments
shall terminate under the terms of the Financing Documents.
"REVOLVING CREDIT LENDERS" shall mean, to the extent
applicable, 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).
"RIGHTS-OF-WAY" shall mean all easements, rights-of-way and
other similar real property interests and all consents required or reasonably
necessary for access to the premises where the Project is located or any Project
Activity is to be performed, and to allow the Company's cable to cross other
telecommunications cables, pipelines, and the like, to rest or be buried in any
inland waters, territorial waters, continental shelf, contiguous zones,
Exclusive Economic Zones (as defined in the 1982 Convention on the Law of the
Sea) and permissions required to enable the Company's cable to cross any beach
or land and all other construction, installation, siting, environmental and
operating permits and licenses that are required for the performance of the
Project Activities.
"S&P" shall mean Standard & Poor's Ratings Group, a division
of The McGraw Hill Companies, Inc., or any successor thereto.
"SALES AND ISSUANCES PROCEEDS ACCOUNT" shall mean the special
account designated by that name established by the Administrative Agent pursuant
to Article VIII.
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"SCHEDULE OF SOURCES AND USES " shall mean the Schedule of
Sources and Uses as set forth on SCHEDULE 1.1(VII), as amended from time to
time.
"SECURED PARTIES" shall be the collective reference to the
Administrative Agent, the Lenders and the Interest Hedging Counterparties
described in clause (a) of the definition thereof.
"SECURITY AGREEMENTS" shall be the collective reference to the
Company Security Agreement (US), the Company Security Agreement (England), the
Company Security Agreements (France), the Company Security Agreement (Bermuda)
and the Subsidiary Security Agreements.
"SECURITY DOCUMENTS" shall be the collective reference to the
Security Agreements, the Shareholder Pledge Agreement and any other document
pursuant to which a security interest is, or is purported to be, granted to
secure the Obligations.
"SHAREHOLDERS AGREEMENT" shall mean the Agreement, dated as of
October 7, 1999 by and between FLAG Atlantic Holdings and GTS TransAtlantic
Holdings, 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 hereof.
"SHAREHOLDER PLEDGE AGREEMENT" shall mean the Pledge
Agreement, dated as of the Closing Date, substantially in the form of EXHIBIT K,
made by FLAG Atlantic Holdings and GTS TransAtlantic Holdings in favor of the
Administrative Agent, for the benefit of the Secured Parties, as amended,
supplemented or otherwise modified from time to time in accordance with the
terms hereof.
"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.
"SPECIAL PAYMENT ACCOUNT" shall mean the special account
designated by that name established by the Administrative Agent pursuant to
Article VIII.
"SPECIAL PAYMENTS" shall mean (a) all payments made by the
Contractor under the Construction Contract and all other payments made by the
Contractor or Alcatel in respect of any breach or failure by the Contractor to
perform its obligations under the
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Construction Contract, whether as a result of any proceeding, settlement or
otherwise, and (b) all payments made under the Performance Bond.
"SPECIFICATIONS" shall mean the specifications for the Project
set forth in the Construction Contract and those Backhaul Agreements which call
for the delivery, construction and/or installation of any portion of the
Backhaul Element, as amended from time to time.
"SPECIFIED PARTICIPANT" shall be the collective reference to
the Company and at any time prior to the expiration of the Warranty Period,
Alcatel.
"SPONSOR PRE-SALE CAPACITY COMMITMENTS" shall mean the Dollar
amount of Capacity Commitments of each Sponsor (or its Affiliates), which
Capacity Commitments shall be in the aggregate amount of $300,000,000,
consisting of (i) $200,000,000 of Capacity Commitments by GTS TransAtlantic
Holdings and (ii) $100,000,000 of Capacity Commitments by, or arranged by, FLAG
Atlantic Holdings, which Capacity Commitments (under both (i) and (ii) above)
are as set forth on SCHEDULE 1.1(V) describing the contract purchaser, dollar
amount, dates for payment and letter of credit issuer supporting payment (if
any).
"SPONSORS" shall mean each of FLAG Atlantic Holdings and GTS
TransAtlantic Holdings (or any successor thereto or transferee thereof).
"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.
"STM-1" means a 155.520 Mbits per second both way digital line
section between two interfaces on the Project, together with such interfaces, in
accordance with the International Telecommunications Union Telecommunications
Standardization
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Sector (previously known as CCITT) recommendations and shall mean the minimum
unit in which Capacity is disposed of from time to time.
"STOCK OPTION PLAN" shall mean a stock option plan to be
created by the Company for the benefit of certain employees of the Company
and/or any of its Subsidiaries.
"SUBJECT COLLATERAL" shall mean all Collateral a security
interest in which can be perfected by the taking of action in respect of the
United States, Bermuda, England and Wales or France.
"SUBSEA ELEMENT" shall have the meaning ascribed thereto in
Annex 4 of the Shareholders Agreement.
"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 DEBENTURE" shall mean a debenture, substantially
in the form of EXHIBIT E-2, entered into between FLAG Atlantic UK Limited and
the Administrative Agent.
"SUBSIDIARY GUARANTEE AGREEMENT" shall mean the Subsidiary
Guarantee Agreement, substantially in the form of EXHIBIT D, made by each
Subsidiary in favor of the Administrative Agent for the benefit of the Secured
Parties.
"SUBSIDIARY SECURITY AGREEMENTS" shall be the collective
reference to the Subsidiary Debenture and all other security agreements entered
into by any Subsidiary of the Company pursuant to Section 4.1(c) and Section
6.23 (b), as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms hereof.
"SUPPLIES" shall have the meaning ascribed thereto in the
Construction Contract.
"SYNDICATION AGENT" as defined in the preamble hereto.
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"SYSTEM CONFIGURATION" shall mean the configuration of the
Project as described on Annex 4 to the Construction Contract.
"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.
"TECHNICAL REQUIREMENTS" shall have the meaning ascribed
thereto in the Construction Contract.
"TERM LOAN NOTES" shall have the meaning ascribed thereto in
Section 2.7(f).
"TERM LOANS" shall have the meaning ascribed thereto in
Section 2.1(b)(i).
"TOTAL CONTRACT PRICE" shall have the meaning ascribed to the
term "Contract Sum" in the Construction Contract.
"TOTAL UTILIZATION OF REVOLVING CREDIT COMMITMENTS" means, as
at any date of determination, the aggregate principal amount of all outstanding
Revolving Credit Loans.
"TRANSACTION DOCUMENTS" shall be the collective reference to
the Financing Documents and the Project Documents.
"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.
"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.
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"UCC" or "UNIFORM COMMERCIAL CODE" shall mean the Uniform
Commercial Code or any comparable law as in effect in any applicable
jurisdiction.
"U.S." shall mean the United States of America.
"U.S. BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act of
1978, as amended, as the same may be further amended, and any other Applicable
Law with respect to bankruptcy, insolvency or reorganization that is a successor
thereto.
"U.S. BACKHAUL ELEMENT" shall have the meaning ascribed
thereto in Annex 5 of the Shareholders Agreement.
"VAT ACCOUNT" shall mean the special account designated by
that name established by the Collateral Trustee pursuant to Article VIII.
"WARRANTY PERIOD" shall have the meaning ascribed thereto in
the Construction 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.
"YEAR 2000 PROBLEM" shall mean any significant risk that
computer hardware, software or equipment containing embedded microchips
essential to the business or operations of the Company or any of its
Subsidiaries will not, in the case of dates or time periods occurring after
December 31, 1999, function at least as effectively and reliably as in the case
of times and time periods occuring before January 1, 2000, including the making
of accurate leap year calculations.
SECTION 1.2. CLASSIFICATION OF LOANS AND BORROWINGS. For
purposes hereof, 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
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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 Borrowing").
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.
ARTICLE II
COMMITMENTS AND LOANS
SECTION 2.1. COMMITMENTS; CONVERSION DATE.
(a) COMMITMENTS.
(i) Subject to the terms and
conditions set forth herein, each Construction Loan Lender
severally agrees to make construction loans (collectively, the
"CONSTRUCTION LOANS") to the Company from time to time
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during the Construction Loan Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed
such Construction Loan Lender's Construction Loan Commitment
at such time.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Company may borrow, prepay but not reborrow any Construction Loans.
(ii) During the Revolving Credit
Availability Period, subject to the terms and conditions
hereof, each Revolving Credit Lender severally agrees to make
Revolving Credit Loans to the Company in the aggregate amount
up to but not exceeding such Revolving Credit Lender's
Revolving Credit Commitment; PROVIDED, after giving effect to
the making of any Revolving Credit Loans in no event shall the
Total Utilization of Revolving Credit Commitments exceed the
aggregate amount of Revolving Credit Commitments then in
effect. Amounts borrowed pursuant to this Section 2.1(a)(ii)
may be repaid and reborrowed during the Revolving Credit
Commitment Period; PROVIDED, HOWEVER, that any amounts
borrowed and repaid prior to the Conversion Date may only be
reborrowed after the Conversion Date. Each Revolving Credit
Lender's Revolving Credit Commitment shall expire on the
Revolving Credit Commitment Termination Date and all Revolving
Credit Loans and all other amounts owed hereunder with respect
to the Revolving Credit Loans and the Revolving Credit
Commitments shall be paid in full no later than the Final
Maturity Date.
(b) CONVERSION DATE.
(i) Subject to the terms and
conditions set forth herein, on the Conversion Date all
Construction Loans then outstanding shall convert into
outstanding Term Loans (the "TERM LOANS") without any action
required to be taken by the Company, the Administrative Agent,
any Lender or any other Person. On and after the Conversion
Date, all references to each Construction Loan shall be a
reference to a Term Loan and each Lender holding outstanding
Construction Loans on the Conversion Date shall thereafter be
deemed to be holding Term Loans of the same principal amount
as the applicable Construction Loans. Each Term Loan as
converted from a Construction Loan on the Conversion Date
shall be subject to each of the terms and conditions hereof
and of each other Financing Document applicable to Term Loans.
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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 Applicable Percentage of
such 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
Company 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 Company to repay such Loan in accordance with the terms hereof
and shall not increase the cost to the Company 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 Credit Commitments or
the total Construction Loan Commitments, as the case may be. 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 (10) Eurodollar Borrowings
outstanding.
(d) Notwithstanding any other provision
hereof, the Company 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 Final Maturity Date.
SECTION 2.3. REQUESTS FOR BORROWINGS. To request a Borrowing,
the Company shall: (i) in the case of Construction Loans deliver a draft
Borrowing Notice to the Administrative Agent and the Independent Engineer not
later than 11:00 a.m., New York City time, five (5) Business Days prior to a
proposed Borrowing Date and the Independent Engineer shall review and confirm to
the Administrative Agent and the Company, or revise and send back to the
Company, such draft Borrowing Notice not later than 11:00 a.m. New York City
time, four (4) Business Days prior to the proposed Borrowing Date (and any
failure to respond within such time shall be deemed to be a
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confirmation of such draft Borrowing Notice), such review to be based on the
information provided under the Construction Progress Report delivered to the
Independent Engineer in connection with such proposed Borrowing; and (ii)
deliver a Borrowing Notice to the Administrative Agent (a) in the case of a
Eurodollar Borrowing, not later than 11:00 a.m., New York City time, four
Business Days before the proposed Borrowing Date 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 proposed Borrowing Date. Each such Borrowing Notice shall be
irrevocable. Each such Borrowing Notice shall specify the following information
in compliance with Section 2.2:
(a) whether the requested Borrowing is to be
a Revolving Credit Borrowing and/or a Construction Loan Borrowing;
(b) the aggregate amount of each requested
Borrowing;
(c) the Borrowing Date of such Borrowing;
(d) whether each such Borrowing is to be an
ABR Borrowing or a Eurodollar Borrowing; and
(e) in the case of any Eurodollar Borrowing,
the initial Interest Period to be applicable thereto.
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 Company shall be
deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Borrowing Notice 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
its Applicable Percentage of the Loans to be made 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 Lenders. The Administrative Agent will
make such Loans available to the Company by (i) with respect to Construction
Loans made on the Closing Date or any Revolving Loans, promptly distributing the
amounts so received, in like funds, in accordance with the instructions set
forth in the related Borrowing Notice, PROVIDED such
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instructions are (in the case of such Construction Loans) consistent with the
Schedule of Sources and Uses, and (ii) with respect to all other Construction
Loans, promptly crediting the amounts so received, in like funds, to the Debt
Proceeds 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 Applicable Percentage of such Borrowing, the Administrative Agent may
assume that such Lender has made such Applicable Percentage available on such
date in accordance with paragraph (a) of this Section 2.4 and may, in reliance
upon such assumption, make available to the Company 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 Company 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 Company 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 Company, 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 Notice. Thereafter,
the Company 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 or as otherwise
provided in Section 2.3. The Company 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 Company shall notify the Administrative Agent of such election by
delivering a Continuation/Conversion Notice to the Administrative Agent by the
time that a Borrowing Notice would be required under Section 2.3 if the Company
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.
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(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.
If any such Continuation/Conversion Notice requests a Eurodollar Borrowing but
does not specify an Interest Period, then the Company 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 Company 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 Company 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 Company, then, so long as such Event of Default is continuing, if the
Company wishes to continue any 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
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restriction that it shall have the duration of either one, two, three or six
months or seven (7) days.
SECTION 2.6. TERMINATION AND REDUCTION OF COMMITMENTS. (a)
Unless previously terminated, (i) the Construction Loan Commitments shall
terminate on the Construction Loan Commitment Termination Date, and (ii) the
Revolving Credit Commitments shall terminate on the Revolving Credit Commitment
Termination Date.
(b) (i) The Company shall
notify the Administrative Agent of any election to terminate or reduce the
Commitments under paragraph (c) of this Section at least three (3) Business Days
prior to the effective date of such termination or reduction, specifying such
election and the effective date thereof.
(ii) The Company shall pay
Project Costs first with the cash proceeds from sales of
Capacity. The Company shall notify the Administrative Agent of
any election to pay Project Costs with any funds other than
those available under the Loans, the Sponsor Pre-Sale Capacity
Commitments and the Equity Contribution Agreements. The
Construction Loan Commitments shall automatically be reduced
by an amount equal to the amount of Project Costs being paid
with such funds, other than the portion thereof attributable
to Sponsor Pre-Sale Capacity Commitments.
(iii) Promptly following
receipt of any notice under clause (i) or (ii), the
Administrative Agent shall advise each applicable Lender of
the contents thereof and the resulting Construction Loan
Commitment amount (which amounts shall be determined as of
such date of reduction in the manner specified in Section
2.2(a)). Each notice delivered by the Company pursuant to this
Section shall be irrevocable. Any termination or reduction of
any Commitment shall be permanent. Each reduction of any
Commitment shall be made ratably among the applicable Lenders
in accordance with their respective Commitments.
(c) The Company may at any time terminate,
or from time to time reduce, either or both the Revolving Credit Commitments and
the Construction Loan Commitments; PROVIDED that each reduction of the
Commitments shall be in an amount that is an integral multiple of $1,000,000.
SECTION 2.7. REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The
Company hereby unconditionally promises to pay to the Administrative Agent for
the account of
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each Revolving Credit Lender, the then unpaid principal amount of each Revolving
Credit Loan of such Revolving Credit Lender on the Final Maturity Date (together
with accrued interest thereon).
(b) The Company 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 as set forth in
SCHEDULE 1.1(III) under the heading "AMORTIZATION". To the extent not previously
paid, all Term Loans shall be due and payable on the Final 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 Company 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 10.4(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 Company 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 Company to repay the Loans in
accordance with the terms hereof.
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(f) The Company agrees that, upon the
request by the Administrative Agent on behalf of any Lender, the Company will
execute and deliver to such Lender, as applicable:
(i) a promissory note of
the Company payable to such Lender and its registered assigns
evidencing the Revolving Credit Loans of such Lender and
substantially in the form of EXHIBIT N-1 with appropriate
insertions as to date and principal amount (each, a "REVOLVING
CREDIT NOTE");
(ii) prior to the
Conversion Date, a promissory note of the Company payable to
such Lender and its registered assigns evidencing the
Construction Loans of such Lender and substantially in the
form of EXHIBIT N-2 with appropriate insertions as to date and
principal amount (each, a "CONSTRUCTION LOAN NOTE"); and
(iii) on and after the
Conversion Date, and in exchange for the return to the Company
of the corresponding Construction Loan Note(s) (if any) marked
"canceled" by each Lender who holds such note, a promissory
note of the Company payable to such Lender and its registered
assigns evidencing the Term Loans of such Lender and
substantially in the form of EXHIBIT N-3, as applicable, with
appropriate insertions as to date and principal amount (each,
a "TERM LOAN NOTE").
Thereafter, the Loans evidenced by any such Note and interest thereon shall at
all times (including after assignment pursuant to Section 10.4) be represented
by one or more Notes payable to 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 10.4 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 Company 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.
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SECTION 2.8. OPTIONAL PREPAYMENTS OF LOANS. (a) The Company
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
Company after the application of clauses "first" through "eighth" of Section
8.12(b)) subject to prior notice in accordance with paragraph (b) of this
Section and subject to the provisions of Section 2.14.
(b) The Company shall notify the
Administrative Agent in writing of any optional prepayment hereunder, not later
than 11:00 a.m., New York City time, five (5) 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 Construction Loans,
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
$1,000,000 and integral multiples of $1,000,000 in excess thereof or, if less,
the Applicable Percentage 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 Construction Loans or
the Term Loans may not be reborrowed.
(c) Optional prepayments shall be applied to
the remaining installments of the Loans in direct order of maturity.
SECTION 2.9. MANDATORY PREPAYMENTS. (a) The Company shall
prepay the Construction Loans with funds available in the Pre-Sale Proceeds
Account in accordance with the terms of Section 8.8.
(b) The Company shall prepay the Loans on
each Principal Payment Date in accordance with the terms of Section 8.12(b).
(c) The Company shall prepay the Loans
immediately (except as provided in Sections 2.9(a) and 2.9(b)) 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 Company or
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a Sponsor; PROVIDED, HOWEVER, so long as no Default, Event of
Default or Designated Event shall have occurred and be
continuing or may occur as a result of such issuance, (y) such
Sponsor shall be permitted to invest the Net Cash Proceeds of
its own issuance in other joint ventures or projects of such
Sponsor or (z) such Sponsor may apply the Net Cash Proceeds of
its own issuance to the collateralization, replacement,
refinancing or repayment (in whole or in part) of any
financing provided to support the payment of such Sponsor's
Cash Equity Contribution commitment; PROVIDED, FURTHER, such
Net Cash Proceeds must be committed in accordance with either
clause (y) or (z) above within six months upon receipt and
must be invested in accordance with clause (y) or (z) above
within twelve months. (For the avoidance of doubt in no event
shall less than 50% of Net Cash Proceeds of an issuance of
Capital Stock of the Company be 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 Company or
by any Subsidiary of the Company in accordance with Section
6.1(h);
(iii) by an amount equal
to 100% of the Net Cash Proceeds of any sale, transfer or
other disposition of any asset of the Company or any
Subsidiary thereof (other than sales, transfers or
dispositions of Capacity (excluding (i) sales resulting from
the exercise by FLAG Atlantic Holdings under the Shareholders
Agreement of any option to acquire capacity in the Project and
(ii) notwithstanding anything to the contrary herein, after
the Conversion Date Net Cash Proceeds received from sales of
Capacity constituting the sale of fiber pairs of the Project
(including, without limitation, the Net Cash Proceeds from
fiber pair sales made before the Conversion Date)) 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 Company); PROVIDED, HOWEVER, that the
Company 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 same value, utility and useful
life.
(d) If an Event of Loss shall occur, unless
the affected portion of the Project is being repaired, replaced or restored in
accordance with Section 5.20, the Company 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,
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prepay the Loans in an amount equal to the insurance, condemnation and/or
expropriation proceeds received (net of any costs of collection (including
attorneys fees)).
(e) The Company 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
(net of any costs of collection (including attorneys' fees)) shall be used to
prepay the Loans in accordance with Section 8.18; PROVIDED, HOWEVER, that if and
to the extent that such payments are being utilized to repair, replace or
restore any affected portion of the Project in accordance with Section 5.20 (b),
the Company shall not be required to prepay the Loans with the proceeds of such
Special Payments being so utilized.
(g) The Company shall from time to time
prepay Construction Loans to the extent necessary so that the aggregate
principal amount of outstanding Construction Loans shall not at any time exceed
an amount equal to the aggregate amount of Construction Loan Commitments then in
effect.
(h) The Company shall from time to time
prepay Revolving Credit Loans to the extent necessary so that the aggregate
principal amount of outstanding Revolving Credit Loans shall not at any time
exceed the Revolving Credit Commitments then in effect.
(i) Mandatory prepayments shall be
accompanied by accrued interest.
(j) Mandatory prepayments of the Loans
pursuant to paragraphs (a), (b), (c), (d), (e) and (f) above shall be applied
FIRST, to the mandatory prepayment of the Construction Loans or Term Loans, as
the case may be, 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 Construction Loans or Term Loans, as the
case may be, shall be applied, 50% in direct order of maturity and 50% in
inverse order of maturity of all scheduled payments; PROVIDED, HOWEVER, that no
Event of Default shall have occurred and be continuing and otherwise in inverse
order of maturity of such scheduled payments.
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(k) Upon being required to make a mandatory
prepayment pursuant to this Section, the Company shall have the right first, to
prepay the ABR Loans and any and all Eurodollar Loans having Interest Period(s)
ending on the date such prepayment is required.
SECTION 2.10. FEES. (a) During the Construction Loan
Commitment Period, the Company agrees to pay to the Administrative Agent, for
the account of the Construction Loan Lenders, a commitment fee, calculated in
accordance with part II of SCHEDULE 1.1(VIII).
(b) During the Revolving Credit Availability
Period, if applicable, the Company agrees to pay to the Administrative Agent,
for the account of the Revolving Credit Lenders, a commitment fee calculated in
accordance with PART II OF SCHEDULE 1.1(VIII).
(c) Accrued commitment fees shall be payable
in arrears on the last day of each of January, April, July and October (and,
with respect to the commitment fees payable in respect of any Commitment being
terminated or reduced, on the date of such termination or reduction) commencing
on the Closing Date (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 three hundred sixty (360) days and shall be payable for
the actual number of days elapsed (including the first day but excluding the
last day). Upon payment by the Company of the foregoing fees, the Administrative
Agent shall promptly distribute to each Construction Loan Lender or Revolving
Credit Lender, as the case may be, its Applicable Percentage thereof.
(d) The Company 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 Final Maturity Date, and on the Final Maturity
Date, all as set forth in the Fee Letter.
(e) 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 relevant 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.
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(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.
(c) Notwithstanding the foregoing, if any
principal of or interest on any Loan or any fee or other amount payable by the
Company 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 Final Maturity Date.
(e) All interest hereunder shall be computed
on the basis of a year of three hundred sixty (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
three hundred sixty five (365) days (or three hundred sixty six (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 hereof 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
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(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;
then the Administrative Agent shall give notice thereof to the Company and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Company 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 Notice requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
(b) Notwithstanding any other provision
hereof to the contrary, if on or after the date hereof 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 Company 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;
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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 Company 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 hereof 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 Company 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
Company (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 Company (with a copy to the Administrative Agent). The
Company shall pay such Lender the amount shown as due within ten (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
Company 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 Company 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.
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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 definitive Borrowing Notice, Continuation/ Conversion Notice or
prepayment notice delivered pursuant hereto, then, in any such event, the
Company 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 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 Company (with a copy to the Administrative Agent) and shall be conclusive
absent manifest error. The Company shall pay such Lender the amount shown as due
within ten (10) days after receipt thereof.
SECTION 2.15. TAXES. (a) Any and all payments by or on account
of any obligation of the Company hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if the
Company 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 Company shall make such deductions
and (iii) the Company shall pay the full amount deducted to the relevant
Governmental Authority in accordance with Applicable Law.
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(b) In addition, the Company shall pay any
Other Taxes to the relevant Governmental Authority in accordance with Applicable
Law.
(c) The Company shall indemnify the
Administrative Agent and each Lender, within ten (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 Company 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 Company to a Governmental
Authority, the Company 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 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 Company (with
a copy to the Administrative Agent), at the time or times reasonably requested
by the Company, 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; ETC. (a) The Company 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
11:00 a.m., New York City time, on the date when due, in immediately available
funds, without set-off or counterclaim..
(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,
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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 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 Company pursuant to
and in accordance with the express terms hereof 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 Company, any
Sponsor or any Affiliate thereof (as to which the provisions of this paragraph
shall apply). The Company 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
Company rights of set-off and counterclaim with respect to such participation as
fully as if such Lender were a direct creditor of the Company in the amount of
such participation.
(d) Unless the Administrative Agent shall
have received notice from the Company prior to the date on which any payment is
due to the Administrative Agent for the account of the Lenders hereunder that
the Company will not make such payment, the Administrative Agent may assume that
the Company 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 Company 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
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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 Company of its intent to apply Section 2.12(b)
and/or requests compensation under Section 2.13, or if the Company 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 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 Company 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 Company 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 Company 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 (i) the Company may require such Lender to
assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 10.4), 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 Company 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
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(to the extent of such outstanding principal and accrued interest and fees) or
the Company (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 Company, 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, the Company may prepay such Lender's Loans in full out of
funds made available to the Company for its sole benefit after the application
of clauses "first" through "ninth" of Section 8.12(b) or out of funds available
in the Company's 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 Company to require such assignment
and delegation cease to apply.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Administrative
Agent and the Lenders that:
SECTION 3.1. FINANCIAL CONDITION. Except for material
Contractual Obligations disclosed on SCHEDULE 3.19(B), the Company, as of the
Closing Date, shall have no other material liabilities.
SECTION 3.2. NO MATERIAL ADVERSE EFFECT. Since March 31, 1999,
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 Company and its Subsidiaries 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
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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 establishment of
the Company 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 Company
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 the Company has
no material obligations or liabilities (contingent or otherwise) other than
those directly related to the conduct of such business and relating to
agreements that are disclosed on SCHEDULE 3.19(B).
SECTION 3.4. COMPLIANCE WITH LAW. Each of the Company 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 Company 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 each of 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 provided for in the Security Documents to which it is a
party.
(b) Each of the Company and its Subsidiaries
has taken all necessary corporate and legal action to authorize the borrowings
by the Company 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 hereof and of the other
Transaction Documents to which it is a party and each other document to be
executed in connection herewith.
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(c) Each of this Agreement and the other
Financing Documents to which the Company is a party has been duly executed and
delivered by the Company and constitutes, and each of the other Financing
Documents to which the Company or any of its Subsidiaries is to become a party
will, upon execution and delivery thereof by the Company or such Subsidiary, as
the case may be, and the other parties thereto (if any), constitute, a legal,
valid and binding obligation of the Company or such Subsidiary enforceable
against the Company or such Subsidiary, as applicable, in accordance with its
terms, except as enforceability may be limited by Applicable Laws, 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 Company is a party has been duly executed and delivered by the Company and
the Company 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
Company enforceable against the Company in accordance with its terms and the
Company 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. CAPITAL AND CORPORATE STRUCTURE. Immediately
prior to giving effect to the transactions contemplated hereby, the capital
structure of the Company is as set forth in SCHEDULE 3.6. Except as set forth in
SCHEDULE 3.6, as of the Closing Date, the Company does not have any Subsidiaries
and does not hold beneficially or otherwise any ownership interest in any other
Person.
SECTION 3.7. GOVERNMENTAL ACTIONS, PERMITS, ETC. (a) No
Governmental Actions, Rights-of-Way or other consents or approvals are required
by the Company, its Subsidiaries or, to the best knowledge of the Company, the
Contractor under Applicable Law, in connection with (i) the participation by the
Company and its Subsidiaries in the transactions contemplated by this Agreement
and the other Transaction Documents, (ii) the ownership and operation of the
Project by the Company and its Subsidiaries, the performance by the Company and
its Subsidiaries of any Project Activity or the use by the Company and its
Subsidiaries of the Project (including, without limitation, the sale, lease or
other disposition of Capacity) in accordance with
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the applicable provisions of the Transaction Documents and in compliance with
all Applicable Laws, (iii) the validity and enforceability of the Transaction
Documents against the Company and its Subsidiaries and (iv) the execution,
delivery and performance of the Financing Documents by the Company and its
Subsidiaries, the borrowings by the Company hereunder and the grant by the
Company and its Subsidiaries of the Liens created pursuant to the Security
Documents to which the Company or any of its Subsidiaries is a party and the
validity and enforceability thereof and the perfection of and the exercise by
the Administrative Agent of its rights and remedies thereunder, except in each
case for those Governmental Actions, Rights-of-Way and consents or approvals (x)
which have been duly obtained or made, are in full force and effect and are
final (y) 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 or (z) where
the failure 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 Company's knowledge
as of the Closing Date, SCHEDULE 3.7(B) sets forth all the material Governmental
Actions and material Rights-of- Way that are required to be obtained pursuant to
any Project Document or Applicable Law in connection with the performance by the
Company and its Subsidiaries of the construction and operation of the Project
(including, without limitation, the sale, lease or other disposition of
Capacity).
SECTION 3.8. NO LEGAL BAR. (a) The execution, delivery and
performance by the Company and its Subsidiaries hereof and the other Financing
Documents to which it is a party, the borrowings by the Company hereunder and
the use of the proceeds thereof, the granting of the Liens by the Company and
its Subsidiaries under the Security Documents and the consummation of 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 Contractual Obligation of the Company or any Subsidiary thereof (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 the Company, its Subsidiaries
or the Project, except for Permitted Liens.
(b) The execution, delivery and performance
by the Company 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 Company or such
Subsidiary, except for any violation,
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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 Company, 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 Company's knowledge, threatened against or affecting the
Company or any of its Subsidiaries or against or affecting any of the
properties, rights, revenues or assets of the Company 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 Company and its Subsidiaries 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 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 Company to the
Administrative Agent pursuant to Section 5.20(a)).
(b) Neither the Company nor any of its
Subsidiaries is and, to the best of the Company'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 so long as such default could not
reasonably be expected to have a Material Adverse Effect) 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 Company 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 Company and its Subsidiaries
have good and valid title to (or, if applicable, valid leasehold interests or
rights of use in) the Collateral
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(owned as of such date), 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 Company are free
and clear of all Liens other than Permitted Liens. As of the Closing Date,
SCHEDULE 3.11(A) contains a true, accurate and complete list of (i) all Real
Estate Assets, and (ii) all leases, subleases or assignments of leases (together
with all amendments, modifications, supplements, renewals or extensions of any
thereof) affecting each Real Estate Asset of the Company or any Subsidiary
thereof, regardless of whether the Company or such Subsidiary is the landlord or
tenant (whether directly or as an assignee or successor in interest) under such
lease, sublease or assignment. As of the Closing Date except as specified in
SCHEDULE 3.11(A), each agreement listed in clause (ii) of the immediately
preceding sentence is in full force and effect and the Company does not have
knowledge of any default that has occurred and is continuing thereunder that
could reasonably be expected to have a Material Adverse Effect, and each such
agreement constitutes the legal, valid and binding obligation of the Company or
such Subsidiary, as applicable, enforceable against such party 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 equitable
principles (whether considered in a proceeding in equity or law) and an implied
covenant of good faith and fair dealing.
(b) All filings, recordings and other
actions, including, without limitation, the recordings, filings and other
actions shown on SCHEDULE 3.11(B), that are necessary or, in the judgment of the
Administrative Agent as applicable, desirable in order to establish, protect and
perfect the Administrative Agent's as applicable, lien on and perfected security
interest in, and the First Priority (as defined in SCHEDULE 5.26) status
thereof, all right, title, estate and interest of the Company and its
Subsidiaries, or the Sponsors, as the case may be, in and to the Collateral,
have been duly made or taken and all fees, taxes and other charges relating to
such filings and recordings and other actions have been paid in full. The
provisions of the Security Documents (together with such recordings, filings and
actions) are effective to create, in favor of the Administrative Agent as
applicable, 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 Administrative Agent as applicable, has a legal,
valid and enforceable first lien on and prior perfected security interest in all
of the Subject Collateral (subject to exceptions as may be provided under
Applicable Law and in such schedule).
(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
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Company to repurchase, redeem or otherwise acquire any Capital Stock (or any
security convertible into or exchangeable for the same) of the Company from
either Sponsor.
SECTION 3.12. TAXES. (a) Neither the Company, any of its
Subsidiaries (except for any of its Subsidiaries incorporated in France), the
Project nor any of their respective assets or revenues (including any Capacity
Commitments and Operating Payments) is subject to any Tax in any jurisdiction,
except for Taxes (other than value-added taxes relating to the sale of Capacity)
in an aggregate amount, for the Company or such Subsidiary, for any Operating
Year not exceeding 105% of the amount allocated for Taxes in respect of 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 Company 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 Company 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.
SECTION 3.13. FEDERAL REGULATIONS. Neither the Company 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 T, 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.
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SECTION 3.15. INVESTMENT COMPANY ACT. Neither the Company nor
any of its 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 Administrative Agent or any Lender
directly or indirectly by the Company 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 inlight of the
circumstances under which such information was (or is) provided. All such
factual information (taken as a whole) shall 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 Company'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
Company is located at 69 Front Street, Hamilton HM 12, Bermuda and such
principal place of business shall not be changed without the prior written
consent of the Administrative Agent.
SECTION 3.18. INTELLECTUAL PROPERTY. (a) Each of the Company
and its Subsidiaries (x) owns, or has valid licenses to use, all Intellectual
Property necessary for the conduct of its business as currently conducted and
(y) as and when required, will own, or will have valid licenses to use, all
further Intellectual Property that will be necessary for the conduct of its
business as proposed to be conducted in the future, in each case that are
material to the condition (financial or other), business, or operations of the
Company, its Subsidiaries or the Project.
(b) No claim has been asserted and is pending by any
Person withrespect to the use of any such Intellectual Property in connection
with the Project or the conduct of the business of the Company or any of its
Subsidiaries, or, to the Company's best knowledge, challenging or questioning
the validity or enforceability 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 Company or such Subsidiary,
as applicable, reasonably be expected to have a Material Adverse Effect) and
neither the Company nor any of its Subsidiaries knows of any valid basis for any
such claim.
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(c) As of the Closing Date, and to the Company's best
knowledge as of any date after the Closing Date on which representations and
warranties are made or deemed made under this Agreement, the use or contemplated
use of any such Intellectual Property by the Company and any of its Subsidiaries
does not infringe the rights of any Person except for any infringement which
individually, or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
SECTION 3.19. SUFFICIENCY OF PROJECT DOCUMENTS. (a) Other than
such services, materials, property interests, license agreements and other
rights that the Company 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 Company 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 Company 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 Company and its
Subsidiaries or, to the best of the Company's knowledge, any other Person (in
either case, as of the Closing Date) which could have a Material Adverse Effect
on the validity, perfection, priority, or enforceability of the Collateral owned
as of the Closing Date or on the availability of the remedies of 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 Company, its
Subsidiaries, any property owned or operated by the Company 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 5.10 are in full force
and effect and all premiums with respect thereto have been paid in full.
SECTION 3.22. IMMUNITY. Neither the Company nor any of its
Subsidiaries is entitled to claim for itself, any of its assets or the Project
(or any portion thereof)
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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 Company or any of its Subsidiaries is a party.
SECTION 3.23. FOREIGN CORRUPT PRACTICES ACT. Neither the
Company 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 Company, 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 paid (or will, as and when required, have been 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 hereof or of any of the other Transaction Documents.
SECTION 3.25. ENFORCEMENT; PERFORMANCE. It is not necessary
solely (a) in order to execute or enforce any rights in Bermuda under this
Agreement or under any other Financing Document to which the Company is a party
or (b) by reason of the entry into or performance hereof or of any other
Financing Document to which the Company is a party, that the Administrative
Agent or any Lender be licensed, qualified or entitled to do business in
Bermuda.
SECTION 3.26. DISPUTES. As of the Closing Date, (a) there are
no material disputes between the Company and the Contractor with respect to
amounts owing under the Construction Contract, and (b) there are no disputes
between the Company and the Contractor with respect to the performance of any
obligations under the Construction Contract or otherwise, except those that have
been disclosed to the Independent Engineer.
SECTION 3.27. INDEBTEDNESS. Except pursuant to the Financing
Documents, the Company has not incurred any Indebtedness other than Indebtedness
permitted pursuant to Section 6.1.
SECTION 3.28. OTHER ACTS. All acts, conditions and things
required to be done, fulfilled and performed by the Company as of the Closing
Date and as of each date this representation and warranty is made or deemed made
in order to (a) enable the Company to lawfully enter into or exercise its rights
and perform its obligations under the
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Financing Documents and Project Documents, (b) ensure that the Company's
obligations under the Financing Documents and the Project Documents are legal,
valid and binding and (c) make the Financing Documents and the Project Documents
enforceable, have been done, fulfilled and performed.
SECTION 3.29. PROJECT COSTS. The Project Costs (and other
costs) set forth in the Project Budget reflect the Company's best estimates of
all Project Costs and other costs necessary for the design, development,
engineering, acquisition, installation,landing, construction, completion,
start-up, testing, ownership, possession and financing of the Project.
SECTION 3.30. SUBMISSION TO JURISDICTION. The Company has
validly submitted to the jurisdiction of the Courts of the State of New York and
the Federal Courts for the Southern District of New York.
SECTION 3.31. YEAR 2000. The Company has reviewed, or will
expeditiously review, its operations and those of its Subsidiaries with a view
to assessing whether its businesses, or the businesses of any of its
Subsidiaries, will be vulnerable to a Year 2000 problem or will be vulnerable to
the effects of a Year 2000 Problem suffered by any of the Company's or any of
its Subsidiaries' major commercial counter-parties. The Company shall take all
actions necessary and commit adequate resources to assure that its
computer-based and other systems (and those of all Subsidiaries) are able to
effectively process data, including dates before, on and after January 1, 2000,
without experiencing any Year 2000 Problem that could cause a Material Adverse
Effect. At the request of the Administrative Agent, the Company will provide the
Administrative Agent with assurances and substantiations (including, but not
limited to, the results of internal or external audit reports prepared in the
ordinary course of business) reasonably acceptable to the Administrative Agent
as to the capability of the Company and its Subsidiaries to conduct its and
their businesses and operations before, on and after January 1, 2000 without
experiencing a Year 2000 Problem causing a Material Adverse Effect. The Company
represents and warrants that it has a reasonable basis to believe that no Year
2000 Problem will cause a Material Adverse Effect.
SECTION 3.32. REPRESENTATIONS AND WARRANTIES. All
representations and warranties of the Company and its Subsidiaries and, to the
Company's knowledge (after due inquiry), the Sponsors, contained in the Project
Documents are true and correct in all material respects. All representations and
warranties of the Company and its Subsidiaries and to the Company's knowledge
(after due inquiry), the Sponsors, contained in the Security Documents are true
and correct in all material respects.
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ARTICLE IV
CONDITIONS
SECTION 4.1. CLOSING DATE. The occurrence of the Closing Date,
and the obligation of each Lender to make available Loans on the Closing Date
or, if no Loans are made thereon, after the Closing Date, shall, in each case,
be subject to the fulfillment of, or waiver in its sole discretion by, each
Lender, of each of the following conditions precedent, together with the other
applicable conditions set forth in Sections 4.2 and 4.3:
(a) NOTES. The Company shall have duly issued,
executed and delivered, upon written request, to (i) each Construction Loan
Lender, a Construction Loan Note, dated the Closing Date, with appropriate
insertions and in a principal amount equal to such Lender's Construction Loan
Commitment and (ii) each Revolving Credit Lender, a Revolving Credit Note, dated
the Closing Date, with appropriate insertions and in a principal amount equal to
such Lender's Revolving Credit Commitment.
(b) LETTERS OF CREDIT; PERFORMANCE BOND. The
Administrative Agent shall have received each Equity Contribution Letter of
Credit and the Performance Bond, together with such amendments thereto as the
Administrative Agent shall have requested.
(c) FINANCING DOCUMENTS. The Administrative Agent
shall have received, with a counterpart for each Lender, each of the following
documents, each duly executed and delivered by each of the parties thereto:
(i) this Agreement;
(ii) each Equity Contribution Agreement;
(iii) each Security Agreement, together
with (A) the stock certificates representing all of the Capital Stock
of the Subsidiaries of the Company, except for FLAG France S.A.R.L.,
(B) undated stock powers for each stock certificate representing such
Capital Stock, executed in blank and delivered by a duly authorized
officer of the Company and (C) undated transfer certificates for each
stock certificate representing such Capital Stock, executed in blank
and delivered by a duly authorized officer of the Company;
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(iv) the Shareholder Pledge Agreement,
together with (A) the stock certificates representing all of the
Capital Stock of the Company owned by the applicable Sponsor, (B)
undated stock powers for each stock certificate representing such
Capital Stock, executed in blank and delivered by a duly authorized
officer of such Sponsor and (C) undated transfer certificates for each
stock certificate representing such Capital Stock, executed in blank
and delivered by a duly authorized officer of such Sponsor;
(v) the Subsidiary Guarantee
Agreements;
(vi) the Limited Guarantee Agreements;
(vii) the Notes; and
(viii) the Consents.
(d) PROJECT DOCUMENTS. The Administrative Agent shall
have received, with a counterpart for each Lender, a true and complete copy of
each of the following documents, duly certified by a Responsible Officer of the
Company as such on the Closing Date, and each in form and substance reasonably
satisfactory to the Administrative Agent:
(i) the Construction Contract, together
with each amendment and contract variation thereto;
(ii) the Backhaul Agreements which have
been executed prior to the Closing Date;
(iii) the Construction Management
Agreements, together with any amendment thereto;
(iv) each Capacity Sales Agreement
executed by the Company as of the Closing Date, together with each
original Pre-Sales Capacity Agreement Letter of Credit, if applicable;
(v) the Facilities Management
Agreement;
(vi) the Marketing Agreement; and
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(vii) the Shareholders Agreement.
(e) LEGAL OPINIONS. The Administrative Agent shall
have received, with a counterpart for each Lender, the following opinions of
counsel, dated the Closing Date, each in form and substance satisfactory to the
Administrative Agent and addressed to each of the Secured Parties:
(i) the legal opinions of Bermuda
counsel to the Company and the Sponsors, substantially in the forms of
EXHIBIT O-1;
(ii) the legal opinion of New York
counsel to the Company and the Sponsors, substantially in the form of
EXHIBIT O-2;
(iii) the legal opinion of French counsel
to Alcatel and the Contractor, substantially in the form of EXHIBIT
O-3;
(iv) the legal opinion of New York
counsel to the Administrative Agent and the Lenders, substantially in
the form of EXHIBIT O-4;
(v) the legal opinion of English
counsel to the Lenders, the Administrative Agent substantially in the
form of EXHIBIT O-5; and
(vi) the legal opinion of French counsel
to the Lenders and the Administrative Agent, substantially in the form
of EXHIBIT O-6.
(f) INDEPENDENT ENGINEER'S REPORT. The Administrative
Agent shall have received, with a copy for each Lender, a report of the
Independent Engineer, in form and substance satisfactory to the Administrative
Agent.
(g) MARKET CONSULTANT'S REPORT. The Administrative
Agent shall have received, with a copy for each Lender, a report of the Market
Consultant (setting forth, without limitation, projection of revenues of the
Project), in form and substance satisfactory to the Administrative Agent.
(h) INSURANCE ADVISOR'S REPORT. The Administrative
Agent shall have received, with a copy for each Lender (i) a report of the
Insurance Advisor, dated as of the Closing Date, in form and substance
satisfactory to the Administrative Agent and (ii) a certificate of the Insurance
Advisor, setting forth the types and amounts of insurance obtained by the
Contractor and the risks covered thereby.
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(i) PROJECT TIMETABLE; PLAN OF WORK. The
Administrative Agent shall have received from the Company, with a copy for each
Lender, (i) a true and complete copy of the Project Timetable, in form and
substance satisfactory to the Administrative Agent (after consultation with the
Independent Engineer), and (ii) a true and complete copy of the Plan of Work,
each duly certified by a Responsible Officer of the Company as such as of the
Closing Date.
(j) PROJECT BUDGET. The Administrative Agent shall
have received from the Company, with a copy for each Lender, the Project Budget,
in form and substance satisfactory to each Lender, which sets forth all
anticipated costs to be incurred in connection with the construction and
start-up of the Project, including, without limitation, all construction and
non-construction costs, and all interest, taxes and other carrying costs, and
such other information as the Administrative Agent may reasonably request. The
Project Budget will contain an appropriate number of Budget Categories and will
detail (i) the Budget Category Amount for each Budget Category, and (ii) the
expenditures to date in each Budget Category, and such other information as the
Administrative Agent may reasonably require, together with a balanced statement
of uses and sources of proceeds, broken down as to separate construction phases
and components.
(k) SUFFICIENCY OF FUNDING. The Administrative Agent
shall be satisfied that the Cash Equity Contributions, together with amounts
available under the other Construction Funding Facilities, shall be sufficient
to pay all Project Costs set forth in the Project Budget.
(l) SPONSOR PRE-SALE CAPACITY COMMITMENTS. The
Capacity Sales Agreements relating to the Sponsor Pre-Sale Capacity Commitments
shall be in effect, and the Administrative Agent shall have received a copy of
each such Capacity Sales Agreement and each Pre-Sale Capacity Agreement Letter
of Credit relating thereto (including, without limitation, the Pre-Sale
Agreement Letter of Credit relating to the GTS Sponsor Pre-Sale Capacity
Commitment).
(m) DUE AUTHORIZATION. EXECUTION AND DELIVERY. Each
of the Transaction Documents contemplated to be executed on or prior to the
Closing Date shall have been duly authorized, executed and delivered by the
respective parties thereto and shall be in full force and effect on the Closing
Date (and all conditions precedent to the effectiveness thereof set forth
therein shall have been duly satisfied) without any event or condition having
occurred or existing that constitutes or, with the giving of notice or lapse of
time or both, would constitute a default thereunder or a breach thereof
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or would give any party thereto the right to terminate any thereof, and the
Administrative Agent shall have received evidence as to such authorization,
execution and delivery.
(n) RECORDATION AND FILING. Each of the documents and
instruments identified on SCHEDULE 3.11(B) shall have been recorded or filed in
the respective places or offices set forth in SCHEDULE 3.11(B), and all
recording and filing fees with respect thereto shall have been paid.
(o) TAXES. All Taxes, if any, payable or
indemnifiable by the Company on or prior to the Closing Date in connection with
the execution, delivery, performance, recording and filing of the Transaction
Documents and the 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. The Administrative
Agent shall be satisfied (based on discussions with the Independent Engineer)
that adequate provision has been made in the Project Budget and the Operating
Budget for the payment of all Taxes payable or indemnifiable by the Company
arising out of the importation, ownership, use or operation of the Project or
any portion thereof within the jurisdictional limits of each Subsidiary.
(p) REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by the Company, each Sponsor and the
Contractor (i) in this Agreement, in any other Financing Document and in the
Construction Contract shall be true and correct in all respects on and as of the
Closing Date as if made on and as of the Closing Date and (ii) in any other
Project Document shall be true and correct in all material respects on and as of
the Closing Date as if made on and as of the Closing Date.
(q) 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 any of the transactions
contemplated hereby or by the other Transaction Documents.
(r) ORGANIZATIONAL DOCUMENTS; RESOLUTIONS;
INCUMBENCY. The Administrative Agent shall have received from each following
Person, with a counterpart for each Lender, certified copies of such Person's
Organizational Documents and a Certificate of Resolutions and Incumbency:
(i) the Company;
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(ii) each Sponsor;
(iii) the Contractor; and
(iv) Alcatel.
(s) OFFICERS' CERTIFICATES. The Administrative Agent
shall have received, with a counterpart for each Lender, an Officers'
Certificate with respect to the Company and each Subsidiary, each Sponsor, the
Contractor and Alcatel.
(t) PROJECTIONS. The Administrative Agent shall have
received from the Company with a copy for each Lender, operating projections and
analysis for the Project certified by a Responsible Officer of the Company as
being prepared in good faith in full consideration of all information known to
such officer, after due inquiry, as of the Closing Date, a copy of which is
annexed as EXHIBIT I or shall be satisfactory in form and substance to the
Administrative Agent (the "OPERATING PROJECTIONS"), and sets forth projections
of revenues, operating and other expenses and cash flows of the Project and the
Cumulative Capacity Sales Revenue, Interest Coverage Ratio and the Present Value
Coverage Ratio for each Operating Year prior to the Final Maturity Date, in form
and substance reasonably satisfactory to the Administrative Agent, of the
projected Operating Expenses associated with the Project with respect to each
Operating Year prior to the Final Maturity Date, together with the Operating
Payments to be received by the Company from the Capacity Purchasers in respect
of operation and maintenance payments in such detail and based upon such
assumptions as shall be satisfactory to the Administrative Agent (after
consultation with the Independent Engineer).
(u) NO VIOLATION OF APPLICABLE LAW. The consummation
of the transactions contemplated hereby and by the other Transaction Documents
shall not violate any Applicable Law.
(v) FINANCIAL STATEMENTS. The Administrative Agent
shall have received, with a copy for each Lender:
(i) the audited balance sheet of FLAG
Telecom Holdings Limited as of June 30, 1999;
(ii) the most recent annual audited
balance sheet and related financial statements of Global Telesystems
Group, Inc.; and
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(iii) the most recent annual audited
balance sheet and related financial statements of the Contractor and
Alcatel.
In addition, there shall have been no material adverse change in the financial
condition of each such Person since the date of such financial statements.
(w) AGENT FOR SERVICE OF PROCESS. The Administrative
Agent shall have received evidence that (i) the Company has irrevocably
appointed an agent for service of process in accordance with Sections 5.18 and
10.9, and (ii) each Sponsor has irrevocably appointed an agent for service of
process in accordance with the terms of the Equity Contribution Agreement to
which it is a party, and that each such agent has accepted the appointment and
has agreed to forward forthwith to the Company or such other Person, as the case
may be, all legal process addressed to such party received by such agent.
(x) FEES. The Lead Arranger and the Administrative
Agent shall have each received the fees payable thereto on the Closing Date
pursuant to the Fee Letter.
(y) AVAILABLE FUNDS. The Administrative Agent shall
have received evidence reasonably satisfactory to it that the Company has
transferred all available funds of the Company as of the Closing Date to the
Construction Account.
(z) OTHER MATTERS. The Administrative Agent and the
Lenders shall have each received such information, opinions, documents, evidence
and copies of such other documents as any of them or their respective counsel
may reasonably request (with a counterpart to each other Lender), which
information, opinions and documents shall be reasonably satisfactory in form and
substance to such requesting party.
SECTION 4.2. CONSTRUCTION LOANS. The obligation of each Lender
to make available Construction Loans on any Borrowing Date, including the
Closing Date, shall be subject to the fulfillment of, or waiver in the
discretion of the Majority Lenders, of each of the following conditions
precedent, together with the conditions as set forth in Section 4.3:
(a) GOVERNMENTAL ACTIONS: RIGHTS-OF-WAY, PERMITS. All
Governmental Actions and Rights-of-Way set forth in SCHEDULE 3.7(B) and any
additional Governmental Actions and Rights-of-Way which are required in
accordance with such Schedule or pursuant to Applicable Law to be obtained on or
prior to the date of such
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Construction Loan, shall have been duly obtained or made, shall be in full force
and effect and shall be Final. The Administrative Agent shall have received (i)
copies of such Governmental Actions and Rights-of-Way to the extent such
Governmental Actions or Rights-of-Way are in writing or are required to be in
writing and (ii) a list of all Governmental Actions or Rights-of-Way which have
been obtained and which are not in writing, together with a certificate of a
Responsible Officer of the Company setting forth the procedure employed to
obtain such Governmental Actions and Rights- of-Way and confirming that such
items were not obtainable in writing from the issuer thereof. The Administrative
Agent (based on the advice of the Independent Engineer) shall have no reason to
believe that any of the Governmental Actions and Rights-of-Way listed in
SCHEDULE 3.7(B) which have not been obtained as of such date will not be
obtained prior to the date required in SCHEDULE 3.7(B).
(b) EVIDENCE OF PROJECT COSTS. (i) Except in relation
to an initial borrowing made within one month of the Closing Date, at least
fifteen (15) days prior to such Construction Loan, the Administrative Agent and
the Independent Engineer shall have received a Construction Progress Report,
together with a statement of the payments to be made pursuant to the Backhaul
Agreements and/or to the Contractor pursuant to the Construction Contract with
the proceeds of such Construction Loans, together with other documentation
reasonably requested by and satisfactory to the Administrative Agent and with
respect to all other items of Project Costs to be paid or advanced with the
proceeds of such Construction Loans.
(ii) Each Construction Progress Report
delivered pursuant to Section 4.2(b) may provide for an additional
amount for payments required to be made prior to the next Borrowing
Date but which are not specified in such Construction Progress Report
in an amount not to exceed $5,000,000 per calendar month plus any
payments of value added taxes which are expected to become payable
prior to the next Borrowing Date and $15,000,000 in the aggregate plus
any payments of value added taxes which are expected to become payable
prior to the next Borrowing Date at any time (the "ADDITIONAL BORROWING
AMOUNT") which amounts shall be placed into the Current Account;
PROVIDED, HOWEVER, that the immediately succeeding Construction
Progress Report shall specify in reasonable detail to what payments the
Additional Borrowing Amount has been applied.
(c) INDEPENDENT ENGINEER'S REPORT; CERTIFICATE.
Except in relation to an initial borrowing made within one month of the Closing
Date, the Administrative Agent shall have received, with a copy for each Lender,
a report of the Independent
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Engineer within five (5) days of the Independent Engineer's receipt of a
Construction Progress Report, reasonably satisfactory in form and substance to
the Administrative Agent, to the effect that construction of the Project is
proceeding satisfactorily in accordance with the Construction Contract, the
Backhaul Agreements and within the overall Project Budget, and each of the
Critical Timetable Events set forth in the Project Timetable to be completed by
such date have been completed. The Independent Engineer's report shall also
disclose any events or changes that have occurred since the date of the last
report delivered to the Lenders that have had or could have a Material Adverse
Effect. On the date of such Construction Loan, the Administrative Agent shall
have received, with a copy for each Lender, a certificate from the Independent
Engineer, dated such date and stating that in its reasonable judgment (based
upon Contractor performance to date in achieving scheduled milestones and upon
industry-wide performance and taking into account any changes in resource
allocation and in the overall construction program), the Contractor will achieve
the next Critical Timetable Event (and similar milestones will accordingly be
achieved pursuant to the Backhaul Agreements) on or before the time required in
the Project Timetable and the next Acceptance can be expected to occur prior to
the Required Applicable Acceptance Date, and the Independent Engineer has
received the Construction Progress Report(s) delivered since the preceding
Borrowing Date, which shall be true and correct in all material respects, and,
in the reasonable judgment of the Independent Engineer, payments made pursuant
to the Backhaul Agreements have been made in accordance with the provisions of
such agreements and payments made to the Contractor have been made in accordance
with the provisions of the Construction Contract.
(d) PERFORMANCE BOND. The Performance Bond shall be
in full force and effect and in a stated amount equal to at least 10% of the
then Total Contract Price.
SECTION 4.3. EACH LOAN. The obligation of each Lender to make
available Construction Loans or Revolving Credit Loans on any Borrowing Date,
including the Closing Date, shall be subject to the fulfillment of, or waiver,
in the discretion of the Majority Lenders, of each of the following conditions
precedent:
(a) BORROWING NOTICE. The Administrative Agent shall
have received from the Company, four (4) Business Days (one (1) Business Day in
the case of ABR Borrowings) prior to the proposed Borrowing Date, a Borrowing
Notice, together with all schedules thereto; PROVIDED, HOWEVER, that in the case
of Construction Loans the Company shall provide a draft Borrowing Notice to the
Administrative Agent and the Independent Engineer at least five (5) Business
Days prior to a proposed Borrowing Date.
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(b) REPRESENTATIONS AND WARRANTIES. All
representations and warranties made or deemed made by the Company on the
applicable Borrowing Date (other than the Closing Date, in which case Section
4.1(q) shall control) in this Agreement shall be true and correct in all
material respects on and as of such date (unless any such representation or
warranty relates solely to an earlier date, in which case it shall have been
true and correct in all material respects as of such earlier date).
(c) NO DEFAULT OR EVENT OF DEFAULT. No Default or
Event of Default shall be in existence on such date, or shall occur after giving
effect to the extension of credit to be made on such date.
(d) 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 render void, voidable or invalid or require or cause the
cancellation, suspension or termination of any of the Financing Documents or any
of the Project Documents, and which would in the Administrative Agent's
reasonable discretion be likely to have a Material Adverse Effect or (ii) which
would cause any of the transactions contemplated hereby to violate any
Applicable Law and which would in the Administrative Agent's reasonable
discretion be likely to have a Material Adverse Effect.
(e) PERFECTION OF LIENS AND SECURITY INTEREST. All
filings, recordings and other actions that are necessary or, in the judgment of
the Administrative Agent as the case may be, desirable in order to establish,
protect and perfect the Administrative Agent's lien on and perfected security
interest in (and the First Priority (as defined in SCHEDULE 5.26) status
thereof) all right, title, estate and interest of the Company, or the Sponsors,
as the case may be, in and to the Subject Collateral, 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 as the case may be, shall have received authenticated copies, with a copy
for each Secured Party, or other evidence of all filings, recordings and other
actions obtained or made in order to create and perfect such perfected First
Priority lien on and perfected security interest in the Subject Collateral.
(f) NO FORCE MAJEURE, ETC. No event of FORCE MAJEURE,
or similar event or condition shall exist 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 cancellation, suspension,
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termination or non-performance could not reasonably be expected to have a
Material Adverse Affect.
(g) MATERIAL ADVERSE CHANGE. No material adverse
change in the financial condition, business or operations of the Company or the
Project shall have occurred since the Closing Date, and no other event shall
have occurred since the Closing Date which could reasonably be expected to have
a Material Adverse Effect.
(h) PROJECT DOCUMENTS. Each of the Project Documents
(other than the Capacity Sales Agreements which do not constitute Sponsor
Pre-Sale Capacity Commitments) shall be in full force and effect, no party
thereto shall be in material default thereunder and no condition shall then
exist which would permit any party to terminate any such Project Document,
unless (i) the party entitled to terminate any such Project Document is the
Company and the event or default giving rise to such termination right could not
be expected to have a Material Adverse Effect or (ii) the Company is in
compliance with Section 6.10 and such Project Document has either been replaced
in accordance with Section 6.11, the effect of such termination could not be
expected to have a Material Adverse Effect or the Administrative Agent has
determined that such Project Document, if terminated, would not need to be
replaced. No party to any such Project Document shall have asserted that such
Project Document has ceased to be valid and binding and in full force and effect
or that such party is no longer obligated to perform under such Project Document
unless such assertion, in the reasonable opinion of the Company and the
Administrative Agent, has no merit or the effect of such assertion could
otherwise not be expected to have a Material Adverse Effect.
(i) OTHER MATTERS. The Administrative Agent and the
Lenders shall have received such information, opinions, documents and copies of
such other materials as any of them may reasonably request, which information,
opinions, documents and materials shall be in form and substance reasonably
satisfactory to such requesting party;
PROVIDED; HOWEVER, that no Loans may be made which would result in the total
amount of Loans outstanding exceeding $190,000,000 until (i) the aggregate of
(x) cash proceeds from sales of Capacity (other than Sponsor Pre-Sales) and (y)
unpaid Capacity Commitments under executed Capacity Sales Agreements relating to
the Requisite Qualifying Pre-sales total not less than $200,000,000 and the
Company shall have provided the Administrative Agent with each such Capacity
Sales Agreement and each Pre-Sale Agreement Letter of Credit relating thereto
(if applicable); and (ii) each
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Landing License shall (a) have been obtained in the name of the Company or its
relevant Subsidiary and be in full force and effect to the satisfaction of the
Administrative Agent or (b) in the case of the French or English Landing
Licenses, the Company or its relevant Subsidiary shall have received the right
to use the correlative license of one of its Sponsors or an affiliate thereof on
terms and conditions satisfactory to the Administrative Agent.
SECTION 4.4. CONVERSION DATE. The obligations of the
Construction Loan Lenders to convert their respective Construction Loans to Term
Loans hereunder shall be subject to the fulfillment, or waiver by the Majority
Lenders in their sole discretion, of each of the following conditions precedent,
together with each of the conditions set forth in Section 4.3:
(a) TERM LOAN NOTES AND RELATED CERTIFICATE. Upon
written request, each applicable Construction Loan Lender may receive a Term
Loan Note in the principal amount of such Lender's Term Loans as determined as
of the Conversion Date, and each such Note dated the Conversion Date and duly
executed and delivered by the Company, in exchange for the return to the Company
of the outstanding Construction Loan Notes held by each Lender who requested
such Term Loan Notes, each marked "Canceled". In addition, the Administrative
Agent shall have received from the Company a certificate of a Responsible
Officer setting forth the amount of the Term Loans created on the Conversion
Date, together with such additional information for the Administrative Agent to
verify the conclusions set forth therein.
(b) PAYMENT OF PROJECT COSTS. All Project Costs and
other costs set forth in the Project Budget scheduled to have been paid from the
proceeds of amounts to be funded under this Agreement and the Sponsor Pre-Sale
Capacity Commitments shall have been paid in full, or other support arrangements
which are satisfactory to the Administrative Agent shall have been made for the
payment thereof.
(c) GOVERNMENTAL ACTIONS; RIGHTS-OF-WAY. All
Governmental Actions and Rights-of-Way set forth in SCHEDULE 3.7(B) and any
additional Governmental Actions and Rights-of-Way which are required in
accordance with such Schedule or pursuant to Applicable Law to be obtained on or
prior to the Conversion Date shall have been duly obtained or made, shall be in
full force and effect and shall be Final, and a copy of each such Governmental
Action and Right-of-Way (to the extent such Governmental Action is in writing or
is required to be in writing pursuant to SCHEDULE 3.7(B)) shall have been
delivered to the Administrative Agent, together with a certificate of all
Governmental Actions which were obtained by the Company by a means other
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than in writing. The Administrative Agent (based on the advice of the
Independent Engineer) shall have no reason to believe that any of the
Governmental Actions and Rights-of-Way listed in SCHEDULE 3.7(B) which have not
been obtained as of such date will not be obtained prior to the date required in
SCHEDULE 3.7(B).
(d) EQUITY CONTRIBUTIONS. Cash Equity Contributions
to the Company in an amount equal to the Cash Equity Contribution Amount shall
have been made in full in cash to the Equity Proceeds Account.
(e) OPERATING BUDGET; REVISED OPERATING PROJECTIONS.
The Administrative Agent shall have received, with a copy for each Lender, (i)
an Operating Budget covering the first Operating Year of the Project, which
shall be in form and substance reasonably satisfactory to the Administrative
Agent (upon consultation with the Independent Engineer) and (ii) revised
Operating Projections, prepared in a manner consistent with the Operating
Projections delivered pursuant to Section 4.1(v), in each case certified by a
Responsible Officer of the Company as being prepared in good faith in full
consideration of all information known to such officer, after due inquiry, as of
the Conversion Date.
(f) PERFORMANCE BOND. The Performance Bond shall be
in full force and effect and in a stated amount equal to at least 5% of the
Total Contract Price.
(g) ACCEPTANCE (PHASE 2). Acceptance (Phase 2) shall
have occurred by the Required Applicable Acceptance Date and the Administrative
Agent shall have received by such date a duly executed Certificate of
Provisional Acceptance (Phase 2)or Certificate of Commercial Acceptance (Phase
2).
(h) BACKHAUL COMPLETION. The Backhaul Elements shall
be ready for service as certified by the Independent Engineer.
(i) CHARGE OVER BUSINESS AGREEMENT. The French
Subsidiary shall have entered into the Charge Over Business Agreement and shall
have provided a legal opinion with respect thereto in form and substance
acceptable to the Administrative Agent.
(j) REQUISITE QUALIFYING PRE-SALES. Requisite
Qualifying Pre-Sales shall have been obtained (at any time on or prior to the
proposed Conversion Date whether by way of Capacity Commitments or actual cash
proceeds) in the amount of not less than $200,000,000.
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SECTION 4.5. EQUITY WITHDRAWALS. The right of the Company to
make Equity Withdrawals shall be subject to the fulfillment of, or waiver by the
Administrative Agent of, each of the following conditions precedent:
(a) GOVERNMENTAL ACTIONS: RIGHTS-OF-WAY. All
Governmental Actions and Rights-of-Way set forth in SCHEDULE 3.7(B) and any
additional Governmental Actions and Rights-of-Way which are required in
accordance with such Schedule or pursuant to Applicable Law to be obtained on or
prior to such date, shall have been duly obtained or made, shall be in full
force and effect and shall be Final. The Administrative Agent shall have
received (i) copies of such Governmental Actions and Rights-of-Way to the extent
such Governmental Actions or Rights-of-Way are in writing or are required to be
in writing and (ii) a list of all Governmental Actions or Rights-of- Way which
have been obtained and which are not in writing, together with a certificate of
a Responsible Officer of the Company setting forth the procedure employed to
obtain such Governmental Actions and Rights-of-Way and confirming that such
items were not obtainable in writing from the issuer thereof. The Administrative
Agent (based on the advice of the Independent Engineer) shall have no reason to
believe that any of the Governmental Actions and Rights-of-Way listed in
SCHEDULE 3.7(B) which have not been obtained as of such date will not be
obtained prior to the date required in SCHEDULE 3.7(B).
(b) EVIDENCE OF PROJECT COSTS. At least fifteen (15)
days prior to such Equity Withdrawal, the Administrative Agent and the
Independent Engineer shall have received a Construction Progress Report,
together with a statement of the payments to be made pursuant to the Backhaul
Agreements and/or to the Contractor pursuant to the Construction Contract with
the proceeds of such Equity Withdrawal, together with other documentation
reasonably requested by and satisfactory to the Administrative Agent and with
respect to all other items of Project Costs to be paid or advanced with the
proceeds of such Equity Withdrawal.
(c) INDEPENDENT ENGINEER'S REPORT; CERTIFICATE. The
Administrative Agent shall have received, with a copy for each Lender, a report
of the Independent Engineer dated not more than ten (10) days prior to the date
of such Equity Withdrawal, reasonably satisfactory in form and substance to the
Administrative Agent, to the effect that construction of the Project is
proceeding satisfactorily in accordance with the Construction Contract, the
Backhaul Agreements and within the overall Project Budget, and each of the
Critical Timetable Events set forth in the Project Timetable to be completed by
such date have been completed. The Independent Engineer's report pursuant to
this clause (c) shall also disclose any events or changes that have occurred
since the date of the last report delivered to the Lenders that has had or could
have a
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Material Adverse Effect. On the date of such Equity Withdrawal, the
Administrative Agent shall have received, with a copy for each Lender, a
certificate from the Independent Engineer, dated such date and stating that in
its reasonable judgment (based upon Contractor performance to date in achieving
scheduled milestones and upon industry-wide performance and taking into account
any changes in resource allocation and in the overall construction program), the
Contractor will achieve the next Critical Timetable Event (and similar
milestones will accordingly be achieved pursuant to the Backhaul Agreements), on
or before the time required in the Project Timetable and the next Acceptance (if
any) can be expected to occur prior to the relevant Required Applicable
Acceptance Date.
(d) PERFORMANCE BOND. The Performance Bond shall be
in full force and effect and in a stated amount equal to at least 5% (or such
higher amount as required by the Construction Contract) of the then Total
Contract Price.
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 Company covenants and agrees with the Administrative Agent and the
Lenders that:
SECTION 5.1. COMPLETION OF THE PROJECT. The Company shall
cause the Project to be duly constructed and completed in accordance with all
applicable international, national, state and local engineering, construction
and safety codes and standards and in accordance with the Specifications. The
Company shall provide to the (I) Independent Engineer a copy of each report
furnished by (a) the Contractor to the Company pursuant to the Construction
Contract, and (b) any contractor or other counterparty pursuant to the Backhaul
Agreements, and (II) to the Administrative Agent (with a copy for each Lender),
the Company's monthly Project report and shall respond, and shall cause the
Contractor and any contractor or other counterparty to a Backhaul Agreement
(including a Sponsor or any Affiliate thereof) to respond, to the Independent
Engineer's reasonable inquiries regarding such Person's performance of its work
under the Construction Contract and any Backhaul Agreement.
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SECTION 5.2. FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Company shall deliver to the Administrative Agent, with a copy for each Lender,
the following:
(a) within ninety (90) days after the end of each
fiscal year of the Company, 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
Company and its consolidated Subsidiaries in accordance with GAAP consistently
applied;
(b) within forty five (45) days after the end of each
of the first three fiscal quarters of each fiscal year of the Company
(commencing with the fiscal quarter ending September 30, 1999, a consolidated
balance sheet of the Company 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 Company
as presenting fairly in all material respects the financial condition and
results of operations of the Company and its consolidated Subsidiaries in
accordance with GAAP consistently applied, subject to normal 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 Company 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);
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(e) following the Conversion Date, simultaneously
with the delivery of any Expense Certificate in accordance with Section 8.12(a),
to the Administrative Agent only, a certificate of a Responsible Officer of the
Company setting forth all Operating Expenses, capital expenditures and income
taxes paid out of the Current Account since the date of the last Expense
Certificate;
(f) promptly after its receipt, copies, to the extent
in writing (or, to the extent not in writing, a certificate of a Responsible
Officer of the Company setting forth each Governmental Action or Right-of-Way
obtained which is not in writing and the procedure employed for obtaining such
Governmental Action or Right-of-Way) of each Governmental Action or Right-of-Way
obtained or made by the Company, or obtained or made by the Contractor and
delivered to the Company pursuant to the Construction Contract;
(g) promptly after the Company's delivery thereof or
receipt thereof, as the case may be, a copy of each material notice, document,
report, demand or other communication (not to include routine correspondence)
delivered pursuant to any Project Document or otherwise, and a copy of each
financial statement of any party to a Project Document (other than the Company)
received by the Company pursuant to any Project Document; and
(h) such other information respecting the conditions
or operations, financial or otherwise, of the Company or any Subsidiary thereof
as the Administrative Agent may from time to time reasonably request.
SECTION 5.3. REPORTS; OTHER INFORMATION. (a) The Company shall
deliver to the Administrative Agent within thirty (30) days after the end of
each fiscal quarter (commencing with the first fiscal quarter ending after the
Closing Date) 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 fiscal quarter, (ii) the aggregate amount of Capacity Commitments
owing, but not yet paid, as at the end of such fiscal quarter and the date such
Capacity Commitments become (or became) due, (iii) a list of the Capacity
Purchasers who have purchased or leased Capacity and the aggregate dollar value
of Capacity acquired by each such Capacity Purchaser during such fiscal quarter,
(iv) the aggregate STM-1s disposed of during such fiscal quarter, (v) any
termination of commitments for the sale, lease or other disposition of Capacity
during such fiscal quarter, (vi) the aggregate amount of Capacity disposed of
for non-cash consideration during such fiscal quarter, and (vii) any and all
rebates or other returns of cash to Capacity Purchasers during such fiscal
quarter.
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(b) The Company shall deliver to the Administrative
Agent, with a copy for each Lender, within twenty (20) days after the end of
each fiscal quarter falling after the fiscal quarter in which the Conversion
Date occurs, a certificate of a Responsible Officer of the Company setting forth
reasonably detailed calculations of the Cumulative Capacity Sales Revenue,
Interest Coverage Ratio and Present Value Coverage Ratio, in each case
calculated as of the end of such fiscal quarter in accordance with Sections
6.28, 6.29 and 6.30, and if such calculations demonstrate that a Designated
Event shall have occurred and be continuing, a certification thereof.
(c) Within three Business Days prior to each
Principal Payment Date, the Company shall deliver to the Administrative Agent a
certificate setting forth the Required Balance with respect to the Debt Reserve
Account, the Maintenance Reserve Account and the Capacity Upgrades Reserve
Account, as of such Principal Payment Date.
(d) The Company shall deliver to the Administrative
Agent each new Pricing Schedule effective upon its adoption.
(e) The Company shall deliver to the Administrative
Agent each Certificate of Provisional Acceptance, or Certificate of Commercial
Acceptance each of which shall be duly endorsed by the Company and the
Independent Engineer within five (5) Business Days of the date of the applicable
Acceptance Date.
(f) The Company shall deliver to the Administrative
Agent no later than thirty days in advance of the Provisional Acceptance Date
(Phase 1) a true and complete copy of the Operations and Maintenance Plan, duly
certified as such by a Responsible Officer of the Company.
SECTION 5.4. PAYMENT OF OBLIGATIONS. The Company 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 5.5. EXISTENCE. The Company 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,
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privileges and franchises, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 5.6. COMPLIANCE WITH LAWS. The Company 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 aggregate, could not reasonably be expected to
have a Material Adverse Effect.
SECTION 5.7. PERFORMANCE AND ENFORCEMENT OF AGREEMENTS. The
Company shall, and shall cause each of its Subsidiaries to, observe in all
material respects the covenants and agreements of the Company or such
Subsidiary, as the case may be, contained in each Transaction Document and all
of its other material obligations contained in each other document to which the
Company or such Subsidiary is a party. The Company shall, and shall cause each
of its Subsidiaries to, enforce in a diligent and commercially reasonable manner
all of its rights under the Transaction Documents, unless forbearance is
commercially reasonable.
SECTION 5.8. TAXES AND CLAIMS. (a) The Company 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 Company shall use its best efforts
to, and shall cause each of its Subsidiaries to use its best efforts to,
maintain and keep in full force and effect all clearance rulings, decrees or
similar items necessary to continue the exemption of the Company or such
Subsidiary from the impositions of any Tax or similar charge on which the
Company or such Subsidiary is relying (other than, with respect to any Operating
Year, (i) value added taxes payable in connection with sales of Capacity and
(ii) any other Taxes and other charges in an aggregate amount not exceeding 105%
of the amount budgeted therefor in respect of such Operating Year).
SECTION 5.9. NOTICES. The Company shall, promptly after a
Responsible Officer of the Company has knowledge thereof, give written notice to
the Administrative Agent of:
(a) the occurrence of any Default, Event of Default
or Event of Loss;
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(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 Company or has been
outstanding for greater than 60 days;
(c) any litigation or similar proceeding affecting
the Company, 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 Capacity Purchaser and any Governmental
Authority), which, if adversely determined, could reasonably be expected to have
a Material Adverse Effect;
(d) any proceeding by or before any tax regulatory
authority contesting the tax position of the Company 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 event constituting FORCE MAJEURE under any
Principal Project Document which may have a material adverse impact on the
Project;
(g) the cancellation or revocation of any material
Governmental Actions, Rights-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, Rights- of-Way or other consents or approvals;
(h) any Lien (other than Permitted Liens) against any
Collateral 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 Company's Board of Directors or of
any event which could lead to a change, supplement or breakage in the System
Configuration;
(k) any issuance or proposed issuance of any class of
Capital Stock of the Company, or of any sale or proposed sale of any Capital
Stock of the Company;
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(l) its intent to enter into any material 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 Company generally notifies its customers;
and
(n) any other event, fact or development that has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect.
SECTION 5.10. INSURANCE. (a) The Company shall purchase no
later than thirty (30) days after the Closing Date, insurance complying with the
provisions of subsection 5.10(b) and shall promptly deliver to the
Administrative Agent, with a copy for each Lender, (i) certificates of insurance
signed in each case by the insurer or an agent authorized to bind the insurer
(or other evidence of insurance reasonably satisfactory to the Administrative
Agent) and (ii) a certificate of the Insurance Advisor, setting forth the types
and amounts of insurance obtained by the Company and the risks covered thereby,
and stating that such insurance is in full force and effect, complies with the
requirements of subsection 5.10(b) and that all currently due premiums therefor
have been paid in full.
(b) The Company 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 5.10. All such insurance shall
comply with the other provisions set forth in SCHEDULE 5.10. The Company shall
promptly deliver one true and complete copy of each insurance policy requested
by the Administrative Agent, duly certified by a Responsible Officer of the
Company.
SECTION 5.11. FISCAL YEAR. The fiscal year of the Company and
its Subsidiaries shall be the twelve-month period ending on December 31 of each
year.
SECTION 5.12. USE OF PROCEEDS. The proceeds of the Loans shall
be used (a) to finance the project costs associated with the design,
engineering, construction and installation of the Project, including the
repayment of loans advanced by the Sponsors or affiliates thereof to the Company
on the intial funding date (the proceeds of which were used to fund payments to
the Contractor), PROVIDED that any such repayments shall not exceed $11,000,000
in the aggregate, (b) to pay transaction, legal, financing (including interest
expense and fees) and other related costs and (c) to fund Operating Expenses and
working capital requirements, all in accordance with the Schedule of
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Sources and Uses; PROVIDED, HOWEVER, that the proceeds of the Revolving Credit
Loans shall be used (a) prior to the Conversion Date to fund any shortfalls in
the Project Budget and (b) after the Conversion Date to fund cash shortfalls in
Operating Expenses and other working capital requirements.
SECTION 5.13. INTEREST RATE PROTECTION. The Company shall, (i)
within three (3) months after the Closing Date, enter into one or more Interest
Hedging Agreements to hedge the Company's interest rate exposure on at least 50%
of the projected outstanding Construction Loans until three (3) months after the
projected Conversion Date and (ii) within three (3) months after the Conversion
Date, enter into one or more Interest Hedging Agreements to hedge the Company's
interest rate exposure on at least 50% of the outstanding Term Loans from time
to time for a period of at least three (3) years from the Conversion Date, all
on terms reasonably satisfactory to the Administrative Agent.
SECTION 5.14. CAPACITY SALES AGREEMENT LETTERS OF CREDIT. The
Company shall cause any and all reimbursement obligations related to each letter
of credit that is issued in support of a Capacity Purchaser's payment
obligations under a Capacity Sales Agreement to be on a non-recourse basis with
respect to the Company, its revenues, property and other assets (including,
without limitation, the Project and any portion thereof), other than in respect
of limited recourse obligations in favor of certain providers of Pre-Sale
Capacity Agreement Letters of Credit, but only to the extent such recourse is
limited to a Permitted Lien on the Company's rights under the corresponding
Capacity Sales Agreement.
SECTION 5.15. GOVERNMENTAL ACTIONS AND RIGHTS-OF-WAY. The
Company 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 Company and its Subsidiaries, (a) to operate and maintain the
Project as contemplated by the Facilities Management Agreements, (b) to transfer
Capacity 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; PROVIDED, HOWEVER, that in any event
the Company and/or its relevant Subsidiary shall have been granted a Landing
License in its own name (or in the name of its relevant Subsidiary) in each of
France and England and is no longer utilizing a correlative license of one of
its Sponsors or an affiliate thereof by no later than June 30, 2001.
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SECTION 5.16. COOPERATION WITH INDEPENDENT ENGINEER. The
Company 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
Acceptance Date (Phase 2), all material matters relating to the Project, and
shall meet (and cause the Contractor to meet) the Independent Engineer at
reasonable times and upon reasonable notice to discuss any of the foregoing.
SECTION 5.17. REVENUE ACCOUNT. Subject to Section 8.2, the
Company 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 5.18. MAINTENANCE OF PROCESS AGENT. The Company 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 pursuant to
Section 10.9(e).
SECTION 5.19. SYSTEM OPERATION AND MAINTENANCE. The Company
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 5.20. EVENT OF LOSS. (a) The Company shall immediately
notify the Administrative Agent in writing of the occurrence of an Event of Loss
and, unless the affected portion of the Project is being repaired, replaced or
restored in accordance with Section 5.20(b), the Company 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 Company (the "EOL COMPLIANCE
CERTIFICATE") certifying as to the Present Value Coverage Ratio 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 or a Special Payment shall
be made and no Event of Default shall have occurred 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 (6)
months, (ii) in the Administrative Agent's reasonable opinion (after
consultation with the Consultants) there are or will be sufficient funds
available to the Company (from Permitted Sources, Special Payments, 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 Loans and all other
obligations owing to the Lenders), (y) pay all
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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 Capacity Purchaser 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 any Project
Document shall have the right to terminate such 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 such 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 Company (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 Company, at its sole cost and
expense, shall restore, rebuild or replace the affected portion of the Project.
SECTION 5.21. BOOKS AND RECORDS; INSPECTION RIGHTS. (a) The
Company 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
Company shall, and shall cause each of its Subsidiaries to, permit any
representative of the Lenders designated by the Administrative Agent, (as
applicable) 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 Company agrees that the Administrative Agent the Independent Engineer and
each other advisor to the Lenders (at the Company's expense), may visit the
Company's executive offices, any other portion of the Project, each site where
Work is being performed (but only to the extent of the Company's rights of
access thereto) and other properties owned by the Company or any of its
Subsidiaries at any and all reasonable times during normal business hours, 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 Company or any of its
Subsidiaries or to the extent the Company 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 Contractor in verifying construction progress to the
extent the Company
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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 reasonably requested by the Administrative
Agent or the Independent Engineer.
SECTION 5.22. FOREIGN CORRUPT PRACTICES ACT. The Company
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 5.23. INTELLECTUAL PROPERTY. (a) The Company shall
own, or shall have valid licenses to use, and shall cause each of its
Subsidiaries to own or have valid licenses to use, all Intellectual Property as
and when 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 Company and its Subsidiaries, taken as a
whole, or the Project.
(b) The Company 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 Company 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 Company 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.
SECTION 5.24. BUDGETS AND OPERATING REPORTS. Prior to the
Conversion Date, and after prior review by and discussion with the
Administrative Agent (after consultation with the Independent Engineer), the
Company will adopt an operating budget (the "OPERATING BUDGET") and an Operating
Plan (the "OPERATING PLAN") for the initial Operating Year. The Operating Budget
and the Operating Plan will contain such line items as are satisfactory to the
Company, the Administrative Agent and the Independent Engineer, including in the
Operating Budget a line item projection of project revenues and cash operating
costs for the forthcoming Operating Year. No fewer than thirty (30) days prior
to the beginning of each Operating Year of the Company
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thereafter, and after prior review by and discussion with the Administrative
Agent (after consultation with the Independent Engineer), the Company will
similarly adopt an Operating Budget and an Operating Plan for the ensuing
Operating Year of the Company PROVIDED in no event shall any Operating Budget
provide for capital expenditures (other than in respect of Capacity Upgrades) in
excess of $1,000,000 for such Operating Year. Copies of the Operating Budget and
the Operating Plan for each such Operating Year shall be delivered promptly to
the Administrative Agent and the Lenders together with an update of the
Operating Projections.
SECTION 5.25. SPARE PARTS. The Company shall maintain, on and
after each applicable Acceptance, at each maintenance depot such spare parts,
test and maintenance equipment, tools and consumables with respect to the
applicable Phase as are customary in accordance with the practices, standards
and procedures for the operators of fiberoptic cables.
SECTION 5.26. MATERIAL REAL ESTATE ASSETS. In the event that
the Company or any Subsidiary thereof acquires an interest in a Material Real
Estate Asset and such interest has not otherwise been made subject to the Lien
of the Security Documents in favor of Administrative Agent for the benefit of
the Secured Parties, then the Company or such Subsidiary, contemporaneously with
acquiring the interest in such Material Real Estate Asset, shall take all such
actions and execute and deliver, or cause to be executed and delivered, all such
mortgages, documents, instruments, agreements, opinions and certificates,
including, without limitation, those described on SCHEDULE 5.26, as the
Administrative Agent shall reasonably request to create in favor of
Administrative Agent for the benefit of Lenders, a valid and, subject to any
filing and/or recording referred to herein, perfected First Priority (as defined
in SCHEDULE 5.26) security interest in such Real Estate Assets, (subject to such
exceptions to title insurance coverage as may be provided under Applicable Law).
SECTION 5.27. NOTICES OF ASSIGNMENT. The Company shall notify
all account debtors under all accounts and general intangibles for money due of
the First Priority security interest of the Administrative Agent pursuant to the
Company Security Agreements. Such notice shall either be incorporated into the
relevant agreements giving rise to such accounts or general intangibles or the
Company shall send a separate notice to the account debtor. Any such notice
(whether included in the relevant agreement or a separate notice) shall be in
the form of EXHIBIT G.
SECTION 5.28. FRENCH GUARANTEE FEE. The Company shall pay to
FLAG Atlantic France S.A.R.L. (the "French Subsidiary") a guarantee fee in
consideration for
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the guarantee issued by the French Subsidiary in favor of the Secured Party
under the Subsidiary Guarantee Agreement.
SECTION 5.29. CHARGE OVER BUSINESS. The Company shall cause
the French Subsidiary to enter into the Charge Over Business Agreement within
one month of the French Subsidiary commencing operations. For this purpose,
"commencing operations" means that the landing station situated in France has
started commercial operations.
SECTION 5.30. FURTHER ASSURANCES. The Company shall cause to
be promptly and duly taken, executed, acknowledged and delivered all such
further acts, documents and assurances as the Administrative Agent from time to
time may reasonably request in order to carry out more effectively the intent
and purposes hereof and of the other Financing Documents, including with respect
to the maintenance of perfection of all Subject Collateral.
ARTICLE VI
NEGATIVE COVENANTS
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 other Financing Documents have been paid in
full, the Company covenants and agrees with the Administrative Agent and the
Lenders that (except as otherwise permitted by the applicable Lenders in
accordance with Section 10.2):
SECTION 6.1. INDEBTEDNESS. The Company 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 Company incurred
under the Financing Documents and in respect of the Obligations and the Guaranty
of such Indebtedness by any Subsidiary of the Company;
(b) Capital Lease Obligations of the Company
or any Subsidiary permitted by Section 6.15;
(c) Indebtedness of the Company under, or
constituting net exposure under, Interest Hedging Agreements entered into in
accordance with Section 5.13 or otherwise permitted by the Administrative Agent;
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(d) Indebtedness of the Company or any
Subsidiary under any Permitted Sale Leaseback;
(e) unsecured Indebtedness of the Company or
any Subsidiary owing to any Sponsor or to any Affiliate, the principal of which
is payable only after the repayment of the Obligations, which is expressly
subordinated to the Obligations and which contains 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 Company, 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 Company in accordance with clause "ninth" of Section 8.12(b)
and only if no Default, Event of Default or Designated Event shall have occurred
and be continuing);
(f) any other unsecured Indebtedness of the
Company or any Subsidiary owing to any other Person which is expressly
subordinated to the Obligations and which contains terms (including with respect
to subordination) that are satisfactory to the Administrative Agent; PROVIDED,
HOWEVER, and only to the extent, that the proceeds of such Indebtedness are
utilized to pay Project Costs in excess of those provided for in the Project
Budget;
(g) Indebtedness of any Subsidiary of the
Company to the Company;
(h) other Indebtedness of the Company and
any Subsidiary in an aggregate principal amount not to exceed $1,000,000 at any
one time;
(i) any Indebtedness under Revolving Credit
Loans entered into after the Closing Date; and
(j) any limited-recourse Indebtedness in
connection with the procurement of letters of credit to support the payment
obligations of certain Capacity Purchasers, PROVIDED that recourse is limited to
an assignment of the Company's right to demand and receive payment from the
applicable Capacity Purchaser whose payment obligations are supported by such
letter of credit.
SECTION 6.2. LIENS. The Company 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
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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 Company 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.
SECTION 6.4. SALE OF ASSETS. The Company 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 hereof) in
accordance with Section 6.13;
(b) Transfers of assets in the ordinary
course of business not required for the efficient operation of the Project for
fair value with a book value not exceeding $10,000,000 in the aggregate for all
fiscal years cumulative for the life of the Project for all such Transfers under
this clause (b);
(c) Transfers by the Company 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; and
(e) Transfers of assets by a Subsidiary of
the Company to the Company and by the Company to its Subsidiaries (PROVIDED,
HOWEVER, any such transfer to any Subsidiary located in France must be approved
in writing by the Administrative Agent, subject to terms and conditions
satisfactory thereto in its reasonable discretion);
(f) Transfers of the Company's rights under
Capacity Sales Agreements made in favor of certain providers of Pre-Sale Letters
of Credit pursuant to conditional assignments in accordance with the provisions
of Section 5.14 of this Agreement.
PROVIDED that (i) the Net Cash Proceeds of a Transfer under clauses (b), (c) and
(d) shall be deposited in the Sales and Issuances Proceeds Account and shall be
applied in accordance with Section 2.9 and (ii) other proceeds received in
respect of Transfers
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permitted under this Section (including under clause (a)) shall be, subject to
Section 8.2, deposited into the Revenue Account for application in accordance
with Article VIII; ***.
SECTION 6.5. INVESTMENTS, ACQUISITIONS, ETC. (a) The Company
shall not, and shall not permit any of its Subsidiaries to 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, Guaranty 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 Company or any of its
Subsidiaries are, or might be, shared with any Person, except:
(i) Permitted Investments;
(ii) the Company may own Capital
Stock of wholly-owned Subsidiaries created in accordance with
Section 6.23;
(iii) the Company may make equity
contributions in any such Subsidiary;
(iv) Guaranties permitted by
Section 6.1 and Guaranties by the Company of obligations of
its Subsidiaries to the extent such obligations are set forth
in the then current Project Budget and Operating Budget;
(v) the Company may enter into
reasonable joint marketing agreements or arrangements;
(vi) the Company 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 Company in respect of such transaction; and
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(vii) the Company may acquire
capacity on other telecommunications systems on reasonable,
arm's-length terms, PROVIDED that any costs related thereto
are (i) included within the Project Budget or the relevant
Operating Budget or (ii) are supported by Capacity Commitments
by customers seeking interim capacity prior to completion of
the Project; provided, however, that any acquisition of such
interim capacity shall be funded directly with proceeds
received under related Capacity Sales Agreements.
(b) The Company shall not, and shall not
permit any of its Subsidiaries to enter into any management contract (other than
the Construction Management Agreements, the Facilities Management Agreement and
the Marketing Agreement and other than any other agreement made by the Company
and/or a Subsidiary thereof which is approved by the Administrative Agent) or
similar arrangement whereby its business or operations are managed by any other
Person; ***.
SECTION 6.6. RESTRICTED PAYMENTS. The Company shall not
declare or make any Restricted Payment except:
(a) distributions by the Company in respect
of its Capital Stock which are payable solely in additional Capital Stock of the
Company, 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 Administrative Agent, then only if such
additional Capital Stock (x) is subject to a first priority perfected Lien in
favor of the Administrative Agent pursuant to the Shareholder Pledge Agreement
or such other documentation as shall be reasonably acceptable to the
Administrative Agent and (y) is delivered to the Administrative Agent, together
with undated stock powers for each stock certificate representing such
additional Capital Stock, executed in blank;
(b) distributions by the Company in respect
of its Capital Stock from funds available to the Company after the application
of clauses "first" through "eighth" of Section 8.12(b) (so long as no Default or
Event of Default shall have occurred and be continuing or would result
therefrom) or with funds available in the Company's Excess Flow Account;
(c) so long as no Default or Event of
Default shall have occurred and be continuing or would result therefrom, the
Company may purchase or redeem shares of Capital Stock (or options or warrants
in respect of such shares) of the Company held by present or former officers or
employees of the Company or any of its Subsidiaries
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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; and
(d) payments by the Company under the
Construction Management Agreements, the Marketing Agreements, the Backhaul
Agreements, the Facilities Management Agreement, or any other Project Document
to which a Related Party is a party, to the extent that such payments have been
budgeted in the then-applicable Project Budget or the then-applicable Operating
Budget.
SECTION 6.7. LIMITATIONS ON ISSUANCE OF INTERESTS. (a) The
Company shall not issue any additional Capital Stock of the Company or any other
interest in the Company, to any Person, except for (i) additional Capital Stock
which is common stock and which is subject to the perfected Lien of the
Administrative Agent pursuant to the Shareholder Pledge Agreement or such other
documentation as shall be reasonably acceptable to the Administrative Agent and
which is delivered to the Administrative Agent, 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 Company under the Stock
Option Plan to persons who are, at the time of such issuance, officers or
employees of the Company and/or its Subsidiaries (except for any of its
Subsidiaries incorporated in France) to the extent permitted under Applicable
Laws; PROVIDED that the Company 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 5% of all common stock of the Company on a fully diluted
basis.
(b) The Company 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 Company and only if such additional
Capital Stock is (i) subject to the perfected Lien of the Administrative Agent
as the case may be, pursuant to the Company Security Agreements or such other
documentation as shall be reasonably acceptable to the Administrative Agent and
(ii) delivered to the Administrative Agent together with undated stock powers
for each stock certificate representing such additional Capital Stock, executed
in blank.
SECTION 6.8. LIMITATIONS ON TRANSFERS OF INTERESTS. The
Company shall not consent to the transfer (by assignment, sale or otherwise) of
any Capital Stock or any other equity interest of the Company, or permit the
transfer (by assignment, sale or
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otherwise) of any Capital Stock or any other equity interest of any of its
Subsidiaries, except:
(a) subject to the provisions of paragraph
(n) of Article VII, a transfer by the Sponsors of all the Capital Stock of the
Company 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 Company
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 Administrative Agent shall have a perfected
first priority security interest in all Capital Stock of the Company;
(b) subject to the provisions of paragraph
(n) of Article VII, any transfer of the Capital Stock made subject to the Lien
and the terms of the Shareholder Pledge Agreement, any of the Company Security
Agreements or the Subsidiary Debenture, as applicable, pursuant to which such
Capital Stock is pledged (including, without limitation, the delivery by the
transferee to the Administrative Agent as the case may be, of an Irrevocable
Proxy and Power as contemplated by such applicable agreement);
(c) any transfer of Capital Stock in the
Company permitted by the provisions of the definition of the term "Change in
Control"; and
(d) any Capital Stock issued under the Stock
Option Plan (unless any such Capital Stock is required to be pledged to the
Administrative Agent in accordance with the terms hereof or of the other
Financing Documents).
SECTION 6.9. PAYMENT OF CONSTRUCTION COSTS; OPERATING BUDGET.
(a) The Company 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 Project other than (x)
during the period prior to the Conversion Date, those costs set forth in the
Project Budget (as amended from time to time) and (y) thereafter, those costs
set forth in the then applicable Operating Budget.
(b) The Company 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 Company may (i) with the
prior written consent of the Administrative Agent, amend the budgeted amount of
the Operating Expenses set forth
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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 4.4(e) or 5.24 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 Operating Budget.
SECTION 6.10. AMENDMENT OF PROJECT DOCUMENTS. The Company
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 Company
or such Subsidiary is a party or with respect to which the consent of the
Company or such Subsidiary is required, other than:
(a) 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;
(b) amendments, supplements or other
modifications or waivers with respect to, or consents under, the Construction
Contract which (A) are made prior to the Conversion Date, PROVIDED that the same
are (i) entered into by the Company in the ordinary course of business and are
on commercially reasonable terms, (ii) provide for no additional amounts to be
paid by the Company thereunder (or, if additional amounts are required to be
paid by the Company thereunder, such additional amounts are provided for in the
then current Project Budget or are provided for from Permitted Sources), (iii)
do not release the Contractor from any material liability thereunder unless such
release would be commercially reasonable, and (iv) could not reasonably be
expected to have a Material Adverse Effect or (B) are made on or after the
Conversion Date, PROVIDED that the same (i) are entered into by the Company in
the ordinary course of business and are on commercially reasonable terms, (ii)
provide for no additional amounts to be paid by the Company thereunder (or, if
additional amounts are required to be paid by the Company thereunder, such
additional amounts are provided for in the then current Operating Budget or are
provided for from Permitted Sources), (iii) do not otherwise increase the
Company's liability thereunder, (iv) do not release any Contractor from any
liability thereunder (unless such release would be commercially reasonable), (v)
do not reduce the duration or scope of any warranty or replacement period
thereunder, (vi) do not reduce the scope or availability of any Intellectual
Property thereunder or which is to be conveyed to the Company thereunder, (vii)
do not amend
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the requirements for any Provisional Acceptance Date without the prior written
consent of the Independent Engineer, and (viii) could not reasonably be expected
to have a Material Adverse Effect;
(c) amendments, supplements or other
modifications or waivers with respect to, or consents under, any Project
Document (other than any Principal Project Document referred to in clause (a) or
(b) above and other than the Construction Contract Guaranty and the Performance
Bond) (i) which are permitted by such Project Document without the consent of
the Company or any Subsidiary of the Company party thereto or (ii) which (A) are
entered into by the Company or any Subsidiary of the Company in the ordinary
course of business and are on commercially reasonable terms, (B) provide for no
additional amounts to be paid by the Company or any Subsidiary of the Company
thereunder (or, if additional amounts are required to be paid by the Company or
any Subsidiary of the Company thereunder, such additional amounts are provided
for in the then current Project Budget or Operating Budget or are provided for
from Permitted Sources), (C) do not release any party thereto (other than the
Company or any Subsidiary of the Company) from any material liability thereunder
unless such release would be commercially reasonable or unless the Company would
otherwise be permitted to terminate such agreement pursuant to Section 6.11 and
(D) could not reasonably be expected to have a Material Adverse Effect; and
(d) (i) immaterial amendments, supplements
or other modifications or immaterial waivers with respect to, or immaterial
consents under, any Project Document and (ii) amendments, supplements or other
modifications to, or consents or waivers under, any Project Document which are
permitted by such Project Document without the consent of the Company.
SECTION 6.11. TERMINATION, ASSIGNMENT OF PROJECT DOCUMENTS.
(a) The Company 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 Company or any Subsidiary of the Company, (iii) as required
by Applicable Laws or (iv) a Project Document, other than the Construction
Contract (prior to the end of the Warranty Period) and the Construction Contract
Guaranty (prior to the end of the Warranty Period), if (A) the Company delivers
to the Administrative Agent at the time of such termination, cancellation or
suspension a certificate of a Responsible Officer of the Company certifying that
(1) such termination, cancellation or suspension is permitted by the terms of
such Project Document, (2) the Company reasonably believes that such Project
Document (or its replacement) is no longer beneficial or useful to the Lenders
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and to the Company'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
Agreement such agreement is simultaneously replaced with a new contract (or
other arrangement) on terms and with a party (which party may be the Company
itself) reasonably satisfactory to the Majority Lenders and (C) with respect to
the termination, cancellation or suspension of the Performance Bond or the
Facilities Management 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 Company shall not agree or consent
to or otherwise permit the assignment of the obligations of any party to any
Principal Project Document (other than a party to a Capacity Purchase
Agreement), except pursuant to the Security Documents and except as permitted
without the consent of the Company 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 Company shall not, and shall
not permit any of its Subsidiaries to, enter into any Additional Contract, other
than (a) contracts entered into by the Company 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 Project Budget or Operating Budget, from
Capacity Commitments made by customers seeking interim capacity prior to
completion of the Project, provided, however, that any acquisition of such
interim capacity shall be funded directly with proceeds received under related
Capacity Sales Agreements or from Permitted Sources, and (iii) the execution,
delivery and performance thereof could not reasonably be expected to have a
Material Adverse Effect, (b) contracts entered into by the Company in order to
effectuate the provisions of Section 6.15, PROVIDED such contracts are
consistent with the terms of Section 6.15 and (c) any replacement Facilities
Management Agreements 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 the Company 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 Company 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.
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SECTION 6.13. SALES OF CAPACITY. The Company shall not, and
shall not permit any of its Subsidiaries to, sell, lease or otherwise dispose of
Capacity or capacity on other telecommunication systems acquired in accordance
with the terms hereof except pursuant to agreements entered into by the Company
on commercially reasonable terms including, without limitation, the provisions
set forth in EXHIBIT C (as such provisions may be amended, supplemented,
restated or otherwise modified from time to time to the extent permitted under
Section 6.10 hereof); PROVIDED that, in any event, (a) the relevant agreement
shall provide that all cash consideration payable thereunder shall be paid in
Dollars to (x) the Pre-Sales Proceeds Account (in the case of payments made
prior to the Conversion Date) and (y) except as provided in Section 8.2(c), to
the Revenue Account (in the case of payments made on and after the Conversion
Date), (b) if the relevant agreement shall provide for future payments it shall
not prohibit the granting of a security interest in such agreement by the
Company to the Administrative Agent for the benefit of the Secured Parties, (c)
if requested by the Administrative Agent, the Company shall deliver a copy of
any such relevant agreement, (d) the relevant agreement may provide for a cash
rebate or return of cash previously paid to the Company by such purchaser (i) on
or after March 31, 2002, to the extent that such cash has not previously been
used to make payments in connection with the Project, (ii) to the extent that
such rebate or return is due and payable no earlier than March 31, 2003 or (iii)
after the Conversion Date, if such agreement (other than any Capacity Sales
Agreement with Sponsors or any other direct holding company or any Affiliates
thereof) 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 VAT
Account and (e) the relevant agreement may provide for the purchase by the
Company of interim capacity on another system, provided, however, that any
acquisition of such interim capacity shall be funded directly with proceeds
received under related Capacity Sales Agreements; PROVIDED, FURTHER, the Company
shall not (i) 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 would exceed 10% of the Capacity
disposed of during the same period or (ii) enter into any agreement to 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 PROJECT. The Company shall not
issue any Certificate of Provisional Acceptance or Certificate of Commercial
Acceptance without
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the prior written consent of the Independent Engineer, such consent not to be
unreasonably withheld.
SECTION 6.15. LEASES. The Company shall not, and shall not
permit any of its Subsidiaries to, enter into any lease or leases as a lessee
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
Project Budget or 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 Project Budget or Operating Budget), (c) Capital Lease
Obligations for the lease of office equipment and automobiles in the ordinary
course of business of the Company and (d) Permitted Sale Leasebacks by the
Company or its Subsidiaries and (e) leases of interim capacity on other systems;
provided, however, that any acquisition of such interim capacity shall be funded
directly with proceeds received under related Capacity Sales Agreements.
SECTION 6.16. CHANGE OF OFFICE. The Company shall not, and
shall not permit any of its Subsidiaries to, change the location of its chief
executive office or principal 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 hereof, unless the Company or such Subsidiary, as
applicable, shall have given the Administrative Agent at least thirty (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 6.17. CHANGE OF NAME. The Company shall not, and shall
not permit any of its Subsidiaries to, change its name unless the Company or
such Subsidiary, as applicable, shall have given the Administrative Agent at
least thirty (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 6.18. TRANSACTIONS WITH AFFILIATES. The Company shall
not, and shall not permit any of its Subsidiaries to, enter into any agreement
with any Affiliate of the Company except (a) pursuant to any Contractual
Obligation of the Company or a Subsidiary in existence on the Closing Date and
set forth on SCHEDULE 6.18, (b) transactions referred to in Sections 7.1 and 7.6
of the Shareholders Agreement, (c) transactions in the ordinary course of
business which are on fair and reasonable terms not less favorable than the
Company or such Subsidiary could obtain in an arm's-length
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transaction with a Person which is not an Affiliate and (d) transactions among
the Company and its Subsidiaries or among such Subsidiaries.
SECTION 6.19. SALE AND LEASEBACK. The Company 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
Company or a Subsidiary.
SECTION 6.20. CAPITAL EXPENDITURES; OTHER PURCHASES OF ASSETS.
(a) From and after the Conversion Date, the Company 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 are included in the Project Budget, (ii) which do not
cause the Company and its Subsidiaries to spend more than $1,000,000 in the
aggregate in any Operating Year in respect of such expenditures or, to the
extent such expenditure would cause the Company and its Subsidiaries to spend
more than $1,000,000 in the aggregate in any Operating Year, which excess is
funded solely from Permitted Sources or amounts on deposit in the Capacity
Upgrades Reserve Account, PROVIDED such amounts on deposit are only used to pay
for Capacity Upgrades, (iii) are paid for with Capacity to the extent the
transfer of such Capacity is in accordance with Section 6.13 or (iv) are
approved by the Majority Lenders in writing (after consultation with the
Independent Engineer).
(b) The Company 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 by the Company in connection with
the completion of the Project (including in connection with Capacity Upgrades),
(ii) the purchase of assets reasonably required in connection with the
performance of Project Activities and (iii) Permitted Investments.
SECTION 6.21. UNRELATED ACTIVITIES; ABANDONMENT. The Company
shall not, and shall not permit any of its Subsidiaries to, engage in any
business other than Project Activities. The Company shall not abandon the
diligent operation and maintenance of the Project.
SECTION 6.22. SET-OFF. Without the prior written consent of
the Administrative Agent, the Company shall not exercise any right of set-off
with respect to amounts
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owing to it by the Contractor under the Construction Contract or amounts owing
under the Performance Bond.
SECTION 6.23. SUBSIDIARIES. The Company shall not, and shall
not permit any of its Subsidiaries to, create or otherwise acquire any
Subsidiary unless the Company gives the Administrative Agent notice thereof and
unless:
(a) such Subsidiary is a newly created,
wholly-owned direct Subsidiary of the Company;
(b) such Subsidiary shall, if the
Administrative Agent (or the Security Agent, if applicable) shall so request,
execute and deliver (i) a counterpart to the Subsidiary Guarantee Agreement with
respect to all Obligations in form and substance reasonably satisfactory to the
Administrative Agent and/or (ii) a security agreement in substantially the form
of the Company Security Agreements, with such modifications as the
Administrative Agent (or the Security Agent, if applicable) may reasonably
request or consent to;
(c) the Company shall pledge to the
Administrative Agent (and the Security Agent, if applicable) 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;
(d) the Administrative Agent shall have
received evidence reasonably satisfactory to it that the Administrative Agent
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;
(e) 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 Company and its Subsidiaries for any
Operating Year will exceed 105% of the amount budgeted for Taxes in respect of
such Operating Year; and
(f) 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 (b) through (d) of the foregoing.
SECTION 6.24. CONCENTRATION OF CASH. The Company shall not
permit the aggregate balance in all bank accounts, checking accounts or similar
accounts
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maintained by the Company 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 Company or its Subsidiaries for the benefit of other
Persons) except that the Company may establish and maintain an account with a
financial institution other than the Administrative Agent (the "COMPANY'S EXCESS
CASH FLOW ACCOUNT") into which funds may be deposited in accordance with Section
8.21(c). Amounts on deposit in any account (other than the Accounts and other
than the Company's Excess Cash Flow Account) shall be used solely to pay costs
in accordance with the then current Project Budget or Operating Budget.
SECTION 6.25. AMENDMENTS OF ORGANIZATIONAL DOCUMENTS. The
Company shall not, and shall not permit any of its Subsidiaries to, amend,
supplement or otherwise modify, or permit the amendment, modification or
supplementation of any Organizational Documents 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 6.26. IMMUNITY. The Company 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 Project, immunity from suit, execution,
attachment or other legal process.
SECTION 6.27. RESTRICTIVE AGREEMENTS. The Company 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 Company 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.
SECTION 6.28. CUMULATIVE CAPACITY SALES REVENUE. The Company
shall not permit the Cumulative Capacity Sales Revenue including proceeds from
the sales of fiber pairs in the Project for the period from September 30, 1999
through and including the last day of the calendar month preceding each date set
forth below, to be less than the correlative amount indicated opposite the
Quarterly Date:
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<TABLE>
<CAPTION>
CUMULATIVE CAPACITY
FISCAL QUARTER SALES REVENUE
<S> <C>
Fourth Quarter 2001 $257,000,000
First Quarter 2002 $285,000,000
Second Quarter 2002 $319,000,000
Third Quarter 2002 $352,000,000
Fourth Quarter 2002 $386,000,000
First Quarter 2003 $422,000,000
Second Quarter 2003 $463,000,000
Third Quarter 2003 $503,000,000
Fourth Quarter 2003 $544,000,000
First Quarter 2004 $584,000,000
Second Quarter 2004 $621,000,000
Third Quarter 2004 $658,000,000
Fourth Quarter 2004 $695,000,000
First Quarter 2005 $735,000,000
Second Quarter 2005 $778,000,000
Third Quarter 2005 $821,000,000
Fourth Quarter 2005 $864,000,000
First Quarter 2006 $909,000,000
Second Quarter 2006 $957,000,000
Third Quarter 2006 $1,006,000,000
Fourth Quarter 2006 $1,055,000,000
First Quarter 2007 $1,103,000,000
</TABLE>
Notwithstanding anything to the contrary contained in this Agreement, the
failure to comply with this Section at any time shall not constitute a Default
or an Event of Default, but shall result in, until such time as the Company
shall have delivered a certificate to the Administrative Agent in accordance
with Section 5.3(b) demonstrating the Company's compliance with this Section and
Sections 6.29 and 6.30, Excess Cash Flow being applied 100% to the
Administrative Agent for the account of the Lenders in accordance with Section
8.12(b); PROVIDED, HOWEVER, that such application to Term Loans shall be in
inverse order of maturity.
SECTION 6.29. PRESENT VALUE COVERAGE RATIO. From December 31,
2001 the Company shall not permit, as of the end of any calendar quarter falling
after the fiscal quarter in which the Conversion Date occurs, the Present Value
Coverage Ratio to be less than 1.32:1.00. Notwithstanding anything to the
contrary contained in this
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Agreement, the failure to comply with this Section at any time shall not
constitute a Default or an Event of Default, but shall result in, until such
time as the Company shall have delivered a certificate to the Administrative
Agent in accordance with Section 5.3(b) demonstrating the Company's compliance
with this Section and Sections 6.28 and 6.29, Excess Cash Flow being applied
100% to the Administrative Agent for the account of the Lenders in accordance
with Section 8.12(b) PROVIDED, HOWEVER, that such application to Term Loans
shall be in inverse order of maturity.
SECTION 6.30. INTEREST COVERAGE RATIO. The Company shall not
permit, as of the end of any fiscal quarter falling after the fiscal quarter in
which the Conversion Date occurs, the Interest Coverage Ratio to be less than
the correlative ratio indicated:
<TABLE>
<CAPTION>
FISCAL QUARTER INTEREST COVERAGE RATIO
<S> <C>
Fourth Quarter 2001 2.00:1.00
First Quarter 2002 2.25:1.00
Second Quarter 2002 2.65:1.00
Third Quarter 2002 3.25:1.00
Fourth Quarter 2002 3.50:1.00
First Quarter 2003 3.85:1.00
Second Quarter 2003 4.25:1.00
Third Quarter 2003 4.50:1.00
Fourth Quarter 2003 5.00:1.00
First Quarter 2004 5.50:1.00
Second Quarter 2004 6.00:1.00
Third Quarter 2004 6.50:1.00
Fourth Quarter 2004 7.00:1.00
First Quarter 2005 7.50:1.00
Second Quarter 2005 8.00:1.00
and thereafter
</TABLE>
Notwithstanding anything to the contrary contained in this Agreement, the
failure to comply with this Section at any time shall not constitute a Default
or an Event of Default, but shall result in, until such time as the Company
shall have delivered a certificate to the Administrative Agent in accordance
with Section 5.3(b) demonstrating the Company's compliance with this Section and
Sections 6.28 and 6.29, Excess Cash Flow being applied 100% to the
Administrative Agent for the account of the Lenders in accordance with Section
8.12(b) PROVIDED, HOWEVER, that such application to Term Loans shall be in
inverse order of maturity.
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Further, notwithstanding anything to the
contrary in this Agreement, the failure by Company to comply with any of
Sections 6.28, 6.29 or 6.30 at any time shall not constitute a Default or an
Event of Default, but shall result in the following until such time as the
ompany shall have delivered a certificate to the Administrative Agent in
accordance with Section 5.3(b) demonstrating compliance with Sections 6.28, 6.29
and 6.30:
(i) the availability of the
Revolving Credit Commitments being reduced (for so long as
such circumstance persists) to, in the case of any failure of
compliance, (v) in the first year from the Conversion Date,
$20,000,000; (w) in the second year from the Conversion Date,
$15,000,000; (x) in the third year from the Conversion Date,
$10,000,000; (y) in the fourth year from the Conversion Date,
$5,000,000; and (z) thereafter to zero;
(ii) except as provided in clause
(iii) below, the Company shall not be permitted to activate
any Capacity acquired by a Sponsor, whether under a Sponsor
Pre-Sale Capacity Commitment (other than purchases of Capacity
by third parties set forth on SCHEDULE 1.1(V) to this
Agreement) or otherwise, which shall not already have been
activated; and
(iii) the Company shall only be
permitted to sell or otherwise dispose of Capacity and
activate such Capacity with respect to (y) purchasers of
Capacity other than Sponsors and (z) incremental purchases of
Capacity by Sponsors in excess of the Sponsor Pre-Sale
Capacity Commitments; PROVIDED, HOWEVER, that in the case of
(z) such purchases must be made at no less than the then
prevailing market rate for such Capacity.
PROVIDED, HOWEVER, that in the event that after December 31,
2001, the amount of the outstanding Loans shall be less than $200,000,000 the
Company may activate any Capacity purchased or otherwise acquired by a Sponsor
notwithstanding any failure of compliance by the Company with any of Sections
6.28, 6.29 or 6.30.
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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 Company shall fail to pay any
principal of any Loan when due; or the Company or any Subsidiary of the Company
shall fail to pay any interest on any Loan or fee or other amount payable
hereunder or under any other Financing Document within three (3) Business Days
after any such other amount becomes due in accordance with the terms hereof or
thereof; or
(b) the Company shall fail to perform or
observe any of its covenants set forth in Section 5.9(a) and Article VI (other
than Sections 6.28, 6.29 and 6.30); or the Company shall fail to perform or
observe any of its covenants set forth in Section 5.1 (a), and the second
sentence of Section 5.1 of the Company Security Agreement (U.S.), the Company
shall fail to perform or observe any of its covenants set forth in Sections
5.1(a) of the Company Security Agreement (England) or any Sponsor shall fail to
perform or observe any of its covenants set forth in the first sentence of
Section 5(a), Section 5(b), of the Shareholder Pledge Agreements to which it is
a party; or the Company shall fail to maintain in effect any of the insurance
required to be maintained in accordance with Section 5.10; or
(c) the Company, any Subsidiary of the
Company or any Sponsor 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 6.28, 6.29 and 6.30) and such failure shall continue
unremedied or unwaived for a period of thirty (30) days after receiving written
notice thereof; or
(d) any representation or warranty made or
deemed made by the Company, any Subsidiary of the Company or any Sponsor 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
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(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, administration
(whether judicial, or otherwise) winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian, administrator (whether judicial
or otherwise) 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 sixty (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 sixty (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 Alcatel
or the Contractor shall not constitute a Default or an Event of Default under
this paragraph unless such proceeding, action or event could reasonably be
expected to have a Material Adverse Effect; or
(f) one or more judgments or decrees shall
be entered (i) against the Company or any Subsidiary of the Company involving in
the aggregate a liability (to the extent not 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 sixty (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 Company to have such
injunction or similar form of relief stayed or discharged within sixty (60)
days; or
(g) (i) any Financing Document shall cease,
for any reason, to be in full force and effect or the Company or any other party
thereto (other than a Lender)
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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 Company, other than
Capital Stock issued under the Stock Option Plan, shall not be subject to the
Shareholder Pledge Agreement in favor of the Administrative Agent; or
(h) prior to the end of the Warranty Period,
the Construction Contract Guaranty or any analogous or similar guaranty
delivered under or pursuant to Backhaul Agreements shall cease, for any reason,
to be in full force and effect, or Alcatel (or a contractor or other
counterparty to any Backhaul Agreement) shall so assert in writing and such
assertion shall not be withdrawn, revoked or remedied within 30 days thereof;
PROVIDED, HOWEVER, that in the case of such analogous or similar guaranty, no
such default shall occur unless a Material Adverse Effect shall have arisen as a
result of such cessation; or
(i) at any time prior to the last day of the
Warranty Period, 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 Provisional Acceptance Date (Phase 2), at
least 10% of then Total Contract Price, or (ii) at any time on or after the
Provisional Acceptance Date (Phase 2) until the last day of the Warranty Period,
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 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 (i) if it relates to a
Capacity Sales Agreement (other than a Capacity Sales Agreement with a Sponsor)
or an Additional Contract or (ii) if it relates to any other Principal Project
Document (other than prior to the end of the Warranty Period, the Construction
Contract and the Construction Contract Guaranties) if the Company shall obtain a
replacement agreement or arrangement reasonably satisfactory in form and
substance to the Majority Lenders (or, with respect to the Construction
Management Agreements, the Performance Bond and the Facilities Management
Agreements, to the Administrative Agent) with a Person satisfactory to the
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Majority Lenders (or, with respect to the Construction Management Agreements,
the Performance Bond and the Facilities Management Agreements, to the
Administrative Agent) within one hundred twenty (120) days after such
invalidity, contest, denial or declaration shall have occurred or (iii) if such
occurrence 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
thirty (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 or an Additional Contract (ii) the Construction Contract, if the
Construction Contract Guaranty remains in full force and effect and Alcatel is
actually performing its obligations thereunder in a timely fashion, (iii) the
Construction Management Agreements, if the defaulting party can be replaced and
is replaced within one hundred twenty (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) the Facilities Management Agreements so long as such
default could not reasonably be expected to have a material adverse effect on
the Company's ability to maintain the Project 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 Guaranty) if the Company
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 one hundred twenty (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
(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 ninety (90) days of
the commencement thereof, and in either case such revocation,
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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 Company 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, replaced or
restored in accordance with Section 5.20, the Company shall have failed to
deliver to the Administrative Agent an EOL Compliance Certificate in accordance
with the terms of Section 5.20 (or the Present Value Coverage Ratio set forth in
the EOL Compliance Certificate so delivered to the Administrative Agent shall be
less than 1.20:1.00) or (B) if the affected portion of the Project is being
repaired, replaced or restored in accordance with Section 5.20, the Company
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 Company shall fail to make any
payment (whether of principal or interest and regardless of amount) in respect
of any Material Indebtedness within any applicable grace period, when and as the
same shall become due and payable; or
(r) any event or condition occurs that
results in any Material Indebtedness of the 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 any Material
Indebtedness or any trustee or agent on its or their behalf to cause any
Material Indebtedness to become due, or requires the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
(s) the invalidity, termination or
revocation of the Bye-Laws of the Company 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; or
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(t) if:
(i) the Conversion Date shall not
occur on or before December 31, 2001;
(ii) the Cash Equity Contribution
Amount shall not be deposited in the Equity Proceeds Account
(or into a cash collateral account established with the
Administrative Agent) on or before the earlier to occur of (x)
the first date that both (A) Capacity Commitments in an
aggregate amount of not less than $300,000,000 and (B) the
available Construction Loan Commitments have been fully paid
or drawn (as the case may be) and (y) October 31, 2000;
(iii) the Sponsor Pre-Sale Capacity
Commitments are not paid in full on or before December 31,
2001;
(iv) the Company fails to achieve
an applicable Acceptance prior to the Required Applicable
Acceptance Date; or
(v) the Requisite Qualifying
Pre-Sales shall not have been obtained (whether by way of
Capacity Commitments or actual cash proceeds) on or prior to
the receipt of any expiry or termination notice with respect
to an Equity Contribution Letter of Credit (and such letter of
credit shall not have been continued or replaced in accordance
with its terms);
THEN, and in every such event (other than an event with respect to the Company
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 Company, 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 Company 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 Company; and in case of any event with
respect to the Company described in clause (e) of this Article, the Commitments
shall automatically terminate and the principal of the Loans then outstanding,
together with
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accrued interest thereon and all fees and other obligations of the Company
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 Company.
ARTICLE VIII
ACCOUNTS
SECTION 8.1. CREATION OF ACCOUNTS. (a) The Administrative
Agent hereby establishes the following 16 special, segregated and irrevocable
cash collateral accounts in the name of the Administrative Agent and for the
benefit of the Secured Parties, which accounts shall be maintained by the
Administrative Agent at all times until the termination hereof and the payment
in full of all Obligations:
(1) Construction Account;
(2) Pre-Sale Proceeds Account;
(3) Debt Proceeds Account;
(4) Equity Proceeds Account;
(5) Revenue Account;
(6) Debt Reserve Account;
(7) Operating Reserve Account;
(8) Current Account;
(9) Maintenance Reserve Account;
(10) Capacity Upgrades Reserve Account;
(11) Insurance Proceeds Account;
(12) Special Payment Account;
(13) Sales and Issuances Proceeds Account;
(14) Excess Revenue Account;
(15) Permitted Sources Account; and
(16) VAT 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 Administrative Agent and shall constitute collateral in
accordance with the terms of the Security Documents to be held in the custody of
the Administrative Agent for the purposes and on the terms set forth in the
Security Documents and this Article VIII.
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SECTION 8.2. REQUIRED DEPOSITS INTO THE ACCOUNTS.
(a) CONSTRUCTION ACCOUNT. The Company shall
deposit into the Construction Account the amounts required to be deposited
pursuant to this Article VIII.
(b) PRE-SALE PROCEEDS ACCOUNT. The Company
shall deposit into the Pre-Sale Proceeds Account all Pre-Sale Proceeds.
(c) DEBT PROCEEDS ACCOUNT. The Company shall
deposit into the Debt Proceeds Account all Construction Loan Borrowings,
pursuant to Section 2.4.
(d) EQUITY PROCEEDS ACCOUNT. The Company
shall deposit into a cash collateral account established with the Administrative
Agent the Cash Equity Contribution Amount until such time as $200,000,000 of
Requisite Qualifying Pre-Sales shall have been obtained (whether by way of
Capacity Commitments or actual cash proceeds), at which time upon certification
(together with details thereof) by a Responsible Officer of the Company with
respect thereto to the reasonable satisfaction of the Administrative Agent, such
amount may, as applicable, either be (i) directly deposited in the Equity
Proceeds Account or (ii) transferred thereto.
(e) REVENUE ACCOUNT. Subject to Sections
8.2(a) and 8.2(b), the Company shall deposit into the Revenue Account all
Project Revenues of the Company and its Subsidiaries received after the
Conversion Date.
(f) DEBT RESERVE ACCOUNT. The Administrative
Agent, acting in accordance with Section 8.8, shall on the Conversion Date
deposit into the Debt Reserve Account (to the extent that cash is available for
such purpose) the Debt Reserve Required Balance and thereafter the
Administrative Agent shall deposit amounts into the Debt Reserve Account from
amounts on deposit in the Revenue Account as specified in Section 8.12(b).
(g) OPERATING RESERVE ACCOUNT. From and
after the Conversion Date, the Administrative Agent, acting in accordance with
Section 8.8, shall deposit into the Operating Reserve Account (to the extent
that cash is available for such purpose) the amount set forth in the Schedule of
Sources and Uses to be deposited into the Operating Reserve Account, PROVIDED
such amount shall in no event exceed the Operating Reserve Maximum Balance. The
Administrative Agent shall deposit amounts into the Operating Reserve Account
from amounts on deposit in the Pre-Sale Proceeds Account as
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specified in Section 8.8 and from amounts on deposit in the Revenue Account as
specified in Section 8.12(b).
(h) CURRENT ACCOUNT. The Administrative
Agent shall deposit into the Current Account (i) Additional Borrowing Amounts
pursuant to Section 4.2(b)(ii) and (ii) amounts on deposit in the Revenue
Account as specified in Section 8.12(a).
(i) MAINTENANCE RESERVE ACCOUNT. The
Administrative Agent shall deposit amounts into the Maintenance Reserve Account
from amounts on deposit in the Pre-Sale Account as specified in Section 8.8 or
from amounts on deposit in the Revenue Account as specified in Section 8.12(b).
(j) VAT ACCOUNT. The Administrative Agent
shall deposit amounts into the VAT Account from amounts on deposit in the
Revenue Account as specified in Section 8.12(a)(i) and from amounts on deposit
in the Pre-Sale Proceeds Account as specified in Section 8.8(a).
(k) INSURANCE PROCEEDS ACCOUNT. The Company,
its Subsidiaries and the Administrative Agent shall deposit into the Insurance
Proceeds Account all Casualty Proceeds.
(l) SPECIAL PAYMENT ACCOUNT. The Company,
its Subsidiaries and the Administrative Agent shall deposit into the Special
Payment Account all Special Payments.
(m) SALES AND ISSUANCES PROCEEDS ACCOUNT.
The Company and its Subsidiaries shall deposit into the Sales and Issuances
Proceeds Account all Net Cash Proceeds received (except to the extent required
pursuant to Sections 2.9(c)(i) and 2.9(c)(ii)).
(n) EXCESS REVENUE ACCOUNT. The Company 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 8.12(b) or Section 8.17(a), as applicable.
(o) PERMITTED SOURCES ACCOUNT. The Company
shall deposit amounts into the Permitted Sources Account with funds contemplated
by clauses (b) and (c) of the definition of "Permitted Sources" to the extent
necessary to cause such funds to constitute a "Permitted Source."
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(p) CAPACITY UPGRADES RESERVE ACCOUNT. The
Administrative Agent shall deposit amounts into the Capacity Upgrades Reserve
Account from amounts on deposit in the Revenue Account as specified in Section
8.8. or 8.12(b).
SECTION 8.3. DEPOSITS HELD AS CASH COLLATERAL. (a) The
Administrative Agent agrees to accept all revenues, cash, payments, insurance
and casualty proceeds, other amounts and Permitted Investments to be delivered
to or held by the Administrative Agent pursuant to the terms hereof or of the
Security Documents. The Administrative Agent 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
hereof 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 Company to the
Administrative Agent as collateral securing the Obligations in accordance with
the provisions hereof and of the Security Documents.
(b) All moneys, cash equivalents,
instruments, investments and securities at any time on deposit in the Accounts
shall constitute security for the payment and performance by the Company of the
Obligations and shall at all times be subject to the sole dominion and control
of the Administrative Agent and shall be held in the custody of the
Administrative Agent in trust for the purposes of, and on the terms set forth
in, this Agreement.
(c) Neither the Company, any Subsidiary of
the Company nor any Sponsor 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
Company shall use reasonable efforts to ensure that all amounts delivered to the
Administrative Agent 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 Administrative Agent 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 Administrative Agent shall notify the Company
and hold such amounts in the Revenue Account (and shall not be applied in
accordance with Section 8.12) pending instructions from the Company which shall
be approved by the Administrative Agent in its reasonable discretion as to how
to apply such amounts.
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(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 Administrative Agent and applied solely as
provided in this Article VIII.
SECTION 8.5. BOOKS OF ACCOUNT; STATEMENTS. The Administrative
Agent 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 Administrative Agent 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 Administrative Agent at its principal office located at 222
Broadway, New York, New York 10038, and shall not, without the prior written
consent of the Administrative Agent, be moved to any different location.
SECTION 8.7. RECEIPT BY THE COMPANY. The Company 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 Company's endorsement if
necessary) to the Administrative Agent for deposit into the applicable Account
not later than the first Business Day after the Company's receipt. Until so
deposited, all such amounts shall be held in trust by the Company for the
Administrative Agent and the other Secured Parties as additional collateral
security for the Obligations and such amounts shall not be commingled with any
other funds or property of the Company.
SECTION 8.8. PRE-SALE PROCEEDS ACCOUNT. (a) Prior to the
Conversion Date the Administrative Agent shall on each Borrowing Date and on
each other date on which funds are required to be transferred to the
Construction Account in accordance with the terms of Section 8.9, distribute,
from the cash available in the Pre-Sale Proceeds Account, the amounts specified
in the Borrowing Notice to the Construction Account or the VAT Account, as
applicable.
(b) On the Conversion Date, the Administrative Agent shall
distribute the cash available in the Pre-Sale Proceeds Account 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 Revolving Credit Loans, if any and to the prepayment of
the unpaid principal of the Revolving Credit Loans, if any;
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SECOND, to the Maintenance Reserve Account
in an amount equal to the difference between (a) the
Maintenance Reserve Required Balance and (b) the balance then
in the Maintenance Reserve Account;
THIRD, to the Debt Reserve Account in an
amount equal to the difference between (a) the Debt Reserve
Required Balance and (b) the balance then in the Debt Reserve
Account;
FOURTH, to the Capacity Upgrades Reserve
Account, an amount sufficient to cause the amounts on deposit
therein to equal the Capacity Upgrades Reserve Required
Balance as of such date (as set forth in a certificate of the
Company delivered pursuant to Section 5.2(c) or, if the
Company shall have not delivered such a certificate to the
Administrative Agent, as set forth by the Administrative
Agent);
FIFTH, at the election of the Company, to
the Operating Reserve Account, in an amount equal to the
difference between (a) the Operating Reserve Maximum Balance
and (b) the balance then on deposit in the Operating Reserve
Account; provided in no event shall the balance therein exceed
the Operating Reserve Maximum Balance; and
SIXTH, to the repayment of Construction
Loans in accordance with Section 8.9(b).
(c) Notwithstanding (b) above, any cash
available in the Pre-Sale Proceeds Account on the Conversion Date which is
attributable to Sponsor Pre-Sale Capacity Commitments and Requisite Qualifying
Pre-Sales shall be applied, to the full extent thereof, to the prepayment of
outstanding Construction Loans immediately before any conversion to Term Loans,
including all accrued and unpaid interest thereon.
SECTION 8.9. CONSTRUCTION ACCOUNT. (a) The Administrative
Agent shall, upon receipt by it of a Borrowing Notice with attached payment
instructions or a certificate of the Company setting forth the costs due and
payable and to be paid from the Construction Account, distribute, from the cash
available in the Construction Account, to the Company for the benefit of the
Persons entitled thereto, all amounts then due and owing as set forth in such
certificate. In order to fund the payment of such costs, the Administrative
Agent shall transfer the requisite funds into the Construction Account from the
following sources (in the indicated priority):
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FIRST, from the Pre-Sale Proceeds Account,
all funds on deposit therein (or such lesser amount as may be
required to cover such costs);
SECOND, to the extent such costs are not
fully covered by the amounts transferred from the Pre-Sale
Proceeds Account, from the Debt Proceeds Account, all funds on
deposit therein (or such lesser amount as may be required to
cover such costs); and
THIRD, to the extent such costs are not
fully covered by the amounts transferred from the Pre-Sale
Proceeds Account and the Debt Proceeds Account and PROVIDED
that the Company shall have obtained (whether by way of
Capacity Commitments or actual cash proceeds) not less than
$200,000,000, in Requisite Qualifying Pre-Sales, from the
Equity Proceeds Account, all funds on deposit therein (or such
lesser amount as may be required to cover such costs).
(b) On the Conversion Date, the
Administrative Agent shall, upon receipt by it of a certificate of the Company
stating that all costs 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 Construction Loans or the Term Loans, as applicable;
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
Construction Loans or the Term Loans, as applicable;
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;
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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 8.10. DEBT PROCEEDS ACCOUNT. The Administrative Agent
shall upon receipt in the Debt Proceeds Account of the proceeds of Loans
distribute such proceeds to the Construction Account.
SECTION 8.11. EQUITY PROCEEDS ACCOUNT. (a) The Administrative
Agent shall, upon receipt by it of a certificate of the Company setting forth
the costs due and payable and to be paid from the Equity Proceeds Account,
distribute, from the cash available in the Equity Proceeds Account, to the
Construction Account, all amounts then due and owing as set forth in such
certificate.
(b) On the Conversion Date, the
Administrative Agent shall, upon receipt by it of a certificate of the Company
stating that all costs to be paid from the Equity Proceeds Account have been
paid or are no longer payable, apply the full amount of cash available in the
Equity Proceeds Account to the prepayment of outstanding Term Loans, including
all accrued and unpaid interest thereon.
(c) Notwithstanding anything to the contrary
in subsections 8.11(a) and (b) hereof, Equity Withdrawals from the Equity
Proceeds Account may only be made after satisfaction of the conditions precedent
set forth in Section 4.5.
SECTION 8.12. REVENUE ACCOUNT.
After the Conversion Date:
(a) OPERATING EXPENSES AND CAPITAL
EXPENDITURES; 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
Company shall deliver to the Administrative Agent an Expense
Certificate in the form of EXHIBIT J requesting (x)
distributions to pay Operating Expenses and capital
expenditures from the Revenue Account, the amounts of which
distributions shall, unless consented to in writing by the
Majority Lenders, conform to the then current Operating Budget
of the
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Company (as modified pursuant to Section 6.9) and (y)
distributions to pay income taxes from the Revenue Account. On
the last 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 Administrative
Agent 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 value added tax, sales
tax or other similar tax or potential rebate or other similar
return (to the extent permitted hereunder), that portion of
such Project Revenues directly to the VAT Account and SECOND,
(A) to the Persons entitled thereto, all Operating Expenses
and capital expenditures or income taxes of the Company or any
Subsidiary then due and owing in item (1) of such Expense
Certificate, and (B) to the Current Account, the amounts
identified as Operating Expenses and capital expenditures or
income taxes of the Company or any Subsidiary expected to be
due and owing prior to the next Operating Expense Transfer
Date in item (2) of such Expense Certificate.
(ii) The Company shall be permitted
to deliver a certificate to 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 Administrative Agent shall
distribute from the cash available in the Revenue Account the
amount of such fees, interest or other obligations directly to
the Persons entitled thereto.
(b) QUARTERLY TRANSFERS. On each Principal
Payment Date, the Administrative Agent 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:
FIRST, for the account of the Term Loan
Lenders, the amount, if any, equal to the scheduled principal
payments with respect to the Term Loans set forth in SCHEDULE
1.1(III) and all accrued and unpaid interest thereon which the
Administrative Agent certifies to the Company to be due and
payable on such date.
SECOND, for the account of the Revolving
Credit Lenders, the amount equal to all accrued and unpaid
interest on the Revolving Credit Loans, if any, which the
Administrative Agent certifies to the Company to be due and
payable on such date;
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THIRD, to be applied to the prepayment of
all of the unpaid principal of the Revolving Credit Loans;
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 Company delivered pursuant
to Section 5.3(c) or, if the Company shall not have delivered
such a certificate to 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 Company delivered
pursuant to Section 5.3(c) or, if the Company shall not have
delivered such a certificate to the Administrative Agent, as
set forth by the Administrative Agent);
SIXTH, (i) to the Capacity Upgrades Reserve
Account, an amount sufficient to cause the amounts on deposit
therein to equal the Capacity Upgrades Reserve Required
Balance as of such date (as set forth in a certificate of the
Company delivered pursuant to Section 5.3(c) or, if the
Company shall have not delivered such a certificate to the
Administrative Agent, as set forth by the Administrative
Agent);
SEVENTH, (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 Company, 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;
EIGHTH, to the Administrative Agent, for the
account of the Term Loan Lenders, an amount equal to 75% 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
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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 Company may direct and which do not violate
the terms hereof and of the other Financing Documents.
SECTION 8.13. DEBT RESERVE ACCOUNT. On and from the Conversion
Date if, as of any date on which the payment of interest on or principal of the
Loans becomes due and payable as certified by the Company to 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 8.12 and 8.20, the Administrative Agent shall transfer to the
Administrative Agent, for the benefit of the Lenders an amount (to the extent
cash is available in the Debt Reserve Account) to remedy any such insufficiency.
Upon the occurrence and during the continuance of a Default or an Event of
Default, funds in the Debt Reserve Account may be utilized to pay interest on
and principal of the Loans.
SECTION 8.14. 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 Administrative Agent shall transfer to the
Person(s) entitled thereto in accordance with Section 8.12(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. Upon the
occurrence and during the continuance of a Default or an Event of Default, funds
in the Operating Reserve Account may be utilized to pay interest on and
principal of the Loans.
SECTION 8.15. CURRENT ACCOUNT. (a) Prior to the Conversion
Date, the Additional Borrowing Amounts shall be deposited into the Current
Account. The Administrative Agent shall pay, from and to the extent of cash
available in the Current Account and as set forth in a certificate of the
Company delivered to the Administrative Agent, to the Company for the benefit of
the Persons entitled thereto, amounts requested by the Company for the payment
of Project Costs.
(b) The Administrative Agent shall pay, from
and to the extent of cash available in the Current Account and as set forth in a
certificate of the Company delivered to the Administrative Agent, directly to
the Company for the benefit of the
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Persons entitled thereto, all other Operating Expenses previously identified in
the most recently delivered Expense Certificate which are then due and owing.
SECTION 8.16. 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 through the next
Operating Expense Date, the Administrative Agent shall transfer to the Person(s)
entitled thereto in accordance with Section 8.12(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. Upon the
occurrence and during the continuance of a Default or an Event of Default, funds
in the Maintenance Reserve Account may be utilized to pay interest on and
principal of the Loans.
SECTION 8.17. 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 Company as provided in paragraph (c) of this Section, or
used by the Administrative Agent as provided in paragraph (d) of this Section,
or returned to the Company as provided in Section 8.30.
(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 Company 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
Administrative Agent of a certificate of the Company (i) 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 (ii)
stating the specific amount requested to be paid over to or upon the order of
the Company (or such other Person) or that such amount is requested to reimburse
the Company, 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
remaining in the Insurance Proceeds Account for such purpose and other funds of
the Company available for such purpose,
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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 Administrative Agent shall apply such Casualty Proceeds Deposits to the
payment of the Obligations in accordance with Section 2.9(d).
(d) If the Company shall at any time notify
the Administrative Agent that an Event of Loss has occurred, then, unless the
affected portion of the Project is being repaired, replaced, restored or
re-built in accordance with Section 5.20(b), the Administrative Agent 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 relating thereto from the Insurance
Proceeds Account and apply them to the payment of the Obligations in accordance
with Section 2.9(d). If the Project is being repaired, replaced or restored or
re-built in accordance with Section 5.20(b), the provisions of paragraph (c)
above shall apply.
SECTION 8.18. SPECIAL PAYMENT ACCOUNT. All Special Payments
deposited in the Special Payment Account shall, except to the extent otherwise
provided pursuant to Sections 2.9(f) and 5.20(b), be applied by 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).
SECTION 8.19. VAT ACCOUNT. (a) Upon the delivery by the
Company of a certificate to the Administrative Agent that amounts previously
distributed into the VAT Account in respect of payments of interim capacity, a
potential rebate or other amounts payable to relevant government authorities in
respect of value added taxes, sales taxes or other similar taxes are now due and
payable, the Administrative Agent shall distribute, from the cash available in
the VAT Account, directly to the Company 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 Company of a
certificate to the Administrative Agent that amounts previously distributed into
the VAT Account in respect of a potential rebate cease to be subject to such
rebate, the Administrative Agent shall distribute, from the cash available in
the VAT Account, such amounts to the Revenue Account.
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SECTION 8.20. 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 Company, to the
extent such Net Cash Proceeds are not otherwise invested as permitted pursuant
to Section 2.9(c)(i), after depositing the specified portion to the Capacity
Upgrades Reserve Account, the remainder of such Net Cash Sales Proceeds on
deposit in the Sales and Issuance Proceeds Account 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 Company, to be used in such manner
(including equity dividends or distribution to the Company's Excess Cash Flow
Account) as the Company shall determine in accordance with the terms hereof;
(b) if such amounts are Net Cash Proceeds in
respect of any sale, transfer or other disposition of any asset of the Company
or any Subsidiary (other than sales, transfers or dispositions 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 Company), (i) an
amount equal to the portion thereof being held to be used to replace such asset
disposed of with a similar asset of at least substantially the same value,
utility and useful life (which shall be specified in a certificate of the
Company delivered to 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 Administrative Agent of a certificate of the Company
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 Section 2.9(c)(iii); and
(c) if such amounts are Net Cash Proceeds of
a Permitted Sale Leaseback Transaction, such amount shall be applied to the
prepayment of the Loans in accordance with Section 2.9(e).
SECTION 8.21. 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
Administrative Agent shall transfer to the Person(s) entitled thereto in
accordance with Section 8.12(a) (to the extent cash is
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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 becomes due and payable as certified by
the Company to the Administrative Agent, the cash available in the Revenue
Account is insufficient to make such payment obligations on such date in
accordance with Section 8.12, the Administrative Agent shall transfer to the
Lenders an amount (to the extent cash is available in the Excess Revenue
Account) to remedy any such insufficiency.
(c) Within forty five (45) days after the
end of each Operating Year of the Company, the Company shall be permitted to
request the Administrative Agent to distribute any or all amounts available in
the Excess Revenue Account to the Company's Excess Cash Flow Account. Upon such
request, the Administrative Agent shall distribute such amount from the cash
available in the Excess Revenue Account to the Company's Excess Cash Flow
Account. Notwithstanding anything to the contrary in this Section 8.21 upon the
occurrence and during the Continuance of a Default or an Event of Default, funds
in the Excess Revenue Account may be utilized to pay interest on and principal
of the Loans.
SECTION 8.22. PERMITTED SOURCES ACCOUNT. Amounts on deposit in
the Permitted Sources Account shall be paid over to or upon the order of the
Company to pay costs in respect of which such Permitted Sources were deposited,
upon the receipt by the Administrative Agent of a certificate of the Company
stating the specific amount requested to be paid over to or upon the order of
the Company (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 respect of which such funds were deposited, as
certified by a Responsible Officer of the Company to the Administrative Agent,
the Administrative Agent shall transfer such amounts from amounts on deposit in
the Permitted Sources Account to the Company's Excess Cash Flow Account.
SECTION 8.23. CAPACITY UPGRADES RESERVE ACCOUNT. Amounts on
deposit in the Capacity Upgrades Reserve Account shall be paid over to or upon
the order of the Company to pay costs with respect to Capacity Upgrades, upon
the receipt by the Administrative Agent of a certificate of the Company stating
the specific amount requested to be paid over to or upon the order of the
Company (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 Capacity Upgrades Reserve
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Account are no longer necessary to pay costs in respect of which such funds were
deposited, as certified by a Responsible Officer of the Company to the
reasonable satisfaction of the Administrative Agent, the Administrative Agent
shall apply such amounts in the manner set forth at item "eighth" in Section
8.12(b). Upon the occurrence and during the Continuance of a Default or an Event
of Default, funds in the Capacity Upgrade Reserve Account may be utilized to pay
interest on and principal of the Loans.
SECTION 8.24. DELIVERY OF OFFICER'S CERTIFICATES; TIMING OF
PAYMENTS. (a) Each certificate to be delivered by the Company under this Article
shall be issued by a Responsible Officer of the Company 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 Administrative Agent
is required to make transfers hereunder. Any certificate of a Responsible
Officer of the Company delivered later than the time specified herein shall
nevertheless be considered valid and shall be honored by the Administrative
Agent 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 Company as set forth in paragraph
(a) above, (ii) the availability of cash in the applicable Account and (iii)
other circumstances beyond the control of the Administrative Agent, the
Administrative Agent 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, the Maintenance Reserve Account, Capacity Upgrades Reserve Account in
excess of the Debt Reserve Required Balance, Capacity Upgrades Reserve Required
Balance or the Maintenance Reserve Required Balance, as applicable, or (ii) an
amount is on deposit in the Operating Reserve Account in excess of the Operating
Reserve Maximum Balance, 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
Administrative Agent shall, upon the instruction of the Company, distribute any
such excess amounts to the Revenue Account.
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SECTION 8.26. EVENT OF DEFAULT. Any other provision contained
in this Agreement to the contrary notwithstanding, (a) if a Default shall have
occurred and be continuing, distributions from the Accounts shall be made only
with the consent of the Majority Lenders and (b) if the Administrative Agent
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 Administrative Agent 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
Administrative Agent 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
Administrative Agent;
SECOND, to any Lender to which any payment
under Section 2.12, 2.13, 2.14 or 2.15 is then due;
THIRD, to the Administrative Agent, to be
applied to the payment of all unpaid fees owing to the
Lenders;
FOURTH, to the Administrative Agent, to be
applied to the payment of all accrued but unpaid interest
(whether or not due) on the Loans;
FIFTH, to the Administrative Agent, to be
applied to the payment of all of the unpaid principal (whether
or not due) of the Loans;
SIXTH, to the Administrative Agent, to be
applied to the payment of all other Obligations (whether or
not due); and
SEVENTH, to the Company, 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 Administrative
Agent in any Account shall be invested by the Administrative Agent from time to
time as directed in writing by the Company (or, if 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 Company or its Affiliates. Any such
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investment may be sold by the Administrative Agent whenever necessary to make
any distribution required by this Agreement. The Administrative Agent 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
Administrative Agent will promptly notify the Company of any loss resulting from
any such investment or sale.
SECTION 8.28. STATEMENTS OF ACCOUNTS. Not later than five (5)
Business Days following the end of each calendar month, and from time to time
upon written request of the Company, the Administrative Agent shall provide to
the Company a statement of amounts on deposit in each Account and Permitted
Investments as of the end of the prior month, (b) a statement of 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 Administrative
Agent 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 Company and the
Administrative Agent may establish procedures not materially inconsistent with
this Agreement pursuant to which the Administrative Agent may conclusively
determine, for purposes hereof, the amounts from time to time to be distributed
or paid by the Administrative Agent from cash available in the Accounts or
pursuant to which the Administrative Agent and the Company may provide for
reasonable operating and administrative flexibility.
SECTION 8.31. SALES OF PERMITTED INVESTMENTS. The
Administrative Agent 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 the terms hereof, for the Administrative
Agent 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.
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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 Administrative Agent shall treat as available cash
the amount which the Administrative Agent would have received on such day if the
Administrative Agent had liquidated all the Permitted Investments (at then
prevailing market prices) then on deposit in such Account.
SECTION 8.33. TERMINATION. Upon termination hereof and the
payment in full of all Obligations, all rights to the Collateral shall revert to
the Person legally entitled thereto, and the Administrative Agent shall transfer
any remaining amounts, together with any interest thereon, on deposit in the
Accounts to the Company or as the Company may direct.
ARTICLE IX
THE AGENTS
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.
WestDeutsche Landesbank Girozentrale, New York Branch is
hereby appointed Syndication Agent hereunder and under the other Financing
Documents and each Lender hereby authorizes Syndication Agent to act as its
agent in accordance with the terms hereof and the other Financing Documents.
Dresdner Bank A.G. is hereby appointed Documentation Agent hereunder, and each
Lender hereby authorizes Documentation Agent to act as its agent in accordance
with the terms hereof and the other Financing Documents. As of the Closing Date,
all the respective obligations of WestDeutsche Landesbank Girozentrale, New York
Branch, in its capacity as Syndication Agent, and Dresdner Bank A.G., in its
capacity as Documentation Agent, shall terminate.
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
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with the Company 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 in this Agreement, 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 Company 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 Company 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 hereof, of any other Financing Document or of 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 Company), independent accountants
and
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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 of 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 of 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.
The Administrative Agent shall, where appropriate, take into
account the interests of the Secured Parties.
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 Company. Upon any such
resignation, the Majority Lenders shall have the right, in consultation with the
Company, to appoint a successor. If no successor shall have been so appointed by
the Majority Lenders and shall have accepted such appointment within thirty (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 Company, 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 Company to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Company and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Article and
Section 10.3 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 Company), ratably according to the respective principal amounts of the Loans
owing to them and
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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 hereof 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 Company.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of the Company and its Subsidiaries and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon the Administrative Agent 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
MISCELLANEOUS
SECTION 10.1. 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
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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 Company, to it at Emporium
Building, 4th Floor, 69 Front Street, Hamilton HM 12, Bermuda;
(b) if to the Administrative Agent, to it at
222 Broadway, New York, New York, 10038, Attention: Peter Yetman (Telecopy No.
212-412-7511); and
(c) if to any Lender, to it at its address
(or telecopy number) set forth on SCHEDULE 10.1.
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 10.2. 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 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 hereof or of any
other Financing Document or consent to any departure by the Company 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 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:
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(i) in the case hereof,
pursuant to an agreement or agreements in writing entered into
by the Company and the Majority Lenders or by the Company and
the Administrative Agent with the consent of the Majority
Lenders (unless expressly provided otherwise in this
Agreement);
(ii) in the case of any
other Security Document, pursuant to an agreement or
agreements in writing entered into by the Administrative Agent
(with the consent of the Majority Lenders, unless expressly
provided otherwise in such Security Document) and each other
Person party thereto; or
(iii) in the case of any
other Financing Document, pursuant to an agreement or
agreements in writing entered into by the Administrative 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 without the written consent of each Lender (or each Lender of
such Class, as the case may be) no such agreement shall in each case:
(A) increase the
Commitment of any Lender;
(B) reduce the principal
amount of any Loan or reduce the rate of interest thereon, or
reduce any fees payable hereunder;
(C) 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;
(D) change Section 2.16(b)
or 2.16(c);
(E) release all or
substantially all of the Collateral; or
(F) 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;
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PROVIDED, FURTHER, that
(I) 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; and
(II) any waiver, amendment
or modification hereof that by its terms affects the rights or
duties under this Agreement of the Revolving Credit Lenders
(but not the Construction Loan Lenders or the Term Lenders) or
the Construction Loan 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 Company and
requisite percentage in interest of the affected Class of
Lenders.
SECTION 10.3. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) The
Company shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent the Lead Arranger and their respective Affiliates,
including the reasonable fees, charges and disbursements of the Administrative
Agent and counsel for the Administrative Agent 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 hereof 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 Lead Arranger or any Lender, including
the fees, charges and disbursements of any counsel for the Administrative Agent,
the Lead Arranger or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement (including pursuant
to a "workout" restructuring or negotiating in respect thereof) or any other
Financing Document, including its rights under this Section, or in connection
with the Loans made hereunder, the Project Documents, or any other instrument or
agreement entered into by the Company in connection herewith or therewith,
including in connection with any workout, restructuring or negotiations in
respect thereof.
(b) The Company further agrees to pay,
indemnify and hold each Lender, the Administrative Agent and the Lead 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
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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 Company shall indemnify the
Administrative Agent, the Lead Arranger, the Independent Engineer 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 hereof, 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
Company 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 Company
(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 Company.
(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 Company thereof (and shall notify the Company of any other loss,
damage or liability that it has suffered and intends to seek
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indemnification therefor hereunder promptly after acquiring knowledge thereof)
and shall consult with the Company 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 Company notice thereof and the Company the opportunity to
assume the defense thereof (if entitled hereunder) or (y) without the prior
written consent of the Company, which shall not be unreasonably withheld, if the
Company is not entitled to assume the defense as a result of clause (ii) or
(iii) of the succeeding sentence. The Company 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 Company elects to assume the defense) and at its expense,
PROVIDED that the Company may not assume the defense if (i) such Indemnitee
determines, on the reasonable advice of counsel, that representation of both the
Company and such Indemnitee by the Company'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 Company, 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 Company, (iii) the Company 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 Company fails to
pay any amount required to be paid by it to the Administrative Agent or the Lead
Arranger under paragraph (a), (b) or (c) of this Section, each Lender severally
agrees to pay to the Administrative Agent or the Lead 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 Administrative Agent or the Lead Arranger in its capacity
as such.
(f) All amounts due under this Section shall
be payable promptly after written demand therefor.
SECTION 10.4. SUCCESSORS AND ASSIGNS; CONSENT AND AGREEMENT.
(a) The provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns permitted hereby,
except that the Company may not assign or otherwise transfer any of its rights
or obligations hereunder without the prior written consent of each Lender (and
any attempted assignment or transfer by the
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Company 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 Administrative Agent and the Lead Arranger) any legal or equitable
right, remedy or claim under or by reason hereof.
(b) Any Lender may at any time assign to one
or more assignees (other than to the Company, any Subsidiary or any Sponsor 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 Company (such consents not to be
unreasonably withheld or delayed); and
(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 Commitment, 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 Company and the Administrative Agent otherwise
consents.
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 Company). 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
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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 10.3). 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 hereof 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 Company, 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 names and addresses of the Lenders and
the registered owner(s) of any obligation evidenced by a Note (if applicable),
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 (if
applicable) 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, upon written request, 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 Company 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 10.4(c).
The entries in the Register shall be conclusive, and the Company, 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 hereof, 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 hereof unless it has been recorded in the
Register as provided in this paragraph.
(e) Any Lender may, without the consent of
the Company 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);
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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 Company, 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 hereof. Subject to paragraph (f) of this
Section, the Company 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 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 Company is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Company, 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 10.5. SURVIVAL. All covenants, agreements,
representations and warranties made by the Company herein and in the
certificates or other instruments delivered in connection herewith or pursuant
hereto shall be considered to have been relied upon by the other parties hereto
and shall survive the execution and delivery hereof 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 10.3 and
Articles IX, X and XI 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 hereof or any provision hereof.
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SECTION 10.6. 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 Lead 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 10.4, their
respective successors and assigns. Delivery of an executed counterpart of a
signature page hereof by telecopy shall be effective as delivery of a manually
executed counterpart hereof.
SECTION 10.7. SEVERABILITY. Any provision hereof 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 10.8. 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 setoff 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 Company against any of and all the
obligations of the Company 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 10.9. 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 XI SHALL
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BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF ENGLAND AND WALES.
(B) THE COMPANY 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 HERETO, 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 ADMINISTRATIVE AGENT
OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING
HERETO AGAINST THE COMPANY OR ITS PROPERTIES OR THE COMPANY'S SUBSIDIARIES OR
THEIR PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(C) THE COMPANY 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 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 IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN
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SECTION 10.1. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(E) THE COMPANY HEREBY IRREVOCABLY AND
UNCONDITIONALLY APPOINTS FLAG TELECOM USA LIMITED (THE "NEW YORK PROCESS
AGENT"), WITH AN OFFICE ON THE CLOSING DATE AT 570 LEXINGTON AVENUE, 38TH FLOOR,
NEW YORK, NEW YORK, 10022, AS ITS AGENT TO RECEIVE ON BEHALF OF THE COMPANY 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 COMPANY BY DELIVERING A COPY OF SUCH PROCESS TO THE COMPANY
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 COMPANY AT ITS ADDRESS REFERRED TO IN SECTION 10.1
(SUCH SERVICE TO BE EFFECTIVE UPON SUCH RECEIPT BY THE APPROPRIATE PROCESS AGENT
AND THE DEPOSITING OF SUCH PROCESS IN THE MAILS AS AFORESAID). THE COMPANY
HEREBY IRREVOCABLY AND UNCONDITIONALLY AUTHORIZES AND DIRECTS SUCH PROCESS AGENT
TO ACCEPT SUCH SERVICE ON ITS BEHALF. AS AN ALTERNATE METHOD OF SERVICE, THE
COMPANY 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 COMPANY BY CERTIFIED OR REGISTERED AIR MAIL AT ITS
ADDRESS REFERRED TO IN SECTION 10.1.
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SECTION 10.10. WAIVER OF SOVEREIGN IMMUNITY. (a) To the extent
that the Company has or hereafter may acquire any immunity (sovereign or
otherwise) from any legal action, suit or proceeding, from jurisdiction of any
court or from setoff 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 Company 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 Company 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 10.11. JUDGMENT CURRENCY. The obligation of the
Company 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 Administrative Agent, the Lead 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 Company shall (and shall procure that
each Subsidiary shall with respect to any Subsidiary Security Agreement to which
it is a party) indemnify the Administrative Agent, the Lead 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
Administrative Agent, the Lead 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 10.12. DAMAGE WAIVER. To the extent permitted by
applicable law, the Company shall not assert, and hereby waives, any claim
against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as 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 10.13. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY
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APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING HERETO OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
SECTION 10.14. HEADINGS. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part hereof and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 10.15. REMOVAL OF CONSULTANTS. (a) The Administrative
Agent may (and, if the Company can demonstrate to the satisfaction of the
Administrative Agent that any Consultant has persistently failed to perform its
duties in a professional manner, the Administrative Agent will) from time to
time, in its reasonable discretion, remove any one or more of the Consultants,
PROVIDED that the Administrative Agent select and appoint a replacement therefor
that is approved by the Company (which approval shall not be unreasonably
withheld or delayed). Notice of any replacement Consultant shall be given
promptly to the Company and the Lenders.
(b) Each Consultant shall be contractually
obligated to the Administrative Agent to carry out the activities required of it
in this Agreement and the other Financing Documents and as otherwise requested
by the Administrative Agent.
SECTION 10.16. 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 hereof or of 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
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or other legal process (in which event such party shall promptly notify the
Company 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 Company shall have consented
to such disclosure in writing and (g) to any Lender's assignee or any proposed
assignee 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.
ARTICLE XI
ADMINISTRATIVE AGENT
SECTION 11.1. TRUST FOR SECURED PARTIES. The parties hereto
agree that the Administrative Agent shall hold the Collateral (collectively,
the "TRUST COLLATERAL") which is subject to the Company Security Agreement
(England), the Company Security Agreements (France) and the Subsidiary
Debenture on trust for itself and the Secured Parties on the terms and
conditions herein contained.
SECTION 11.2. DEFAULT PROCEDURE.
(a) If a Default occurs, the Administrative
Agent shall promptly after becoming aware of the same notify the Lenders in
writing of such occurrence.
(b) The Administrative Agent shall use
commercially reasonable endeavors to promptly comply with the instructions of
Majority Lenders as to the exercise or enforcement by it, following a Default,
of any of its rights in respect of the Trust Collateral, upon and subject to the
terms and conditions hereof and pursuant to the terms and conditions in the
Security Documents.
(c) The Administrative Agent, if applicable,
shall at any time after the occurrence of a Default be entitled (but not
obliged) to request instructions from the Secured Parties as to whether it
should endeavor to enforce any of the Trust Collateral and/or as to the manner
in which it should endeavor to do so, and to convene on reasonable notice a
meeting of the Secured Parties to discuss such matters.
SECTION 11.3. APPLICATION OF PROCEEDS.
(a) All receipts or recoveries by the
Administrative Agent (or by any of the Obligors and paid over to the
Administrative Agent) pursuant to, or upon
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enforcement of, any of the Trust Collateral and all other monies which are by
the terms of any Financing Documents to be applied in accordance with this
Section 11.3 shall, after deducting (to the extent not already deduced or
retained prior to such receipt or recovery by the Administrative Agent) all such
sums as are mentioned as deductions in the definition of "Proceeds" (all such
sums hereinafter collectively referred to as "DEDUCTIONS"), be converted (unless
such sums are to be credited for the time being to suspense or impersonal
account) by the Administrative Agent from their existing currency of
denomination into the currency or currencies (if different) of sums then
outstanding under the Financing Documents (any such conversion from one currency
to another to be made at the Administrative Agent's then prevailing spot rate
for the purchase of that other currency with the first mentioned currency at the
office of the Administrative Agent by which such conversion is made) and then,
after deducting all commissions and expenses relating to any such conversion,
applied by the Administrative Agent either as a whole or in such proportions as
the Administrative Agent shall think fit:
(i) in payment to the credit of an
account (each a "PROCEEDS ACCOUNT") in London in its name and,
if any of the sums then outstanding under any of the Financing
Documents are contingent or future, may be held in such
account or accounts for so long as the Administrative Agent
shall think fit pending their further application from time to
time in accordance with this Section 11.3, or
(ii) in payment to the credit of a
suspense or impersonal account in London and may be held in
such account for so long as the Administrative Agent shall
think fit pending any conversion and further application from
time to time of such monies (as the Administrative Agent shall
be entitled, but not obliged, to do in its discretion) in
accordance with the foregoing provisions of this Section 11.3.
(iii) sums standing to the credit
of the Proceeds Account(s) shall, to the extent permitted by
Applicable Law, be applied in the following order of priority:
(A) in or towards
discharging all sums owed to the
Administrative Agent (in its capacity as
security agent) under any of this Agreement
and the Security Documents;
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(B) in or towards
discharging all assessments to Tax made on
the Administrative Agent in respect of any
of the Trust Collateral, in respect of
anything done by it in its capacity as
security agent or otherwise by virtue of its
capacity as security agent;
(C) after setting aside in
such of the Proceeds Accounts as the
Administrative Agent may think fit, by way
of reserve, amounts required to meet all
such sums mentioned in paragraph (i) above
as the Administrative Agent considers will
or may become payable in connection with the
exercise of any rights and/or the
performance of any of the Administrative
Agent's obligations under the Company
Security Agreement (UK), Company Security
Agreement (France), the Charge Over Business
and the Subsidiary Debenture, all such
Deductions as the Administrative Agent
considers will or may become payable and
which it reasonably considers will or may
become payable and which it reasonably
considers will or may not be discharged out
of future receipts or recoveries from
enforcement of any rights and all such sums
as the Administrative Agent considers will
or may be required to meet any assessment to
Tax that may be made upon it, in payment to
the Administrative Agent, on behalf of the
Secured Parties, for application in or
towards the discharge of all sums due and
payable by the Company under this Agreement;
(D) if the Company is
under no further actual or contingent
liability under this Agreement, in payment
to any person to whom the Administrative
Agent is obliged to pay in priority to the
Obligors otherwise entitled thereto, to the
extent it is so obliged; and
(E) thereafter, in payment
to the Obligors entitled thereto.
(b) The fact that the Administrative Agent
may make a payment pursuant to Sections 11.3(a)(ii) through (iii)(A), or may
determine that the Company is under no further actual or contingent liability
under the Financing Documents and make a payment under Section 11.3(a)(iii)(B)
or (iii)(C), will not thereafter prevent the Administrative Agent from applying
any further Proceeds, or any credit balance on any Proceeds Account, in the
order set out in Section 11.3.
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(c) The Administrative Agent shall be
entitled to make the deductions and withholdings (on account of Taxes or
otherwise) from payments which it is required by any Applicable Law to make, and
to pay all Taxes which may be assessed against it in respect of any of the Trust
Collateral, in respect of anything done by it in its capacity as security agent
or otherwise by virtue of its capacity as security agent. Each of the Obligors
agrees that the Secured Obligations shall only be discharged by virtue of
receipt or recovery by the Administrative Agent of Proceeds, or of payments made
by the Administrative Agent hereunder, to the extent that the ultimate recipient
actually receives monies from the Administrative Agent hereunder.
(d) If any of the Obligors receives any sum
from any person which, pursuant to the Financing Documents, should have been
paid to the Administrative Agent, such sum shall be held on trust for the
Secured Parties and shall forthwith be paid over to the Administrative Agent for
application in accordance with this Section 11.3.
(e) The Administrative Agent shall be
entitled to pay any Deductions to the person or persons entitled thereto.
SECTION 11.4. THE ADMINISTRATIVE AGENT'S RIGHTS, POWERS AND
DISCRETIONS.
(a) The Administrative Agent shall have all
the powers and discretions conferred upon trustees by the Trustee Act 1925 (to
the extent not inconsistent herewith) and by way of supplement it is expressly
declared that the Administrative Agent may:
(i) assume that:
(1) no
Default has occurred; and
(2) no
right, power, authority or
discretion vested by this
Agreement, the Lenders or
any other Person or group
of Persons has been
exercised.
unless it has, in its
capacity as security
agent, actual knowledge or
actual notice to the
contrary;
(ii) engage and pay for the advice
or services of, and rely and act on the opinion or advice
(howsoever given) of, or any information obtained
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from, any lawyers, accountants, surveyors or other
professional advisers or experts whose advice or services may
to it seem necessary, expedient or desirable;
(iii) rely as to any matters of
fact which might reasonably be expected to be within the
knowledge of any of the Obligors or any other person upon a
certificate signed by or on behalf of such Obligor or such
other person;
(iv) rely upon any communication or
document believed by it to be genuine;
(v) refrain from exercising any
right, power or discretion vested in it under any of the
Financing Documents unless and until instructed by the
Majority Lenders as to whether or not such right, power or
discretion is to be exercised and, if it is to be exercised,
as to the manner in which it should be exercised;
(vi) refrain from acting in
accordance with any instructions of the Majority Lenders until
it shall have received security or indemnity as it may require
(whether by way of payment in advance or otherwise) for all
costs, claims, expenses (including legal fees) and liabilities
which it will or may expend or incur in complying with such
instructions;
(vii) do any act or thing in the
exercise of any of its duties under the Financing Documents
which in its absolute discretion (in the absence of any
instructions of the Majority Lenders as to the doing of such
act or thing) it deems advisable for the protection and
benefit of all the Secured Parties;
(viii) upon a disposal of any
property the subject of any of the Trust Collateral by any
Receiver, or by any of the Obligors where the Administrative
Agent has consented to the disposal, to any third party,
release such property from such Trust Collateral;
(ix) perform all of its obligations
under the Financing Documents, notwithstanding anything
contained in this Agreement; and
(x) subject to the proviso hereto
and unless the express provisions of any such Security
Document provide otherwise, if authorized by the Majority
Lenders, amend or vary the terms of or waive breaches of or
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Defaults under, or otherwise excuse performance of any
provision of, or grant consents under, the Security Documents,
any such amendment, variation, waiver or consent so authorized
to be binding on all the parties hereto and the Administrative
Agent to be under no liability whatsoever in respect thereof.
PROVIDED that nothing in this paragraph (x) shall be taken to
authorize, except with the prior consent of all of the Secured
Parties:
(1)
(without prejudice to
paragraph (viii), above)
any amendment of any
Security Document which
would release the Lien on
any Trust Collateral of
such Security Document
(other than in accordance
with the terms thereof or
of the other Financing
Documents), or the manner
in which Proceeds are
distributed hereunder; or
(2) any
change in this Section
11.4.
(b) The Administrative Agent shall:
(i) promptly inform the Lenders of
the contents of any notice or document received by it, in its
capacity as security agent, from any of the Obligors under any
of the Security Documents;
(ii) save as otherwise provided
herein, act as security agent under the Financing Documents in
accordance with any instructions given to it by the Majority
Lenders, which instructions shall be binding on all of the
Secured Parties; and
(iii) if so instructed by the
Majority Lenders, refrain from exercising any right, power or
discretion vested in it as security agent under the Financing
Documents.
(c) Notwithstanding anything to the contrary
expressed or implied herein, the Administrative Agent shall not:
(i) be bound to enquire as to the
occurrence or otherwise of any Default;
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(ii) be bound to account to any
other Secured Party for any sum or the profit element of any
sum received by it for its own account whether in connection
with the Financing Documents or otherwise;
(iii) be bound to disclose to any
other person any information relating to any of the Obligors
if such disclosure would or might in its opinion constitute a
breach of any law or regulation or be otherwise actionable at
the suit of any person; or
(iv) be under any obligations other
than those for which express provision is made herein.
(d) The Administrative Agent accepts no
responsibility for the accuracy and/or completeness of any information supplied
by any of the Obligors or any other person in connection with, or for the
legality, validity, effectiveness, adequacy or enforceability of, any of the
Financing Documents and shall not be liable or responsible for any losses to any
person, howsoever caused, as a result of taking or omitting to take any action
whatsoever in relation to any of the Financing Documents or otherwise, save in
the case of gross negligence or wilful misconduct.
(e) Each of the Secured Parties agrees that
it will not assert or seek to assert against any director, officer or employee
of the Administrative Agent any claim it might have against any of them in
respect of the matters referred to in Section 11.4(d).
(f) The Administrative Agent may accept
deposits from, lend money to, and generally engage in any kind of banking or
other business with, each of the Obligors.
(g) It is understood and agreed by each
Secured Party that it has itself been, and will continue to be, solely
responsible for making its own independent appraisal of and investigations into
the financial condition, creditworthiness, condition, affairs, status and nature
of each of the Obligors and, accordingly, each Secured Party warrants to the
Administrative Agent that it has not relied and will not hereafter rely on the
Administrative Agent:
(i) to check or enquire on its
behalf into the adequacy, accuracy or completeness of any
information provided by any of the Obligors or any other
person in connection with any of the Financing Documents or
the
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<PAGE>
transactions therein contemplated (whether or not such
information has been or is hereafter circulated to such
Secured Party by the Administrative Agent);
(ii) to check or enquire on its
behalf into the adequacy, accuracy or completeness of any
communication delivered to it under any of the Financing
Documents, any legal or other opinions, reports, valuations,
certificates, appraisals or other documents delivered or made
or required to be delivered or made at any time in connection
with any of the Financing Documents, any security to be
constituted thereby or any other report or other document,
statement or information circulated, delivered or made,
whether orally or otherwise and whether before, on or after
the date of this Agreement;
(iii) to check or enquire on its
behalf into the ownership, value or sufficiency of any
property the subject of any of the Trust Collateral, the
priority of any of the Trust Collateral, the right or title of
any person in or to any property comprised therein or the
existence of any encumbrance affecting the same; or
(iv) to assess or keep under review
on its behalf the financial condition, creditworthiness,
condition, affairs, status or nature of any of the Obligors.
(h) The Administrative Agent shall be at
liberty to place any of the Financing Documents, Project Documents and any other
instruments, documents or deeds delivered to it pursuant to or in connection
with any of the Security Documents for the time being in its possession in any
safe deposit, safe or receptacle selected by it or with any bank, any company
whose business includes undertaking the safe custody of documents or any firm of
lawyers of good repute and shall not be responsible for any loss thereby
incurred.
(i) The Administrative Agent may, whenever
it thinks fit, delegate by power of attorney or otherwise to any person or
persons, or fluctuating body of persons, all or any of the rights, powers,
authorities and discretions vested in it by any of this Agreement and the
Security Documents and such delegation may be made upon such terms (including
the power to sub-delegate) subject to such conditions and subject to such
regulations as it may think fit.
(j) Notwithstanding anything else herein
contained, the Administrative Agent may refrain from doing anything which would
or might in its
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opinion be contrary to any Applicable Law of any jurisdiction or any relevant
directive or regulation of any agency of any state or which would or might
otherwise render it liable to any person, and may do anything which is, in its
opinion, necessary to comply with any such Applicable Law, directive or
regulation.
(k) The Administrative Agent and every
attorney, agent or other person appointed by it under any of this Agreement and
the Security Documents may indemnify itself or himself out of the Trust
Collateral against all claims, demands, liabilities, proceedings, costs, fees,
charges, losses and expenses incurred by any of them in relation to or arising
out of the taking or holding of any of the Trust Collateral, the exercise or
purported exercise of any of the rights, trusts, powers and discretions vested
in any of them or any other matter or thing done or omitted to be done in
connection with any of the Financing Documents or pursuant to any Applicable Law
(otherwise than as a result of its gross negligence or wilful misconduct).
(l) Without prejudice to the provisions of
any of the Security Documents, the Administrative Agent shall not be under any
obligation to insure any property or to require any other person to maintain any
such insurance and shall not be responsible for any loss which may be suffered
by any person as a result of the lack of or inadequacy or insufficiency of any
such insurance. Where the Administrative Agent is named on any insurance policy
as an insured party, it shall not be responsible for any loss which may be
suffered by reason of, directly or indirectly, its failure to notify the
insurers of any material fact relating to the risk assumed by such insurers or
any other information of any kind, unless any Secured Party shall have requested
it to do so in writing and the Administrative Agent shall have failed to do so
within fourteen (14) days thereafter.
(m) The Administrative Agent shall not be
liable for any failure:
(i) to require the deposit with it
of any deed or document certifying, representing or
constituting the title of any of the Obligors to any of the
property mortgaged, charged, assigned or otherwise encumbered
by or pursuant to any of the Security Documents;
(ii) to obtain any license, consent
or other authority for the execution, delivery, validity,
legality, adequacy, performance, enforceability or
admissibility in evidence of any of the Security Documents;
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(iii) to register or notify any of
the foregoing in accordance with the provisions of any of the
documents of title of any of the Obligors;
(iv) to effect or procure
registration of or otherwise protect any of the Trust
Collateral by registering the same under any applicable
registration laws in any territory;
(v) to take, or to require any of
the Obligors to take, any steps to render the Trust Collateral
effective or to secure the creation of any ancillary charge
under the Applicable Laws; or
(vi) to require any further
assurances in relation to any of the Security Documents.
(n) The Administrative Agent shall be
entitled to accept without enquiry, requisition or objection such right and
title as each of the Obligors may have to the property belonging to it (or any
part thereof) which is the subject matter of any of the Trust Collateral and
shall not be bound or concerned to investigate or make any enquiry into the
right or title of such Obligor to such property (or any part thereof) or,
without prejudice to the foregoing, to require such Obligor to remedy and defect
in its right or title as aforesaid.
(o) Each Lender hereby confirms and agrees
that it does not wish to be registered in accordance with Rule 146 of the Land
Registration Rules 1925 as the joint proprietor of any mortgage or charge
created pursuant to any of the Company Security Agreement (UK) and the
Subsidiary Debenture and accordingly authorizes the Administrative Agent to hold
such mortgage or charge in its sole name as Administrative Agent for the Secured
Parties and hereby requests H.M. Land Registry to register the Administrative
Agent as the sole proprietor of any such mortgage or charge.
(p) In acting as security agent hereunder
and under the Security Documents, the Administrative Agent's agency division
shall be treated as a separate entity from any of its other divisions or
departments and, notwithstanding the foregoing provisions of this Section 11.4,
in the event that the Administrative Agent should act for any of the Obligors in
any capacity in relation to any other matter, any information given by such
Obligor to the Administrative Agent may be treated by it as confidential.
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SECTION 11.5. RESIGNATION OF ADMINISTRATIVE AGENT AS SECURITY
AGENT.
(a) The Administrative Agent may resign as
security agent hereunder at any time without assigning any reason therefor by
giving not less than thirty days' prior written notice to that effect to each of
the other parties hereto; PROVIDED, however, that no such resignation shall be
effective until (i) a successor to the Administrative Agent is appointed in
accordance with the succeeding provisions of this Section 11.5, (ii) all of the
security created by the Security Documents and all of the Administrative
Agent's rights, benefits and obligations as security agent under the Financing
Documents have been transferred to its successor, and (iii) its successor has
confirmed its agreement to be bound by the provisions of the Financing Documents
and all other related agreements to which the Administrative Agent is a party in
its capacity as security agent.
(b) If the Administrative Agent gives notice
of its resignation as security agent pursuant to Section 11.5(a), any reputable
bank or other financial institution may be appointed as a successor to the
Administrative Agent by the Lenders during the period of such notice but, if no
such successor is so appointed, the Administrative Agent may, in consultation
with the Company, appoint such a successor itself.
(c) If a successor to the Administrative
Agent is appointed under the provisions of Section 11.5(b), (i) the resigning
Administrative Agent shall be discharged from any further obligation hereunder
but shall remain entitled to the benefit of the provisions of Section 11.3 and
Section 11.4 and (ii) its successor and each of the other parties hereto shall
have the same rights and obligations amongst themselves as they would have had
if such successor had been a party hereto.
(d) Notwithstanding any other provision of
this Article XI, but subject to Section 11.6, the Administrative Agent shall at
all times be the same Person as the Administrative Agent under Article IX and a
resignation of the Administrative Agent under Article IX shall also act as a
resignation of the Administrative Agent under this Article XI.
SECTION 11.6. APPOINTMENT OF ADDITIONAL SECURITY AGENTS.
Subject to the provision of ARTICLE IX relating to the
replacement of the Administrative Agent, the Administrative Agent may at any
time appoint any person (whether or not a trust corporation) to act either as a
separate security agent or as a co- security agent jointly with it (i) if it
considers such appointment to be in the interests of
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the Secured Parties or (ii) for the purposes of conforming to any legal
requirements, restrictions or conditions which the Administrative Agent deems
relevant for the purpose hereof, and the Administrative Agent shall give prior
notice to the Company and the Lender of any such appointment. Any person so
appointed shall have such powers, authorities and discretions and such duties
and obligations as shall be conferred or imposed on such person by the
instrument of appointment and shall have the same benefits under Section 11.4 or
Section 11.5 as the security agent. The Agent shall have the power in like
manner to remove any person so appointed, and any costs, charges or expenses
incurred by such person in performing its functions pursuant to such
appointment, shall for the purposes hereof be treated as costs, charges and
expenses incurred by the Administrative Agent in performing its function as
security agent hereunder.
SECTION 11.7. COSTS AND INDEMNITIES
(a) The Company shall, from time to time on
demand of the Administrative Agent, reimburse the Administrative Agent for all
costs and expenses (including legal fees) incurred by it in or in connection
with the negotiation, preparation and execution of this Agreement and the
Security Documents.
(b) The Company shall, from time to time on
demand of the Administrative Agent, reimburse the Administrative Agent for all
out of pocket costs and expenses incurred by the Administrative Agent in acting
as security agent hereunder and in relation to the Security Documents, including
all costs of convening and holding any meeting of the Secured Parties for any
purpose whatsoever and all professional fees.
(c) The Company shall, from time to time on
demand of the Administrative Agent, reimburse the Administrative Agent for all
costs and expenses (including professional fees) incurred in or in connection
with the preservation and/or enforcement of any of the Trust Collateral.
(d) The Company shall indemnify the
Administrative Agent and every attorney, agent or other person appointed by it
under any of the Security Documents against all claims, demands, liabilities,
proceedings, costs, fees, charges, losses and expenses incurred by any of them
in relation to or arising out of the taking or holding of any of the Trust
Collateral, in the exercise or purported exercise of any of the rights, trusts,
powers and discretions vested in any of them or in respect of any matter or
thing done or omitted to be done in connection with any of the Security
177
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Documents or pursuant to any law or regulation (otherwise than as a result of
its gross negligence or wilful misconduct).
(e) The Company shall pay all stamp,
registration and other taxes to which any of the Security Documents or any
judgment given in connection therewith is or at any time may be subject and
shall, from time to time on demand of the Administrative Agent, indemnify the
Administrative Agent against all liabilities, costs, claims and expenses
resulting from any failure to pay or any delay in paying any such tax.
(f) All fees payable by the Company under
this Section 11.7 shall be exclusive of Value Added Tax or any similar Tax,
which shall be payable by the Company at the relevant rate from time to time in
addition to such fees.
(g) If the Company fails to perform any of
its obligations under any of Sections 11.7(a) to 11.7(f), each Secured Party
shall, in the proposition borne by its Applicable Percentages to the aggregate
of the Applicable Percentages of all the Secured Parties for the time being (or,
if the Applicable Percentage of each of the Secured Parties is zero, immediately
or prior to their being reduced to zero), indemnify the Administrative Agent
against any loss incurred by it as a result of such failure and the Obligors
shall jointly and severally indemnify each Secured Party against, and forthwith
reimburse to each Secured Party the amount of, any payment made by it pursuant
to this Clause section 11.7(g).
SECTION 11.8. MISCELLANEOUS.
(a) The Secured Parties shall furnish to the
Administrative Agent such information as the Administrative Agent may reasonably
specify as being necessary or desirable for the purpose of enabling the
Administrative Agent to perform its functions as security agent.
(b) The perpetuity period under the rule
against perpetuities, if applicable hereto, shall be the period of eighty years
from the date hereof.
SECTION 11.9. ADMINISTRATIVE AGENT AS DIRECT CREDITOR.
The Company agrees to pay the Administrative
Agent, as applicable, sums equal to any sums owing to each Secured Party under
the Financing Documents as and when the same fall due for payment thereunder.
Each Secured Party agrees that
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payment of such sums to the Administrative Agent in accordance herewith, will be
a good discharge, PRO TANTO, of the corresponding obligations owing to it under
the Financing Documents, provided for the avoidance of doubt, that any such
payment shall only be considered as a valid discharge or a partial discharge (as
the case may be) in respect of any Obligation to the extent it has actually been
applied by the Administrative Agent. Accordingly, the rights of the Secured
Parties to amounts due from each of the Obligors owing Obligations under the
Financing Documents are joint and several with the rights of the Administrative
Agent to receive the same.
SECTION 11.10. WINDING-UP OF TRUST.
If the Administrative Agent shall determine
that all of the Secured Obligations and all other obligations the discharge of
which is secured by any of the Security Documents have been fully and finally
discharged and none of the Secured Parties is under any commitment, obligation
or liability (whether actual or contingent) to take advances or provide other
financial accommodation to the Company under or pursuant to this Agreement, the
trusts herein set out shall be wound up and the Administrative Agent shall
release, without recourse or warranty, all of the Trust Collateral then held by
it, whereupon each of the Administrative Agent, the Secured Parties and the
Obligors shall be released from its obligations hereunder (save for those which
arose prior to such winding-up).
[Remainder of page intentionally left blank]
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<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 ATLANTIC LIMITED
Steven E. Andrews
By:
-----------------------------
Name: Steven E. Andrews
Title: Attorney-in-Fact
Ed McCormack
By:
-----------------------------
Name: Ed McCormack
Title: Attorney-in-Fact
S - 1
<PAGE>
BARCLAYS BANK PLC,
as the Administrative Agent
Peter Yetman
By:
-----------------------------
Name: Peter Yetman
Title: Director
BARCLAYS BANK PLC,
as the Lead Arranger and a Lender
Peter Yetman
By:
-----------------------------
Name: Peter Yetman
Title: Director
S - 2
<PAGE>
DRESDNER BANK AG,
NEW YORK AND GRAND CAYMAN
BRANCHES
as Documentation Agent and Lender
/s/ Name of Signatory
By:
-----------------------------
Name:
Title: Senior Vice-President
/s/ Name of Signatory
By:
Name:
-----------------------------
Title: Assistant Vice-President
S - 3
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH,
as Syndication Agent and Lender
Michael D. Peist
By:
-----------------------------
Name: Michael D. Peist
Title: Vice President
/s/ Name of Signatory
By:
-----------------------------
Name:
Title: Director
Schedule 1.1(iii) - 1
<PAGE>
Exhibit 10.12
CONTRACT
BETWEEN
FLAG ATLANTIC LIMITED
FLAG ATLANTIC USA LIMITED
FLAG ATLANTIC FRANCE SARL
FLAG ATLANTIC UK LIMITED
AND
ALCATEL SUBMARINE NETWORKS
ALCATEL SUBMARINE NETWORKS INC.
ALCATEL SUBMARINE NETWORKS LIMITED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 DEFINITIONS...........................................................4
2 PROVISION OF THE SYSTEM...............................................5
3 VESTING AND WARRANTY OF TITLE.........................................6
4 INSPECTION............................................................7
5 DELIVERY, PACKAGING, CUSTOMS CLEARANCE AND WASTE DISPOSAL.............8
6 ACCEPTANCE PROCEDURES.................................................8
7 LIQUIDATED DAMAGES FOR DELAY IN PERFORMANCE..........................10
8 INJURY TO PERSONS AND DAMAGE TO PROPERTY.............................11
9 DAMAGE TO THE SYSTEM AND THE EQUIPMENT...............................11
10 LOSS DUE TO ACTS OF PURCHASER........................................12
11 OVERALL RESPONSIBILITY...............................................12
12 WARRANTIES...........................................................13
13 SUPPLIER SUPPORT.....................................................16
14 FORCE MAJEURE........................................................16
15 SUSPENSION OF WORK...................................................17
16 CHANGES OR ADDITIONAL WORK...........................................18
17 TERMINATION FOR DEFAULT..............................................18
18 TERMINATION BY NOTICE................................................19
19 SAFEGUARDING INFORMATION AND TECHNOLOGY..............................22
20 INFRINGEMENT.........................................................22
21 SOFTWARE.............................................................23
22 PAYMENT..............................................................24
23 KEEPING OF BOOKS.....................................................26
24 INSURANCE............................................................27
25 AGENTS AND REPRESENTATIVES OF THE PURCHASER..........................31
26 REMOVAL OF PERSONS EMPLOYED ON CONTRACT..............................31
27 SEVERABILITY.........................................................31
28 SUCCESSORS BOUND.....................................................31
29 RELATIONSHIP OF THE PARTIES TO EACH OTHER............................31
30 RESPONSIBILITY FOR OBTAINING PERMITS AND LOCAL LAWS..................31
31 CONSENTS.............................................................32
32 LIMITATION OF LIABILITY..............................................33
33 ALLOCATION OF DUTIES.................................................33
34 NOTICES..............................................................33
35 CAPTIONS.............................................................34
36 LAW AND ARBITRATION..................................................34
37 PRECEDENCE...........................................................35
</TABLE>
<PAGE>
<TABLE>
<S> <C>
38 WAIVER...............................................................35
39 RECOVERY OF SUMS DUE.................................................35
40 WATCHING, LIGHTING AND PROTECTION OF SITE............................35
41 PROVISION OF ANCILLARY APPARATUS.....................................35
42 DIARY AND REPORTING..................................................35
43 PROPERTY OF THE PURCHASER............................................36
44 SERVICES RENDERED BY THE PURCHASER...................................37
45 FACILITIES FOR OTHER WORKS...........................................37
46 PUBLICITY............................................................37
47 ENTIRE CONTRACT......................................................37
48 LETTER OF PERFORMANCE GUARANTEE, GUARANTORS..........................38
49 CONTRACT EFFECTIVENESS...............................................38
50 CORRUPT PRACTICES....................................................39
51 SAFETY...............................................................39
</TABLE>
Annexes: 1 - Price Schedule
2 - Schedule of Progress Payments
3 - Plan of Work
4 - Technical Specification
5 - Confidentiality Agreement
6 - Long Term Support
7 - Sea State 6 Definition
<PAGE>
THIS CONTRACT, MADE AND ENTERED INTO THIS __________ DAY OF _____19__.
BETWEEN:
FLAG Atlantic Limited, whose registered office is at The Emporium
Building, 69 Front Street-4th Floor, Hamilton HM12, Bermuda.
FLAG Atlantic USA Limited, whose registered office is at 9 East
Loockerman Street Dover, Delaware USA.
FLAG Atlantic France Sarl, whose registered office is at 72 rue du
Faubourg Saint-Honore 75008 Paris France.
FLAG Atlantic UK Limited, whose registered office is at 103 Mount
Street, London W1Y 5HE UK, hereinafter called the "Purchaser"
AND:
Alcatel Submarine Networks, whose registered office is at 72 avenue de
la Liberte 92723 Nanterre, France.
Alcatel Submarine Networks Inc., whose registered office is at 15540
North Lombard Street, Portland Oregon USA.
Alcatel Submarine Networks Limited, whose registered office is at
Christchurch Way, Greenwich, London SE10 OAG UK.
hereinafter called the "Supplier" and, together with the Purchaser, each a
"Party" and collectively, the "Parties".
WHEREAS, the Purchaser proposes to provide an integrated optical fibre cable
system linking North America and Europe (hereinafter called the "FLAG Atlantic
Fibre Optic Cable System"); and
WHEREAS this Contract will supercede the contract for a FLAG Atlantic-1 Fibre
Optic Cable System signed on 12 January 1999, between FLAG Atlantic Limited and
Alcatel Submarine Networks; and
WHEREAS the FLAG Atlantic Fibre Optic Cable System is to be as described in the
Technical Specification, Annex 4, forming part of this Contract; and
WHEREAS, the Supplier has been selected to engineer, provide, install, test,
commission and warrant the System as defined in Article 1 hereof; and
WHEREAS, the Purchaser is authorised to enter into this Contract with the
Supplier; and
WHEREAS, the Parties to this Contract now desire to define the terms and
conditions upon which the System will be engineered, provided, installed,
tested, commissioned and warranted by the Supplier.
NOW, THEREFORE, the Parties hereto, in consideration of the mutual covenants
herein expressed, covenant and agree with each other as follows:
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<PAGE>
1 DEFINITIONS
The following definitions and those contained in the Annexes shall
apply throughout this Contract:
1.1 "Ancillary Apparatus" means all materials, tools, plant,
appliances and other things which are for the time being on
the Site for use or otherwise in connection with the Work but
which are not intended for incorporation in the System.
1.2 "Commissioning Report" means the report provided by the
Supplier to the Purchaser following system commissioning which
is part of the acceptance handbook.
1.3 "Contract Sum" means the price payable for the full and proper
performance of this Contract, including any and all Contract
Variations, in accordance with these Terms and Conditions. The
breakdown of the Contract Sum is included in Annex 1 hereof.
The Contract Sum is for DDU (Incoterms 1990) delivery
conditions.
1.4 "Contract Variation(s)" means any modification to this
Contract, consisting of additions, deletions or changes hereto
which may affect either the Contract Sum, the Plan of Work,
the Technical Specification or any other provision of this
Contract and which shall be the object of a formal amendment
to this Contract executed by both Parties hereto.
1.5 "Design Life" means that period of time extending for a period
of twenty-five (25) years from the date of RFPA hereunder for
the System.
1.6 "Equipment" means all materials, equipment and things
including Software supplied or procured or to be supplied or
procured by the Supplier for incorporation in the System and
includes all spares.
1.7 "Factory Release Certificate" or "Release Certificate" means a
certificate confirming the Purchaser's acceptance of an item
and indicating clearance for billing and/or dispatch to the
designated Site.
1.8 "Laying Report" means a report by the Supplier to the
Purchaser following each marine operation.
1.9 "Phase" means each of Phase 1 and Phase 2as described in
Annex 4.
1.10 "Plan of Work" means the detailed programme of manufacturing,
delivery, installation, testing and commissioning of the
System contained in Annex 3 hereof which the Supplier has
agreed to implement. A more detailed project implementation
plan shall be provided to the Purchaser by the Supplier and
agreed between the Parties within 30 days from the date of
signature hereof.
1.11 "Quality Assurance Procedures" means all procedures referred
in the Supplier's QA Manual including qualification,
certification and manufacturing test and acceptance procedures
reviewed and accepted by the Purchaser.
1.12 "Ready for Provisional Acceptance (RFPA)" means the date on
which a Certificate of Provisional Acceptance is issued
pursuant to the Terms and Conditions of this Contract.
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<PAGE>
1.13 "Site(s)" means the buildings and/or land and/or other places
allocated to the Supplier by the Purchaser for the purposes of
this Contract.
1.14 "Software" means all programs, data, source code, object code,
documentation and operating systems, whether in writing, in
firmware, or in any other form, which are necessary for the
purposes of the System; including documentation, any support
tools which are not commercially available, and data connected
with the development and support as well as any upgrade or
enhancement thereto that may be required under the warranty
provisions hereof.
1.15 "Supplier's Premises" means any place or location including
any vessel where the Supplier or any of its sub-contractors
carries out or performs in whole or in part its obligations
under this Contract, other than Sites.
1.16 "System" means the whole of the submerged plant and associated
terminal equipment of the FLAG Atlantic Fibre Optic Cable
System provided between and among, and including the System
Interfaces in, the cable stations at:
Lands End, Long Island north shore, Long Island south shore
and St Brieuc.
The System (including the Phases) is more specifically defined
in the Technical Specification, Annex 4 hereof.
1.17 "System Interface" means the nominal STM-4 (1x1 protected)
digital Input/output ports on the digital distribution frame
where the System connects with other transmission facilities
or equipment.
1.18 "Unusually Severe Weather Conditions" means weather that is
worse than Sea State 6. Sea State 6 is as defined by the chart
shown in Annex 7.
1.19 "Warranty Period" has the meaning set forth in Article 12.
1.20 "Work" means all work set out in the Plan of Work which is
necessary to be carried out in the performance of the
Supplier's obligations under this Contract, and includes the
supply of all Equipment necessary for the provision of the
System.
2 PROVISION OF THE SYSTEM
2.1 The Supplier agrees to develop, engineer, provide, install,
test and commission, or cause to be developed, engineered,
provided, installed, tested and commissioned, and to warrant
the System as well as to carry out and complete the route
survey in accordance with this Contract which includes the
Price Schedule contained in Annex 1, the Schedule of Progress
Payments contained in Annex 2, the Plan of Work contained in
Annex 3, the Technical Specification contained in Annex 4, the
Confidentiality Agreement contained in Annex 5 and the Long
Term support contained in Annex 6.
2.2 The Supplier shall not, without prior consent of the
Purchaser, such consent not to be unreasonably withheld,
assign this Contract or sub-contract any significant part of
the Work, or assign, mortgage, charge or encumber any benefit
whatsoever arising or which may arise under this Contract. In
any event, the Supplier shall not
Page 5
<PAGE>
be relieved of the responsibility under this Contract for such
parts of the Work as are sub-contracted and the Supplier shall
be responsible and liable for the acts or defaults of any
sub-contractor or their employees, servants and agents, as
fully as if they were the acts or defaults of the Supplier or
the Supplier's employees, servants and agents. The Supplier
shall ensure that any sub-contracts entered into by the
Supplier shall contain such provisions of this Contract as
should be made applicable to such sub-contracts. Without
limiting the generality of the foregoing, the Purchaser shall
have the right to approve all vessels employed in the
performance of the Work.
2.3 The Purchaser shall have the option to nominate the marine
subcontractor in accordance with the terms and conditions of
this contract to perform the marine installation, together
with defined scope of work and price . In the event of such
nomination ASN shall enter into negotiations, in good faith,
to agree terms, including but not limited to contract terms
and schedule. In the event that terms cannot be agreed, which
as a minimum shall be a flowdown of the head contract terms
and at prices agreed with the Purchaser, within a reasonable
time, then the Purchaser shall have the right to nominate
another subcontractor or give the Supplier the option to
appoint a subcontractor of their own choice. The Parties shall
co-operate with each other to ensure timely agreement of the
appointment of the marine installer.
2.4 The Purchaser has the right, at its discretion, to attend or
participate in any activity of the Work. For this purpose, the
Supplier shall provide, or cause to be provided,
accommodation, food and communications facilities for two (2)
Purchaser representatives aboard any vessel and offices,
supplies and communication facilities on all other sites. Such
attendance or participation on the part of the Purchaser shall
not relieve the Supplier from its obligation to carry out and
complete the Work in accordance with the provisions of this
Contract.
3 VESTING AND WARRANTY OF TITLE
3.1 Except for Software, which is subject to Article 21, title
(free and clear of all liens other than those deriving through
or from the Purchaser) to any Equipment provided by the
Supplier for incorporation in or attachment to the System
shall pass to and vest in the Purchaser upon completion of the
manufacture of said Equipment or part thereof and payment
therefor, as set out in Article 22.1.2. Title (free and clear
of all liens other than those deriving through or from the
Purchaser) to Equipment and to each part of the System shall
otherwise pass upon issuance of a Certificate of Provisional
Acceptance or a Certificate of Commercial Acceptance covering
such Equipment and such part of the System as provided in
Article 6, as the case may be. The Supplier shall keep records
to identify Equipment where title has passed to the Purchaser,
and shall afford the Purchaser the right to review such
records.
3.2 Upon transfer of title to the Purchaser of any part of the
System, and of any Equipment furnished by the Supplier or its
sub-contractors, the Supplier warrants that such part of the
System, and such Equipment furnished by the Supplier or its
sub-contractors hereunder, are free from claims liens,
encumbrances and security interests arising by and through the
Supplier or such sub-contractors but not otherwise. For any
part of the System or Equipment, title to which has been
transferred to the Purchaser prior to the issuance of a
Certificate of Provisional Acceptance or a Certificate of
Commercial Acceptance covering such part of the
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System or such Equipment, as relevant, is issued, the Supplier
warrants that upon issuance of such certificate for part of
the System and/or such Equipment, as relevant, is free from
claims, liens, encumbrances and security interests arising by
and through the Supplier or such sub-contractors but not
otherwise.
4 INSPECTION
4.1 The Purchaser shall at all times have full and free access to
the Supplier's Premises for the purposes of inspection; and
the Supplier shall afford all such reasonable accommodation
and facilities including equipment, materials and labour for
such purposes.
4.2 To the extent required by the Purchaser, the Supplier shall
assist the Purchaser to carry out the following inspection
activities:
4.2.1 to audit the Supplier's quality assurance procedures
and their application to the work carried out under
this Contract, including without limitation,
manufacture, development, and raw materials and
components provision; and
4.2.2 to inspect all parts of the Equipment including the
process of manufacture in all its stages, the
examining and testing of every article and the
material used in the manufacture thereof and the
examining of the Supplier's testing procedures and
the Supplier's books and records relating to the
manufacture, inspection and testing of the Equipment
and to any other service to be rendered under this
Contract, to permit the Purchaser to gain assurance
that the quality is sufficient to meet the
requirements of the Technical Specification, Annex 4.
4.3 At any time during manufacture and installation, if any part
of the Work or the Equipment does not, or will not, comply
with this Contract, the Purchaser may reject the same by
notice in writing. Upon rejection, the Supplier shall
forthwith at its own expense rectify the non-compliance in
accordance with any directions of the Purchaser and no charges
shall be made by the Supplier in respect thereof.
4.4 The Supplier shall secure rights of access for the Purchaser
to the premises of all its sub-contractors.
4.5 No part of the Equipment shall be shipped until a Release
Certificate has been issued for it in accordance with Annex 10
of Section 1 to Annex 4.
4.6 The release of parts of the Equipment in accordance with
Article 4.5 above shall not in any way prejudice any right or
remedy which the Purchaser may have against the Supplier, or
relieve the Supplier of any of its responsibilities under this
Contract.
4.7 Any expression of satisfaction made by or on behalf of the
Purchaser in respect of any aspect of the Work, carried out or
proposed by the Supplier, shall not relieve the Supplier of
any of its responsibilities under this Contract.
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5 DELIVERY, PACKAGING, CUSTOMS CLEARANCE AND WASTE DISPOSAL
5.1 The Supplier shall at its own expense and its own
responsibility carry out all loading and unloading of the
Equipment, and its transportation to the Sites and to the
nominated storage premises for the spare cable and repeaters,
which will be indicated prior to shipment by the Purchaser.
5.2 The Supplier shall be responsible for supplying packaging for
the Equipment. This packaging must be suitable for the safe
transportation of the Equipment by land, sea or air as
appropriate.
5.3 The Supplier shall be responsible for performing all import
formalities for and on behalf of the Purchaser and for paying
VAT, customs duties or other levies and duties due to such
formalities, to the relevant authorities on behalf of and for
the Purchaser.
5.4 The Supplier shall be responsible to dispose of all waste
materials in accordance with any local or national
environmental and/or other regulations. The Supplier shall
keep the Site(s) free from waste materials or rubbish caused
by the performance of the Work or its employees and upon
completion of the Work the Supplier shall leave the Site(s) in
a clean and orderly condition.
5.5 Customs declarations shall be made for and on behalf of the
Purchaser who agrees to be or designate the Importer of
Record.
6 ACCEPTANCE PROCEDURES
6.1 General
6.1.1 All references to test periods in this Article and
all references to tests shall be to the test periods
and tests defined in, Annex 10 of Section 1 to Annex
4 hereof, respectively.
6.2 Acceptance Procedures
The System will be accepted as described in the following articles.
6.2.1 PROVISIONAL ACCEPTANCE
6.2.1.1 The System, Phase 1 and Phase 2 shall be
provisionally accepted and a certificate
therefor promptly issued when:
6.2.1.1.1 the commission results of Annex 10
of Section 1 to Annex 4 hereof
indicate conformance of the
relevant Phase ; and
6.2.1.1.2 in the case of the System, the
Supplier has carried out the Work
required by this Contract (other
than minor deficiencies, which
will not affect the operation and
maintenance of the System in
accordance with Annex 4).
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6.2.1.1.3 The Certificate of Provisional
Acceptance shall bear the actual
date the System or relevant Phase,
as appropriate, is Ready for
Provisional Acceptance, which
shall be the date when
Articles 6.2.1.1.1 and 6.2.1.1.2
have been satisfied and may
contain a written list of any
outstanding items required by
this Contract which do not affect
the operation and maintenance of
the System or relevant Phase, as
applicable, in accordance with
Annex 4. The Supplier shall remedy
such items in accordance with a
program to be mutually agreed upon
at that time.
6.2.1.2 In the event that a Certificate of
Commercial Acceptance under Article 6.2.3
hereof is issued, the relevant Phase, as
applicable, must conform fully to Annex 4,
as indicated by the satisfactory completion
of tests in accordance with, Annex 10 of
Section 1 to Annex 4 hereof before a
Certificate of Provisional Acceptance is
issued. If the test results indicate that
the relevant Phase conforms to Annex 4, the
relevant Phase shall be provisionally
accepted. Promptly thereafter, the Purchaser
may issue a Certificate of Provisional
Acceptance.
6.2.1.3 Unless title has already passed to the
Purchaser, title to the relevant Phase or
the System, as applicable, shall pass to the
Purchaser when the Certificate of
Provisional Acceptance is issued.
6.2.2 FINAL ACCEPTANCE
The Purchaser shall issue a Certificate of Final Acceptance
after the expiration of the Supplier's Warranty Period
provided that, at the expiration of the Supplier's Warranty
Period, the System conforms fully to Annex 4 or such other
performance requirements which may have been agreed between
the Purchaser and the Supplier. Final Acceptance will be
based upon the results of the Final Acceptance Tests
conducted by the end of the Supplier's Warranty Period or,
if the Purchaser decides not to perform Final Acceptance
Tests, a Certificate of Final Acceptance shall be granted
promptly following the end of the Supplier's Warranty
Period. The issuance of the Certificate of Final Acceptance
will not be unreasonably withheld or delayed, but in the
event that a pattern of failure or pattern of degradation
develops that is likely to cause the System to fail to meet
the requirements of Annex 4 or such other performance
requirements which may have been agreed between the
Purchaser and the Supplier to cover the Design Life, Final
Acceptance may be withheld until it can be reasonably
demonstrated that such pattern of failures or pattern of
degradation will not continue and the Supplier shall
promptly take all reasonable steps to that effect.
6.2.3 COMMERCIAL ACCEPTANCE
6.2.3.1 In the event that the relevant Phase does
not meet the requirements of Article 6.2.1
for the issuance of a Certificate of
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Provisional Acceptance, but the relevant
Phase is nevertheless acceptable for use by
the Purchaser, then the Purchaser may, with
the agreement of the Supplier, issue a
Certificate of Commercial Acceptance for the
relevant Phase.
6.2.3.2 The Certificate of Commercial Acceptance
will contain a list of outstanding work
items on which corrective action will be
expected to be undertaken in order to place
the relevant Phase in conformity with Annex
4.
6.2.3.3 When the Certificate of Commercial
Acceptance is issued, title to the relevant
Phase, as applicable, and responsibility for
maintenance thereof shall pass to the
Purchaser, if such responsibility has not
already passed. The Supplier shall remain
responsible for any damage or loss to the
System occurring as a result of the
negligent or intentional acts or omissions
of the Supplier, its agents or
sub-contractors.
6.2.3.4 The issuance of a Certificate of Commercial
Acceptance shall not constitute a waiver of
the Supplier's obligation to provide the
relevant Phase in compliance with the
requirements of Annex 4. In the event that
prior to RFPA for the relevant Phase the
performance of the part of the System that
was acceptable deteriorates from the
performance established at the time of
Commercial Acceptance, the Supplier shall be
responsible for re-establishing promptly
performance of such part to at least the
level of performance at the time of
Commercial Acceptance and bearing all costs
of those corrective actions.
6.2.3.5 Following the issuance of a Certificate of
Commercial Acceptance, the Supplier shall as
soon as practicable remedy all outstanding
work items so as to allow tests to be
conducted in accordance with, Annex 10 of
Section 1 to Annex 4 hereof.
7 LIQUIDATED DAMAGES FOR DELAY IN PERFORMANCE
7.1 If the RFPA for any Phase does not occur by the applicable
date defined below or any extension thereto allowed or agreed
to by the Purchaser hereunder, then and in such case the
Supplier shall pay to the Purchaser as liquidated damages for
delay in performance a sum calculated as follows per 24 hour
period or part thereof and subject to the maximum set out in
Article 7.2.
<TABLE>
<CAPTION>
- --------------------- ------------------------ -------------------------------------------- -----------------
Delayed Work RFPA Date LD Base LD rate
- --------------------- ------------------------ -------------------------------------------- -----------------
<S> <C> <C> <C>
Phase 1 31 March 2001 Contract Sum for Phase 1 ("CS1") 0.05%
*CS1/day
- --------------------- ------------------------ -------------------------------------------- -----------------
Phase 2 30 June 2001 Contract Sum ("CS") 0.05%
*CS/day
- --------------------- ------------------------ -------------------------------------------- -----------------
- --------------------- ------------------------ -------------------------------------------- -----------------
</TABLE>
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<PAGE>
N.B. Liquidated damages cannot be paid for delay of more than one Phase at
the same time. In the event more than one Phase is delayed payment will
be at the higher applicable base.
7.2 Liquidated damages for delay in performance pursuant to this
Article 7 shall not in any circumstances exceed 10% of the
Contract Sum.
7.3 The right of the Purchaser to recover liquidated damages for
delay in performance as provided in Articles 7.1 and 7.2 above
shall not be waived by any concession granted or certificate
given or payment made to the Supplier.
7.4 Payment of liquidated damages shall be in full satisfaction of
the Supplier's liability for delay.
8 INJURY TO PERSONS AND DAMAGE TO PROPERTY
8.1 The Supplier assumes responsibility for, and shall indemnify
and save the Purchaser harmless from, any and all claims,
losses, expenses and damages for injuries to or death of any
persons including the employees of the Supplier and those of
its sub-contractors or agents and the employees of the
Purchaser, and for damage to property except as provided in
Article 9 (but excluding consequential, special or indirect
damages such as those arising as a result of interruption of
telecommunications services provided by the Purchaser, its
representatives, agents, lessees, customers and
correspondents), where such injuries, deaths, damages, claims,
losses and/or expenses result from the negligent or
intentional acts or omissions of the Supplier, its
sub-contractors, or agents in the provision or construction by
the Supplier, its sub-contractors or agents, of the System.
The Supplier in any case assumes responsibility for, and shall
indemnify and save the Purchaser harmless from, any and all
claims for injuries to or death of any of the employees of the
Supplier and those of its sub-contractors or agents and for
damage to property of such employees or of the Supplier, its
sub-contractor or agents.
8.2 In the event of any claim being made or action brought against
the Purchaser arising out of the matters referred to in this
Article the Supplier shall be promptly notified thereof, and
may at its own expense conduct all negotiations for the
settlement of the same and any litigation that may arise
therefrom. The Purchaser shall not, unless and until the
Supplier or its Insurers shall have failed, within a
reasonable period of time but in any event no more than 30
days after any such action, to take over or diligently carry
on the conduct of the negotiations or litigation, make any
admission which might be prejudicial thereto. The Purchaser
shall, at the request of the Supplier, afford all available
assistance for the purpose of contesting any such claim or
action and shall be repaid by the Supplier any expenses
incurred in so doing.
9 DAMAGE TO THE SYSTEM AND THE EQUIPMENT
9.1 Notwithstanding the transfer of title to the Purchaser in
accordance with Article 3, the Supplier assumes responsibility
for all damage to or loss of the Equipment up to the date of
the Certificate of Provisional Acceptance or Certificate of
Commercial Acceptance, whichever is the earlier, for such
Equipment.
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9.2 The Supplier shall, with all possible speed, repair or replace
any such loss or damage and notwithstanding such loss or
damage the Supplier shall proceed with the performance of the
Work and completion thereof in accordance with this Contract.
The cost of such repair or replacement shall be at the expense
of the Supplier, save that the Purchaser shall be liable to
the extent that such loss or damage results from the
negligence or default of employees, agents, or contractors
(other than the Supplier and the Supplier's employees, agents
or sub-contractors) of the Purchaser acting in the course of
their employment as such.
9.3
9.3.1 Where any such loss or damage is caused by a third
party to a part of any Equipment which, although
vested in the Purchaser, remains at the risk of the
Supplier, the Purchaser shall, on demand, assign to
the Supplier in writing the benefits of any right or
remedy which the Purchaser may have or allege to have
against such third party, whether in contract, tort
or otherwise, arising out of such loss or damage, in
order that the Supplier may initiate proceedings
against such third party in its own name.
9.3.2 The Supplier agrees to fully indemnify the Purchaser
against all actions, costs, claims, demands, charges,
expenses or losses which the Purchaser may incur or
for which it may become liable, arising from such
assignment or from any proceedings brought by the
Supplier arising therefrom.
10 LOSS DUE TO ACTS OF PURCHASER
10.1 The Supplier shall not be responsible for any loss, damage,
delay or failure of performance resulting directly or
indirectly from the acts or failure to act of the Purchaser,
not requested by the Supplier.
10.2 If any such loss, damage, delay or failure causes an increase
in the cost of performance or the time required for
performance of any of the Supplier's duties of obligations
under this Contract, the Supplier shall be entitled to an
equitable adjustment in the time for completion of the Work
hereunder and to an equitable adjustment in the Contract Sum
provided that the increased cost is not recoverable from
insurance proceeds. The Supplier shall use its reasonable best
efforts to provide all necessary documentation required to
fully substantiate and support any claim pursuant to the
foregoing and shall use its reasonable best efforts to
minimise the effect on the Contract Sum and the time for
completion of the Work.
10.3 The Supplier shall inform the Purchaser promptly of any
occurrence covered under this Article 10.
11 OVERALL RESPONSIBILITY
11.1 The Supplier shall be held by the acceptance of this Contract
to approve of the System in the whole and in detail and shall
accept responsibility for the satisfactory performance of the
System on completion of the whole process of manufacture,
supply and installation thereof and the Supplier shall remain
responsible for the execution of this Contract, for the
overall working of the System and for its guarantee.
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11.2 If the Supplier is of the opinion that any part of the Work
undertaken by the Purchaser would adversely affect the
Supplier's ability to execute this Contract, whether as a
result of the negligence or default of the Purchaser or for
any other reason, the Supplier shall immediately notify the
Purchaser in writing. Such notice shall be supported by the
Supplier's reasons for so opining.
11.3 The Supplier shall only be relieved for time and cost under
this Article if the Purchaser has not taken appropriate action
within a reasonable time in response to a notification from
the Supplier in accordance with Article 11.2.
11.4 The Supplier shall be solely responsible for the design of the
System and for the adequacy thereof and shall not claim any
additional payment nor be relieved from any obligation imposed
on it by this Contract on grounds of misunderstanding or
incorrect or insufficient information received from and/or
supplied by the Purchaser on any matter whatsoever related to
this Contract.
11.5 The Supplier's responsibility for the design of the System
shall not in any way be diminished nor shall its design
approach be restricted or limited by the Purchaser's
acceptance of the Supplier's guidance or recommendations as to
engineering standards and design specifications or by the
Purchaser's suggestions or recommendations on any aspect of
the said design.
11.6 If in the opinion of either Party any part of the Work as
detailed in the Plan of Work is, or is likely to be, delayed
(including any development or qualification being undertaken)
then the Parties shall meet in order to agree a work around
plan in order to assure the timely completion of the Work. If
the delay is attributable to the Supplier then any agreed work
around plan shall be at the Suppliers cost.
12 WARRANTIES
12.1 The Supplier warrants that the System shall be designed so
that (i) the performance of the System shall be in accordance
with the Technical Specification, Annex 4 for the Design Life
and (ii) during the Design Life, no pattern of failure or
pattern of degradation shall develop that is likely to cause
the System to fail to meet the requirements of Annex 4 (or
such other performance requirements which may have been agreed
between the Purchaser and the Supplier) over the Design Life
(such warranty hereinafter called the "Design Life Warranty").
For the purpose of this Contract the warranty period
("Warranty Period") for each Phase shall commence at RFPA of
the relevant Phase and continue for a period of two (2) years
for terminal equipment and five (5) years for submerged plant
from the RFPA of Phase 2 .
The Supplier in addition warrants that during the Warranty
Period the System, including the spares set forth in Annex 1,
shall conform fully to the performance requirements set forth
in the Technical Specification, Annex 4, or such other
performance requirements mutually agreed upon as acceptable by
the Supplier and the Purchaser (hereinafter called the
"Defects Warranty"). However, the Warranty Period of any items
not provided or requiring repair or replacement at the date of
RFPA of Phase 2 shall start from the date(s) such items are
provisionally accepted by the Purchaser, if later than RFPA of
Phase 2.
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Ships costs associated with repairs to the submerged plant in
years 3 through 5 shall be to the Purchaser's account.
12.2 During the Warranty Period for the relevant item, the
Purchaser may elect, at its sole option, to undertake the
following repairs which are covered by the Defects Warranty:
12.2.1 System repairs, involving the repair of cable or the
replacement of cable and/or repeaters and branching
units, whether at-sea or on-land provided that such
repairs are carried out in accordance with the
Supplier's declared procedures which will be detailed
and provided in the relevant Supplier's maintenance
handbook or, at the option of the Purchaser, in
accordance with other procedures which have been
approved by the Supplier; and
12.2.2 The substitution of spare cards in cable station
equipment, provided that such substitutions are
carried out in accordance with the Supplier's
declared procedures which will be detailed and
provided in the relevant Supplier's maintenance
handbook or, at the option of the Purchaser, in
accordance with other procedures which have been
approved by the Supplier.
12.2.3 Except as otherwise provided in the last sentence of
Article 12.1, the Supplier shall reimburse the
Purchaser for the cost of such repairs, subject only
to the limitation of liability specified in Article
32. For the purpose of this provision, the cost of
repair shall include, but not be limited to, the cost
of any additional equipment necessary to effect the
repair, the cost of making the repair, including all
costs of the cable repair ship(s) that may be
required to make the repair, the cost of re-burying
the portion of the System that was previously buried,
the cost of labour and engineering assistance
required to make the repair, and all associated
costs, such as, but not limited to, shipping,
permits, customs duties and taxes. To the extent that
the Purchaser uses its spare equipment in making the
repair, the Supplier shall replace, in kind, such
spare equipment used by the Purchaser to effect such
repair. The replacement of such spare equipment shall
be made at a time mutually agreed to by the Purchaser
and the Supplier, but in any event no later than the
end of the period indicated in Annex 6.
12.2.4 Any equipment that is discovered to be defective or
faulty and is recovered during a Defects Warranty
repair by the Purchaser shall be retrieved by the
Supplier.
12.2.5 The Supplier shall be entitled to have a
representative present on board ship to observe
at-sea repairs.
12.3
12.3.1 The Supplier shall perform all warranty repairs other
than those that the Purchaser elects to perform
pursuant to Article 12.2. Except as otherwise
provided in the last sentence of Article 12.1, the
Supplier shall bear the costs of each such repair
required during the Warranty Period subject only to
the limitation of liability specified in Article 32.
For the purposes of this provision, the cost of
repair shall include, but not be
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limited to, the cost of any component, equipment or
materials requiring replacement, the cost of any
additional equipment necessary to effect the repair,
the cost of making the repair, and including all
costs of cable repair ships that may be required to
make the repair, the cost of re burying the portion
of the system that was previously buried, the cost of
labour and engineering assistance required to make
the repair, and all associated costs, such as, but
not limited to, shipping, permits, customs duties and
taxes.
12.3.2 The timing and method of repair shall be agreed
between the Parties and the Supplier shall effect all
such warranty repairs through the use of repair
materials supplied by it. However, the Supplier may
use, with the agreement of the Purchaser, the
materials needed to effect a repair from the
Purchaser's available spare materials. The Supplier
shall replace, in kind, such materials supplied from
the Purchaser's spare materials. The replacement of
such materials shall be made at a time mutually
agreed by the Purchasers and the Supplier, but in any
event not later than the end of the period indicated
in Annex 6.
12.3.3 The Supplier shall make every reasonable effort to
make all such warranty repairs to the System to
minimise the period of time that the FLAG Atlantic
Fibre Optic Cable System is out-of-service for
testing and repair. In the event that the Supplier
fails to make the repair promptly or to make every
reasonable effort to minimise the period of time that
the FLAG Atlantic Fibre Optic Cable System is
out-of-service for repair, the Purchaser may repair
the System and collect the full costs of such repair
from the Supplier. The Purchaser agrees to co-operate
with the Supplier to facilitate the Supplier's repair
activity.
12.4
12.4.1 All materials used to repair the System, which are
not supplied from the Purchaser's spare stock, shall
be warranted:
12.4.1.1 for a period of two (2) years for terminal
equipment and five (5) years for submerged
plant from the date of repair or
replacement; or
12.4.1.2 from the date of repair or replacement until
a date four (4) years for terminal equipment
and seven (7) years for submerged plant from
the date of issuance of the Certificate of
Provisional Acceptance for the System,
whichever period is completed first.
12.4.1.3 All materials supplied to replenish the
Purchaser's spare stock, in accordance with
Article 12.2.3 or 12.3.2, shall be
warranted:
12.4.1.4 for a period of two (2) years for terminal
equipment and five (5) years for submerged
plant from the date of repair or
replacement; or
12.4.1.5 from the date of repair or replacement until
a date four (4) years for terminal equipment
and seven (7) years for submerged plant
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from the date of issuance of the Certificate
of Provisional Acceptance for the System,
whichever period is completed first.
12.5 If during the Warranty Period defects are found on frequent
occasions in any part(s) of the Work, such part(s) shall not
be repaired but shall be replaced by new part(s) which are
fully compatible with the System and have characteristics
equal or equivalent to the part(s) originally provided.
12.6 The warranty of the System shall not apply to failures to
conform to Annex 4 which result from damage caused by
negligent acts or omissions of the Purchaser, its agents or
representatives (including that resulting from the negligent
or improper use of the System or from repair of the System by
the Purchaser not in accordance with the Supplier's declared
procedures or other procedures approved by the Supplier), or
which result from the causes set forth in Articles 10 and 14
hereof.
13 SUPPLIER SUPPORT
13.1 In addition to the Design Life Warranty and the Defects
Warranty provided in the preceding Article, the Supplier
further warrants that for the Design Life of the System, the
Supplier will supply such spare parts, replacement equipment
and repair service, and Software support for the System as may
be necessary for its operation, maintenance or repair. Where
identical parts cannot be supplied, the Supplier shall provide
fully compatible parts with characteristics equal or
equivalent to those originally provided. Unless provided for
in Annex 6 such parts, equipment and services shall be
supplied under reasonable conditions of price and delivery.
13.2 Notwithstanding Article 13.1, if for any reason the Supplier
and /or any of its sub-contractors intends to cease
manufacturing identical spare parts and replacement equipment,
the Supplier shall give a minimum one (1) year's prior written
notice to the Purchaser to allow the Purchaser to order from
the Supplier any required spare parts and replacement
equipment, and shall forthwith provide full details of the
arrangements to provide equivalents.
13.3 In the event that the Supplier fails to comply with the
provisions of Article 13.1 or 13.2 or this Contract is
terminated for default, the Purchaser may require the Supplier
to provide the Purchaser with any and all manufacturing
drawings and related specifications as well as bills of
materials giving the description, in-house numbers and/or code
numbers for all such parts or equipment or to give, in cases
where the parts or equipment were not manufactured by the
Supplier, the manufacturer's name, description of the parts or
equipment and code numbers, and to give tolerances for
matching of parts or equipment and finally, for matched parts
or equipment, to give lists of matched parameters and
tolerances and the Purchaser shall have the right to use the
same only for the purpose of continual maintenance, repair and
support of the System. In the case of Software the Supplier
will provide Source Code together with documentation to enable
the Purchaser to maintain the System.
14 FORCE MAJEURE
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14.1 Neither Party shall be in default if any failure to perform
this Contract arises from any cause which is beyond its
reasonable control and without its fault or negligence and
could not have been avoided through reasonable efforts,
including, but not limited to, acts of God or of the public
enemy, acts or failure to act of any governmental authority,
war, warlike operations, insurrections or riots, epidemics,
quarantine restrictions, strikes, Unusually Severe Weather
Conditions but no other weather conditions, fires, floods,
trawler or anchor damage, damage caused by other marine
activity both natural and man-made, such as, but not limited
to, fishing, marine research and marine development, or
defaults by any of the Supplier's suppliers or sub-contractors
due to any such causes.
14.2 If any such Force Majeure by itself causes an increase in the
time required to reach RFPA for any Phase and/or the System
the Supplier shall be entitled to an equitable adjustment to
the time to reach such RFPA.
14.3 The Supplier shall inform the Purchaser promptly, but in any
event within 3 (three) working days, of any occurrence covered
under this Article 14.
14.4 With regard to Unusually Severe Weather Conditions in Article
14.1 above, the following will apply:
14.4.1 A claim for an extension of time due to force majeure
may only be made in respect of Unusually Severe
Weather Conditions to the extent that the number of
days such conditions are experienced exceeds the
number of unused days of weather contingency included
in the Plan of Work for the relevant Phase.
14.4.2 The time period for making claims of force majeur in
respect of Unusually Severe Weather Conditions, shall
be 7 days after completion of marine operations for
each Phase.
14.4.3 Any such claim is subject to the provisions of 14.2
and the Supplier must demonstrate that the number of
days of Unusually Severe Weather Conditions not only
exceed the number of unused weather contingency days
but also that it has resulted or will result in an
increase in the time required to reach RFPA for the
relevant Phase.
15 SUSPENSION OF WORK
15.1 The Purchaser may, at its convenience, order the Supplier to
suspend all or part of the Work for such period of time as the
Purchaser determines to be appropriate provided that such
suspension shall not continue for a cumulative period of
twelve (12) months or for any period of six (6) consecutive
months. Where as a result of such suspension the Supplier
incurs additional costs or where such a suspension causes loss
to the Supplier in the discharge of its responsibilities under
this Contract, and where such suspension or losses and costs
are not caused by the Supplier's negligence and could not have
been reasonably prevented by the Supplier, the Supplier shall
be allowed an equitable adjustment to the applicable prices
and an equitable extension in the time required for
performance.
15.2 In the event that the Purchaser is unable to make Payment due
hereunder to the Supplier, then the Supplier shall be entitled
to give the Purchaser Notice to arrange such Payment within 30
days and thereafter, if Payment is not received, may
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Suspend all or part of the Work and such suspension shall be
deemed to be Suspension under Article 15.1
16 CHANGES OR ADDITIONAL WORK
16.1 No change shall be made to this Contract except by Contract
Variation.
16.2 The Purchaser may, with the Supplier's agreement, specify
modifications to the Work. The Supplier shall not unreasonably
refuse to agree to such modifications.
16.3 The Purchaser shall have the right to make any variation to
the Work by not more than 10 %, in quantity, of any product
type and this shall have no impact on the Plan of Work. The
latest date for making such change shall be the RFPA date for
the relevant Phase or as such date may be extended pursuant
hereto, minus the lead time for any item as set forth in
Annex 6.
16.4 The Purchaser shall have the right at any time by a written
order to demand variations within the scope of delivery of any
of the following:
16.4.1 drawings, designs or specifications, where supplies
to be furnished are to be specially manufactured for
the Purchaser;
16.4.2 method of shipment or packing, including methods of
preservation; and
16.4.3 place of delivery.
16.5 The Supplier may propose modifications to the Work if it
considers that such modifications will result in improved
manufacturing processes or manufacturing time, reduction in
costs, technical improvements of the product(s) or imply
maintenance advantages or give better technical applicability.
16.6 If any proposed change and/or order in accordance with
Articles 16.2, 16.3 and/or 16.4 above causes an increase or a
decrease in the price of the Work and/or in the time required
for the execution of the Supplier's obligations under this
Contract, it shall so inform the Purchaser no later than
fourteen (14) days after it has received the proposed change
and/or order.
16.7 Information about any increase or decrease in the price of the
Work and/or in the time required for the execution of the
Supplier's obligations under this Contract shall be contained
in any proposed change in accordance with Article 16.5 above.
16.8 Adjustments mentioned in this Article 16 which contain items
included in the Price Schedule (Annex 1) shall be costed using
the unit prices stated for these items in Annex 1. Where
adjustments mentioned in this Article contain items which are
not specified or sufficiently defined in Annex 1 then these
items shall be costed on an equitable basis.
16.9 The Purchaser shall not unreasonably refuse to agree to a
Contract Variation to reflect the Supplier's recommendation of
route and cable types arising as a result of the Route Survey.
17 TERMINATION FOR DEFAULT
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17.1 The Purchaser may, by written notice of termination for
default to the Supplier, terminate the whole or any part of
this Contract in any one of the following circumstances, such
termination to be effective immediately upon receipt of said
notice, or at such later date as it may specify in such
notice:
17.1.1 if the Supplier materially fails to comply with Annex
4 or any written amendment thereto, and does not
remedy such failure within a period of thirty (30)
days, or such longer period as the Purchaser may
authorise in writing, after receipt of notice from
the Purchaser specifying such failure; or
17.1.2 if the Supplier materially fails to perform an
essential requirement of this Contract, and does not
remedy such failure within a period of thirty (30)
days , or such longer period as the Purchaser may
authorise in writing, after receipt of notice from
the Purchaser specifying such failure; or
17.1.3 if the Supplier becomes insolvent, files for
bankruptcy, takes advantage of any legal scheme for
the relief of debtors, adopts a resolution for the
liquidation of its assets, or if a petition in
bankruptcy, for receivership or for winding-up is
taken against it and is not rejected or withdrawn
within thirty (30) days from its inception.
17.2 The Supplier shall not be in default if any failure to perform
this Contract arises out of the causes stipulated in Articles
10.1 and 14.1.
17.3 If this Contract is terminated as provided in Article 17.1 the
Supplier shall comply with Articles 18.2.1 - 18.2.7 and 18.2.9
and the Purchaser, in addition to any other rights provided in
this Article 17, may require the Supplier to transfer title
and deliver to the Purchaser in the manner and to the extent
directed by the Purchaser, any completed cable, equipment,
material or supplies and such partially completed cable,
equipment, materials or supplies, and any parts, tools, dies,
jigs, fixtures, plans, drawings, information and contract
rights (hereinafter in this Article 17 called "manufacturing
material") as the Supplier has had specifically produced or
specifically acquired for the performance of such part of this
Contract as has been terminated and which if this Contract had
been completed would have been required to be furnished to the
Purchaser, and the Supplier shall, upon the direction of the
Purchaser, protect and preserve property in the Supplier's
possession in which the Purchaser has an interest. The
Supplier shall be paid the prices specified in Annex 1 for
completed cable, equipment, material and supplies delivered
and services performed, the amount to be agreed upon by the
Purchaser and the Supplier for manufacturing material
delivered to and approved by the Purchaser and the Supplier's
reasonable costs incurred for the protection and preservation
of property.
17.4 In the event of any termination of this Contract as provided
in Article 17.1 the Supplier shall not be relieved from any
liability for damages or otherwise which may have been
incurred by reason of any breach of this Contract.
17.5 The Supplier's liability hereunder shall be limited in
accordance with Article 32.
18 TERMINATION BY NOTICE
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18.1 The performance of work under this Contract may be terminated
by the Purchaser in whole, or from time to time in part,
whenever it shall so determine. The Purchaser shall deliver to
the Supplier a written notice of termination specifying the
extent to which performance of work under this Contract is
terminated, and the date upon which such termination becomes
effective.
18.2 After receipt of such notice of termination, and except as
otherwise directed by the Purchaser, the Supplier shall:
18.2.1 stop work under this Contract on the date and to the
extent specified in the notice of termination;
18.2.2 place no further orders or contracts for materials,
services or facilities except as may be necessary for
completion of such portion of the Work under this
Contract as is not terminated;
18.2.3 use its reasonable best efforts to terminate all
orders and contracts to the extent that they relate
to the performance of work terminated by the notice
of termination unless otherwise directed by the
Purchaser;
18.2.4 assign to the Purchaser, in the manner, at the time,
and to the extent directed by the Purchaser, all of
the Supplier's right, title and interest under the
orders and contracts so terminated;
18.2.5 use its reasonable best efforts to settle all
outstanding liabilities and all claims arising out of
such termination of orders and contracts, with the
Purchaser's approval or ratification to the extent it
may require, which approval or ratification shall be
final for all the purposes of this Article 18;
18.2.6 transfer title and deliver to the Purchaser in the
manner, at the time, and to the extent (if any)
directed by it ;
18.2.6.1 the fabricated or unfabricated parts, work
in process, completed work, supplies, and
other material produced as a part of, or
acquired in connection with the performance
of, the work terminated by the notice of
termination, and
18.2.6.2 the completed or partially completed plans,
drawings, information, and other property
which, if this Contract had been completed,
would have been required to be furnished to
the Purchaser;
18.2.7 use its reasonable best efforts to sell, in the
manner, at the times, to the extent, and at the price
or prices directed or authorised by the Purchaser,
any property of the types referred to in Article
18.2.6 provided, however, that the Supplier:
18.2.7.1 shall not be required to extend credit to
any buyer, and
18.2.7.2 may acquire any such property under the
conditions prescribed by and at a price
approved by the Purchaser; and provided
further that the proceeds of any such
transfer or disposition
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shall be applied in reduction of any
payments to be made by the Purchaser to the
Supplier under this Contract or paid in such
other manner as the Purchaser may direct;
18.2.8 complete performance of such part of the Work as
shall not have been terminated by the notice of
termination; and
18.2.9 take such action as may be necessary, or as the
Purchaser may direct, for the protection and
preservation of the property related to this Contract
which is in the Supplier's possession and in which
the Purchaser has, or may acquire, an interest.
18.3 After receipt of a notice of termination, the Supplier shall
submit to the Purchaser a written termination claim. Such
claim shall be submitted promptly, but in no event later than
six (6) months from the effective date of termination, unless
one or more extensions in writing are granted by the Purchaser
upon request made in writing within such six (6) month period
or any authorised extension thereof.
18.4 In the settlement of any such partial or total termination
claim, the Purchaser shall pay to the Supplier the total of:
18.4.1 that part of the Contract Sum relating to the
completed Work; and
18.4.2 a fair and reasonable proportion of the Contract Sum
relevant to partially completed Work, including work
in progress, produced or manufactured but not
delivered; and
18.4.3 the cost of materials and supplies purchased in
respect of this Contract but not yet incorporated
into the Work; and
18.4.4 the cost of settling and paying claims arising out of
the termination of work under the contracts and
orders, as provided in Article 18.2.5, which are
properly chargeable to the terminated portion of this
Contract; and
18.4.5 the reasonable costs of settlement including
accounting, legal, clerical and other expenses
reasonably necessary for the preparation of
settlement claims and supporting data with respect to
the terminated portion of this Contract and for the
termination and settlement of contracts thereunder,
together with reasonable storage, transportation and
other costs incurred in connection with the
protection and disposition of property allocatable to
this Contract.
18.5 In arriving at the amount due to the Supplier under this
Article 18, Purchaser shall deduct all payments made to the
Supplier under this Contract, any liabilities which the
Supplier may have to the Purchaser, and the agreed price for,
or the proceeds of sale of, any materials, supplies, or other
things produced or acquired by the Supplier and sold, pursuant
to the provisions of this Article 18, and not otherwise
recovered by or credited to the Purchaser.
18.6 If the termination hereunder be partial, prior to the
settlement of the terminated portion of this Contract, the
Supplier may file with the Purchaser a request in writing for
an equitable adjustment of the price or prices specified in
this Contract
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relating to the portion of this Contract not terminated and
such equitable adjustments as may be agreed upon shall be made
in such price or prices.
18.7 The Purchaser may, from time to time, under such terms and
conditions as it may prescribe, approve partial payments and
payments on account against costs incurred by the Supplier in
connection with the terminated portion of this Contract
whenever in the opinion of the Purchaser the aggregate of such
payments may be within the amount to which the Supplier will
be entitled hereunder. If the total of such payments is in
excess of the amount finally agreed or determined to be due
under this Article 18, such excess shall be payable by the
Supplier to the Purchaser upon demand.
18.8 For a period of five (5) years after final settlement under
this Contract, the Supplier shall preserve and make available
to the Purchaser at all reasonable times at the Supplier's
office, but without direct charge to the Purchaser, all books,
records, and documents required to be kept by Article 23
bearing on its costs and expenses under this Contract and
relating to the work terminated hereunder, or to the extent
approved by the Purchaser, photographs, photocopies, or other
authentic reproductions thereof.
18.9 Any payment made by the Purchaser to the Supplier pursuant to
this Article together with any amounts already paid under this
Contract shall in no circumstances exceed the Contract Sum.
19 SAFEGUARDING INFORMATION AND TECHNOLOGY
Any technical, manufacturing, commercial or other information furnished by the
Supplier to the Purchaser and any information provided by the Purchaser to the
Supplier hereunder or in contemplation hereof shall be subject to the FLAG
Atlantic Fibre Optic Cable System Confidentiality Agreement contained in Annex
5.
20 INFRINGEMENT
20.1 The Supplier shall fully indemnify the Purchaser against all
actions, claims, demands, costs, charges, expenses, and losses
arising from or incurred by reason of any infringement or
alleged infringement of any patent, copyright or other form of
intellectual property right in any country in the world, for
any material or software (or the manufacture of any material
or the normal use thereof) provided by the Supplier or on its
behalf pursuant to this Contract except such infringement or
alleged infringement arising from:
20.1.1 the Supplier's adherence to the Purchaser's
directions to use materials or parts of the
Purchaser's selection; or
20.1.2 such material or parts furnished to the Supplier by
the Purchaser, other than in each case, items of the
Supplier's design or selection or the same as any of
the Supplier's commercial merchandise or in processes
or machines of the Supplier's design or selection
used in the manufacture of such standard products or
parts thereof; or
20.1.3 such material or parts furnished to the Supplier by
other FLAG Atlantic Fibre Optic Cable System
suppliers (other than the Supplier's subcontractors);
or
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20.1.4 use of the Equipment other than for the purposes
indicated in, or reasonably to be inferred from, this
Contract.
20.2 The Purchaser will, at its own expense, defend all suits
against the Supplier for such excepted infringement or alleged
infringement, and save the Supplier harmless from all expense
of defending any such suit and from all payments by final
judgement therein assessed against the Supplier on account of
such excepted infringement.
20.3 If the System or any part of the Equipment supplied by the
Supplier is held to constitute infringement and is subject to
an injunction restraining its use or any order providing for
its delivery up or destruction, the Supplier shall forthwith
at its own expense either:
20.3.1 procure for the Purchaser the right to retain and
continue to use the System; or
20.3.2 modify the System within sixty (60) days or within
that period imposed by the third party being
infringed, whichever shall be the shortest, so that
it becomes non-infringing while ensuring the
compliance with the requirements of Annex 4.
20.4 In the event of any claim being made or action brought against
the Purchaser arising out of the matters referred to in this
Article, the Supplier shall be promptly notified, within a
reasonable period of time but in any event no more than 30
days after any such action, thereof, and may at its own
expense conduct all negotiations for the settlement of the
same, and any litigation that may arise therefrom. The
Purchaser shall not, unless and until the Supplier shall have
failed, within a reasonable time but in any event no more than
30 days after such notice, to take over the conduct of the
negotiations or litigation, make any admission which might be
prejudicial thereto.
21 SOFTWARE
21.1 The Supplier hereby grants to the Purchaser an irrevocable
non-exclusive royalty free license to use, copy, modify and
use as copied or modified all Software and related
documentation provided under this Contract, provided that this
license shall be limited to use of the Software with the
Equipment or with such other equipment (including any
surveillance centre) that is employed to operate and maintain
the System. Individual licenses shall commence from the date
of delivery of each item of Software and related documentation
to the Purchaser. The Purchaser may permit each operator of a
cable station, surveillance centre or other facility connected
to the System to use the Software in order to so operate such
station and is hereby granted the right to sub-licence as
appropriate.
21.2 The Supplier shall ensure that the documentation pertaining to
the Software provided hereunder shall always be complete and
up-to-date.
21.3 Should the Purchaser decide to modify the Software object
code, it shall be free to do so, provided that the Purchaser
shall not be entitled to decompile the Software or alter the
source code, or attempt to do the same.
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21.4 Where the Purchaser modifies the Software (either before or
after the expiry of the Warranty Period) then the Supplier
shall not be responsible for providing support insofar as the
Software is modified without the prior approval of the
Supplier and any warranty given in respect of the Software
shall not apply in respect of non approved modifications made.
21.5 The Supplier shall take suitable precautions to protect the
documentation and relevant source code against loss of any
kind. Up-to-date copies of the latest documentation and
relevant source code shall be stored by the Supplier in a safe
and secure location remote from its normal work premises for
the period of the Design Life of the System.
21.6 In addition to the above, if requested by the Purchaser the
Supplier shall enter into an escrow agreement with the
Purchaser and an escrow agent acceptable to the Purchaser and
the Supplier. The Supplier shall place in escrow thereunder
one copy of the source code and relevant high level design
documentation and keep updating each such copy each time when
a new version of the Software is issued both in human readable
format, if requested, and machine readable format, details of
host machines and sufficient documentation including tools to
enable modification of the Software and shall grant the
Purchaser an irrevocable, non-exclusive, non-transferable
(except that the Purchaser may assign such license in the
event its amalgamation or reconstruction), royalty free
license, to use the source code to modify, and use as modified
the Software (and permit the use of such Software by each
operator of a cable station, surveillance centre or other
facility connected to the System as set forth in Article
21.1), provided that such license is limited to the
circumstances defined in the Escrow Agreement.
22 PAYMENT
Payment to the Supplier of the Contract Sum of *** shall be made by the
Purchaser on the following basis:
22.1 Terms of Payment
22.1.1 INITIAL PAYMENT
***
22.1.2 PROGRESS PAYMENTS
*** of the Contract Sum shall be paid *** aggregating to a
cumulative amount not greater than that indicated in the
Schedule of Progress Payments in Annex 2 hereof in respect of
Equipment, works or services which have been supplied or
executed to the satisfaction of the Purchaser, and not
previously included in a request for payment, at the following
stages:
***
22.1.3 FINAL PAYMENT
The remainder of the Contract Sum plus any amounts in
respect of Contract Variations will be billed ***.
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22.2 General Terms of Payment
22.2.1 All payments to the Supplier shall be made in US
Dollars.
22.2.2 Full and properly itemised and issued requests for
progress payments, reimbursement of VAT, customs
duties and other taxes and duties shall be submitted
by the Supplier to the Purchaser not more than ***.
22.2.3 No payment shall be claimed earlier than that set out
in the Schedule of Progress Payments in Annex 2
hereof, unless otherwise specifically agreed to by
the Purchaser.
22.2.4 The monthly request for payment shall show the total
prices and charges for each item in accordance with
the Price Schedule contained in Annex 1 hereof. The
amounts due to the Supplier shall be computed in
accordance with Article 22.1.
22.2.5 Such requests for payment are to be accompanied by
all documentation necessary to demonstrate compliance
with the terms of this Contract including but not
limited to appropriate Release Certificates signed on
behalf of the Purchaser and relevant shipping papers.
22.2.6 On the basis of such requests for payment, the
Supplier shall be paid the full amount owed *** of
receipt of the request for payment by the Purchaser,
subject to applicable deduction or withholding
pursuant to this Contract.
22.2.7 In the event that one or more items, on any request
for payment, is questioned by the Purchaser or for
which the Purchaser requires additional information
prior to authorising its payment, the amount of such
item shall be deducted from the total amount of the
request for payment and payment of the balance of
such request for payment shall be made in accordance
with the terms of this Contract. Whenever such
questioning occurs, the Supplier shall be advised of
its nature and requested to furnish the information
required to permit the expeditious resolution of the
issue. The Purchaser shall act in a reasonable manner
in exercising this right.
22.2.8 No payment (final or otherwise) made under or in
connection with this Contract shall be conclusive
evidence of the performance of the Work, or of this
Contract, in whole or in part, and no such payment
shall be construed to constitute the acceptance of
defective, faulty of improper Work or Equipment, nor
shall it release the Supplier from any of its
obligations under this Contract.
22.3 Following issue of the Certificate of Provisional Acceptance
of the System, invoices will be issued by the Supplier to the
Purchaser in respect of the actual supply of Equipment and
related services under this Contract and the respective
amounts payable therefor (whether payable or paid), by
reference to the Appendix to Annex 1 (Price Schedule).
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22.4 Taxes
22.4.1 The Contract Sum is exclusive of VAT, sales taxes,
customs duties or other levies or duties applicable
in the FLAG Atlantic Fibre Optic Cable System landing
countries. For the avoidance of doubt, such taxes
shall be amounts relating to the importation of
Equipment into the landing countries and also
relating to the supply of the Equipment and related
services. The Purchaser shall pay to the Supplier
appropriate VAT, sales taxes, customs duties, or
other levies or duties applicable against submission
of the appropriate request for reimbursement within
30 days following the presentation of such
documentation (including appropriate tax invoices) to
the Purchaser, provided the requested amounts do not
exceed by more than *** the mounts the Parties will
agree within 30 days of signing this contract should
be levied by the relevant authorities, but excluding
any changes in legislation. The above amounts paid by
the Supplier shall be converted into US Dollars at
the rate in effect at the time of payment to the
relevant Tax Authorities.
22.4.2 The Supplier shall give the Purchaser all reasonable
assistance in the making of all appropriate
applications for revisions, exemptions, recoveries
and remission of taxes, duties and other levies in
accordance with the appropriate law. The Supplier
shall provide relevant documentary information in a
timely fashion to fully support the Purchaser in its
efforts to obtain any revision, exemption, recovery
or remission or to import the Equipment at the lowest
value possible and shall take such actions as the
Purchaser may reasonably request to obtain such
revisions, exemptions, recoveries and remissions and
to otherwise minimise the level of such taxes, duties
and other levies.
22.4.3 If withholding taxes are payable in the Purchaser's
country or in any country where any Site is located,
the Purchaser shall withhold the necessary amount
from the relevant payments hereunder and pay the
withheld amount to the relevant authorities in
accordance with the applicable laws, and provide
evidence of having done so to the Supplier. The
Purchaser shall not withhold any such amount without
having previously taken into consideration any
bilateral tax agreements concluded between the
Purchaser's country and the Supplier's country.
In any such case, the Purchaser shall promptly
provide to the Supplier, an original or copy of the
original tax receipt, certified by the tax
authorities, for any income tax which is retained
from any payment due to the Supplier. All such
receipts shall be in the name of the Supplier.
23 KEEPING OF BOOKS
23.1 For those items specified in Annex 1 as cost incurred items,
the Supplier shall keep and maintain books, records, vouchers
and accounts of all cost pertaining to the System until five
(5) years from RFPA for the System.
23.2 For those items specified in Annex 1 as fixed cost items, the
Supplier shall keep and maintain books, records, vouchers and
accounts with respect to its billing of those items to FLAG
Atlantic Fibre Optic Cable System until five (5) years from
RFPA for the System.
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23.3 The Supplier shall obtain from its suppliers and
sub-contractors such supporting records, for other than the
cost of fixed cost items, as may be reasonably required and
shall maintain such records for a period of five (5) years
from RFPA for the System.
23.4 The Supplier shall afford the Purchaser the right to review
and make copies, at no cost to the Purchaser, of the said
books, records, vouchers and accounts required to be kept,
maintained and obtained pursuant to this Article 23.
24 INSURANCE
The Insurance Coverage Requirements contained hereunder are not intended to
cover all of the Supplier's exposures to loss under this Contract. Any
additional risk management measures or additional insurance coverage the
Supplier may deem necessary to fulfil its obligations shall be at its own
discretion and expense.
The Supplier shall, at its own expense and at no cost to the Purchaser, procure
or cause to be procured and maintain in force from the Contract signature date
until the granting of Provisional Acceptance of the System the following
insurance coverage in a form and with Underwriters acceptable to the Purchaser:
24.1 "ALL RISKS PHYSICAL DAMAGE INSURANCE" COVERING THE WORK AT
SUPPLIERS PREMISES
This insurance is to be written on a replacement cost basis for the
full value at risk with loss if any, payable to the Purchaser and the
Supplier as their respective interests may appear, or as they may
direct. This coverage may terminate when the last shipment of the
completed Work is loaded on board any vehicle or carrier for the
purpose of transportation from the Supplier's premises.
24.2 "COMPREHENSIVE GENERAL LIABILITY INSURANCE"
General Liability insurance shall cover losses and claims arising from
injuries or death to any person (including any employee of the Supplier
or any subcontractor) or damage to any property (including that of the
Purchaser) under this Contract. This insurance shall cover liability
arising from all operations of the Supplier and be effected for a
Combined Single Limit of no less than three hundred million US Dollars
(US$300,000,000) per occurrence and in the annual aggregrate or such
greater amount as may be required by statute and is to include
Completed Operations, Contractual and Product liability coverages.
Coverage is also to include the Protective section with respect to
subcontractors and the liability arising from the operation of motor
vehicules owned and non-owned. The insurance policy(ies) is (are)
deemed to be written on an occurrence basis. For purposes of showing
evidence of insurance the Supplier shall be required to show evidence
of a Combined Single Limit of no less than two hundred million US
Dollars (US$200,000,000) per occurrence and in the annual aggregrate.
24.3 "WORKER'S COMPENSATION INSURANCE" OR EQUIVALENT PROTECTION
This insurance shall cover all employees and servants of the Supplier
for all compensation and other benefits required by any applicable law
or by governmental authority in respect of injury, death, sickness or
disease. Territorial restriction to be amended so that employees
working at sea or in the area of operation are not excluded.
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24.4 "EMPLOYER'S LIABILITY INSURANCE"
This insurance shall cover claims presented by or on behalf of
employees or servants of the Supplier and related to employer's
liability whether the claim arises under statute or maritime law or
otherwise. The minimum limit of liability shall be no less than two
million US Dollars (US$2,000,000) per occurrence or as required by
applicable statute whichever is greater. This insurance shall be
scheduled to any and all applicable umbrella/excess liability policies
and is required by all contractors and subcontractors.
24.5 "CARGO AND INSTALLATION ALL RISKS ON GOODS OF THE CONTRACT"
The Supplier is required to procure and maintain in force an insurance
contract written on the latest edition of the Institute Cargo Clauses
"A", (All Risks Form), modified if required to pick-up the installation
exposures. This insurance is to cover the cable and equipment from the
point where the insurance required under Article 24.1 ceases, and to
continue until the date of the acceptance of the System by the
Purchaser. Such insurance is to include the perils of jettison, loss
overboard, sue and labour, increased value by way of payment of duty,
the risks of war, strike, riot and civil commotion. The limit of such
insurance should be not less than the replacement value of any one
shipment at any time.
24.6 "INSURANCE COVERAGE TO BE MAINTAINED BY SHIP OWNER"
The Supplier shall, or shall require the Ship owner to provide and
maintain in force during the charter period the following coverage:
24.6.1.1
P&I (Protection and Indemnity) coverage from
one of the Mutual P&I Clubs subscribing to
the International Group Association Agreement
(IGA) as per Standard Rules with a US$2
billion liability limit for all risks covered
with the exception of Oil Pollution risks
where recovery may be limited to
US$500,000,000 for each separate accident or
occurrence or for each vessel owned or
chartered by the Supplier and used in the
performance of this Contract.
In the event of any vessel being used in the
performance of this Contract that is less
than 2,500 gross tons, the minimum limits of
liability carried for the risks of Protection
and Indemnity, including, but not limited to
Crew and Passenger Liability, Liability to
Cargo, Collision Liability, Pollution
Liability, War Risks and Removal of Wreck,
shall be US$25,000,000.
Such Protection and Indemnity coverage shall
be extended to include the Specialist
Operations Extension, where such operations
are to be performed and otherwise excluded by
the policy/entry, to a limit of no less than
US$25,000,000 for each separate accident or
occurrence and for each vessel.
24.6.2 Hull and Machinery Insurance including War Risks
cover on full conditions for a limit of no less than
the actual value of each vessel owned or chartered by
the Supplier and their subcontractors and used in the
performance of this Contract. The territorial
warranties of the policy should include the planned
cable route.
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24.6.3 Seabed or equivalent coverage is to be provided as
required to protect against all risks of physical
loss or damage to the submersible plant and equipment
ending with the Certificate of Provisional
Acceptance.
Where referenced in these Articles 24.6.1 and 24.6.2,
the word vessel or vessels shall be deemed to include
all sub-sea equipment (Sea Plough, Scarab and/or any
similar equipment) which the Supplier or their
subcontractors may be using in the performance of
this Contract.
24.7 GENERALITIES APPLICABLE TO INSURANCE COVERAGE
24.7.1 Coverage required under Articles 24.5 and 24.6 above
are to be arranged so that any general average and
salvage costs contribution from the part of the
Purchaser as well as subrogation rights be waived in
their favour by the Underwriters, except for
casualties arising from actions of Purchaser acting
in the capacity of Subcontractor to the Supplier.
24.7.2 On coverage required under Articles 24.1, 24.2, 24.5
and 24.6, the Purchaser is to be added as an
Additional Named Insured with the appropriate "Cross
Liability" and "Severability of Interests" clauses,
provided that the Purchaser shall not be liable for
any insurance premiums.
24.7.3 The Supplier will notify the Insurers promptly and
shall supply all necessary information concerning any
occurrence which may give rise to a claim under the
above insurance policies in order to expedite the
processing of the claims. With respect to coverage
under 24.1, 24.2, 24.5 and 24.6, it will keep the
Purchaser informed of the details of the occurrences
and of the progress of the claim treatment by the
Underwriters.
24.7.4 All deductibles or self-insured retentions in the
above insurance coverage are for the account of the
Supplier and/or the Ship owner as the case may be and
shall under no circumstance be the responsibilty of
the Purchaser.
24.7.5 If the Supplier is to charter, operate or use any
aircraft, helicopter or other flying craft in the
performance of this Contract, it engages itself to
procure or cause to be procured and maintain in force
all the necessary insurance covering the aviation
liability and hull exposures with a minimum of
US$100,000,000 of Liability Insurance and scheduled
to the excess liability policies. If the Supplier
charters, operates or uses any aircraft, helicopter
or other flying craft in the performance of this
Contract evidence of this required insurance shall be
furnished prior to use of any aircraft, helicopter or
other flying craft. It will also ensure that any such
craft is holder of a current airworthiness
certificate.
24.7.6 On coverage required under Articles 24.1 and 24.5,
provision should be made for loss, if any, to be
payable to the Purchaser and the Supplier as their
respective interests may appear.
24.7.7 The insolvency, liquidation, bankruptcy or failure of
any Insurer providing insurance for the Supplier or
its sub-contractors, or failure of
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any such Insurer to pay claims accruing, shall not be
considered a waiver of nor shall it excuse the
Supplier from complying with any of the provisions of
this Contract.
24.7.8 The Supplier shall furnish the Purchaser with
certified copies of insurance policies or
certificates of insurance which provide sufficient
information to verify that the Supplier has complied
with the insurance requirements.
If any of the insurance coverage required herein are
not procured or maintained pursuant to the
specifications, the Purchaser, at its option, may
notify the Supplier that the failure to provide the
insurance is a material omission whereupon it is
agreed that the Purchaser, at its sole option, shall
have the right either to purchase similar coverage,
the cost thereof to be reimbursed by the Supplier
forthwith to the Purchaser or, alternatively to be
deducted by the Purchaser from any sum due or
thereafter becoming due to the Supplier from the
Purchaser or to terminate this Contract in accordance
with the provisions of Article 17 hereof. In the
event of Purchaser supplied insurance, the Supplier
will notify Purchaser immediately by facsimile, telex
or telephone of any loss or damage covered by these
policies and shall co-operate fully in gathering,
assembling and presenting claim documentation to
Underwriters. All insurance proceeds will then be
paid solely to the Purchaser.
24.7.9 Following a loss or damage, the Supplier shall remedy
any such loss or damage with due diligence and
dispatch and shall not wait for any insurance
proceeds to effect the repairs.
24.7.10 All of the above insurance coverage should provide
that prior to any cancellation or material change
thereto initiated by the Underwriters, a 90 days
notice will be forwarded to:
FLAG Atlantic Limited
The Emporium Building
69 Front Street - 4th Floor
Hamilton HM12, Bermuda.
Attention: Co-Chairmen
Telephone: +1 441 296 0909
Facsimile: +1 441 296 0938
With a copy to:
FLAG Telecom Limited
1st Floor, Sovereign Court
635 Sipson Road, West Drayton
Middlesex UB7 OJE
UK.
Attention: Program Manager
Telephone: +44 181 282 1565
Facsimile:+44 181 282 1566
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24.7.11 Furthermore, any certificate or other similar
document the Supplier is required to submit to the
Purchaser under this Article 24 shall be forwarded to
FLAG Atlantic Limited at the address appearing in
Article 24.7.10 above.
24.7.12 The Supplier or the Purchaser, as the case may be,
shall promptly give to the other party notice in
writing of any claim made or proceedings commenced
for which the Supplier or the Purchaser claims to be
entitled to indemnification under this Contract and
shall confer with the other party concerning the
defence of any such claim or proceedings, shall
permit such other party to be represented by counsel
in defence thereof and shall not effect settlement of
or compromise any such claim or proceedings without
the other's prior written agreement.
25 AGENTS AND REPRESENTATIVES OF THE PURCHASER
The Purchaser may nominate such agents or representatives, as it may desire, to
carry out any of its responsibilities or to exercise any of its rights under
this Contract. The Purchaser shall notify the Supplier in writing of any such
nominations.
26 REMOVAL OF PERSONS EMPLOYED ON CONTRACT
If and whenever the Purchaser for any reason considers that the continued
employment by the Supplier of any person in connection with this Contract is
undesirable, it may so inform the Supplier who shall thereupon cease to employ
that person in that connection.
27 SEVERABILITY
If any of the provisions of this Contract shall be invalid or unenforceable,
such invalidity or unenforceability shall not invalidate or render unenforceable
the entire Contract, but rather the entire Contract shall be construed as not
containing the particular invalid or unenforceable provision or provisions, and
the rights and obligations of the parties shall be construed and enforced
accordingly.
28 SUCCESSORS BOUND
This Contract shall be binding on the Parties and their respective successors
and permitted assigns.
29 RELATIONSHIP OF THE PARTIES TO EACH OTHER
The relationship of the Parties to this Contract shall not be that of partners
and nothing herein contained shall be deemed to constitute a partnership between
them.
30 RESPONSIBILITY FOR OBTAINING PERMITS AND LOCAL LAWS
30.1 The Purchaser shall be responsible for obtaining, maintaining
and complying with all appropriate permits, licences,
consents, authorisations and approvals as well as for the
payment of all costs related thereto, in connection with its
ownership and operation of the FLAG Atlantic Fibre Optic Cable
System, its ownership and operation, its landing in each
territory as well as its transoceanic route, including,
without limitation, permits, licences, authorities and
approvals therefor and for the
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cable to cross other telecommunication cables, pipelines, and
the like, to rest or be buried in any inland waters,
territorial waters, continental shelf, contiguous zones,
Exclusive Economic Zones and permissions to cross any beach or
land at any shore end. The cost of any related fisherman's
compensation will also be to the Purchaser's account.
30.2 The Supplier shall, at no additional cost to the Purchaser, be
responsible for obtaining, maintaining and complying with all
permits, licences, consents, authorisations and approvals
required for carrying out the installation activities
including, without limitation, obtaining harbour and port
clearances and approvals to operate the vessel(s) wherever
required to duly carry out the route survey and installation
activities as well as the route survey in the due performance
of its obligations under this Contract.
30.3 The Supplier shall comply with all laws, by-laws and
regulations applicable to the Work in force in the localities
within which this Contract is to be performed. The Supplier
shall, before making any variations from the designs,
drawings, plans or procedures that may be necessitated by so
complying, give to the Purchaser written notice, specifying
the variation proposed to be made, and the reasons for making
it, and apply for instructions thereon. The Supplier shall be
responsible for the payment of any and all costs incurred as a
result of a need to vary design, drawings, plans or
procedures. The Supplier shall give all notices required by
the said laws, by-laws and regulations to be given to any
authority, perform or permit the performance by authorised
persons of any inspection required by the said legislation,
rules, regulations, by-laws, orders and proclamations and pay
all fees, charges, impositions, or any other amounts payable
to any such authority, or to any public officer in respect of
the Work.
30.4 The Purchaser shall not be responsible for any acts or
omissions of the Supplier that violate, the laws, by-laws or
regulations of any locality in which the work is carried out.
30.5 The Supplier shall indemnify the Purchaser against any such
act or omission or any claims, demands, actions, suits,
proceedings, prosecutions, fines, penalties, damages or
expenses arising out of the same or any of them, and against
the fees payable by the Supplier to any authority or public
officer pursuant to this Article 30.
30.6 The Supplier and Purchaser shall give each other such
assistance as may be reasonably required to obtain the permits
hereinbefore mentioned
31 CONSENTS
Whenever under this Contract either Party's consent or approval is
required, such Party shall not unreasonably withhold such consent or
approval and shall not unreasonably delay in granting or denying such
consent or approval. If such Party has not denied such consent or
approval within 30 days after such consent or approval is requested,
such Party shall be deemed to have granted such consent or approval.
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32 LIMITATION OF LIABILITY
32.1 The Supplier shall not be liable to the Purchaser in any event
howsoever arising, whether in contract, tort or otherwise, for
any consequential, incidental or special damages, nor for any
loss of profits, loss of revenue or the costs of, or
associated with the use of, restoration facilities resulting
from the failure of the Supplier to perform pursuant to the
terms of this Contract.
32.2 The maximum amount payable as damages or by way of indemnity
by the Supplier to the Purchaser for whatever reason under
this Contract or arising upon its termination shall in no
circumstances exceed 100% of the Contract Sum.
33 ALLOCATION OF DUTIES
33.1 Allocation of the principal duties and obligations of the
Parties shall be in accordance with the Appendix to the Price
Schedule.
33.2 Notwithstanding the provisions of Article 33.1, Alcatel
Submarine Networks and FLAG Atlantic Limited respectively
shall be and remain principally liable for and in respect of
all duties and obligations of:
33.2.1 Alcatel Submarine Networks Inc. and Alcatel Submarine
Networks Limited, in the case of Alcatel Submarine
Networks; and
33.2.2 FLAG Atlantic USA Limited, Flag Atlantic France sarl
and FLAG Atlantic UK Limited, in the case of FLAG
Atlantic Limited.
34 NOTICES
34.1 All notices pertaining to this Contract shall be in writing
and shall be sent to the respective parties at the following
postal addresses or facsimile numbers:
For Purchaser:
FLAG Atlantic Limited
The Emporium Building
69 Front Street - 4th Floor
Hamilton HM12, Bermuda
Attention: Co-Chairmen
Telephone: +1 441 296 0909
Facsimile: +1 441 296 0938
with a copy to:
FLAG Telecom Limited
103 Mount Street
London W1Y 5HE
UK
Attention: General Counsel
Facsimile: +44 171 317 0808
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with a copy to:
GTS Terhulpsesteenweg 6A
1560 Hoeilaart
Belgium
Attention: Legal Director
Facsimile: +322 658 5101
For Supplier:
Alcatel Submarine Networks
72 avenue de la Liberte
92723 Nanterre
France
Attention: General Counsel
Facsimile: +33 1 5551 6365
34.2 Either Party may change its designated nominee or the address
for notices to be sent hereunder, at any time by giving the
other Party thirty (30) days prior written notice.
34.3 Any notice to be given to the Supplier under the terms of this
Contract shall, without prejudice to any other way of serving
it, be sufficiently given if sent by recorded delivery to the
Supplier's last know place of business or registered office
and shall be deemed to be given at the time when it was
delivered in the ordinary course of post.
35 CAPTIONS
The captions of the Articles do not form part of this Contract and shall not
have any affect on the interpretation thereof.
36 LAW AND ARBITRATION
36.1 This Contract shall be considered as a contract made in
England and subject to English law.
36.2 The Parties to this Contract shall try to solve by
negotiations any disagreement which may arise in connection
with this Contract. In case of a dispute arising after
negotiations have failed, the dispute shall be resolved by
arbitration under the Rules of Arbitration of the
International Chamber of Commerce in effect on the date that
the arbitration is initiated.
36.3 Arbitration shall be by arbitrators appointed under the said
rules by three arbitrators, unless the Parties agree to use a
single Arbitrator.
36.4 The place of arbitration shall be London.
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36.5 Responsibility for paying the costs of the arbitration,
including the costs incurred by the Parties themselves in
preparing and presenting their cases, shall be apportioned by
the tribunal.
36.6 The award shall state the reasons upon which it is based.
36.7 The award shall be final and binding on the Parties as from
the date it is made.
36.8 Judgement upon the award rendered may be entered in any court
having jurisdiction, or application may be made to such court
for a judicial acceptance of the award and an order of
enforcement, as the case may be.
36.9 The fact that a dispute is brought to arbitration does not
relieve either Party from its obligation to fulfil its
commitments as provided in this Contract and the Parties shall
continue to perform this Contract notwithstanding a dispute or
arbitration thereof.
37 PRECEDENCE
In the event of any inconsistency between the Articles and Annexes of this
Contract, such inconsistency shall be resolved by giving precedence to the
Articles and the Annexes shall be in the order indicated in Article 47.
38 WAIVER
No failure to exercise and no delay in exercising, on the part of either Party,
any right, power or privilege hereunder will operate as a waiver thereof, nor
will any single or partial exercise of any right, power or privilege hereunder
preclude further exercise of any other right hereunder.
39 RECOVERY OF SUMS DUE
Whenever under this Contract any sum of money shall be recoverable from or
payable by the Supplier and the Supplier has not paid the sum due within a
reasonable time, the same may be deducted from any sum then due, or which at any
time thereafter may become due to the Supplier, under this Contract.
40 WATCHING, LIGHTING AND PROTECTION OF SITE
For the protection of the Site, the System, and all Equipment and Ancillary
Apparatus and for the prevention of danger to persons on or near the Site and to
shipping, the Supplier shall, unless the Purchaser otherwise agrees, take all
usual and reasonable steps to ensure that the System, the Equipment, the Site
and all things on Site are properly watched, secured, protected, marked and lit.
41 PROVISION OF ANCILLARY APPARATUS
Except where this Contract provides otherwise, the Supplier shall provide, at
its own expense, the Ancillary Apparatus necessary to carry out the Work
properly and efficiently.
42 DIARY AND REPORTING
42.1 The Supplier shall keep written records or diaries of all
activities undertaken in the performance of the Work,
including details of any variations or additional work
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and the routine and non-routine events, alarms, faulty units
and equipment and other kind of problems as well as the
remedial actions taken. The Supplier shall make the records or
diaries available for inspection and confirmation by the
Purchaser, or any authorised representative of the Purchaser,
at any time during the progress of the Work and for a
reasonable period thereafter, and at all events, for a minimum
period of five (5) years from RFPA for the System.
42.2 The Supplier shall conform to the Plan of Work.
42.3 The Supplier shall attend at such times and places as may be
required by the Purchaser co-ordination meetings with the
Purchaser's representatives to discuss the general progress of
the Work.
42.4 The Supplier shall render such reports of the progress of the
Work, in such form, as may be called for by the Purchaser. The
submission and acceptance of these reports shall not prejudice
the rights of the Purchaser under Article 6 or 7 or elsewhere
in this Contract.
42.5 The Purchaser shall meet with the Supplier on a quarterly
basis to review and discuss the fiscal position of the
Purchaser with regard to its obligations under this Contract.
43 PROPERTY OF THE PURCHASER
43.1 Any property of the Purchaser issued in connection with this
Contract, and anything supplied by the Purchaser whether for
incorporation in the System or not, shall remain the property
of the Purchaser and shall not be used other than in the
execution of this Contract without the prior written consent
of the Purchaser.
43.2 No such property or things shall be removed from the place
where they are normally used or stored for the purposes of
this Contract without the Purchaser's consent.
43.3 The Supplier shall keep readily available records of all such
property and things in order to enable the Purchaser to check
from time to time the quantities in use, used, and available
for use, against those delivered to the Supplier's charge.
43.4 Neither the Supplier nor any other person shall have a lien on
any such property or things for any sum due. The Supplier
shall take all reasonable steps to ensure that the Purchaser's
title and the exclusion of liens are brought to the notice of
all persons dealing with such property and things.
43.5 All such property and things shall be deemed to be in good
condition when received by or on behalf of the Supplier unless
the Supplier notifies the Purchaser to the contrary within
fourteen (14) days of receipt.
43.6 All such property and things which are not for incorporation
in the System shall be duly returned by the Supplier. Between
the time of delivery to the Supplier and of return to the
Purchaser, the Supplier shall be responsible for all damage
thereto except for normal wear and tear resulting from proper
use in the execution of this Contract.
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43.7 Any test equipment provided by the Purchaser shall be
re-calibrated immediately prior to its return.
44 SERVICES RENDERED BY THE PURCHASER
If the Purchaser shall accept delivery of any articles, materials, or stores, in
connection with this Contract on behalf of the Supplier and shall pay any
charges upon such articles, materials, or stores, either for demurrage,
handling, storage, cartage or carriage, or for the price of such materials or
stores, or if the Purchaser shall at the express or implied request of the
Supplier perform any other services for the Supplier any expense so incurred by
the Purchaser shall be recoverable from the Supplier upon demand by the
Purchaser.
45 FACILITIES FOR OTHER WORKS
45.1 The Purchaser shall have power at any time to execute other
works (whether or not in connection with the Work) on the Site
(except for Cableships) concurrently with the execution of the
Work and the Supplier shall give reasonable facilities for
such purpose.
45.2 Should interference arise between the work of the Supplier and
the work of other suppliers engaged by the Purchaser then the
co-ordination between such different work will be prepared and
agreed in meetings to be held with the Purchaser, the Supplier
and such other supplier(s). The minutes of those meetings
shall be binding on the respective parties and shall be
considered contractual documents providing such conclusions
are not at variance with the Supplier's obligations under this
Contract.
45.3 The Supplier shall co-operate with the Purchaser and other
suppliers in their employ in the execution of their work. The
Supplier shall immediately bring to the attention of the
Purchaser any conflict between its work and that of any
supplier employed by the Purchaser.
46 PUBLICITY
No publicity relating to this Contract shall be published in any newspaper,
magazine, journal or any written or visual media without the prior written
consent of the Purchaser.
47 ENTIRE CONTRACT
47.1 This Contract consists of Articles 1 through 51 and the
following documents which are attached hereto:
Annex 4 Technical Specification
Annex 1 Price Schedule
Annex 3 Plan of Work
Annex 2 Schedule of Progress Payments
Annex 6 Long Term Support
Annex 5 Confidentiality Agreement
Annex 7 Sea State 6 Definition
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47.2 This Contract supersedes all prior oral or written
understandings between the Supplier and the Purchaser with
respect to the subject matter of this Contract, including (but
not limited to) the contract signed on 12 January 1999,
between FLAG Atlantic Limited and Alcatel Submarine Networks,
and constitutes the entire agreement between them with respect
to said subject matter.
48 LETTER OF PERFORMANCE GUARANTEE, GUARANTORS
48.1 In order to guarantee the good and timely execution of all the
contractual obligations, the Supplier shall, at its own cost,
provide in time for the Purchaser to obtain financing for this
Contract, a Performance Guarantee for a value equal to ten
percent (10 %) of the Contract sum in favour of the Purchaser
in the form of an irrevocable and unconditional Bank Guarantee
in the format to be agreed with the Purchaser and if necessary
its lenders. The Performance Guarantee shall be issued by a
bank acceptable to the Purchaser. Upon the issuance of the
Certificate of Provisional Acceptance of the System, the value
of the Performance Guarantee shall be reduced to five
percent (5%).
48.2 The Performance Guarantee shall remain in force until the
issuance of the Certificate of Final Acceptance.
48.3 In the event of default by the Supplier in carrying out its
responsibilities under this Contract, the Purchaser, at its
discretion, shall have the right from time to time, to call in
all or part of the amount represented by the Performance
Guarantee.
48.4 The Supplier agrees to cause its ultimate parent company to
execute and deliver a guaranty to the Purchaser, in time for
the Purchaser to obtain financing for this Contract, and in a
form to be mutually agreed with the Purchaser and if necessary
its lenders.
49 CONTRACT EFFECTIVENESS
49.1 This Contract shall be effective as at the date of signature.
49.2 It is the intention of the Purchaser to ensure that as soon as
possible thereafter financing is in place ("Financial
Closure"). In the event that such financing is not in place,
by 20 October 1999, then the Supplier shall have the option:
49.2.1 as long as the financing is not available, and up to
31 December 1999, to suspend this Contract and be
entitled to claim only an equitable extension of
time; and
49.2.2 as long as the financing continues not to be
available, and up to 30 June 2000, to continue to
suspend this Contract and be entitled to claim an
equitable extension of time as well as costs in
accordance with Article 15 of this Contract; and
49.2.3 in the event that financing is not available after 30
June 2000 then the Supplier shall be entitled to
terminate this Contract in which case the Purchaser's
total liability shall be limited to the Supplier's
out of pocket expenses to a maximum of the amount
payable under Article 22.1.1. In such circumstances
the title in the desk top study and the marine route
survey report shall transfer to the Purchaser.
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50 CORRUPT PRACTICES
50.1 The Supplier shall at all times comply with all applicable
laws and regulations and shall conduct its business in
accordance with the US Foreign Corrupt Practices Act of 1977,
as amended.
50.2 The Supplier shall not offer or give or agree to give to any
person associated with this Agreement, whether employed by
Purchaser or not, any gift, commission, rebate or
consideration of any kind as an inducement or reward for
doing, influencing or carrying out any act in relation to the
obtaining or execution of this Contract or for showing any
favour or disfavour to any person or persons in relation to
this Contract.
51 SAFETY
The Supplier shall at all times comply, and ensure that all of its employees,
contractors and agents comply, with all regulations (governmental or otherwise),
laws etc. relating to both the safety of personnel and the operations themselves
and all associated activities that are undertaken in the Supplier's performance
of its obligations under this Contract, and the Supplier hereby indemnifies and
holds the Purchaser harmless from and against any consequences that may result
from the Supplier having failed to do so.
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IN WITNESS THEREOF the parties to this Contract have signed:
FLAG Atlantic Limited
By: /s/ Name of Signatory By: /s/ Name of Signatory
---------------------- -----------------------
Date: 20/9/99 Title: CO Chairman
Date: 20/9/99
FLAG Atlantic USA Limited
By: /s/ Name of Signatory By: /s/ Name of Signatory
---------------------- -----------------------
Date: 22 Sept. 1999 Title: Co Secretary
Date: 20 Sept. 1999
By: /s/ Name of Signatory
-----------------------
Date: 20 Sept. 1999
FLAG Atlantic France Sarl
By: /s/ Name of Signatory By: /s/ Name of Signatory
---------------------- -----------------------
Date: 20/09/99 Date: 22 Sept. 1999
FLAG Atlantic UK Limited
By: /s/ Name of Signatory By: /s/ Name of Signatory
---------------------- -----------------------
Date: 20/9/99 Title: Title of Signatory
Date: 22 Sept. 1999
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<PAGE>
By: /s/ Name of Signatory
-----------------------
Date: 20 Sept. 1999
Alcatel Submarine Networks
By: /s/ Name of Signatory
----------------------
Title: Chief Operating Officer
Date: 20/9/99
Alcatel Submarine Networks Inc.
By: /s/ Robert J. Kelly
----------------------
Title: President
Date: 20/9/99
Alcatel Submarine Networks Limited
By: /s/ Name of Signatory
----------------------
Date: 20/9/99
Page 41
<PAGE>
EXECUTION COPY
CAPACITY RIGHT OF USE AGREEMENT
THIS AGREEMENT, dated as of the 7th day of October 1999, is among FLAG ATLANTIC
LIMITED, a company organised under the laws of Bermuda and having its principal
office at The Emporium Building, 69 Front Street, 4th Floor, Hamilton, Bermuda,
FLAG ATLANTIC USA LIMITED, a company organised under the laws of Delaware, USA
and having its principal office at 570 Lexington Avenue, 38th Floor, New York,
NY 10022, USA, (together hereinafter referred to as "FA-1") and NYNEX LONG
DISTANCE COMPANY, D/B/A BELL ATLANTIC LONG DISTANCE, a Delaware corporation,
with principal offices at 1327 Broadway, 8th Floor West, New York, New York,
10018 USA ("BELL ATLANTIC").
WITNESSETH:
WHEREAS, except as set out below, FLAG Atlantic Limited is constructing and will
directly and/or indirectly own, operate and maintain a fiberoptic cable system
to be known as FLAG Atlantic-1 as more fully described in Schedule 1 (the
"System"); and
WHEREAS, FLAG Atlantic USA Limited is constructing and will own all that part of
the System that is within the territory (including the territorial waters) of
the United States of America; and
WHEREAS, the System is currently scheduled to go into service in stages with the
initial stage, as more particularly described in Schedule 1, ("Initial Stage")
currently scheduled to go into service on or about 31 March 2001 ("Scheduled
Initial RFS Date"); and
WHEREAS, BELL ATLANTIC desires to acquire from FA-1, and FA-1 is willing to
provide to BELL ATLANTIC, an indefeasible right of use ("IRU") (except as
otherwise provided herein) in the capacity on the System as set out in Schedule
2A or 2B, as applicable (the "Capacity"); and
WHEREAS, FA-1 and BELL ATLANTIC (the "Parties") desire to define the terms and
conditions under which the Capacity will be acquired by BELL ATLANTIC.
NOW, THEREFORE, the Parties hereby agree as follows:
1. PURCHASE OF CAPACITY
1.1 Individual units of Capacity as set out in Schedule 2A or 2B, as
applicable, (each a "Unit") shall be available for activation in
tranches (each a "Tranche") pursuant to the delivery schedule set out
in Schedule 6A or 6B, as applicable. BELL ATLANTIC agrees to acquire
the IRU (except as otherwise provided herein) in the Capacity in
Tranche 1 and has the option to acquire the IRU (except as otherwise
provided herein) in the Capacity in Tranches 2, 3, 4 and (if
applicable) 5 for the purchase price set forth in Schedule 2A or 2B, as
applicable (the "Purchase Price"), subject to the terms and conditions
of this Agreement. BELL ATLANTIC may exercise its option to acquire the
Capacity in Tranches 2, 3, 4 and (if applicable) 5 by notice to FA-1
***. BELL ATLANTIC shall by the earlier of *** notify FA-1 whether
Schedule 2A or 2B shall apply to this Agreement (and if BELL ATLANTIC
fails
<PAGE>
to give such notice by the required date Schedule 2A shall apply). If
Schedule 2A applies then Schedule 6A shall apply and if Schedule 2B
applies then Schedule 6B shall apply.
1.2 ***
1.3 ***
1.4 FA-1 shall:
1.4.1 Provide to BELL ATLANTIC the circuit designations within one
day after receipt of an Activation Notice from BELL ATLANTIC;
and
1.4.2 Provision the Requested Capacity within *** days (*** days in
the case of the initial Requested Capacity to be activated
following the Initial RFS Date) after receipt of an Activation
Notice for such Requested Capacity in accordance with the
standards described in Schedule 7.
1.5 Subject to BELL ATLANTIC paying the Purchase Price in accordance with
the terms of this Agreement, BELL ATLANTIC shall have the right,
subject to the terms of this Agreement, to use such Requested Capacity
from the date provisioned under clause 1.4.2 until the System is
decommissioned.
1.6 BELL ATLANTIC shall be entitled to collocation pursuant to a
collocation agreement to be negotiated between the Parties within 90
days of the execution of this Agreement, based on the principles set
out in Schedule 4.
1.7 Nothing set forth in this Agreement shall require BELL ATLANTIC to use
purchased Capacity for transport of communications until such time as
(a) BELL ATLANTIC, in its sole discretion, determines to use such
purchased Capacity, and (b) BELL ATLANTIC has obtained all necessary
approvals to use such purchased Capacity.
1.8 BELL ATLANTIC shall have an ownership interest in the Capacity as
provided herein but BELL ATLANTIC shall have no legal title or
ownership in the physical assets of the System itself, including any
proceeds from the disposition of the System.
1.9 In the event that (i) after using commercially reasonable efforts, FA-1
does not have the underlying rights to grant an IRU in portions of the
System located in France, England and between France and England and/or
(ii) if any jurisdiction in which the System is located does not
currently recognize or does not recognize in the future the conveyance
of communications facilities on an IRU basis and/or (iii) FA-1 chooses
not to obtain an IRU on the portion of the System located in England
that FLAG Atlantic Limited or a subsidiary will not own outright, then
as to the Capacity on such portions of the System or within such
jurisdiction(s) only, this Agreement shall be considered an agreement
for a lease of such Capacity ("Lease").
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1.10 In the event that this Agreement is to be treated as a Lease for any
portion of the Capacity, then as to such portion only, the terms
"purchase" and any variations thereon shall mean "lease" or the
appropriate variation thereof, and the terms "indefeasible right of
use" and "IRU" shall mean "Lease." Any other terms and conditions of
this Agreement also shall be deemed modified only to the extent
necessary to be consistent with the grant of a lease to BELL ATLANTIC.
All other terms and conditions of this Agreement shall remain unchanged
and fully valid and enforceable.
2. PAYMENTS
2.1 BELL ATLANTIC shall pay to FA-1 the Purchase Price for Capacity to be
acquired pursuant hereto as follows (and all such payments shall be
non-refundable except as otherwise provided in clause 4):
2.1.1 BELL ATLANTIC shall pay to FA-1 the Purchase Price for
Capacity in Tranche 1 pursuant to the payment schedule set out
in Schedule 3.
2.1.2 If BELL ATLANTIC exercises its option in clause 1.1 to acquire
Capacity in Tranche 2, 3, 4 or (if applicable) 5 it shall pay
*** of the Purchase Price specified for the Capacity in that
Tranche on notice to FA-1 of the exercise of its option, with
the remaining *** of the Purchase Price being payable when
such Capacity has passed the bringing-into-service tests
specified in Schedule 7.
2.2 BELL ATLANTIC shall pay to FA-1 such amounts for the operation and
maintenance of the System as are set forth in, or determined pursuant
to, Schedule 5 ("O&M Payments").
2.3 FA-1 shall render to BELL ATLANTIC invoices for amounts payable
pursuant to this Agreement. Invoices for the Purchase Price shall be
rendered in accordance with clause 2.1. Invoices for O&M Payments shall
be rendered pursuant to Schedule 5. All invoices shall be due and
payable within 30 days after receipt by BELL ATLANTIC.
2.4 If BELL ATLANTIC disputes any invoiced amount for O&M payments in good
faith, BELL ATLANTIC must provide to FA-1, on or before the due date of
the invoice, reasonable notice and a detailed explanation of the basis
of the dispute, and pay any undisputed amount in accordance with this
Agreement. *** The parties will make a good faith effort to resolve all
billing disputes as expeditiously as possible.
2.5 ***
2.6 Any amount payable pursuant to this Agreement which is not paid when
due shall accrue interest at the annual rate of *** above the U.S.
Dollar LIBOR for one month as quoted in THE WALL STREET JOURNAL on the
first business day of the month in which the payment is due or the
maximum rate permitted under the laws of the State of New York, USA,
whichever is less. All such default interest shall accrue from the day
following the date payment of the relevant amount was due until it is
paid in full and shall accrue both before and after judgement. ***
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2.7 All amounts payable by BELL ATLANTIC pursuant hereto shall be paid in
full in U.S. dollars by wire transfer, free and clear of all bank or
transfer charges to such account(s) as FA-1 may by notice to BELL
ATLANTIC designate without reduction for any deduction or withholding
for or on account of any tax, duty or other charge of whatever nature
imposed by any taxing authority in lieu of a direct tax on FA-1 in
connection with its income. If BELL ATLANTIC is required by law to make
any deduction or withholding from any payment hereunder, BELL ATLANTIC
shall pay such additional amount to FA-1 so that after such deduction
or withholding the net amount received by FA-1 will be not less than
the amount FA-1 would have received had such deduction or withholding
not been required. BELL ATLANTIC shall make the required deduction or
withholding, shall pay the amount so deducted or withheld to the
relevant governmental authority and shall promptly provide FA-1 with
evidence of such payment.
2.8 In the case of payments of the Purchase Price, until the Initial RFS
Date there shall be such controls over the account(s) designated by
FA-1 pursuant to clause 2.7 so as to ensure that payments of the
Purchase Price may only be used to make timely payments required to be
made by FA-1 in connection with the planning, design, construction and
project management of the System. Any interest arising from amounts
held in the account(s) shall accrue for the benefit of FA-1.
2.9 BELL ATLANTIC's obligation to pay the Purchase Price and other amounts
shall not be subject to any rights of set-off, counterclaim, deduction,
defence or other right which BELL ATLANTIC may have against FA-1 or any
other party under this Agreement or otherwise.
3. TAXES
Save as the context requires or as otherwise stated herein all
references to payments made in this Agreement are references to such
payments exclusive of all applicable sales and use taxes, gross
turnover taxes, value added taxes, or other similar turnover or sales
based taxes, excise taxes, duties and levies chargeable under
applicable law in respect of the supply for which the payment is or is
deemed to be consideration. Where applicable, such taxes shall be added
to the invoice and shall be paid to FA-1 at the same time as the
relevant invoice is settled in accordance with clause 2. FA-1 shall be
solely responsible for payment of taxes on its income and, except as
provided in clause 2.7, for withholding taxes, including, but not
limited to, social security and payroll taxes for its employees. BELL
ATLANTIC shall be solely responsible for payment of taxes on its income
and for withholding taxes, including, but not limited to, social
security and payroll taxes for its employees. Neither Party shall have
any liability for such taxes which are to be borne by the other Party.
Each Party indemnifies the other Parties and their respective
affiliates for all claims, losses, penalties, interest, attorney's
fees, and costs and expenses, including litigation costs, arising from
any failure to make timely payment of such taxes, duties, and fees such
Party is required to pay under this Agreement. Each Party shall
co-operate in any effort by any other Party to contest application or
payment or to seek refunds of any such taxes, duties, and levies.
4 DEFAULT AND TERMINATION
4.1 In the event that BELL ATLANTIC shall have failed to pay any portion of
the Purchase Price for Capacity in Tranche 1 for more than *** days
after its due date, then FA-1 may
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deactivate all then activated Capacity (and refuse to activate any
additional Capacity) until BELL ATLANTIC has paid in full all amounts
overdue together with applicable default interest provided that prior
to such deactivation, FA-1 shall notify BELL ATLANTIC in writing of its
concern regarding the overdue payment and shall provide BELL ATLANTIC
with an opportunity to discuss this matter with FA-1 in order to reach
an amicable solution to the issue of non-payment and avoid
deactivation. ***
4.2 If such default in payment of any portion of the Purchase Price for
Capacity in Tranche 1 continues for a further period of *** days FA-1
may in its discretion by notice to BELL ATLANTIC, either:
4.2.1 require BELL ATLANTIC forthwith to pay the unpaid balance of
the Purchase Price for Capacity in Tranche 1; or
4.2.2 terminate this Agreement and relieve BELL ATLANTIC of its
obligation to pay any portion of the Purchase Price which has
not yet become due and its right to acquire Capacity pursuant
hereto.
Neither such termination of this Agreement nor the exercise by FA-1 of
such remedy shall relieve BELL ATLANTIC of its obligation to pay
amounts already due hereunder plus default interest thereon.
4.3 In the event that BELL ATLANTIC shall have failed to pay any amount
(including O&M Payments) payable by BELL ATLANTIC pursuant hereto (and
not being disputed in good faith) for more than *** days after its due
date, then BELL ATLANTIC shall not be entitled to activate any
additional Capacity or to exercise its option to acquire any additional
Capacity in Tranche 2, 3, 4 or (if applicable) 5 pursuant to clause 1.1
until BELL ATLANTIC has paid in full all amounts overdue together with
applicable default interest. If such failure continues for a further
*** days, FA-1 shall be entitled to refrain from performing any
services for BELL ATLANTIC required by this Agreement and to deny BELL
ATLANTIC the right of access to collocated spaces until BELL ATLANTIC
has paid in full all amounts overdue together with applicable default
interest.
4.4 FA-1 reserves the right to temporarily or permanently deactivate all
then activated Capacity (and refuse to activate any additional
Capacity) and/or to disconnect BELL ATLANTIC's equipment from the
System in the event BELL ATLANTIC's use of the System may result in
material damage or disruption to the System provided that where
practicable FA-1 shall notify BELL ATLANTIC prior to such deactivation
or disconnection and shall provide BELL ATLANTIC with an opportunity to
discuss this matter with FA-1 in order to reach a solution to avoid
deactivation or disconnection.
4.5 Except as provided herein, BELL ATLANTIC shall have no right to
terminate or cancel this Agreement for any reason whatsoever. If the
Initial RFS Date has not occurred within *** months after the Scheduled
Initial RFS Date *** BELL ATLANTIC may by two months written notice
terminate its purchase of the Capacity. BELL ATLANTIC shall have no
obligation to make any further payments under this Agreement following
such termination and FA-1 shall within 60 days of such termination
refund to BELL ATLANTIC any portion of the Purchase Price already paid
by BELL ATLANTIC to FA-1 which has not been used to
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make timely payments required to be made by FA-1 in connection with the
planning, design, construction and project management of the System.
Subject to clause 20.1, the foregoing shall be the limit of BELL
ATLANTIC's rights for delays to the Initial RFS Date.
5. OPERATION AND MAINTENANCE
5.1 FA-1 shall be responsible for the operation and maintenance of the
System including arranging for the repair of the System in the event of
any fault. *** BELL ATLANTIC's sole responsibility with regard to
operation and maintenance of the System shall be to make the O&M
Payments as and when they become due pursuant to this Agreement.
5.2 FA-1 shall promulgate procedures for the maintenance, use and operation
of the System according to standards generally accepted in the ocean
cable industry meeting the standards of Schedule 7 and shall provide
BELL ATLANTIC with a copy thereof. FA-1 may, from time to time, amend
such procedures and shall provide BELL ATLANTIC with a copy of each
amendment.
6. RESTORATION
FA-1 shall provide restoration on the System as set forth in Schedule
1. If such restoration is not sufficient for BELL ATLANTIC, then BELL
ATLANTIC shall be responsible for making its own restoration
arrangements for Capacity which is then activated.
7. SYSTEM ENHANCEMENTS, UPGRADES AND ADDITIONAL CAPACITY
7.1 FA-1 reserves the right to further upgrade the capacity of the System
and to make any enhancements to the System from time to time. FA-1
shall provide at least 45 days advance notice for System upgrades or
enhancements. FA-1 shall use reasonable efforts to minimise the
interruption, interference or impairment of the System caused by the
implementation of any such enhancement or upgrade and will consult with
BELL ATLANTIC in determining the date, time and expected duration of
any such interruption, interference or impairment.
7.2 BELL ATLANTIC shall have the right to acquire the IRU in the Capacity
in Tranches 2, 3, 4 and (if applicable) 5 pursuant to clause 1.1
whether or not FA-1 upgrades the capacity of the System in accordance
with clause 7.1.
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8. SYSTEM DECOMMISSIONING
The System shall be decommissioned at such time, no earlier than 15
years and no later than 25 years from the Initial RFS Date, as either
FA-1 or the holders of three quarters of the then activated capacity on
the System determine that the System is technically obsolete or has
reached the end of its useful economic life. There shall be no
compensation payable to BELL ATLANTIC whether BELL ATLANTIC voted for
or against decommissioning. This provision is without prejudice to the
rights of FA-1 to decommission the System without any liability to BELL
ATLANTIC whatsoever, in the event of a Force Majeure Event which makes
it impossible to maintain the business efficacy of the System. FA-1
will notify BELL ATLANTIC of the possibility of any such
decommissioning of the System by FA-1 and give due consideration to
BELL ATLANTIC's position and concerns regarding such possible
decommissioning when considering whether to decommission the System.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 BELL ATLANTIC represents and warrants to FA-1 as follows:
9.1.1 BELL ATLANTIC is duly established and in good standing under
the laws of Delaware and has full power and authority to enter
into this Agreement.
9.1.2 This Agreement constitutes the legal, valid and binding
obligation of BELL ATLANTIC, enforceable against BELL ATLANTIC
in accordance with its terms.
9.1.3 BELL ATLANTIC has obtained or will obtain all necessary
consents, licenses, permits and other approvals, both
governmental and private, as may be necessary to permit BELL
ATLANTIC to perform its obligations under this Agreement and
to acquire and use the Capacity.
9.1.4 BELL ATLANTIC shall perform its obligations under this
Agreement and use the Capacity in a manner consistent with
applicable law, and shall not use, or permit the Capacity to
be used, for any illegal purpose or in any other unlawful
manner.
9.2 FA-1 represents and warrants to BELL ATLANTIC as follows:
9.2.1 It is duly established and in good standing under the laws of
the country of its incorporation and has full power and
authority to enter into this Agreement.
9.2.2 This Agreement constitutes its legal, valid and binding
obligation enforceable against it in accordance with its
terms.
9.2.3 FA-1 shall perform its obligations under this Agreement and
construct, acquire, provide, sell, operate, and maintain the
System and Capacity in a manner consistent with applicable
law.
9.2.4 No interruption or impairment of BELL ATLANTIC's use of the
Capacity will be as a result of the System failing to comply
with the "Year 2000 Criteria" provided below.
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"Year 2000 Criteria" means the System and its components
accurately processes date/time data from, into, and between
the twentieth and twenty-first centuries and the years 1999
and 2000.
9.3 FA-1 will, to the extent applicable, comply with the Government
Requirements set forth in Schedule 8 in the performance of this
Agreement. Reference to "Seller" in Schedule 8 shall be deemed to be
references to FA-1.
9.4 FA-1 will use commercially reasonable efforts to obtain all necessary
consents, licenses and permits and other approvals, both governmental
and private, as may be necessary to permit FA-1 to perform its
obligations under this Agreement and to construct, acquire, operate,
provide, sell, operate and maintain the System and Capacity.
9.5 Except as provided above, FA-1 disclaims, and BELL ATLANTIC waives, all
representations and warranties regarding the Capacity, including any
warranty of merchantability or fitness for a particular use, and in
particular, without limiting the foregoing FA-1 does not warrant that
the Capacity will be uninterrupted or error free or that the Capacity
will meet BELL ATLANTIC's requirements for the equipment to be deployed
by BELL ATLANTIC in connection with the Capacity or services to be
offered by BELL ATLANTIC utilising this equipment.
10. FORCE MAJEURE
"Force Majeure Event" means fire, strike, embargo, any requirement
imposed by government regulation, civil or military authorities, act of
God or by the public enemy, or other cause beyond a Party's reasonable
control. Default of any of FA-1's subcontractors or suppliers shall not
constitute a Force Majeure Event unless such default arises out of
causes beyond the reasonable control of both FA-1 and its
subcontractors or suppliers and without the fault or negligence of
either of them. No failure or omission by any Party to carry out or
observe any of the terms and conditions of this Agreement (other than
payment obligations) shall give rise to any claim against such Party or
be deemed a breach of this Agreement if such failure or omission arises
from a Force Majeure Event.
11. CONFIDENTIALITY
Other than in connection with an assignment permitted under clause 13,
or if it is required by applicable law in connection with the
enforcement of this Agreement, or as required under subpoena or rule of
order of a court or other governmental body of competent jurisdiction,
neither FA-1 nor BELL ATLANTIC shall disclose the terms of this
Agreement to any third party without the prior written consent of the
other Party. Notwithstanding the foregoing, BELL ATLANTIC may disclose
this Agreement to persons with whom it or its affiliates propose to
merge, including, but not limited to, GTE Corporation and its
affiliates, and/or to any BELL ATLANTIC affiliate provided such
affiliate is bound by these obligations of confidentiality. In the
event of a demand to disclose the Agreement under such rule, order, or
subpoena, the Party subject to such demand shall where possible give
prompt notice to the other Parties in advance of disclosure to permit
the other parties to seek reasonable protective arrangements. Without
limiting the generality of the foregoing, neither FA-1 nor BELL
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<PAGE>
ATLANTIC shall issue any press release or otherwise publicise the
existence or the terms of this Agreement without the prior written
consent of the other Party.
12. NO LICENCE
Nothing in this Agreement shall or shall be deemed to give rise to any
right on the part of any Party to use any other Party's Intellectual
Property. For the purposes of this clause "Intellectual Property" means
any and all patents, trade marks, rights in designs, copyrights, and
topography rights, (whether registered or not and any applications to
register or rights to apply for registration of any of the foregoing),
rights in inventions, know-how, trade secrets and other confidential
information, rights in databases and all other intellectual property
rights of a similar or corresponding character which may now or in the
future subsist in any part of the world, and a Party's Intellectual
Property means Intellectual Property owned by or licensed to that Party
together with the goodwill relating thereto.
13. ASSIGNMENT
13.1 This Agreement and all the provisions hereof shall be binding upon and
inure to the benefit of the Parties hereto and their respective
successors and permitted assigns; provided that, except for the
assignment of FA-1's rights (but not FA-1's obligations) under this
Agreement to one or more financial institutions, lenders, creditors and
export credit agencies as collateral security for financing provided to
FA-1 or in connection with a sale of receivables by FA-1, neither this
Agreement nor any of the rights, interest or obligations hereunder
shall be assigned or transferred by any of the Parties hereto without
the prior written consent of the other Parties, and any attempted
assignment or transfer in violation of this clause shall be void.
Notwithstanding the foregoing, BELL ATLANTIC may assign its rights,
duties and obligations under this Agreement upon notice to FA-1, but
without FA-1's prior consent, to BELL ATLANTIC Affiliates or to any
transferee of or successor to all or substantially all of the business
assets of BELL ATLANTIC, provided:
13.1.1 the Affiliate, transferee or successor agrees to be bound by
all terms and conditions of this Agreement; and
13.1.2 the Affiliate, transferee or successor is authorised or
permitted under the laws and regulations of its country to
acquire and use the Capacity.
For the purposes of this clause, an "Affiliate" shall mean any other
entity that controls, is controlled by or is under common control with
BELL ATLANTIC.
13.2 FLAG Atlantic Limited and FLAG Atlantic USA Limited may use
subcontractors or agents to fulfil their obligations hereunder.
14. ENTIRE AGREEMENT
This Agreement constitutes the whole agreement between the Parties and
supersedes any previous or contemporaneous agreements, arrangements or
understandings between them, oral or written, relating to the subject
matter hereof. Each of the Parties acknowledges that it is not relying
on any statements, warranties or representations given or made by any
of them,
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whether written or oral, relating to the subject matter hereof, save as
expressly set out in this Agreement.
15. VARIATION
No variation or amendment to this Agreement shall be effective unless
in writing signed by authorised representatives of each of the Parties.
16. HEADINGS
The Clause headings of this Agreement are for convenience of reference
only and are not intended to restrict, affect or influence the
interpretation or construction of provisions of such Clause.
17. SEVERABILITY
If any provision of this Agreement is found by an arbitral, judicial or
regulatory 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.
18. WAIVER
18.1 Failure by a Party at any time to enforce any of the provisions of this
Agreement shall neither be construed as a waiver of any rights or
remedies hereunder nor in any way affect the validity of this Agreement
or any part of it and no waiver of a breach of this Agreement shall
constitute a waiver of any subsequent breach.
18.2 Termination of this Agreement shall not operate as a waiver of any
breach by a Party of any of the provisions hereof and shall be without
prejudice to any rights or remedies of a Party which may arise as a
consequence of such breach or which may have accrued hereunder up to
the date of such termination.
18.3 No waiver of a breach of this Agreement shall be effective unless given
in writing.
19. NOTICE
19.1 Any notice, request, demand or other communication required or
permitted hereunder shall be sufficiently given if in writing in
English and delivered by hand or sent by prepaid registered or
certified mail (airmail if international), by facsimile or by prepaid
international courier service of international reputation addressed to
the appropriate Party at the following address or to such address as
such Party may from time to time designate in writing by notice sent in
accordance with this clause:
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If to BELL ATLANTIC:
NYNEX Long Distance Company
1372 Broadway, 8th Floor
New York, NY 10018
Attention: President
With copies to:
Bell Atlantic International
1095 Avenue of the Americas
Room: 444
New York, NY 10036
Attention: John Pricken
Fax: 1-212-597-2696
Bell Atlantic Corporation
Legal Department
1095 Avenue of the Americas
Room 3831
New York, NY 10036
Attention: International Counsel
Fax: 212-764-2739
Bell Atlantic Network Services, Inc.
Legal Department
1320 North Courthouse Road, 8th Floor
Arlington, VA 22201
Attention: Long Distance Counsel
Fax: 703-974-0691
If to FA-1:
FLAG Atlantic Limited
The Emporium Building
69 Front Street
4th Floor
Hamilton HM 12
Bermuda
Attention: Co-chairmen
Tel: +1-441-296-0909
Fax: +1-441-296-0938
With a copy to:
FLAG Telecom Limited
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<PAGE>
103 Mount Street - 3rd Floor
London W1Y 5HE
U.K.
Attention: General Counsel
Tel: +44-171-317-0800
Fax: +44-171-317-0808
With a copy to:
GTS Carrier Services
Terhulpsesteenweg 6A
Hoeilaart 1560
Belgium
Attention: General Counsel
Tel: +322-658-5200
Fax: +322-658-5100
19.2 BELL ATLANTIC acknowledges that all communications in connection with
this Agreement shall be between BELL ATLANTIC and FLAG Atlantic
Limited. For this purpose, FLAG Atlantic USA Limited hereby appoints
FLAG Atlantic Limited as its agent to receive and send all
communications in connection with this Agreement.
19.3 Any notice, request, demand or other communication given or made
pursuant to this clause shall be deemed to have been received (i) in
the case of hand delivery or courier, on the date of receipt as
evidenced by a receipt of delivery from the recipient, (ii) in the case
of mail delivery, on the date which is seven days after the mailing
thereof, and (iii) in the case of transmission by facsimile, on the
date of transmission with confirmed answer back. Each such
communication sent by facsimile shall be promptly confirmed by notice
in writing hand-delivered or sent by courier, mail or air mail as
provided herein, but failure to send such a confirmation shall not
affect the validity of such communication.
20. LIABILITY
20.1 ***
20.2 Notwithstanding any other provision in this Agreement to the contrary,
no Party shall be liable to any other Party for any indirect, special,
punitive or consequential damages (including, but not limited to, any
loss of profit or business or claim from any customer for loss of
services) arising out of this Agreement or from any breach of any of
the terms and conditions of this Agreement.
20.3 ***
21. COUNTERPARTS
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This Agreement may be executed in counterparts. Any single counterpart
or set of counterparts signed, in either case, by all the Parties
hereto shall constitute a full and original agreement for all purposes.
22. WAIVER OF IMMUNITY
The Parties acknowledge that this Agreement is commercial in nature,
and the Parties expressly and irrevocably waive any claim or right
which they may have to immunity (whether sovereign immunity or
otherwise) for themselves or with respect to any of their assets in
connection with an arbitration, arbitral award or other proceedings to
enforce this Agreement, including, without limitation, immunity from
service of process, immunity of any of their assets from pre- or
post-judgement attachment or execution and immunity from the
jurisdiction of any court or arbitral tribunal.
23. FA-1 FINANCIAL CLOSURE
23.1 The obligation of BELL ATLANTIC to pay the Purchase Price (or any
instalment thereof) and the obligation of FA-1 to provide the Capacity
is conditional upon the occurrence of FA-1 Financial Closure.
23.2 If FA-1 Financial Closure has not occurred by 31 October 1999, then
this Agreement shall terminate (with the exception of clauses 11, 20,
22 and 24 which shall survive termination).
23.3 For the purposes of this Agreement, "FA-1 Financial Closure" shall be
deemed to take place on the date when FA-1 and its shareholders have
put in place arrangements satisfactory to them for the financing of the
construction of the System.
24. GOVERNING LAW AND DISPUTE RESOLUTION
24.1 This Agreement shall be governed by and construed in accordance with
the laws of the state of New York, United States of America, without
regard to the law of New York governing conflicts of law.
24.2 Except as otherwise provided herein, any dispute or controversy arising
under or in connection with this Agreement shall be finally settled
under the Rules of Arbitration of the International Chamber of Commerce
by one arbitrator appointed in accordance with such Rules. The place of
arbitration shall be London. The arbitration shall be conducted in
English. The decision and award resulting from such arbitration shall
be final and binding on the Parties. Judgement upon the arbitration
award may be rendered by any court of competent jurisdiction, or
application may be made to such court for a judicial acceptance of the
award and an order of enforcement. Insofar as permissible under the
applicable laws, the Parties hereby waive all rights to object to any
action for judgement or execution which may be brought before a court
of competent jurisdiction on an arbitration award or on a judgement
rendered thereon.
25. NON-EXCLUSIVE MARKET RIGHTS
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It is expressly understood and agreed that this Agreement does not
grant to FA-1 an exclusive privilege to sell or otherwise provide to
BELL ATLANTIC any or all products and services of the type described in
this Agreement. It is, therefore, understood that BELL ATLANTIC may
contract with other suppliers for the procurement of comparable
products and services.
26. AFFILIATE PURCHASES
Affiliates (which shall have the same meaning as that term is given in
clause 13.1) designated by BELL ATLANTIC may acquire the Capacity in
place of BELL ATLANTIC by issuing an order to FA-1 that incorporates
this Agreement by reference. Such Affiliates that order Capacity shall
be entitled to all the rights, and subject to all the obligations, of
BELL ATLANTIC under this Agreement and as to orders by such Affiliates,
references in this Agreement to BELL ATLANTIC shall be deemed to be
references to such Affiliates.
27. SURVIVAL
Clauses 11, 20, 22 and 24 and any rights of a Party which have accrued
prior to the cancellation, termination, or expiration of this Agreement
shall survive such cancellation, termination, or expiration.
28. ***
29. ***
IN WITNESS WHEREOF, FA-1 and BELL ATLANTIC have each caused this Agreement to be
signed and delivered by its duly authorised representatives, effective as of the
date first set forth above.
FLAG ATLANTIC LIMITED
BY /s/ Name of Signatory BY /s/ James E. Shields
------------------------ -----------------------
Name: Name: James E. Shields
Title: Title:
FLAG ATLANTIC USA LIMITED
BY /s/ Larry F. Bautista
-----------------------
Name:
Title:
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NYNEX LONG DISTANCE COMPANY
By /s/ Veronica Gralha
----------------------
Name: Veronica Gralha
Title: President
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EXECUTION COPY
CAPACITY RIGHT OF USE AGREEMENT
THIS AGREEMENT, dated as of the ______ day of October 1999, is among FLAG
ATLANTIC LIMITED, a company organised under the laws of Bermuda and having its
principal office at The Emporium Building, 69 Front Street, 4th Floor, Hamilton,
Bermuda, FLAG ATLANTIC USA LIMITED, a company organised under the laws of
Delaware, USA and having its principal office at 570 Lexington Avenue, 38th
Floor, New York, NY 10022, USA, (together hereinafter referred to as "FA-1") and
GTE INTELLLIGENT NETWORK SERVICES INCORPORATED ("GTE"), a Delaware corporation
having its principle office 3 Van de Graaff Drive, Burlington, Massachusetts
01803, USA.
WITNESSETH:
WHEREAS, except as set out below, FLAG Atlantic Limited is constructing and will
directly and/or indirectly own, operate and maintain a fiberoptic cable system
to be known as FLAG Atlantic-1 as more fully described in Schedule 1 (the
"System"); and
WHEREAS, FLAG Atlantic USA Limited is constructing and will own all that part of
the System that is within the territory (including the territorial waters) of
the United States of America; and
WHEREAS, the System is currently scheduled to go into service in stages with the
initial stage, as more particularly described in Schedule 1, ("Initial Stage")
currently scheduled to go into service on or about 31 March 2001 ("Scheduled
Initial RFS Date"); and
WHEREAS, GTE desires to acquire from FA-1, and FA-1 is willing to provide to
GTE, an indefeasible right of use ("IRU") (except as otherwise provided herein)
in the capacity on the System as set out in Schedule 2A or 2B, as applicable
(the "Capacity"); and
WHEREAS, FA-1 and GTE (the "Parties") desire to define the terms and conditions
under which the Capacity will be acquired by GTE.
NOW, THEREFORE, the Parties hereby agree as follows:
1. PURCHASE OF CAPACITY
1.1 Individual units of Capacity as set out in Schedule 2A or 2B, as
applicable, (each a "Unit") shall be available for activation in
tranches (each a "Tranche") pursuant to the delivery schedule set out
in Schedule 6A or 6B, as applicable. GTE agrees to acquire the IRU
(except as otherwise provided herein) in the Capacity in Tranche 1 and
has the option to acquire the IRU (except as otherwise provided herein)
in the Capacity in Tranches 2, 3, 4 and (if applicable) 5 for the
purchase price set forth in Schedule 2A or 2B, as applicable (the
"Purchase Price"), subject to the terms and conditions of this
Agreement. GTE may exercise its option to acquire the Capacity in
Tranches 2, 3, 4 and (if applicable) 5 by notice to FA-1 ***. GTE shall
by the earlier of ***
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notify FA-1 whether Schedule 2A or 2B shall apply to this Agreement
(and if GTE fails to give such notice by the required date Schedule 2A
shall apply). If Schedule 2A applies then Schedule 6A shall apply and
if Schedule 2B applies then Schedule 6B shall apply.
1.2 ***
1.3 ***
1.4 FA-1 shall:
1.4.1 Provide to GTE the circuit designations within one day after
receipt of an Activation Notice from GTE; and
1.4.2 Provision the Requested Capacity within *** days (*** days in
the case of the initial Requested Capacity to be activated
following the Initial RFS Date) after receipt of an Activation
Notice for such Requested Capacity in accordance with the
standards described in Schedule 7.
1.5 Subject to GTE paying the Purchase Price in accordance with the terms
of this Agreement, GTE shall have the right, subject to the terms of
this Agreement, to use such Requested Capacity from the date
provisioned under clause 1.4.2 until the System is decommissioned.
1.6 GTE shall be entitled to collocation pursuant to a collocation
agreement to be negotiated between the Parties within 90 days of the
execution of this Agreement, based on the principles set out in
Schedule 4.
1.7 Nothing set forth in this Agreement shall require GTE to use purchased
Capacity for transport of communications until such time as (a) GTE, in
its sole discretion, determines to use such purchased Capacity, and (b)
GTE has obtained all necessary approvals to use such purchased
Capacity.
1.8 GTE shall have an ownership interest in the Capacity as provided herein
but GTE shall have no legal title or ownership in the physical assets
of the System itself, including any proceeds from the disposition of
the System.
1.9 In the event that (i) after using commercially reasonable efforts, FA-1
does not have the underlying rights to grant an IRU in portions of the
System located in France, England and between France and England and/or
(ii) if any jurisdiction in which the System is located does not
currently recognize or does not recognize in the future the conveyance
of communications facilities on an IRU basis and/or (iii) FA-1 chooses
not to obtain an IRU on the portion of the System located in England
that FLAG Atlantic Limited or a subsidiary will not own outright, then
as to the Capacity on such portions of the System or within such
jurisdiction(s) only, this Agreement shall be considered an agreement
for a lease of such Capacity ("Lease").
1.10 In the event that this Agreement is to be treated as a Lease for any
portion of the Capacity, then as to such portion only, the terms
"purchase" and any variations thereon shall mean "lease" or the
appropriate variation thereof, and the terms "indefeasible right of
use" and "IRU" shall mean "Lease." Any other terms and conditions of
this Agreement also shall be deemed modified only
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to the extent necessary to be consistent with the grant of a lease to
GTE. All other terms and conditions of this Agreement shall remain
unchanged and fully valid and enforceable.
2. PAYMENTS
2.1 GTE shall pay to FA-1 the Purchase Price for Capacity to be acquired
pursuant hereto as follows (and all such payments shall be
non-refundable except as otherwise provided in clause 4):
2.1.1 GTE shall pay to FA-1 the Purchase Price for Capacity in
Tranche 1 pursuant to the payment schedule set out in Schedule
3.
2.1.2 If GTE exercises its option in clause 1.1 to acquire Capacity
in Tranche 2, 3, 4 or (if applicable) 5 it shall pay *** of
the Purchase Price specified for the Capacity in that Tranche
on notice to FA-1 of the exercise of its option, with the
remaining *** of the Purchase Price being payable when such
Capacity has passed the bringing-into-service tests specified
in Schedule 7.
2.2 GTE shall pay to FA-1 such amounts for the operation and maintenance of
the System as are set forth in, or determined pursuant to, Schedule 5
("O&M Payments").
2.3 FA-1 shall render to GTE invoices for amounts payable pursuant to this
Agreement. Invoices for the Purchase Price shall be rendered in
accordance with clause 2.1. Invoices for O&M Payments shall be rendered
pursuant to Schedule 5. All invoices shall be due and payable within 30
days after receipt by GTE.
2.4 If GTE disputes any invoiced amount for O&M payments in good faith, GTE
must provide to FA-1, on or before the due date of the invoice,
reasonable notice and a detailed explanation of the basis of the
dispute, and pay any undisputed amount in accordance with this
Agreement. *** The parties will make a good faith effort to resolve all
billing disputes as expeditiously as possible.
2.5 ***
2.6 Any amount payable pursuant to this Agreement which is not paid when
due shall accrue interest at the annual rate of *** above the U.S.
Dollar LIBOR for one month as quoted in THE WALL STREET JOURNAL on the
first business day of the month in which the payment is due or the
maximum rate permitted under the laws of the State of New York, USA,
whichever is less. All such default interest shall accrue from the day
following the date payment of the relevant amount was due until it is
paid in full and shall accrue both before and after judgement. Such
interest shall be payable on demand. ***
2.7 All amounts payable by GTE pursuant hereto shall be paid in full in
U.S. dollars by wire transfer, free and clear of all bank or transfer
charges to such account(s) as FA-1 may by notice to GTE designate
without reduction for any deduction or withholding for or on account of
any tax, duty or other charge of whatever nature imposed by any taxing
authority in lieu of a direct tax on FA-1 in connection with its
income. If GTE is required by law to make any deduction or withholding
from any payment hereunder, GTE shall pay such additional amount to
FA-1 so that after such deduction or withholding the net amount
received by FA-1 will be not less than the
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amount FA-1 would have received had such deduction or withholding not
been required. GTE shall make the required deduction or withholding,
shall pay the amount so deducted or withheld to the relevant
governmental authority and shall promptly provide FA-1 with evidence
of such payment.
2.8 In the case of payments of the Purchase Price, until the Initial RFS
Date there shall be such controls over the account(s) designated by
FA-1 pursuant to clause 2.7 so as to ensure that payments of the
Purchase Price may only be used to make timely payments required to be
made by FA-1 in connection with the planning, design, construction and
project management of the System. Any interest arising from amounts
held in the account(s) shall accrue for the benefit of FA-1.
2.9 GTE's obligation to pay the Purchase Price and other amounts shall not
be subject to any rights of set-off, counterclaim, deduction, defence
or other right which GTE may have against FA-1 or any other party under
this Agreement or otherwise.
3. TAXES
Save as the context requires or as otherwise stated herein all
references to payments made in this Agreement are references to such
payments exclusive of all applicable sales and use taxes, gross
turnover taxes, value added taxes, or other similar turnover or sales
based taxes, excise taxes, duties and levies chargeable under
applicable law in respect of the supply for which the payment is or is
deemed to be consideration. Where applicable, such taxes shall be added
to the invoice and shall be paid to FA-1 at the same time as the
relevant invoice is settled in accordance with clause 2. FA-1 shall be
solely responsible for payment of taxes on its income and, except as
provided in clause 2.7, for withholding taxes, including, but not
limited to, social security and payroll taxes for its employees. GTE
shall be solely responsible for payment of taxes on its income and for
withholding taxes, including, but not limited to, social security and
payroll taxes for its employees. Neither Party shall have any liability
for such taxes which are to be borne by the other Party. Each Party
indemnifies the other Parties and their respective affiliates for all
claims, losses, penalties, interest, attorney's fees, and costs and
expenses, including litigation costs, arising from any failure to make
timely payment of such taxes, duties, and fees such Party is required
to pay under this Agreement. Each Party shall co-operate in any effort
by any other Party to contest application or payment or to seek refunds
of any such taxes, duties, and levies.
4 DEFAULT AND TERMINATION
4.1 In the event that GTE shall have failed to pay any portion of the
Purchase Price for Capacity in Tranche 1 for more than *** days after
its due date, then FA-1 may deactivate all then activated Capacity (and
refuse to activate any additional Capacity) until GTE has paid in full
all amounts overdue together with applicable default interest provided
that prior to such deactivation, FA-1 shall notify GTE in writing of
its concern regarding the overdue payment and shall provide GTE with an
opportunity to discuss this matter with FA-1 in order to reach an
amicable solution to the issue of non-payment and avoid deactivation.
***
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4.2 If such default in payment of any portion of the Purchase Price for
Capacity in Tranche 1 continues for a further period of *** days FA-1
may in its discretion by notice to GTE, either:
4.2.1 require GTE forthwith to pay the unpaid balance of the
Purchase Price for Capacity in Tranche 1; or
4.2.2 terminate this Agreement and relieve GTE of its obligation to
pay any portion of the Purchase Price which has not yet become
due and its right to acquire Capacity pursuant hereto.
Neither such termination of this Agreement nor the exercise by FA-1 of
such remedy shall relieve GTE of its obligation to pay amounts already
due hereunder plus default interest thereon.
4.3 In the event that GTE shall have failed to pay any amount (including
O&M Payments) payable by GTE pursuant hereto (and not being disputed in
good faith) for more than *** days after its due date, then GTE shall
not be entitled to activate any additional Capacity or to exercise its
option to acquire any additional Capacity in Tranche 2, 3, 4 or (if
applicable) 5 pursuant to clause 1.1 until GTE has paid in full all
amounts overdue together with applicable default interest. If such
failure continues for a further *** days, FA-1 shall be entitled to
refrain from performing any services for GTE required by this Agreement
and to deny GTE the right of access to collocated spaces until GTE has
paid in full all amounts overdue together with applicable default
interest.
4.4 FA-1 reserves the right to temporarily or permanently deactivate all
then activated Capacity (and refuse to activate any additional
Capacity) and/or to disconnect GTE's equipment from the System in the
event GTE's use of the System may result in material damage or
disruption to the System provided that where practicable FA-1 shall
notify GTE prior to such deactivation or disconnection and shall
provide GTE with an opportunity to discuss this matter with FA-1 in
order to reach a solution to avoid deactivation or disconnection.
4.5 Except as provided herein, GTE shall have no right to terminate or
cancel this Agreement for any reason whatsoever. If the Initial RFS
Date has not occurred within *** months after the Scheduled Initial RFS
Date *** GTE may by two months written notice terminate its purchase of
the Capacity. GTE shall have no obligation to make any further payments
under this Agreement following such termination and FA-1 shall within
60 days of such termination refund to GTE any portion of the Purchase
Price already paid by GTE to FA-1 which has not been used to make
timely payments required to be made by FA-1 in connection with the
planning, design, construction and project management of the System.
Subject to clause 20.1, the foregoing shall be the limit of GTE's
rights for delays to the Initial RFS Date.
5. OPERATION AND MAINTENANCE
5.1 FA-1 shall be responsible for the operation and maintenance of the
System including arranging for the repair of the System in the event of
any fault. *** GTE's sole responsibility with regard to operation and
maintenance of the System shall be to make the O&M Payments as and when
they become due pursuant to this Agreement.
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5.2 FA-1 shall promulgate procedures for the maintenance, use and operation
of the System according to standards generally accepted in the ocean
cable industry meeting the standards of Schedule 7 and shall provide
GTE with a copy thereof. FA-1 may, from time to time, amend such
procedures and shall provide GTE with a copy of each amendment.
6. RESTORATION
FA-1 shall provide restoration on the System as set forth in Schedule
1. If such restoration is not sufficient for GTE, then GTE shall be
responsible for making its own restoration arrangements for Capacity
which is then activated.
7. SYSTEM ENHANCEMENTS, UPGRADES AND ADDITIONAL CAPACITY
7.1 FA-1 reserves the right to further upgrade the capacity of the System
and to make any enhancements to the System from time to time. FA-1
shall provide at least 45 days advance notice for System upgrades or
enhancements. FA-1 shall use reasonable efforts to minimise the
interruption, interference or impairment of the System caused by the
implementation of any such enhancement or upgrade and will consult with
GTE in determining the date, time and expected duration of any such
interruption, interference or impairment.
7.2 GTE shall have the right to acquire the IRU in the Capacity in Tranches
2, 3, 4 and (if applicable) 5 pursuant to clause 1.1 whether or not
FA-1 upgrades the capacity of the System in accordance with clause 7.1.
8. SYSTEM DECOMMISSIONING
The System shall be decommissioned at such time, no earlier than 15
years and no later than 25 years from the Initial RFS Date, as either
FA-1 or the holders of three quarters of the then activated capacity on
the System determine that the System is technically obsolete or has
reached the end of its useful economic life. There shall be no
compensation payable to GTE whether GTE voted for or against
decommissioning. This provision is without prejudice to the rights of
FA-1 to decommission the System without any liability to GTE
whatsoever, in the event of a Force Majeure Event which makes it
impossible to maintain the business efficacy of the System. FA-1 will
notify GTE of the possibility of any such decommissioning of the System
by FA-1 and give due consideration to GTE's position and concerns
regarding such possible decommissioning when considering whether to
decommission the System.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 GTE represents and warrants to FA-1 as follows:
9.1.1 GTE is duly established and in good standing under the laws of
Delaware and has full power and authority to enter into this
Agreement.
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9.1.2 This Agreement constitutes the legal, valid and binding
obligation of GTE, enforceable against GTE in accordance with
its terms.
9.1.3 GTE has obtained or will obtain all necessary consents,
licenses, permits and other approvals, both governmental and
private, as may be necessary to permit GTE to perform its
obligations under this Agreement and to acquire and use the
Capacity.
9.1.4 GTE shall perform its obligations under this Agreement and use
the Capacity in a manner consistent with applicable law, and
shall not use, or permit the Capacity to be used, for any
illegal purpose or in any other unlawful manner.
9.2 FA-1 represents and warrants to GTE as follows:
9.2.1 It is duly established and in good standing under the laws of
the country of its incorporation and has full power and
authority to enter into this Agreement.
9.2.2 This Agreement constitutes its legal, valid and binding
obligation enforceable against it in accordance with its
terms.
9.2.3 FA-1 shall perform its obligations under this Agreement and
construct, acquire, provide, sell, operate, and maintain the
System and Capacity in a manner consistent with applicable
law.
9.2.4 No interruption or impairment of GTE's use of the Capacity
will be as a result of the System failing to comply with the
"Year 2000 Criteria" provided below.
"Year 2000 Criteria" means the System and its components
accurately processes date/time data from, into, and between
the twentieth and twenty-first centuries and the years 1999
and 2000.
9.3 FA-1 will, to the extent applicable, comply with the Government
Requirements set forth in Schedule 8 in the performance of this
Agreement. Reference to "Seller" in Schedule 8 shall be deemed to be
references to FA-1.
9.4 FA-1 will use commercially reasonable efforts to obtain all necessary
consents, licenses and permits and other approvals, both governmental
and private, as may be necessary to permit FA-1 to perform its
obligations under this Agreement and to construct, acquire, operate,
provide, sell, operate and maintain the System and Capacity.
9.5 Except as provided above, FA-1 disclaims, and GTE waives, all
representations and warranties regarding the Capacity, including any
warranty of merchantability or fitness for a particular use, and in
particular, without limiting the foregoing FA-1 does not warrant that
the Capacity will be uninterrupted or error free or that the Capacity
will meet GTE's requirements for the equipment to be deployed by GTE in
connection with the Capacity or services to be offered by GTE utilising
this equipment.
10. FORCE MAJEURE
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"Force Majeure Event" means fire, strike, embargo, any requirement
imposed by government regulation, civil or military authorities, act of
God or by the public enemy, or other cause beyond a Party's reasonable
control. Default of any of FA-1's subcontractors or suppliers shall not
constitute a Force Majeure Event unless such default arises out of
causes beyond the reasonable control of both FA-1 and its
subcontractors or suppliers and without the fault or negligence of
either of them. No failure or omission by any Party to carry out or
observe any of the terms and conditions of this Agreement (other than
payment obligations) shall give rise to any claim against such Party or
be deemed a breach of this Agreement if such failure or omission arises
from a Force Majeure Event.
11. CONFIDENTIALITY
Other than in connection with an assignment permitted under clause 13,
or if it is required by applicable law in connection with the
enforcement of this Agreement, or as required under subpoena or rule of
order of a court or other governmental body of competent jurisdiction,
neither FA-1 nor GTE shall disclose the terms of this Agreement to any
third party without the prior written consent of the other Party.
Notwithstanding the foregoing, GTE may disclose this Agreement to
persons with whom it or its affiliates propose to merge, including, but
not limited to, GTE Corporation and its affiliates, and/or to any GTE
affiliate provided such affiliate is bound by these obligations of
confidentiality. In the event of a demand to disclose the Agreement
under such rule, order, or subpoena, the Party subject to such demand
shall where possible give prompt notice to the other Parties in advance
of disclosure to permit the other parties to seek reasonable protective
arrangements. Without limiting the generality of the foregoing, neither
FA-1 nor GTE shall issue any press release or otherwise publicise the
existence or the terms of this Agreement without the prior written
consent of the other Party.
12. NO LICENCE
Nothing in this Agreement shall or shall be deemed to give rise to any
right on the part of any Party to use any other Party's Intellectual
Property. For the purposes of this clause "Intellectual Property" means
any and all patents, trade marks, rights in designs, copyrights, and
topography rights, (whether registered or not and any applications to
register or rights to apply for registration of any of the foregoing),
rights in inventions, know-how, trade secrets and other confidential
information, rights in databases and all other intellectual property
rights of a similar or corresponding character which may now or in the
future subsist in any part of the world, and a Party's Intellectual
Property means Intellectual Property owned by or licensed to that Party
together with the goodwill relating thereto.
13. ASSIGNMENT
13.1 This Agreement and all the provisions hereof shall be binding upon and
inure to the benefit of the Parties hereto and their respective
successors and permitted assigns; provided that, except for the
assignment of FA-1's rights (but not FA-1's obligations) under this
Agreement to one or more financial institutions, lenders, creditors and
export credit agencies as collateral security for financing provided to
FA-1 or in connection with a sale of receivables by FA-1, neither this
Agreement nor any of the rights, interest or obligations hereunder
shall be assigned or
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transferred by any of the Parties hereto without the prior written
consent of the other Parties, and any attempted assignment or transfer
in violation of this clause shall be void. Notwithstanding the
foregoing, GTE may assign its rights, duties and obligations under
this Agreement upon notice to FA-1, but without FA-1's prior consent,
to GTE Affiliates or to any transferee of or successor to all or
substantially all of the business assets of GTE, provided:
13.1.1 the Affiliate, transferee or successor agrees to be
bound by all terms and conditions of this Agreement; and
13.1.2 the Affiliate, transferee or successor is authorised or
permitted under the laws and regulations of its country to
acquire and use the Capacity.
For the purposes of this clause, an "Affiliate" shall mean any other
entity that controls, is controlled by or is under common control with
GTE.
13.2 FLAG Atlantic Limited and FLAG Atlantic USA Limited may use
subcontractors or agents to fulfil their obligations hereunder.
14. ENTIRE AGREEMENT
This Agreement constitutes the whole agreement between the Parties and
supersedes any previous or contemporaneous agreements, arrangements or
understandings between them, oral or written, relating to the subject
matter hereof. Each of the Parties acknowledges that it is not relying
on any statements, warranties or representations given or made by any
of them, whether written or oral, relating to the subject matter
hereof, save as expressly set out in this Agreement.
15. VARIATION
No variation or amendment to this Agreement shall be effective unless
in writing signed by authorised representatives of each of the Parties.
16. HEADINGS
The Clause headings of this Agreement are for convenience of reference
only and are not intended to restrict, affect or influence the
interpretation or construction of provisions of such Clause.
17. SEVERABILITY
If any provision of this Agreement is found by an arbitral, judicial or
regulatory 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.
18. WAIVER
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18.1 Failure by a Party at any time to enforce any of the provisions of this
Agreement shall neither be construed as a waiver of any rights or
remedies hereunder nor in any way affect the validity of this Agreement
or any part of it and no waiver of a breach of this Agreement shall
constitute a waiver of any subsequent breach.
18.2 Termination of this Agreement shall not operate as a waiver of any
breach by a Party of any of the provisions hereof and shall be without
prejudice to any rights or remedies of a Party which may arise as a
consequence of such breach or which may have accrued hereunder up to
the date of such termination.
18.3 No waiver of a breach of this Agreement shall be effective unless given
in writing.
19. NOTICE
19.1 Any notice, request, demand or other communication required or
permitted hereunder shall be sufficiently given if in writing in
English and delivered by hand or sent by prepaid registered or
certified mail (airmail if international), by facsimile or by prepaid
international courier service of international reputation addressed to
the appropriate Party at the following address or to such address as
such Party may from time to time designate in writing by notice sent in
accordance with this clause:
If to GTE:
GTE Global Networks Incorporated
5221 N. O'Connor Boulevard
East Tower
Irving
Texas 75039
Attention: AVP Product Market Management
With copies to:
GTE Global Networks Incorporated
1411 Greenway Drive
Irving
Texas 75038
Attention: Contract Management
If to FA-1:
FLAG Atlantic Limited
The Emporium Building
69 Front Street
4th Floor
Hamilton HM 12
Bermuda
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Attention: Co-chairmen
Tel: +1-441-296-0909
Fax: +1-441-296-0938
With a copy to:
FLAG Telecom Limited
103 Mount Street - 3rd Floor
London W1Y 5HE
U.K.
Attention: General Counsel
Tel: +44-171-317-0800
Fax: +44-171-317-0808
With a copy to:
GTS Carrier Services
Terhulpsesteenweg 6A
Hoeilaart 1560
Belgium
Attention: General Counsel
Tel: +322-658-5200
Fax: +322-658-5100
19.2 GTE acknowledges that all communications in connection with this
Agreement shall be between GTE and FLAG Atlantic Limited. For this
purpose, FLAG Atlantic USA Limited hereby appoints FLAG Atlantic
Limited as its agent to receive and send all communications in
connection with this Agreement.
19.3 Any notice, request, demand or other communication given or made
pursuant to this clause shall be deemed to have been received (i) in
the case of hand delivery or courier, on the date of receipt as
evidenced by a receipt of delivery from the recipient, (ii) in the case
of mail delivery, on the date which is seven days after the mailing
thereof, and (iii) in the case of transmission by facsimile, on the
date of transmission with confirmed answer back. Each such
communication sent by facsimile shall be promptly confirmed by notice
in writing hand-delivered or sent by courier, mail or air mail as
provided herein, but failure to send such a confirmation shall not
affect the validity of such communication.
20. LIABILITY
20.1 ***
20.2 Notwithstanding any other provision in this Agreement to the contrary,
no Party shall be liable to any other Party for any indirect, special,
punitive or consequential damages (including, but not limited to, any
loss of profit or business or claim from any customer for loss of
services)
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arising out of this Agreement or from any breach of any of the terms
and conditions of this Agreement.
20.3 ***
21. COUNTERPARTS
This Agreement may be executed in counterparts. Any single counterpart
or set of counterparts signed, in either case, by all the Parties
hereto shall constitute a full and original agreement for all purposes.
22. WAIVER OF IMMUNITY
The Parties acknowledge that this Agreement is commercial in nature,
and the Parties expressly and irrevocably waive any claim or right
which they may have to immunity (whether sovereign immunity or
otherwise) for themselves or with respect to any of their assets in
connection with an arbitration, arbitral award or other proceedings to
enforce this Agreement, including, without limitation, immunity from
service of process, immunity of any of their assets from pre- or
post-judgement attachment or execution and immunity from the
jurisdiction of any court or arbitral tribunal.
23. FA-1 FINANCIAL CLOSURE
23.1 The obligation of GTE to pay the Purchase Price (or any instalment
thereof) and the obligation of FA-1 to provide the Capacity is
conditional upon the occurrence of FA-1 Financial Closure.
23.2 If FA-1 Financial Closure has not occurred by 31 October 1999, then
this Agreement shall terminate (with the exception of clauses 11, 20,
22 and 24 which shall survive termination).
23.3 For the purposes of this Agreement, "FA-1 Financial Closure" shall be
deemed to take place on the date when FA-1 and its shareholders have
put in place arrangements satisfactory to them for the financing of the
construction of the System.
24. GOVERNING LAW AND DISPUTE RESOLUTION
24.1 This Agreement shall be governed by and construed in accordance with
the laws of the state of New York, United States of America, without
regard to the law of New York governing conflicts of law.
24.2 Except as otherwise provided herein, any dispute or controversy arising
under or in connection with this Agreement shall be finally settled
under the Rules of Arbitration of the International Chamber of Commerce
by one arbitrator appointed in accordance with such Rules. The place of
arbitration shall be London. The arbitration shall be conducted in
English. The decision and award resulting from such arbitration shall
be final and binding on the Parties. Judgement upon the arbitration
award may be rendered by any court of competent jurisdiction, or
application may be made to such court for a judicial acceptance of the
award and an order of enforcement.
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Insofar as permissible under the applicable laws, the Parties hereby
waive all rights to object to any action for judgement or execution
which may be brought before a court of competent jurisdiction on an
arbitration award or on a judgement rendered thereon.
25. NON-EXCLUSIVE MARKET RIGHTS
It is expressly understood and agreed that this Agreement does not
grant to FA-1 an exclusive privilege to sell or otherwise provide to
GTE any or all products and services of the type described in this
Agreement. It is, therefore, understood that GTE may contract with
other suppliers for the procurement of comparable products and
services.
26. AFFILIATE PURCHASES
Affiliates (which shall have the same meaning as that term is given in
clause 13.1) designated by GTE may acquire the Capacity in place of GTE
by issuing an order to FA-1 that incorporates this Agreement by
reference. Such Affiliates that order Capacity shall be entitled to all
the rights, and subject to all the obligations, of GTE under this
Agreement and as to orders by such Affiliates, references in this
Agreement to GTE shall be deemed to be references to such Affiliates.
27. SURVIVAL
Clauses 11, 20, 22 and 24 and any rights of a Party which have accrued
prior to the cancellation, termination, or expiration of this Agreement
shall survive such cancellation, termination, or expiration.
28. ***
13
<PAGE>
29. ***
IN WITNESS WHEREOF, FA-1 and GTE have each caused this Agreement to be signed
and delivered by its duly authorised representatives, effective as of the date
first set forth above.
FLAG ATLANTIC LIMITED
/s/ Samih Kawar
BY ________________________
Name: Samih Kawar
Title: Director
FLAG ATLANTIC USA LIMITED
/s/ James E. Shields /s/ Larry F. Bautista
BY ________________________ BY ________________________
Name: James E. Shields Name: Larry F. Bautista
Title: Authorised Signatory Title: Authorised Signatory
GTE INTELLIGENT NETWORK SERVICES INCORPORATED
/s/ Steven H. Blumenthal
By __________________________
Name: Steven H. Blumenthal
Title: Vice President, Engineering GTEI
GTE INTELLIGENT NETWORK SERVICES INCORPORATED
/s/ Mark P. Hileman
By __________________________
Name: Mark P. Hileman
Title: Assistant Secretary-GNI
14
<PAGE>
FIBRE, CAPACITY AND FACILITIES PURCHASE AGREEMENT
THIS AGREEMENT, dated as of the ______ day of _______________ 1999, is among
FLAG ATLANTIC LIMITED, a company organised under the laws of Bermuda and having
its principal office at The Emporium Building, 69 Front Street, 4th Floor,
Hamilton, Bermuda, FLAG ATLANTIC USA LIMITED, a company organised under the laws
of Delaware, USA and having its principal office at 570 Lexington Avenue, 38th
Floor, New York, NY 10022, USA, (FLAG ATLANTIC LIMITED AND FLAG ATLANTIC USA
LIMITED being hereinafter jointly and severally referred to as "FA-1") and GTS
TRANSATLANTIC CARRIER SERVICES LIMITED ("Purchaser"), a company organised under
the laws of Bermuda and having its principal office at Clarendon House, 2 Church
Street, Hamilton, HM11, Bermuda.
WITNESSETH:
WHEREAS, FLAG Atlantic Limited is constructing and will directly and/or
indirectly own, operate and maintain a fibre optic cable system to be known as
FLAG Atlantic-1 (the "System") consisting of a subsea element (the "Subsea
Element") and two backhaul elements (the "Backhaul Elements"), the System,
Subsea Element and Backhaul Elements being more fully described in Schedule 1;
and
WHEREAS, FLAG Atlantic USA Limited is constructing and will own all that part of
the System that is within the territory (including the territorial waters) of
the United States of America; and
WHEREAS, the System is currently scheduled to go into service in stages with the
initial stage, as more particularly described in Schedule 1 ("Initial Stage"),
currently scheduled to go into service on or about 31 March 2001 ("Scheduled
Initial RFS Date"), and the final stage, as more particularly described in
Schedule 1 ("Final Stage"), currently scheduled to go into service on or about
30 June 2001 ("Scheduled Final RFS Date"); and
WHEREAS, Purchaser desires to purchase from FA-1, and FA-1 is willing to sell to
Purchaser: (i) an indefeasible and exclusive right of use ("IRU") in the
derivable capacity from one fibre pair (the "Capacity") on each Link (as such
term is described in Schedule 1) of the Subsea Element; (ii) the exclusive right
to use one dedicated dark fibre pair (the "Dark Fibre Pair") on each Link of the
Backhaul Elements; and (iii) all such other rights as are set out in Schedule 2
(together the "Rights"); and
WHEREAS, FLAG Atlantic Limited, FLAG Atlantic USA Limited and Purchaser (the
"Parties") desire to define the terms and conditions under which the Rights will
be acquired by Purchaser.
NOW, THEREFORE, the Parties hereby agree as follows:
1. GRANT OF RIGHTS AND DELIVERY
1.1 Purchaser agrees to purchase and FA-1 agrees to grant to Purchaser, the
Rights for the sum of *** (the "Purchase Price"), payable in accordance
with the schedule set forth in clause 2.1, in each case subject to the
terms and conditions of this Agreement.
<PAGE>
1.2 Where provision is made in this Agreement for the provision of
operations and maintenance services ("O&M") by FA-1, O&M shall be
provided by FA-1 to Purchaser *** in accordance with Schedule 3.
1.3 Testing and Inspection
1.3.1 ***
1.3.2 ***
1.3.3 ***
1.4 *** The fibre pair so allocated is herein referred to as the "Allocated
Fibre Pair". Except as set out below, the Preliminary Bandwidth (as
such term is described in Schedule 2) will be provided and the rest of
the Capacity will be installed on the Allocated Fibre Pair. ***
***
1.5 Upon the Initial RFS Date, FA-1 will activate the Preliminary Bandwidth
of the Capacity in each of Links 2, 5, 6 in accordance with the terms
of this Agreement.
1.6 Upon the Final RFS Date, FA-1 will activate the Preliminary Bandwidth
of the Capacity in Link 9 in accordance with the terms of this
Agreement.
1.7 Subject to Purchaser complying with clause 2.1, the Rights shall pass
to and vest in Purchaser as follows:
1.7.1 in the Capacity, from the Initial RFS Date for the Initial Stage and
from the Final RFS Date for the Final Stage;
1.7.2 in the Dark Fibre Pair and in each Facility (as such term is described
in Schedule 2), from the date that the relevant Landing Station,
Terminal Point or amplifier/regenerator site is made available to FA-1
for the installation of its equipment being at least 120 days prior to
the Initial RFS Date;
1.7.3 The Rights shall subsist until the System is decommissioned in
accordance with clause 8;
1.7.4 Purchaser shall have no legal ownership or other rights in the System
itself or in the physical assets thereof, in any proceeds from the
disposition of the System or in any other capacity therein, except as
specifically provided herein.
1.8 Except as otherwise required by law or generally accepted accounting
policies, the Parties agree to file their respective income tax returns
to reflect the terms of clause 1.7 and not to take any actions
inconsistent therewith.
1.9 ***
2
<PAGE>
1.10 Notwithstanding anything in this Agreement to the contrary, following
the grant of any of the Rights relating to the Capacity or Dark Fibre
Pair, Purchaser may resell, assign, transfer or otherwise use any such
rights for any lawful purpose. Notwithstanding any resale, assignment
or transfer, Purchaser remains liable for its obligations under this
Agreement. FA-1 agrees and acknowledges that from the Initial RFS Date
it shall have no right to use the Capacity or Dark Fibre Pair forming
part of the Initial Stage during the term of this Agreement and that
from the Final RFS date it shall have no right to use the Capacity
forming part of the Final Stage during the term of this Agreement.
2. PAYMENTS
2.1 Purchaser shall pay to FA-1 the Purchase Price for the Rights as
follows (and all such payments shall be non-refundable except as
otherwise provided in clause 4.4):
2.1.1 Purchaser shall pay to FA-1 *** of the Purchase Price on receipt of a
notice from FA-1 that FA-1 Financial Closure (as defined in clause 22)
has occurred.
2.1.2 Purchaser shall pay the remaining *** of the Purchase Price in
instalments of *** of the Purchase Price, such instalments being paid
quarterly with the first payment on 31 December 1999 ***.
2.2 Purchaser shall pay to FA-1 such amounts for the operation and
maintenance of the System as are set forth in, or determined pursuant
to, Schedule 4 ("O&M Payments").
2.3 FA-1 shall render to Purchaser invoices for amounts payable pursuant to
this Agreement. Invoices for the Purchase Price shall be rendered in
accordance with clause 2.1. Invoices for O&M Payments shall be rendered
pursuant to Schedule 4. All invoices shall be due and payable within 30
days after delivery to Purchaser.
2.4 Any amount payable pursuant to this Agreement which is not paid when
due shall accrue interest at the annual rate of *** above the U.S.
Dollar LIBOR for one month as quoted in The Wall Street Journal on the
first business day of the month in which the payment is due. All such
default interest shall accrue from the day following the date payment
of the relevant amount was due until it is paid in full and shall
accrue both before and after judgement. Such interest shall be payable
on demand.
2.5 All amounts payable by Purchaser pursuant hereto shall be paid in full
in U.S. dollars by wire transfer free and clear of all bank or transfer
charges to such account(s) as FA-1 may by notice to Purchaser designate
without reduction for any deduction or withholding for or on account of
any tax, duty or other charge of whatever nature imposed by any taxing
authority. If Purchaser is required by law to make any deduction or
withholding from any payment hereunder, Purchaser shall pay such
additional amount to FA-1 so that after such deduction or withholding
the net amount received by FA-1 will be not less than the amount FA-1
would have received had such deduction or withholding not been
required. Purchaser shall make the
3
<PAGE>
required deduction or withholding, shall pay the amount so deducted or
withheld to the relevant governmental authority and shall promptly
provide FA-1 with evidence of such payment.
2.6 In the case of payments of the Purchase Price, until the Initial RFS
Date there shall be such controls over the account(s) designated by
FA-1 pursuant to clause 2.5 so as to ensure that payments of the
Purchase Price may only be used to make timely payments required to be
made by FA-1 in connection with the planning, design, construction and
project management of the System. Any interest arising from amounts
held in the account(s) shall accrue for the benefit of FA-1.
2.7 Subject to clause 2.1.2, Purchaser's obligation to make payments
hereunder shall not be subject to any rights of set-off, counterclaim,
deduction, defence or other right which Purchaser may have against FA-1
or any other party.
2.8 Should any invoice for O&M Payments or other service payments or part
thereof be under dispute as to its correctness, then default interest
shall not accrue on the amount in dispute pursuant to clause 2.4 above
provided that within 30 days of receipt of the invoice, Purchaser has
advised FA-1 by electronic mail, facsimile or like means of
communication of the amount in dispute and the nature of that dispute.
2.9 Purchaser shall pay the undisputed amount of the invoice by the payment
date. The amount in dispute shall be investigated by the Parties and
resolved in a timely manner.
2.10 Notwithstanding the foregoing, in the event that upon investigation the
amount in dispute or part thereof is found to be correct as originally
invoiced, Purchaser shall pay, in addition to the amount in dispute,
interest in accordance with clause 2.4 on all unpaid portions which are
found to have been correctly invoiced, such interest to be paid from
the date payment of the relevant amount was originally due until it is
paid in full.
2.11 Prior to FA-1 Financial Closure, Purchaser shall deliver to FA-1 such
security for payment of the Purchase Price as is set forth in Schedule
5.
3. TAXES
3.1 Save as the context requires or as otherwise stated herein all
references to payments made in this Agreement are references to such
payments exclusive of all sales and use taxes, gross turnover taxes,
value added taxes, or other similar turnover or sales based taxes,
excise taxes, duties, fees, charges, levies, surcharges to recover the
cost of universal service contributions, or similar liabilities (other
than the general income taxes of FA-1) imposed by any authority,
government or government agency in connection with or as a result of
or in respect of the supply for which the payment is or is deemed to
be consideration (collectively "taxes"). Where applicable such taxes
shall be added to the invoice and shall be paid to FA-1 at the same
time as the relevant invoice is settled in accordance with clause 2.
4
<PAGE>
3.2 In the event that value added tax in the U.K. or France is considered
to be applicable, FA-1 shall notify Purchaser to this effect prior to
the issuance of the relevant VAT invoice and both Parties shall work
together in good faith to restructure the arrangements to reduce the
impact of VAT on Purchaser, where legally possible, but such that there
is no adverse cash flow impact for FA-1. Notwithstanding these
discussions, invoices (excluding the VAT) shall be issued and be
payable in accordance with clause 2.
3.3 Purchaser shall be responsible for all rates and similar property based
taxes appropriately assessed and arising directly or indirectly from
Purchaser's interest in and exercise of the Rights.
4. DEFAULT AND TERMINATION
4.1 Except as provided in this Agreement, neither Party shall have a right
to terminate or cancel this Agreement for any reason whatsoever.
4.2 In the event that Purchaser shall have failed to pay any amount payable
by Purchaser pursuant hereto for more than *** days after its due date,
then Purchaser shall not be entitled to activate any additional
capacity within the Subsea Element pursuant to this Agreement or the
Dark Fibre Pair or to effect any upgrade pursuant to clause 7 until
Purchaser has paid in full all amounts overdue together with applicable
default interest. If such failure continues for a further *** days,
FA-1 shall be entitled to refrain from performing any services for
Purchaser required by this Agreement, deny Purchaser the right of
access to co-located spaces (except for the purpose of maintaining its
existing services to its customers), and refuse to carry out any
additional break-outs along the route of the Dark Fibre Pair until
Purchaser has paid in full all undisputed amounts overdue together with
applicable default interest.
4.3 FA-1 reserves the right to temporarily or permanently deactivate all
then activated Capacity (and refuse to activate any additional
Capacity) and/or to disconnect Purchaser's equipment from the System in
the event that Purchaser is in breach of clause 9.1 or if, in FA-1's
reasonable judgement, Purchaser's use of the System may damage or
disrupt the System. Except in case of emergency FA-1 shall notify
Purchaser in advance of its intent to deactivate Capacity and FA-1
shall not permanently deactivate the Capacity without first allowing
Purchaser a reasonable period (being not less than 90 days) within
which Purchaser may remedy the breach of clause 9.1 or amend its use of
the System so that the cause or potential cause of the damage or
disruption has been rectified and the risk removed, as the case may be.
FA-1 shall reconnect the Capacity as soon as Purchaser has established
to FA-1's satisfaction that the breach of clause 9.1 has been cured or
that the cause or potential cause of damage or disruption to be System
has been rectified and the risk removed.
4.4 If this clause becomes applicable pursuant to clause 2.1.2 or if the
Initial RFS Date has not occurred within *** months after the Scheduled
Initial RFS Date (*** months if the delay is caused by a force majeure
event) Purchaser may by written notice terminate this Agreement.
Purchaser shall have no obligation to make any further payments under
this Agreement following such termination and FA-1 shall within ***
days of such termination refund to
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<PAGE>
Purchaser any portion of the Purchase Price already paid by Purchaser
to FA-1 which has not been used to make timely payments required to be
made by FA-1 in connection with the planning, design, construction and
project management of the System. Subject to Clauses 4.5 and 4.6, the
foregoing shall be the limit of Purchaser's rights for delays to the
Initial RFS Date.
4.5 ***
4.6 ***
5. OPERATION AND MAINTENANCE
5.1 FA-1 shall be responsible for the operation and maintenance of the
System including arranging for the repair of the System in the event of
any fault. Purchaser's responsibility with regard to operation and
maintenance of the System shall be to make the O&M Payments as and when
they become due pursuant to this Agreement and to notify FA-1 of each
fault related to the Dark Fibre Pair/Capacity on becoming aware of the
same, locate the site of such fault, and in relation to the Dark Fibre
Pair to shut down Purchaser's lasers within two hours of receipt of
instructions to enable FA-1 to safely repair the fault. If Purchaser
fails to shut down its lasers within the required time period, FA-1
shall be entitled to remove the lasers from the Dark Fibre Pair in
order to safely repair the Dark Fibre Pair or the System provided that
FA-1 takes reasonable care in so doing. Purchaser shall also be
required to provide FA-1 reasonable assistance to determine if a fault
on the System is due to one or more of Purchaser's break-out points on
the System.
5.2 ***
5.3 Any planned works that will interrupt the Capacity on any Link of the
Subsea Element or will interrupt the Dark Fibre Pair or will hinder
access to the Facilities shall be notified to Purchaser at least 15
days in advance.
5.4 FA-1 shall promulgate procedures for the maintenance, use and operation
of the System according to standards generally accepted in the
telecommunications cable industry and in order to maintain the
Standards and shall provide Purchaser with a copy thereof. FA-1 may
from time to time amend such procedures provided that such amendments
do not affect the quality or use of the Rights and remain consistent
with standards generally accepted in the telecommunications cable
industry and shall provide Purchaser with a copy of each amendment
prior to its effectiveness.
5.5 In operating and maintaining the System, FA-1 shall provide operation
and maintenance on an equal and non-discriminatory basis.
5.6 ***
5.7 FA-1 undertakes to operate and maintain the System as economically as
is reasonably possible.
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6. INTENTIONALLY LEFT BLANK
7. SYSTEM ENHANCEMENTS AND UPGRADES
7.1 FA-1 reserves the right to upgrade the amount of the capacity of the
System and to make any enhancements to the System from time to time.
***
7.2 FA-1 will notify Purchaser of any planned upgrade of, or enhancement
to, the System. Such notice shall set forth the costs of such upgrade
or enhancement, based on its pricing agreement with or proposal from
its suppliers. If Purchaser wishes to participate in such upgrade or
enhancement for the purposes of upgrading or enhancing the Capacity it
shall notify FA-1 within 30 days of receiving notice from FA-1. If
Purchaser agrees to participate in the upgrade or enhancement, the
upgrade or enhancement will then be treated as FA-1 project managing
the upgrade or enhancement, pursuant to clause 7.3. If Purchaser elects
not to participate or fails to timely respond to the notice, FA-1 shall
be entitled to proceed with the upgrade or enhancement without
participation by Purchaser.
7.3 Purchaser shall be entitled at its own cost at any time to upgrade the
Capacity, including upgrading the Capacity to over 400 Gbps if this
becomes possible. FA-1 shall carry out each upgrade (including the
provision of the necessary transponders) on Purchaser's behalf in
increments of 40 Gbps on each Link being upgraded. *** Upon FA-1
receiving a request to upgrade from Purchaser, FA-1 will within 60
days, subject to receiving from Purchaser the information required,
submit to Purchaser costs for the upgrade. The Proposal will identify
third party costs and project management costs and a completion
timeline for the upgrade ***. The upgrade will be carried out in
accordance with the terms of this Agreement (including BIS Testing).
7.4 Purchaser shall be entitled at its own cost at any time to equip the
Dark Fibre Pair provided that such activities are carried out in
consultation with FA-1 and at a time, not later than 30 days after the
date Purchaser wishes to do the work, mutually agreed by the Parties
(which agreement shall not be unreasonably withheld or delayed).
8. SYSTEM DECOMMISSIONING
The System shall be decommissioned at such time, no earlier than 15
years and no later than 25 years from the Initial RFS Date, as either
FA-1 or the holders of three quarters of the then activated capacity on
the System determine that the System is technically obsolete or has
reached the end of its useful economic life. There shall be no
compensation payable to Purchaser whether Purchaser voted for or
against decommissioning. FA-1 shall where possible notify Purchaser if
the System or any material portion thereof is to be decommissioned at
least 12 months prior to such decommissioning (or by such later date as
may be possible if 12 months notice is not possible). This provision is
without prejudice to
7
<PAGE>
the rights of FA-1 to decommission the System without any liability to
Purchaser whatsoever in the event of a force majeure event which makes
it impossible to maintain the business efficacy of the System.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Purchaser represents, warrants and covenants to FA-1 as follows:
9.1.1 Purchaser is duly established and in good standing under the laws of
Bermuda and has full power and authority to enter into this Agreement.
9.1.2 This Agreement constitutes the legal, valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms.
9.1.3 Purchaser or its affiliate has obtained or will obtain all necessary
consents, licenses, permits and other approvals, both governmental and
private, as may be necessary to permit Purchaser to perform its
obligations under this Agreement and to acquire and use the Capacity.
9.1.4 Purchaser shall perform its obligations under this Agreement and use
the Capacity in a manner consistent with applicable law, and shall not
use, or permit the Capacity to be used, for any illegal purpose or in
any other unlawful manner.
9.2 FLAG Atlantic Limited and FLAG Atlantic USA Limited each represents,
warrants and covenants to Purchaser as follows:
9.2.1 It is duly established and in good standing under the laws of the
country of its incorporation and has full power and authority to enter
into this Agreement.
9.2.2 This Agreement constitutes its legal, valid and binding obligation
enforceable against it in accordance with its terms.
9.2.3 It shall perform its obligations under this Agreement in a manner
consistent with applicable law.
9.2.4 ***
9.2.5 ***
9.2.6 ***
9.3 Except as provided above, FA-1 disclaims, and Purchaser waives, all
representations and warranties regarding the System, including any
warranty of merchantability or fitness for a particular use, and in
particular, without limiting the foregoing FA-1 does not warrant that
the Dark Fibre Pair or Capacity will be uninterrupted or error free or
that the Dark Fibre Pair or Capacity will meet Purchaser's requirements
for the equipment to be deployed by Purchaser
8
<PAGE>
in connection with the Dark Fibre Pair or Capacity or services to be
offered by Purchaser utilising this equipment.
10. FORCE MAJEURE
No failure or omission by any Party to carry out or observe any of the
terms and conditions of this Agreement (other than any payment
obligation) shall give rise to any claim against such Party or be
deemed a breach of this Agreement if such failure or omission arises
from an act of God, an act of any government or any other circumstance
beyond the reasonable control of that Party commonly known as "force
majeure".
11. CONFIDENTIALITY
Other than in connection with an assignment permitted under clause 13
or if it is required by applicable law in connection with the
enforcement of this Agreement, neither FA-1 nor Purchaser shall
disclose the terms of this Agreement to any third party without the
prior written consent of the other Party. Without limiting the
generality of the foregoing, neither FA-1 nor Purchaser shall issue any
press release or otherwise publicise the existence or the terms of this
Agreement without the prior written consent of the other Party.
12. NO LICENCE
12.1 Nothing in this Agreement shall or shall be deemed to give rise to
any right of Purchaser to use any FA-1 Intellectual Property.
12.2 For the purposes of this clause "Intellectual Property" means any and
all patents, trade marks, rights in designs, copyrights, and topography
rights, (whether registered or not and any applications to register or
rights to apply for registration of any of the foregoing), rights in
inventions, know-how, trade secrets and other confidential information,
rights in databases and all other intellectual property rights of a
similar or corresponding character which may now or in the future
subsist in any part of the world, and "FA-1 Intellectual Property"
means Intellectual Property owned by or licensed to FA-1 together with
the goodwill relating thereto.
13. ASSIGNMENT
13.1 This Agreement and all the provisions hereof shall be binding upon and
inure to the benefit of the Parties hereto and their respective
successors and permitted assigns; provided that, except for the
assignment of a Party's rights (but not its obligations) under this
Agreement to one or more financial institutions and/or export credit
agencies as collateral security for financing provided to that Party or
in connection with a sale of receivables by that Party and the
assignment by such financial institutions (and their assignees) of the
rights and obligations
9
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under this Agreement to any other persons following exercise of any
rights or remedies on such collateral security, neither this Agreement
nor any of the rights, interest or obligations hereunder shall be
assigned or transferred by any of the Parties hereto without the prior
written consent of the other Parties, and any attempted assignment or
transfer in violation of this clause shall be void.
13.2 Notwithstanding clause 13.1, FLAG Atlantic Limited and FLAG Atlantic
USA Limited may allocate their rights and obligations under this
Agreement between themselves and their Affiliates.
13.3 FLAG Atlantic Limited and FLAG Atlantic USA Limited may use
subcontractors or agents to fulfil their obligations hereunder provided
that FLAG Atlantic Limited and FLAG Atlantic USA Limited remain fully
liable for the performance of those obligations.
13.4 Notwithstanding Clause 13.1, Purchaser may assign its rights under this
Agreement to its Affiliates.
13.5 For the purpose of this clause and clause 19.1 "Affiliate" means any
person or body corporate, controlling, controlled by or under common
control with the relevant Party.
14. ENTIRE AGREEMENT
This Agreement constitutes the whole agreement between the Parties and
supersedes any previous agreements, arrangements or understandings
between them relating to the subject matter hereof. Each of the Parties
acknowledges that it is not relying on any statements, warranties or
representations given or made by any of them relating to the subject
matter hereof, save as expressly set out in this Agreement.
15. VARIATION
No variation or amendment to this Agreement shall be effective unless
in writing signed by authorised representatives of each of the Parties.
16. WAIVER
16.1 Failure by a Party at any time to enforce any of the provisions of this
Agreement shall neither be construed as a waiver of any rights or
remedies hereunder nor in any way affect the validity of this Agreement
or any part of it and no waiver of a breach of this Agreement shall
constitute a waiver of any subsequent breach.
16.2 Termination of this Agreement shall not operate as a waiver of any
breach by a Party of any of the provisions hereof and shall be without
prejudice to any rights or remedies of a Party which may arise as a
consequence of such breach or which may have accrued hereunder up to
the date of such termination.
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16.3 No waiver of a breach of this Agreement shall be effective unless given
in writing.
17. INVALIDITY
17.1 If any provision of this Agreement is or becomes (whether pursuant to
any judgement or otherwise) invalid, illegal or unenforceable in any
respect under the law of any applicable jurisdiction:
(a) the validity, legality and enforceability under the law of
that jurisdiction of any other provision; and
(b) the validity, legality and enforceability under the law of any
other jurisdiction of that or any other provision,
shall not be affected or impaired in any way thereby.
18. NOTICE
18.1 Any notice, request, demand or other communication required or
permitted hereunder shall be sufficiently given if in writing in
English and delivered by hand or sent by prepaid registered or
certified mail (airmail if international), by facsimile or by prepaid
international courier service of international reputation addressed to
the appropriate Party at the following address or to such address as
such Party may from time to time designate:
If to Purchaser:
GTS Transatlantic Carrier Services Limited
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
With a copy to:
GTS
Terhulpsesteenweg 6A
1560 Hoeilaart
Belgium
Attention: Legal Director
Tel: + 32 2 658 5200
Fax: + 32 2 658 5101
If to FA-1:
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<PAGE>
FLAG Atlantic Limited
The Emporium Building
69 Front Street
4th Floor
Hamilton HM 12
Bermuda
Attention: FLAG Atlantic-1
Tel: +1-441-296-0909
Fax: +1-441-296-0938
With a copy to:
FLAG Telecom Limited
103 Mount Street - 3rd Floor
London W1Y 5HE
U.K.
Attention: General Counsel
Tel: +44-171-317-0800
Fax: +44-171-317-0808
18.2 Purchaser acknowledges that all communications in connection with this
Agreement shall be between Purchaser and FLAG Atlantic Limited. For
this purpose, FLAG Atlantic USA Limited hereby appoints FLAG Atlantic
Limited as its agent to receive and send all communications in
connection with this Agreement.
18.3 Any notice, request, demand or other communication given or made
pursuant to this clause shall be deemed to have been received (i) in
the case of hand delivery or courier, on the date of receipt as
evidenced by a receipt of delivery from the recipient, (ii) in the case
of mail delivery, on the date which is seven days after the mailing
thereof and (iii) in the case of transmission by facsimile, on the date
of transmission with confirmed answer back. Each such communication
sent by facsimile shall be promptly confirmed by notice in writing
hand-delivered or sent by courier, mail or air mail as provided herein,
but failure to send such a confirmation shall not affect the validity
of such communication.
19. LIABILITY
19.1 Except to the extent stated in clauses 1.4, 4.4 to 4.6 and 9.2.5 ***
FA-1 shall not be liable to Purchaser for any loss or damage sustained
by reason of any delay in completion, failure or breakdown of the
facilities constituting the System or any interruption of service,
regardless of the cause of such delay in completion, failure or
breakdown, and regardless of how long it shall last.
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19.2 Notwithstanding any other provision in this Agreement to the contrary,
no Party shall be liable to any other Party for any indirect, special,
punitive or consequential damages (including, but not limited to, any
loss of profit or business or claim from any customer for loss of
services) arising out of this Agreement or from any breach of any of
the terms and conditions of this Agreement.
19.3 Any financier of the System, at its election, shall have a right to
cure any breach by FA-1 (or, if applicable, an affiliate thereof) under
this Agreement, provided however, that such financier shall not assume
any liabilities of FA-1 under this Agreement.
20. COUNTERPARTS
This Agreement may be executed in counterparts. Any single counterpart
or set of counterparts signed, in either case, by all the Parties
hereto shall constitute a full and original agreement for all purposes.
21. WAIVER OF IMMUNITY
The Parties acknowledge that this Agreement is commercial in nature,
and the Parties expressly and irrevocably waive any claim or right
which they may have to immunity (whether sovereign immunity or
otherwise) for themselves or with respect to any of their assets in
connection with an arbitration, arbitral award or other proceedings to
enforce this Agreement, including, without limitation, immunity from
service of process, immunity of any of their assets from pre- or
post-judgement attachment or execution and immunity from the
jurisdiction of any court or arbitral tribunal.
22. FA-1 FINANCIAL CLOSURE
22.1 The obligation of the Purchaser to pay the Purchase Price (or any
installment thereof) and the obligation of FA-1 to provide the Rights
are conditional upon the occurrence of FA-1 Financial Closure.
22.2 If FA-1 Financial Closure has not occurred by 12 October 1999, then
this Agreement shall terminate (with the exception of clauses 11, 19,
21 and 23 which shall survive termination).
22.3 For the purposes of this Agreement, "FA-1 Financial Closure" shall be
deemed to take place on the date when FA-1 and its shareholders have
put in place arrangements satisfactory to them for the financing of the
construction of the System.
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23. GOVERNING LAW AND DISPUTE RESOLUTION
23.1 This Agreement shall be construed in accordance with New York law,
without regard to the law of New York governing conflicts of law.
23.2 The Parties shall seek to resolve any disputes between them by referral
of such disputes to the Co-Chairmen of the Board of FA-1 and the
Managing Director of Purchaser. If the Parties fail to agree within 7
days of the initiation of this procedure the dispute shall be referred
to arbitration in accordance with the Arbitration Agreement entered
into between FA-1 and Purchaser (amongst others) of even date hereof.
24. FINANCING AGREEMENT
Notwithstanding any in this Agreement to the contrary, Purchaser shall
not be entitled to activate or upgrade any capacity on the System to
the extent and for so long as this would cause FLAG Atlantic Limited to
violate Section 6.30 of the Financing Agreement.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first set forth above.
FLAG ATLANTIC LIMITED
/s/ Samih Kawar
BY ________________________
Name: Samih Kawar
Title: Director
FLAG ATLANTIC USA LIMITED
/s/ James E. Shields /s/ Larry F. Bautista
BY ________________________ BY ________________________
Name: James E. Shields Name: Larry F. Bautista
Title: Authorised Signatory Title: Authorised Signatory
GTE INTELLIGENT NETWORK SERVICES INCORPORATED
/s/ Steven H. Blumenthal
By __________________________
Name: Steven H. Blumenthal
Title: Vice President, Engineering GTEI
GTE INTELLIGENT NETWORK SERVICES INCORPORATED
/s/ Mark P. Hileman
By __________________________
Name: Mark P. Hileman
Title: Assistant Secretary-GNI
15
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EXHIBIT 10.20
EXECUTION COPY
CAPACITY RIGHT OF USE AGREEMENT
THIS AGREEMENT, dated as of the ______ day of _______________ 1999, is among
FLAG ATLANTIC LIMITED, a company organised under the laws of Bermuda and having
its principal office at The Emporium Building, 69 Front Street, 4th Floor,
Hamilton, Bermuda, FLAG ATLANTIC USA LIMITED, a company organised under the laws
of Delaware, USA and having its principal office at 570 Lexington Avenue, 38th
Floor, New York, NY 10022, USA, (FLAG ATLANTIC LIMITED AND FLAG ATLANTIC USA
LIMITED being hereinafter jointly and severally referred to as "FA-1")
PSINETWORKS COMPANY, a corporation organised under the laws of Delaware, USA and
having its principal office at 510 Huntmar Park Drive, Herndon, VA 20170 USA,
PSINET TELECOM LIMITED, a company organised under the laws of England and having
its principal office at Brookmount Court, Unit A&B, Kirkwood Road, Cambridge CB4
2QH, UK and PSINETWORKS SARL, a company organised under the laws of Switzerland
and having its principal office at Rue Fritz - Coorrisier 103, 2300 La Chaux -
de - Fonds, Switzerland (PSINETWORKS COMPANY, PSINET TELECOM LIMITED and
PSINETWORKS SARL being hereinafter jointly and severally referred to as
"Purchaser").
WITNESSETH:
WHEREAS, except as set out below, FLAG Atlantic Limited is constructing and will
directly and/or indirectly own, operate and maintain a fiberoptic cable system
to be known as FLAG Atlantic-1 (the "System") consisting of a subsea element
(the "Subsea Element") and two backhaul elements (the "Backhaul Elements"), the
System, Subsea Element and Backhaul Elements being more fully described in
Schedule 1; and
WHEREAS, FLAG Atlantic USA Limited is constructing and will own all that part of
the System that is within the territory (including the territorial waters) of
the United States of America; and
WHEREAS, the System is currently scheduled to go into service in stages with the
initial stage, as more particularly described in Schedule 1, ("Initial Stage")
currently scheduled to go into service on or about 31 March 2001 ("Scheduled
Initial RFS Date") and the final stage, as more particularly described in
Schedule 1 ("Final Stage"), currently scheduled to go into service on or about
30 June 2001 ("Scheduled Final RFS Date"); and
WHEREAS, Purchaser desires to acquire from FA-1, and FA-1 is willing to provide
to Purchaser the Rights (as defined below); and
WHEREAS, Purchaser has already made a payment to FA-1 of *** million of the
Purchase Price (as defined below); and
Page 1 of 26
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WHEREAS, FA-1 and Purchaser (the "Parties") desire to define the terms and
conditions under which the Rights will be acquired by Purchaser.
NOW, THEREFORE, the Parties hereby agree as follows:
1. PURCHASE OF RIGHTS
1.1 Purchaser agrees to acquire, and FA-1 agrees to grant to Purchaser, for
*** (the "Purchase Price"), subject to the terms and conditions of this
Agreement: (i) an indefeasible and exclusive right of use ("IRU") in the
derivable capacity from one fibre pair (the "Capacity") on each Link (as
such term is described in Schedule 1) of the Subsea Element; (ii) the
exclusive right to use one dedicated fibre pair (the "Terrestrial Fibre
Pair") on each Link of the Backhaul Elements; and (iii) all such other
rights as are set out in Schedule 2 (together the "Rights").
1.2 FA-1 shall notify Purchaser of the actual date upon which the Initial
Stage of the System is able to carry commercial traffic ("Initial RFS
Date") and the actual date upon which the Final Stage of the System is
able to carry commercial traffic ("Final RFS Date").
1.3 Subject to Purchaser complying with clause 2.1, the Rights shall pass to
and vest in Purchaser as follows:
1.3.1 in the Capacity, from the Initial RFS Date (or, if later, the date
of payment by Purchaser of the penultimate instalment of the
Purchase Price in accordance with Schedule 3) for the Initial
Stage and from the Final RFS Date (or, if later, the date of
payment by Purchaser of the final instalment of the Purchase Price
in accordance with Schedule 3) for the Final Stage;
1.3.2 in the Terrestrial Fibre Pair and in each Facility (as such term
is described in Schedule 2), from the date that the Terrestrial
Fibre Pair is made available to FA-1 or the relevant Landing
Station, Terminal Point or amplifier/regenerator site is made
available to FA-1 for the installation of its equipment (in each
case being at least 60 days prior to the Initial RFS Date) but not
for commercial use until the Initial RFS Date (or, if later, the
date of payment by Purchaser of the penultimate instalment of the
Purchase Price in accordance with Schedule 3);
1.3.3 the Rights shall subsist until the System is decommissioned in
accordance with clause 7.
1.4 Within *** days after the Initial RFS Date, or, if later, within *** days
after payment by Purchaser of the penultimate instalment of the Purchase
Price in accordance with Schedule 3, FA-1 will activate the initial
bandwidth of the Capacity (40 gigabits per second, consisting of four
wavelengths of ten gigabits per second per wavelength) in each of Links
2, 5, and 6 in accordance with the terms of this Agreement.
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1.5 Within ten days after the Final RFS Date, or, if later, within ten days
after payment by Purchaser of the final instalment of the Purchase Price
in accordance with Schedule 3, FA-1 will activate the initial bandwidth
of the Capacity (40 gigabits per second, consisting of four wavelengths
of ten gigabits per second per wavelength) in Link 9 in accordance with
the terms of this Agreement.
1.6 Purchaser shall have no legal ownership or other rights in the System
itself (including its physical assets), in any proceeds from the
disposition of the System or in any other capacity therein, except as
specifically provided herein.
2. PAYMENTS
2.1 Having already paid to FA-1 *** of the Purchase Price for the Rights to
be acquired pursuant hereto, Purchaser shall pay the remaining *** of the
Purchase Price pursuant to the payment schedule set out in Schedule 3
("Payment Schedule").
2.2 Purchaser shall pay to FA-1 such amounts for the operation and
maintenance of the System as are set forth in, or determined pursuant to,
Schedule 5 ("O&M Payments").
2.3 FA-1 shall render to Purchaser invoices for amounts payable pursuant to
this Agreement. Invoices for the Purchase Price shall be rendered in
accordance with clause 2.1. Invoices for O&M Payments shall be rendered
pursuant to Schedule 5. All invoices shall be due and payable within 30
days after delivery to Purchaser.
2.4 Any amount payable pursuant to this Agreement which is not paid when due
shall accrue interest at the annual rate of *** above the U.S. Dollar
LIBOR for one month as quoted in THE WALL STREET JOURNAL on the first
business day of the month in which the payment is due. All such default
interest shall accrue from the day following the date payment of the
relevant amount was due until it is paid in full and shall accrue both
before and after judgement. Such interest shall be payable on demand.
2.5 All amounts payable by Purchaser pursuant hereto shall be paid in full in
U.S. dollars by wire transfer free and clear of all bank or transfer
charges to such account(s) as FA-1 may by notice to Purchaser designate
without reduction for any deduction or withholding for or on account of
any tax, duty or other charge of whatever nature imposed by any taxing
authority. If Purchaser is required by law to make any deduction or
withholding from any payment hereunder, Purchaser shall pay such
additional amount to FA-1 so that after such deduction or withholding the
net amount received by FA-1 will be not less than the amount FA-1 would
have received had such deduction or withholding not been required.
Purchaser shall make the required deduction or withholding, shall pay the
amount so deducted or withheld to the relevant governmental authority and
shall promptly provide FA-1 with evidence of such payment. ***
Page 3 of 26
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2.6 In the case of payments of the Purchase Price, until the Initial RFS Date
there shall be such controls over the account(s) designated by FA-1
pursuant to clause 2.5 so as to ensure that payments of the Purchase
Price may only be used to make timely payments required to be made by
FA-1 in connection with the planning, design, construction and project
management of the System. Any interest arising from amounts held in the
account(s) shall accrue for the benefit of FA-1 ***.
2.7 Purchaser's obligation to pay the Purchase Price and other amounts shall
not be subject to any rights of set-off, counterclaim, deduction, defense
or other right which Purchaser may have against FA-1 or any other party.
3. TAXES
3.1 Save as the context requires or as otherwise stated herein all references
to payments made in this Agreement are references to such payments
exclusive of all sales and use taxes, gross turnover taxes, value added
taxes, or other similar turnover or sales based taxes, excise taxes,
duties, fees, charges, levies, surcharges to recover the cost of
universal service contributions, or similar liabilities (other than the
general income taxes of FA-1) imposed by any authority, government or
government agency in connection with or as a result of or in respect of
the supply for which the payment is or is deemed to be consideration
(collectively "taxes"). Where applicable such taxes shall be added to the
invoice and shall be paid to FA-1 at the same time as the relevant
invoice is settled in accordance with clause 2. In the event that
Purchaser provides FA-1 with a duly authorised exemption certificate,
exempting Purchaser from any such tax, FA-1 agrees to exempt Purchaser in
accordance with the applicable tax law, effective on the date the
exemption certificate is received by FA-1.
3.2 Purchaser shall be responsible for all rates and similar property based
taxes appropriately assessed and arising directly or indirectly from
Purchaser's interest in and exercise of the Rights.
4. DEFAULT AND TERMINATION
4.1 In the event that Purchaser shall have failed to pay any amount payable
by Purchaser pursuant hereto for more than *** days after its due date
***, then Purchaser shall not be entitled to activate any capacity within
the Subsea Element or the Terrestrial Fibre Pair not theretofore
activated or to effect any upgrade pursuant to clause 6 until Purchaser
has paid in full all amounts overdue together with applicable default
interest. If such failure continues for a further *** days, FA-1 shall be
entitled to refrain from performing any services for Purchaser required
by this Agreement and deny Purchaser the right of access to co-located
spaces (except for the purposes of maintaining its then existing services
to its customers) until Purchaser has paid in full all undisputed amounts
overdue together with applicable default interest. ***
Page 4 of 26
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4.2 If the defaulted payment is for any portion of the Purchase Price and
such default continues for a further period of *** days after the initial
*** days of delay referred to in clause 4.1, FA-1 may, in its discretion,
either:
4.2.1 require Purchaser forthwith to pay the unpaid balance of the
Purchase Price; or
4.2.2 terminate this Agreement and relieve Purchaser of its obligation
to pay any portion of the Purchase Price which has not yet become
due and its right to acquire the Rights pursuant hereto.
Neither such termination of this Agreement nor the exercise by FA-1 of
such remedy shall relieve Purchaser of its obligation to pay amounts
already due hereunder plus default interest thereon.
4.3 Purchaser shall conduct all operations and use of the Capacity and the
Terrestrial Fibre Pair in a manner which does not interrupt, impair or
interfere with the operations of the System or the use thereof by FA-1 or
any other purchaser or user of optical fibres or capacity in the System.
If, after notification by FA-1, Purchaser does not take immediate
corrective action to comply with its obligations under this clause 4.3,
FA-1 may take reasonable action required to protect the System, including
but not limited to the interruption of Purchaser's use of the Capacity or
the Terrestrial Fibre Pair and installation of protective equipment.
Purchaser shall, within 15 days of receipt of an invoice, reimburse FA-1
for its total reasonable direct costs properly incurred *** for any
protective measures reasonably required by FA-1 to be installed on the
System resulting from the use of the Capacity or the Terrestrial Fibre
Pair in violation of this clause. In applying restrictions on use of the
System by FA-1's customers FA-1 shall act in an equal and
non-discriminatory manner.
4.4 Except as provided herein, Purchaser shall have no right to terminate or
cancel this Agreement or its obligation to purchase the Rights. If the
Initial RFS Date has not occurred within *** months after the Scheduled
Initial RFS Date Purchaser may by two months written notice terminate its
purchase of the Rights. Purchaser shall have no obligation to make any
further payments of the Purchase Price under this Agreement following
such termination and FA-1 shall within *** days of such termination
refund to Purchaser any portion of the Purchase Price already paid by
Purchaser to FA-1 which has not been used to make timely payments
required to be made by FA-1 in connection with the planning, design,
construction and project management of the System. In the event Purchaser
has not exercised this right of termination, FA-1 may notify Purchaser of
the revised expected Initial RFS Date. Purchaser shall have 30 days from
receipt of this notice to notify FA-1 that it wishes to terminate its
obligation to purchase the Rights or that it accepts the delay to the
revised expected Initial RFS Date (and failure by Purchaser to provide a
timely notice shall be deemed acceptance of the delay). If the Initial
RFS Date does not occur by the revised expected Initial RFS Date the
above procedure will be repeated until the earlier of the occurrence of
the Initial RFS Date and Purchaser's termination of its obligation to
purchase the Rights.
4.5 If Purchaser has exercised its right to terminate its obligation to
purchase the Rights and the Initial
Page 5 of 26
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RFS Date actually occurs prior to the date *** months after the Scheduled
Initial RFS Date, Purchaser shall be entitled within six months from the
Initial RFS Date to notify FA-1 that it wishes to acquire capacity on the
System in the amount of the Purchase Price theretofore paid by Purchaser
and not refunded pursuant to clause 4.4, the amount of the capacity being
determined on the basis of the unit cost for the initial bandwidth that
Purchaser would have received under this Agreement but for such
termination. In such case, this Agreement shall be amended by the Parties
to reflect the different nature of the capacity being acquired and the
different rights and obligations of the Parties as a consequence thereof.
4.6 If the Initial RFS Date has not occurred within *** months after the
Scheduled Initial RFS Date, Purchaser may by 30 days notice terminate
this Agreement ***.
4.7 The foregoing shall be the limit of Purchaser's rights for delays to the
Initial RFS Date.
4.8 ***
5. OPERATION AND MAINTENANCE
5.1 FA-1 shall be responsible for the operation and maintenance of the System
including arranging for the repair of the System in the event of any
fault. Purchaser's responsibility with regard to operation and
maintenance of the System shall be to make the O&M Payments as and when
they become due pursuant to this Agreement and to notify FA-1 of each
fault related to the Terrestrial Fibre Pair/Capacity on becoming aware of
the same, locate the site of such fault, and in relation to the
Terrestrial Fibre Pair to shut down Purchaser's lasers within two hours
of receipt of instructions to enable FA-1 to safely repair the fault. If
Purchaser fails to shut down its lasers within the required time period,
FA-1 shall be entitled to remove the lasers from the Terrestrial Fibre
Pair in order to safely repair the Terrestrial Fibre Pair or the System
provided that FA-1 takes reasonable care in so doing.
5.2 ***
5.3 FA-1 shall promulgate procedures for the maintenance, use and operation
of the System according to standards generally accepted in the
telecommunications cable industry and shall provide Purchaser with a copy
thereof (in draft form at least 60 days prior to the Initial RFS Date).
FA-1 may from time to time amend such procedures and shall provide
Purchaser with a copy of each amendment prior to its effectiveness.
5.4 ***
5.5 Following the Initial RFS Date, FA-1 shall solicit views from
representative samplings of its customers on operation and maintenance of
the System through such means as FA-1 considers appropriate. Purchaser
may, of course, provide its views on an unsolicited basis. If Purchaser
believes the manner in which FA-1 is operating and maintaining the System
constitutes a breach
Page 6 of 26
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of this Agreement, Purchaser shall notify FA-1 and the Parties shall
promptly meet to discuss Purchaser's concerns. If Purchaser is not
satisfied with the outcome of such meeting or, notwithstanding the
outcome, Purchaser believes that the manner in which FA-1 is operating
and maintaining the System after the meeting constitutes a breach of this
Agreement, Purchaser shall be entitled to require a meeting among FA-1,
Purchaser and other users of the System, at which meeting Purchaser may
voice its concerns. The Parties will in good faith consider
implementation of the recommendations emanating from such meeting.
5.6 For ease of contract performance, each Party shall designate a single
point of contact who shall manage and be responsible for such Party's
performance of its obligations under this Agreement. Such persons shall
be referred to as Project Managers. Each Party agrees that its Project
Manager's performance of his or her respective responsibilities under
this Agreement is integral to the overall performance of such Party's
obligations to the other. To the extent that a Project Manager of a Party
is not performing his or her obligations, the other Party may request a
new Project Manager be assigned to assume the prior Project Manager's
obligations, and any such request shall not be unreasonably denied.
6. SYSTEM ENHANCEMENTS AND UPGRADES
6.1 FA-1 reserves the right to upgrade the amount of the capacity of the
System and to make any enhancements to the System from time to time.
6.2 FA-1 will notify Purchaser of any planned upgrade of, or enhancement to,
the System. Such notice shall set forth the costs of such upgrade or
enhancement, based on its pricing agreement with or proposal from its
suppliers. If Purchaser wishes to participate in such upgrade or
enhancement for the purposes of upgrading or enhancing the Capacity it
shall notify FA-1 within 30 days of receiving notice from FA-1. If
Purchaser agrees to participate in the upgrade or enhancement, the
upgrade or enhancement will then be treated as FA-1 project managing the
upgrade or enhancement, pursuant to clause 6.4. If Purchaser elects not
to participate or fails to timely respond to the notice, FA-1 shall be
entitled to proceed with the upgrade or enhancement without participation
by Purchaser.
6.3 Purchaser shall be entitled at its own cost at any time to upgrade the
Capacity and/or the Terrestrial Fibre Pair provided that such upgrades
are carried out in consultation with FA-1 and at a time mutually agreed
by the Parties (which agreement will not be unreasonably withheld or
delayed). Purchaser shall pay to FA-1 a fee equal to the direct costs
incurred by FA-1 in connection with such upgrade (unless FA-1 is project
managing the upgrade pursuant to clause 6.4). Purchaser shall be liable
for any damage to any part of the System directly involved with any such
upgrade and Purchaser shall be liable for any damage to or interruption
of any other part of the System resulting in this case from the gross
negligence or wilful misconduct of Purchaser (or any person acting on
behalf of Purchaser) in connection with any such upgrade, except in
either case where such damage or interruption results from Purchaser
following FA-1's instructions. ***
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6.4 Purchaser may at any time request FA-1 to project manage any upgrade of
the Capacity provided that each upgrade shall be a minimum of 40 gigabits
per second on each Link being upgraded. Upon FA-1 receiving such request
FA-1 will, within 60 days, subject to receiving from Purchaser the
information required, submit to Purchaser a proposal for the upgrade
("Proposal"). The Proposal will identify third party costs and a
completion timeline for the upgrade. Purchaser will notify FA-1 within 30
days of receiving the Proposal as to whether it accepts or rejects the
Proposal. ***
6.5 All amplifiers, SLTEs, LTEs and transponders added as a part of any
upgrade by, or on behalf of, Purchaser in connection with the Subsea
Element shall be owned by FA-1. Purchaser shall transfer to FA-1 title to
upgraded equipment in consideration of FA-1 maintaining the upgraded
equipment and spares.
7. SYSTEM DECOMMISSIONING
The System shall be decommissioned at such time, no earlier than 15 years
and no later than 25 years from the Initial RFS Date, as either FA-1 or
the holders of three quarters of the then activated capacity on the
System determine that the System is technically obsolete or has reached
the end of its useful economic life. There shall be no compensation
payable to Purchaser whether Purchaser voted for or against
decommissioning. This provision is without prejudice to the rights of
FA-1 to decommission the System without any liability to Purchaser
whatsoever, in the event of a catastrophic failure of all or a portion of
the System, whether caused by natural hazard or major technical fault,
which makes it impossible to maintain the business efficacy of the
System, or if any governmental, municipal, institutional, or commercial
authority, license, permission authorisation, right, or concession
necessary for the business efficacy of the System is not granted, subject
to prohibitive conditions or is terminated with no reasonable prospect of
retrieval within a period of 12 months following the date of termination.
***
8. REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 PSINetworks Company, PSINet Telecom Limited and PSINetwork SARL each
represents, warrants and covenants to FA-1 as follows:
8.1.1 It is duly established and in good standing under the laws of the
jurisdiction of its corporation and has full power and authority
to enter into this Agreement.
8.1.2 This Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
8.1.3 It will use commercially reasonable efforts to obtain all
necessary consents, licenses, permits and other approvals, both
governmental and private, as may be necessary to permit Purchaser
to perform its obligations under this Agreement and to acquire and
use the Rights.
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8.1.4 It shall perform its obligations under this Agreement and use the
Rights in a manner consistent with applicable law, and shall not
use, or permit the Rights to be used, for any illegal purpose or
in any other unlawful manner.
8.2 FLAG Atlantic Limited and FLAG Atlantic USA Limited each represents,
warrants and covenants to Purchaser as follows:
8.2.1 It is duly established and in good standing under the laws of the
jurisdiction of its incorporation and has full power and authority
to enter into this Agreement.
8.2.2 This Agreement constitutes its legal, valid and binding obligation
enforceable against it in accordance with its terms.
8.2.3 It shall use commercially reasonable efforts to obtain all
necessary consents, licenses, permits and other approvals, both
governmental and private, as may be necessary to permit FA-1 to
perform its obligations under this Agreement and to complete the
construction of the System.
8.2.4 It shall perform its obligations under this Agreement in a manner
consistent with applicable law.
8.3 Except as provided above, FA-1 disclaims, and Purchaser waives, all
representations and warranties regarding the System and the Rights,
including any warranty of merchantability or fitness for a particular
use, and in particular, without limiting the foregoing FA-1 does not
warrant that the System or the Rights will be uninterrupted or error free
or that the System or the Rights will meet Purchaser's requirements for
the equipment to be deployed by Purchaser in connection with the System
or the Rights or services to be offered by Purchaser utilising this
equipment.
9. FORCE MAJEURE
No failure or omission by any Party to carry out or observe any of the
terms and conditions of this Agreement (other than any payment
obligation) shall give rise to any claim against such Party or be deemed
a breach of this Agreement if such failure or omission arises from an act
of God, an act of any government or any other circumstance commonly known
as "force majeure".
10. CONFIDENTIALITY
10.1 Other than in connection with an assignment permitted under clause 12 or
in connection with the enforcement of this Agreement or if disclosure is
required by applicable law, neither FA-1 nor Purchaser shall disclose
the terms of this Agreement to any third party without the prior written
consent of the other Party. Without limiting the generality of the
foregoing, neither FA-1 nor
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Purchaser shall issue any press release or otherwise publicise the
existence or the terms of this Agreement without the prior written
consent of the other Party.
10.2 For purposes of this clause 10.2 and clauses 10.3, 10.4 and 10.5,
Confidential Information shall include all information, of any nature,
provided by one Party to the other in connection with this Agreement
except for that information which the originating Party has expressly
identified as being non-confidential. The receiving Party shall keep in
confidence all Confidential Information and will not disclose such
information to any third party other than in accordance with this
Agreement. The receiving Party shall use no lesser degree of care than
would apply to its own confidential information.
10.3 The provisions of clause 10.2 do not apply to any Confidential
Information which:
10.3.1 enters into the public domain other than by reason of a breach of
this Agreement;
10.3.2 is known to the Party to which it is disclosed at the time of its
disclosure, other than as a result of a breach of any other
covenant of confidentiality;
10.3.3 is independently generated, developed or discovered at any time by
or for the Party to which it is disclosed;
10.3.4 is necessary for the purposes of permitting a Party to (1) perform
its obligations under this Agreement provided that any third party
which receives Confidential Information pursuant to this provision
has agreed to be bound by the restrictions contained in this
section in the same manner as if it were a party to this
Agreement, or (2) enforce its rights under this Agreement;
10.3.5 is required to be disclosed by law, regulation or stock exchange
rules.
10.4 Confidential Information shall only be used for the purposes for which it
was disclosed.
10.5 The obligations of confidentiality in this clause 10 shall continue for
five years following the termination of this Agreement. 10.6 FA-1 shall
ensure that the entities entitled to receive copies of notices pursuant
to clause 17 shall abide by clauses 10.1 to 10.5.
11. NO LICENCE
11.1 Nothing in this Agreement shall or shall be deemed to give rise to any
right of Purchaser to use any FA-1 Intellectual Property, provided that
Purchaser may require a license of FA-1 Intellectual Property in
connection with an acquisition pursuant to clause 7.
11.2 For the purposes of this clause "Intellectual Property" means any and all
patents, trade marks, rights in designs, copyrights, and topography
rights, (whether registered or not and any applications to register or
rights to apply for registration of any of the foregoing), rights in
inventions, know-how, trade secrets and other confidential information,
rights in databases and all
Page 10 of 26
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other intellectual property rights of a similar or corresponding
character which may now or in the future subsist in any part of the
world, and "FA-1 Intellectual Property" means Intellectual Property owned
by or licensed to FA-1 together with the goodwill relating thereto.
12. ASSIGNMENT
12.1 This Agreement and all the provisions hereof shall be binding upon and
inure to the benefit of the Parties hereto and their respective
successors and permitted assigns; provided that, except for the
assignment of FA-1's rights (but not its obligations) under this
Agreement to one or more financial institutions and/or export credit
agencies as collateral security for financing provided to FA-1 or in
connection with a sale of receivables by FA-1 and the assignment by such
financial institutions (and their assignees) of the rights and
obligations under this Agreement to any other persons following exercise
of any rights or remedies on such collateral security, neither this
Agreement nor any of the rights, interest or obligations hereunder shall
be assigned or transferred by any of the Parties hereto without the prior
written consent of the other Parties, and any attempted assignment or
transfer in violation of this clause shall be void. However, Purchaser
may assign this agreement to any subsidiary or affiliate without prior
written consent of FA-1 and in the event there is a merger or transfer of
control of substantially all the assets of Purchaser, no prior approval
of assignment of this Agreement is required.
12.2 Notwithstanding clause 12.1, FLAG Atlantic Limited and FLAG Atlantic USA
Limited may allocate their rights and obligations under this Agreement
between themselves and their affiliates.
12.3 FLAG Atlantic Limited and FLAG Atlantic USA Limited may use
subcontractors or agents to fulfil their obligations hereunder.
13. ENTIRE AGREEMENT
This Agreement constitutes the whole agreement between the Parties and
supersedes any previous agreements, arrangements or understandings
between them relating to the subject matter hereof. Each of the Parties
acknowledges that it is not relying on any statements, warranties or
representations given or made by any of them relating to the subject
matter hereof, save as expressly set out in this Agreement.
14. VARIATION
No variation or amendment to this Agreement shall be effective unless in
writing signed by authorised representatives of each of the Parties.
15. WAIVER
15.1 Failure by a Party at any time to enforce any of the provisions of this
Agreement shall neither be construed as a waiver of any rights or
remedies hereunder nor in any way affect the validity of this
Page 11 of 26
<PAGE>
Agreement or any part of it and no waiver of a breach of this Agreement
shall constitute a waiver of any subsequent breach.
15.2 Termination of this Agreement shall not operate as a waiver of any breach
by a Party of any of the provisions hereof and shall be without prejudice
to any rights or remedies of a Party which may arise as a consequence of
such breach or which may have accrued hereunder up to the date of such
termination.
15.3 No waiver of a breach of this Agreement shall be effective unless given
in writing.
16. INVALIDITY
16.1 Subject to clause 16.2 below if any provision of this Agreement is or
becomes (whether pursuant to any judgement or otherwise) invalid, illegal
or unenforceable in any respect under the law of any applicable
jurisdiction:
16.1.1 the validity, legality and enforceability under the law of that
jurisdiction of any other provision; and
16.1.2 the validity, legality and enforceability under the law of any
other jurisdiction of that or any other provision, shall not be
affected or impaired in any way thereby.
16.2 The Parties acknowledge that the consideration for the Rights set out in
clause 2 was agreed upon taking into account clauses 4, 7, 8, and 18 and
in the event any of these clauses is or becomes (whether pursuant to any
judgement or otherwise) invalid, illegal or unenforceable in any respect
under the law of any jurisdiction, the Parties agree to renegotiate in
good faith the amounts payable by Purchaser under clause 2.
17. NOTICE
17.1 Any notice, request, demand or other communication required or permitted
hereunder shall be sufficiently given if in writing in English and
delivered by hand or sent by prepaid registered or certified mail
(airmail if international), by facsimile or by prepaid international
courier service of international reputation addressed to the appropriate
Party at the following address or to such address as such Party may from
time to time designate:
If to Purchaser:
510 Huntmar Park Drive
Herndon, VA 20170
USA
Page 12 of 26
<PAGE>
Attention: VP Capacity Planning
With a copy to : General Counsel
Tel: +1-703-904-4100
Fax: +1-703-904-4200
If to FA-1:
FLAG Atlantic Limited
The Emporium Building
69 Front Street
4th Floor
Hamilton HM 12
Bermuda
Attention: FLAG Atlantic-1
Tel: +1-441-296-0909
Fax: +1-441-296-0938
With a copy to the following entity for so long as it is affiliated with
FA-1:
FLAG Telecom Limited
103 Mount Street - 3rd Floor
London W1Y 5HE
U.K.
Attention: General Counsel
Tel: +44-207-317-0800
Fax: +44-207-317-0808
With a copy to the following entity for so long as it is affiliated with
FA-1:
GTS Carrier Services
Terhulpsesteenweg 6A
1560 Hoeilaart
Belgium
Attention: General Counsel
Tel: +322-658-5200
Fax: +322-658-5100
17.2 The Parties acknowledges that all communications in connection with this
Agreement shall be between PSINetworks Company and FLAG Atlantic Limited.
For this purpose, FLAG Atlantic USA Limited hereby appoints FLAG Atlantic
Limited as its agent, and PSINet Telecom Limited
Page 13 of 26
<PAGE>
and PSINetworks SARL each appoints PSINetworks Company as its agent, to
receive and send all communications in connection with this Agreement.
17.3 Any notice, request, demand or other communication given or made pursuant
to this clause shall be deemed to have been received (i) in the case of
hand delivery or courier, on the date of receipt as evidenced by a
receipt of delivery from the recipient, (ii) in the case of mail
delivery, on the date which is seven days after the mailing thereof and
(iii) in the case of transmission by facsimile, on the date of
transmission with confirmed answer back. Each such communication sent by
facsimile shall be promptly confirmed by notice in writing hand-delivered
or sent by courier, mail or air mail as provided herein, but failure to
send such a confirmation shall not affect the validity of such
communication.
18. LIABILITY
18.1 Except to the extent stated in clauses 2.6, 4.4, 4.6 and 4.8 and Schedule
5 , FA-1 shall not be liable to Purchaser for any loss or damage
sustained by reason of any delay in completion, failure or breakdown of
the facilities constituting the System or any interruption of service,
regardless of the cause of such delay in completion, failure or
breakdown, and regardless of how long it shall last.
18.2 Notwithstanding any other provision in this Agreement to the contrary,
neither Party shall be liable to the other Party for any indirect,
special, punitive or consequential damages (including, but not limited
to, any loss of profit or business or claim from any customer for loss of
services) arising out of this Agreement or from any breach of any of the
terms and conditions of this Agreement.
18.3 Any financier of the System, at its election, shall have a right to cure
any breach by FLAG Atlantic Limited (or, if applicable, an affiliate
thereof) under this Agreement, provided however, that such financier
shall not assume any liabilities of FLAG Atlantic Limited under this
Agreement.
18.4 Neither Party shall be liable to the other Party hereunder for
occurrences caused by the failure of the other Party or any of its
affiliates to duly perform its obligations hereunder or under any
agreement relating to any Facility.
18.5 ***
19. COUNTERPARTS
This Agreement may be executed in counterparts. Any single counterpart or
set of counterparts signed, in either case, by all the Parties hereto
shall constitute a full and original agreement for all purposes.
Page 14 of 26
<PAGE>
20. WAIVER OF IMMUNITY
The Parties acknowledge that this Agreement is commercial in nature, and
the Parties expressly and irrevocably waive any claim or right which they
may have to immunity (whether sovereign immunity or otherwise) for
themselves or with respect to any of their assets in connection with an
arbitration, arbitral award or other proceedings to enforce this
Agreement, including, without limitation, immunity from service of
process, immunity of any of their assets from pre- or post-judgement
attachment or execution and immunity from the jurisdiction of any court
or arbitral tribunal.
21. GOVERNING LAW
This Agreement shall be construed in accordance with New York law,
without regard to the law of New York governing conflicts of law.
22. ***
***
Page 15 of 26
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first set forth above.
FLAG ATLANTIC LIMITED
/s/ Samih Kawar
BY ________________________
Name: Smaih Kawar
Title: Director
FLAG ATLANTIC USA LIMITED
/s/ Gerard Caccappolo
BY ________________________
Name: Gerard Caccappolo
Title: Authorised Signatory
PSINETWORKS COMPANY
/s/ Name of Signatory
BY ________________________
Name:
Title:
PSINET TELECOM LIMITED
/s/ Name of Signatory
BY ________________________
Name:
Title:
PSINETWORKS SARL
/s/ Name of Signatory
BY ________________________
Name:
Title:
Page 16 of 26
<PAGE>
INDEFEASIBLE RIGHT OF USE AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of the ______ day of October 1999, is
among FLAG ATLANTIC LIMITED, a company organized under the laws of Bermuda and
having its principal office at The Emporium Building, 69 Front Street, 4th
Floor, Hamilton, Bermuda, FLAG ATLANTIC USA LIMITED, a company organized under
the laws of Delaware, USA and having its principal office at 570 Lexington
Avenue, 38th Floor, New York, NY 10022, USA, (FLAG ATLANTIC LIMITED AND FLAG
ATLANTIC USA LIMITED being hereinafter jointly and severally referred to as
"FA-1") and TELEGLOBE USA INC. ("Purchaser"), a corporation organized under the
laws of Delaware, USA, and having its principal office at 11480 Commerce Park
Drive, Reston, Virginia 20191, USA.
WITNESSETH:
WHEREAS, FA-1 and its Affiliates are constructing and will directly and/or
indirectly own, operate and maintain a fiberoptic cable system as more fully
described in Schedule 1 (the "System"); and
WHEREAS, the System is currently scheduled to be commercially available in
stages with the initial stage, as more particularly described in Schedule 1
("Initial Stage"), currently scheduled to be commercially available on or about
30 March 2001 ("Scheduled Initial RFS Date") and with the final stage, as more
particularly described in Schedule 1 ("Final Stage"), currently scheduled to be
commercially available on or about 30 June 2001 ("Scheduled Final RFS Date");
and
WHEREAS, Purchaser desires to acquire from FA-1, and FA-1 is willing to provide
to Purchaser (i) an indefeasible and exclusive right of use ("IRU") in the
derivable capacity from a fiber pair on the subsea portion of the System as set
out in Part A of Schedule 2 (the "Submarine IRU") and (ii) an IRU (except as
otherwise specifically provided in clause 2.8 of this Agreement) in a dark fiber
pair on the backhaul portion of the System as set out in Part B of Schedule 2
(the "Terrestrial IRU"); and
WHEREAS, FA-1 intends to convey to Purchaser the Submarine IRU and the
Terrestrial IRU in two steps, an initial IRU to be granted after Initial RFS
Date for the Initial Stage of the System (the "Initial IRU") and a second IRU to
be granted after Final RFS Date in the remaining portion of the System (the
"Final IRU") (the Initial IRU and the Final IRU being referred to collectively
as the "System IRU"); and
WHEREAS, FLAG Atlantic Limited and Purchaser are entering into a certain
collocation and maintenance agreement concurrently herewith; and
WHEREAS, FA-1 and Purchaser (the "Parties") desire to define the terms and
conditions under which the System IRU will be acquired by Purchaser.
NOW, THEREFORE, the Parties hereby agree as follows:
<PAGE>
1. DEFINITIONS
1.1 "ACKNOWLEDGEMENT" shall have the meaning set forth in clause 2.4.
1.2 "AFFILIATE" shall mean any other entity that controls, is controlled by
or is under common control with an entity.
1.3 "ALCATEL" shall mean Alcatel Submarine Networks and, where applicable,
certain of its Affiliates.
1.4 "BIS TESTS" shall have the meaning set forth in clause 2.5.
1.5 "DARK FIBER" means individual strands of optical fiber in the System
provided by FA-1 to Purchaser without electronics or optronics and
which is not "lit" or activated.
1.6 "FA-1 FINANCIAL CLOSURE" shall have the meaning set forth in clause
24.3.
1.7 "FINAL CLOSING" shall have the meaning set forth in clause 3.1.3.
1.8 "FINAL CONFIRMATION" shall have the meaning set forth in clause 2.5.2.
1.9 "FINAL RFS DATE" shall have the meaning set forth in clause 2.5.
1.10 "FINANCING AGREEMENT" shall mean the definitive project financing
agreement for the funding of the construction of the System as amended
or supplemented from time to time, obligating the financial
institutions party thereto to make loans for the construction of the
System (subject to satisfaction of conditions precedent).
1.11 "INDEMNITY EVENT" shall have the meaning set forth in clause 14.3.1.
1.12 "INITIAL CLOSING" shall have the meaning set forth in clause 3.1.2.
1.13 "INITIAL CONFIRMATION" shall have the meaning set forth in clause
2.5.2.
1.14 "INITIAL PAYMENT" shall have the meaning set forth in clause 3.1.
1.15 "INITIAL RFS DATE" shall have the meaning set forth in clause 2.5.
1.16 "INTELLECTUAL PROPERTY" shall have the meaning set forth in clause
13.2.
1.17 "PROPOSAL" shall have the meaning set forth in clause 8.4.
1.18 "PURCHASE PRICE" shall have the meaning set forth in clause 3.1.
2
<PAGE>
1.19 "SUPPLY CONTRACT" shall mean that certain agreement dated 20 September
1999 between FLAG Atlantic Limited and certain of its subsidiaries and
Alcatel for the construction of the subsea portions of the System
(including related electronics), as amended from time to time.
1.20 "SYSTEM LIFE" shall mean the period of time between the Initial RFS
Date and the date the System is decommissioned in accordance with
clause 9.
1.21 "TAX REDUCTION" shall have the meaning set forth in clause 4.3.4.
1.22 "TERRESTRIAL FIBER LEASE" shall have the meaning set forth in clause
2.8.
1.23 "WITHHOLDING TAXES" shall mean any taxes, duties or charges to be borne
by Purchaser pursuant to clause 4.3.1.
2. PURCHASE AND GRANT OF SYSTEM IRU
2.1 PURCHASE AND GRANT. FA-1 hereby grants to Purchaser, and Purchaser
hereby accepts such grant, on the occurrence of the Initial Closing and
the Final Closing for the System Life the Initial IRU and the Final
IRU, respectively, subject to the terms and conditions of this
Agreement.
2.2 USE OF SYSTEM IRU. Notwithstanding anything in this Agreement to the
contrary, following the grant Purchaser may resell, assign, transfer or
otherwise use the System IRU for any lawful purpose. Notwithstanding
any resale, assignment or transfer, Purchaser remains liable for its
obligations under this Agreement. FA-1 agrees and acknowledges that
from the date of grant under clause 2.1, it shall have no right to use
the Initial IRU or the Final IRU, as applicable, during the System
Life.
2.3 PROPERTY INTEREST.
2.3.1 ***
2.3.2 ***
2.4 ***
2.5 TESTING.
2.5.1 ***
2.5.2 ***
2.6 ***
2.7 COLLOCATION AND MAINTENANCE AGREEMENT. Purchaser and FLAG Atlantic
Limited are entering into a collocation and maintenance agreement
concurrently herewith.
3
<PAGE>
2.8 TERRESTRIAL FIBER LEASES.
2.8.1 In the event that (i) after using commercially reasonable
efforts, FA-1 does not have the underlying rights to grant an
IRU on portions of the Terrestrial IRU located in France,
England and between France and England, and/or (ii) if any
jurisdiction in which the System is located does not currently
recognize or does not recognize in the future the conveyance
of telecommunications facilities on an IRU basis, and/or (iii)
FA-1 chooses not to obtain an IRU on the portion of the
Terrestrial IRU located in England, then as to such portions
of the System IRU or such jurisdiction(s) only, this Agreement
shall be considered an agreement for a lease of the capacity
on the relevant portions of the Terrestrial IRU ("Terrestrial
Fiber Lease"). The term of the Terrestrial Fiber Lease shall
be from the grant of the Initial IRU for the System Life. All
amounts owed under this Agreement shall be paid as provided in
this Agreement and Purchaser shall not be required to make any
additional payments as a result of the above-described change
in status of the rights granted under this Agreement.
Notwithstanding the foregoing, the Terrestrial Fiber Lease
shall provide Purchaser with all of the same rights and
privileges contained in this Agreement as the rest of the
System IRU except for the nature of its interest.
2.8.2 In the event that this Agreement is to be treated as a
Terrestrial Fiber Lease for any portion of the System IRU,
then as to such portion only, the terms "purchase,"
"Purchaser," and any variations thereon shall mean "lease,"
"Lessee," or the appropriate variation thereof, and the terms
"indefeasible and exclusive right of use" and "IRU" shall mean
"Lease." Any other terms and conditions of this Agreement also
shall be deemed modified only to the extent necessary to be
consistent with the grant of a lease to the Purchaser. All
other terms and conditions of this Agreement shall remain
unchanged and fully valid and enforceable.
2.8.3 Notwithstanding the provisions of clauses 2.8.1 and 2.8.2, it
is the intent of the Parties that the Purchaser be granted an
IRU or the next highest rights with regard to use of the
System IRU. To the extent that (i) FA-1 obtains the ability to
grant an IRU on a portion of the System IRU previously
conveyed as a Terrestrial Fiber Lease pursuant to clause
2.8.1(i) and (ii) any jurisdiction(s) recognizes the
conveyance of telecommunications facilities on an IRU basis at
any time during the term of the Agreement, then, the rights
and interest granted in connection with the relevant portion
of the System IRU shall be an IRU, and the terms of this
Agreement relating to the lease of capacity shall be of no
force or effect as to such portion of the System IRU.
2.9 ***
2.10 ***
3. CONSIDERATION FOR GRANT OF SYSTEM IRU AND CLOSING OF IRU PURCHASES
4
<PAGE>
3.1 PURCHASE PRICE. In consideration of the grants of the Initial IRU and
Final IRU, Purchaser agrees to pay to FA-1 an aggregate purchase price
of *** (the "Purchase Price") as follows:
3.1.1 INITIAL PAYMENT. Purchaser shall pay to FA-1 *** of the
Purchase Price (the "Initial Payment") pursuant to an invoice
delivered by FA-1 after the satisfaction of each of the
following items:
***
***
3.1.2 INITIAL CLOSING. Purchaser shall pay to FA-1 *** of the
Purchase Price (the "Initial Closing") pursuant to an invoice
delivered by FA-1 and receipt by Purchaser from FA-1 of a
certificate dated as of a recent date as to the following:
***
3.1.3 FINAL CLOSING. Purchaser shall pay to FA-1 the remaining ***
of the Purchase Price (the "Final Closing") pursuant to an
invoice delivered by FA-1 and receipt by Purchaser from FA-1
of a certificate dated as of a recent date as to the
following:
***
4. PAYMENTS
4.1 INVOICES. FA-1 shall render to Purchaser invoices for all amounts
payable pursuant to this Agreement. All invoices for the Purchase Price
shall be due and payable within 30 days after delivery to Purchaser.
All other invoices shall be due and payable within 45 days after
delivery to Purchaser.
4.2 DEFAULT INTEREST. Any amount payable pursuant to this Agreement which
is not paid when due shall accrue interest as follows at the annual
rate of *** above the U.S. Dollar LIBOR for one month in each case as
quoted in THE WALL STREET JOURNAL on the first business day of the
month in which the payment is due. All such default interest shall
accrue from the day following the date payment of the relevant amount
was due until it is paid in full and shall accrue both before and after
judgement. Such interest shall be payable on demand.
4.3 WITHHOLDING
4.3.1 All amounts payable by Purchaser pursuant hereto shall be paid
in full in U.S. dollars (or such other currency as FA-1 may
designate) by wire transfer free and clear of all bank or
transfer charges to such account(s) as FA-1 may by notice to
Purchaser designate without reduction for any deduction or
withholding for or on account of any tax, duty or other charge
of whatever nature imposed by any taxing authority. ***
Purchaser shall make the
5
<PAGE>
required deduction or withholding, shall pay the amount so
deducted or withheld to the relevant governmental authority
and shall promptly provide FA-1 with evidence of such payment.
4.3.2 FA-1 and Purchaser will work together in good faith and use
their respective reasonable commercial efforts to minimize or
eliminate Withholding Taxes within the legal and/or
administrative framework of the relevant country's (or
subdivision thereof) tax authorities, including, without
limitation, applying at Purchaser's expense for Withholding
Tax waivers from such relevant tax authorities.
4.3.3 Notwithstanding clause 4.3.2, should Purchaser have to
withhold Withholding Taxes by virtue of the laws of any
country (or subdivision thereof), FA-1 and Purchaser will at
Purchaser's expense work together in good faith and use their
reasonable commercial efforts to claim a refund of such
Withholding Taxes from the relevant tax authority(ies).
4.3.4 ***
4.3.5 ***
4.4 Purchaser's obligation to pay the Purchase Price and other amounts that
have become due and payable pursuant hereto shall not be subject to any
set-off, counterclaim, deduction, defense or other right which
Purchaser may have against FA-1 or any other party, provided that
nothing in this clause shall prevent in any way Purchaser from
otherwise enforcing any of its rights against FA-1.
4.5 Prior to FA-1 Financial Closure Purchaser shall deliver to FA-1 such
security for payment of the Purchase Price as is set forth in Schedule
3.
5. TAXES
5.1 TAXES. Save as the context requires or as otherwise stated herein all
references to payments made in this Agreement are references to such
payments exclusive of all sales and use taxes, gross turnover taxes,
value added taxes, or other similar turnover or sales based taxes,
excise taxes, duties, fees, charges, levies, surcharges to recover the
cost of universal service contributions, or similar liabilities (other
than the general income taxes of FA-1) imposed by any authority,
government or government agency in connection with or as a result of or
in respect of the supply for which the payment is or is deemed to be
consideration (collectively "taxes"). Subject to clause 5.2, where
applicable such taxes shall be added to the invoice and shall be paid
to FA-1 at the same time as the relevant invoice is settled in
accordance with clause 3.
5.2 VAT. Subject to clause 4.3, in the event that value added tax in the UK
or France is considered to be applicable, FA-1 shall notify Purchaser
to this effect prior to the issuance of the relevant VAT invoice and
both Parties shall work together in good faith to restructure the
arrangements to reduce the impact of VAT on Purchaser, where legally
possible, but such that there is no adverse cashflow
6
<PAGE>
impact for FA-1. Notwithstanding these discussions, invoices (excluding
the VAT) shall be issued and be payable in accordance with clauses 3
and 4.1.
5.3 RATES. Purchaser shall be responsible for all rates and similar
property based taxes appropriately assessed and arising directly or
indirectly from Purchaser's interest in the System IRU and exercise of
its rights in connection with the System IRU.
6. DEFAULT AND TERMINATION
6.1.1 In the event that Purchaser shall have failed to pay any
amount payable by Purchaser pursuant hereto for more than ***
days after its due date, then Purchaser shall not be entitled
to activate any additional capacity within the System IRU or
to effect any upgrade pursuant to clause 8 until Purchaser has
paid in full all amounts overdue together with applicable
default interest. If such failure continues for a further ***
days, FA-1 shall be entitled to refrain from performing any
services for Purchaser required by this Agreement or the
collocation and maintenance agreement referred to in clause
2.7, deny Purchaser the right of access to co-located spaces
(except for the purpose of maintaining its existing services
to its customers), and refuse to carry out any additional
break-outs along the route of the Dark Fiber on which
Purchaser has its Terrestrial IRU until Purchaser has paid in
full all undisputed amounts overdue together with applicable
default interest.
6.1.2 FA-1 shall be entitled to terminate this Agreement without
liability to Purchaser if either the Initial Payment or the
payment constituting the Initial Closing is not made within
*** days of its due date. FA-1 shall be entitled to terminate
Purchaser's right to purchase the Final IRU if the payment
constituting the Final Closing is not made within *** days of
its due date.
6.2 Initial RFS Date.
6.2.1 If the Initial Confirmation has not been delivered to
Purchaser within *** months and 10 days after the Scheduled
Initial RFS Date, whether due to a force majeure event or
otherwise, Purchaser shall have the right to immediately
terminate its obligation to purchase the System IRU upon
written notice of termination delivered to FA-1. In the event
Purchaser has not exercised this right of termination, FA-1
may notify Purchaser of the revised expected Initial RFS ***.
Purchaser shall have *** days from receipt of this notice to
notify FA-1 that it wishes to terminate its obligation to
purchase the System IRU or that it accepts the delay to the
revised expected Initial RFS Date (and failure by Purchaser to
provide a timely notice shall be deemed acceptance of the
delay). If the Initial Confirmation is not delivered to
Purchaser within 10 days after the revised expected Initial
RFS Date the above procedure will be repeated until the
earlier of the actual delivery of the Initial Confirmation to
Purchaser and Purchaser's termination of its obligation to
purchase the System IRU.
7
<PAGE>
6.2.2 If Purchaser has exercised its right to terminate its
obligation to purchase the System IRU and the Initial RFS Date
actually occurs prior to the date *** months after the
Scheduled Initial RFS Date, Purchaser shall be entitled within
six months from the date that FA-1 delivers the Initial
Confirmation to notify FA-1 that it wishes to acquire capacity
on the FLAG Atlantic-1 System (of which the System would have
been a part) in the amount of the Initial Payment of the
Purchase Price, the amount of the capacity being determined on
the basis of the then prevailing rate for comparable capacity
on the FLAG Atlantic-1 System at the time of such delivery of
the Initial Confirmation. In such case, this Agreement shall
be amended by the Parties to reflect the different nature of
the capacity being acquired and the different rights and
obligations of the Parties as a consequence thereof.
6.2.3 If the Initial RFS Date has not occurred within *** months
after the Scheduled Initial RFS Date, Purchaser may by 30 days
notice terminate this Agreement ***. Purchaser shall have no
obligation to make any further payments of the Purchase Price
under this Agreement following a termination.
6.3 FINAL RFS DATE. If the Final Confirmation has not been delivered to
Purchaser within the later of *** months and 10 days after the
Scheduled Final RFS Date and *** months and 10 days after the Initial
RFS Date, whether due to a force majeure event or otherwise, Purchaser
shall have the right to immediately terminate its obligation to
purchase the Final IRU without further liability to pay the portion of
the Purchase Price applicable to the Final IRU upon written notice
delivered to FA-1. In the event Purchaser has not exercised this right
of termination of its obligation to purchase the Final IRU, FA-1 may
notify Purchaser of the revised expected Final RFS Date ***. Purchaser
shall have *** days from receipt of this notice to notify FA-1 that it
wishes to terminate its obligation to purchase the Final IRU or that it
accepts the delay to the revised expected Final RFS Date (and failure
by Purchaser to provide a timely notice shall be deemed acceptance of
the delay). If the Final Confirmation is not delivered to Purchaser
within 10 days after the revised expected Final RFS Date the above
procedure will be repeated until the earlier of the actual delivery of
the Final Confirmation and Purchaser's termination of its obligation to
purchase the Final IRU.
6.4 Except as provided herein, Purchaser shall have no right to terminate
or cancel this Agreement or its obligation to purchase the System IRU
for any reason whatsoever.
7. OPERATION
7.1 Purchaser shall conduct all operations and use of the System IRU in a
manner which does not interrupt, impair or interfere with the
operations of the System or the use thereof by FA-1 or any other
purchaser or user of optical fibers or capacity in the System. If,
after notification by FA-1, Purchaser does not take immediate
corrective action to comply with its obligations under this clause 7.1,
FA-1 may take reasonable action required to protect the System,
including but not limited to the interruption of Purchaser's use of the
System IRU and installation of protective equipment. Purchaser shall,
within 15 days of receipt of an invoice, reimburse FA-1 for its total
reasonable direct costs properly incurred *** for any protective
measures reasonably required by FA-1 to be installed on the System
resulting from the use of the System IRU in violation of this clause.
8
<PAGE>
7.2 ***
8. SYSTEM ENHANCEMENTS AND UPGRADES
8.1 FA-1 reserves the right to upgrade the amount of the capacity of the
System and to make any enhancements to the System from time to time.
FA-1 shall use reasonable efforts to minimize the interruption,
interference or impairment of the System caused by the implementation
of any such enhancement or upgrade and shall indemnify Purchaser for
any damage or interruption to the System IRU as a result of FA-1's
failure to use such reasonable efforts.
8.2 FA-1 INITIATED UPGRADES. FA-1 will notify Purchaser of any planned
upgrade of, or enhancement to, the System. Such notice shall set forth
the costs of such upgrade or enhancement, based on its pricing
agreement with or proposal from its suppliers. If Purchaser wishes to
participate in such upgrade or enhancement for the purposes of
upgrading or enhancing the Submarine IRU it shall notify FA-1 within 30
days of receiving notice from FA-1. If Purchaser agrees to participate
in the upgrade or enhancement, the upgrade or enhancement will then be
treated as FA-1 project managing the upgrade or enhancement, pursuant
to clause 8.4. If Purchaser elects not to participate or fails to
timely respond to the notice, FA-1 shall be entitled to proceed with
the upgrade or enhancement without participation by Purchaser.
8.3 PURCHASER INITIATED UPGRADES. Purchaser shall be entitled at its own
cost at any time to upgrade the capacity on the Submarine IRU,
including upgrading the Submarine IRU so that it is equipped with the
ability to carry greater than 400 Gbps of traffic when this becomes
possible, provided that such upgrades are carried out in consultation
with FA-1 and at a time mutually agreed by the Parties (which agreement
will not be unreasonably withheld or delayed). *** FA-1 agrees to use
reasonable efforts to coordinate with the third party supplier.
Purchaser shall indemnify FA-1 for any damage or interruption to the
System as a result of the upgrades.
8.4 FA-1 PROJECT MANAGED UPGRADES. Purchaser may at any time request FA-1
to project manage any upgrade of the Submarine IRU provided that each
upgrade shall be a minimum of 40 Gbps on each segment being upgraded.
Upon FA-1 receiving such request FA-1 will, within 60 days, subject to
receiving from Purchaser the information required, submit to Purchaser
a proposal for the upgrade ("Proposal"). The Proposal will identify
third party costs and a completion timeline for the upgrade. Purchaser
will notify FA-1 within 30 days of receiving the Proposal as to whether
it accepts or rejects the Proposal.***
9
<PAGE>
8.5 TERRESTRIAL IRU UPGRADES. Purchaser shall be entitled at its own cost
at any time to upgrade the Terrestrial IRU (including any portion
covered by a Terrestrial Fiber Lease) provided that such upgrades are
carried out in consultation with FA-1 and at a time, not later than 30
days after the date Purchaser wishes to do the work, mutually agreed by
the Parties (which agreement will not be unreasonably withheld nor
delayed).
9. SYSTEM DECOMMISSIONING
The System shall be decommissioned at such time, no earlier than 15
years and no later than 25 years from the Initial RFS Date, as either
FA-1 or the holders of three quarters of the then activated capacity on
the System determine that the System is technically obsolete or has
reached the end of its useful economic life. There shall be no
compensation payable to Purchaser whether Purchaser voted for or
against decommissioning. FA-1 shall where possible notify Purchaser if
the System or any material portion thereof is to be decommissioned at
least 12 months prior to such decommissioning (or by such later date as
may be possible if 12 months notice is not possible). This provision is
without prejudice to the rights of FA-1 to decommission the System
without any liability to Purchaser whatsoever in the event of a force
majeure event which makes it impossible to maintain the business
efficacy of the System.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS
10.1 Purchaser represents, warrants and covenants to FA-1 as follows:
10.1.1 Purchaser is duly established and in good standing under the
laws of Delaware, USA and has full power and authority to
enter into this Agreement.
10.1.2 This Agreement constitutes the legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in
accordance with its terms.
10.1.3 Purchaser has obtained or will obtain all necessary consents,
licenses, permits and other approvals, both governmental and
private, as may be necessary to permit Purchaser to perform
its obligations under this Agreement and to acquire and use
the System IRU.
10.1.4 Purchaser shall perform its obligations under this Agreement
and use the System IRU in a manner consistent with applicable
law, and shall not use, or knowingly permit the System IRU to
be used, for any illegal purpose or in any other unlawful
manner.
10.2 FLAG Atlantic Limited and FLAG Atlantic USA Limited each represents,
warrants and covenants to Purchaser as follows:
10.2.1 It is duly established and in good standing under the laws of
the country of its incorporation and has full power and
authority to enter into this Agreement.
10
<PAGE>
10.2.2 This Agreement constitutes its legal, valid and binding
obligation enforceable against it in accordance with its
terms.
10.2.3 It is qualified to do business in all jurisdictions where such
qualification is required by applicable law, and where the
failure to be so qualified reasonably could be expected to
have a material adverse effect on FA-1's ability to perform
its obligations under this Agreement.
10.2.4 ***
10.2.5 The execution and performance of this Agreement by FA-1 will
not result in a breach of any agreement FA-1 may have with
third parties or any applicable law, which reasonably could be
expected to have a material adverse effect on its ability to
perform its obligations under this Agreement.
10.2.6 There are no pending or, to its knowledge, threatened claims,
actions, suits, audits, investigations or proceedings by or
against it which reasonably could be expected to have a
material adverse effect on its ability to perform its
obligations under this Agreement.
10.2.7 FA-1 shall perform its obligations under this Agreement and
use the System in a manner consistent with applicable law, and
shall not use, or knowingly permit the System to be used, for
any illegal purpose or in any other unlawful manner in each
case to the extent any failure to so act would have a material
adverse effect on the System IRU.
10.2.8 The Terrestrial IRU will be designed and implemented in
accordance with Schedule 2.
10.2.9 FLAG Atlantic Limited and FLAG Atlantic USA Limited each
undertakes to use reasonable commercial efforts to obtain all
material consents, approvals, licenses, permits, both
governmental and private, as are necessary to permit it to
perform its obligations under this Agreement.
10.2.10 ***
10.3 Except as provided herein, FA-1 disclaims, and Purchaser waives, all
representations and warranties regarding the System IRU, including any
warranty of merchantability or fitness for a particular use, and in
particular, without limiting the foregoing FA-1 does not warrant that
the System IRU will be uninterrupted or error free or that the System
IRU will meet Purchaser's requirements for the equipment to be deployed
by Purchaser in connection with the System IRU or services to be
offered by Purchaser utilizing this equipment.
11. FORCE MAJEURE
No failure or omission by any Party to carry out or observe any of the
terms and conditions of this Agreement (other than any payment
obligation) which is not a result of the negligence or willful
misconduct of that Party shall give rise to any claim against such
Party or be deemed a breach of
11
<PAGE>
this Agreement if such failure or omission arises from an act of God,
or any other circumstance or act of government commonly known as "force
majeure" which event was not within the reasonable control of, or
reasonably preventable by, such Party. In the event of a force majeure
occurrence, the Party claiming the occurrence shall, within 60 days
thereof, notify the other Parties hereto of the existence of the event
and its expected consequences on the System or the performance of its
obligations hereunder.
12. CONFIDENTIALITY
The provisions of this Agreement and any non-public information,
written or oral, with respect to this Agreement ("Confidential
Information") will be kept confidential and shall not be disclosed, in
whole or in part, to any person other than Affiliates, officers,
directors, employees, agents or representatives of a Party
(collectively, "Representatives") who need to know such Confidential
Information for the purpose of negotiating, executing and implementing
this Agreement. Each party agrees to inform each of its Representatives
of the non-public nature of the Confidential Information and to direct
such persons to treat such Confidential Information in accordance with
the terms of this clause 12. Nothing herein shall prevent a party from
disclosing Confidential Information (i) upon the order of any court or
administrative agency, (ii) upon the request or demand of, or pursuant
to any regulation of, any regulatory agency or authority, (iii) to the
extent reasonably required in connection with the exercise of any
remedy hereunder, (iv) to a Party's legal counsel, financial or other
advisors or independent auditors, (v) in the case of FA-1, to existing
or prospective lenders under the Financing Agreement or their
Affiliates, and (vi) to any actual or proposed assignee, transferee or
lessee of all or part of its rights hereunder provided that such actual
or proposed assignee agrees in writing to be bound by the provisions of
this clause 12. Notwithstanding the foregoing, in the event that
Purchaser intends to disclose any Confidential Information pursuant to
clause (i) or (ii) of the preceding sentence, Purchaser agrees to (a)
provide FA-1 with prompt notice before such disclosure in order that
FA-1 may attempt to obtain a protective order or other assurance that
confidential treatment will be accorded such Confidential Information
and (b) cooperate with FA-1 in attempting to obtain such order or
assurance. The foregoing shall not restrict either Party from publicly
announcing that it has entered in this Agreement with the Parties
provided that (x) the initial announcement by either Party containing
the other Party's name shall be subject to such other Party's consent,
and (y) in the case of an announcement by Purchaser, such announcement
shall provide no details as to the System other than the name of the
System except for details (i) that have already been disclosed publicly
by FA-1, (ii) relating to the amount of capacity Purchaser has
activated on the System or (iii) otherwise relating to matters
particular to Purchaser's use of the System IRU. Notwithstanding the
foregoing, no such public announcement shall be permitted to include
any details of this Agreement.
13. NO LICENSE
12
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13.1 Nothing in this Agreement shall or shall be deemed to give rise to any
right of either Party to use any Intellectual Property of the other
Parties except as may be needed to utilize the System IRU or to
maintain the System.
13.2 "Intellectual Property" means any and all patents, trade marks, rights
in designs, copyrights, and topography rights, (whether registered or
not and any applications to register or rights to apply for
registration of any of the foregoing), rights in inventions, know-how,
trade secrets and other confidential information, rights in databases
and all other intellectual property rights of a similar or
corresponding character which may now or in the future subsist in any
part of the world, together with the goodwill relating thereto.
14. INDEMNIFICATION
14.1 ***
14.2 Subject to the provisions of clauses 14.3 and 21, Purchaser hereby
releases and agrees to indemnify, defend, protect and hold harmless
FA-1, its employees, officers, directors, agents, shareholders and
affiliates, from and against, and assumes liability for:
14.2.1 Any injury, loss or damage to any person, tangible property or
facilities of any third person or entity other than FA-1 or an
Affiliate of FA-1 or any officers, employees, affiliates,
agents, contractors, licensees, invitees or vendors of FA-1 or
any such Affiliate (including reasonable attorneys' fees and
costs) to the extent arising out of or resulting from the acts
or omissions, negligent or otherwise, of Purchaser, its
officers, employees, affiliates, agents, contractors,
licensees, invitees or vendors constituting a breach by
Purchaser in the performance of its obligations hereunder or
arising out of or resulting from the breach of any
representation or warranty made by Purchaser under this
Agreement.
14.2.2 Any claims, liabilities or damages arising out of any failure
by Purchaser to comply with any regulation, rule, statute or
court order of any local, state, national or European Union
governmental agency, court or body in connection with its use
of the System IRU hereunder.
14.2.3 Any claims, liabilities or damages arising out of any
interference with or infringement of the rights of any third
party as a result of Purchaser's use of the System IRU not in
accordance with the provisions of this Agreement.
14.3 A Party's obligation to indemnify under this clause 14 is subject to
the indemnified Party:
14.3.1 promptly notifying the indemnifier of an event giving rise to
the indemnification ("Indemnity Event")
14.3.2 giving the indemnifier the sole conduct of the defense to any
claim or action in respect of such Indemnity Event and not at
any time admitting liability or otherwise attempting to settle
13
<PAGE>
or compromise except upon the express instructions of the
indemnifier (provided that the indemnifier shall not admit
liability nor wrong doing by the indemnified party without the
consent of the indemnified party); and
14.3.3 acting in accordance with the reasonable instructions of the
indemnifier and giving to the indemnifier such assistance as
it shall reasonably require in respect of the conduct of the
said defense including without prejudice to the generality of
the foregoing the filing of all pleadings and other court
process and the provision of all relevant documents.
14.4 The Parties hereby expressly recognize and agree that each Party's
obligation to indemnify, defend, protect and save the other harmless is
not a material obligation to the continuing performance of the other
Parties' obligations, if any, hereunder. In the event that a Party
shall fail for any reason to so indemnify, the injured party hereby
expressly recognizes that its sole remedy in such event shall be the
right to bring an action against the other Party for its damages as a
result of the other Party's failure to indemnify, defend, protect and
save harmless. These obligations shall survive the expiration or
termination of this Agreement.
14.5 To the extent not precluded by any other agreement, nothing contained
herein shall operate as a limitation on the right of any Party hereto
to bring an action for damages against any third party *** based on any
acts or omissions of such third party as such acts or omissions may
affect the construction, operation or use of the System IRU or the
System.
14.6 The indemnification provided for in this clause 14 shall survive the
expiration or termination of this Agreement until the expiration of all
statutes of limitation applicable to any claims, liabilities or damages
otherwise subject to this clause 14.
15. ASSIGNMENT
15.1 This Agreement and all the provisions hereof shall be binding upon and
inure to the benefit of the Parties hereto and their respective
successors and permitted assigns; provided that, except for the
assignment of FA-1's rights under this Agreement to one or more
financial institutions and/or export credit agencies as collateral
security for financing provided to FA-1 or in connection with a sale of
receivables by FA-1 and the assignment by such financial institutions
(and their assignees) of the rights and obligations under this
Agreement to any other persons following exercise of any rights or
remedies on such collateral security, neither this Agreement nor any of
the rights, interest or obligations hereunder shall be assigned or
transferred by any of the Parties hereto without the prior written
consent of the other Parties, and any attempted assignment or transfer
in violation of this clause shall be void. Notwithstanding the
foregoing, Purchaser may assign its rights under this Agreement upon
notice to FA-1 but without FA-1's prior consent, to Purchaser's
Affiliates, provided:
15.1.1 the Affiliate agrees to be bound by all terms and conditions
of this Agreement; and
14
<PAGE>
15.1.2 the Affiliate is authorized or permitted under the laws and
regulations of its country to acquire and use the transferred
portion of the System IRU.
15.2 Notwithstanding clause 15.1, FLAG Atlantic Limited and FLAG Atlantic
USA Limited may allocate their rights and obligations under this 0
Agreement between themselves and their affiliates, provided that they
remain jointly and severally liable for each of their obligations
hereunder.
15.3 FLAG Atlantic Limited and FLAG Atlantic USA Limited may use
subcontractors or agents to fulfil their obligations hereunder.
16. ENTIRE AGREEMENT
This Agreement (including the Schedules and Annexes hereto) constitutes
the whole agreement between the Parties and supersedes any previous
agreements, arrangements or understandings between them relating to the
subject matter hereof. Each of the Parties acknowledges that it is not
relying on any statements, warranties or representations given or made
by any of them relating to the subject matter hereof, save as expressly
set out in this Agreement.
17. VARIATION
No variation or amendment to this Agreement shall be effective unless
in writing signed by authorized representatives of each of the Parties.
18. WAIVER
18.1 Failure by a Party at any time to enforce any of the provisions of this
Agreement shall neither be construed as a waiver of any rights or
remedies hereunder nor in any way affect the validity of this Agreement
or any part of it and no waiver of a breach of this Agreement shall
constitute a waiver of any subsequent breach.
18.2 Termination of this Agreement shall not operate as a waiver of any
breach by a Party of any of the provisions hereof and shall be without
prejudice to any rights or remedies of a Party which may arise as a
consequence of such breach or which may have accrued hereunder up to
the date of such termination.
18.3 No waiver of a breach of this Agreement shall be effective unless given
in writing.
19. INVALIDITY
If any provision of this Agreement is or becomes (whether pursuant to
any judgment or otherwise) invalid, illegal or unenforceable in any
respect under the law of any applicable jurisdiction:
(a) the validity, legality and enforceability under the
law of that jurisdiction of any other provision; and
15
<PAGE>
(b) the validity, legality and enforceability under the
law of any other jurisdiction of that or any other
provision,
shall not be affected or impaired in any way thereby.
20. NOTICE
20.1 Any notice, request, demand or other communication required or
permitted hereunder shall be sufficiently given if in writing in
English and delivered by hand or sent by prepaid registered or
certified mail (airmail if international), by facsimile or by prepaid
international courier service of international reputation addressed to
the appropriate Party at the following address or to such address as
such Party may from time to time designate:
If to Purchaser:
Teleglobe USA Inc.
11480 Commerce Park Drive
Reston, Virginia 20191
Attention: General Counsel
Tel: (703) 755-2000
Fax: (703) 755-2694
If to FA-1:
FLAG Atlantic Limited
The Emporium Building
69 Front Street
4th Floor
Hamilton HM 12
Bermuda
Attention: Co-chairmen
Tel: +1-441-296-0909
Fax: +1-441-296-0938
With a copy to:
FLAG Telecom Limited
103 Mount Street - 3rd Floor
16
<PAGE>
London W1Y 5HE
U.K.
Attention: General Counsel
Tel: +44-171-317-0800
Fax: +44-171-317-0808
With a copy to:
GTS Carrier Services
Terhulpsesteenweg 6A
1560 Hoeilaart
Belgium
Attention: Legal Director
Tel: +322-658-5200
Fax: +322-658-5100
20.2 Purchaser acknowledges that all communications in connection with this
Agreement shall be between Purchaser and FLAG Atlantic Limited. For
this purpose, FLAG Atlantic USA Limited hereby appoints FLAG Atlantic
Limited as its agent to receive and send all communications in
connection with this Agreement.
20.3 Any notice, request, demand or other communication given or made
pursuant to this clause shall be deemed to have been received (i) in
the case of hand delivery or courier, on the date of receipt as
evidenced by a receipt of delivery from the recipient, (ii) in the case
of mail delivery, on the date which is seven days after the mailing
thereof and (iii) in the case of transmission by facsimile, on the date
of transmission with confirmed answer back. Each such communication
sent by facsimile shall be promptly confirmed by notice in writing
hand-delivered or sent by courier, mail or air mail as provided herein,
but failure to send such a confirmation shall not affect the validity
of such communication.
21. LIABILITY
21.1 Except as otherwise specifically set forth in this Agreement, FA-1
shall not be liable to Purchaser for any loss or damage sustained by
reason of any delay in completion, failure or breakdown of the
facilities constituting the System or any interruption of service,
regardless of the cause of such delay in completion, failure or
breakdown, and regardless of how long it shall last.
21.2 If the Initial Confirmation has not been delivered to Purchaser within
*** after the Scheduled Initial RFS Date Purchaser shall be entitled to
terminate its obligation to purchase the System IRU pursuant to clause
6.2 ***. Clause 6.2 and the foregoing shall be the limit of Purchaser's
right for delays to the Initial RFS Date.
21.3 ***
17
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21.4 Subject to clause 21.5, FA-1 shall have the right to relocate any
portion of the System, including any of the facilities used or required
in providing the System IRU, and shall have the right to proceed with
such relocation, including, but not limited to, the right to determine
the extent of, the timing of, and methods to be used for such
relocation and Purchaser shall reimburse FA-1 for its proportionate
share of the cost of such relocation; ***.
21.5 If FA-1 is required to relocate any portion of the System, including
any of the facilities used or required in providing the System IRU,
because it has not secured the right to use that portion of the System
for the System Life, FA-1 shall have the right to proceed with such
relocation, including, but not limited to, the right to determine the
extent of, the timing of, and methods to be used for such relocation;
***.
21.6 Notwithstanding any other provision in this Agreement to the contrary,
no Party shall be liable to any other Party for any indirect, special,
punitive or consequential damages (including, but not limited to, any
loss of profit or business or claim from any customer for loss of
services) arising out of this Agreement or from any breach of any of
the terms and conditions of this Agreement.
21.7 Any financier of the System, at its election, shall have a right to
cure any breach by FLAG Atlantic Limited (or, if applicable, an
affiliate thereof) under this Agreement, provided however, that such
financier shall not assume any liabilities of FLAG Atlantic Limited
under this Agreement.
22. COUNTERPARTS
This Agreement may be executed in counterparts. Any single counterpart
or set of counterparts signed, in either case, by all the Parties
hereto shall constitute a full and original agreement for all purposes.
23. WAIVER OF IMMUNITY
The Parties acknowledge that this Agreement is commercial in nature,
and the Parties expressly and irrevocably waive any claim or right
which they may have to immunity (whether sovereign immunity or
otherwise) for themselves or with respect to any of their assets in
connection with an arbitration, arbitral award or other proceedings to
enforce this Agreement, including, without limitation, immunity from
service of process, immunity of any of their assets from pre- or
post-judgment attachment or execution and immunity from the
jurisdiction of any court or arbitral tribunal.
24. FA-1 FINANCIAL CLOSURE
24.1 The obligation of the Purchaser to pay the Purchase Price (or any
installment thereof) and the obligation of FA-1 to provide the System
IRU are conditional upon the occurrence of FA-1 Financial Closure.
18
<PAGE>
24.2 If FA-1 Financial Closure has not occurred by 31 October 1999, then
this Agreement shall terminate (with the exception of clauses 12, 14,
21, 23 and 25 which shall survive termination).
24.3 For the purposes of this Agreement, "FA-1 Financial Closure" shall be
deemed to take place on the date when at least 66% of the costs of the
construction of the System are covered by secured commitments of
equity, and by commitments of debt under the executed Financing
Agreement.
25. GOVERNING LAW AND DISPUTE RESOLUTION
25.1 This Agreement shall be construed in accordance with New York law,
without regard to the law of New York governing conflicts of law.
25.2 Except as otherwise provided herein, any dispute or controversy arising
under or in connection with this Agreement shall be finally settled
under the Rules of Arbitration of the International Chamber of Commerce
by one arbitrator appointed in accordance with such Rules. Any such
dispute or controversy to be settled under this clause shall be between
Purchaser and FA-1 and Purchaser shall not have to identify whether the
dispute or controversy is with FLAG Atlantic Limited or FLAG Atlantic
USA Limited. The place of arbitration shall be New York. The
arbitration shall be conducted in English. The decision and award
resulting from such arbitration shall be final and binding on the
Parties. Judgment upon the arbitration award may be rendered by any
court of competent jurisdiction, or application may be made to such
court for a judicial acceptance of the award and an order of
enforcement. Insofar as permissible under the applicable laws, the
Parties hereby waive all rights to object to any action for judgment or
execution which may be brought before a court of competent jurisdiction
on an arbitration award or on a judgment rendered thereon.
19
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first set forth above.
FLAG ATLANTIC LIMITED
BY /s/ Name of Signatory
--------------------------
Name:
Title:
FLAG ATLANTIC USA LIMITED
BY /s/ Name of Signatory
--------------------------
Name:
Title:
TELEGLOBE USA INC.
BY /s/ Name of Signatory
--------------------------
Name:
Title:
<PAGE>
Exhibit 10.22
THE SOUTH EAST ASIA
AND
INDIAN OCEAN
CABLE MAINTENANCE AGREEMENT
<PAGE>
INDEX
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C> <C>
1. DEFINITIONS...........................................................6
2. PREVIOUS AGREEMENTS..................................................10
3. OBJECT...............................................................10
4. MANAGEMENT COMMITTEE.................................................10
5. PROVISION OF CABLESHIPS AND DEPOT(S).................................10
6. USE OF CABLESHIPS....................................................12
7. OPERATION OF THE CABLESHIPS..........................................14
8. USE AND OPERATION OF THE DEPOT(S)....................................16
9. USE OF SPARE SUBMERSIBLE PLANT.......................................17
10. TRANSFER OF SPARE SUBMERSIBLE PLANT..................................18
11. NOTIFICATION OF CABLESHIP REQUIREMENT................................18
12. PLANNING AND DIRECTION...............................................20
13. CABLESHIP BASE PORT..................................................20
14. CLEARANCES...........................................................21
15. PERIODS OF CABLESHIP UNAVAILABILITY..................................21
16. MUTUAL SUPPORT COVENANT..............................................22
17. PERIOD OF AGREEMENT..................................................24
18. INCLUSION AND DELETION OF ADDITIONAL PARTIES AND SCHEDULED
CABLES...............................................................24
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
19. BASIS OF CABLESHIP'S COST ALLOCATION.................................25
20. BASIS OF DEPOT COST ALLOCATION.......................................28
21. BILLING, ACCOUNTING AND SETTLEMENT ARRANGEMENTS......................29
22. RECORDS..............................................................32
23. LIABILITY AND INDEMNITY..............................................32
24. INSURANCE............................................................33
25. FORCE MAJEURE........................................................33
26. PREROGATIVES OF THE COMMANDER........................................35
27. DISTRESS AND SALVAGE.................................................36
28. LEGAL INTERPRETATION.................................................36
29. ARBITRATION..........................................................36
30. RELATIONSHIP OF THE PARTIES..........................................37
31. STATUS OF CABLESHIPS AND ASSOCIATED FACILITIES.......................37
32. AMENDMENTS...........................................................37
33. ASSIGNMENT...........................................................37
34. EXECUTION AND COUNTERPARTS...........................................37
35. ENTIRE AGREEMENT.....................................................38
36. HEADINGS.............................................................38
37. REPRESENTATIVES AND CORRESPONDENCE...................................38
38. NOTICES..............................................................38
39. PUBLICITY............................................................38
40. CONFIDENTIAL INFORMATION.............................................38
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
41. PERFORMANCE OF AGREEMENT.............................................39
42. INSOLVENCY...........................................................39
43. TRANSFER OF RESPONSIBILITIES.........................................40
SCHEDULES
Al. LIST OF PARTIES TO THIS AGREEMENT - MAINTENANCE AUTHORITIES
A2. LIST OF PARTIES TO THIS AGREEMENT - FACILITY PROVIDERS
Bl. LIST OF SCHEDULED CABLES
B2. CENTRAL BILLING PARTIES
C. CABLESHIP OPERATIONAL ALLOCATION DEFINING EACH CABLESHIP'S,
NORMAL OPERATIONAL ZONE
Dl. CABLESHIP RUNNING COSTS
D2. CABLESHIP FIXED STANDING CHARGE ALLOCATION
El. DEPOT COST DERIVATION
E2. DEPOT -- CABLE STORAGE DATA
E3. DEPOT COST ALLOCATION TO EACH SCHEDULED CABLE
E4. DEPOT COST ALLOCATION TO MAINTENANCE AUTHORITIES
F. PROFORMA DOCUMENT OF ACCESSION
G. BASIC CABLESHIP TECHNICAL CRITERIA
H. MANAGEMENT COMMITTEE -- TERMS OF REFERENCE
I. PREVIOUS CABLESHIP AND DEPOT AGREEMENTS
J. DEPOT TECHNICAL CRITERIA
</TABLE>
<PAGE>
<TABLE>
<S> <C>
K. ALLOCATION OF COSTS OF ADDITIONAL SERVICES
L. REPRESENTATIVES OF THE PARTIES AND MAILING ADDRESSES AND
CONTACTS FOR FINANCIAL AND MAINTENANCE PURPOSES
</TABLE>
<PAGE>
This AGREEMENT entitled THE SOUTH EAST ASIA AND INDIAN OCEAN CABLE MAINTENANCE
AGREEMENT made between and among the Parties listed in Schedules Al and A2
hereto.
WHEREAS:
(a) The Maintenance Authorities under various Construction and Maintenance
Agreements are responsible for the maintenance and repair of the
submersible plant of certain submarine telecommunications cable systems
in the South East Asia and Indian Ocean areas.
(b) The Maintenance Authorities wish to have made available cableships and
storage depots for the repair and maintenance and storage of such
submarine telecommunication cable systems.
(c) ASEAN Cableship Private Limited a limited company having its registered
office at 375 Tanjong Katong Road, Singapore 1543, Republic of
Singapore and Cable and Wireless (Marine) Ltd. a limited company having
its registered office at Mercury House, Theobalds Road, London WCI, in
their separate capacities as Cableship Operators propose to make
available two Cableships namely the C.S. Retriever and the C.S. Cable
Enterprise respectively to the Maintenance Authorities for the repair
and maintenance of such submarine telecommunications cables as are
listed in Schedule B1 of this Agreement.
(d) Sembawang Cable Depot Private Limited owns and operates a cable depot
located at Sembawang Singapore and proposes to make available the Cable
Depot to the Maintenance Authorities for the storage of spare
submersible plant for the repair and maintenance of such submarine
telecommunications cable systems as are listed in Schedule B1 of this
Agreement.
NOW THEREFORE the Parties hereto covenant and agree with each other as follows:
1. DEFINITIONS
In this Agreement the following terms shall have the meaning hereby
assigned to them:
(a) "Cableship Operator" means either ASEAN Cableship
Private Ltd. or Cable and
Wireless (Marine) Ltd. or both
where the context so requires.
(b) "Cableship" means any Cableship provided by
a Cableship Operator under this
Agreement
<PAGE>
which is a vessel fully capable
of and equipped as shown in
Schedule G for the repair and
maintenance of the Scheduled
Cables, as shown in Schedule
Bl, at the inception of this
Agreement.
(c) "Chargeable Sheath Mileage" means the sheath mileage of a
Scheduled Cable adjusted in
accordance with Schedule D2
which unless otherwise agreed
by the Management Committee is
the method by which the
Quarterly Net Chargeable Cost
to the Maintenance Authorities
is allocated.
(d) "Combined Manning" means that each Cableship shall
be on standby with a reduced
level of officers and crew and
that the Cableship Operators
shall have agreed arrangements
between themselves to bring the
level of one or both Cableships
up to a Fully Manned basis as
required.
(e) "Depot" means the landbased storage
facilities for Spare
Submersible Plant.
(f) "Depot Owner" means Sembawang Cable Depot
Private Limited who currently
own and operates a depot at
Sembawang, Singapore and any
other Depot Owner who may
become Party to this Agreement
in accordance with Clause 5(f)
herein.
(g) "Facility oviders" means any or all of the
Cableship Operator(s) and Depot
Owner(s) where the context so
requires, as listed in Schedule
A2.
(h) "Financial Year" means consecutive twelve-month
periods ending on the 31st of
March of each year.
(i) "Fixed Standing Charges" means the annual amount
indicated in, or determined in
accordance with Clause 19(a),
19(b) and 19(c).
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<PAGE>
(j) "Full Manning" means that each Cableship has a
full complement of officers and
crew at all times.
(k) "Fully Manned" means that one or both of the
two Cableships shall be brought
up to a full complement of
officers and crew from a
Combined Manning level while on
standby, or to undertake a
repair and maintenance
operation, or on charter.
(l) "LIBOR" means the London Interbank
Offered Rate being the
arithmetic mean, rounded to the
nearest one-sixteenth, of the
offered rates for ten million
(10,000,000) United States
Dollars quoted by the market of
five (5) reference banks at
11:00 am each working day. The
banks are National Westminster,
Bank of Tokyo, Deutsche Bank,
Banque Nationale de Paris and
Morgan Guaranty Trust.
(m) "Maintenance Authority" means any Party or group of
Parties, as listed in Schedule
Al, primarily responsible for,
or which acts as agent on
behalf of other parties for,
the repair and maintenance of a
Scheduled Cable.
(n) "Management Committee" means the committee formed by
the Maintenance Authorities
pursuant to Clause 4.
(o) "Normal Operational Zone" means the area within the
Operational Zone containing the
Scheduled Cables for which a
particular Cableship is
primarily responsible, and
hence normally the first
choice, to effect repair and
maintenance to such Scheduled
Cables, as shown in Schedule C.
(p) "Operational Zone" means the larger of the ocean
areas bounded either by the
Scheduled Cables or by the
Great Circle Lines connecting
Djibouti in
8
<PAGE>
the West, Perth in the South,
Guam in the East, and Toucheng
in the North.
(q) "Party" means a party to this Agreement
as listed in Schedules Al and
A2.
(r) "PIOCMA" means the agreement entitled
"Mutual Assistance Agreement
for Pacific and Indian Ocean
Cable Maintenance" between the
parties contained therein for
mutual assistance arrangements
between the maintenance zones
of the Pacific Ocean and Indian
Ocean regions.
(s) "PIOCMA Cables" means cables under the PIOCMA
for which the Maintenance
Authorities have agreed that
the Cableship Operators may
repair and maintain in addition
to the Scheduled Cables.
(t) "Quarterly Net Chargeable means the quarterly amount
Cost" determined in accordance with
Clause 19(d).
(u) "Running Costs" means variable costs for a
Cableship over and above the
Fixed Standing Charge which are
incurred in respect of repairs,
maintenance, and other such
operational circumstances as
stipulated in this Agreement.
(v) "Scheduled Cable" means any submarine
telecommunications cable system
or part thereof to be repaired
and maintained under this
Agreement and which is listed
in Schedule Bl.
(w) "Spare Submersible Plant" means the spare submarine
cable, repeaters and equalisers
and other associated spare
submersible parts of a
Scheduled Cable.
(x) "Submersible Plant" means that part of a Scheduled
Cable that is between and
includes the respective beach
joints of the terminal
countries.
9
<PAGE>
(y) "United Kingdom RPI" means the United Kingdom Retail
Price Index which is a monthly
statistic officially published
by the United Kingdom
Government, which indicates on
a weighted average price index
basis the current overall rate
of United Kingdom inflation.
Under this Agreement and where the context so requires the singular shall be
taken to mean the plural and vice versa.
2. PREVIOUS AGREEMENTS
Prior to the effective Date of this Agreement pursuant to Clause 17
herein certain Parties hereto had rights and obligations under various
existing cableship and depot agreements which are listed in Schedule I
herein (called "Previous Agreements" for the purposes of this Clause).
It is a condition precedent to the commencement of this Agreement that
all Parties having rights and obligations under Previous Agreements
shall relinquish the same and that this Agreement shall supersede the
Previous Agreements Provided Always that such termination of the
Previous Agreements shall not in any way prejudice any rights and
remedies which may have accrued to any Party prior to the date of
termination of such Previous Agreements.
3. OBJECT
The Maintenance Authorities hereby appoint, from the date specified in
Clause 17 herein, each Cableship Operator to provide repair and
maintenance facilities for the Submersible Plant by means of the
Cableships, and the Depot Owner to provide storage facilities for the
Spare Submersible Plant by means of the Depot, as defined in the
appropriate Schedules for each facility.
4. MANAGEMENT COMMITTEE
The Maintenance Authorities shall form a Management Committee
comprising one representative from each Maintenance Authority, and such
Management Committee shall be governed by the terms of reference
contained in Schedule H. The Facility Providers shall attend meetings
of the Management Committee as reasonably required to do so by any
Maintenance Authority.
10
<PAGE>
5. PROVISION OF CABLESHIPS AND DEPOT(S)
(a) On and from the date specified in Clause 17 herein, the repair
and maintenance of the Scheduled Cables shall be carried out
by two Cableships, such Cableships being as specified in
Schedule G hereto, namely:
(i) The C.S. Retriever based in Singapore; and
(ii) The C.S. Cable Enterprise based in Manila.
(b) Spare Submersible Plant for the Scheduled Cables shall, from
the effective date of this Agreement, be stored at a Depot
provided under this Agreement located at Sembawang Singapore,
other than that which may be on board the Cableships.
Throughout the term of this Agreement Spare Submersible Plant
may be stored at another Depot under this Agreement as the
Parties may from time to time agree. Notwithstanding the
foregoing some Spare Submersible Plant may be stored at
alternative depots or locations not under this Agreement such
as the Guam Depot.
(c) Each Cableship Operator at the outset of this Agreement
individually warrants, and will exercise due diligence
throughout the term of this Agreement to ensure that the
Cableship it provides under this Agreement is tight, staunch
and strong and fit for telecommunications cable work and each
Cableship Operator shall exercise due diligence to maintain
its Cableship to ensure that it is equipped with the necessary
gear to a standard to enable the Cableship Operator to fulfil
its obligations under this Agreement. Each Cableship Operator
shall ensure that when at sea its Cableship is furnished with
a complete complement of suitably qualified and competent
officers and seamen for the proper functioning of the
Cableship so as to fulfil the Cableship Operator's obligations
under this Agreement.
(d) The Cableship Operators shall carry out repairs and
maintenance work expeditiously and in accordance with
internationally accepted standards. However, if, in the
opinion of the Cableship Operator, a repair requires the use
of equipment in addition to the Cableship's normal cable
repairing gear, such additional equipment including but not
limited to diving services, support vessels and/or a Remotely
Controlled Submersible Vehicle (RCSV), then the Cableship
Operator shall use reasonable endeavours to provide, with the
consent of the Maintenance Authority responsible for a
particular operation, such additional services and equipment
as it deems necessary to enable it to carry out any such
repair in an expeditious manner. The cost of such additional
facilities shall be regarded as Running Costs and charged as
follows:
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<PAGE>
(i) the cost of additional facilities provided directly
in respect of a particular repair or maintenance
operation shall be charged directly to that operation
in accordance with Clause 19(g); and
(ii) any costs incurred in making such additional
facilities generally available, including but not
limited to annual retainers in respect of diving
services and other equipment hire or depreciation
charges, shall be allocated among all appropriate
Scheduled Cables in accordance with Clause 19(1).
(e) Each Cableship Operator shall ensure that its Cableship shall
meet the technical criteria agreed between and amongst the
Parties and attached hereto as Schedule G. Should any of the
Maintenance Authorities require any improvements,
modifications or additions to be carried out to the Cableships
(including modification to the Cableships to deploy an RCSV)
which are beyond the agreed technical criteria defined in
Schedule G then such modifications or improvements shall be to
the cost of those Maintenance Authorities and will be
reflected in an increase to the Fixed Standing Charge. The
nature and cost of such improvements and modifications and
associated increase to the Fixed Standing Charge shall be
subject to the prior agreement of the Management Committee and
the Cableship Operator before such improvements and
modifications are carried out.
(f) For the duration of this Agreement additional facilities (in
terms of cableships, depots and any other facilities) may be
added to this Agreement by agreement amongst the Parties to
this Agreement.
6. USE OF CABLESHIPS
(a) The Cableships shall be used primarily for the repair and
maintenance of all the Scheduled Cables listed in Schedule Bl.
(b) The Scheduled Cables applicable to each Cableship's Normal
Operational Zone are listed in Schedule C.
(c) It is recognised by the Parties hereto, being parties to the
PIOCMA agreement, that the Cableship Operators may be
requested from time to time to provide assistance to cable
systems outside the Operational Zone. Therefore the Parties
hereto agree that the Cableship Operators shall be at liberty
to respond to requests for such assistance with the prior
agreement of the chairman of the Management Committee.
(d) The Cableship Operators shall actively seek to undertake other
work on a charter basis within the Operational Zone, provided
that within the applicable charter
12
<PAGE>
agreement there is a provision for the Cableship to be
withdrawn, normally within 24 hours, so as to undertake a
repair of a Scheduled Cable, if so required by the Maintenance
Authority responsible and except as provided for in Clauses
6(e) and 6(f). The Cableship Operators shall advise the
Management Committee promptly by telex of the duration and
general location of such interruptable charter work.
(e) The Cableship Operators may undertake other charter work, on a
non-interruptable basis, for a period of up to three weeks
within the Operational Zone provided that one Cableship will
be available to fulfil the obligations of the Cableship
Operators under this Agreement. The Cableship Operators shall
advise the Management Committee promptly by telex of the
nature and duration of such non-interruptable work.
(f) If non-interruptable charter work within the Operational Zone
pursuant to Clause 6(e) is in excess of three weeks the
Cableship Operators shall seek the prior agreement of the
Management Committee. The decision of the Management Committee
shall be given by the chairman of the Management Committee to
the Cableship Operators within 36 hours upon receipt of such
application by the Cableship Operators to the chairman of the
Management Committee.
(g) During the term of this Agreement either or both of the
Cableships may only be removed from the Operational Zone for
Charter or PIOCMA work, with the prior agreement of the
Management Committee, or due to Force Majeure as defined in
Clause 25.
(h) All charter work undertaken by the Cableships shall be subject
to the Cableship Operator's charter terms and conditions
relevant to that Cableship, as may be amended by the Cableship
Operator from time to time, which amendments shall be agreed
by the Management Committee.
(i) The charter fees applicable to any charter under Clause 6(d),
6(e) and 6(f) and which, subject to Clause 6(j), the Cableship
Operator shall be deemed to have received from the respective
charterer shall comprise the following:
(i) the Fixed Standing Charge calculated on a daily basis
in accordance with Clause 19(e)(i) which shall apply
for the total period from the start of any unloading
of Spare Submersible Plant necessary to allow the
charter to proceed until the return of the Cableship
to its base port.
(ii) an additional charge which shall be determined by the
current market rate and agreed between the Cableship
Operators and the chairman of the Management
Committee and shall be allocated in accordance with
Clause 19(d)(v).
13
<PAGE>
(iii) a fixed charge which should be made up from the
Running Costs incurred if Clause 7(g) is activated
and the Transfer Costs incurred under Clause 20 (f),
and which shall be allocated in accordance with
Clause 19 (d)(viii).
(j) A Cableship Operator may undertake charter work as described
in this Clause at lower charter fees than that defined in
Clause 6(i)(i) with the prior agreement of the Management
Committee.
7. OPERATION OF THE CABLESHIPS
(a) The Cableship Operators hereto jointly agree that the CS
Retriever and the CS Cable Enterprise may be operated on
either a Combined Manning basis or on a Full Manning basis
while on standby for repair and maintenance work as required
by the Management Committee.
(b) At the inception of this Agreement the Cableship Operators
shall operate the CS Retriever and CS Cable Enterprise on a
Combined Manning basis while the Cableships are on standby for
repair and maintenance work.
(c) At any time during the period of this Agreement the Management
Committee may request the Cableship Operators to change-over
from the Combined Manning arrangement to the Full Manning
arrangement or from the Full Manning arrangement to the
Combined Manning arrangement and the Cableship Operators shall
comply accordingly subject to:
(i) the Management Committee giving a minimum notice of 6
months for such change-over from Combined Manning to
Full Manning; and
(ii) the Management Committee giving a minimum notice of
12 months for such change-over from Full Manning to
Combined Manning; and
(iii) a minimum duration of a manning arrangement of 2
years; and
(iv) any Running Costs or other payments incurred in the
change-over to be to the cost of the Maintenance
Authorities and charged in accordance with Clause
19(h).
(d) Under the Full Manning arrangement each Cableship Operator
shall ensure that its Cableship is operated in such a manner
so as to be able to put to sea without undue delay and
normally within 24 hours of receipt of notification from the
14
<PAGE>
appropriate Maintenance Authority that the Cableship's
services are required in accordance with Clause 11 and except
as provided for in Clause 15 and Clause 25 hereto.
(e) Under the Combined Manning arrangement the Cableship Operators
shall subject to Clause 7(f) ensure that the Cableships are
operated in such a manner as for the first called of the
Cableships to be able to put to sea without undue delay and
normally within 24 hours of receipt of notification from the
appropriate Maintenance Authority that the Cableship's
services are required in accordance with Clause 11 except as
provided for in Clause 15 and Clause 25 hereto.
(f) Under the Combined Manning arrangement when one Cableship is
already operationally engaged the Cableship Operator
responsible for the Cableship remaining on standby shall
ensure that it is operated in such a manner so as normally to
be able to put to sea within 2 to 3 days of receipt of
notification from the Maintenance Authority that the
Cableship's services are required in accordance with Clause 11
and except as provided for in Clause 15 and Clause 25. Any
Running Costs incurred in bringing the Cableships from a
standby basis to a Fully Manned basis shall be allocated to
the Scheduled Cables on the basis defined in Clause 19(h).
(g) When under the Combined Manning arrangement one Cableship is
operationally engaged, or is unavailable in accordance with
Clause 15 and Clause 25, the Management Committee may require
the Cableship Operator responsible for the Cableship on
standby to temporarily bring that Cableship up to a Fully
Manned level on the operational basis described in Clause 7(d)
within 2 to 3 days of the receipt by the Cableship Operator of
notice of such temporary requirement. The Running Costs
associated with such a temporary Fully Manned level shall be
charged to the Scheduled Cables on the basis defined in Clause
19(h). In the case of a charter or work under the PIOCMA the
Running Costs shall be recovered in accordance with Clause
6(i)(iii).
(h) The Cableship Operators may as considered necessary in
consultation with the relevant Maintenance Authority and as
circumstances so permit utilise additional officers and crew
to supplement the Fully Manned Cableship in the circumstances
of any anticipated long or difficult repair and maintenance
operations. The costs associated with such supplementing of
the Fully Manned Cableships shall be incurred as a Running
Cost and allocated to the Scheduled Cable being repaired or
maintained on the basis defined in Clause 19(g).
15
<PAGE>
8. USE AND OPERATION OF THE DEPOT(S)
(a) The Depot(s) shall be used primarily for the storage of Spare
Submersible Plant other than that which may be on board the
Cableships.
(b) Each Depot Owner at the outset of this Agreement individually
warrants, and will exercise due diligence throughout the term
of this Agreement to ensure that its Depot is fit for the
storage of Spare Submersible Plant and shall exercise due
diligence to maintain its Depot to ensure that it is equipped
with the necessary gear and staffed with suitable personnel to
enable the Depot Owner to fulfill its obligations under this
Agreement.
(c) Each Depot Owner shall at all times keep secure the Spare
Submersible Plant and ensure that its Depot is maintained so
as to preserve the Spare Submersible Plant, normal wear and
tear and obsolescence excepted, in the highest state of
operational readiness for use in the repair and maintenance of
the Submersible Plant. Each Depot Owner shall ensure adequate
provision and maintenance of all necessary equipment to enable
expeditious transfer of the Spare Submersible Plant to and
from a Cableship subject to the conditions of Clause 10 and
except as provided for in Clause 25.
(d) Each Depot Owner shall ensure that its Depot meets the
relevant technical criteria agreed between and amongst the
Parties and attached hereto as Schedule J.
Should the Maintenance Authorities require any improvements,
modifications or additions to be carried out to the Depot
which are beyond the technical criteria defined in Schedule J
then such modifications, improvements, or additions shall be
to the cost of the Maintenance Authorities and reflected in
the Depot Capital Charge as defined in Schedule El. The nature
and cost of such improvements, modifications or additions and
the associated increase to the Depot's costs shall be subject
to the prior agreement of the Management Committee and the
Depot Owner before such improvements, modifications or
additions are carried out.
(e) in the event of circumstances beyond the Depot Owner's control
forcing the closure of a Depot the Depot Owner concerned
shall, if so required by the Management Committee, use
reasonable endeavours to provide alternative storage
facilities for the Spare Submersible Plant stored at its Depot
subject at the time to the Parties reaching agreement as to
the necessary financial arrangements, such agreement not to be
unreasonably withheld.
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<PAGE>
9. USE OF SPARE SUBMERSIBLE PLANT
In order that repairs to the Scheduled Cables are carried out with the
minimum of delay, any of the Spare Submersible Plant stored either on
board a Cableship or in a Depot or both may be used with prior mutual
agreement between the Maintenance Authority responsible for the said
Spare Submersible Plant and the Maintenance Authority responsible for
carrying out the repair work Provided Always That such Submersible
Plant is considered by the Maintenance Authorities concerned to be
technically compatible with the Scheduled Cable to be repaired. Upon
completion of the repair the Cableship Operator shall promptly inform
the Maintenance Authority concerned of the type and quantity of Spare
Submersible Plant used and the Maintenance Authorities involved shall
thereupon determine amongst themselves the consequential financial
adjustments or replacement arrangements.
10. TRANSFER OF SPARE SUBMERSIBLE PLANT
(a) A Maintenance Authority shall be entitled to require that its
Spare Submersible Plant be transferred to or from a vessel or
depot not provided under this Agreement, provided that the
said Maintenance Authority shall undertake to be absolutely
responsible and liable unless otherwise agreed in advance with
either the Depot Owner or Cableship Operator, or both, for the
following:
(i) the berthing of any vessel so provided by the
Maintenance Authority together with any port dues,
pilotage, or any other levies and costs incurred by
such transfer operation, and
(ii) the arrangement and payment of any labour, equipment,
insurance costs, and any other handling charges to
effect such transfer.
(b) In the event of a transfer of any Spare Submersible Plant to
or from a vessel or depot not provided under this Agreement,
the Cableship Operator or the Depot Owner shall make available
to the Maintenance Authority concerned or its duly authorised
servants and/or agents any equipment and manpower to operate
such equipment on board the Cableship or within the Depot, as
appropriate for effecting such transfer between the Cableship
or Depot and the said vessel or depot, providing such
equipment and manpower supplied by the Cableship Operator or
Depot Owner shall be under the sole control and direction of
the Maintenance Authority and that the Maintenance Authority
shall indemnify and hold harmless the Cableship Operator or
the Depot Owner for any injury, loss and/or damage which may
result from such transfer and in no event shall the Cableship
Operator or Depot Owner be liable for any indirect or
consequential loss. Notwithstanding that the Maintenance
Authority shall direct and control the operation, the decision
of the Commander of the Cableship shall be absolute in
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<PAGE>
carrying out or not carrying out any directions if he
considers that the carrying out of such directions concerning
the Cableship would endanger the Cableship or the lives or
safety of any person thereof.
11. NOTIFICATION OF CABLESHIP REQUIREMENT
(a) When the Cableship Operator receives notification from a
Maintenance Authority that the services of the Cableship are
required to repair or maintain any of the Scheduled Cables the
Cableship Operator shall make arrangements for the despatch of
the Cableship to the required place of operation without undue
delay. In the case of a repair notification the Cableships
shall be put to sea as set forth in Clause 7.
(b) Repairs to the Scheduled Cables shall normally be effected by
the Cableships in accordance with Schedule C. However, if at
that time the relevant Cableship has already been assigned to
another repair operation, the second Cableship will attend to
the fault. In the event of the unavailability of the second
Cableship or of a conflict on the assignment of the Cableships
or on the sequence of the repair operations, the following
shall apply:
(i) the Maintenance Authorities concerned and the
Cableship Operators shall consult with one another
with a view to agreeing which Cableship, including
under the terms of the PIOCMA, should be assigned to
which operation and the sequence of the operations.
(ii) if no agreement is reached repairs shall be effected
within the Normal Operational Zone in the order of
notification to the relevant Cableship Operator.
(iii) if a Cableship is on the repair ground and has
already engaged a repair, such repair should be
completed before assigning the Cableship to another
operation.
(c) The Cableships shall normally mutually support each other and
the Maintenance Authorities hereto agree that if one Cableship
is engaged on charter work then the second Cableship may be
notified by the Maintenance Authority to attend the repair in
the other Cableship's Normal Operational Zone thereby allowing
the continuation of the said charter work, Provided Always
That effective maintenance coverage of the Operational Zone is
not considered by the Maintenance Authorities to be
disadvantaged by the continuation of such charter work.
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<PAGE>
(d) If at the time the notification described in Clause 11(a) is
received the Cableship normally expected to repair and
maintain that particular Scheduled Cable is engaged in charter
work of the interruptable nature referred to in Clause 6(d)
then such charter work shall be stopped, if so required by the
Maintenance Authorities, in accordance with the aforesaid
charter agreement interruption provision upon receipt of
notification to enable the Cableship to be diverted to repair
the Scheduled Cable.
(e) For the purposes of notification each Cableship Operator shall
appoint a representative to whom notification should be sent.
12. PLANNING AND DIRECTION
(a) The Maintenance Authority requiring any repair or maintenance
work to be carried out may elect to be responsible for
planning and directing that repair or maintenance operation
which shall be performed by the personnel of the Cableship
under the control and supervision of the Commander of the
Cableship in accordance with the Cableship Operator's "Cable
Working Procedures" or "Standing Instructions" as may be
amended from time to time by the Cableship Operator. Such
amendments shall be approved by the Management Committee. If
the Maintenance Authority does not so elect to be responsible
then the Cableship Operator shall be responsible for the
planning and direction of the cable repair or maintenance
operation. In all cases the Maintenance Authority shall make
available to the Cableship Operator the necessary technical
information required for repairs and maintenance to be carried
out to the appropriate Scheduled Cable.
(b) The Cableship Operators hereby agree that any Maintenance
Authority who elects to be responsible for planning and
directing any particular repair and maintenance work or for
purposes of observing the operation shall have the right to
have representatives on board the Cableship during the
relevant cable operations. The number of representatives shall
be subject to accommodation availability.
(c) The Maintenance Authorities shall appoint one of the
authorised representatives, should more than one be carried,
as a "Senior Representative". The Senior Representative shall
be responsible for planning and directing the repair or
maintenance operation, pursuant to Clause 12(a) above.
(d) Notwithstanding Clause 12 (a), (b) and (c) above, the decision
of the Commander shall be final in carrying out or not
carrying out any directions or plans issued by the Senior
Representative if the Commander considers that the carrying
out of
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<PAGE>
such instructions would endanger the Cableship or the lives or
safety of any person thereof.
13. CABLESHIP BASE PORT
(a) At the inception of this Agreement the C.S. Retriever and the
C.S. Cable Enterprise shall be based, while on standby for
repair and maintenance, at the ports of Singapore and Manila
respectively.
(b) Should the Management Committee require at some stage during
the term of this Agreement a Cableship base port to be changed
in order to provide more efficient maintenance coverage of the
Scheduled Cables then the Cableship Operator shall implement
the necessary change subject to the prior agreement of the
Cableship Operator(s) involved and subject to Clause 26(a).
Any costs incurred as a result of the necessary change of base
port shall be borne by the Maintenance Authorities and
allocated to the Maintenance Authorities in proportion to each
Scheduled Cable's Chargeable Sheath Mileage in accordance with
Schedule D2.
14. CLEARANCES
(a) The Cableship Operators shall inform themselves as to the laws
and regulations pertaining to the maritime waters in which
they are required to operate. The Maintenance Authorities will
assist the Cableship Operators where possible by bringing to
the attention of the Cableship Operators changes in
legislation of which they may from time to time become aware.
The Cableship Operators shall initiate procedures and the
relevant Maintenance Authorities and the Cableship Operators
shall jointly be responsible for obtaining all the necessary
clearances, permits and authorisations in the maritime waters
where the work is to be carried out and all other relevant
clearances to ensure the smooth implementation and successful
completion of repair and maintenance operations.
(b) No Party shall incur any liability to any other Party in the
event of clearances being delayed or refused due to reasons
beyond the control of any Party as defined in Clause 25.
15. PERIODS OF CABLESHIP UNAVAILABILITY
(a) A Cableship will be considered temporarily unavailable for the
repair and maintenance of the Scheduled Cables in the
following circumstances:
(i) when the Cableship undergoes periodic refits, or
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<PAGE>
(ii) when the Cableship undergoes any modification or
alteration, or
(iii) if at any time the Cableship is unable to function
due to damage or breakdown and requires a period of
repair, or
(iv) if at any time the Cableship for reasons other than
as stated above or for reasons of Force Majeure as
defined in Clause 25 becomes unavailable other than
as a total loss or constructive total loss.
Upon the occurrence of any of the above events the appropriate
Cableship Operator shall notify the chairman of the Management
Committee promptly and in writing of the expected period of
unavailability of that Cableship.
(b) If a Cableship becomes a total loss or a constructive total
loss the Cableship Operators shall notify the chairman of the
Management Committee and, if required by the Management
Committee, use reasonable endeavours to provide a substitute
Cableship subject to terms and conditions to be proposed by
the Cableship Operator.
(c) If a Cableship is damaged to such an extent as to have to
undergo repairs that cause the Cableship to be unavailable for
a period exceeding 120 days in any one instance then the Fixed
Standing Charge for that Cableship shall be abated for the
duration of the period of unavailability beyond the first 120
days.
16. MUTUAL SUPPORT COVENANT
(a) For the purposes of this Agreement both Cableship Operators
mutually covenant that both the Cableships shall be mutually
supporting, and they shall use reasonable endeavours to ensure
that the Operational Zone is covered by at least one Cableship
and accordingly:
(i) the Cableships shall undergo normal refit at
different times, and
(ii) if one Cableship requires repairs or becomes a total
loss or a constructive total loss the remaining
Cableship shall cover the Operational Zone, where
practicable, on a temporary basis.
The Cableship Operators agree that in the fulfilment of the
mutual support covenant they will maintain any of the
Scheduled Cables within the overall Operational Zone if so
required by the Maintenance Authorities.
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(b) In the event that either Cableship is unavailable for any
reason the Management Committee shall consider implementing
arrangements under the terms of the PIOCMA.
(c) The Cableship Operators agree that if one Cableship is engaged
in refit and in such circumstances the Cableship is reasonably
deemed by the Management Committee to be urgently required due
to an emergency requirement involving coincident faults then
the Cableship Operator will disengage the required Cableship,
from refit as soon as considered possible. Nothing in this
Clause shall be construed as requiring a Cableship Operator to
operate a Cableship out of classification in any respect or if
in the Commander's sole discretion the safety of the Cableship
and its personnel might be jeopardised by such operation. The
costs associated with disengaging the Cableship from the refit
shall be included as Running Costs for that Cableship, and
allocated to the Scheduled Cables in accordance with Clause
19(h).
17. PERIOD OF AGREEMENT
This Agreement shall become effective on the first day of June, 1986
and shall expire after a period of ten (10) years but may continue
beyond that date by agreement amongst the Parties.
18. INCLUSION AND DELETION OF ADDITIONAL PARTIES AND SCHEDULED
CABLES
(a) Where any maintenance authority assumes the maintenance
responsibility for any cable system, or part thereof within
the Operational Zone, and if that maintenance authority is not
a Party to this Agreement then that maintenance authority may,
with the prior written agreement of all the Parties hereto and
in recognition of the mutual benefits to be obtained, be
entered as a Maintenance Authority under this Agreement for
the balance of the term of the Agreement by means of a
Document of Accession, as set forth in Schedule F, and hence
upon the coming into force of such document shall be entered
into Schedule Al.
(b) Subject to the prior agreement of the Parties, when a
Maintenance Authority assumes responsibility for any cable
system, or part thereof, it shall be entered into Schedule BI
and hence become a Scheduled Cable; other appropriate
Schedules shall be amended accordingly.
(c) A Scheduled Cable may be removed from this Agreement in the
event of that cable being taken out of service.
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(d) For the duration of this Agreement a Maintenance Authority
shall have the right to implement an early withdrawal of a
Scheduled Cable from the Agreement Provided Always That the
Maintenance Authority shall give a minimum of TWO YEARS NOTICE
of such withdrawal to the other Parties hereto and save that a
Maintenance Authority may not issue such a notice until this
Agreement has been in force for three years.
(e) In the case of Clause 18(a), agreement shall be obtained from
the Parties as follows:
(i) notification to the Parties of the proposed change by
telex.
(ii) upon the expiration of thirty (30) days from the date
of such notification and, except in the event of any
Party advising any objections in writing or by telex
during such notice period the relevant Schedules
shall be amended and a Document of Accession shall be
executed as set forth in Schedule F. All revised
Schedules and, where appropriate, certified copies of
the Document of Accession shall be distributed to
each of the Parties.
(iii) in the event that a Party objects in accordance with
Clause 18(e)(ii) above the Parties shall consult each
other to ascertain what action should be taken.
(f) The Management Committee shall be responsible for
administering the implementation of this Clause on behalf of
the Parties.
19. BASIS OF CABLESHIP'S COST ALLOCATION
(a) The respective costs of each Cableship shall comprise Fixed
Standing Charges and Running Costs. Running Costs incurred are
calculated in accordance with Schedule Dl. The Fixed Standing
Charges for the first three Financial Years of this Agreement
shall be as shown below:
***
(b) At the end of the first Financial Year of this Agreement each
Cableship Operator shall advise the Maintenance Authorities of
the Fixed Standing Charge for the fourth Financial Year of the
Agreement. At the end of the second and each subsequent
Financial Year thereafter each Cableship Operator shall advise
the Maintenance Authorities of the Fixed Standing Charge for
the next unpriced
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Financial Year, namely the third Financial Year forward, and
this method of Cableship pricing shall be maintained
throughout the term of the Agreement.
(c) Each successive Financial Year's Fixed Standing Charge advised
under Clause 19(b) shall not constitute an increase of more
than ***. If a Cableship Operator requires an increase to the
annual maintenance and refit element in the Fixed Standing
Charge in excess of the foregoing then the Cableship Operator
shall submit details of such increase for the consideration of
the Management Committee.
(d) The Quarterly Net Chargeable Cost shall be one quarter of the
annual Fixed Standing Charges which are abated or adjusted as
appropriate by any sums received or paid by the Cableship
Operator during the previous quarter in respect of:
(i) amounts receivable by the Cableship Operator after
the deduction of all Running Costs incurred in
respect of repair and maintenance services to PIOCMA
Cables in accordance with Clause 6(c);
(ii) the charter fees defined in Clause 6(i) (i),
excepting the circumstances defined in Clauses 6(j)
and 19(d) (vi);
(iii) one half of any surplus remaining f rom the sum or
sums received or recovered by the respective
Cableship Operator in respect of any salvage or
assistance to other vessels given by the Cableship
during the course of this Agreement. Such surplus
shall be the total sum received less the proportion
due to the Commander and crew, all legal costs,
Running Costs, any other costs associated with the
salvage or assistance and, should at such time the
Cableship be on charter work as agreed under Clause
6, any share due to the charter party in the manner
described in the Cableship Operator's charter terms
and conditions,
(iv) any revenue other than;
a) amounts that are otherwise due under this
Agreement and,
b) receipts arising from insurance claims,
accruing in respect of the Cableship during
any period of temporary unavailability as
described in Clause 15(a);
(v) one half of any additional charge applied in
accordance with Clause 6(i)(ii);
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(vi) the entire charter fees, after the deduction of all
Running Costs incurred by the Cableship Operator,
accruing in respect of any period that the Cableships
are engaged in charter work where the Management
Committee has agreed in accordance with Clause 6(j)
to charter fees that are less than the charges
defined in Clause 6 (i)(i);
(vii) the Fixed Standing Charge for periods in excess. of
120 days when a Cableship is unavailable in
accordance with Clause 15(c);
(viii) amounts receivable from a charter in accordance with
Clause 6(i)(iii).
(e) Fixed Standing Charges applicable to periods of time in
respect of;
(i) Clause 6(d), 6(e) and 6(f) shall be determined on a
daily basis by dividing the annual Fixed Standing
Charge of the Cableship by a figure of 335.
(ii) Clause 19(d)(vii) shall be determined by dividing the
annual Fixed Standing Charge of the Cableship by a
figure of 365.
(f) The Quarterly Net Chargeable Cost for each Cableship shall be
allocated to the Maintenance Authorities in proportion to each
Scheduled Cable's Chargeable Sheath Mileage during the quarter
in accordance with Schedule D2 at all times (including repair
and maintenance operations);
(g) The Running Costs of a Cableship for the entire duration that
such Cableship is engaged in any repair or maintenance
operation on a Scheduled Cable or PIOCKA cable, including
passage time, shall be allocated entirely to the Scheduled
Cable or PIOCMA cable involved;
(h) Running Costs incurred in respect of Clauses 7(c), 7(f), 7(g)
and 16(c) shall be allocated amongst the Maintenance
Authorities responsible for the Scheduled Cables in proportion
to each Scheduled Cable's Chargeable Sheath Mileage in
accordance with Schedule D2 or in accordance with the
provisions of the PIOCMA if applicable;
(i) In the event of any Cableship being engaged in multiple work
operations, the Running Costs for the passage time before such
work starts on the first operation, the time spent in passage
between the end of each completed operation and the start of
the next operation, and the time spent in passage from the end
of the last operation in the series of operations to the
arrival of the Cableship at its base port, shall be aggregated
and shared to the operations in proportion to the distance of
each operation from the Cableship's base port;
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(j) The Running Costs of the Cableship for the entire periods when
engaged in charter work (including the Running Costs of
bringing the chartered Cableship up to a Fully Manned level
from a Combined Manning level) shall be borne wholly by such
charter work;
(k) The Running Costs of the Cableships for the duration of any
period when engaged in cable working exercises shall be
allocated between Scheduled Cables in proportion to their
Chargeable Sheath Mileage in accordance with Schedule D2.
(l) The Running Costs identified in Clause 5(d)(ii) in respect of
the provision of additional facilities shall be allocated on
the basis identified in Schedule K amoung the Scheduled Cables
having been agreed as requiring the availability of such
additional facilities.
(m) Any amounts paid by the Cableship Operator In respect of
services provided to a Scheduled Cable by other cableships
under the provisions of the PIOCMA shall be allocated and
billed to Maintenance Authorities by the Cableship Operator as
a part of and in accordance with the cost sharing and payment
provisions of this Agreement.
20. BASIS OF DEPOT COST ALLOCATION
(a) The operational costs of the Depot shall be specified as
Storage Costs and Transfer Costs which are both defined in
Schedule El.
(b) Storage costs shall be allocated to Scheduled Cables in the
same proportion as the volume of spare cable of each Scheduled
Cable stored collectively in the Depot(s) and on board the
Cableships provided in accordance with Clause 5, to the total
volume of all spare cable belonging to the Scheduled Cables
being stored therein. Schedule E2 gives data for each type of
cable and Schedule E3 shows the volume of spare cable of the
Scheduled Cables which utilise the storage facilities of the
Depot and Cableships. Schedule E4 shows the derived percentage
allocation of the Storage Costs to be allocated to each
Maintenance Authority at the commencement of this Agreement.
Schedules E2, E3 and E4 will be revised from time to time by
the Depot Owner in consultation with the Cableship Operators
during the term of this Agreement to reflect changes in spare
cable storage.
(c) The Cableship Operators shall supply the Depot Owner(s) with
details of the volume of spare cable of each Scheduled Cable
stored on board the Cableships within 14 days of being so
requested by a Depot Owner.
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(d) In the event of additional storage facilities being provided
in accordance with Clause 5 each Depot Owner will supply the
other Depot Owner with details of the volume of spare cable of
each Scheduled Cable stored in their respective Depot(s),
within 14 days of being so requested by the other Depot Owner.
(e) Transfer Costs shall with the exception of Clause 20(f) be
borne by and charged to the Maintenance Authorities for which
transfer work is undertaken.
(f) Where Transfer Costs are incurred in respect of either a
charter for the Cableship, or undertaking PIOCMA work pursuant
to Clause 6, such Transfer Costs shall be borne by the
Maintenance Authorities in proportion to each Scheduled
Cable's Chargeable Sheath Mileage as defined in Schedule D2.
21. BILLING, ACCOUNTING AND SETTLEMENT ARRANGEMENTS
(a) During the quarter preceding each Financial Year each Depot
Owner(s) shall supply the Maintenance Authorities with an
estimate of the annual Storage Costs for that Financial Year.
These estimates shall be presented in the detailed categories
set out in Schedule El. Billing of Storage Costs during the
course of the Financial Year shall be submitted on a quarterly
basis and based on such estimates.
(b) Bills in respect of the Quarterly Net Chargeable Cost of the
Cableships, and the Storage Costs in respect of the Depot(s)
shall be submitted by each Facility Provider 15 days prior to
the first day of the quarter in which they apply.
(c) The Cableship, Operator(s) shall as necessary submit a final
billing after the completion of each Financial Year as soon as
the Quarterly Net Chargeable Costs for that Financial Year are
known. This final billing shall comprise the final
retrospective adjustments to the amounts billed in accordance
with Clause 19(d) and such adjustments shall be included and
settled as a part of the next billing submission to the
Maintenance Authorities.
(d) The Depot Owner(s) shall submit a final billing after the
completion of each Financial Year as soon as the annual
Storage Costs are known This final billing shall comprise the
final retrospective adjustments to the amounts billed in
accordance with Clause 20 and such adjustments shall be
included and settled as a part of the next billing submission
to the Maintenance Authorities.
(e) Bills in respect of Running Costs and Transfer Costs shall be
submitted on a monthly basis in arrears and include actual
costs as they become known.
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(f) Schedule Bl identifies the Maintenance Authorities responsible
and individually liable for the payment of any amounts due
under this Agreement in respect of each Scheduled Cable. Bills
shall detail the amount payable for each Scheduled Cable and
for this purpose Schedules D2 (Page 2) and E3 summarise
respectively the total billing allocation of Cableship
Quarterly Net Chargeable Costs and annual Storage Charges
respectively to each Scheduled Cable. Schedule D2 (Page 4) and
Schedule E4 (Page 1) show the allocated billing of Quarterly
Net Chargeable Cost and Storage Charges respectively as
derived after application of Central Billing parties in
accordance with Clause 21(j).
(g) All bills shall be submitted and paid in the currency of issue
which shall be UK pounds sterling or Singapore dollars. All
bills shall be paid within sixty (60) days of the date of
receipt of such bills by the relevant Maintenance Authority or
the appropriate Central Billing party. In this respect, the
Cableship Operators and the Depot Owner(s) shall provide to
the relevant Maintenance Authority or Central Billing party by
telex, or like means of communication, advice of the date of
despatch of all bills being submitted under this Agreement.
Within ten (10) days of such advice of the date of despatch of
a bill, the relevant Maintenance Authority or Central Billing
party shall advise by telex the Party issuing the bill of its
receipt or non-receipt. Should the Maintenance Authority or
Central Billing party fail to provide such advice, the bill
shall be deemed to have been received on the tenth day after
the date of advice of despatch as above.
(h) The Cableship Operators and the Depot Owner respectively shall
be entitled to charge interest at a rate of 3 percentage
points per annum greater than the LIBOR effective on the date
of issuing of the bill for such interest for each billing
period. Interest will be charged on this basis for the period
that payment of any bill remains overdue after the date
defined by Clause 21(g) or 21(l). Such interest shall be
calculated on a simple interest basis and become payable
immediately on demand. Unless otherwise agreed by the
respective Cableship Operator or Depot Owner all interest
charges under this Clause shall be billed directly to the
Maintenance Authorities, as indicated in Schedule Bl,
responsible for payments under this Agreement or to the
appropriate Central Billing party if the Central Billing party
is a Party to this Agreement.
(i) Should any bill or part thereof be under dispute as to its
correctness, then interest as defined in Clause 21(h) shall
not apply provided that;
(i) before the due date for payment the Cableship
Operator and Depot Owner(s) are advised by telex or
like means of communication of the amount in dispute
and the nature of that dispute; and
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(ii) where the matter under dispute represents less than
twenty (20) percent of the total amount billed, an
interim payment of at least eighty (80) percent of
the total bill has been made. In this respect, the
Cableship Owner and Depot Owner(s) shall, if
requested by an appropriate Maintenance Authority
within 14 days of receipt of the bill in dispute,
issue a replacement bill omitting the amount in
dispute, such replacement bill shall become due for
payment in accordance with Clause 21(g). The amount
in dispute shall be investigated and after any
necessary corrections shall be re-issued;
Notwithstanding the foregoing, in the event that on
investigation the disputed bill or part thereof is found to be
correct, then the Maintenance Authorities shall pay interest
on the unpaid part from the day after the due date for payment
of the disputed bill in accordance with Clause 21(h) above.
(j) Recognising that some Maintenance Authorities within various
construction and maintenance agreements have appointed a
Central Billing party in respect of their Scheduled Cables,
the Cableship Operators and Depot Owner(s) respectively shall
forward the original invoice to that Central Billing party for
payment. Information copies of bills shall be forwarded at the
same time to all the relevant Maintenance Authorities. The
Central Billing parties appropriate to Scheduled Cables under
this Agreement are indicated in Schedule B2.
(k) Notwithstanding Clause 21(j) the respective Maintenance
Authorities shall remain responsible and individually liable
for all payments due by them under this Agreement and as
indicated in Schedule Bl.
(l) Any amount billed to but not paid by an appointed Central
Billing party before the expiry of thirty (30) days after its
due date for payment in accordance with Clause 21(g) may be
re-billed by the respective Facility Provider to the
Maintenance Authorities responsible for payment in accordance
with Schedule Bl. Such rebilled amounts shall become due for
payment within 7 days of receipt by the Maintenance Authority.
Any re-billed amount not paid within 7 days shall accrue
interest in accordance with Clause 21(h).
22. RECORDS
(a) The Facility Providers shall as appropriate keep for a period
of not less than six years from the date of issue, such
records, vouchers, accounts, or reproduction thereof in
whatever form, of all costs incurred in connection with the
Cableship Running Costs, and the Storage Costs and Transfer
Costs of the Depot(s) to support their billing or derived
settlements of such costs to and amongst the
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Maintenance Authorities and shall make such records, vouchers,
and accounts available at all reasonable times for inspection
by the Maintenance Authorities.
(b) The Cableship Operator shall keep repair and maintenance
records relating to Scheduled Cables for a period of not less
than six years from the date of issue of such records and the
Maintenance Authorities shall have a right to obtain copies of
such records upon request.
(c) After each repair operation the Cableship Operator shall
forward to the relevant Maintenance Authority a report on the
repair work which shall include a schedule of events,
electrical data and diagrams and charts of the operation.
23. LIABILITY AND INDEMNITY
(a) For the purposes of this Clause the reference to Owner shall
refer to either the Cableship Operator or Depot Owner or both
concerned when a claim or liability arises under the terms of
the Agreement. In no event shall there be joint liability
between any Cableship Operator or Depot Owner unless otherwise
agreed in writing between or amongst them.
(b) Each Owner shall be liable for all direct damages to persons
or property arising in the discharge of its obligations under
the Agreement to the extent that such damages have resulted
from the intentional or negligent acts or omissions of the
Owner, its agents or employees. The Owner shall indemnify and
hold harmless the Maintenance Authority concerned against all
claims, actions, demands or judgments for such direct damages.
(c) Each Owner 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 negligence or intentional acts of a
Maintenance Authority and to that extent the said Owner will
indemnify and hold harmless the Maintenance Authority against
all claims, actions, demands, or judgments for damages by
employees or agents of the Owner except to the extent that
such claims, actions, demands and judgments arise out of the
negligence or intentional acts of a Maintenance Authority.
(d) Each Maintenance Authority shall be liable for all direct
damages to persons or property arising in the discharge of its
obligations under the 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 Owner concerned against all claims, actions,
demands or judgments for such direct damages.
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(e) Except as stated in Clauses 23 (a), (b), (c) and (d) no Owner
or Maintenance Authority shall be liable for any other damages
suffered by the other nor shall either or any of them be
required to indemnify or hold harmless the other against
claims made by any person or entity against either or any of
them for damages arising from the acts or omissions of either
or any of them in the discharge of their respective
obligations under this Agreement.
24. INSURANCE
(a) The Cableship Operators and Depot Owner(s) respectively shall
be responsible for obtaining their necessary insurance
coverage as specified in Schedules Dl and El respectively.
(b) if requested by a Maintenance Authority the Facility Providers
shall provide individually and on a confidential basis to that
Maintenance Authority copies of relevant insurance policies
and, if applicable, copies of the booklet giving details of
the Protection and Indemnity cover and proper evidence of the
payment of all premiums.
25. FORCE MAJEURE
(a) Neither the Cableship Operators, nor the Depot Owner(s) shall
be liable for any inability or delay in carrying out work on
the Scheduled Cables if prevented from doing so for reasons
beyond their reasonable control.
(b) In particular neither the Cableship Operators nor the Depot
Owner(s) shall be liable for any delay or failure to carry out
their duties and obligations hereunder arising or resulting
from:
- Fire, unless caused by the actual fault or privity of a
Cableship Operator or Depot Owner or both.
- Perils, dangers, and accidents of the sea or other navigable
waters.
- Act of God.
- Act of War.
- Act of public enemies.
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- Arrest or restraint of princes, rulers or people, or seizure
under legal process.
- Quarantine restrictions.
- Act or omission of the Maintenance Authority, his agent or the
Maintenance Authority's authorised representative(s).
- Strikes or lockouts or stoppage or restraint of labour from
whatever cause, whether partial or general.
- Riots and civil commotions.
- Saving or attempting to save life or property at sea or to
take aboard or land refugees.
- Loss or damage arising from Inherent defect, quality or vice
of the Maintenance Authority's plant and equipment.
- Latent defects not discoverable by due diligence.
- Pirates or assailing thieves.
- Adverse weather conditions.
26. PREROGATIVES OF THE COMMANDER
(a) The Cableships shall not be obliged to proceed to, nor remain
at, or enter any port or place which is, or which is
considered by the Commander or the Cableship Operator in his
or its discretion to be dangerous by reason of fever,
epidemics, ice, blockade, war, hostilities, warlike
operations, civil war, civil commotions, revolutions,
operation of law or any other reason considered by the
Commander or the Cableship Operator in his or its discretion
to be dangerous, or to which the Cableships are prohibited
from going by the government of the nation under whose flag
the Cableship sails, or by any other government. In the event
that a Cableship is ordered to such a port or place the
Cableship Operator shall seek instructions from the
Maintenance Authorities as to an alternative port or place.
The Cableship Operator shall also be entitled to charge any
expenses incurred in proceeding thereto as a Running Cost to
the Maintenance Authority concerned in accordance with Clause
19.
(b) The Cableships shall not be obliged to force ice. If on
account of ice the Commander considers it dangerous to remain
at a port or place for fear of the
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Cableships being frozen in and/or damaged, he has liberty to
sail to a convenient open place and await new instructions.
(c) The Commander shall have liberty to comply with any orders or
directions as to departure, arrival, routes, ports of call,
stoppages, destination, delivery or otherwise, howsoever
given, by the government of the nation under whose flag the
Cableship sails or any department thereof, or by any other
government or any department thereof, or any person acting or
purporting to act with the authority of any such government or
any department thereof or by any committee or person having,
under the terms of the war risk insurance on the Cableship,
the right to give such orders or directions and if by reason
of and in compliance with any such orders or directions
anything is done or is not done, the same shall not be deemed
a deviation, and performance in accordance with such orders or
directions shall be a fulfilment of this Agreement.
(d) The Cableship Operator agrees where possible to use its
reasonable endeavours to ensure that the duration of any
deviation or detention under Clauses 26(a) and (b) and (c) are
kept to a minimum. The costs of such deviations or detentions
shall be charged as Running Costs to the relevant Maintenance
Authority in accordance with Clause 19.
27. DISTRESS AND SALVAGE
(a) At all times during the term of this Agreement the Cableships
shall have liberty to sail with or without pilots, to tow or
be towed, deviate to assist vessels in distress, or to deviate
for the purpose of saving life or property, to take aboard
carry and land refugees, to secure medical attention for any
person onboard suffering from accident or illness, to deviate
for reason of bad weather, to call at any ports for fuel or
other supplies, or for any other valid or customary cause. The
Management Committee shall be advised as soon as possible of
any of these causes.
(b) The Cableship Operators shall be at liberty to engage in
salvage without the written consent of the Maintenance
Authorities. All salvage money earned by the Cableships shall
be divided equally between the Cableship Operator and the
Maintenance Authorities after deducting the Cableship
Operator's Commander's, Pilot's, Officer's and Crew's share,
legal expenses, Fixed Standing Charges and Running Costs
during the time lost, repairs to damage if any and any other
loss or expense sustained as a result of the salvage. The
Maintenance Authorities shall be bound by any measure taken by
the Cableship Operator in order to secure payment of salvage
and to fix its amount.
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28. LEGAL INTERPRETATION
This Agreement shall in all respects be governed by and be construed in
accordance with the laws of England.
29. ARBITRATION
(a) All disputes arising in connection with this Agreement and
which cannot be settled to the mutual satisfaction of the
Parties 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 the said Rules.
(b) Notwithstanding Clause 29(a), if there is no unanimous
agreement by all the Parties to have the dispute heard before
an arbitrator in accordance with Clause 29(a), the dispute
shall be heard before a court of Law in accordance with Clause
28.
(c) The performance of this Agreement by the Parties shall
continue during such arbitration or legal proceedings.
30. RELATIONSHIP OF THE PARTIES
The relationship between or amongst 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 amongst the Parties
shall be limited to the express provisions of this Agreement.
31. STATUS OF CABLESHIPS AND ASSOCIATED FACILITIES
Nothing herein shall be construed as a demise or charter of a Cableship
to any of the Parties.
32. AMENDMENTS
(a) This Agreement and any of the provisions herein, unless as
expressly provided for herein, may only be altered or added to
in writing signed by a duly authorised person on behalf of
each Party.
(b) Except as otherwise provided for herein Schedules may be
amended subject to agreement by telex between and amongst all
the Parties.
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33. ASSIGNMENT
No Party shall, without the written consent of all the other Parties,
which consent shall not be unreasonably withheld, sell, transfer or
dispose of its rights or obligations under this Agreement except to a
statutory successor of the same.
34. EXECUTION AND COUNTERPARTS
This Agreement shall be executed in 16 (sixteen) counterparts in the
English language and each counterpart when delivered shall be
considered an original. New Maintenance Authorities shall be added to
this Agreement by means of a Document of Accession as set forth in
Schedule F and the Document of Accession shall for each such addition
be executed in two counterparts in the English language and certified
copies shall be delivered to all the Parties.
35. ENTIRE AGREEMENT
This Agreement together with the Schedules hereto constitute the entire
agreement between the Parties in relation to its subject matter. All
references to the Party(ies), Clause(s) and Schedule(s) refer to the
Party(ies), Clause(s) and Schedule(s) under this Agreement. In
addition, and where the context requires, the singular shall be taken
to mean the plural and the plural shall be taken to mean the singular.
36. HEADINGS
For the purposes of interpretation of this Agreement and Schedules all
headings thereof shall be deemed not to form part of this Agreement.
37. REPRESENTATIVES AND CORRESPONDENCE
The Parties shall inform each other of their representatives for the
purpose of correspondence between the Parties.
38. NOTICES
(a) Any notice or consent required or permitted hereunder shall be
given in writing or confirmed in writing as the context so
requires and shall be deemed to be duly
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given if deposited by hand at, or despatched by airmail of the
most expeditious class or by telex or electronic mail
addressed to, the last known registered office of the Party to
whom it is addressed.
(b) Unless it is expressly provided for herein or otherwise agreed
any such notice or consent shall be deemed to be served ten
days from the date of despatch.
39. PUBLICITY
Any publicity or news releases regarding this Agreement shall not br
issued or published without the prior agreement of the Parties.
40. CONFIDENTIAL INFORMATION
All Parties to this Agreement shall treat as confidential any
information arising from and in connection with this Agreement and
shall not divulge or turn to account any information oral or written to
a third party without the prior written agreement of all Parties.
41. PERFORMANCE OF AGREEMENT
The performance of this Agreement by the Parties hereto shall be
contingent upon either:
(i) the continued operation of at least one Scheduled
Cable;
or
(ii) the necessary government approvals.
42. INSOLVENCY
Upon the happening of each or any of the following events:
(i) if, except for the purposes of re-organisation, any
Party is wound up or a petition is presented or an
order is made or a resolution is passed for the
winding up of any Party or a meeting is convened for
the purpose of considering any such resolution;
36
<PAGE>
(ii) if any Party is placed under official management,
that is, if pursuant to a resolution of creditors or
members of that Party or an order of a court a person
is appointed to take custody of all or part of the
property of that Party and to conduct its business
and manage its affairs and comply with the
legalisation in respect of companies applicable in
the place where he is so appointed, or if any Party
causes a meeting of its members or creditors to be
summoned for the purpose of placing it under official
management;
(iii) if any Party makes default under any charge or
security in favour of any creditor of that Party;
(iv) if any indebtedness of any Party becomes due and
payable prior to the stated maturity thereof as a
result of a default or is not paid upon the maturity
thereof;
(v) if an inspector of all or any part of the affairs of
any Party is appointed pursuant to the legislation in
respect of companies applicable in the place of
incorporation of that Party or in a place where that
Party carries on business;
(vi) if a compromise or arrangement is proposed between
any Party and its creditors or any class of them or
if an application is made to a court for an order
summoning a meeting of creditors or any class of them
of any Party;
then any Party affected by each or any of the above listed
events shall immediately inform all the other Parties thereof,
and all the Parties shall then consult to decide what further
action is necessary.
43. TRANSFER OF RESPONSIBILITIES
(a) In the case of any of the events in Clause 42 occurring to
ASEAN Cableship Private Limited which consequently require
ASEAN Cableship Private Limited to withdraw from this
Agreement, Cable and Wireless (Marine) Limited undertake to
provide the repair and maintenance responsibilities of the
Cableship Retriever under the terms and conditions of this
Agreement for the remainder of the term.
(b) The ASEAN Cableship Private Limited hereto agrees and the
Parties hereto agree that such transfer of responsibilities
referred to in Clause 43(a) is deemed to be effective upon any
of the events referred to in Clause 42 occurring to ASEAN
Cableship Private Limited.
37
<PAGE>
SIGNED:
For and on behalf of Attest Date
ASEAN CABLESHIP PRIVATE LTD
/s/ Name of Signatory Name of Attestor 29/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
COMMUNICATIONS AUTHORITY OF
THAILAND
/s/ Name of Signatory Name of Attestor 30/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
CABLE AND WIRELESS (HONG KONG)
LTD
/s/ Name of Signatory Name of Attestor 27/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
CABLE AND WIRELES (MARINE) LTD
/s/ Name of Signatory Name of Attestor 20/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
CABLE AND WIRELESS PLC
/s/ Name of Signatory Name of Attestor 20/5/86
- -------------------------------- ---------- -------
38
<PAGE>
For and on behalf of Attest Date
EASTERN TELECOMMUNICATIONS
PHILIPPINES INC
/s/ Name of Signatory Name of Attestor 27/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
INTERNATIONAL TELE-
COMMUNICATION DEVELOPMENT
CORPORATION
/s/ Name of Signatory Name of Attestor 27/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
JABATAN TELEKOM MALAYSIA
/s/ Name of Signatory Name of Attestor 30/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
KOKUSAI DENSHIN DENWA CO., LTD.
/s/ Name of Signatory Name of Attestor 26/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
OVERSEAS TELECOMMUNICATIONS
SERVICES
/s/ Name of Signatory Name of Attestor 27/5/86
- -------------------------------- ---------- -------
39
<PAGE>
For and on behalf of Attest Date
OFFICE DES POSTES ET
TELECOMMUNICATIONS
/s/ Name of Signatory Name of Attestor 26/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
OVERSEAS TELECOMMUNICATIONS
COMMISSION (AUSTRALIA)
/s/ Name of Signatory Name of Attestor 28/5/86
- -------------------------------- ---------- -------
For and on behalf of Attest
P.T. (PERSERO) INDONESIAN
SATELLITE CORPORATION
/s/ Name of Signatory Name of Attestor 29/5/86
- -------------------------------- ---------- -------
For and on half of Attest
SEMBAWANG CABLE DEPOT
PRIVATE LIMITED
/s/ Name of Signatory Name of Attestor 12/6/86
- -------------------------------- ---------- -------
For and on behalf of Attest
THE TELECOMMUNICATION
AUTHORITY OF SINGAPORE
/s/ Name of Signatory Name of Attestor 29/5/86
- -------------------------------- ---------- -------
40
<PAGE>
For and on behalf of Attest Date
VIDESH SANCHAR NIGAM LTD.
/s/ Name of Signatory Name of Attestor 23/5/86
- -------------------------------- ---------- -------
41
<PAGE>
EXHIBIT 10.24
MEDITERRANEAN CABLE MAINTENANCE AGREEMENT
<PAGE>
MECMA 2
MEDITERRANEAN CABLE MAINTENANCE AGREEMENT
- --------------------------------------------------------------------------------
MECMA shall come into effect on 1st JANUARY 1999 and will incorporate the
following Articles outlining the following arrangements, responsibilities and
requirements of the Agreement:
ARTICLES
1. Definitions
2. Previous Agreements
3. Purpose of the Agreement
4. Management Committee
5. Provision of Cableships and Base Ports
6. Use of Cableships
7. Maintenance facilities on board the Cableships
8. Use and Operation of the Depot(s)
9. Use of Spare Submersible Plant
10. Transfer of Spare Submersible Plant
11. Notification of Cableship Requirement
12. Planning and Direction
13. Cableship Base Port
14. Clearances
15. Periods of Cableship Unavailability
16. Prerogatives of the Commander
17. Distress and Salvage
18. Inclusion and Deletion of Additional Parties and Scheduled Cables
19. Basis of Cableships Cost Allocation
20. Billing, Accounting and Payment Arrangements
21. Responsibility for the Ships Schedules and Reports
22. Liability and Indemnity
23. Insolvency
24. Insurance
25. Force Majeure
26. Duration of Agreement
27. Governing Law
28. Arbitration
29. Relationship of the Parties
30. Status of Cableships and Associated Facilities
31. Amendments
<PAGE>
32. Assignments
33. Execution and Counterparts
34. Interpretation
35. Entire Agreement
36. Headings
37. Representatives and Correspondence
38. Notices
39. Publicity
40. Confidential Information
41. Performance of Agreement
42. Severability
43. Waiver
<PAGE>
It also includes a list of Schedules, which outline the technical aspects,
interested parties and provide the instruments for pricing and costing.
SCHEDULES
A. List of parties
A1. List of Parties to this Agreement - Maintenance Authorities
A2. List of Parties to this Agreement - Cableships Operators
B. List of Scheduled Cables
C. Cableships Fixed Standing Charges allocation and Running Costs
C1. Standing Charges
C2. Running Costs
C3. Estimated for 1998
D. MECMA and alternative Depots
D1. CATANIA Depot
D2. KALAMATA Depot
D3. LA SEYNE/MER Depot
D4. VALENCIA Depot
D5. Other Depots
E. Proforma Document of Accession
F. Previous Cableship Agreements
G. Management Committee Terms of Reference
H. Basic Cableship Technical Criteria
H.0. BASIC CABLESHIP TECHNICAL CAPABILITIES
H.1. CS CROZE
H.2. CS TELIRI
H.3. CS TENEO
H.4. CS CERTAMEN
H.5. STANDARD/SPECIFIC CABLES
I. Representatives of the Parties and Mailing addresses and contacts for
Financial and Maintenance Purposes
J. Sailing/repair standard duration
<PAGE>
1. DEFINITIONS
In this Agreement, the following terms shall have the meaning hereby assigned to
them:
<TABLE>
<S> <C>
"AGREEMENT" Means this Agreement, including any amendments. This
Agreement may also be referred to as "MECMA".
"APPOINTED PARTY" Means a Party designated from time to time
by the Management Committee for performing any
possible duties assigned to it and for preparing
any document pursuant to this Agreement.
"ASSIGNED PORT" Means the port from which a Cableship is at
any given time required to operate under this
Agreement pursuant to the Cableship Programme and
may include, where appropriate, its Base Port.
"AVAILABLE Means, for a Cableship, when it is not unavailable
for any of the reasons described in Article 15 and
"Availability" shall be construed accordingly.
"AVAILABLE CABLESHIP DAYS" Means those days during a Financial Year
when an individual Cableship or the
Cableships collectively, as the context
requires, are Available.
"BASE PORT" Means the port identified as such in Article
5a, where the relevant Cableship will
normally be based.
"CABLESHIP" Means any of the Vessels identified in Article 5(a).
"CABLESHIP FIXED STANDING Means the annual amount indicated in, or determined in
CHARGES" accordance with Article 19(a), 19(b), and 19(c) for the
designated Cableship.
"CABLESHIP OPERATORS" Means the Parties responsible for the
operation of the Cableships and identified
as such in Article 5 for the relevant
Cableship; "Cableship Operator" shall mean
anyone of such Parties.
"CABLESHIP PROGRAMME" Means the programme showing the activities, locations
and movements of the Cableships as more particularly
described in Article 6.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
"CENTRAL BILLING PARTY" Means the Party responsible for: (a) performing all
billing and associated financial functions under this
Agreement: (b) Assembling the budget and actual data
to be received from Ships Operators. This Party may
also be referred to as "CBP".
"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.
"COMMANDER" Means the person designated as such by the Cableship
Operator and charged with the responsibility for the
safety and day-to-day operation of its Cableship and
safety of the Cableship personnel.
"CONSTRUCTIVE TOTAL LOSS" Means a situation where the cost of repairs to the
Cableship and/or replacement thereof equals or exceeds
the insured value.
"DOMESTIC CONSUMER PRICE Means the relevant Consumer Price Index for all items
INDEX" which is a monthly statistic officially published in "Main
Economic Indicators" by OECD, which indicates on a
weighted average price index basis the current overall
rate of inflation for each country.
"EASTERN PORT" Means an Assigned Port located in the Area east of
20(0)00E longitude.
"FINANCIAL YEAR" Means consecutive twelve-month periods ending on the
31st of December of each year.
"FIXED STANDING CHARGES" Means the annual charge as specified in Schedule C1, which is
charged by the Cableship Operator in connexion with its Cableship
and associated services.
"MAINTENANCE & IMPROVEMENT" Means work carried out on a MECMA Cable involving the use
of a Cableship, at the request of a Maintenance Authority
in order to reduce the susceptibility of the MECMA
Scheduled Cable to future service-affecting faults.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
"MAINTENANCE AUTHORITY" Means any Party or group of Parties, as listed in Schedule
Al, primarily responsible for, or which acts as agent on
behalf of other parties for the repair and maintenance of
a MECMA Scheduled Cable.
"MANAGEMENT COMMITTEE" Means the committee formed by the Parties pursuant to
Article 4.
"MECMA" Means this Agreement.
"NETWORK FIXED STANDING Means the provisional annual estimate of the total fixed
CHARGES" amount due to Cableship Operators calculated in
accordance with Article 19 (e).
"OPERATION" Means Repair, Maintenance & Improvement, or other
work performed under this Agreement
"OPERATIONAL ZONE" Means the larger of the sea areas including
Mediterranean Sea, Black Sea and Red Sea, bounded
either by the Scheduled Cables or by meridian lines
through Aden in the East and Gibraltar in the West.
The Management Committee may also agree to further
extend the Operational Zone or include additional cables
located in the part of the Atlantic bounded by latitude
41DEG.1ON on the north, latitude 28DEG.N on the South and
longitude 16DEG.15W on the west, as requested by
Maintenance Authorities.
"OUTSIDE WORK" Means work outside the terms of this Agreement carried out
by a Cableship 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 page hereto;
it includes any party which is subsequently admitted
under Article 18 and has signed an agreement in the
form provided in Schedule E hereto; Party shall mean
any one of such.
"PIBOR" Means the Paris Interbank Offered Rate calculated by
AFB (Association Francaise des Banques) and Dow Jones
Telerate, and based on the arithmetic mean, rounded
to 1/16th of 1 % of the offered interest rates quoted
by the market of reference banks at 11h30 each
working day.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
"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 cable into operation for
customer service.
"REPAIR" Means work carried out on a Scheduled Cable involving
the use of a Scheduled Cableship, at the request of a
Maintenance Authority in order to remedy a fault
suffered by the Scheduled Cable, howsoever caused.
"REFIT" Means statutory maintenance work or any other
maintenance work carried out on a Scheduled Cableship
and identified as "refit" in the Cableship Programme;
"RUNNING COSTS" Means incremental costs for a Cableship, as defined
in Schedule C2, incurred in connection with the
operation of a Cableship.
"SCHEDULED CABLE" Means any submarine telecommunications cable system
or part thereof to be repaired and maintained under
this Agreement and which is listed in Schedule B.
"SCHEDULED CABLESHIP" Means any of the Cableships when assigned to the
Agreement.
"SPARE SUBMERSIBLE PLANT" Means the spare submarine cable, repeaters, branching
units and equalisers and other associated spare
submersible parts of a Scheduled Cable.
"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 not a Standard
Scheduled Cable and which requires the use of
Specific Practices in its maintenance.
"STANDARD PRACTICES" Means the submarine cables maintenance practises and
the equipment which are specified in Schedule H and
which the Cableships are capable of supporting.
"STANDARD SCHEDULED CABLE" Means a Scheduled Cable which is capable of being
maintained in accordance with the Standard Practices.
"STANDBY" Means any period when a Cableship is not engaged on an
Operation but is Available.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
"SUBMERSIBLE PLANT" Means that part of a Scheduled Cable that is between
but excludes the respective beach joints of the
landing points.
"TOTAL LOSS" Means a situation where the Cableship 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
Cableships as specified in Schedule H.
"QUJ" Means universal quick jointing which is required for the
Cableships as specified in Schedule H.
"UNITS OF REPARTITION" 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 specified in Schedule B1 and B2 as
may be revised from time to time pursuant to this
Agreement.
</TABLE>
<PAGE>
2. COMING INTO FORCE OF THE AGREEMENT AND PREVIOUS AGREEMENTS
Prior to the effective date of this Agreement, certain Parties hereto had rights
and obligations under modified bilateral agreements which are listed in Schedule
F herein (called "previous agreements for the purposes of this Article). Said
Parties agree to take any necessary steps so as to terminate as soon as possible
such previous agreements under their relevant provisions for termination. The
Parties agree that until such termination is effective, the cables to be
maintained and repaired under these existing Cableship agreements will be
maintained and repaired by the Cableship Operators under the same operational
and financial conditions as defined hereafter.
3. PURPOSE OF THE AGREEMENT
The purpose of this Agreement is to define the terms and conditions under which
the Cableship Operators shall provide to the Maintenance Authorities services
for repairing, maintaining and improving the submersible plant by means of
Cableships and any other appropriate submersible tools at high quality standard,
with the aim of reaching an efficient and economical solution for the mutual
benefit of all the telecommunication operators and users of the cables listed in
Schedule B of this Agreement.
4. MANAGEMENT COMMITTEE
(a) The Parties shall form a Management Committee, whose terms of
reference are defined in Schedule G, to assist mutual co-operation
and to ensure the efficient management of all operations required
by the Agreement.
(b) Each and every Maintenance Authority and Cableship Operator shall
have one representative in the Management Committee.
(c) Meetings of the Management Committee shall be held as necessary
but not less than once a year, at a time and place convenient to
the majority of the Maintenance Authorities.
(d) Meetings of the Management Committee may be convened at the
discretion of the Chairman and additionally shall be convened by
the Chairman when requested to do so by one or more Maintenance
Authorities representatives whose voting rights as outlined in
Article 4.f herein total at least five (5) percent of the total of
the voting rights or by any four (4) or more Maintenance
Authorities representatives regardless of their voting rights. The
Chairman shall, in normal circumstances, give at least forty five
(45) days' notice to all representatives of the convening of
<PAGE>
a meeting of the Management Committee and, at that time, shall
furnish a proposed agenda therefor.
(e) The quorum for any meeting shall be at least fifty percent of the
Maintenance Authorities (present or represented), who represent at
least three quarters of weighted votes (as defined in Article 4.f
below), such quorum to be maintained throughout the meeting.
(f) Voting rights in the Management Committee shall be held only by
Maintenance Authorities, on the basis of the percentage of
"Liability for Payment" for each Maintenance Authority as shown in
Schedules B.1.1, B.2.1 and B.3 of the Agreement, and listed in
Schedule A.I. A Maintenance Authority's representative may attend
meetings and vote as necessary on behalf of more than one
Maintenance Authority providing advance notice to this effect is
provided to the Chairman by the Maintenance Authorities being
represented.
(g) The Chairman shall be elected by a simple majority of the
Maintenance Authorities' representatives present and voting at a
meeting, such Chairman to serve thereafter until the next meeting.
(h) The Management Committee shall endeavour to take decisions
unanimously. However, if it fails to reach unanimous agreement, it
shall take decision by a simple majority of the weighted vote (as
defined in Article 4f above cast in the meeting representing at
least three Maintenance Authorities.
(i) If a Management Committee decision has to be taken before a
meeting can be held, the Chairman shall consult by telephone or
fax with all the Maintenance Authorities representatives (and
approach not less than three-quarters of such Maintenance
Authorities representatives) and request the said representatives
to make and confirm their views by fax. Any decision shall be
taken unanimously. However, if it fails, decisions shall be taken
by a simple majority of the weighted vote (as defined in Article
4.f above) cast of the answers representing at least three
Maintenance Authorities. The Chairman shall give prompt notice of
the results of any such decisions taken by correspondence in this
way, and any decisions so taken shall be binding all the Parties.
(j) To assist it in the performance of the duties assigned to it
hereunder, the Management Committee shall be at liberty to set up
any sub-committee or working party as it sees fit and necessary.
Membership and terms of reference of such sub-committee or working
party shall be decided by the Management Committee. Such
sub-committee or working party shall elect a Chairman from among
participating representatives at each meeting, who shall report
and make recommendations on its behalf to the Management
Committee.
<PAGE>
(k) All major activities of any sub-committee or working party in
accordance with its terms of reference and all recommendations to
the Management Committee shall first be agreed by consensus. If
they cannot reach a decision, they shall refer the matter to the
Management Committee.
5. PROVISION OF CABLESHIPS AND BASE PORT
(a) Cableships and Base Ports
The Cableships and their respective Base Ports are as follows
(i) The CS RAYMOND CROZE, which is owned by FRANCE CABLE &
RADIO and operated by FRANCE TELECOM and whose Base Port is
LA SEYNE SUR MER, FRANCE.
(ii) The CS TELIRI or CS CERTAMEN, which are owned and operated
by ELETTRA and whose Base Port is CATANIA, ITALY.
(iii) The CS TENEO, which is owned and operated by TEMASA and
whose Base Port is VALENCIA, SPAIN.
(iv) An Eastern Port shall be proposed by the Cableship
Operators and approved by the Management Committee to be
considered as an Assigned Port for the purpose of this
Agreement. Subject to the maximum capacity of the Cableship
concerned, and in accordance with Article 9, the Cableship
Operators so assigned may be requested by the Maintenance
Authorities responsible for the spare plant concerned to
carry a stock of all varieties of cable, repeaters and
jointing kits to face any kind of Repairs whilst on Standby
in an Eastern Port, without sailing back to a west
Mediterranean cable depot.
On and from the date specified in Article 26 herein, the Repair
and Maintenance & Improvement of the Scheduled Cables shall be
carried out by the three Cableships, such Cableships being as
specified in Schedule H.
Notwithstanding the provisions of Article 15, in the event of the
Parties requiring a cableship, in addition to the Cableships
listed in Article 5a, to be permanently entered into this
Agreement such additional cableship shall only be entered subject
to the following conditions: - an Amendment shall be required to
this Agreement in accordance with Article 31;
<PAGE>
-such additional cableship 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 cableship suppliers.
(b) Cableship Programme
The Cableships shall be primarily assigned to undertake Repair,
Maintenance & Improvement under this Agreement and shall be made
available according to a Cableship Programme so as to have at
least two Cableships permanently available for the Repair,
Maintenance & Improvement of all Scheduled Cables as listed in
Schedule B in the Operational Zone as detailed in Article 6 below.
This Cableship Programme shall also include the periods of
coverage from an Eastern Port as may be agreed by the Management
Committee in accordance with Article 13. Normally these periods
will amount not less than 6 months per Agreement year.
(c) Each Cableship Operator at the outset of this Agreement
individually warrants, and will exercise due diligence throughout
the term of this Agreement to ensure that the Cableship it
provides under this Agreement is tight, staunch and strong and fit
for telecommunications cable work and each Cableship Operator
shall exercise due diligence to maintain its Cableship to ensure
that it is equipped with the necessary gear to a standard to
enable the Cableship Operator to fulfil its obligations under this
Agreement. Each Cableship Operator shall ensure that when at sea
its Cableship is furnished with a complete complement of suitably
qualified and competent officers and seamen for the proper
functioning of the Cableship so as to fulfil the Cableship
Operator's obligations under this Agreement.
(d) The Cableship Operator shall carry out Repair and Maintenance &
Improvement expeditiously and in accordance with internationally
accepted standards in use in other agreements, and may be subject
to reasonable penalty to be defined by the Management Committee
if, under normal circumstances, the sailing time from her Assigned
Port or repair time on cable ground exceeds substantially or
repeatedly the standard duration as given in Schedule L, and does
not remedy such failure after receipt of notice from the
Management Committee specifying such failure. The Cableship
Operator shall not be responsible if he can prove the absence of
negligence and wilful misconduct.
If, in the opinion of the Cableship Operator, a repair requires
the use of equipment in addition to the Cableships' normal cable
repairing gear, such additional equipment including but not
limited to diving services and support vessels, then the Cableship
Operator shall use reasonable endeavours to provide, with the
consent of the Maintenance Authority responsible for a particular
operation, such
<PAGE>
additional services and equipment as it deems necessary to carry
out any such repair in an expeditious manner. The cost of such
additional facility shall be regarded as Running Costs and charged
as follows:
(i) the cost of additional facilities provided directly in
respect of a particular repair or maintenance operation
shall be charged directly to that operation in accordance
with Article 19(j) and
(ii) any costs incurred in making such additional facilities
generally available, including but not limited to annual
retainers in respect of diving services and other equipment
hire or depreciation charges, shall be allocated among all
appropriate Scheduled Cables in accordance with Article
19(p).
(e) Each Cableship Operator shall ensure that its Cableship shall meet
the technical criteria agreed between and amongst the Parties and
attached hereto as Schedule H. Should any of the Maintenance
Authorities require any improvements, modifications or additions
to be carried out to the Cableships which are beyond the agreed
technical criteria defined in Schedule H, then the nature and cost
of such improvements and modifications and associated increase to
the Cableship Fixed Standing Charges shall be subject to the prior
agreement of the Management Committee and the Cableship Operator
before such improvements and modifications are carried out.
(f) For the duration of this Agreement, additional facility (in terms
of Cableships and any other facility) may be added to this
Agreement by written agreement of all the Parties to this
Agreement.
6. USE OF CABLESHIPS
(a) The Cableships shall be used primarily for the Repair of all the
Scheduled Cables when the Cableships Standing Charges are borne by
the Parties under this the Agreement.
(b) Subject to such requirements being satisfied, the Cableships shall
be used for the Maintenance & Improvement of the Scheduled Cables
on an interruptible basis during the periods when the Cableship is
assigned to the Agreement. The relevant Maintenance Authority
shall provide the Management Committee with details of the nature,
duration and location of the proposed Maintenance & Improvement
Work. Such a work shall require the prior agreement of the
Management Committee. The decision of the Management Committee
shall be given to the relevant Maintenance Authority within 10
days. Upon receipt of a request from a Maintenance Authority for
the repair of a Scheduled Cable, the relevant Cableship Operator
shall immediately terminate such Maintenance & Improvement Work.
<PAGE>
(c) The Cableship Operators shall agree amongst themselves a Cableship
Programme in accordance with Article 5 (b). Within the last month
of each financial year, the Cableship Operators shall submit a
Cableship Programme for the coming financial year to the
Management Committee for approval. For subsequent modifications of
the Cableship Programme required during the course of the
financial year, the Cableship Operators shall seek the prior
agreement of the Management Committee. The decision of the
Management Committee shall be given to the Cableship Operators
within 10 days. Provided that the requirements as set forth in
Article 5(b) are met, the approval of a Cableship Programme
amendment by the Management Committee shall not be unreasonably
withheld.
(d) The Cableship Operators shall have the opportunity to perform
Outside Works when the Cableship is assigned to the Agreement.
Such a non-interruptible work shall require the prior agreement of
the Management Committee. The decision of the Management Committee
shall be given to the relevant Cableship Operator within 10 days.
(e) The Cableship Operators shall have the opportunity to perform crew
training on an interruptible basis when the Cableship is assigned
to the Agreement. The relevant Cableship Operator shall provide
the Management Committee with details of the nature, duration and
location of the proposed crew training. Such a work shall require
the prior agreement of the Management Committee. The decision of
the Management Committee shall be given to the relevant Cableship
Operator within 10 days. Upon receipt of a request from a
Maintenance Authority for the repair of a Scheduled Cable, the
relevant Cableship Operator shall immediately terminate such crew
training.
(f) Each Cableship shall schedule within the Cableship Programme, a
period of Refit in each Financial Year pro rata to the
Availability of its Cableship in that Financial Year at the rate
of 30 refit days per 335 Available Cableship Days. The Cableship
Operator shall use the refit period so shown actually and solely
for refit purposes and not for any other purpose within or outside
the Agreement.
Any Running Costs incurred during a period of refit, commencing
from the date of release of the Cableship from Availability as
approved by the Management Committee and continuing until the date
of written notification by the relevant Cableship Operator to the
Management Committee that the Cableship is again Available for
work on Scheduled Cables, shall be borne by the relevant Cableship
Operator.
Standing Charges for periods when a Cableship is undergoing Refit
shall be borne in accordance with the provisions of Article 19f
<PAGE>
(g) Subject to the approval of the Management Committee, and for such
a period as the Management Committee shall approve, a Cableship
Operator may nominate another suitable ship operated by the
relevant Cableship Operator of this Agreement as an alternative to
its Cableship. Any such alternative Cableship shall comply with
the basic Cableship technical criteria as defined in Schedule H.
The Standing Charges and Running Costs of the alternative
Cableship shall be the effective costs but in no case shall exceed
those of the replaced Cableship.
(h) The operational conditions of intervention of a Cableship, during
her period of assignment under this Agreement, for the repair and
the maintenance on a non- Scheduled Cable within the Operational
Zone shall require the prior agreement of the Management
Committee.
(i) The Management Committee shall have the right, in case of gross
breach of contract of a Cableship Operator, to suspend the
activity under this agreement until such Cableship Operator has
demonstrated to the Management Committee its ability to remedy
such failure within a reasonable period of time after receipt of
notice from the Management Committee specifying such failure.
7. MAINTENANCE FACILITIES ON BOARD CABLESHIPS
(a) In order to be capable of fulfilling its obligations under this
Agreement, each Cableship Operator shall ensure that its Cableship
is provided with submarine telecommunications cable maintenance
equipment and fully-experienced personnel as specified in Schedule
H, such that the Cableship is able to carry out Repairs and
Maintenance & Improvement on all the Standard Scheduled cables.
(b) For Specific Scheduled Cables, it shall be the responsibility of
the relevant Maintenance Authority to provide to the Cableship
Operators, in a timely manner, any specialised equipment,
expertise, training or qualification instructions which are not
included in the Standard Practices and which are necessary for the
Repair or Maintenance & Improvement of such Specific Scheduled
Cable. Except as is provided in Article 18, all costs arising from
the provision of such specialised equipment , expertise, training
or qualification instructions to the Cableship Operator shall be
borne by the relevant Maintenance Authority and shall not be
charged to this Agreement.
(c) An interim period until the total consumption of the Alcatel
jointing boxes owned by the Maintenance Authorities may be defined
by the Management Committee before removing the Alcatel jointing
technology presently available on board the C/S R CROZE and C/S
TENEO.
<PAGE>
(d) The relevant Maintenance Authority shall be responsible for
ensuring, in a timely manner, that the Cableship Operators are
provided with cable systems documentation (and any specialised
equipment and expertise additional to that specified in Schedule
H) which is necessary for the Repair or Maintenance & improvement
of Scheduled Cables. The Cableship Operators shall exercise due
diligence in the safekeeping on board the Cableship of any
documentation, plant and equipment provided by a Maintenance
Authority pursuant to this Article.
(e) The relevant Maintenance Authority shall be responsible for the
timely provision of spare submersible plant for each of the
Scheduled Cables and for determining its required allocation
between shore depots and Cableships.
8. USE AND OPERATION OF THE DEPOT(S)
Each Maintenance Authority shall be responsible for ensuring that elected
depots or locations are fitted with the suitable technical and
operational requirements as defined in Schedule D5, in order to enable
the normal operation of the Cableships required by this Agreement when
transferring the Spare Submersible Plant to and from them.
9. USE OF SPARE SUBMERSIBLE PLANT
In order that Repair and Maintenance & Improvement to the Scheduled
Cables are carried out with the minimum of delay, or when a Cableship is
assigned to an Eastern Port, any of the Spare Submersible Plant stored
either onboard a Cableship or in a Depot or both may be used with prior
mutual agreement between the Maintenance Authority responsible for the
said Spare Submersible Plant and the Maintenance Authority responsible
for carrying out the Repair or Maintenance & Improvement provided always
that such Submersible Plant is considered by the Maintenance Authorities
concerned to be technically compatible with the Scheduled Cable to be
repaired or maintained. Upon completion of the repair, the Cableship
Operator shall promptly inform the Maintenance Authority concerned of the
type and quantity of Spare Submersible Plant used and the Maintenance
Authorities involved shall thereupon determine amongst themselves the
consequential financial adjustments or replacement arrangements.
10. TRANSFER OF SPARE SUBMERSIBLE PLANT
A Maintenance Authority shall be entitled, as a Maintenance & Improvement
work on an interruptible basis, to require that its Spare Submersible
Plant be transferred within the MECMA Operational Zone to or from a
Cableship or depot.
<PAGE>
11. NOTIFICATION OF CABLESHIP REQUIREMENT
(a) A Maintenance Authority requiring a Cableship to carry out a
Repair shall notify the Cableship Operator concerned. The
Maintenance Authority concerned shall also copy such notification
by fax to Management Committee. The relevant Cableship Operator
shall confirm receipt of such notification in accordance with
Article 21.
(b) When the Cableship Operator receives notification from a
Maintenance Authority that the services Of the Cableship are
required to undertake Repair or Maintenance & Improvement on any
of the Scheduled Cables, the Cableship Operator shall make
arrangements for the despatch of the Cableship to the required
place of operation without undue delay, typically within 24 hours,
subject to Article 5d and Schedule J.
(c) Repair and Maintenance & Improvement of the Scheduled Cables shall
normally be carried out by the requested Cableships. However, if
at that time the relevant Cableship has already been assigned to
another Repair or a Maintenance & Improvement operation, the
concerned Maintenance Authority shall request a second Cableship
to attend to the fault. If at that time the second selected
Cableship has already been assigned to another Repair or
Maintenance & Improvement operation, the concerned Maintenance
Authority shall request a third Cableship to attend to the fault.
In the event of the unavailability of the last Available Cableship
or of a conflict on the assignment of the Cableships or on the
sequence of the Repair and Maintenance & Improvement operations,
the following shall apply:
(i) The Maintenance Authorities concerned and the Cableship
Operators shall consult with one another with a view to
agreeing which Cableship should be assigned to which
operation and the sequence of the operations.
<PAGE>
(ii) If no agreement is reached, Repairs shall be carried out
first on the Scheduled Cable with the higher aggregated
number of Units of Repartition in Schedule B. When the
Scheduled Cable concerned forms part of a multiple segment
cable system, the number of UR to be considered for the
purpose of Article II (c) (ii) shall be the sum of the UR
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
(iii) Notwithstanding the provisions of Articles 11.c.(i) and
(ii) above, if the chosen Cableship has left her Assigned
Port to carry out a Repair on a Scheduled Cable, such
Repair should be completed before assigning the Cableship
to another Operation.
(d) For the purposes of notification, each Cableship Operator shall
appoint a representative to whom notification should be sent, as
given in Schedule I.
(e) At the request of the Management Committee, in order to comply
with the Maintenance Authorities requirements, the Cableship
Operators may also appoint a representative to whom notification
should be sent. This representative will liaise with the other
Cableship Operators without undue delay to define which Cableship
will carry out the repair.
12. PLANNING AND DIRECTION
(a) The Maintenance Authority requiring any repair or maintenance work
to be carried out may elect to be responsible for planning and
directing the Repair or Maintenance & Improvement operation which
shall be performed by the personnel of the Cableship under the
control and supervision of the Engineer in Charge of the Cableship
in accordance with the Cableship Operator's "Cable Working
Procedures" or "Standing Instructions" as may be amended from time
to time by the Cableship Operator. If the Maintenance Authority
does not so elect to be responsible then the Cableship Operator
shall be responsible for the planning and direction of the Repair
and Maintenance operation. In all cases the Maintenance Authority
shall make available to the Cableship Operator the necessary
technical information required for Repair and Maintenance to be
carried out to the appropriate Scheduled Cable.
The Cableship Operator shall always be responsible for the
planning, direction and performance of the repair unless the
relevant Maintenance Authority declares otherwise. In this case, a
format will be signed between the Maintenance Authority and the
Cableship Operator.
<PAGE>
(b) The Cableship Operators hereby agree that any Maintenance
Authority who elects to be responsible for planning and directing
any particular Repair or Maintenance & Improvement operation or
for purposes of observing the operation shall have the right to
have representatives onboard the Cableship during the relevant
cable operations. The number of representatives shall be subject
to accommodation availability, but shall be at least one.
(c) The Cableship Operator shall provide any representative of the
Maintenance Authority with the following facilities aboard the
Cableship:
- accommodation of standard not less than given to officers
on board and preferably with single occupancy
- full victualing and linen supply whilst on board
- access to the normal communication facilities of the
Cableship, as required
- 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
- access to suitable office accommodation and services
- access to the Cableship Operator's operational meetings
and/or briefings.
(d) The Maintenance Authorities shall appoint one of the authorised
representatives, should more than one be carried, as a "Senior
Representative". The- Senior Representative shall be responsible
for planning and directing the Repair or Maintenance & Improvement
operation, pursuant to Article 12(a) above.
(e) Permission to board the Cableship by any such representative shall
be subject to the acceptance by the representative of the
Maintenance Authority of the Cableship Operator's waiver of
liability requirements set forth in Article 22.
(f) Notwithstanding Articles 12(a), (b) and (c) above, the decision of
the Commander shall be final in carrying out or not carrying out
any directions or plans issued by the Senior Representative if the
Commander considers that the carrying out of such instructions
would endanger the Cableship or the lives or safety of any person
thereof.
13. CABLESHIPS BASE PORT
(a) At the inception of this Agreement, the Cableships shall be based,
while on standby for Repair and Maintenance & Improvement, at the
Base Ports designated in Article 5(a). In order to reduce the
duration of Repair operations and the associated costs, a minimum
of basic facilities such as spares storage area, berthing for any
Cableship, 24 hours access, 365 days per year must be provided.
<PAGE>
(b) Should the Management Committee require at some stage during the
term of this Agreement a Cableship Base Port to be changed
temporarily to an Assigned Port, in order to provide more
efficient maintenance coverage of the Scheduled Cables, then the
Cableship Operator shall implement the necessary change subject to
the prior agreement of the Cableship Operator(s) involved, which
agreement shall not be unreasonably withheld, and subject to
Article 16(a).
(c) Any costs incurred as a result of the necessary change of the Base
Port shall be borne by the Maintenance Authorities and allocated
to the Maintenance Authorities in proportion to each Scheduled
Cable's allocated number of Units in accordance with Schedule B.
14. CLEARANCES
(a) When a Cableship is requested to undertake any operation under the
terms of this Agreement, the relevant Cableship Operator shall be
fully responsible for obtaining the necessary authorisations to
carry out the work.
(b) The relevant Maintenance & Improvement Authority shall provide all
reasonable support, as requested by the Cableship Operators, in
the obtaining of the necessary authorisations and consents.
(c) The Cableship Operator shall inform the relevant Maintenance
Authorities if the necessary authorisations and consents have not
been received after two working days from the date of making the
application to the relevant marine authority.
(d) In the event of clearances being delayed or refused due to reasons
beyond the control of the Cableship Operator, as defined in
Article 25, the Cableship Operator shall not incur any liability
to any other Party.
15. PERIODS OF CABLESHIP UNAVAILABILITY
(a) A Scheduled Cableship will be considered temporarily unavailable
for Repair and Maintenance & Improvement of the Scheduled Cables
in the following circumstances:
(i) when the Cableship undergoes periodic refits, or.
(ii) when the Cableship undergoes any modification or alteration
agreed by the Management Committee, or
(iii) From the starting date of any Outside Work undertaken in
accordance with Article 6(d), until its conclusion;
<PAGE>
(iv) if at any time the Cableship for reasons other than as
stated above or for reasons of Force Majeure as defined in
Article 25 becomes unavailable other than a total loss or
constructive total loss.
Upon the occurrence of any of the above events, the appropriate
Cableship Operator shall notify the Chairman of the Management
Committee promptly and in writing of the expected period of
unavailability of that Cableship.
(b) If a Cableship becomes a total loss or a constructive total loss,
the Cableship Operator shall notify the Chairman of the Management
Committee and, if required by the Management Committee, use
reasonable endeavours to provide a substitute Cableship subject to
terms and conditions to be proposed by the Cableship Operator, and
agreed to by the Management Committee.
(c) If a Cableship is damaged to such an extent that require repairs,
the Maintenance Authorities shall bear its Fixed Standing Charges
up to a maximum period of 90 (ninety) days from the beginning of
such repairs.
16. PREROGATIVES OF THE COMMANDER
(a) The Cableships shall not be obliged to proceed to, nor remain at,
or enter any port or place which is, or which is considered by the
Commander or the Cableship Operator in his or its discretion to be
dangerous by reason of fever, epidemics, ice, blockade, war,
hostilities, warlike operations, civil war, civil commotions,
revolutions, operation of law or any other reason considered by
the Commander or the Cableship Operator in his or its discretion
to be dangerous, or to which the Cableships are prohibited from
going by the government of the nation under whose flag the
Cableship sails, or by any other government. In the event that a
Cableship is ordered to such a port or place, the Cableship
Operator shall seek instructions from the Maintenance Authorities
as to an alternative port or place. The Cableship Operator shall
also be entitled to charge any expenses incurred in proceeding
thereto as a Running Cost to the Maintenance Authority concerned
in accordance with Article 19.
(b) The Cableships shall not be obliged to force ice. If on account of
ice the Commander considers it dangerous to remain at a port or
place for fear of the Cableship being frozen in and/or damaged, he
has liberty to sail to a convenient open place and wait new
instructions.
(c) The Commander shall have liberty to comply with any orders or
directions as to departure, arrival, routes, port of call,
stoppages, destination, delivery or otherwise, howsoever given, by
the government of the nation under whose flag the Cableship sails
or any department thereof, or by any other government or any
<PAGE>
department thereof, or any person acting or purporting to act with
the authority of any such government or any department thereof or
by any committee or person having, under the terms of the war risk
insurance on the Cableship, the right to give such orders or
directions and if by reason of and in compliance with any such
orders or directions anything is done or is not done, the same
shall not be deemed a deviation, and performance in accordance
with such orders or directions shall be a fulfilment of this
Agreement.
(d) The Cableship Operator agrees where possible to use its reasonable
endeavours to ensure that the duration of any deviation or
detention under Articles 25 (a) and (b) are kept to a minimum. The
costs of such deviations or detentions shall be charged as Running
Costs to the relevant Maintenance Authority in accordance with
Article 19.
17. DISTRESS AND SALVAGE
At all times during the terms of this Agreement the Cableships shall have
liberty to sail with or without pilots, to tow or be towed, deviate to
assist vessels in distress or to deviate for the purpose of saving life
or property, to take aboard craft and land refugees, to secure medical
attention for any person onboard suffering from accident or illness, to
deviate for reason of bad weather, to call at any ports for fuel or other
supplies, or for any other valid or customary cause. The Management
Committee shall be advised as soon as possible of any of these causes.
18. INCLUSION AND DELETION OF ADDITIONAL PARTIES AND SCHEDULED CABLES
(a) Where any maintenance authority assumes the maintenance
responsibility for any cable system, or Part thereof within the
Operational Zone, and if that maintenance authority is not a Party
to this Agreement then that maintenance authority may, with the
prior written agreement of the Management Committee, such
agreement not being unreasonably withheld or delayed, and in
recognition of the mutual benefits to be obtained, be entered as a
Maintenance Authority under this Agreement for the balance of the
term of the Agreement by means of a Document of Accession, as set
forth in Schedule E, and hence upon the coming into force of such
document shall be entered into Schedule Al.
(b) Subject to the prior agreement of the Management Committee, which
agreement shall not be unreasonably withheld or delayed, when a
Maintenance Authority, being a Party to this Agreement, assumes
responsibility for any cable system, or part thereof within the
Operational Zone which is not a Scheduled Cable, as given in
Schedule H 4, and if that Maintenance Authority wishes such cable
system, or part thereof, to become a Scheduled Cable, then it
shall be entered into Schedule
<PAGE>
B1. Other appropriate Schedules shall be amended accordingly. 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 affect its availability to carry
telecommunications traffic.
(c) 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 the Agreement, already been qualified
for jointing by means of UJ or QUJ technology, the Cableship
Operators shall implement the necessary additional jointing
training and/or tooling required by the crew of the Cableship to
permit that Cableship to carry out a Repair to such Scheduled
Cable. The cost of such additional jointing training and/or
tooling required shall be borne by the Maintenance Authorities in
proportion to the UR allocated to them in Schedule B. The
provisions of this Article 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.
(d) 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 from the period of
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
the Standing Charges shall apply. During this period of early
introduction, between the completion of its laying operation up to
the RFS date, the MECMA cost Allocation Formula as defined in
Schedule B will apply with k or s equal 0.
(e) A Scheduled Cable may be removed from this Agreement in the event
of that cable being taken out of service.
(f) For the duration of this Agreement, a Maintenance Authority shall
have the right to early withdraw a Scheduled Cable from the
Agreement provided always that:
(i) it shall give at least one year prior written notice of
such withdrawal to the other Parties hereto and that
(ii) the effective date of withdrawal of such Scheduled Cable
shall not occur before five years from the introduction of
such Scheduled Cable in this
<PAGE>
Agreement except if the withdrawal is the result of the occurrence
of Article 18 (e) above.
(g) In the case of Article 18 (a), agreement shall be obtained from
the Parties as follows:
(i) Notification to the Parties of the proposed change in
writing or by fax.
(ii) Upon the expiry of thirty (30) days from the date of such
notification and, except in the event of any Maintenance
Authority advising any objections in writing or by fax
during such notice period, the relevant Schedules shall be
amended and a Document of Accession shall be executed as
set forth in Schedule E. All revised Schedules and, where
appropriate, certified copies of the Document of Accession
shall be distributed to each of the Parties.
(iii) In the event that a Maintenance Authority objects in
accordance with Article 18 (g)(ii) above, the Management
Committee shall decide what action should be taken
according to Article 4.
(h) In the case of Article 18 (b), agreement shall be obtained from
the Parties as follows:
(i) Notification to the Parties of a request for inclusion in
writing or by fax.
(ii) Upon the expiry of thirty (30) days from the date of such
notification and, except in the event of any Maintenance
Authority advising any objection in writing or by fax
during such period the relevant Schedules shall be amended.
All revised Schedules shall be distributed to each of the
Parties.
(iii) In the event that a Party objects in accordance with
Article 18 (h)(ii) above, the Management Committee shall
decide which action should be taken according to Article 4.
(i) The Management Committee shall be responsible for administering
the implementation of this Article on behalf of the Parties.
19. BASIS OF CABLESHIPIS COST ALLOCATION
(a) The respective costs of each Scheduled Cableship shall comprise:
- Standing Charges as defined in Schedule C1.
- Running Costs as defined in Schedule C2.
<PAGE>
The Standing Charges for the whole duration of the Agreement shall
be as shown below for each Cableship in this Agreement.
The Standing Charges for the first three Financial Years of this
Agreement are fixed and are not subject to any increase
(1999/00/01).
***
(*) CS Certamen is to be considered as an Alternate Cableship to CS Teliri
(b) At the end of the first Financial Year of this Agreement (1999),
each Cableship Operator shall advise the Maintenance Authorities
of its Cableship's Fixed Standing Charges for the fourth Financial
Year of the Agreement (2002). At the end of the second and each
subsequent Financial Year thereafter, each CableshipOperator shall
advise the Maintenance Authorities of its Cableship's Fixed
Standing Charges for the next unpriced Financial Year forward, and
this method of Cableship pricing shall be maintained throughout
the term of the Agreement.
(c) For the 4th and subsequent Financial Year, if a Cableship Operator
requires an increase of the annual Standing Charges, then the
Cableship Operator shall submit details of such increase for the
consideration of the Management Committee.
(d) The Fixed Standing Charges of Scheduled Cableships shall be
converted in French Francs using the standard exchange rate dated
September I st of the year before the Financial Year concerned as
given in the Newspaper `LES ECHOS' published in Paris. The figures
in French Francs are used for the evaluation of the Network Fixed
Standing Charges given in Article 19 (e).
(e) The Management Committee shall determine the Network Fixed
Standing Charges at the beginning of each Financial Year. For each
Cableship, periods in the Agreement as anticipated in the
Cableship Schedule shall be taken into account on a daily basis by
dividing the annual Fixed Standing Charges of the Cableship by
335.
<PAGE>
The Network Fixed Standing Charges for the first three Financial Years of this
Agreement shall be as follows: (Figures given in French Francs)
***
(*) Cs Certamen is to be considered as an Alternate Cableship to CS Teliri
(**) The Network Fixed Standing Charges excludes CBP function and Eastern Port
additional costs.
These Network Fixed Standing Charges are based upon the exchange rate
applicable at the date of the signature of this agreement and shall be
revised by the CBP according to the evolution of such exchange rates.
(f) For each Scheduled Cableship, bills to be paid to Cableship
Operators shall be prorated amount of such Cableship Fixed
Standing Charges due for the coming quarter based on the Cableship
Programme. Such figure shall be abated or adjusted as appropriate
by any sums due to or already paid to the Cableship Operator
during the previous quarter in respect of:
(i) the Cableship Fixed Standing Charges for periods when the
Cableship Programme was modified in accordance with Article
6 (c);
(ii) the Cableship Fixed Standing Charges for periods of any
Outside Work performed in accordance with Article 6 (d);
(iii) the Cableship Fixed Standing Charges for periods in excess
of 90 days when a Cableship is unavailable in accordance
with Article 15(c);
(iv) the Cableships Fixed Standing Charges for periods when the
Cableship(s) undergo(es) Refit.
(g) Cableship Fixed Standing Charges applicable to periods of time
shall be determined on a daily basis by dividing the annual Fixed
Standing Charges of the Cableship by a figure of 335.
(h) The quarterly Standing Charges invoiced to the Maintenance
Authorities shall be based on a yearly estimated UR cost. Not
later than twenty days before the start of each financial year,
the Management Committee shall agree on the estimated UR cost
determined by adding the annual Network Fixed Standing Charges in
accordance with Article 19(e) and by dividing this total amount by
the total estimated number of Units of Repartition in the network.
The quarterly Standing
<PAGE>
Charges billed to each Scheduled Cable shall be calculated by
multiplying the relevant Units of Repartition by the estimated UR
cost.
(i) For the whole duration of the Agreement, the UR cost shall in no
case exceed *** and will decrease year by year.
(j) As soon as possible after the end of each Financial Year, the
Management Committee shall approve a final UR cost based on the
total Fixed Standing Charges, adjusted as appropriate to reflect
any Outside Work undertaken in accordance with Article 6 (d), and
the actual number of Units of Repartition according to Schedule B2
for a given Financial Year. A yearly financial adjustment shall be
made to take into account appropriate adjustment based on the
final UR cost.
(k) The Running Costs of a Cableship incurred during the period when
such Cableship is engaged in any Repair or Maintenance &
Improvement work on a Scheduled Cable, including passage time,
shall be allocated entirely to the Scheduled Cable involved.
(l) In the event of any Cableship being engaged in multiple work
operations, the Running Costs for the passage time before such
work starts on the first operation, the time spent in passage
between the end of each completed operation, and the start of the
next operation, and the time spent in passage from the end of the
last operation in the series of operations to the arrival of the
Cableship at its Assigned port, shall be aggregated and shared to
the operations in proportion to the distance of each operation
from the Cableship's Assigned Port.
(m) The Running Costs of the Cableship for the entire periods when
engaged in Outside Work shall be borne wholly by such Outside
Work.
(n) The Fixed Standing Charges of the Cableship for the entire periods
when not assigned to this Agreement shall be borne wholly by the
Cableship Operator involved.
(o) The Running Costs of a Cableship for the duration of any period
when engaged in crew training in accordance with Article 6 (e)
shall be borne wholly by the relevant Cableship Operator.
(p) The Running Costs identified in Article 5 (d) (ii) in respect of
the provision of additional facilities shall be allocated on the
basis identified in Schedule I amongst the Scheduled Cables having
been agreed as requiring the availability of such additional
facilities.
<PAGE>
(q) The Cableship Operators agree that if one Cableship is engaged in
refit and in such circumstances the Cableship is reasonably deemed
by the Management Committee to be urgently required due to an
emergency requirement involving coincident faults then the
Cableship Operator will disengage the required Cableship from
refit as soon as considered possible. Nothing in this Article
shall be construed as requiring a Cableship Operator to operate a
Cableship out of classification in any respect or if in the
Commander's sole discretion the safety of the Cableship and its
personnel might be jeopardised by such operation. The costs
associated with disengaging the Cableship from the refit shall be
included as Running Costs for that Cableship and allocated to the
Scheduled Cables in accordance with Article 19(h).
20. BILLING, ACCOUNTING AND PAYMENT ARRANGEMENTS
(a) The billing, accounting and payment arrangements function shall be
centralised and carried out by a Central Billing Party,
hereinafter referred to as MECMA Central Billing Party, appointed
by the Management Committee.
(b) The Cableship Operators' bills shall be supplied to the MECMA
Central Billing Party which shall render invoices to the
Maintenance Authorities.
(c) Each Cableship Operator shall submit quarterly bills to the MECMA
Central Billing Party on or before the 1st working day of the
month preceding the quarter to which they relate.
(d) The Cableship Operators' bills shall give details of Cableship
Fixed Standing Charges (including retrospective adjustment) and
Running Costs. Retrospective adjustments to the amounts billed in
accordance with Article 19 (g) shall be included and settled as a
part of the next billing submission to the MECMA Central Billing
Party.
(e) The Cableship Operator shall issue their bills in their local
currency and such bills shall be payable in their own currency on
the 7th working day of the third month of the quarter to which
they relate.
(f) In the event that a payment is delayed to a Cableship Operator,
except delay due to late payments from the Maintenance Authorities
as defined in Article 20 (m), extended payment charges shall be
calculated by the MECMA Central Billing Party and paid to the
Cableship Operator. Extended payment charges shall be computed on
a simple interest basis at a rate equal to one hundred and twenty
five percent (125%) of the monthly arithmetic mean of the PlBOR
for thirty day loans. Such extended payment charges shall be borne
by all Maintenance Authorities in proportion to their Units of
Repartition as per Schedule B2, unless such late
<PAGE>
payment is due to the actions or omissions of the Central Billing
Party in which latter event the extended payment charges shall be
to the account of the Central Billing Party.
(g) The party responsible for the MECMA Central Billing Party function
shall charge the cost associated with the performance of the
Central Billing function. These charges shall be allocated
according to Scheule B2.
(h) Quarterly invoices shall be rendered to the Maintenance
Authorities by the MECMA Central Billing on the 15th working day
of the month prior to the quarter in which they apply. Such
invoices shall be based on information received by the MECMA
Central Billing Party and shall include:
- The quarterly Standing Charges based on the estimated UR
cost in accordance with Article 19 (h),
- Running Costs as defined in Article 19,
- Transfer costs as defined in Article 10,
The invoices shall be supported with the appropriate documentation
including copies of the Cableship Operator's bills and the
Schedules B1 and B2 effective at the time of the billing.
(i) As soon as possible after the end of the Financial Year, a yearly
financial adjustment billing shall be to the Maintenance
Authorities by the MECMA Central Billing Party. The yearly
financial billing shall includes the adjustment of Standing
Charges and some additional costs billed yearly, as follows:
- Adjustment of the annual Standing Charges cost taking into
account the final UR cost as per Article 19(j);
- Adjustment covering variances due to exchange rate
fluctuation between the rate used for the billing and the
rate in force on the date of the payment;
- Financial charges in accordance with Article 20 (f) and
Article 20 (m);
- The cost of the performance of the Central Billing Party
function.
(j) Invoices rendered to the Maintenance Authorities shall be issued
in French Francs at the exchange rate effective at the date of the
billing and shall be payable in that currency. Such invoices shall
be payable on the last working day of the second month of the
quarter to which they relate.
<PAGE>
(k) The MECMA Central Billing Party shall provide the relevant
Maintenance Authorities by fax, or a like means of communication,
with advice of the date of despatch of all invoices being
submitted under this Agreement.
(l) Schedule B1 identifies the Maintenance Authorities responsible and
individually liable for the payment of any amounts due under this
Agreement in respect of each Scheduled Cable.
(m) In the event that a payment is delayed by a Maintenance Authority,
invoices not paid when due shall accrue late payment charges from
the due date until the day on which it is paid. The late payment
charges shall be calculated by the MECMA Central Billing Party and
shall be charged to the defaulting Party. Late payment charges
shall be computed on a simple interest basis at a rate equal to
one hundred and twenty five percent (125%) of the monthly
arithmetic mean of the PIBOR for thirty day loans.
(n) if an invoice for a Scheduled Cable remains unpaid for 180 days
after the due date, the MECMA Central Billing Party shall advise
the Management Commiftbe and invoice to the other Maintenance
Authorities a proportional share of the unpaid invoice, including
a proportional share of the interest incurred. The amounts
invoiced to such Maintenance Authorities shall be in proportion to
their number of Units of Repartition. The said amounts paid to the
MECMA Central Billing Party shall be transferred to the
Cableship(s) Operator(s) in payment of their outstanding bills.
(o) 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 Costs in accordance with Articles 20 (h) and (i).
If the defaulting Maintenance Authority fails to pay any invoice
within 365 days of its due date, its Scheduled Cables will be
automatically excluded from the Schedules B. At such time, revised
schedules, which will exclude the Schedule Cables and the
associated Maintenance Authorities, shall be issued. The
defaulting Maintenance Authorities will continue to be excluded
from Schedules B until all outstanding invoices, including
applicable interest as specified in Article 20 (m), have been paid
in full.
(p) 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 more than one Maintenance Authority, the
Central Billing Party shall notify such other Maintenance
Authority(ies) for that cable of such defaults for non-payment.
Notwithstanding Article 20 (n) and (o), a Maintenance Authority
for a Scheduled Cable having more than one Maintenance Authority
shall have the option, at any
<PAGE>
time within 365 days of the due date of a bill, to pay any unpaid
bill including any applicable interest 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 invoice and the cable involved shall not
be excluded from the Schedules B.
In such case, the Maintenance Authority which accepts the option to pay any
unpaid bill of another defaulting Maintenance Authority for a specific system,
is entitled to exercise the right of vote instead of the defaulting Maintenance
Authority for such system inside the Management Committee.
(q) Upon receipt by the MECMA Central Billing Party from thek
defaulting Maintenance Authority or from another Maintenance
Authority for a Scheduled Cable having more than one Maintenance
Authority of any amount paid by the other Maintenance
Authority(ies) in accordance with Article 20 (n), any such amounts
shall be distributed to the other Maintenance Authorities in the
same proportions as those Maintenance Authorities paid to the
MECMA Central Billing Party under Article 20 (n).
(r) Recognising that some Maintenance Authorities within various
Construction & Maintenance Agreements have appointed a central
billing party in respect of their Scheduled Cables, the MECMA
Central Billing Party shall forward the original invoice to that
central billing party for payment. Information copies of invoice
shall be forwarded at the same time to all the relevant
Maintenance Authorities. The central billing parties appropriate
to Scheduled Cables under this Agreement are indicated in Appendix
3 of the pro-forma document of accession.
(s) Notwithstanding Article 20 (r) the respective Maintenance
Authorities shall remain responsible and Individually liable for
all payments due by them under this Agreement and as indicated in
Schedule B1.
21. RESPONSIBILITIES FOR THE SHIPS SCHEDULES AND REPORTS
(a) Not later than two months before the start of each Financial Year,
each Cableshp Operator shall provide the Management Committee with
an estimate of Running Costs for its Cableship, in accordance with
the format set out in Schedule C3.
(b) When a Cableship is notified to commence an Operation or when a
Cableship changes operational status, the Cableship Operator shall
notify the Management Committee by facsimile as specified below.
- Upon receipt by a Cableship Operator of written notice that
its Cableship is required to carry out a repair in
accordance with Article 11, the Cableship
<PAGE>
operator shall, within 24 hours, transmit to the Management
Committee a notification of commencement of Cableship
Operation,
- For the duration of the repair, the relevant Cableship
Operator shall provide the relevant Maintenance Authority
and relevant terminal parties with daily progress reports
including a log of the day's events, an indication of the
estimated number of hours remaining until the completion of
the final splice, an indication of the times when the
Cableship is likely to require co-operation from the
relevant terminal parties, information on the nature of the
fault, any possible delays and any equipment and procedural
problems encountered
(c) Upon completion of such Operation, the Cableship Operator shall;
within 24 hours, transmit to the Management Committee a
notification of completion of a Cableship Operation.
(d) Upon a Cableship's change in operational status e.g. Standby,
Repair, Maintenance & Improvement, Refit, Crew Training and
Outside Work, the Cableship Operator shall transmit to the
Management Committee a notification of the change in status.
(e) Within one month after the completion of a Repair, the relevant
Cableship Operator shall provide to the relevant Maintenance
Authority a detailed repair report including the repair synopsis
in English language
(f) Cableship reporting arrangements for Maintenance & Improvement or
other work of an interruptible nature shall be agreed between the
relevant Cableship Operator and the relevant Maintenance Authority
responsible for such work
(g) The Cableships Operators shall as appropriate keep such records,
vouchers, accounts, or reproduction thereof in whatever form of
all costs incurred in connection with the Cableship Running Costs,
to support their billing of such costs to and amongst the
Maintenance Authorities for a period of not less than six years
from the date such costs were incurred and shall make such
records, vouchers, and accounts available at all reasonable times
for inspection by the Maintenance Authorities.
(h) The Cableship Operators shall keep Repair and Maintenance &
Improvement records relating to Scheduled Cables for a period of
not less than six years from the date of issue of such records and
the Maintenance Authorities shall have the right to obtain copies
of such records upon request.
22. LIABILITY AND INDEMNITY
<PAGE>
(a) Notwithstanding anything else contained in this Agreement, the
Maintenance Authorities shall not be responsible for loss of or
damage to the property of the Cableship Operators or of their
Contractors and sub-Contractors, including the Cableships, or for
personal injury or death of the employees of the Cableship
Operators or the loss of or damage to the property of the same
arising out of or in any way connected with the performance of
this Agreement, except if such loss, damage injury or death is
caused by the wilful act or negligence of the Maintenance
Authorities, their employees or Contractors. The Cableship
Operators shall indemnify, protect, defend, hold harmless and
waive all rights of recourse against the Maintenance Authorities
from any and against all claims, costs, expenses, actions,
proceedings, suits, demands and liabilities whatsoever arising out
of or in connection with such loss, damage, personal injury or
death.
(b) Notwithstanding anything else contained in this Agreement, the
Cableship Operators shall not be responsible for loss of or damage
to, or any liability arising out of any cable carried by the
Cableships, the Property of the Maintenance Authorities (including
the Scheduled Cables) or of their employees or Contractors (other
than the Cableship Operators) or of anyone on board the Cableship
or present in the Depot at the behest of the Maintenance
Authorities, arising out of or in any way connected with the
performance of this Agreement, except if such loss or damage is
caused by the wilful act or negligence of the Cableships
Operators. The Cableship Operators shall not be responsible for
injury or death unless it is proved that such injury or death is
caused by wilful act or negligence of the Cableship operators,
their employees or Contractors. The Maintenance Authorities shall
indemnify, protect, defend hold harmless and waive all rights of
recourse against the Cableship Operators from any and against all
claims, costs, expenses, actions, proceedings, suits, demands and
liabilities whatsoever arising out of or in connection with such
loss, damage, personal injury or death.
(c) Neither the Cableships Operators nor the Maintenance Authorities
shall be liable to each other for any indirect or consequential
damages or expenses whatsoever arising out of or in connection
with the performance of this Agreement, including but not limited
to, loss of use, loss of profit or revenue or any loss of business
opportunity and cost of insurance.
(d) When the Cableship Operators or the Maintenance Authorities may
seek an indemnity under the provisions of this Agreement or
against each other in respect of a claim brought by a third party,
the Maintenance Authorities shall seek to limit their liability
against such third party.
23. INSOLVENCY
Upon the occurrence of each or any of the following events:
<PAGE>
(i) if, except for the purposes of re-organisation, any Party is wound
up or a petition is presented or an order is made or a resolution
is passed for the winding up of any Party or a meeting is convened
for the purpose of considering any such resolution;
(ii) if any Party is placed under official management, that is if,
pursuant to a resolution of creditors or members of that Party or
an order of a court, a person is appointed to take custody of all
or part of the property of that Party and to conduct its business
and manage its affairs and comply with the legislation in respect
of companies applicable in the place where he is so appointed, or
if any Party causes a meeting of its members or creditors to be
summoned for the purpose of placing it under official management;
(iii) if any Party makes default under any charge or security in favour
of any creditor of that Party;
(iv) if any indebtedness of any Party becomes due and payable prior to
the stated maturity thereof as a result of a default or is not
paid upon the maturity thereof;
(v) if an inspector of all or any part of the affairs of any Party is
appointed pursuant to the legislation in respect of companies
applicable in the place of incorporation of that Party or in a
place where that Party carries on business;
(vi) if a compromise or arrangement is proposed between any Party and
its creditors or any class of them or if an application is made to
a court for an order summoning a meeting of creditors or any Class
of them of any Party;
then any Party affected by each or any of the above listed events shall
immediately inform all the other Parties thereof, and all the Parties
shall then consult to decide what further action is necessary.
24. INSURANCE
(a) Each Cableship Operator respectively shall be responsible for obtaining
its necessary insurance coverage.
(b) If requested by a Maintenance Authority, the Cableship Operator shall
provide individually and on a confidential basis to that Maintenance
Authority copies of relevant insurance policies and, if applicable,
copies of the booklet giving details of the Protection and Indemnity
cover and proper evidence of the payment of all premiums.
<PAGE>
25. FORCE MAJEURE
(a) The Cableship Operator shall not be liable for any inability or
delay in carrying out work on the Scheduled Cables if prevented
from doing so for reasons beyond their reasonable control.
(b) In particular, Cableships Operators shall not be liable for any
delay or failure to carry out their duties and obligations hereto
arising out or resulting from (including but not limited to):
- Fire, unless caused by the actual fault or privity of a
Cableship Operator.
- Perils, dangers, and accidents of the sea or other
navigable waters.
- Act of God.
- Act of War.
- Act of public enemies.
- Arrest or restraint of princes, rulers or people, or
seizure under legal process.
- Quarantine restrictions.
- Act of omission of the Maintenance Authority, its agent or
the Maintenance Authority's authorised representative(s).
- Strikes or lockouts or stoppage or restraint of labour from
whatever cause, whether partial or general.
- Riots and civil commotions.
- Saving or attempting to save life or property at sea or to
take aboard or land refugees.
- Loss or damage arising from inherent defect, quality or
vice of the Maintenance Authorities plant and equipment.
- Latent defects not discoverable by due diligence.
- Pirates or assailing thieves.
- Adverse weather conditions.
<PAGE>
26. DURATION OF AGREEMENT
This Agreement shall become effective on January 11, 1999 and shall
expire 5 years from that date, but may continue beyond that date by
agreement amongst the Parties.
At least one year before the date of such expiry, the Parties shall
decide on a possible continuance of this agreement on a year by year
renewal basis.
27. GOVERNING LAW
This Agreement shall in all respects be governed by and be construed in
accordance with the laws of Switzerland - Canton of Geneva.
28. ARBITRATION
(a) All disputes arising in connection with this Agreement and which
cannot be settled by amicable negotiation to the mutual
satisfaction of the Parties concerned by, the dispute shall be
finally settled under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce in Paris as in effect on the
date hereof by one or more arbitrators appointed in accordance
with the said Rules.
(b) The site of the arbitration shall be Geneva (Switzerland). The
language of the arbitration shall be English. The arbitrators will
apply the procedural rules of arbitration of the International
Chamber of Commerce. Any award rendered shall be final and
conclusive and judgement thereon may be rendered in any court
having jurisdiction for its enforcement.
(c) The performance of this Agreement by the Parties shall continue
during such arbitration or legal proceedings.
29. RELATIONSHIP OF THE PARTIES
The relationship between or amongst 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 amongst the Parties
shall be limited to the express provisions of this Agreement.
30. STATUS OF CABLESHIPS AND ASSOCIATED FACILITIES
Nothing herein shall be construed as a demise or charter of a Cableship
to any of the Parties.
<PAGE>
31. AMENDMENTS
(a) This Agreement and any of the provisions herein, unless as
expressly provided for herein, may only be altered or added to in
writing signed by a duly authorised person on behalf of each
Party.
(b) Except as otherwise provided for herein, Schedules B1, B2 & B3,
C3, F1 and I only may be amended subject to agreement by fax
between and amongst all the Parties.
32. ASSIGNMENT
No Party shall, without the written consent of all the other Parties,
which consent shall not be unreasonably withheld, sell, transfer or
dispose of its rights or obligations under this Agreement except to its
parent/subsidiary company or a statutory successor by operation of law.
33. EXECUTION AND COUNTERPART
This Agreement shall be executed in 33 counterparts in the English
language and each counterpart when delivered shall be considered an
original.
New Maintenance Authorities shall be added to this Agreement by means of
a Document of Accession as set forth in Schedule E and the Document of
Accession shall for each such addition be executed in two counterparts in
the English language and certified copies shall be delivered to all the
Parties.
34. INTERPRETATION
All references to the Party(ies), Article(s), and Schedule(s) refer to
the Party(ies), Article(s) and Schedule(s) under this Agreement. In
addition, and where the context so requires, the singular shall be taken
to mean the plural and the plural shall be taken to mean the singular.
35. ENTIRE AGREEMENT
This Agreement together with the Schedules hereto constitutes the entire
agreement between the Parties in relation to its subject matter and
supersedes all prior verbal or written understandings between and among
the Parties.
This Agreement supersedes all prior verbal or written understandings
between the Parties and constitutes the entire agreement with respect to
the subject matter of this Agreement
<PAGE>
This Agreement includes the following documents which are attached hereto
and incorporated herein by reference.
A. List of Parties
Al. List of Parties to this Agreement - Maintenance Authorities
A2. List of Parties to this Agreement - Cableship Operators
B. List of Scheduled Cables
C. Cableships fixed Standing Charges allocation and Running Costs
C1. Standing Charges
C2. Running Costs
C3. Estimated for 1998
E. Proforma Document of Accession
F. Previous Cableship Agreements
G. Management Committee Terms of Reference
H. Basic Cableship Technical Criteria
H.O. BASIC CABLESHIP TECHNICAL CAPABILITIES
H.I. CS CROZE
H.2. CS TELIRI
H.3. CS TENEO
H.4. CS CERTAMEN
H.5. STANDARD/SPECIFIC CABLES
I. Representatives of the Parties and Mailing Addresses and Contacts
for Financial and Maintenance Purposes
J. Sailing/repair standard duration
Schedule D is not part of the Entire Agreement
36. HEADINGS
<PAGE>
For the purposes of interpretation of this Agreement and Schedules, all
headings thereof shall be deemed not to form part of this Agreement.
37. REPRESENTATIVES AND CORRESPONDENCE
The Parties shall inform each other of their representatives for the
purpose of correspondence between the Parties.
38. NOTICES
(a) Any notice or consent required or permitted hereunder shall be
given in writing or confirmed in writing as the context so
requires and shall be deemed to be duly given if deposited by hand
at, or despatched by airmail of the most expeditious class or by
fax or electronic mail addressed to the registered office last
quoted by the Party to whom it is addressed.
(b) Unless it is expressly provided for herein or otherwise agreed,
any such notice or consent shall be deemed to be served ten days
from the date of despatch.
39. PUBLICITY
Any publicity or news releases regarding this Agreement shall not be
issued or published without the prior agreement of the Parties.
40. INFORMATION
Information furnished by one Party to another shall be kept confidential
by the Party receiving it and shall be used only for the purposes of this
Agreement, and may not be used for any other purposes without the prior
written consent of the Party owning the Information, unless such
Information:
(i) was previously known to the receiving Party free of any obligation
to keep it confidential, or
(ii) has come into the public domain other than by a breach of
confidentiality by the receiving Party, or
(iii) is received from a third party without similar restriction and
without breach of this Agreement, or
<PAGE>
(iv) is necessary or proper disclosure under any applicable law, rule
or regulation or pursuant to the direction of any Governmental
Entity or Agency having jurisdiction in any country of the
Parties.
41. PERFORMANCE OF AGREEMENT
The performance of this Agreement by the Parties hereto shall be
contingent upon either:
(i) the continued operation of at least one Scheduled Cable; it
being understood that the Parties shall consult each other
in such event and shall confer to decide further action
including the termination of this Agreement
or
(ii) the necessary government approvals.
42. PERFORMANCE OF AGREEMENT
The performance of this Agreement by the Parties hereto shall be
contingent upon either:
(i) the continued operation of at least one Scheduled Cable; it
being understood that the Parties shall consult each other
in such event and shall confer to decide further action
including the termination of this Agreement.
or
(ii) the necessary government approvals.
43. SEVERABILITY
If any of the provisions of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate
or render unforceable the entire Agreement, but rather the entire
Agreement shall be construed as if not containing the particular invalid
or unenforceable provision or provisions and the rights and obligations
of the parties shall be construed and enforced accordingly.
44. WAIVER
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 written and signed on behalf of the Party making the waiver.
<PAGE>
EXHIBIT 10.25
ROV
SERVICE AGREEMENT
This agreement (hereinafter referred to as the "Agreement"), is effective as
from the first day of January 1999,
BETWEEN
THE "SERVICE PROVIDERS":
FRANCE CABLES ET RADIO, a corporation organised and existing under the laws of
France, headquartered at 124 rue Reaumur, 75091 PARIS cedex 02, France
(hereinafter referred to as "FCR"), and FRANCE TELECOM, a company with limited
liability organised and existing under the laws of France, headquartered at 6,
Place d'Alleray, 75505 PARIS cedex 15, FRANCE (hereinafter referred to as
"FRANCE TELECOM" or "FT", and with FCR hereinafter collectively referred to as
"FT/FCR") and,
ELETTRA TLC S.P.A., a company organised and existing under the laws of Italy,
having its registered office at Viale Europa, 190-00144 Roma - ITALY
(hereinafter referred to as "ELETTRA")
on one hand,
AND
the companies or legal entities identified in Schedule 1 of this Agreement
(hereinafter collectively referred to as "the Maintenance Authorities")
on the other hand,
<PAGE>
WITNESSETH
Whereas, certain of the Maintenance Authorities having a common interest in the
efficient and effective maintenance and repair of submarine cable systems in the
Mediterranean, Red and Black Seas and desirous to obtain the support and use of
an undersea dedicated Remotely Operated Vehicle (ROV), as hereinafter defined,
to assist them in their maintenance and repair activities, had selected FT/FCR
to undertake submarine cable Repair, Maintenance and Improvement Services for
the benefit of all the Maintenance Authorities and consequently had signed a ROV
Service Agreement on 01 December 1994 (hereinafter referred to as the "Original
Agreement").
Whereas, additional parties have been entered as Maintenance Authorities under
the Original Agreement after the execution of the said agreement.
Whereas, the Maintenance Authorities, have selected an additional service
provider to undertake submarine cable Repair, Maintenance and Improvement
Services for their benefit: an Italian company named ELETTRA.
Whereas, FT/FCR and ELETTRA have agreed to provide the use of their cableships
(as hereinafter defined) with a ROV workpackage to the Maintenance Authorities,
it being understood that for FT/FCR, FCR will supply the Cable Ship and the ROV
and FRANCE TELECOM will operate them.
Whereas, all the Parties to this Agreement deem more appropriate to execute a
new agreement including clearly the modifications and the necessary additional
provisions rather than to execute an amendment to the Original Agreement,
consequently this Agreement cancels and supersedes the Original Agreement.
NOW, THEREFORE THE PARTIES IN CONSIDERATION OF THE MUTUAL COVENANTS HEREIN
EXPRESSED AGREE AS FOLLOWS:
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<PAGE>
ARTICLE 1 DEFINITIONS
In this Agreement, unless the context otherwise requires, the following
expressions shall have the meanings hereby assigned to them:
1.1. "ACCOUNTING UNITS" means the units allocated to Maintenance
Authorities and to Designated Cables defined in
Schedule 1 for the purpose of apportioning among
Maintenance Authorities the ROV Costs. These units
are derived by using the formula contained in
Schedule 4 and are listed on such Schedule 4.
These Accounting Units may also be referred to as
"AU".
1.2. "ACCOUNTING UNIT COST" Means the cost allocated to each AU determined by
adding the annual Standing Charges of both ROVs
and the Central Billing Party (as defined in
Article 1.5) service and by dividing this total
amount by the total estimated number of AU as
given in Schedule 4.
1.3. "ASSIGNED PORT" Means the port from which a cable ship hosting the
ROV is at any given time mobilised to undertake
Repair or Maintenance & Improvement work under
this Agreement.
The Assigned Port of the ROV installed on the NC
Raymond CROZE, is La SEYNE-SUR-MER, France.
The Assigned Port of the ROV installed on the PC
TELIRI or PC CERTAMEN is CATANIA - Italy.
1.4. "CABLESHIP" means any of the following vessels when assigned
to the MECMA agreement:
- NC RAYMOND CROZE (or a substitute ship) owned
by FCR and operated by FT
- PC TELIRI or PC CERTAMEN (or a substitute
ship) owned and operated by ELETTRA.
- Any other cableship agreed between the
Maintenance Authorities and the Service
Providers to host a ROV and provide Repair
and Maintenance & Improvement services under
this Agreement
3
<PAGE>
1.5. "CENTRAL BILLING PARTY" means the Party designated in Article 10.2,
responsible for:
(i) performing all billing and associated
financial functions under this Agreement, and
(ii) preparing the ROV budget and collecting all
actual financial data evidencing the ROV
Costs. The Central Billing Party may also be
referred to as "CBP".
1.6. "DESIGNATED CABLES" means the submarine cables which are listed in
Schedule 1, as amended from time to time, on which
Repair and Maintenance & Improvement shall be
undertaken with the ROV under this Agreement.
1.7. "MAINTENANCE & IMPROVEMENT"
means work carried out on a Designated Cable
involving the use of the ROV, other than a Repair,
and which is deemed by the relevant Maintenance
Authority(ies) to be required in order to reduce
the susceptibility of the Designated Cable to
future service-affecting, faults, howsoever
caused.
1.8. "MANAGEMENT COMMITTEE" means the Committee established by Article 10.1.
1.9. "MECMA" means the MEditerranean Cable Maintenance
Agreement, which came into force on 01 January
1993 and its 3 amendments or any agreement which
may replace it.
1.10."OPERATING ZONE" means the MECMA operational zone in which the ROV
will operate under this Agreement.
1.11."OPERATIONAL DATE" means the date upon which the ROV and the
Cableship are mobilised to provide Repair or
Maintenance and Improvement at the request of
a Maintenance Authority, as mutually agreed
between the Service Providers and such Maintenance
Authority.
1.12."OUTSIDE WORK" means work outside the terms of this Agreement
carried out by an ROV and for which neither
Standing Charges nor Running Costs are chargeable
in any manner under this Agreement.
1.13."REPAIR" means work carried out on a Designated Cable
involving the use of the ROV, at the request of a
Maintenance Authority in
4
<PAGE>
order to remedy a service-affecting fault suffered
by the Designated Cable.
1.14."ROV" means either:
- the remotely operated vehicle of the SCORPIO
2000 series and its Ancillary Tools described
in Annex 1 of Schedule 7, owned and operated
by FT/FCR or,
- the remotely operated vehicle of the Phoenix 2
series described in Annex 2 of Schedule 7
owned and operated by ELETTRA.
1.15."ROV COSTS" means the aggregate of Running Costs and Standing
Charges.
1.16."RUNNING COSTS" means costs, additional to Standing Charges which
are incurred for the operation of the ROV
specifically as a result of an individual
operation or operations.
1.17."SERVICE PROVIDER(S)" means, as the case may be, either:
- FT/FCR providing Cableship Raymond CROZE and
ROV services or,
- ELETTRA providing Cableship TELIRI or
CERTAMEN and ROV services.
1.18."STANDING CHARGES" means the costs of the ROV as detailed in Schedule
2.
1.19."TRAINING EXERCISES" means the activities described in Article 3.2.4.
1.20."TRANSIT TIME" means:
(a) the period of time from departure of a
Cableship from its Assigned Port until its
arrival at the site of the work to be
performed pursuant to Article 3.2, or
(b) the period of time from the departure from
the work site until its arrival in its
Assigned Port, or
(c) the period of time for transit between work
sites, or
(d) the period of time for transit between
Assigned Ports.
5
<PAGE>
ARTICLE 2 PURPOSE OF THIS AGREEMENT
This Agreement sets forth the terms and conditions under which each ROV will be
used to carry out Repair and Maintenance & Improvement of Designated Cables.
ARTICLE 3 OPERATIONAL USE OF ROV
3.1. OPERATING ZONE
Each ROV shall be assigned to and operated in the Operating Zone, under
this Agreement.
3.2. USES OF ROV
3.2.1. Repair of Designated Cables
Each ROV shall be used primarily for the Repair of
Designated Cables in order to ensure the continuity of
service provided by such cables
3.2.2. Maintenance & Improvement
Subject to the requirement of the Article 3.2.1 being
satisfied, each ROV shall be used for the Maintenance &
Improvement of the Designated Cables on an interruptible basis.
3.2.3. Outside Work
Provided that the availability of the ROV to undertake
Repair or Maintenance & Improvement of Designated Cables is
satisfied the ROV may be used by the Service Provider or a
Scheduled Maintenance Authority for Outside Work. The use of
ROV for Outside Work is subject to the approval of the
Management Committee, which approval shall not be
unreasonably withheld or delayed. The allocation of ROV
costs during such Outside Work is defined in Article 9 below.
In case the Outside Work is relevant to the repair or
maintenance & improvement of cables within the Operating
Zone which are not Designated Cables, the operational
conditions of intervention of the ROV, during its period of
assignment under this Agreement, shall require the prior
agreement of the Management Committee.
6
<PAGE>
3.2.4. Training Exercises
The Service Providers shall have the opportunity to perform
Training Exercises when the ROV is assigned to the
Agreement. The relevant Service Provider shall provide the
Management Committee with details of the nature, purpose,
duration and location of the proposed Training Exercises.
The use of ROV for Training Exercises is subject to the
approval of the Management Committee, which approval shall
not be unreasonably withheld or delayed. The allocation of
ROV costs during such Training Exercises is defined in
Article 9 below.
ARTICLE 4 ROV AVAILABILITY
4.1. The Service Provider shall use its best efforts to make the ROV
operationally available for use at all times for work on the Designated
Cables except in the following circumstances:
4.1.1. Whilst the ROV is undergoing periodic maintenance or
refurbishment.
4.1.2. From the starting date of any Outside Work until its conclusion.
4.1.3. Whilst the ROV is unavailable by reason of Force Majeure.
4.1.4. Whilst the ROV is damaged to the extent that it cannot perform
Repair or Maintenance & Improvement or it becomes a total loss
or a constructive total loss.
If a ROV becomes a total loss or a constructive total loss,
the Service Provider shall notify the Chairman of the
Management Committee and, if required by the Management
Committee, use reasonable endeavours to provide a substitute
ROV subject to terms and conditions to be proposed by the
Service Provider, and agreed to by the Management Committee.
If a ROV is damaged to such an extent that requires repairs,
the Maintenance Authorities shall bear its Standing Charges
up to a maximum period of 90 (ninety) days from the
beginning of such repairs.
ARTICLE 5 MOBILIZATION OF THE ROV
Unless otherwise agreed between the Service Provider and the Maintenance
Authority requesting the use of the ROV, the ROV shall be mobilised by the
Maintenance Authority from the Assigned Port.
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ARTICLE 6 OPERATING PROCEDURES
6.1. The Maintenance Authority requesting the use of the ROV to undertake
Repair or Maintenance & Improvement on a Designated Cable shall notify its
request by telephone or facsimile to FT/FCR or to ELETTRA, as the case may
be, at the address shown in Schedule 8.
Where notification is given by telephone, it shall be confirmed by
facsimile at the earliest opportunity and at the latest on the first
working day after the notification by telephone.
On receipt by the Service Provider of such notification by a
Maintenance Authority, the Service Provider shall take the necessary
action to ensure that the ROV is mobilised aboard the designated
Cableship without undue delay, typically within 24 hours.
6.2. The Maintenance Authority requesting the use of the ROV shall be
responsible for the engagement and costs of the cableship designated to
host the ROV. Such engagement shall be regulated by a separate agreement
between the cableship operator and the Maintenance Authority.
Notwithstanding the foregoing, the Service Provider shall determine the
suitability of any designated cableship to host the ROV and undertake
Repair or Maintenance & Improvement with it.
6.3. When the Service Provider is notified to commence a ROV operation under
this Agreement, the Service Provider will, within 24 hours, notify the
Maintenance Authorities of the status of use of the ROV, as specified
below:
6.3.1. Upon receipt of notification by the Service Provider that the ROV is
required to undertake an operation or if the ROV is engaged in
Outside Work, the Service Provider shall transmit a notification of
commencement of ROV operation or Outside Work, specifying the
expected duration of such operation or work.
6.3.2. After completion of the ROV operation or work, the Service Provider
shall transmit a notification of completion of a ROV operation or
work.
6.3.3. Upon a ROV's change in operational status eg: standby, Repair,
Maintenance & Improvement or Training Exercises, the Service
Provider shall transmit a notification of the change in status of
the ROV.
ARTICLE 7 OPERATIONAL RESPONSIBILITIES
PLANNING AND DIRECTION
7.1. The Maintenance Authority requiring any Repair or Maintenance &
Improvement work to be carried out may elect to be responsible for planning
and directing such operation which
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shall be performed by the personnel of the Cableship under the control and
supervision of the Engineer in Charge of the Service Providers. If the
Maintenance Authority does not so elect to be responsible then the Service
Provider shall be responsible for the planning and direction of the
operation. In all cases the Maintenance Authority shall make available to
the Service Provider the necessary technical information required for
Repair or Maintenance & Improvement to be carried out to the appropriate
Designated Cable.
The Service Provider shall always be responsible for the planning,
direction and performance of the repair unless the relevant Maintenance
Authority declares otherwise. In this case, a formal agreement will be
signed between the Maintenance Authority and the Service Provider.
7.2. The Maintenance Authority shall appoint one of the authorised
representatives, should more than one be carried, as a "Senior
Representative". The Senior Representative shall be responsible for
planning and directing the Repair or Maintenance & Improvement operation,
pursuant to Article 7.1 above.
ARTICLE 8 STANDING CHARGES AND RUNNING COSTS
8.1. The ROV Costs, including Standing Charges and Running Costs, relating to
the period running from 1st January 1999 to 31st December 1999 are defined
in Schedules 2 and 3 respectively.
8.2. For the following calendar years, the ROV costs shall be submitted to the
Management Committee for approval at least 3 months before the beginning of
the related year.
8.3. ROV Standing Charges shall not increase by more than *** year on year.
ARTICLE 9 ALLOCATION OF ROV COSTS
9.1. ALLOCATION OF STANDING CHARGES
9.1.1. The Standing Charges, adjusted as appropriate pursuant to Article
9.3.2., shall be shared among the Maintenance Authorities for the
Designated Cables in proportion to the Accounting Units allocated to
them in Schedule 4.
9.1.2. Notwithstanding the provision of Article 9.1.1 above the unit cost
of the Accounting Units shall in any case not exceed the maximum
amount of *** per Accounting Unit per year for the whole duration of
this Agreement.
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9.1.3. In the event that the Standing Charges are not approved by the
Management Committee, the Standing Charges of the previous year shall
form the basis of billing until the dispute is resolved.
9.1.4. For the purpose of calculating the Standing Charges applicable to any
particular period of time, the estimated or actual Standing Charges
shall be divided by 335 to give an appropriate daily rate.
9.2. ALLOCATION OF RUNNING COSTS
9.2.1. When a Maintenance Authority requests the use of the ROV for Repair or
Maintenance & Improvement of a Designated Cable, all Running Costs for
the period of such work including those for Transit Time and, if
applicable, mobilisation aboard the designated Cableship and
demobilisation, shall be borne by the Maintenance Authority(ies)
responsible for the Designated Cable under Repair or Maintenance &
Improvement.
9.2.2. Where a Cableship carrying the ROV undertakes a series of ROV
operations without returning to its Assigned Port, the ROV Running
Costs for Transit Time between two or more operations shall be
allocated between the Maintenance Authorities concerned according to
the following procedure.
Time spent in transit before the work starts on the first ROV
operation, time spent in transit between the end of each ROV operation
and the start of the next, and time spent in transit from the end of
the last in the series of ROV operations to the arrival of the
Cableship at its Assigned Port is aggregated to arrive at total
Transit Time. Running Costs for Transit Time are allocated to each ROV
operation in proportion to the distance to be covered by the Cableship
to carry out each stand alone operation.
9.3. ALLOCATION OF ROV COSTS FOR EACH CATEGORY OF USE
9.3.1. Repair, Maintenance & Improvement of Designated Cables
For the period of such work, Standing Charges shall be apportioned
according to Article 9.1, and Running Costs, including those for
Transit Time, shall be allocated according to Article 9.2.
9.3.2. Outside Work
When the ROV shall be used to carry out Outside Work, for the period
of such work including Transit Time and if applicable, mobilisation
aboard the designated
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Cableship and demobilisation, Standing Charges and Running Costs shall
not be charged to this Agreement.
9.3.3. Periods of non-availability
When the ROV is damaged to the extent that it cannot perform Repair or
Maintenance & Improvement the ROV Standing Charges for periods in
excess of 90 days shall not be charged to this Agreement in accordance
with Article 4.1.4.
9.3.4. Training Exercises
For the period of such work, Standing Charges shall be apportioned
according to Article 9.1, while Running Costs, including those for
Transit Time, shall not be charged to this Agreement.
ARTICLE 10 MANAGEMENT COMMITTEE AND CENTRAL BILLING PARTY
10.1. MANAGEMENT COMMITTEE
10.1.1. Organisation:
The Maintenance Authorities and the Service Providers shall
form a Management Committee in which each party shall be
represented by a single representative. A representative may
designate an alternate to participate in a Management
Committee meeting.
10.1.2. Functions:
The Management Committee shall have the following functions:
(a) to amend this Agreement with the unanimous approval of
the Parties,
(b) to review and approve the annual ROV Budgetary estimates
and the final cost of the Accounting Unit,
(c) to review the management of all activities required by
this Agreement,
(d) to approve the use of the ROV for Outside Works,
(e) to approve the charges associated with the CBP function.
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10.1.3. Procedures:
A Party shall be elected to serve as Chairman of the
Management Committee for a term of twelve months by simple
majority of the present members of the Management Committee.
Meetings shall normally be held once a year unless decided
otherwise by the Management Committee. They will be held on
the call of the Chairman or of at least two representatives
of the Parties. At least a 30 days advance notice of each
meeting shall be given with a copy of the draft agenda. In
cases of emergency, such notice period may be reduced.
The quorum for any meeting shall consist of a number of
members representing at least 75 % of the total Accounting
Units according to Schedule 1.
All decisions of the Management Committee shall be subject
in the first instance to consultation among its members who
shall endeavour to make decisions by unanimous consent. In
the event it fails to reach unanimous consent, it shall make
decisions by simple majority votes. Each member shall have a
number of voting rights equal to its number of Accounting
Units as set forth in Schedule 1.
10.2. CENTRAL BILLING PARTY:
10.2.1. FCR shall act as Central Billing Party under this Agreement.
10.2.2. The Central Billing Party shall be responsible for the
preparation and submission of ROV annual budget, submission of
billing, accounting and settlement of all amounts due from the
Maintenance Authorities under this Agreement.
10.2.3. At least once a year the Central Billing Party shall submit a
financial report and accounts to the Management Committee
describing and summarising its activities during the year
concerned.
10.2.4. The CBP costs are 120 000 (one hundred and twenty thousand)
French Francs per year for the duration of the Agreement. This
amount may be revised annually from the 4th year.
The CBP costs shall be submitted to the Management Committee
for approval at least 3 months before the beginning of the
related year.
The CBP costs shall not increase by more than 5% year on year.
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ARTICLE 11 INVOICING PROCEDURE AND ARRANGEMENTS
11.1. Invoices showing the amounts due from the Maintenance Authorities for
their respective shares of the ROV Costs for each quarter shall be sent to
them by the Central Billing Party on or before the 15th day of the month
before the start of each quarter. Such invoices shall be based on the
actual Running Costs incurred and on the approved estimated Accounting
Unit cost and shall include:
(a) Standing Charges based on the estimated
Accounting Unit cost,
(b) Running Costs as incurred quarterly,
(c) interest on invoices not paid when due,
and,
(d) Central Billing Charges in accordance with
Article 11.6.
11.2. On or before the first working day of the last month preceding each
quarter, the Service Providers shall advise the Central Billing Party as
to the details of Standing Charges (including retrospective adjustments)
and Running Costs. Running Costs details shall be included in the bills
next due to be rendered to Maintenance Authorities.
Unless otherwise agreed between the Service Providers and the Central
Billing Party, such details shall be advised in French Francs (FRF).
11.3. Invoices shall be denominated and payable in French Francs (FRF), unless
otherwise agreed between the Maintenance Authorities and the Central
Billing Party.
11.4. Invoices shall be payable by the last working day of the second month of
the quarter to which they relate, or if the issue of an invoice is
delayed, seventy days from the date of issue, whichever is the later.
Invoices 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 PIBOR for sixty (60) days 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.
PIBOR is the Paris Inter bank Offer Rate for French Francs as published
in "Les Echos".
11.5. On the first working day of the third month of each quarter, the Central
Billing Party shall remit to or settle with the Service Providers, in
French Francs (FRF), the amounts notified by it under Article 11.2.
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11.6. The Central Billing Party shall charge the costs associated with the
performance of the Central Billing function. The charges shall be included
in the Accounting Unit cost.
11.7. If an invoice for a Designated Cable remains unpaid for 180 days after the
due date, the other Maintenance Authorities shall reimburse the Central
Billing Party a proportional share of the unpaid invoice, including a
proportional share of the interests incurred. The amounts paid by such
Maintenance Authorities shall be in proportion to their Accounting Units.
11.8. 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 ROV
Costs in proportion to the Accounting Units allocated to it. If the
defaulting Maintenance Authority fails to pay any bill within 365 days of
its due date, the Service Provider shall be released from any obligation
to undertake work for that Maintenance Authority. At such time, Central
Billing Party shall prepare and issue a revised Schedule 1 which will
exclude the defaulting Maintenance Authority. The defaulting Maintenance
Authority will continue to be excluded from Schedule 1 until all
outstanding invoices, including applicable interest, have been paid in
full.
11.9. 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, the Central Billing Party
shall notify such other Maintenance Authority(ies) for that cable of such
defaults for non-payment. Notwithstanding Article 11.7, 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 including any applicable interests
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 1.
11.10. 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 of any amount reimbursed by the
other Maintenance Authority(ies) in accordance with Article 11.7, any such
amounts shall be distributed to the other Maintenance Authorities in the
same proportions as those Maintenance Authorities reimbursed the Central
Billing Party under Article 11.7.
ARTICLE 12 ROV COSTS ADJUSTMENT
As soon as possible and not more than 6 months after the end of each year, the
Management Committee shall approve a final cost of the AU based on the total
Standing Charges in accordance with Article 10, and the actual number of AU
according to Schedule 4 for a given financial year.
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Such adjustment shall be reflected to Maintenance Authorities through the next
quarterly settlement, or if near the expiry date of this Agreement, in a final
invoice.
ARTICLE 13 LIABILITY AND INDEMNITY
13.1. Each of FCR, FRANCE TELECOM and ELETTRA 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 FCR, FRANCE TELECOM or
ELETTRA, its Agents or Employees. FCR, FRANCE TELECOM or ELETTRA shall
indemnify and hold harmless the Maintenance Authority concerned against
all claims, actions, demands, or judgements for such direct damages.
13.2. 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. Such Maintenance Authority shall indemnify and
hold harmless FCR, FRANCE TELECOM or ELETTRA, as appropriate, against all
claims, actions, demands or judgements for such direct damages.
13.3. Each of FCR, FRANCE TELECOM, or ELETTRA 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 or omissions
of a Maintenance Authority and to that extent will indemnify and hold
harmless the Maintenance Authorities against all claims, actions, demands,
or judgement for damages sustained by employees or Agents of FCR, FRANCE
TELECOM or ELETTRA except to the extent that such claims, actions, demands
and judgements arise out of the negligence or intentional acts of a
Maintenance Authority.
13.4. The Central Billing Party shall exercise due care, diligence and
promptness in the discharge of its duties and the Parties jointly shall
indemnify and hold harmless the Central Billing Party against any claims,
actions, demands or judgements arising out of the Central Billing Party's
performance, purported performance or nonperformance of its function under
this Agreement, except to the extent that such claim, actions, demands or
judgements arise out of the negligence or intentional acts or omissions of
the Central Billing Party.
13.5. Except as stated in Articles 13.1., 13.2., 13.3. and 13.4., 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.
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ARTICLE 14 RELATIONSHIP AMONG THE PARTIES
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 15 AMENDMENTS TO AGREEMENT
15.1. 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 after approval of the Management Committee
on a unanimous basis.
15.2. The inclusion of additional Maintenance Authority(ies) into this Agreement
is governed by the provision of Article 16 hereafter.
ARTICLE 16 INCLUSION OF ADDITIONAL MAINTENANCE
AUTHORITY(IES) AND DESIGNATED CABLES
16.1. Where any entity assumes the maintenance responsibility for any cable
system, or part thereof within the Operating Zone, and if that entity is
not a Patty to this Agreement then that entity may request to be admitted
as a Maintenance Authority under this Agreement. Upon such request, the
signature of the Chairman of the Management Committee on the document of
accession, as set forth in Schedule 5, witnessing the admission of the new
Party shall have the effect of binding all the other Parties as each
itself had signed such document and the Chairman of the Management
Committee shall then transmit a copy of the document to all the Parties.
At the same time the cable system concerned, or part thereof, shall be
entered into Schedule 1 as a Designated Cable.
16.2. When a Maintenance Authority being a Party to this Agreement assumes
responsibility for any cable system, or part thereof, within the Operating
Zone, which is not a Designated Cable, and if that Maintenance Authority
wishes such cable system, or part thereof, to become a Designated Cable,
it shall be entered into Schedule 1 and hence become a Designated Cable
for the balance of the term of this Agreement.
16.3. In case of inclusion of additional Maintenance Authorities and Designated
Cables, the other appropriate Schedules of this Agreement shall be amended
accordingly.
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ARTICLE 17 ASSIGNMENT OR TRANSFER
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 restrict the right of the Service
Provider to lease equipment subcontract or employ such personnel or agents as it
deems appropriate to fulfil its obligations hereunder.
ARTICLE 18 TERM OF THIS AGREEMENT
This Agreement shall come into force as from the 1st January 1999 and shall
terminate the 31 December 2001.
The Agreement may be renewed by the Parties. At least one year before the date
of such expiry, the Parties shall decide on such a possible renewal and on the
terms and conditions of this renewal. This renewal will be subject to a written
agreement amongst the Parties. The Parties will decide either to amend this
Agreement or to execute a new agreement.
ARTICLE 19 WITHDRAWAL
19.1. If a Maintenance Authority wishes to withdraw from this Agreement, it
shall serve at least one year notice in writing to the other Parties of
its intention to withdraw from this Agreement.
19.2. 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.
19.3. 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 17. 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
rticle 19.1.
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ARTICLE 20 FORCE MAJEURE
20.1. No Party shall be liable to the others for any failure to carry out its
obligations or delay in performance under this Agreement due to an event
of Force Majeure such as war, civil war, sabotage, piracy, fire,
epidemics, break down in government or public order, seizure by judicial
procedure, strike or lockout, perils of the seas, accident of navigation
or any other circumstance cause or reason beyond its reasonable control.
20.2. The time for performance of the obligations under this Agreement shall be
extended by a reasonable period in the event of such Force Majeure. The
Party suffering from Force Majeure may terminate its participation in this
Agreement after giving reasonable notice in the event Force Majeure has
not ceased 3 months after its occurrence.
ARTICLE 21 AGREEMENT BINDING ON SUCCESSORS
This Agreement shall be binding on the Parties, their respective successors, and
permitted assigns.
ARTICLE 22 INSOLVENCY
Upon the occurrence of each or any of the following events:
(i) if, except for the purposes of re-organisation, any Party is
wound up or a petition is presented or an order is made or a
resolution is passed for the winding up of any Party or a
meeting is convened for the purpose of considering any such
resolution;
(ii) if any Party is placed under official management, that is
if, pursuant to a resolution of creditors or members of that
Party or an order of a court, a person is appointed to take
custody of all or part of the property of that Party and to
conduct its business and manage its affairs and comply with
the legislation in respect of companies applicable in the
place where he is so appointed, or if any Party causes a
meeting of its members or creditors to be summoned for the
purpose of placing it under official management;
(iii) if any Party makes default under any charge or security in
favour of any creditor of that Party;
(iv) if any indebtedness of any Party becomes due and payable
prior to the stated maturity thereof as a result of a
default or is not paid upon the maturity thereof;
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(v) if an inspector of all or any part of the affairs of any
Party is appointed pursuant to the legislation in respect of
companies applicable in the place of incorporation of that
Party or in a place where that Party carries on business;
(vi) if a compromise or arrangement is proposed between any Party
and its creditors or any class of them or if an application
is made to a court for an order summoning a meeting of
creditors or any class of them of any Party;
then any Party affected by each or any of the above listed events shall
immediately inform all the other Parties thereof, and all the Parties
shall then consult to decide what further action is necessary.
ARTICLE 23 INSURANCE
(a) Each Service Provider respectively shall be responsible for obtaining
its necessary insurance coverage.
(b) If requested by a Maintenance Authority, the Service Provider shall
provide individually and on a confidential basis to that Maintenance
Authority copies of relevant insurance policies and, if applicable,
copies of the booklet giving details of the Protection and Indemnity
cover and proper evidence of the payment of all premiums.
ARTICLE 24 GOVERNING LAW
This Agreement shall in all respects be governed by and be construed in
accordance with the laws of Switzerland Canton of Geneva.
ARTICLE 25 ARBITRATION
(a) All disputes arising in connection with this Agreement and which cannot
be settled by amicable negotiation to the mutual satisfaction of the
Parties concerned, the dispute shall be finally settled under the Rules
of Conciliation and Arbitration of the International Chamber of
Commerce in Paris as in effect on the date hereof by one or more
arbitrators appointed in accordance with the said Rules.
(b) The site of the arbitration shall be Geneva (Switzerland). The language
of the arbitration shall be English. The arbitrators will apply the
procedural rules of arbitration of the International Chamber of
Commerce. Any award rendered shall be final and conclusive and
judgement thereon may be rendered in any court having jurisdiction for
its enforcement.
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(c) The performance of this Agreement by the Parties shall continue during
such arbitration or legal proceedings.
ARTICLE 26 EXECUTION AND COUNTERPART
This Agreement shall be executed in 8 counterparts in the English language and
each counterpart when delivered shall be considered an original. New Maintenance
Authorities shall be added to this Agreement by means of a Document of Accession
as set forth in Schedule 5 and the Document of Accession shall for each such
addition be executed in two counterparts in the English language and certified
copies shall be delivered to all the Parties.
ARTICLE 27 INTERPRETATION
All references to the Party(ies), Article(s), and Schedule(s) refer to the
Party(ies), Article(s) and Schedule(s) under this Agreement. In addition, and
where the context so requires, the singular shall be taken to mean the plural
and the plural shall be taken to mean the singular.
ARTICLE 28 ENTIRE AGREEMENT
This Agreement together with the Schedules hereto constitutes the entire
agreement between the Parties in relation to its subject matter and supersedes
all prior verbal or written understandings between and among the Parties.
This Agreement supersedes all prior verbal or written understandings between the
Parties and constitutes the entire agreement with respect to the subject matter
of this Agreement
This Agreement includes the following documents which are attached hereto and
incorporated herein by reference.
Schedule 1 Maintenance Authorities and Designated Cables
Schedule 2 Standing Charges
Schedule 3 Running Costs Estimate
Schedule 4 Accounting Units Calculation and Billing Schedule
Schedule 5 Document of Accession to the ROV Service Agreement
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Schedule 6 Request for inclusion of a Cable system in the ROV Service
Agreement
Schedule 7 ROV description
Annex 1: Scorpio 2000
Annex 2: Phoenix II
Schedule 8 Representatives of the Service Providers - Mailing Addresses
and Contacts for Maintenance Purposes
ARTICLE 29 HEADINGS
For the purposes of interpretation of this Agreement and Schedules, all headings
thereof shall be deemed not to form part of this Agreement.
ARTICLE 30 REPRESENTATIVES AND CORRESPONDENCE
The Parties shall inform each other of their representatives for the purpose of
correspondence between the Parties.
ARTICLE 31 NOTICES
(a) Any notice or consent required or permitted hereunder shall be given in
writing or confirmed in writing as the context so requires and shall be
deemed to be duly given if deposited by hand at, or despatched by
airmail of the most expeditious class or by fax or electronic mail
addressed to the registered office last quoted by the Party to whom it
is addressed.
(b) Unless it is expressly provided for herein or otherwise agreed, any
such notice or consent shall be deemed to be served ten days from the
date of despatch.
ARTICLE 32 PUBLICITY
Any publicity or news releases regarding this Agreement shall not be issued or
published without the prior agreement of the Parties.
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ARTICLE 33 CONFIDENTIAL INFORMATION
Information furnished by one Party to another shall be kept confidential by the
Party receiving it and shall be used only for the purposes of this Agreement,
and may not be used for any other purposes without the prior written consent of
the Party owning the Information, unless such information:
(i) was previously known to the receiving Party free of any
obligation to keep it confidential, or
(ii) has come into the public domain other than by a breach of
confidentiality by the receiving Party, or
(iii) is received from a third party without similar restriction
and without breach of this Agreement, or
(iv) is necessary or proper disclosure under any applicable law,
rule or regulation or pursuant to the direction of any
Governmental Entity or Agency having jurisdiction in any
country of the Parties.
ARTICLE 34 PERFORMANCE OF AGREEMENT
The performance of this Agreement by the Parties hereto shall be contingent upon
either:
(i) the continued operation of at least one Designated Cable; it
being understood that the Parties shall consult each other
in such event and shall confer to decide further action
including the termination of this Agreement
or
(ii) the necessary government approvals.
ARTICLE 35 SEVERABILITY
If any of the provisions of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not invalidate or render unenforceable
the entire Agreement, but rather the entire Agreement shall be construed as if
not containing the particular invalid or unenforceable provision or provisions
and the rights and obligations of the parties shall be construed and enforced
accordingly.
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ARTICLE 36 WAIVER
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 written and
signed on behalf of the Party making the waiver.
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TESTIMONIUM
In witness whereof the parties hereto have executed this Agreement the day and
year here above written.
FOR AND ON BEHALF OF ELETTRA ITALY
/s/ Name of Signatory 16/3/99
______________________________________________ DATE ______________________
FOR AND ON BEHALF OF FLAG
/s/ Name of Signatory 15/3/99
______________________________________________ DATE ______________________
FOR AND ON BEHALF OF FRANCE CABLE RADIO FRANCE
/s/ A. Suard 15/3/99
______________________________________________ DATE ______________________
FOR AND ON BEHALF OF FRANCE TELECOM FRANCE
/s/ J. Genoux 19/3/99
______________________________________________ DATE ______________________
FOR AND ON BEHALF OF SEAMEWE 1
/s/ J. Genoux 19/3/99
______________________________________________ DATE ______________________
FOR AND ON BEHALF OF SEAMEWE 2
/s/ J. Genoux 19/3/99
______________________________________________ DATE ______________________
FOR AND ON BEHALF OF SOCIETE DES TELECOMMUNICATIONS
INTERNATIONALES DE DJIBOUTI (S.T.I.D),
REPUBLICQUE DE DJIBOUTI
/s/ Name of Signatory 17/3/99
______________________________________________ DATE ______________________
FOR AND ON BEHALF OF TELECOM ITALIA, ITALY
/s/ Name of Signatory
______________________________________________ DATE ______________________
24
<PAGE>
Exhibit 10.27
PRIMARY SUPPLIER AGREEMENT
THIS PRIMARY SUPPLIER AGREEMENT, dated as of January 18, 2000 (as
amended, supplemented or otherwise modified from time to time, this
"AGREEMENT"), between FLAG TELECOM HOLDINGS LIMITED, a company organized and
existing under the laws of Bermuda and having its principal office in Hamilton,
Bermuda (said company, and any permitted successor or assign hereunder, the
"GRANTOR"), and BELL ATLANTIC GLOBAL SYSTEMS COMPANY, a corporation organized
and existing under the laws of Delaware and having its principal office in New
York, New York (said company, and any permitted successor or assign hereunder,
the "PURCHASER"). The Grantor and the Purchaser are herein sometimes
collectively referred to as the "PARTIES" and individually referred to as a
"Party".
W I T N E S S E T H:
WHEREAS, an Affiliate of the Grantor has constructed a 10 gigabit per
second undersea fiber optic cable system connecting the United Kingdom with
Japan (the "FLAG Europe-Asia System"); an affiliate of Grantor is constructing,
through a 50/50 joint venture with GTS TransAtlantic Holdings, Ltd. ("GTS"), a
fiber optic cable system connecting London, UK and Paris, France to New York,
New York with initial fully redundant capacity of at least 160 gigabits per
second, and with potential for future upgrade to 2.4 terabits per second (the
"FLAG Atlantic-1 System"); the Grantor has terrestrial connectivity between its
landing stations in the United Kingdom and Spain to the city centers of London
and Madrid and the Grantor has acquired the right to obtain through contractual
arrangements with other facilities based bandwidth capacity providers
intra-European connectivity from London to Paris, Brussels, Frankfurt, Amsterdam
and other major European metropolitan areas (the "European Terrestrial System");
and
WHEREAS, the FLAG Europe-Asia System, the FLAG Atlantic-1 System, and
the European Terrestrial System are referred to herein individually as a
"System" and collectively as the "FLAG Network"; and
WHEREAS, Grantor may in the future construct or acquire other
terrestrial and undersea fiber optic cable systems in which case such additional
systems will be deemed to be a "System" and part of the FLAG Network under this
Agreement; and
WHEREAS, the Purchaser desires to acquire rights with respect to
Capacity on the FLAG Network;
NOW, THEREFORE, the Parties, in consideration of the mutual covenants
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, covenant and agree with each other as follows:
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1. DEFINITIONS
Unless otherwise defined herein, all terms which are commonly used in
the telecommunications industry shall have the meanings commonly given
such terms in such industry. In addition to terms defined in the
preamble, the recitals and in the text of this Agreement (which shall
have their assigned meanings when used herein), the following terms
shall have the following meanings:
"AFFILIATE" (Purchaser) means, at any time, any United States domestic
Person, (excluding Puerto Rico and the Northern Mariana Islands) that
at such time, directly or indirectly through one or more
intermediaries, Controls, or is Controlled by, or is under common
Control with Purchaser.. As used in this definition, "Control" means
the ability to direct the purchasing decisions of such Person. Where
10% or more of a Person's voting or equity interests are directly or
indirectly held by Purchaser, its parent company, subsidiary or
Affiliate, and such Person is not an Affiliate of Purchaser, such
Person will have the option but not the obligation to purchase Capacity
under this Agreement. Should such Person determine to purchase Capacity
under this Agreement, such Person's Capacity Requirements after the
opt-in date would then be counted towards determining the Minimum Bell
Purchase Requirement. Such Person who opts in shall be treated as an
Affiliate of Purchaser for purposes of this Agreement and shall be
subject to all terms of this Agreement binding on Purchaser.
"Affiliate" (Grantor) means, at any time, and with respect to any
Person, any other Person that at such time, directly or indirectly
through one or more intermediaries, Controls or is Controlled by, or is
under common Control with Grantor. As used in this definition,
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract
or otherwise.
"APPLICABLE ROUTE" means any specific route served by the FLAG Network.
"CAPACITY" means undersea facilities based communications capacity in
any fiber optic cable, including any terrestrial backhaul circuits
required as part of the System design.
"CAPACITY REQUIREMENTS" means a Purchase or Purchases by Purchaser
and/or any Affiliate of Purchaser, of Capacity on any Applicable Route,
PROVIDED, HOWEVER, that Capacity Requirements shall not include (a)
Capacity that is provided through the Purchaser's and its Affiliates'
wholly owned facilities, (b) Capacity that is provided through
facilities that are not wholly owned by Purchaser (e.g. a consortium
cable) but on which Purchaser or its Affiliates have acquired rights
including upgrade rights prior to the date hereof or the Affiliate opt
in date, whichever is later for such Affiliate, (c) Capacity that is
provided through any facilities or rights in facilities including
upgrade rights thereto that are owned by any Person or its Affiliates
at the time that such Person is
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acquired by or merged with the Purchaser (but only to the extent such
facilities or rights to facilities were acquired by such Person or its
Affiliates prior to the completion of the acquisition or merger), (d)
Purchases of Capacity made by any Person acquired by or merged with the
Purchaser, including any associated upgrade rights, (but only to the
extent that the Commitment Date for the initial Purchase of Capacity
occurred prior to the completion of the acquisition or merger), (e)
services, including but not limited to switched and/or dedicated
services or international minutes of use, purchased from persons other
than Grantor or Purchaser and/or their Affiliates, for internal use or
resale to other persons by Purchaser, and (f) those circumstances where
Grantor is unable to provide undersea facilities sufficient to meet
Purchaser's reasonable service and ready-for-service date requirements,
including the specific route on which Purchaser wishes to secure
Capacity.
"CAPACITY REQUIREMENTS ATTRIBUTABLE TO ANY COMMITMENT YEAR " means all
Capacity Requirements with a Commitment Date during such Commitment
Year.
"COMMITMENT DATE" means, with respect to any Capacity Requirement, the
date that Purchaser shall have signed, or otherwise becomes bound
under, a capacity purchase agreement or, in the case of any exercise of
any option or right to obtain additional Capacity pursuant to an
existing capacity purchase agreement, the date of such exercise.
"COMMITMENT YEAR" means each calendar year during the Minimum Capacity
Period.
"CPA" means any written agreement between the Purchaser and any of its
Affiliates and Grantor or any of its Affiliates providing for the
purchase, lease or other acquisition of any Interest in Capacity to
meet the Minimum Bell Purchase Requirement.
"DOLLARS" or "$" means United States dollars.
"FLAG COST" means the capitalized cost of constructing each System
divided by the Capacity provided by that System, and, in the case of a
non point-to-point system (e.g. the FLAG Europe-Asia System, not the
FLAG Atlantic-1 System), divided by the then current estimate of the
maximum potential fill rate of the System. Where Grantor or an
Affiliate acquires Capacity from other Providers (including for this
purpose affiliates Grantor does not control), FLAG Cost means the price
Grantor pays to acquire the amount of Capacity requested by Purchaser.
After any System has been upgraded, FLAG Cost shall be recalculated as
follows:
(a) Where Purchaser has made a Purchase commitment for any
System before the date of financial closure of that System (a "Founding
Purchaser Commitment"), and for an amount of additional Capacity equal
to the Capacity purchased in the Founding Purchaser Commitment in
proportion to the percentage increase in the Capacity of the System on
an upgrade, FLAG Cost means the incremental capitalized cost of the
upgrade divided by the incremental Capacity provided by the upgrade.
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<PAGE>
(b) In all other cases, FLAG Cost means the capitalized cost
of the System plus the capitalized cost of all upgrades up to the date
of the Purchase divided by the Capacity of the System at the date of
the Purchase and, in the case of a non point-to-point system (e.g. the
FLAG Europe-Asia System, not the FLAG Atlantic-1 System), divided by
the then current estimate of the maximum potential fill rate of the
System.
For the purposes of this definition, capitalized cost shall include all
relevant costs relating to the design, development, financing,
construction and bringing into service of each System, including all
relevant costs of technical infrastructure, program management, finance
charges (including bank fees), licenses and permits, and other related
costs. FLAG Cost shall not include sales and general administrative
costs. Purchaser and its Affiliates shall have the right to audit FLAG
Cost upon reasonable notice to Grantor.
"INTEREST IN CAPACITY" means any ownership interest in or right to use
Capacity (including, without limitation, by way of lease or
indefeasible right of use).
"MINIMUM CAPACITY PERIOD" shall mean the four-year period commencing on
1 January 2000.
"MINIMUM BELL PURCHASE REQUIREMENT" means, for each Commitment Year,
50% of the Capacity Requirements. Except as otherwise provided herein,
Purchaser shall have the option, but not be obligated, to make
Purchases of Capacity on any FLAG terrestrial system and have those
purchases applied towards the Minimum Bell Purchase Requirement. Except
as otherwise provided herein, Purchaser's aggregate global subsea
Capacity Requirements may be met by making capacity purchases on any
one System or a combination of Systems. The calculation of the Minimum
Bell Purchase Requirement shall be in STM-1 equivalents. In the case of
a purchase of non-specific capacity (e.g. a fiber pair) the number of
STM-1 equivalents shall be derived by reference to the number of STM-1s
available within such non-specific capacity in the Commitment Year.
"PERSON" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, consortium,
partnership, governmental authority or other entity.
"PREVAILING CURRENT MARKET PRICE" means, with respect to any Capacity,
the lowest market price generally available at the time such Capacity
is committed, for a like amount of substantially similar Capacity
(which such similarities shall include substantially similar
geographical route, timing, restoration capabilities and quality) but
shall exclude Capacity that is being sold at prices materially below
what would be attributable to supply and demand factors in a
competitive marketplace. The calculation of Prevailing Current Market
Price shall consider, among other things, consortium cable pricing,
including initial party and upgrade prices when being compared to the
initial founding investor price on a System and IRU pricing for other
purchases.
4
<PAGE>
"PROVIDER" means any Person who provides an Interest in Capacity.
"PURCHASE OF CAPACITY" means any purchase, lease or other acquisition
of an Interest in Capacity by Purchaser, whether such Interest in
Capacity is acquired for cash, on credit or in exchange for
non-monetary assets.
"TERMINATION DATE" means the date on which this Agreement is
terminated.
2. MINIMUM CAPACITY COMMITMENT AND PROVISIONING
(a) The Purchaser hereby agrees to purchase from Grantor and
its Affiliates, during each Commitment Year, Interests in Capacity
equivalent to the Minimum BELL Purchase Requirement. The Parties agree
that any of Purchaser's Capacity Requirements in excess of the Minimum
BELL Purchase Requirement may be acquired by the Purchaser from other
Providers.
(b) Purchaser will pay for the Minimum BELL Purchase
Requirement and any associated upgrade Capacity in accordance with the
terms on Schedule A attached hereto.
(c) Purchases of Capacity on any System pursuant to this
Agreement shall be effected by Purchaser executing, delivering and
complying with a CPA with Grantor or any of its Affiliates. Purchaser
acknowledges that the purpose of this Agreement is to support the
development of Purchaser's international communications transport and
services business and Purchaser may utilize its Capacity purchased
pursuant hereto in any manner it chooses. Notwithstanding the
foregoing, if any of the Capacity is being resold in a manner that
causes Purchaser or any of its Affiliates to be in competition with
Grantor or any of its Affiliates, Grantor or Purchaser may, by notice
to the other terminate this Agreement. If this Agreement is so
terminated by either Party, that Capacity (including applicable upgrade
rights) which Purchaser has purchased from Grantor or its Affiliates
pursuant hereto may be used by Purchaser in any manner it chooses.
(d) The Purchaser will use all commercially reasonable efforts
to make Purchases of Capacity to satisfy the Minimum BELL Purchase
Requirement for each Commitment Year from time to time throughout such
Commitment Year so as to maintain a balance between Capacity
Requirements acquired from Grantor and its Affiliates and those
acquired from other Providers, subject to the following true up. Within
thirty (30) days after the end of each Commitment Year, Purchaser shall
determine (i) the aggregate Capacity Requirements for such Commitment
Year and (ii) the amount of Capacity purchased by the Purchaser from
Grantor and its Affiliates during such Commitment Year. If Purchaser
had not satisfied the Minimum Bell Purchase Requirement for such
Commitment Year, Purchaser shall forthwith pay to Grantor the amount of
the deficiency. Such amount shall be credited against amounts payable
by Purchaser and its Affiliates in
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<PAGE>
connection with subsequent Purchases of Capacity on the FLAG Network,
provided that such amount shall not be credited against or otherwise
reduce the Minimum BELL Purchase Requirement for the then current or
any subsequent Commitment Year. The pricing for Capacity purchased by
Purchaser with such a credit shall be calculated pursuant to Section
2(b) above.
(e) Subject to the terms and conditions of the CPAs, the
Grantor and its Affiliates shall have full and complete control,
authority and responsibility for determining any system configuration
or designs or changes therein, system upgrades, routing configurations
or rearrangement and all related functions with regard to each System
and the provisions of Capacity thereon to the Purchaser and shall keep
Purchaser apprised of any and all developments that might impact
Purchaser's commitments hereunder. However, Grantor shall not
substitute routes or Systems chosen by Purchaser without the express
written consent of Purchaser. The Grantor and its Affiliates will have
sole responsibility for negotiating, executing and administering
contracts and all other aspects related to the construction, operation,
maintenance and repair of each System. The Parties shall negotiate in
good faith to include the following in each CPA where, and to the
extent, applicable per system design and offered to other customers of
Grantor: service levels for essential metrics including bit error rate,
availability, mean time to respond and restore, and fulfillment of
provisioning times; service level relief in the event of failure to
meet service levels; a failure to fulfill provisioning times shall have
the result that Purchaser's procurement of replacement Capacity shall
not be counted when calculating the Minimum Bell Purchase Requirement;
and chronic failure to meet service levels shall be a material breach.
Failure of the Parties to agree on each of the foregoing terms in a CPA
shall have the result that Purchaser's procurement of such Capacity
from a third party shall not be counted when calculating the Minimum
Bell Purchase Requirement.
(f) Purchaser shall pay Grantor such amounts for reasonable
operation and maintenance at a price of cost (to be defined on a case
by case basis) plus 10%, with such payments tied to Purchaser's request
for circuit activation. Purchaser and its Affiliates shall have the
right, upon reasonable notice to Grantor, to audit the cost components
of Operation and Maintenance.
(g) After the end of each Commitment Year, Grantor will be
entitled to request Purchaser to provide an annual Letter of
Representation from Purchaser's Auditor (or other professional advisor)
that confirms the Minimum BELL Purchase Requirement for that year.
3. GLOBAL PORTABILITY
Purchases of Capacity under this Agreement may be swapped for Capacity
of equivalent value under Grantor's Global Portability Program. This
Program will be described in detail in any CPA signed by the Parties.
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4. CHANGE IN CONTROL
If during the term of this Agreement, any person acquires a majority of
the equity interest, assets or Control of Grantor or any Affiliate
controlling the FLAG Network and Purchaser has not participated in that
transaction, the Purchaser shall have the right to terminate its future
Minimum BELL Purchase Requirements described in Section 2(a) hereof by
delivering written notice to the Grantor within 30 days of the
consummation of any such acquisition transaction, which such written
notice shall specify a termination date (the "COMMITMENT TERMINATION
DATE") determined by the Purchaser in its sole discretion; PROVIDED
that any Capacity previously purchased by the Purchaser may not be
terminated.
5. REPRESENTATIONS
(a) The Grantor hereby represents and warrants to the
Purchaser that (i) the Grantor is a company duly organized and validly
existing under the laws of Bermuda; (ii) the execution, delivery and
performance of this Agreement by the Grantor have been duly authorized
by all necessary corporate action on the part of the Grantor and this
Agreement is a valid, binding and enforceable obligation of the Grantor
enforceable against the Grantor in accordance with its terms; and (iii)
the execution, delivery and performance of this Agreement by the
Grantor do not violate, conflict with or constitute a breach of, the
organizational documents or any order, decree or judgment of any court,
tribunal or governmental authority binding on the Grantor.
(b) The Purchaser hereby represents and warrants to the
Grantor that (i) the Purchaser is a corporation duly organized and
validly existing under the laws of its jurisdiction of organization;
(ii) the execution, delivery and performance of this Agreement by the
Purchaser have been duly authorized by all necessary corporate action
on the part of the Purchaser and this Agreement is a valid, binding and
enforceable obligation of the Purchaser enforceable against the
Purchaser in accordance with its terms; and (iii) the execution,
delivery and performance of this Agreement by the Purchaser do not
violate, conflict with or constitute a breach of, the organizational
documents or any order, decree or judgment of any court, tribunal or
governmental authority binding on the Purchaser.
6. SETTLEMENT OF DISPUTES
(a) The Parties shall endeavor to settle amicably by mutual
discussions any disputes, differences, or claims whatsoever related to
this Agreement.
(b) Failing such amicable settlement, any controversy, claim
or dispute arising under or relating to this Agreement shall be finally
settled under the Rules of Arbitration of the International Chamber of
Commerce by one arbitrator appointed in accordance with
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<PAGE>
such Rules. The place of arbitration shall be London. The arbitration
shall be conducted in English. The decision and award resulting from
such arbitration shall be final and binding on the Parties. Judgement
on the arbitration award may be rendered by any court of competent
jurisdiction, or application may be made to such court for a judicial
acceptance of the award and an award of enforcement. Insofar as
permissible under the applicable laws, the Parties hereby waive all
rights to object to any action for judgement or execution which may be
brought before a court of competent jurisdiction on an arbitration
award or on a judgement rendered thereon.
7. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT
REGARD TO CONFLICT OF LAWS PROVISIONS.
8. WAIVER OF IMMUNITY
The Parties acknowledge that this Agreement is commercial in nature,
and each Party hereto expressly and irrevocably waives any claim or
right which it may have to immunity (whether sovereign immunity, act of
state or otherwise) for itself or with respect to any of its assets in
connection with an arbitration, arbitral award or other proceeding to
enforce this Agreement, including, without limitation, immunity from
service of process, immunity of any of its assets from pre- or
post-judgment attachment or execution and immunity from the
jurisdiction of any court or arbitral tribunal.
9. NO THIRD PARTY BENEFICIARIES
This Agreement does not provide and is not intended to provide third
parties (including, but not limited to, customers of the Purchaser)
with any remedy, claim, liability, reimbursement, cause of action, or
any other right.
10. ASSIGNMENT
(a) This Agreement and all the provisions hereof shall be
binding upon and inure to the benefit of the Parties hereto and their
respective successors and permitted assigns; provided that, neither
this Agreement nor any of the rights, interest or obligations hereunder
shall be assigned or transferred by either of the Parties hereto
without the prior written consent of the other Party, and any attempted
assignment or transfer in violation of this clause shall be void.
Notwithstanding the foregoing, Purchaser may assign its rights, duties
and obligations under this Agreement upon notice to Grantor, but
without Grantor's prior consent, to Purchaser's Affiliates or to any
transferee of or successor to all or substantially all of the business
assets of Purchaser, provided:
8
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(i) the Affiliate, transferee or successor agrees to be bound
by all terms and conditions of this Agreement; and
(ii) the Affiliate, transferee or successor is authorised or
permitted under the laws and regulations of its country to
acquire and use the Capacity.
(b) Grantor may use subcontractors or agents to fulfil its
obligations as set forth in the applicable CPAs.
11. NOTICES
Each notice, demand, certification or other communication given or made
under this Agreement shall be in writing and shall be delivered by hand
or sent by registered mail or by facsimile transmission to the address
of the respective Party as shown below (or such other address as may be
designated in writing to the other party hereto in accordance with the
terms of this Section):
If to the Purchaser: Bell Atlantic Global Systems Company
1095 Avenue of the Americas
New York, New York 10036
Attn: President
Fax No: 212-598-2862
With Copy to: Bell Atlantic Corporation
1095 Avenue of the Americas
New York, New York
Attn: International Counsel
Fax No. 212-764-2739
With Copy to Bell Atlantic International
1095 Avenue of the Americas
Room 444
New York, NY 10036
Attn: John Pricken
Fax No.: 212-597-2696
If to the Grantor: FLAG Telecom Holdings Limited
The Emporium Building
69 Front Street
4th Floor
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<PAGE>
Hamilton HM 12
Bermuda
Attn: Chief Executive Officer
Fax No.: 441-296-0938
With Copy to: FLAG Telecom Limited
103 Mount Street - 3rd Floor
London W1Y 5HE UK
Attn: General Counsel
Fax No.: 011-44-20-7317-0808
Any change to the name, address and facsimile numbers may be
made at any time by giving fifteen (15) days prior written notice in
accordance with this Section. Any such notice, demand or other
communication shall be deemed to have been received, if delivered by
hand, at the time of delivery or, if posted, at the expiration of seven
(7) days after the envelope containing the same shall have been
deposited in the post maintained for such purpose, postage prepaid, or,
if sent by facsimile, at the date of transmission if confirmed receipt
is followed by postal notice.
12. SEVERABILITY
If any provision of this Agreement is found by an arbitral, judicial or
regulatory 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.
13. HEADINGS
The Section headings of this Agreement are for convenience of reference
only and are not intended to restrict, affect or influence the
interpretation or construction of provisions of such Section.
14. COUNTERPARTS
This Agreement may be executed in counterparts. Any single counterpart
or set of counterparts signed, in either case, by both of the Parties
hereto shall constitute a full and original agreement for all purposes.
15. ENTIRE AGREEMENT
This Agreement supersedes all prior oral or written understandings
between the parties hereto and constitutes the entire agreement with
respect to the subject matter herein. Any
10
<PAGE>
and all prior or contemporaneous agreements and understandings between
or among the Parties regarding the subject matter hereof, whether
written or oral, are superseded by this Agreement.
16. AMENDMENTS AND WAIVERS
No amendment or waiver of any provisions of this Agreement, and no
consent to any default under this Agreement, shall be effective unless
the same shall be in writing and duly executed by the party against
whom such amendment, waiver or consent is claimed. In addition, no
course of dealing or failure of either Party to enforce strictly any
term, right or condition of this Agreement shall be construed as a
waiver of such term, right or condition.
17. PUBLICITY AND CONFIDENTIALITY
The provisions of this Agreement and any other information, written or
oral, with respect to this Agreement or delivered hereunder
("Confidential Information") will be kept confidential and shall not be
disclosed, in whole or in part, to any person other than affiliates,
officers, directors, employees, agents or representatives of a party
(collectively, "Representatives") who need to know such Confidential
Information for the purpose of negotiating, executing and implementing
this Agreement. Each party agrees to inform each of its Representatives
of the non-public nature of the Confidential Information and to direct
such persons to treat such Confidential Information in accordance with
the terms of this Section. Nothing herein shall prevent a Party from
disclosing Confidential Information (i) upon the order of any court or
administrative agency, (ii) upon the request or demand of, or pursuant
to any regulation of, any regulatory agency or authority, (iii) to the
extent reasonably required in connection with the exercise of any
remedy hereunder, (iv) to a party's legal counsel or independent
auditors or other advisers, (v) to existing or prospective lenders to
the Grantor or any of its affiliates, and (vi) to any actual or
proposed permitted assignee of all or part of its rights hereunder
provided that such actual or proposed assignee agrees in writing to be
bound by the provisions of this Section.
Neither Party shall make any public announcement with respect to this
Agreement or the contents hereof without the other Party's consent.
18. LIMITATION OF LIABILITY
In no event shall the Purchaser or the Grantor be liable to the other
for consequential, incidental, indirect or special damages, including,
but not limited to, loss of revenue, loss of business opportunity, or
the costs associated therewith.
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19. TERMINATION AND BREACH
(a) In addition to any other rights or remedies that either Party may
have hereunder or at law or in equity, in the event that either Party
defaults in the performance of any material term hereunder (a "Material
Breach") and fails to cure such Material Breach within forty-five (45)
days after written notice from the other Party, then the other Party
may, by giving not less than ten (10) days prior written notice to the
breaching Party, terminate this Agreement as of a date specified in
such notice of termination.
(b) In the event that either Party hereto (i) files a voluntary
petition for protection under any applicable bankruptcy law; (ii) is
the subject of any involuntary proceedings, in bankruptcy, insolvency
or for the appointment of a receiver or similar officer for it and such
proceeding is not dismissed within sixty (60) days of the filing
thereof; (iii) makes an assignment for the benefit of all or
substantially all of its creditors; or (iv) enters into an agreement
for the composition, extension, or readjustment of all or substantially
all of its obligations, then the other Party hereto may, by giving
written notice thereof to such Party, terminate this Agreement as of a
date specified in such notice of termination, which date will be at
least two (2) months following the date of such notice.
(c) In the event of termination by a Party, each Party will perform its
obligations under this Agreement up to the effective date of
termination. Each Party shall also perform obligations which survive
termination under this Agreement. In the event of termination for
cause, the terminating Party will have no further obligation or
liability to the other Party after the effective date of termination
except for obligations or liabilities that survive termination of this
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first
written above.
FLAG TELECOM HOLDINGS LIMITED
By: /s/ Andres Bande
----------------------------
Name: Andres Bande
----------------------------
Title: Chairman & CEO
----------------------------
BELL ATLANTIC GLOBAL SYSTEMS COMPANY
By: /s/ Daniel C. Petri
----------------------------
Name: Daniel C. Petri
----------------------------
Title: President
----------------------------
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Exhibit 21
LIST OF SUBSIDIARIES OF FLAG TELECOM HOLDINGS LIMITED
FLAG Limited
FLAG Telecom Asia Limited
FLAG Wholesale Services Limited
FLAG Telecom Wholesale Services Ireland Limited
FLAG Telecom Ireland Limited
FLAG Telecom Japan Limited
FLAG Telecom Ireland Network Limited
FLAG Telecom Ireland Services Limited
FLAG Telecom Espana SA
FLAG Telecom Group Services Limited
FLAG Telecom Limited
FLAG Telecom USA Ltd.
FLAG Atlantic Holdings Limited
FLAG Atlantic Limited
FLAG Atlantic UK Limited
FLAG Atlantic USA Limited
FLAG Atlantic France SARL
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form F-1 (File
No. 333-94899) 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".
/s/ Arthur Andersen & Co
Arthur Andersen & Co
Hamilton, Bermuda
February 2, 2000
<PAGE>
EXHIBIT 23.3
CONSENT TO BE NAMED AS A DIRECTOR
OF
FLAG TELECOM HOLDINGS LIMITED
The undersigned hereby consents to be named as a director of FLAG
Telecom Holdings Limited (the "Company") in the Registration Statement on
Form F-1 (Registration No. 333-94899) and all amendments thereto, filed by
the Company with the Securities and Exchange Commission.
/s/ Michael Fitzpatrick
-------------------------
Name: Michael Fitzpatrick
<PAGE>
Exhibit 23.4
CONSENT TO BE NAMED AS A DIRECTOR
OF
FLAG TELECOM HOLDINGS LIMITED
The undersigned hereby consents to be named as a director of FLAG Telecom
Holdings Limited (the "Company") in the Registration Statement on Form F-1
(Registration No. 333-94899) and all amendments thereto, filed by the Company
with the Securities and Exchange Commission.
/s/ Edward J. McQuaid
-----------------------------
Name: Edward J. McQuaid
<PAGE>
Exhibit 23.5
CONSENT TO BE NAMED AS A DIRECTOR
OF
FLAG TELECOM HOLDINGS LIMITED
The undersigned hereby consents to be named as a director of FLAG Telecom
Holdings Limited (the "Company") in the Registration Statement on Form F-1
(Registration No. 333-94899) and all amendments thereto, filed by the Company
with the Securities and Exchange Commission.
/s/ Philip Seskin
--------------------------------
Name: Philip Seskin
