-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MU0FUhow4VE8NB/VeY02HPSStcvflaYIdJUq1JBo1p7kPFsnQikoWVUeLhvbDbND qaFJOC7gKeBChfWzdkOT7w== /in/edgar/work/0001005477-00-007942/0001005477-00-007942.txt : 20001116 0001005477-00-007942.hdr.sgml : 20001116 ACCESSION NUMBER: 0001005477-00-007942 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RSL COMMUNICATIONS LTD CENTRAL INDEX KEY: 0001036297 STANDARD INDUSTRIAL CLASSIFICATION: [4813 ] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23139 FILM NUMBER: 769671 BUSINESS ADDRESS: STREET 1: CLARENDON HOUSE CHURCH ST STREET 2: HAMILTON HM CX BERMUDA BUSINESS PHONE: 4412952832 MAIL ADDRESS: STREET 1: CLARENDON HOUSE CHRUCH ST STREET 2: HAMILTON HM C BERMUDA 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 Commission file number 0-23139 RSL COMMUNICATIONS, LTD. ------------------------ (Exact name of the registrant as specified in its charter) Bermuda N/A - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) identification No.) Clarendon House Church Street Hamilton HM CX Bermuda ---------------------- (Address of principal executive offices) (441) 295-2832 -------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of November 9, 2000, the registrant had 36,575,218 of its Class A common stock, par value $0.00457 per share, and 24,267,283 of its Class B common stock, par value $0.00457 per share, outstanding. RSL COMMUNICATIONS, LTD. Table of Contents Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and December 31, 1999................. 1 Condensed Consolidated Statements of Operations for the Three Month and Nine Month Periods Ended September 30, 2000 (Unaudited) and 1999 (Unaudited)...................................... 2 Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2000 (Unaudited) and 1999 (Unaudited).... 3 Notes to Condensed Consolidated Financial Statements..................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................11 Item 3. Quantitative and Qualitative Disclosures About Market Risk........27 PART II - OTHER INFORMATION Item 1. Change in Securities and Use of Proceeds.........................28 Item 2. Other Information................................................28 Item 3. Exhibits and Reports on Form 8-K.................................29 Signatures....................................................................30 Exhibit Index.................................................................31 PART I FINANCIAL INFORMATION Item 1. Financial Statements. RSL COMMUNICATIONS, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
As of As of September 30, December 31, 2000 1999 ---- ---- (unaudited) Assets Cash and Cash Equivalents ...................... $ 98,648 $ 238,724 Accounts Receivable, Net ....................... 279,983 258,983 Marketable Securities - Available for Sale ..... 52,752 72,813 Prepaid Expenses and Other Current Assets ...... 153,863 116,929 ----------- ----------- Total Current Assets ........................... 585,246 687,449 ----------- ----------- Marketable Securities - Available for Sale ..... -- 11,341 Property and Equipment ......................... 700,746 610,095 Less: Accumulated Depreciation ................. (193,087) (134,559) ----------- ----------- Property and Equipment, Net .................... 507,659 475,536 Investment in Unconsolidated Subsidiaries ...... 1,657 16,872 Goodwill and Other Intangibles, Net ............ 699,763 606,039 Deposits and Other Assets ...................... 30,173 6,071 ----------- ----------- Total Assets .............................. $ 1,824,498 $ 1,803,308 =========== =========== Liabilities and Shareholders' Deficit Accounts Payable and Other Liabilities ......... $ 484,608 $ 500,371 Short-term Debt ................................ 49,478 23,348 ----------- ----------- Total Current Liabilities ...................... 534,086 523,719 ----------- ----------- Total Long-term Debt ........................... 1,529,392 1,273,961 Other Liabilities - Noncurrent ................. 14,597 15,986 ----------- ----------- Total Liabilities .............................. 2,078,075 1,813,666 ----------- ----------- Minority Interest .............................. 63,997 73,254 ----------- ----------- Shareholders' Capital .......................... 799,196 641,778 Accumulated Deficit ............................ (1,116,770) (725,390) ----------- ----------- Total Shareholders' Deficit .................... (317,574) (83,612) ----------- ----------- Total Liabilities and Shareholders' Deficit $ 1,824,498 $ 1,803,308 =========== ===========
See notes to condensed consolidated financial statements. 1 RSL COMMUNICATIONS, LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except loss per share)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues ............................................ $ 382,843 $ 368,831 $ 1,149,273 $ 1,076,812 Operating Costs and Expenses: Cost of Services (exclusive of depreciation and amortization shown separately below) ............. 282,264 256,131 816,480 765,009 Selling, General and Administrative Expenses ...... 154,254 112,573 412,403 323,470 Non-cash Compensation Expense ..................... 2,204 2,676 8,329 5,602 Write Down for Impairment of Assets ............... -- -- 48,267 -- Special Charge .................................... -- 30,143 -- 30,143 Depreciation and Amortization ..................... 53,496 46,032 154,658 126,115 ----------- ----------- ----------- ----------- Total Operating Costs and Expenses .................. 492,218 447,555 1,440,137 1,250,339 ----------- ----------- ----------- ----------- Loss From Operations ................................ (109,375) (78,724) (290,864) (173,527) Interest Income ..................................... 2,288 5,408 11,176 16,502 Interest Expense .................................... (45,007) (35,546) (123,832) (95,820) Other Income/(Expense) - Net ........................ (3,221) 326 (7,380) 506 Foreign Exchange Transaction Gain (Loss) - Net ...... 7,205 (3,468) 15,879 10,560 Minority Interest ................................... 5,338 (4,791) 13,318 (3,969) Loss in Equity Interest of Unconsolidated Subsidiaries - Net ................. (3,477) (1,184) (7,903) (1,560) Income Tax Expense .................................. (459) (918) (1,773) (1,408) ----------- ----------- ----------- ----------- Net Loss ............................................ $ (146,708) $ (118,897) $ (391,379) $ (248,716) =========== =========== =========== =========== Basic and Diluted Net Loss Per Share of Common Stock $ (2.51) $ (2.17) $ (6.89) $ (4.63) Weighted Average Number of Shares of Common Stock Outstanding ....................................... 58,440 54,702 56,835 53,676
See notes to condensed consolidated financial statements. 2 RSL COMMUNICATIONS, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Nine Months Ended September 30, ------------- 2000 1999 ---- ---- Net loss ............................................................. $(391,379) $(248,716) Depreciation and amortization ........................................ 154,658 126,115 Working capital change and other ..................................... (20,538) (1,215) --------- --------- Net cash used in operations ..................................... (257,259) (123,816) --------- --------- Acquisitions of subsidiaries ......................................... (81,765) (38,209) Purchase of property and equipment ................................... (141,459) (159,679) Proceeds from maturity of marketable securities ...................... 28,324 9,715 Proceeds from maturity of restricted securities ...................... -- 21,150 Other ................................................................ 1,385 307 --------- --------- Net cash used in investing activities ........................... (193,515) (166,716) --------- --------- Proceeds from the issuance of Notes .................................. 197,123 169,748 Payment of offering costs ............................................ (10,908) (256) Proceeds from short term debt ........................................ 25,000 40,486 Payment of short term debt ........................................... (1,123) (37,310) Proceeds from Issuance of Long-Term Debt ............................. 8,672 -- Proceeds from Issuance of Convertible Preferred Stock ................ 115,000 -- Proceeds from issuance of Class A shares ............................. 401 1,475 Principal payments under capital lease obligations ................... (10,495) (14,970) --------- --------- Net cash provided by financing activities ....................... 323,670 159,173 --------- --------- Decrease in cash and cash equivalents ................................ (127,104) (131,359) Effects of foreign currency on cash and cash equivalents ............. (12,972) (1,453) Cash and cash equivalents at beginning of period ..................... 238,724 367,823 --------- --------- Cash and cash equivalents at end of period ........................... $ 98,648 $ 235,011 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid for interest ............................................... $ 78,741 $ 57,960 ========= ========= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Exchange of Class A Common Stock for stock of subsidiaries ........... $ 41,916 $ 36,783 ========= ========= Assets acquired under capital lease obligations ...................... $ 60,535 $ 12,385 ========= ========= Stock of Subsidiaries Issued ......................................... $ 10,450 $ -- ========= =========
See notes to condensed consolidated financial statements. 3 RSL COMMUNICATIONS, LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1. BASIS OF PRESENTATION The condensed consolidated financial statements of which these notes are part have been prepared by us and RSL Communications PLC ("RSL PLC") and RSL COM U.S.A., Inc. ("RSL COM U.S.A"), our subsidiaries, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, in the opinion of our management, the Condensed Consolidated Financial Statements include all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial information for such periods. These Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and the notes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 1999. As a result of our continued efforts to build out our network, combined with the increasing competitive market for telecommunications services, we continue to experience losses and have a deficiency of assets. Our financial statements have been prepared on a going-concern basis of accounting. Our ability to realize our assets is dependent upon our ability to generate liquidity to fund our ongoing losses and our reduced capital expenditure plan. While there can be no assurances, we believe that our remaining net cash balance, together with availability under our short-term line of credit, overdraft facilities from local banks, and other cash resources, will be sufficient to fund our operations into early 2001. We believe that any proceeds received from the potential sales of non-core assets, in addition to proceeds received from the potential early monetization of Telegate Holding in January 2001 will be sufficient to fund our capital expenditures, operations and other obligations through mid-2001. 2. COMPREHENSIVE LOSS Comprehensive loss consists of net loss and other gains and losses affecting shareholder's equity that, under generally accepted accounting principles, are excluded from net income. For RSL COM, such items consist of foreign currency translation gains and losses and unrealized gains and losses on marketable equity investments. The components of total comprehensive loss for interim periods are presented in the following table:
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- (unaudited) (in thousands) Net Loss ................................. $(146,708) $(118,897) $(391,379) $(248,716) Other Comprehensive Income (Loss) Foreign currency translation adjustments (2,540) 615 (19,052) (1,002)
4 Unrealized (loss)/gain on securities ... 48 (523) 2,476 (182) --------- --------- --------- --------- (2,492) 92 (16,576) (1,184) --------- --------- --------- --------- Total Comprehensive Loss ................. $(149,200) $(118,805) $(407,955) $(249,900) ========= ========= ========= =========
3. NET LOSS PER SHARE Net loss per share is computed on the basis of the weighted average number of common shares outstanding during the period. Diluted loss per share amounts are not presented because the inclusion of these amounts would be anti-dilutive. 4. SUMMARIZED CONSOLIDATING FINANCIAL INFORMATION Presented below are condensed consolidating financial statement data as of and for the nine months and the quarter ended September 30, 2000. The notes issued by RSL PLC are fully and unconditionally guaranteed by us and by RSL COM U.S.A. on a joint and several basis. For the nine months ended September 30, 2000:
Non-Guarantor Consolidated (unaudited) RSL Ltd. RSL PLC RSL COM USA Subsidiaries Adjustments Total -------- ------- ----------- ------------ ----------- ----- Revenues $ -- $ 707,102 $ 265,022 $ 177,149 $ -- $ 1,149,273 Operating Expenses 25,299 868,359 303,258 246,542 (3,321) 1,440,137 ------ ------- ------- ------- ------ --------- (Loss)/Income from Operations (25,299) (161,257) (38,236) (69,393) 3,321 (290,864) Other Inc./(Exp.) 7,885 (109,100) (6,819) 9,024 (1,505) (100,515) ------ ------- ------- ------- ------ --------- Net (Loss)/Income $ (17,414) $ (270,357) $ (45,055) $ (60,369) $ 1,816 $ (391,379) -------------------------------------------------------------------------------------------
5 For the quarter ended September 30, 2000
Non-Guarantor RSL (unaudited) RSL Ltd. RSL PLC RSL COM USA Subsidiaries Adjustments Consolidated -------- ------- ----------- ------------ ----------- ------------ Revenues $ -- $ 233,331 $ 87,644 $ 61,868 $ -- $ 382,843 Operating Expenses 13,789 290,084 107,611 82,035 (1,301) 492,218 ------ ------- ------- ------ ------ ------- (Loss)/ Income from Operations (13,789) (56,753) (19,967) (20,167) 1,301 (109,375) Other Inc./(Exp.) 1,881 (39,673) (2,485) 3,437 (493) (37,333) ------ ------- ------- ------ ------ ------- Net Loss $ (11,908) $ (96,426) $ (22,452) $ (16,730) $ 808 $(146,708) -------------------------------------------------------------------------------
6 As of September 30, 2000:
Non-Guarantor RSL (unaudited) RSL Ltd. RSL PLC RSL COM USA Subsidiaries Adjustments Consolidated -------- ------- ----------- ------------ ----------- ------------ Curr. Assets $ 1,234,255 $ 344,328 $ 104,671 $ 139,173 $(1,237,181) $ 585,246 PP&E - net 7,535 367,926 78,510 53,688 -- 507,659 Goodwill &Other Intangibles-net 37,185 449,412 161,365 51,801 -- 699,763 Other Assets 294,149 27,741 857 44,857 (335,774) 31,830 ----------------------------------------------------------------------------------------- Total Assets $ 1,573,124 $ 1,189,407 $ 345,403 $ 289,519 $(1,572,955) $ 1,824,498 ----------------------------------------------------------------------------------------- Liabilities & Shareholders Equity (Deficit) Short Term Debt $ 24,108 $ 15,409 $ 3,749 $ 6,212 $ -- $ 49,478 Accounts Payable and Other Liabilities 1,107,866 (68,988) 488,584 189,437 (1,232,291) 484,608 Long-term debt and Other 1,150 2,015,142 10,607 61,755 (480,668) 1,607,986 Shareholders Equity (Deficit) 440,000 (772,156) (157,537) 32,115 140,004 (317,574) ----------------------------------------------------------------------------------------- Total Liabilities & Stockholders' Equity/(Deficit) $ 1,573,124 $ 1,189,407 $ 345,403 $ 289,519 $(1,572,955) $ 1,824,498 -----------------------------------------------------------------------------------------
7 For the Nine Months ended September 30, 2000:
Non-Guarantor RSL (unaudited) RSL Ltd. RSL PLC RSL USA Subsidiaries Consolidated -------- ------- ------- ------------ ------------ Net Cash used in Operating Activities $ (11,281) $(236,843) $ 4,646 $ (13,781) $(257,259) Net cash used in Investing Activities (18,469) (97,077) (7,356) (70,613) (193,515) Net cash provided by Financing Activities 25,401 301,758 (3,361) (128) 323,670
5. Significant Events In July 2000, we announced that we intend to sell or close our operations in Canada, Japan and Hong Kong. In connection with this decision, as of June 30, 2000, we recorded a non-cash asset write-down for the impairment of assets of $48.3 million. As of September 30, 2000 we have shut down our operations in Hong Kong, are in the process of finalizing a sale of our Japan operations, and have continued our Canadian operations while we pursue a sale. We recorded revenues and an operating loss for the quarter ended September 30, 2000 for our Canadian operations of $10.9 million and $2.8 million, respectively. In July 2000, we signed an agreement with our Chairman and principal shareholder, Ronald S. Lauder, for an unsecured loan facility totaling $100 million, available until June 30, 2001. All loans under the facility are due and payable on or before June 30, 2001 or earlier upon the monetization of telegate AG or other asset sales. The rate of interest is LIBOR plus 4.5% on any amounts drawn under the facility and we are obligated to issue to Mr. Lauder warrants to purchase 75,000 Class A common shares at $11.50 per share for each $5 million drawn under the facility. As of September 30, 2000, we have drawn $25 million under this facility and have issued 375,000 warrants to Mr. Lauder. The value assigned to the warrants was estimated at approximately $1 million and was recorded as additional paid in capital. In August 2000, we announced the appointment of Paul B. Domorski as our President and CEO, which became effective August 21, 2000. Mr. Domorski, formerly President of British Telecom Syncordia Solutions, succeeds Itzhak Fisher. Mr. Domorski's office is located in the United Kingdom. In addition, Donald R. Shassian, our Chief Operating Officer, has left our company to pursue other opportunities. 6. Subsequent Events In October 2000, pursuant to its agreement with Seat Pagine Gialle Spa. ("SEAT"), our German subsidiary RSL COM Deutschland GmbH sold an initial portion of its equity interest in Telegate Holding, the holding company for our share ownership in Telegate AG, to SEAT for gross proceeds of approximately 15.3 million Euros. As a result of this and the expected sale of the balance of our interest, we changed our accounting for this investment from the consolidation method to the equity method. 8 In October 2000, we retained the investment banking firm of Wasserstein Perella & Co., Inc. to assist us in exploring strategic alternatives. As of November 13, 2000 we have drawn $55 million under our facility with Ronald S. Lauder and have issued 825,000 warrants to him. 7. Effects of Recently Issued Accounting Standards In June 1998, the FASB issued SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and hedging activities. Generally, it requires that an entity recognize all derivatives as either an asset or liability and measure those instruments at fair value, as well as identify the conditions for which a derivative may be specially designed as a hedge. SFAS No.133 is effective for fiscal years beginning after June 15, 2000. We have not participated in any hedging activities in connection with foreign currency exposure. We will adopt SFAS No. 133 in the first quarter of 2001. We do not expect this to have a material effect on our results of operations or financial position. 8. Segment Data European Operations
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- (unaudited) (in thousands, except percentages) Revenue ......................................... $ 222,425 $ 186,957 $ 671,303 $ 517,371 Operating costs and expenses: Cost of services (exclusive of depreciation and amortization shown separately below) ............ 160,098 116,251 461,103 329,188 --------- --------- --------- --------- Gross margin .................................... 62,327 70,706 210,200 188,183 Selling, general and administrative expenses .... 85,721 62,998 230,352 172,413 Depreciation and amortization ................... 24,751 17,110 64,844 44,581 --------- --------- --------- --------- Loss from operations ............................ $ (48,145) $ (9,402) $ (84,996) $ (28,811) ========= ========= ========= =========
9 North American Operations
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- (unaudited) (in thousands, except percentages) Revenue ....................................... $ 98,551 $ 132,799 $ 300,822 $ 426,428 Operating costs and expenses: Cost of services (exclusive of depreciation and amortization shown separately below) .......... 81,085 105,033 242,214 343,223 --------- --------- --------- --------- Gross margin .................................. 17,466 27,766 58,608 83,205 Selling, general and administrative expenses .. 22,464 26,575 63,421 85,318 Non-cash compensation ......................... 686 -- 2,059 -- Write-down for impairment of assets ........... -- -- 37,382 -- Depreciation and amortization ................. 17,129 11,113 40,487 33,705 --------- --------- --------- --------- Loss from operations .......................... $ (22,813) $ (9,922) $ (84,741) $ (35,818) ========= ========= ========= ========= Asia/Pacific and Other Operations Revenue ....................................... $ 56,301 $ 47,727 $ 166,533 $ 130,658 Operating costs and expenses: Cost of services (exclusive of depreciation and amortization shown separately below) .......... 37,106 31,928 106,665 88,907 --------- --------- --------- --------- Gross margin .................................. 19,195 15,799 59,868 41,751 Selling, general and administrative expenses .. 22,049 18,310 65,051 48,878 Write-down for impairment of assets ........... -- -- 10,885 -- Depreciation and amortization ................. 5,220 9,769 17,714 18,730 --------- --------- --------- --------- Loss from operations .......................... $ (8,074) $ (12,280) $ (33,782) $ (25,857) ========= ========= ========= ========= deltathree.com Operations Revenue ....................................... $ 5,566 $ 1,348 $ 10,615 $ 2,355 Operating costs and expenses: Cost of services (exclusive of depreciation and amortization shown separately below) .......... 3,975 963 6,498 1,734 --------- --------- --------- --------- Gross margin .................................. 1,591 385 4,117 621 Selling, general and administrative expenses .. 9,016 468 25,624 5,596 Non-cash compensation ......................... 1,374 2,286 5,530 2,286 Depreciation and amortization ................. 2,150 1,271 5,407 2,642 --------- --------- --------- --------- Loss from operations .......................... $ (10,949) $ (3,640) $ (32,444) $ (9,903) ========= ========= ========= =========
10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We are a growing facilities-based communications company that provides a broad range of voice, data / Internet and value-added products and service solutions primarily to small and medium-sized businesses and residential customers in selected markets around the globe. We have built a local presence and currently have revenue-generating operations in Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Luxembourg, Mexico, the Netherlands, New Zealand, Portugal, Spain, Sweden, Switzerland, the United Kingdom, the United States and Venezuela. Through our subsidiary, deltathree.com, we also own and operate a privately-managed Internet Protocol (IP) telephony network with 107 points of presence in 40 countries around the world. deltathree.com completed its initial public offering on November 29, 1999 and as a result we currently own approximately 68% of the equity of deltathree.com. Accordingly, we will continue to report the financial results of deltathree.com as a part of our consolidated results of operations. Prior to its initial public offering, we combined results from deltathree.com's operation with our other operations. We currently present the results of deltathree.com's operations as a separate segment. Consolidated Results Of Operations For The Three Month And Nine Month Periods Ended September 30, 2000 Compared To The Three Month And Nine Month Periods Ended September 30, 1999 Revenues Revenues from our voice services are derived primarily from the number of minutes of use (or fractions thereof) that we bill and are recorded upon completion of telephone calls. We also derive revenues from prepaid calling cards. Revenues from prepaid calling cards are recognized at the time of usage or upon expiration of the card. Data service revenue is derived from both fixed monthly charges and variable charges based on usage. We maintain local market pricing structures for our services and generally price our services at a discount to prices charged by the local incumbent telecommunications operators and other established carriers. We have experienced, and expect to continue to experience, declining revenue per minute in all of our markets as a result of increasing competition, which we expect will be somewhat offset by increased minute volumes and decreased operating costs per minute. Revenues increased to $382.8 million for the three months ended September 30, 2000 compared to $368.8 million for the three months ended September 30, 1999, an increase of 4%. The general strengthening of the U.S. dollar over the past year relative to most foreign currencies in which we operate negatively impacted the growth in revenues. Had we applied the third quarter 1999 foreign currency exchange rates to the third quarter 2000 local currency amounts, reported revenue would have increased by an additional $36.7 million. For the nine months ended September 30, 2000, revenues increased to $1,149.3 million, compared to $1,076.8 million for the nine months ended September 30, 1999, an increase of 7%. This increase is due primarily to the growth in customers in our European operations partially offset by competitive pricing pressures in several of the markets in which we operate. Had we applied the year to date average 1999 foreign currency exchange rates to the year to date 2000 local currency amounts, revenue would have increased by an additional $73.3 million. The unfavorable impact due to exchange rates on revenues is substantially mitigated by the favorable impact from foreign currency exchange rates on costs. 11 Cost of Services (exclusive of depreciation and amortization shown separately below) Our cost of services is primarily comprised of costs associated with gaining local access and the transport and termination of calls over our telecommunications network, RSL-NET. The majority of our cost of services is variable, including local access charges and transmission capacity leased on a per-minute-of-use basis. For certain key markets, we have made significant investments in indefeasible rights of use, or IRUs, minimum investments units, or MIUs and domestic circuits and, as a result, an increasing amount of our total operating costs have become fixed, as the volume of our calls carried over our own facilities increases. Our continued ability to migrate increasing amounts of traffic from leased facilities to owned facilities is limited due to our capital constraints (see liquidity and capital resources). A significant percentage of our international transmission facilities will continue to be leased on a variable cost basis. Accordingly, variable costs will continue to be a majority of our cost of services for the foreseeable future. The depreciation expense with respect to our MIUs and IRUs is not accounted for in cost of services. We have directly linked certain of our local operators in Europe and the United States utilizing lines leased on a fixed-cost, point-to-point basis and utilizing MIUs and IRUs. To the extent traffic can be transported between local operators over MIUs and IRUs, there is only marginal cost to us with respect to the international portion of a call other than the fixed lease payment or the capital expenditure incurred in connection with the purchase of the MIUs or IRUs. Our cost of transport and termination should decrease to the extent that we are able to bypass the settlement rates associated with the transport of international traffic. We have been expanding and upgrading our Pan-European network connecting ten European international switching centers in nine countries. We expect that this network will replace more expensive, short-term leases for lower capacity circuits, will improve our least-cost routing efficiency and will handle the growing number of minutes of traffic on our European network. It is expected that the network will be phased-in in three regions of Europe, although the phase-in has been somewhat delayed from our original expectations due to technical difficulties encountered by our vendor, and is now expected to be implemented in the fourth quarter of 2000 and the first quarter of 2001. Our cost of services is primarily affected by the volume of traffic relative to our owned facilities and facilities leased on a point-to-point, fixed -cost basis and capacity leased on a per minute basis with volume discounts. To the extent that volume exceeds capacity on leased facilities that have been arranged for in advance, we are forced to acquire capacity from alternative carriers on a spot rate per-minute basis at a higher cost. Acquiring capacity on such an overflow basis has a negative impact on margins, but enables us to maintain uninterrupted service to our customers. Cost of services increased to $282.3 million for the three months ended September 30, 2000 from $256.1 million for the three months ended September 30, 1999, an increase of 10%. Cost of services for the nine months ended September 30, 2000 were $816.5 million, as compared to $765.0 million for the same period last year, an increase of 7%. The increase in costs is primarily due to additional facility costs in certain countries. As a percentage of revenues, cost of services increased to 73.7%, for the third quarter of 2000 compared to 69.4% for the third quarter of 1999. For the first nine months of 2000, cost of services as a percentage of revenue remained essentially the same, 71.0%, as for the same period last year. Effect of Deregulation on Cost of Services (exclusive of depreciation and amortization) 12 Our cost structure varies from country to country and is significantly impacted by the extent of regulation in place in each country. In general, our cost structure is lower in countries that have been substantially deregulated than in those which are only partially deregulated. In countries that are not substantially deregulated, our access to the local network is through more expensive means (i.e. leased lines or dial-in access). This results in higher costs to us for carrying international traffic into or out of such a country. In addition, local regulations in certain countries restrict us from purchasing capacity on international cable and fiber systems. We must instead either enter into long-term lease agreements for international capacity at a high fixed cost or purchase per-minute-of-use termination rates from the dominant carrier. Further deregulation in countries in which we operate is expected to better enable us to interconnect our switches with the local exchange network and to purchase our own international facilities. Deregulation in a particular country is also expected to permit us to terminate international inbound traffic in such country which we expect will result in an improved cost structure for us as a whole. Selling, General and Administrative Expenses Our selling, general and administrative expenses consist primarily of costs incurred to gain new customers, introduce new products and services, provide ongoing customer service and continue the expansion of RSL-NET. These costs are principally comprised of costs associated with employee compensation, occupancy, insurance, professional fees, sales and marketing (including sales commissions) and bad debt expenses. In the past, we have incurred significant start-up costs, particularly for hiring, training and retention of personnel, leasing of office space and advertising. We have grown by establishing operations in countries that were in the process of being deregulated and that originate and terminate large volumes of international traffic or offer other strategic benefits. Many of our operations are in different stages of development. The early stages of development of a new operation have involved substantial start-up costs in advance of revenue. Upon the commencement of such operations, we generally have incurred additional fixed costs to facilitate growth. We expect that during periods of significant expansion, selling, general and administrative expenses will increase materially. Accordingly, our consolidated results of operations will vary depending on the timing and speed of our expansion strategy and, during a period of rapid expansion, will not necessarily reflect the performance of our more established local operators. Selling, general and administrative expense for the three months ended September 30, 2000 increased by $41.7 million, or 37%, to $154.3 million from $112.6 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, selling, general and administrative expense increased to $412.4 million, from $323.5 million for the nine months ended September 30, 1999, an increase of $88.9 million or 27%. Selling, general and administrative expense as a percentage of revenues increased to 40.3% in the third quarter of 2000 compared to 30.5%, in the third quarter 1999. Selling, general and administrative expense as a percentage of revenues increased to 35.9% for the first nine months of 2000 compared to 30.0%, for the first nine months of 1999. The percentage increase is primarily due to significant increases in costs at our subsidiaries in Australia and Canada, as well as at deltathree.com and telegate AG as they implement their aggressive expansion plans in new markets. The increase is also attributable to the impact of our recent acquisitions in Spain, the expense relating to a one-time corporate marketing campaign in the second and third quarters of 2000 as well as corporate severance charges pertaining to staff reductions and management changes and the expansion efforts of our Canadian operations. 13 Write-Down for Impairment of Assets In July 2000, we announced our intention to sell or close our operations in Canada, Japan and Hong Kong. In connection with this decision, we recorded a non-cash asset write-down for the impairment of assets of $48.3 million during the second quarter. These assets are primarily property, plant and equipment and the amount of the impairment was based upon fair market value, as determined by current estimates of realizable value upon sale to third parties. This write down impacts the results of the North American and Asia/Pacific/Other operating segments. These three operations had annual revenues of $52.3 million in 1999 and had revenues for the nine months ended September 30, 2000 of approximately $35.9 million, with substantially all of the revenue having been generated in Canada. Non-cash Compensation Expense Non-cash compensation expense relates to variable stock incentive awards that were previously granted to employees in various subsidiaries, primarily deltathree.com. Non-cash compensation expense for the third quarter and first nine months of 2000 was $2.2 million and $8.3 million, respectively, compared to $2.7 million and $5.6 million for the third quarter and nine months ended September 30,1999. Special Charge During the third quarter of 1999, we recorded a special charge of approximately $32.1 million, primarily for consolidating locations, streamlining operations, discontinuing certain prepaid calling card plans and exiting the telemarketing business. The special charge was comprised of approximately $13.1 million for terminating various operating leases, $12.4 million for the severance of telemarketing employees, as well as world-wide staff reductions of 115 employees, and $6.6 million for the write down of certain telemarketing and prepaid calling card assets of which $2.0 million was associated with the write-off of inventory. As of September 30, 2000 the reserve balance was $2.9 million primarily for severance payments to be paid out over the next several months in accordance with local legal requirements to former employees who have already been severed. Depreciation and Amortization Expense Depreciation and amortization expense increased 16% to $53.5 million for the three months ended September 30, 2000 from $46.0 million for the three months ended September 30, 1999. Depreciation and amortization expense increased 23% to $154.7 million for the nine months ended September 30, 2000 from $126.1 million for the nine months ended September 30, 1999. This increase is primarily attributable to the increased amortization of goodwill and other intangibles recorded as a result of our acquisitions and higher depreciation due to increased capital expenditures. Interest Income Interest income decreased from $5.4 million for the three months ended September 30, 1999 to $2.3 million for the three months ended September 30, 2000. Interest income decreased from $16.5 million for the nine months ended September 30, 1999 to $11.2 million for the nine months ended September 30, 2000. This decline is primarily a result of a decline in the average outstanding balance of interest-bearing investments in 2000 compared to last year. 14 Interest Expense Interest expense increased to $45.0 million for the three months ended September 30, 2000 from $35.5 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, interest expense increased to $123.8 million, from $95.8 million for the first nine months of 1999. The increase is primarily a result of the $175 million 9 7/8% Senior Notes issued in May 1999 and the $100 million and 100 million Euro-denominated 12 7/8% Senior Notes issued in February 2000, as well as increases in capital lease obligations and the impact of the amounts drawn under the Ronald S. Lauder facility. Other Income (Expense) - Net Other income (expense)- net for the three and nine months ended September 30, 2000 primarily reflects the accrual of regular quarterly distributions on our $115 million 7 1/2% Series A Convertible Preferred Shares which we issued on February 22, 2000. Foreign Exchange We are exposed to fluctuations in foreign currencies relative to the U.S. dollar, as our revenues, costs, assets and liabilities are, for the most part, denominated in local currencies. The results of operations of our subsidiaries, as reported in U.S. dollars, may be significantly affected by fluctuations in the value of the local currencies in which we transact business. We recorded a foreign currency translation adjustment of $19.1 million as a component of equity as of September 30, 2000. Such amount is recorded upon the translation of the foreign subsidiaries' financial statements into U.S. dollars, and is dependent upon the various foreign exchange rates and the magnitude of the foreign subsidiaries' financial statements. We incur settlement costs when we exchange traffic via operating agreements with foreign correspondents. These costs currently represent a small portion of total costs, however, as our international operations increase, we expect that these costs will become a more significant portion of our cost of services. Such costs are settled by utilizing a net settlement process with our foreign correspondents comprised of special drawing rights ("SDRs"). SDRs are the established method of settlement among international telecommunications carriers. The SDRs are valued based upon a basket of foreign currencies and we believe that this mitigates, to some extent, our foreign currency exposure. We have monitored and will continue to monitor our currency exposure. We recorded a foreign exchange gain of $7.2 million for the three months ended September 30, 2000 compared to a foreign exchange loss of $3.5 million for the three month period ended September 30, 1999. For the nine months ended September 30, 2000 we recorded a foreign exchange gain of $15.9 million compared to a gain of $10.6 million for the nine month period ended September 30, 1999. The gains are primarily a result of the decline in the value of the deutsche mark against the U.S. dollar associated with our 1998 deutsche mark denominated Senior Discount Notes. Also contributing to the foreign exchange gain during 2000 is the gain in U.S. dollar terms associated with the decline in the value of the Euro associated with our Euro-denominated debt issued in February 2000. 15 Loss in Equity Interest of Unconsolidated Subsidiaries - Net We recorded a loss in equity interest of unconsolidated subsidiaries - net of $3.5 million for the three months ended September 30, 2000 compared to a net loss of $1.2 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000 we recorded a loss in equity interest of unconsolidated subsidiaries - net of $7.9 million, compared to a net loss of $1.6 million recorded for the nine months ended September 30, 1999. This increased loss reflects additional allocable loss in the investments of Maxitel Servicos e Gestao de Telecommunicacoes, S.A., a Portugese international telecommunications carrier, and the recording of losses associated with Banda Ancha, a consortium formed in April 2000 to develop an LMDS network in Spain. Net Loss The net loss increased to $146.7 million for the three months ended September 30, 2000, as compared to the net loss of $118.9 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, the net loss increased to $391.4 million, as compared to the net loss of $248.7 million for the same period last year. The increase is due to the factors described above, and in the following discussion of segment results. In particular, results were negatively impacted by our decision to sell or close our operations in Canada, Hong Kong and Japan, which resulted in a non-cash charge of $48.3 million, discussed above. Net loss per share for the first nine months of 2000 was $6.89, compared to a net loss per share of $4.63 for the nine months ended September 30, 1999. Segment Information European Operations
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- (unaudited) (in thousands, except percentages) Revenue ........................................ $ 222,425 $ 186,957 $ 671,303 $ 517,371 Operating costs and expenses: Cost of services (exclusive of depreciation and amortization shown separately below) ........... 160,098 116,251 461,103 329,188 --------- --------- --------- --------- Gross margin ................................... 62,327 70,706 210,200 188,183 Selling, general and administrative expenses ... 85,721 62,998 230,352 172,413 Depreciation and amortization .................. 24,751 17,110 64,844 44,581 --------- --------- --------- --------- Loss from operations ........................... $ (48,145) $ (9,402) $ (84,996) $ (28,811) ========= ========= ========= ========= Other Financial Data: EBITDA (as defined) (1) ........................ $ (23,394) $ 7,708 $ (20,152) $ 15,770 Revenue as a percentage of consolidated revenue 58.1% 50.7% 58.4% 48.0%
16 Gross margin as a percentage of revenue ........ 28.0% 37.8% 31.3% 36.4% Selling, general and administrative expense as a percentage of revenue ....................... 38.5% 33.7% 34.3% 33.3%
- ---------- (1) EBITDA, as used herein, consists of loss from operations before depreciation and amortization. It is provided because it is a measure commonly used in the telecommunications industry. It is presented to enhance an understanding of our operating results and is not intended to represent cash flow or results of operations in accordance with U.S. GAAP for the periods indicated. Our definition of EBITDA may be different than that used by other companies. We derive our European revenues primarily from the provision of international and domestic long distance voice services, including directory information services in Germany and the sale and resale of wireless services in certain countries in which we operate. We have introduced several new product groups, such as data, Internet, value-added services and web based applications and broadened existing services such as fixed voice and wireless services. Substantially all revenues from our European operations are derived from commercial sales to end-users. Sales are targeted towards small to medium-sized corporate customers, and niche consumer markets. Revenue from our European operations increased by 19% to $222.4 million for the three months ended September 30, 2000 compared to $187.0 million for the same period in 1999. Revenue from our European operations increased by 30% to $671.3 million for the nine months ended September 30, 2000 compared to $517.4 million for the same period in 1999. The increase in our European revenues was attributable to a substantial increase in the number of business, residential and wireless customers, partially offset by competitive pricing pressures. European revenues as a percentage of consolidated revenues increased from 50.7% in the third quarter of 1999 to 58.1%, in the third quarter of 2000. For the nine months ended September 30, 2000 European revenues represented 58.4% of consolidated revenue, as compared to 48.0% during the same period last year. This growth is consistent with our strategy of expansion in Europe as well as the decision made in September 1999 to discontinue certain prepaid calling card plans and exit the telemarketing business in the United States. Europe currently represents our largest market segment. Cost of services increased 38% to $160.1 million in the third quarter of 2000 from $116.3 million in the third quarter of 1999. Cost of services increased 40% to $461.1 million in the first nine months of 2000 from $329.2 million in the comparable period of 1999. Costs of services as a percentage of revenues in the third quarter of 2000 was 72.0% compared to the 62.2 % recorded in the third quarter of 1999. The increase in the cost of services as a percentage of revenue is primarily attributable to competitive pricing pressures particularly in the United Kingdom and the absence of high margin revenues related to a contract which was terminated in October 1999. Selling, general and administrative expense in the third quarter of 2000 increased 36% to $85.7 million from $63.0 million in the third quarter of 1999. For the first nine months, selling, general and administrative costs increased 34% to $230.4 million, from $172.4 million for the same period last year. Selling, general and administrative expenses as a percentage of revenue in the third quarter of 2000 was 38.5% and for the first nine months was 34.3%, as compared to 33.7% and 33.3% in the same periods last year. The increase in expenses during the quarter relate primarily to the expansion into new markets by telegate, our German directory services provider, as well as the impact of our recent acquisitions of Cetel and Alo in Spain and their aggressive customer growth strategy. 17 Depreciation and amortization in the third quarter of 2000 increased 45% to $24.8 million from $17.1 million recorded in the third quarter of 1999. Depreciation and amortization during the first nine months increased 45% to $64.8 million from the $44.6 million recorded during the first nine months of 1999. These increases were primarily attributable to the amortization of intangible assets, principally goodwill, recorded in connection with several acquisitions. Depreciation expense also increased as a result of the substantial capital investment made over the past year. Net loss from European operations in the third quarter of 2000 increased to $48.1 million from $9.4 million recorded in the third quarter of 1999. Year to date net loss from European operations increased to $85.0 million, from $28.8 million for the same period last year. The decline reflects the substantially higher revenue which was more than offset by the competitive pricing pressures, the costs of expansion into new markets and the absence of the impact of the contract terminated in October 1999. 18 North American Operations
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- (unaudited) (in thousands, except percentages) Revenue ........................................ $ 98,551 $ 132,799 $ 300,822 $ 426,428 Operating costs and expenses: Cost of services (exclusive of depreciation and amortization shown separately below) ........... 81,085 105,033 242,214 343,223 --------- --------- --------- --------- Gross margin ................................... 17,466 27,766 58,608 83,205 Selling, general and administrative expenses ... 22,464 26,575 63,421 85,318 Non-cash compensation .......................... 686 -- 2,059 -- Write-down for impairment of assets ............ -- -- 37,382 -- Depreciation and amortization .................. 17,129 11,113 40,487 33,705 --------- --------- --------- --------- Loss from operations ........................... $ (22,813) $ (9,922) $ (84,741) $ (35,818) ========= ========= ========= ========= Other Financial Data: EBITDA (as defined) (1) ........................ $ (4,998) $ 1,191 $ (4,813) $ (2,113) Revenue as a percentage of consolidated revenue 25.7% 36.0% 26.2% 39.6% Gross margin as a percentage of revenue ....... 17.7% 20.9% 19.5% 19.5% Selling, general and administrative expense as a percentage of revenue ....................... 22.8% 20.0% 21.1% 20.0%
- ---------- (1) EBITDA, as used herein, consists of loss from operations before depreciation and amortization. EBITDA has also been normalized to exclude non-cash compensation expense and the write-down for impairment of assets in Canada. EBITDA is provided because it is a measure commonly used in the telecommunications industry. It is presented to enhance an understanding of our operating results and is not intended to represent cash flow or results of operations in accordance with U.S. GAAP for the periods indicated. Our definition of EBITDA may be different than that used by other companies. Our North American revenues result primarily from the sale of long distance voice services on a retail basis to commercial customers, on a wholesale basis to other carriers and to a lesser extent on a bulk discount basis to distributors of prepaid calling cards. We discontinued certain unprofitable prepaid calling card plans and our telemarketing business beginning in September 1999. We also generate revenues from data, Internet and other value-added services in North America. We experience significant month to month changes in revenues generated by our carrier customers (i.e. customers who acquire our services for the purpose of reselling such services on a wholesale basis to other carriers or on a retail basis to end users). We believe such carrier customers will react to temporary price fluctuations and spot market availability that will impact our carrier revenues. Over the past two years, we have shifted our marketing focus in the United States to focus on small and medium-sized businesses and have restructured our pricing of wholesale services to other carriers. In July 2000, we announced our intention to sell our Canadian operations. In connection with this decision, we recorded a non-cash asset write-down for the impairment of assets of $37.4 million to second quarter earnings. These assets are primarily property, plant and equipment and the amount of the impairment was 19 based upon fair market value, as determined by current estimates of realizable value upon sale to a third party. The Canadian operations had annual revenues of $48.5 million in 1999 and had revenues and operating losses for the nine months ended September 30, 2000 of $35.8 million and $9.1 million, respectively. For the three months ended September 30, 2000, the Canadian operations had revenues of $10.9 million and operating losses of $2.8 million. Canada's increasing EBITDA losses and operating losses primarily reflect its attempt earlier this year to expand into Canada's eastern markets. Revenue from our North American operations decreased to $98.6 million for the three months ended September 30, 2000 compared to $132.8 million for the same period in 1999, a 25.8% decrease primarily as a result of our discontinuance of certain unprofitable prepaid calling card plans and telemarketing businesses beginning in September 1999. For the nine months ended September 30, 2000 North American revenues were $300.8 million, as compared to $426.4 million for the same period last year. North American revenues as a percentage of consolidated revenues decreased from 36.0% in the third quarter of 1999 to 25.7% in the third quarter of 2000. On a year to date basis, North American revenues as a percentage of consolidated revenues decreased from 39.6% last year to 26.2% in 2000. This decline is primarily a result of our effort to reduce our dependence on certain prepaid and telemarketing businesses and low-margin wholesale markets, and the expansion of our presence in Europe. Cost of services for our North American operations decreased 22.8% to $81.1 million in the third quarter of 2000 from $105.0 million in the third quarter of 1999. The decrease is primarily a result of lower revenues. Cost of services as a percentage of revenues in the third quarter of 2000 was 82.3%, compared with the 79.1% in the third quarter of 1999. This increase is primarily due to the expansion efforts in the eastern portion of Canada. Excluding the Canadian operation, cost of services as a percentage of revenue declined as a result of competitive pricing pressures. Year to date, cost of services as a percentage of revenues was 80.5%, comparable with the same period last year. Selling, general and administrative expenses for our North American operations in the third quarter of 2000 decreased to $22.5 million from $26.6 million in the third quarter of 1999. On a year to date basis, selling, general and administrative expenses decreased to $63.4 million, from $85.3 million for the same period last year. Selling, general and administrative expenses as a percentage of revenues, increased to 22.8% in the third quarter of 2000 as compared to 20.0% recorded in the third quarter of 1999, due primarily to the expansion efforts of direct sales force personnel in the United States and the expansion of our Canadian operations. Year to date, selling, general and administrative expenses as a percent of revenues increased to 21.1% from 20.0% during the same period last year. Depreciation and amortization for our North American operations in the third quarter and the first nine months of 2000 were $17.1 million and $40.5 million, respectively. For the same periods last year, depreciation and amortization were $11.1 million for the third quarter and $33.7 million for the first nine months. The increase is primarily due to additional capital investment made over the last year. Loss from operations in North America increased from $9.9 million in the third quarter of 1999 to $22.8 million in the third quarter of 2000. For the first nine months of 2000, loss from operations in North America increased to $84.7 million, from $35.8 million last year. The increase is primarily due to the asset impairment charge pertaining to the disposition of our Canadian operations. Excluding the impairment charge, loss from operations for the first nine months of 2000 was $47.4 million, a 32.2% increase from the $35.8 million in the same period last year due to competitive pricing pressures and sales force expansion in the United States as well as the Eastern Canadian expansion efforts. 20 Asia/Pacific and Other Operations
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- (unaudited) (in thousands, except percentages) Revenue ........................................ $ 56,301 $ 47,727 $ 166,533 $ 130,658 Operating costs and expenses: Cost of services (exclusive of depreciation and amortization shown separately below) ........... 37,106 31,928 106,665 88,907 --------- --------- --------- --------- Gross margin ................................... 19,195 15,799 59,868 41,751 Selling, general and administrative expenses ... 22,049 18,310 65,051 48,878 Write-down for impairment of assets ............ -- -- 10,885 -- Depreciation and amortization .................. 5,220 9,769 17,714 18,730 --------- --------- --------- --------- Loss from operations ........................... $ (8,074) $ (12,280) $ (33,782) $ (25,857) ========= ========= ========= ========= Other Financial Data: EBITDA (as defined) (1) ........................ $ (2,854) $ (2,511) $ (5,183) $ (7,127) Revenues as a percentage of consolidated revenue 14.7% 12.9% 14.5% 12.1% Gross margin as a percentage of revenue ........ 34.1% 33.1% 35.9% 32.0% Selling, general and administrative expense as a percentage of revenue ..................... 39.2% 38.4% 39.1% 37.4%
- ---------- (1) EBITDA, as used herein consists of loss from operations before depreciation and amortization. EBITDA has also been normalized to exclude non-cash compensation expense and the write-down for impairment of assets in Japan and Hong Kong. EBITDA is provided because it is a measure commonly used in the telecommunications industry. It is presented to enhance an understanding of our operating results and is not intended to represent cash flow or results of operations in accordance with U.S. GAAP for the periods indicated. Our definition of EBITDA may be different than that used by other companies. Asia/Pacific and other operations are comprised primarily of domestic and international long distance and wireless services operations in Australia. This segment also includes relatively small operations in Venezuela and Mexico, as well as the operations in Japan and Hong Kong which were shut down in the third quarter of 2000. In July 2000, we announced our intention to sell or shut down our operations in Japan and Hong Kong. In connection with this decision, we recorded a non-cash asset write-down for the impairment of assets of $10.9 million to second quarter 2000 earnings. These assets are primarily property, plant and equipment and the amount of the impairment was based upon fair market value, as determined by current estimates of realizable value upon sale to third parties. Together, these operations had annual revenues of $3.8 million in 1999 and had revenues for the nine months ended September 30, 2000 of $0.1 million. There were no revenues recorded in the third quarter of 2000. In May 2000, we announced the launch of an initial public offering of our Australian subsidiary, through which we intended to divest 100% of our interest in this operation as part of the IPO. However, due to 21 weakness in the IPO market, we suspended this effort and we have engaged an investment bank to seek a private buyer for our Australian operations. Revenues from our Asia/Pacific and Other operations increased 18.0% to $56.3 million for the three months ended September 30, 2000 compared to $47.7 million for the same period in 1999. Revenues for the nine months ended September 30, 2000 were $166.5 million, compared to $130.7 million for the same period in 1999, an increase of $35.9 million or 27.5%. The increase is primarily due to customer growth in Australia, partially offset by competitive pricing pressures. Revenues from our Asia/Pacific and Other operations as a percentage of consolidated revenues increased to 14.7% in the third quarter of 2000 from 12.9% the third quarter of 1999. For the first nine months, revenues from Asia/Pacific and Other operations represented 14.5% of consolidated revenues compared to 12.1% during the same period last year. The increase is primarily as a result of the growth in customers in Australia over the past year. Cost of services in the third quarter of 2000 increased to $37.1 million from $31.9 million recorded in the third quarter of 1999. For the nine months ended September 30, 2000 cost of services increased to $106.7 million from $88.9 million recorded in the same period last year. These higher costs are primarily a result of the higher revenues as well as additional costs resulting from network congestion difficulties encountered earlier in the year. Cost of services as a percentage of revenues in the third quarter decreased to 65.9% from 66.9% for the same period in 1999. On a year to date basis, cost of services as a percentage of revenues declined from 68.0% in 1999 to 64.1% this year. Selling, general and administrative expense in the third quarter of 2000 increased to $22.0 million as compared to $18.3 million in the third quarter of 1999 due primarily to higher customer acquisition costs. For the nine month period ended September 30, 2000, selling, general and administrative expense increased to $65.1 million compared to $48.9 million for the same period last year. Selling, general and administrative expenses as a percent of revenues in the third quarter 2000 increased to 39.2% from 38.4% in the third quarter 1999. For the first nine months, selling, general and administrative expense as a percentage of revenue increased from 37.4% in 1999 to 39.1% in 2000 due to high customer acquisition costs in Australia. Depreciation and amortization in the third quarter of 2000 decreased from $9.8 million in the third quarter last year, to $5.2 million this year. For the first nine months of 2000, depreciation and amortization decreased from $18.7 million in 1999 to $17.7 million in 2000 due to the absence of assets written off in connection with the shut down of Japan and Hong Kong, partially offset by capital expenditures in Australia. The loss from the Asia/Pacific and Other operations for the third quarter of 2000 declined to $8.1 million from $12.3 million recorded in the third quarter of 1999. For the first nine months of 2000, operating loss from Asia/Pacific and Other operations increased to $33.8 million, compared to $25.9 million last year. The increased operating losses are primarily due to the start-up costs incurred in our Latin America operations and the asset impairment charge recorded for our Japan and Hong Kong operations, partially offset by improved results in Australia. 22 deltathree.com Operations (1)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- (unaudited) (in thousands, except percentages) Revenue ........................................ $ 5,566 $ 1,348 $ 10,615 $ 2,355 Operating costs and expenses: Cost of services (exclusive of depreciation and amortization shown separately below) ........... 3,975 963 6,498 1,734 -------- -------- -------- -------- Gross margin ................................... 1,591 385 4,117 621 Selling, general and administrative expenses ... 9,016 468 25,624 5,596 Non-cash compensation .......................... 1,374 2,286 5,530 2,286 Depreciation and amortization .................. 2,150 1,271 5,407 2,642 -------- -------- -------- -------- Loss from operations ........................... $(10,949) $ (3,640) $(32,444) $ (9,903) ======== ======== ======== ======== Other Financial Data: EBITDA (as defined) (2) ........................ $ (7,425) $ (83) $(21,507) $ (4,975) Revenues as a percentage of consolidated revenue 1.5% 0.4% 0.9% 0.2% Gross margin as a percentage of revenue ........ 28.6% 28.6% 38.8% 26.4% Selling, general and administrative expense as a percentage of revenue ........................ 162.0% 34.7% 241.4% 237.6%
- ---------- (1) The amounts presented are as included in our consolidated financial results and differ from the separately reported results of deltathree.com because our results exclude our intercompany transactions with deltathree.com and because prior period results have been restated by deltathree.com for items that were not material to our results. (2) EBITDA, as used herein, consists of loss from operations before depreciation and amortization and also excludes non-cash compensation expense. EBITDA is provided because it is a measure commonly used in the telecommunications industry. It is presented to enhance an understanding of our operating results and is not intended to represent cash flow or results of operations in accordance with U.S. GAAP for the periods indicated. Our definition of EBITDA may be different than that used by other companies. We acquired a 51% controlling interest in deltathree.com in 1997 and the remaining 49% interest by April 1998. In November 1999, deltathree.com sold 6.9 million shares of common stock in its initial public offering at a price of $15 per share and received net proceeds from the offering of $96.2 million. After the initial public offering of its common stock, we continue to own approximately 68% of the equity of deltathree.com. Revenues from deltathree.com operations increased from $1.3 million in the third quarter of 1999 to $5.6 million in the third quarter of 2000, and from $2.4 million for the first nine months of 1999 to $10.6 million for the same period this year. This increase is primarily as a result of integration service fees received from deltathree.com's online partners as well as a greater number of PC-to-phone and phone-to-phone calls being placed by an increasing user base. Cost of services for deltathree.com increased from $1.0 million in the third quarter and $1.7 million for the first nine months of 1999 to $4.0 million for the third quarter and $6.5 million for the first nine months of 2000 primarily as a result of higher revenues and the increased cost of terminating traffic. 23 Selling, general and administrative expenses increased from $0.5 million in the third quarter of 1999 to $9.0 million in the third quarter of 2000 and from $5.6 million for the first nine months of 1999 to $25.6 million for the first nine months of 2000, primarily due to the expansion of marketing, advertising and promotional activities, and additional personnel and occupancy costs as deltathree.com executes its aggressive growth strategy. Liquidity and Capital Resources We have incurred significant operating losses, net losses and negative cash flow from operations, due in large part to the start-up and development of our operations and the development of RSL-NET, our integrated digital telecommunications network. We expect that our net losses and negative cash flow will continue as we continue to implement our growth strategy. Historically, we have funded our losses and capital expenditures through borrowings, capital contributions, and a portion of the net proceeds of prior securities offerings. Cash used in operating activities for the nine months ended September 30, 2000 totaled $257.3 million compared with $123.8 million for the same period in 1999 reflecting the use of cash to fund operating losses, working capital requirements, and higher quarterly cash interest payments. Capital expenditures, which include assets acquired under capital lease obligations, for the nine months ended September 30, 2000 were $202.0 million compared with $172.1 million for the comparable period in 1999. Cash used for the purchase of property and equipment for the first nine months of 2000 was $141.5 million, compared to $159.7 million for the same period last year. The decline is attributable to the implementation of certain cash conservation measures in the third quarter of 2000. These capital expenditures are principally for switches, fiber, and related telecommunications equipment as well as the build-out of our Pan-European network. We also began the build-out of the wireless local loop network in our Spanish operations. Cash expended for acquisitions were approximately $81.8 million during the nine months ended September 30, 2000 compared with $38.2 million for the first nine months of 1999. At September 30, 2000, we had $51.2 million of working capital as compared to $163.7 million of working capital at December 31, 1999. We are continuing to stringently review and control our ongoing cash expenditures including for acquisitions and capital expenditures and expect to continue to reduce our expenditures through the end of 2000 from historical levels. Our indebtedness was approximately $1.5 billion at September 30, 2000, substantially all of which represented long-term debt. Nearly all of our indebtedness is attributable to the debt securities issued by RSL PLC and guaranteed by us and RSL COM U.S.A. These debt securities include various Senior Notes and Senior Discount Notes which are due from 2006 through 2010 (the "Notes"). The Notes were issued under indentures containing certain restrictive covenants which impose limitations on our ability to, among other things: (i) incur additional indebtedness, (ii) pay dividends or make certain other distributions, (iii) issue capital stock of certain subsidiaries, (iv) guarantee debt, (v) enter into transactions with shareholders and affiliates, (vi) create liens, (vii) enter into sale-leaseback transactions, and (viii) sell assets. In February 2000, we issued 2.3 million Series A Cumulative Convertible Preferred Shares ("Preferred Shares") at a price of $50 per share, and received net proceeds of approximately $111 million. The Preferred Shares are convertible at any time by the holders into our Class A common shares at a conversion rate of 2.2584 shares for each Preferred Share subject to adjustments under certain circumstances. Dividends accrue at the rate of 7 1/2% per year and are payable quarterly in either cash or Class A common shares. We have made the first two distributions in Class A common shares in August and November 2000. Beginning in February 2005, we will have the right to redeem some or all of the Preferred Shares at a predetermined 24 redemption price plus accrued dividends, if any. We will be required to redeem any Preferred Shares still outstanding on February 1, 2012 at a redemption price of $50 per share plus accrued dividends. Holders of the Preferred Shares are generally not entitled to any voting rights. The Preferred Shares, which have a liquidation value of $50 per share, rank junior to all of our existing and future debts and obligations. Concurrent with the issuance of the Preferred Shares, RSL PLC issued $100 million and 100 million Euro-denominated Senior Notes due 2010 (the "2000 Notes"). The 2000 Notes, which are guaranteed by us and by RSL COM U.S.A., a wholly owned subsidiary of RSL PLC, bear interest at an annual rate of 12 7/8%. The debt isssuances generated combined proceeds to us of approximately $192.2 million. In connection with the guarantee of the 2000 Notes, RSL COM U.S.A. also became a guarantor of RSL PLC's previously issued and outstanding Notes. In May 2000, RSL COM Deutschland GmbH ("RSL Germany"), our German subsidiary, entered into a joint venture agreement and an option agreement with Seat Pagine Gialle Spa. ("SEAT"), a leading publisher of telephony directories in Italy. Under the agreements, RSL Germany sold a portion of its equity interest in Telegate Holding, the holding company for our shares owned in Telegate AG ("Telegate"), representing 101,813 shares of Telegate, for 150 Euros per share, and received gross proceeds of approximately 15.3 million Euros in October 2000. In addition, under the option agreement, RSL Germany has the right, beginning in January 2001, to sell to SEAT all of its remaining equity interest in Telegate Holding. The amount of consideration RSL Germany will receive following exercise of the put option, will be determined based on the average value of a share of Telegate, as reported on the Frankfurt Neuer Market, during the month of January 2001; provided, however, that SEAT will be required to pay a minimum of approximately 400 million Euros and a maximum of approximately 510 million Euros for our remaining ownership interest in Telegate Holding. Under the option agreement, SEAT has the option to pay for our remaining Telegate Holding interest in either cash or shares of SEAT; provided, however, that if in shares, SEAT will have no more than 105 days following the exercise of the put option to issue the shares, and RSL Germany has arranged with SEAT a method of monetization of such shares so that RSL Germany will ultimately receive cash proceeds. We are discussing with financial institutions methods of accelerating the monetization of the option agreement so that RSL Germany may receive a substantial portion of the gross cash proceeds of the transaction in January 2001. In July 2000, we signed an agreement with our Chairman and principal shareholder, Ronald S. Lauder, for an unsecured loan facility totaling $100 million, available until June 30, 2001. All loans under the facility are due and payable on or before June 30, 2001 or earlier upon the monetization of telegate AG or other asset sales. We will pay LIBOR plus 4.5% on any amounts drawn under the facility and will issue to Mr. Lauder warrants to purchase 75,000 Class A common shares at $11.50 per share for each $5 million drawn under the facility. As of September 30, 2000, we have drawn $25 million under this facility and have issued 375,000 warrants to Mr. Lauder. The value assigned to the warrants was estimated at approximately $1 million and was recorded as additional paid in capital. As of November 13, 2000 we have drawn $55 million under our facility with Ronald S. Lauder and have issued 825,000 warrants to him. Cash and cash equivalents on hand as of September 30, 2000 was $98.6 million. Excluding amounts recorded by deltathree.com and Telegate, which are not generally available for funding our core operations, our net cash balance was $50.1 million. The limitation under our most restrictive covenants will likely prohibit us from incurring any significant amount of additional indebtedness to fund net losses unless we complete an equity offering or generate significant positive cash flow from operations. Given the current market environment, we believe that we 25 will be unable to complete any public equity financing in the short term. We believe that our remaining net cash balance, together with availability under our short-term line of credit, overdraft facilities from local banks, and other cash resources, will be sufficient to fund our operations into early 2001. If additional funds are not immediately available to us in 2001, RSL Germany expects to exercise the put option under the agreement between RSL Germany and SEAT, and sell its remaining interest in Telegate Holding. However, even upon exercise of the put option, it may take several months for RSL Germany to receive cash proceeds from the transaction. We are discussing with financial institutions methods of accelerating the monetization of the option agreement so that RSL Germany may receive a substantial portion of the gross cash proceeds of the transaction in January 2001. We are also attempting to sell certain of our non-core assets, including our operations in Canada, Japan and Australia. We believe that any proceeds received from these potential sales, in addition to proceeds received from the potential early monetization of Telegate Holding will be sufficient to fund our capital expenditures, operations and other obligations through mid-2001. However, there can be no assurance that any of these potential sales or the early monetization will occur. We may be required to raise additional capital regardless of market conditions, if our plans or assumptions change or prove to be inaccurate, we identify additional required or desirable infrastructure investments or acquisitions, if we experience unanticipated costs or competitive pressures or if the net proceeds from the issuance of our debt and equity securities, together with other sources of liquidity otherwise prove to be insufficient. There can be no assurance that we will be able to raise any such additional capital when needed. In order to reduce interest costs and improve our financial condition, we may also refinance or retire long-term debt on an opportunistic basis, including through open market repurchases. Any repurchase will depend on market conditions and other considerations, such as our cash availability, cash requirements and the availability of replacement debt or equity financing on acceptable terms. Effects of Recently Issued Accounting Standards In June 1998, the FASB issued SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and hedging activities. Generally, it requires that an entity recognize all derivatives as either an asset or liability and measure those instruments at fair value, as well as identify the conditions for which a derivative may be specially designed as a hedge. SFAS No.133 is effective for fiscal years beginning after June 15, 2000. We have not participated in any hedging activities in connection with foreign currency exposure. We will adopt SFAS No. 133 in the first quarter of 2001. We do not expect this to have a material effect on our results of operations or financial position. Seasonality Our European operations experience seasonality during January, August, October and December, and, to a lesser extent, March, as these months are traditional holiday months in most European countries and many European businesses, which are our principal European customers, are closed during portions of these months. 26 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have not entered into any financial instruments for trading or hedging purposes. We are exposed to fluctuations in foreign currencies relative to the U.S. dollar, as our revenues, costs, assets and liabilities are, for the most part, denominated in local currencies. The results of operations of our subsidiaries, as reported in U.S. dollars, may be significantly affected by fluctuations in the value of the local currencies in which we transact business. We recorded a foreign currency translation adjustment of $19.1 million as a component of equity as of September 30, 2000. Such amount is recorded upon the translation of the foreign subsidiaries' financial statements into U.S. dollars, and is dependent upon the various foreign exchange rates and the magnitude of the foreign subsidiaries' financial statements. For the three month period ended September 30, 2000, we had recorded a foreign currency gain of approximately $7.2 million, primarily as a result of the decrease in the Deutsche mark against the U.S. dollar in connection with the DM296 million 10% Senior Discount Notes issued during 1998 and the decrease in the Euro against the U.S. dollar in connection with the 100 million Euro 12 7/8% Senior Notes issued in February 2000. We incur settlement costs when we exchange traffic via operating agreements with foreign correspondents. These costs currently represent a small portion of the total costs of services; however, as our international operations increase, we expect that these costs will become a more significant portion of our cost of services. Such costs are settled by utilizing a net settlement process with our foreign correspondents comprised of special drawing rights ("SDRs"). SDRs are the established method of settlement among international telecommunications carriers. The SDRs are valued based upon a basket of foreign currencies and we believe that this mitigates, to some extent, our foreign currency exposure. We have monitored and will continue to monitor our foreign currency exposure, and, if necessary, may enter into forward contracts and/or similar instruments to mitigate the potential impacts of such risks. We are currently not exposed to material future earnings or cash flow exposures from changes in interest rates on long-term debt obligations since the majority of our long-term debt obligations are at fixed rates. We are exposed to interest rate risk, as additional financing may be required due to the large operating losses and capital expenditures associated with establishing and expanding our networks and facilities. The interest rate that we will be able to obtain on additional financing will depend on market conditions at that time, and may differ from the rates we have has secured on our current debt. We do not currently anticipate entering into interest rate swaps and/or similar instruments. The carrying value of our cash and cash equivalents, accounts receivable, accounts payable, marketable securities - available for sale, accrued expenses and notes payable is a reasonable approximation of their fair value. On September 30, 2000, the fair value of our long-term debt (excluding capital lease obligations) which had a net book value of $1.4 billion was estimated to be $234 million. Market risk is estimated as the potential decrease in fair value of our long-term debt resulting from a hypothetical increase of 107 basis points in interest rates (ten percent of our overall weighted average borrowing rate). Such an increase in interest rates would result in approximately a $ 27.4 million decrease in fair value of our long-term debt. 27 PART II OTHER INFORMATION Item 1. Change in Securities and Use of Proceeds In August 2000, we issued to Reed Smith Shaw & McClay LLP 150,000 Class A common shares as payment for professional services rendered to us. The issuance of such Class A common shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. In August 2000, we issued to Ronald S. Lauder warrants to purchase 375,000 Class A common shares at an exercise price of $11.50 per share. The warrants were issued under the terms of the $100 million loan facility provided by Mr. Lauder to us in connection with our initial drawdown of $25 million. The warrants are exercisable until the seventh anniversary of the date of issuance. The issuance of such warrants was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Item 2. Other Information Nasdaq We have been notified by the Nasdaq Stock Market that, based on the current trading price of our Class A common shares, we do not meet the standards for continued listing on the Nasdaq National Market. We have a period of time during which we must either regain compliance or file an appeal with the Nasdaq. We intend to monitor our compliance with the Nasdaq listing requirements as we approach the December 27, 2000 deadline set by the Nasdaq and will evaluate all of our options as this date draws closer. Forward-Looking Statements Certain matters discussed in this Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources" contain certain forward-looking statements which involve risks and uncertainties and depend upon certain assumptions, some of which may be beyond our control, including, but not limited to changing market conditions, competitive and regulatory matters (such as timing and extent of deregulation of telecommunications market, the size and financial resources of competitors, etc.), the integration of acquisitions and new operations, substantial capital requirements, pricing pressures, the availability of transmission facilities, reliance on sophisticated information systems, devaluation and currency risks, general economic conditions in the markets in which we operate, as well as other risks referenced from time to time in our filings with the Securities and Exchange Commission and, accordingly, there can be no assurance with regard to such statements. 28 Item 3. Exhibits and Reports on Form 8-K (a) Exhibits: 3.1 Certificate of Incorporation of RSL Communications, Ltd., issued by the Bermuda Registrar of Companies on March 14, 1996 (incorporated by reference to Registrant's Registration Statement on Form S-4 (Registration No.333-25749)). 3.2 Memorandum of Association of RSL Communications, Ltd., filed with the Bermuda Registrar of Companies on March 14, 1996 (incorporated by reference to Registrant's Registration Statement on Form S-4 (Registration No.333-25749)). 3.3 Bye-Laws of RSL Communications, Ltd., as amended to date (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 3.4 Certificate of Designation relating to 7 1/2% Series A Convertible Preferred Shares (incorporated by reference to the Registrant's Registration Statement on Form S-3 (Registration No. 333-35864)). 4.1 Form of Class A Common Share (incorporated by reference to Registrant's Registration Statement on Form S-1 (Registration No. 333-34281)). 10.1 Employment Agreement, dated as of August 1, 2000, by and between Paul B. Domorski and RSL Communications, Ltd. (filed herewith). 10.2 Senior Standby Loan and Warrant Agreement by and among RSL Communications PLC, RSL Communications, Ltd., RSL COM U.S.A., Inc. and Ronald S. Lauder (filed herewith) 10.3 Form of Warrant under the Senior Standby Loan and Warrant Agreement (filed herewith) 10.4 Joint Venture Agreement dated May 6, 2000, by and between Seat Pagine Gialle SpA and RSL COM Deutschland GmbH (filed herewith) 10.5 Amendment Agreement to the Joint Venture Agreement, dated May 10, 2000 by and among Seat Pagine Gialle SpA, RSL COM Deutschland GmbH and J.P. Morgan Securities Ltd. (filed herewith) 10.6 Option Agreement dated May 6, 2000, by and between Seat Pagine Gialle SpA and RSL COM Deutschland GmbH (filed herewith) 10.7 Agreement regarding certain clarifications dated May 10, 2000 by and among Seat Pagine Gialle SpA, RSL COM Deutschland GmbH, Ligapart AG, Morgan Stanley Bank AG and J.P. Morgan Securities Ltd. (filed herewith) 27.1 Financial Data Schedule (filed herewith). (b) Reports on Form 8-K. We filed a Form 8-K with the SEC dated July 17, 2000, reporting that we had issued a press release regarding our plans to dispose of our operations in Hong Kong, Japan and Canada. The press release was filed as an exhibit to the Form 8-K. We filed a Form 8-K with the SEC dated July 20, 2000, reporting that we had issued a press release regarding a $100 million line of credit we had obtained from Ronald S. Lauder, our Chairman and principal shareholder. The press release was filed as an exhibit to the Form 8-K. We filed a Form 8-K with the SEC dated August 3, 2000, reporting that we had issued press releases regarding (i) our second quarter financial results and (ii) changes in senior management. The press releases were filed as exhibits to the Form 8-K. 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. RSL COMMUNICATIONS, LTD. Date: November 14, 2000 By /S/ Joel S. Beckoff -------------------------------------- Name: Joel S. Beckoff Title: Vice President - Controller and Chief Accounting Officer 30 EXHIBIT INDEX 3.1 Certificate of Incorporation of RSL Communications, Ltd., issued by the Bermuda Registrar of Companies on March 14, 1996 (incorporated by reference to Registrant's Registration Statement on Form S-4 (Registration No.333-25749)). 3.2 Memorandum of Association of RSL Communications, Ltd., filed with the Bermuda Registrar of Companies on March 14, 1996 (incorporated by reference to Registrant's Registration Statement on Form S-4 (Registration No.333-25749)). 3.3 Bye-Laws of RSL Communications, Ltd., as amended to date (incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 3.4 Certificate of Designation relating to 7 1/2% Series A Convertible Preferred Shares (incorporated by reference to the Registrant's Registration Statement on Form S-3 (Registration No. 333-35864)). 4.1 Form of Class A Common Share (incorporated by reference to Registrant's Registration Statement on Form S-1 (Registration No. 333-34281)). 10.1 Employment Agreement, dated as of August 1, 2000, by and between Paul B. Domorski and RSL Communications, Ltd. (filed herewith). 10.2 Senior Standby Loan and Warrant Agreement by and among RSL Communications PLC, RSL Communications, Ltd., RSL COM U.S.A., Inc. and Ronald S. Lauder (filed herewith) 10.3 Form of Warrant under the Senior Standby Loan and Warrant Agreement (filed herewith) 10.4 Joint Venture Agreement dated May 6, 2000, by and between Seat Pagine Gialle SpA and RSL COM Deutschland GmbH (filed herewith) 10.5 Amendment Agreement to the Joint Venture Agreement, dated May 10, 2000 by and among Seat Pagine Gialle SpA, RSL COM Deutschland GmbH and J.P. Morgan Securities Ltd. (filed herewith) 10.6 Option Agreement dated May 6, 2000, by and between Seat Pagine Gialle SpA and RSL COM Deutschland GmbH (filed herewith) 10.7 Agreement regarding certain clarifications dated May 10, 2000 by and among Seat Pagine Gialle SpA, RSL COM Deutschland GmbH, Ligapart AG, Morgan Stanley Bank AG and J.P. Morgan Securities Ltd. (filed herewith) 27.1 Financial Data Schedule (filed herewith). 31 EX-10.1 2 0002.txt EMPLOYMENT AGREEMENT EXHIBIT 10.1 August 1, 2000 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of August 1, 2000, by and between RSL Communications, Ltd., a Bermuda corporation (the "Company"), and Paul B. Domorski ("Executive"). W I T N E S S E T H: WHEREAS, the Company desires to employ Executive, effective as of a date mutually agreed, but if the parties do not agree on an earlier date, August 19, 2000 (the "Commencement Date") and to set out the terms and conditions of Executive's employment by the Company from and after the Commencement Date; and WHEREAS, the Executive desires to enter into the employment of the Company from and after the Commencement Date under those terms and conditions; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and Executive hereby agree as follows: 1. Employment. (a) Agreement to Employ. Upon the terms and subject to the conditions of this Agreement, the Company hereby employs Executive, and Executive hereby accepts employment by the Company. (b) Term of Employment. The Company shall employ Executive for a term (the "Term") commencing on the Commencement Date and ending on the date immediately preceding the third anniversary of the Commencement Date, unless extended by a written agreement signed by both parties. The period commencing on the Commencement Date and ending on the earlier of (i) the expiration of the Term, or (ii) the date of Executive's termination of employment pursuant to Section 5(a) shall be referred to as the "Employment Period". 2. Position and Duties. (a) In general. Executive shall be employed as Chief Executive Officer and President and shall perform such duties and services, consistent with such position for the Company, as may be (i) specified in the Bye-Laws of the Company or (ii) assigned to him from time to time by the Executive Committee (the "Executive Committee") of the Board of Directors (the "Board") or the Board. The duties of the Executive shall include serving as an officer or director or otherwise performing services for any "Affiliate" of the Company as requested by the Company, provided, however, that such services are consistent with Executive's role as CEO of the Company. An "Affiliate" of the Company means any entity that controls, is controlled by or is under common control with the Company. Executive shall report to the Board. (b) Full-time employment. During the Employment Period, Executive shall devote his full business time to the services required of him hereunder, except for time devoted to services required by him to be performed for any "Affiliate" of the Company, vacation time and reasonable periods of absence due to sickness, personal injury or other disability, and shall use his best efforts, judgement, skill and energy to perform such services in a manner consonant with the duties of his position and to improve and advance the business and interests of the Company. Executive shall not be engaged in any other business activity which, in the reasonable judgment of the Board, conflicts with the duties of the Executive under this Agreement. Executive shall travel (if by airfare such travel shall be business class) to such location or locations as may be requested by the Company, or which Executive believes is necessary or advisable, in the performance by Executive of his duties hereunder or to the extent appropriate to improve and advance the interests of the Company and its Affiliates. 3. Compensation. (a) Base Salary. During the Employment Period, the Company shall pay Executive a base salary at the annual rate of US$500,000; provided that, Executive's annual base salary shall be increased as of January 1 of each year, commencing January 1, 2002, by an amount equal to the base salary then in effect, multiplied by the percentage increase in the Cost of Living Index during the preceding year. The "Cost of Living Index" means the Retail Prices Index for the London metropolitan area published by the Office of National Statistics for the preceding 12 month period, or if such index is no longer available, such other generally available index measuring changes in consumer purchasing power (in the London metropolitan area or nationally) designated by the Board of Directors. Any delay in increase in Executive's annual base salary by reason of the unavailability of any such index at the time any such increase shall otherwise be due shall be made up by a lump sum payment promptly after the index becomes available. Executive's salary, as adjusted for any increase in the Cost of Living Index, may be further increased at the option and in the discretion of the Board of Directors (such salary, as the same may be increased from time to time, is referred to herein as the "Base Salary"). The Base Salary shall be payable in such installments (but not less frequent than monthly) as the salaries of other executives of the Company are paid. (b) Performance Incentive Plan. During the Employment Period, Executive shall participate in the Company's 1997 Performance Incentive Plan and be given an opportunity to earn up to one times Base Salary upon the achievement of targets determined by the Compensation Committee. The discretionary portion of the bonus shall be determined by the Compensation Committee. Executive shall be guaranteed a 2 bonus equal to one times Base Salary for the first year of the Employment Period (the "First Year Bonus") only (provided that such bonus shall be paid on a pro rata basis with respect to the portion of the Employment Period in the fiscal year ending December 31, 2000 (such pro rata bonus hereafter referred to as the "2000 Bonus") and Executive shall be entitled to receive the remainder of the First Year Bonus following 2001 year end). If the Company shall amend or terminate the 1997 Performance Incentive Plan in a manner that would reduce the opportunity of Executive to earn an incentive bonus as provided in the 1997 Performance Incentive Plan, the Company shall provide a substitute arrangement so that Executive's total bonus opportunity will not be materially reduced. (c) Stock Incentive Plan. Except as otherwise provided in this subsection (c), the Company shall grant Executive an option (the "Option") under the Company's 1997 Stock Incentive Plan to purchase 3,000,000 shares of the Company's Class A Common Stock. The Option exercise price shall equal the "Fair Market Value" (as defined in the 1997 Stock Incentive Plan) on August 1, 2000. The Option shall become exercisable as set forth below, provided that Executive is employed by the Company on such date, and once exercisable shall remain exercisable until the expiration of seven years from the date of grant, unless otherwise earlier terminated by reason of a termination of Executive's employment by the Company for Cause or by the Executive other than for Good Reason (as those terms are hereinafter defined): Date First Exercisable Percentage Exercisable ---------------------- ---------------------- August 1, 2001 33.33% August 1, 2002 66.66% August 1, 2003 100.00% The Option shall become immediately exercisable in full in the event that Executive's employment with the Company is terminated by the Company other than for Cause, by the Executive for Good Reason, or by reason of the death or Disability (as hereinafter defined) of the Executive and shall, following any such event, remain exercisable for the lesser of two years and the remaining term of the Option. 4. Benefits, Perquisites and Expenses. (a) Benefits. During the Employment Period, Executive shall be eligible to participate in (i) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each group life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (ii) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, in each case, whether now existing or established hereafter, on the same basis as generally made available to other senior officers of the Company. In addition, during the Employment Period, the Company shall provide (at its cost) life 3 insurance coverage for the Executive of no less than US$1,000,000, provided that Executive submits to any physical examination required by the insurer and is insurable at standard or preferred rates. (b) Perquisites. During the Employment Period, Executive shall be entitled to five weeks' paid vacation annually and shall also be entitled to receive such perquisites as are generally provided to other senior officers of the Company in accordance with the then current policies and practices of the Company. (c) Business Expenses. During the Employment Period, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may require and in accordance with the generally applicable policies and procedures of the Company. (d) Indemnification. The Company shall indemnify Executive and hold Executive harmless from and against any claim, loss or cause of action arising from or out of Executive's performance as an officer, director or employee of the Company or any of its subsidiaries or in any other capacity, including any fiduciary capacity, in which Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Company's Memorandum of Association and Bye-Laws in effect on the date hereof. If any claim is asserted against Executive with respect to which Executive reasonably believes in good faith he is entitled to indemnification, the Company shall either defend Executive or, at its option, pay Executive's legal expenses (or cause such expenses to be paid) on a quarterly basis, provided that Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if Executive shall be found by a court of competent jurisdiction not to have been entitled to indemnification. 4 5. Termination of Employment. (a) Termination of the Employment Period. The Employment Period shall end upon the earliest to occur of (i) a termination of Executive's employment on account of Executive's death, (ii) a Termination due to Disability or Retirement, (iii) a Termination for Cause, (iv) a Termination Without Cause, (v) a Termination for Good Reason, (vi) a Termination Without Good Reason, or (vii) the expiration of the Term. The Company or the Executive may initiate a termination in any manner permitted hereunder by giving the other party written notice thereof (the "Termination Notice"). The effective date (the "Termination Date") of any termination shall be deemed to be the later of (i) in the case of a Termination Notice from Executive, 45 days after the receipt by the Company of the Termination Notice, (ii) the date on which the Termination Notice is given, or (iii) the date specified in the Termination Notice; provided, however, that in the case of the Executive's death, the Termination Date shall be the date of death. Upon termination of his employment for any reason, Executive will immediately resign from all positions that he holds with the Company and its Affiliates. (b) Payments Upon Certain Terminations. (i) Termination for Good Reason or Termination Without Cause. In the event that Executive's employment is terminated by Executive for Good Reason or by the Company Without Cause, the Company shall pay Executive his Earned Salary, Vested Benefits and a Severance Benefit (as such terms are hereinafter defined). In addition, if Executive's employment terminates pursuant to this subsection (i), the Company shall continue to provide to Executive the welfare benefits (other than disability insurance) referred to in Section 4, or substantially comparable benefits, until the earlier of (x) the date on which Executive is eligible to obtain comparable benefits from other employment or (y) the expiration of the Term. (ii) Termination due to Death. In the event of the termination of Executive's employment due to Executive's death, the Company shall pay Executive's estate Executive's Earned Salary, Vested Benefits and a lump sum payment equal to 12 months of Executive's Base Salary (at the rate in effect on the date of his death), in addition to any life insurance benefits that Executive shall be entitled pursuant to this Agreement. (iii) Termination due to Disability or Retirement. In the event of termination of Executive's employment by the Company due to Disability or a Termination due to Retirement, the Company shall pay Executive his Earned Salary and Vested Benefits, plus, in the event of termination due to Disability, to the Executive or his estate his Base Salary at the Termination Date on a monthly basis for 12 months following the month in which Executive's employment is terminated. In addition, if Executive's employment is terminated by reason of Disability, the Company shall continue to provide to Executive the welfare benefits (other than disability insurance) referred to in Section 4 during the 5 term of his disability. In the event that Executive's employment with the Company is terminated due to Disability, Executive's benefits under this subsection (iii) shall be reduced by the amount of any Company sponsored (and paid for) disability benefits paid to Executive. The payments to be made to Executive during the period of disability prior to termination are intended to comply with the Disability Discrimination Act (United Kingdom). (iv) Termination Without Good Reason. In the event of a termination of Executive's employment by Executive Without Good Reason, the Company shall pay Executive his Earned Salary and Vested Benefits. (v) Termination for Cause. In the event of a termination of Executive's employment by the Company for Cause, the Company shall pay Executive his Earned Salary and Vested Benefits. (c) Timing of Payments. Earned Salary shall be paid in a single lump sum as soon as practicable, but in no event later than the earlier of 60 days or the day such Earned Salary would have been payable under the Company's normal payroll practices. Vested Benefits shall be payable in accordance with the terms of the plan, policy, practice, program, contract or agreement under which such benefits have accrued except as otherwise expressly modified by this Agreement. Fifty percent (50%) of Severance Benefits shall be paid within 30 days after the Termination Date and the remaining 50% of the Severance Benefits shall be paid in equal monthly installments for a period commencing one month after the payment of the first 50% of Severance Benefits and ending on the expiration date of the Term; provided that in the event of the Executive's Termination for Good Reason as the result of a "Change in Control", 100% of the Severance Benefit shall be paid within five days after the Termination Date. (d) Definitions. The following capitalized terms have the following meanings: "Earned Salary" means any Base Salary earned, but unpaid, for services rendered to the Company on or prior to the date on which the Employment Period ends. "Normal Retirement Age" means the first day of the month following Executive attaining age 65. "Severance Benefit" means the sum of (i) Executive's minimum Base Salary for the remainder of the Term, but in no event less than 12 months, and (ii) an amount equal to Executive's award, if any, under the 1997 Performance Incentive Plan (or any successor plan) for the year immediately preceding the year in which Executive's employment is terminated or (a) if Executive's termination has occurred before the first anniversary of the Commencement Date, the pro-rata portion of the First Year Bonus and 6 (b) if Executive's termination has occurred on or after the first anniversary of the Commencement Date and before December 31, 2001, the First Year Bonus. "Termination due to Disability" means a termination of Executive's employment by the Company because Executive has been incapable of substantially fulfilling the positions, duties, responsibilities and obligations set forth in this Agreement because of physical, mental or emotional incapacity resulting from injury, sickness or disease for a period of (i) at least six consecutive months or (ii) more than nine months in any twelve month period. Any question as to the existence, extent or potentiality of Executive's disability upon which Executive and the Company cannot agree shall be determined by a qualified, independent physician selected by the Company and reasonably acceptable to Executive. The determination of any such physician shall be final and conclusive for all purposes of this Agreement. Executive or his legal representative or any adult member of his immediate family shall have the right to present to such physician such information and arguments as to Executive's disability as he, she or they deem appropriate, including the opinion of Executive's personal physician. "Termination due to Retirement" means termination of employment by Executive other than for Good Reason, or termination of Executive's employment by the Company other than a Termination for Cause, on or after Executive's Normal Retirement Age. "Termination for Cause" means a termination of Executive's employment by the Company due to (i) Executive's conviction of a felony (as defined under United States federal law) or the entering by Executive of a plea of nolo contendere (or equivalent) with respect to a charged felony (as defined under United States federal law), (ii) Executive's gross negligence, recklessness, dishonesty, fraud, willful malfeasance or willful misconduct in the performance of the services contemplated by this Agreement, (iii) a willful failure without reasonable justification to comply with a reasonable written order of the Board of Directors; or (iv) a willful and material breach of Executive's duties or obligations under this Agreement. Notwithstanding the foregoing, a termination shall not be treated as a Termination for Cause unless the Company shall have delivered a written notice to Executive stating that it intends to terminate his employment for Cause and specifying the factual basis for such termination, and the event or events that form the basis for the notice, if capable of being cured, shall not have been cured within 30 days of the receipt of such notice. "Termination for Good Reason" means a termination of Executive's employment by Executive within 90 days following (i) a reduction in Executive's annual Base Salary or opportunity under the 1997 Performance Incentive Plan below the levels contemplated by Sections 3(a) and (b), (ii) a significant reduction in Executive's positions, duties, responsibilities or reporting lines from those described in Section 2 hereof; (iii) a material breach of this Agreement by the Company, (iv) relocation of 7 Executive's principal place of employment outside of the London metropolitan area or (v) a "Change in Control" of the Company. Notwithstanding the foregoing, a termination shall not be treated as a Termination for Good Reason (x) if Executive shall have consented in writing to the occurrence of the event giving rise to the claim of Termination for Good Reason or (y) unless Executive shall have delivered a written notice to the Company within 30 days of his having actual knowledge of the occurrence of one of the events specified in clause (i), (ii), (iii) or (iv) above stating that he intends to terminate his employment for Good Reason and specifying the factual basis for such termination, and such event, if capable of being cured, shall not have been cured within 30 days of the receipt of such notice. "Change in Control" means the occurrence of (i) a sale or other disposition of stock of the Company, other than a spin-off or any other form of distribution of the Company's shares, or an issuance of stock of the Company as a result of which any "person" (as such term is used in section 13(d) and 14(d) of the Exchange Act), other than the Company, or Ronald S. Lauder ("Lauder"), or any of his controlled entities, is or becomes the beneficial owner of more than 50% of the total voting power of the Company and those persons who are members of the Board of Directors of the Company immediately prior to the closing of such transaction constitute less than one half of the membership of the Board of Directors of the Company immediately following the closing of such transaction, (ii) any merger, consolidation or reorganization following which those persons who are members of the Board of Directors of the Company immediately prior to the closing of such transaction constitute less than one half of the membership of the board of directors of the surviving entity immediately following the closing of such transaction, (iii) a transaction pursuant to which more than 50% of the total value of the assets of the Company and its consolidated subsidiaries are transferred and the transferee of such assets is not Lauder or a company controlled by him, or (iv) a complete liquidation of the Company. "Termination Without Cause" means any termination by the Company of Executive's employment hereunder other than (i) a Termination due to Disability, (ii) a Termination due to Retirement or (iii) a Termination for Cause. "Termination Without Good Reason" means any termination by Executive of Executive's employment hereunder other than (i) a termination due to Executive's death, (ii) a Termination due to Retirement, (iii) a Termination for Good Reason, or (iv) a Termination due to Disability. "Vested Benefits" means amounts which are vested or which Executive is otherwise entitled to receive under the terms of or in accordance with any plan, policy, practice or program of, or any contract or agreement with, the Company, at or subsequent to the date of his termination without regard to the performance by Executive of further 8 services or the resolution of a contingency and expenses incurred prior to termination of employment that are reimbursable under Section 4(c). (e) Adjustment to Notice. The Company reserves the right to make a payment in lieu of notice should it so desire, or require Executive to remain away from work during the notice period, whichever it may deem appropriate. Any payment in lieu of notice will have any appropriate PAYE tax and National Insurance Contributions deducted at source. (f) Full Discharge of Company Obligations. The amounts payable to Executive pursuant to this Section 5 following termination of his employment (including amounts payable with respect to Vested Benefits) shall be in full and complete satisfaction of Executive's rights under this Agreement and any other claims he may have in respect of his employment by the Company or any of its subsidiaries. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon Executive's receipt of such amounts, the Company shall be released and discharged from any and all liability to Executive in connection with this Agreement or otherwise in connection with Executive's employment with the Company and its subsidiaries, other than Executive's rights to indemnification under Section 4(d). 6. Agreement Not to Compete With Company (a) During the Employment Period and for a period of one year thereafter (the "Applicable Period"), Executive shall not directly or indirectly own, manage, operate, finance, join, control, advise, consult, render services to, have an interest or future interest or participate in the ownership, management, operation, financing or control of, or be employed by or connected in any manner with any Competing Business (other than as a holder of common stock of the Company, and not in excess of 5% of the outstanding voting shares of any other publicly traded company); provided that Executive shall not make any equity investment during the Applicable Period in a non-publicly traded company that engages in a Competing Business without the prior written approval of the Executive Committee. "Competing Business" means the business of telecommunication services and solutions engaged in by the Company in any country where the Company or an Affiliate conducts such business at any time during the Term. Notwithstanding the foregoing, if the Company disengages in any such business prior to the expiration of the Term, then such disengaged business shall not be considered a Competing Business. Any opportunity directly or indirectly related to any business engaged in by the Company, its subsidiaries and Affiliates of which Executive becomes aware during the Term shall be deemed a corporate opportunity of the Company, and Executive shall promptly make such opportunity available to the Company. (b) If, during the period of one year after expiration of the Employment Period, Executive or an Affiliate of Executive proposes to engage in what may be a 9 Competing Business, Executive shall so notify the Company in a writing which shall fully set forth and describe in detail the nature of the activity which may be a competitive Business, the names of the companies or other entities with or for whom such activity is proposed to be engaged in by Executive or by an Affiliate of Executive (the "Section 6 Notice"). If, within 30 days after receipt by the Company of a Section 6 Notice, the Company shall fail to notify Executive that it deems the proposed activity to be a Competitive Business, then Executive shall be free to engage in the activities described in the Section 6 Notice without violation of Section 6(a). If, however, the Company notifies Executive that the proposed activities constitute a Competitive Business, then (i) Executive shall not engage in such Competitive Business during the one-year period following expiration of the Employment Period, and (ii) the Company shall pay Executive, during such one-year period, in equal monthly installments, an amount equal to his highest Base Salary; provided that the amount payable under this Section 6(b) shall be reduced by the amount of Severance Benefit that Executive is receiving for such period. 7. Confidential Information (a) Without the prior written consent of the Company, Executive shall not disclose at any time during the Employment Period or any time thereafter any Confidential Information (as defined below) to any third person other than in the course of fulfilling Executive's responsibilities under this Agreement unless such Confidential Information has been previously disclosed to the public by the Company or an Affiliate or is in the public domain (other than by reason of Executive's breach of the provisions of this paragraph). (b) "Confidential Information" is any non-public information pertaining to the Company or an Affiliate, any of their businesses or the business or personal affairs of Lauder or his family and how any of them conducts its or his business or affairs. "Confidential Information" includes not only information disclosed by the Company or an Affiliate to Executive, but non-public information developed, created or learned by Executive during the course of or as a result of Executive's employment with the Company. "Confidential Information" specifically includes non-public information and documents concerning the Company's and its Affiliates' methods of doing business; research, telecommunications technology, its actual and potential clients, transactions and suppliers (including the Company's or an Affiliate's terms, conditions and other business arrangements with them); client or potential client or transaction lists and billing; advertising, marketing and business plans and strategies (including prospective or pending licensing applications or investments in license holders or applicants); profit margins, goals, objectives and projections; compilations, analyses and projections regarding the Company, its Affiliates or any of its clients or potential clients or their businesses; trade secrets; salary, staffing, management organization or employment information; information relating to members of the Board of Directors and management of the Company or an Affiliate; files, drawings or designs; information regarding product development, 10 marketing plans, sales plans or manufacturing plans; operating policies or manuals, business plans, financial records or packaging design; or any other non-public financial, commercial, business or technical information relating to the Company, an Affiliate, Lauder or his family or non-public information designated as confidential or proprietary that the Company, an Affiliate or Lauder may receive belonging to others who do business with any of them. (c) Nothing herein shall prevent the disclosure by Executive of any information required by an order of a court having competent jurisdiction or under subpoena from a government agency, provided that, if Executive receives a request for the disclosure of any Confidential Information pursuant to court process or by a government agency, Executive shall promptly (and at the latest within five business days but not less than three days prior to the date Executive is required to respond to the request) notify the Company of that request and cooperate to the maximum extent authorized by law with the Company in protecting the Company's and it Affiliates' interest in maintaining the confidentiality of any Confidential Information. The Company will reimburse Executive for reasonable out-of-pocket costs or expenses incurred by Executive in connection with his cooperation with the Company and its Affiliates hereunder. 8. No Disparaging Comments Each of the parties hereto agrees not to make disparaging or derogatory comments about the other party, members of the Board or Affiliates, except to the extent required by law, and then only after consultation with the other party to the maximum extent possible in order to maintain goodwill for each of the parties. 9. Return of Company Property Promptly (and at the latest within ten business days) following Executive's termination of services, Executive shall: (i) return to the Company all documents, records, notebooks, computer diskettes and tapes and anything else containing the Company's Confidential Information (as defined above), and any other property or Confidential Information of the Company or its Affiliates, including all copies thereof in Executive's possession, custody or control, and (ii) delete from any computer or other electronic storage medium owned by Executive any of the proprietary or Confidential Information of the Company or its Affiliates. 11 10. No Soliciting or Hiring Company Employees Without the prior written consent of the Company, during the Employment Period and for a one-year period thereafter, Executive shall not directly or indirectly induce any employee of the Company or any Affiliate, other than Executive's secretary or personal assistant, to terminate employment with such entity, and during the Employment Period and for a six-month period thereafter, shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ or offer employment to any person who is or was employed by the Company or any Affiliate as an employee. 11. Continuing Obligations Following Termination Executive agrees that his obligations and restrictions with respect to noncompetition, confidentiality, Company property, nondisparagement and nonsolicitation, and the Company obligations to indemnify Executive under Section 4(d), will continue to apply following the termination of Executive's relationship regardless of the manner in which his relationship with the Company is terminated, whether voluntarily, for Cause, for Good Reason, without Cause or otherwise. 12. Arbitration of All Disputes (a) Any dispute, controversy or claim between the Executive and the Company or any of its officers, directors, employees or shareholders (who are expressly made third-party beneficiaries of this agreement) arising out of, relating to or in connection with this agreement, or the breach, termination or validity thereof, shall be finally resolved by binding and non-appealable arbitration, before a single arbitrator selected by the procedure set forth below, conducted in New York, New York. (b) Either party may commence an arbitration proceeding by giving written notice to the other party of its desire to arbitrate. (c) The single arbitrator (the "Arbitrator") shall be selected from among the New York City members of the New York Regional Panel of Distinguished Neutrals (the "Panel") of the Center for Public Resources ("CPR") by mutual agreement of the parties, or if the parties are unable to agree, by the following means: (A) The Company, on one hand, and Executive on the other hand, shall simultaneously exchange lists each containing the names of five members of their choice of the Panel who have indicated a willingness to serve. (B) If a single name appears on both lists, that individual shall be appointed. 12 (C) If more than one name appears on both parties' lists, the Arbitrator shall be selected from the common names by mutual agreement of the parties or by the toss of a coin. (D) If the lists contain no names in common, each party shall strike four names from the other party's list and the Arbitrator shall be selected from the remaining two names by mutual agreement of the parties or by the toss of a coin. (E) If the CPR ceases to have a Panel or it is otherwise impossible to select the Arbitrator from the Panel as contemplated by this Agreement, the Arbitrator shall be selected by the President of the CPR in the manner that the President deems closest to satisfying the purposes of this Section, or, if such person is unable to do so, by the President of the Association of the Bar of the City of New York. (d) The Arbitrator, after appropriate consultation with the parties, shall (i) determine, in his or her sole discretion, the rules governing the arbitration proceeding, including whether and to what extent the parties shall have any right to pre-hearing discovery or other forms of disclosure, the manner of presentation of arguments and/or evidence before or at any hearing, whether and to what extent formal rules of evidence shall govern the proceeding and the parties' rights following the proceeding, and (ii) be governed in exercising such discretion by the goal of reaching a fair and reasonable decision in an expeditious and efficient manner while endeavoring to streamline the process and avoid undue litigation costs. (e) The Arbitrator shall assess the costs of the proceeding (including the prevailing party's reasonable attorney's fees) on any unsuccessful party to the extent the Arbitrator concludes that such party is unsuccessful, unless he or she concludes that (i) matters of equity or important considerations of fairness dictate otherwise or (ii) in the case of Executive, the Arbitrator determined that Executive acted reasonably and in good faith in pursuing all of the claims asserted by him in such arbitration. (f) The Arbitrator shall be required to state his or her decision in writing and may, but shall not be required to, elaborate on the reasons for such decision. (g) The arbitrator(s) shall have the authority upon application by a party to direct specific performance, including preliminary or interim specific performance pending the final resolution of the arbitration, of any portion of this agreement. The parties expressly consent to the jurisdiction and power of any federal or state court in New York to enforce the terms of such a direction upon application by a party. If the arbitrator(s) have not yet been appointed, the parties may obtain injunctive or other appropriate relief from a court 13 to enforce the terms of this agreement pending the appointment of the arbitrator(s) who shall thereafter have full power to continue, modify or vacate the terms of any injunctive relief ordered by the court. (h) Notwithstanding the terms of this agreement that provide that New York law shall govern, the arbitration and the provisions in this agreement dealing with arbitration shall be governed exclusively by the United States (Federal) Arbitration Act, 9 U.S.C. ss.ss. 1-16, and judgment on or enforcement of the award or any direction for specific performance rendered by the arbitrators may be entered by any court having jurisdiction thereof or having jurisdiction over the relevant party or assets of such party. (i) If, notwithstanding the parties' agreement to arbitrate, any issue is presented to a court for decision, the parties hereby waive any right to trial by jury. (j) The parties agree that any dispute between the parties and the arbitration itself shall be kept confidential and that the existence of the arbitration and any element of it (including but not limited to any pleading, brief or other document submitted or exchanged, any testimony or other oral submission, and any award) shall not be disclosed except to the arbitrator(s), the CPR Institute for Dispute Resolution, the parties, their counsel and any person necessary to the conduct of the proceeding, except as may be lawfully required in judicial proceedings relating to the arbitration or otherwise. 13. No Punitive or Emotional Damages The parties hereto agree that neither the Executive nor the Company will be entitled to seek or obtain punitive, exemplary or similar damages of any kind from the other or, in the case of Executive, from the Company's officers, directors, employees or shareholders, or to seek or obtain damages or compensation for emotional distress, as a result of any dispute, controversy or claim arising out of, relating to or in connection with this Agreement, or the performance, breach, termination or validity thereof. Nothing herein shall preclude an award of compensatory or punitive damages against any other third party. 14. Injunctive Relief to Avoid Irreparable Injury (a) Executive acknowledges and agrees that the individualized services and capabilities that he will provide to the Company under this Agreement are of a personal, special, unique, unusual, extraordinary and intellectual character. (b) Executive acknowledges and agrees that the restrictions in this agreement are reasonable to protect the Company's rights under this Agreement and to safeguard the Company's and its Affiliates' Confidential Information. 14 (c) Executive acknowledges and agrees that the covenants and obligations of Executive with respect to noncompetition, nonsolicitation, confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company and its Affiliates irreparable injury for which adequate remedies are not available at law. Executive therefore agrees that the Company shall be entitled to an order of specific performance, injunction, restraining order or such other interim or permanent equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Agreement (d) These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. (e) Executive represents that his economic means and circumstances are such that the provisions of this Agreement, including the noncompetition, nonsolicitation, confidentiality and Company property provisions, will not prevent him from providing for himself and his family on a basis satisfactory to him and them. 15. Automatic Amendment by Court Order and Interim Enforcement (a) If the Arbitrator(s) or a court determines that, but for the provisions of this paragraph, any part of this agreement is illegal, void as against public policy or otherwise unenforceable, the relevant part will automatically be amended to the extent necessary to make it sufficiently narrow in scope, time and geographic area to be legally enforceable. All other terms will remain in full force and effect. (b) If the Executive raises any question as to the enforceability of any part or terms of this agreement, including, without limitation, the provisions relating to noncompetition, nonsolicitation, confidentiality and Company property, the Executive specifically agrees that he will comply fully with this Agreement unless and until the entry of an arbitral award to the contrary. 16. Notices All notices and other communications required or permitted hereunder shall be sufficiently given if (a) delivered personally, (b) sent by facsimile transmission (with confirmation received), (c) sent by a nationally-recognized air courier assuring overnight delivery, or (d) mailed (by registered or certified mail, return receipt requested and postage prepaid) as follows: if to the Executive, to the Executive at: 15 Birch Common Brockenhurst Road South Ascot Berkshire United Kingdom SL5 9HA with a copy to: Wolf, Block, Schorr and Solis-Cohen LLP 1650 Arch Street, 22nd Floor Philadelphia, Pennsylvania 19103-2097 Fax: (215) 977-2334 Attn: Robert M. Goldich, Esq. if to the Company, to the Company at Clarendon House Church Street Hamilton HM CX Bermuda Fax: (441) 292-4720 Attention: Roger Burgess with a copy to: c/o RSL Communications, N. America, Inc. 810 Seventh Avenue, 39th Floor New York, New York 10019 Fax: (212) 445-7531 Attention: General Counsel or to such other address as shall be furnished by notice from time to time by one party hereto to the other party. Any such communication shall be deemed to have been given, (i) in the case of personal delivery, on the date of delivery, (ii) in the case of delivery by air courier, on the first business day following the day on which such communication was posted, and (iii) in the case of mailing, on the third business day following the day on which such notice was posted. 17. Sole and Entire Understanding; Amendments The entire understanding and agreement between the Company and Executive have been incorporated into this Agreement. There are no other promises, representations, under- 16 standings or inducements by the Company to Executive or Executive to the Company other than those specifically set forth in this Agreement. This Agreement may not be altered, amended or added to except in a single writing signed by the Company and the Executive. 18. Waiver of Breach A waiver or breach of any provision of this Agreement shall not constitute or operate as a waiver of any other breach of such provision or of any other provision, and any failure to enforce any provision hereof shall not operate as a waiver of such provision or of any other provision. 19. Headings The headings of sections in this Agreement are for convenience only, are not a part of this Agreement and shall not affect the construction of the provisions of this Agreement. 20. Arm's Length (a) This Agreement was entered into at arm's length, without duress or coercion, and is to be interpreted as an agreement between parties of equal bargaining strength. Both the Company and the Executive agree that this Agreement is clear and unambiguous as to its terms, and that no parol or other evidence will be used or admitted to alter or explain the terms of this Agreement, but that it will be interpreted based on the language within its four corners in accordance with the purposes for which it is entered into. (b) The parties hereto expressly agree that any rule or contractual interpretation, as applied under California law or anywhere else, that would allow parol or extrinsic evidence to attempt to show fraud in the inducement or duress to contradict the plain, unambiguous terms of this Agreement shall not apply to this Agreement and its performance and enforcement. This provision is a material part of this Agreement and, should any party try to introduce evidence contrary to this provision, any other party shall be entitle to consider it a breach and to rescind this contract in full. 21. Successors and Assigns (a) This Agreement will inure to the benefit of, and will be binding upon, the Company, its successors and assigns and upon the Executive and his heirs, successors and assigns; provided, however, that, because this is an Agreement for personal services, the Executive cannot assign any of his obligations under this Agreement to anyone else. 17 (b) This Agreement may be executed in counterparts, in which case each of the two counterparts will be deemed to be an original and the final counterpart shall be deemed to have been executed in New York, New York. 22. New York Law Governs Any questions or other matters arising under this Agreement, whether of validity, interpretation, performance or otherwise, will therefore be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be wholly performed in New York, without reference to principles of conflicts or choice of law under which the law of any other jurisdiction would apply. 18 IN WITNESS WHEREOF, this Agreement has been executed by Executive and then by the Company in New York, New York, on the dates shown below, but effective as of the date and year first above written. Date: 8/1/00 /s/ Paul B. Domorski ------------------------------ -------------------------------------- Executive RSL COMMUNICATIONS, LTD. Date: 8/1/00 BY: /s/ Itzhak Fisher ------------------------------ ----------------------------------- Title: Chief Executive Officer ------------------------------- EX-10.2 3 0003.txt SENIOR STANDBY LOAN AND WARRANT AGREEMENT ================================================================================ RSL COMMUNICATIONS PLC., as Borrower $100,000,000 SENIOR STANDBY LOAN AND WARRANT AGREEMENT GUARANTEED BY RSL COMMUNICATIONS, LTD. and RSL COM U.S.A., INC. dated as of July 6, 2000 RONALD S. LAUDER, as Lender ================================================================================ Table of Contents Page ---- SECTION 1. AMOUNT AND TERMS OF LOANS..................................1 1.1 Credit.....................................................1 1.2 Procedure for Borrowing....................................1 1.3 The Note...................................................2 1.4 Repayment..................................................2 1.5 Optional Prepayment and Reborrowing........................2 1.6 Mandatory Prepayments......................................2 1.7 Ranking....................................................3 1.8 Interest...................................................3 1.9 Computation of Interest and Fees...........................3 1.10 Fees.......................................................4 1.11 General Provisions as to Payments..........................4 1.12 Taxes......................................................4 SECTION 2. WARRANTS...................................................5 2.1 Warrant Issuance...........................................5 2.2 Warrant Registration.......................................5 2.3 Tax Matters................................................5 SECTION 3. CONDITIONS.................................................5 3.1 Effectiveness..............................................5 3.2 Drawdown Conditions........................................6 SECTION 4. REPRESENTATIONS AND WARRANTIES.............................7 4.1 Representations of the Borrower, RSL COM and RSL USA.......7 4.2 Representations of the Lender..............................9 SECTION 5. COVENANTS.................................................10 5.1 Information...............................................10 5.2 Notices...................................................11 5.3 Insurance.................................................11 5.4 Maintenance and Existence.................................11 5.5 Compliance with Law.......................................11 5.6 Consolidation, Merger, Sale of Assets, Etc................11 5.7 Use of Proceeds...........................................11 5.8 Pari Passu................................................11 5.9 Limitation on Certain Payments............................11 5.10 Limitation on Liens.......................................12 5.11 Compensation..............................................12 SECTION 6. EVENTS OF DEFAULT.........................................12 i Table of Contents (continued) Page ---- SECTION 7. EXCHANGE NOTES............................................14 7.1 Conversion of Loans to Exchange Notes.....................14 7.2 Issuance of Exchange Notes; Terms.........................14 7.3 Exchange Note Closing.....................................15 SECTION 8. GUARANTEE.................................................16 SECTION 9. INDEMNIFICATION...........................................17 SECTION 10. DEFINITIONS...............................................19 SECTION 11. MISCELLANEOUS.............................................23 11.1 Amendments and Waivers....................................23 11.2 Successors and Assigns....................................23 11.3 Notices...................................................23 11.4 Expenses..................................................25 11.5 No Waiver; Cumulative Remedies............................25 11.6 Survival of Representations and Warranties................25 11.7 Severability..............................................25 11.8 Integration...............................................25 11.9 Counterparts..............................................25 11.10 Governing Law.............................................25 11.11 Submission to Jurisdiction................................26 11.12 Trial Without Jury........................................26 11.13 No Counterclaims..........................................26 ii EXHIBIT 10.2 EXECUTION COPY SENIOR STANDBY LOAN AND WARRANT AGREEMENT SENIOR STANDBY LOAN AND WARRANT AGREEMENT, dated as of July 6, 2000, by and among, RSL Communications PLC, a company organized under the laws of the United Kingdom (the "Borrower"); RSL Communications, Ltd., a company organized under the laws of Bermuda ("RSL COM") and RSL COM U.S.A., Inc., a Delaware company ("RSL USA"), as guarantors (collectively, the "Guarantors"); and Ronald S. Lauder, (the "Lender"). RECITALS: A. The Lender is the Chairman of RSL COM. B. The Borrower and RSL COM have requested the Lender to extend senior financing to the Borrower; and the Lender is willing to provide such financing on the terms and subject to the conditions hereof. C. The Borrower is a wholly-owned Subsidiary of RSL COM and RSL USA is a wholly-owned Subsidiary of the Borrower, each of which is willing to fully and unconditionally guarantee the obligations of the Borrower hereunder. The parties, intending to be legally bound, agree as follows: SECTION 1. AMOUNT AND TERMS OF LOANS 1.1 Credit. Subject to the terms and conditions of this Agreement, at any time and from time to time during the period commencing on the date of this Agreement to and including the Availability Date, the Lender agrees to make revolving loans (individually, a "Loan" and collectively, the "Loans") to the Borrower in an aggregate amount at anytime outstanding up to but not exceeding the amount of the Commitment. All Loans shall become due and payable on June 30, 2001 (the "Maturity Date"), or such earlier date as provided herein. 1.2 Procedure for Borrowing. (a) The Borrower shall give the Lender an irrevocable notice (which notice must be received by the Lender prior to 11:00 a.m., New York City time, at least five (5) Business Days in advance of the date of the borrowing for Loans drawn in the principal amount of $5 million or less and at least ten (10) Business Days in advance of the date of the borrowing for Loans drawn in the principal amount exceeding $5 million) specifying the date of the borrowing (which shall be a Business Day), the aggregate amount of such borrowing, and the account to which funds should be transferred (the "Notice of Borrowing"). (b) Unless the Lender shall have determined that any applicable condition specified in Section 3 has not been satisfied, not later than 1:00 p.m., New York City time, on the date of each borrowing, the Lender shall make available such borrowing, in Federal or other funds immediately available in New York City, to the Borrower by wire transfer to the account designated by the Borrower in the Notice of Borrowing. 1.3 The Note. The obligation of the Borrower to repay the Lender shall be evidenced by a single revolving demand note of the Borrower payable to the order of the Lender on the Maturity Date, dated as of the date hereof and delivered simultaneously herewith (the "Note"). The Note shall be in an amount equal to the Commitment. The Loans evidenced by the Note shall bear interest as provided in Section 1.8 hereof. The Note shall be valid and enforceable as to the principal amount at any time only to the extent of the Loans advanced by the Lender and then outstanding, and, as to the interest, only to the extent of the interest accrued and unpaid in respect of such Loans. 1.4 Repayment. The Borrower hereby unconditionally promises to pay on the Maturity Date, without notice, the principal amount of each Loan in accordance with the terms hereof and of the Note. The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding until payment in full thereof at the rates per annum, and on the dates, set forth in Section 1.8 hereof. 1.5 Optional Prepayment and Reborrowing. (a) The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty. The Borrower shall give notice to the Lender prior to 11:00 a.m., New York City time, two (2) Business Days prior to any prepayment, specifying the date and amount of such prepayment. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments shall be in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Accrued interest on the amount of principal of Loans prepaid under this Section 1.5 shall be due and paid on the date of such prepayment. (b) Subject to Section 1.1, Section 1.6, Section 3.2 and Section 6 hereof, principal amounts prepaid on account of the Loans may be reborrowed. 1.6 Mandatory Prepayments. (a) In the event of (i) any Change of Control of RSL COM, or (ii) the Telegate Sale, then all outstanding Loans, together with all accrued and unpaid interest thereon and all fees (if any), will become immediately due and payable, and the Commitment will automatically and permanently be reduced to zero. (b) In the event that, (i) the Borrower or RSL COM issue any equity or debt securities (other than upon the exercise of employee stock options), or (ii) any Subsidiary of RSL COM issues any debt securities that are guaranteed by RSL COM, or 2 (iii) the Borrower, RSL COM or any Subsidiary of RSL COM sells any assets, including but not limited to any securities of any other Person, outside the ordinary course of business (each such event, a "Liquidity Event"), then the Commitment will automatically and permanently be reduced by the amount of the net cash proceeds received from such Liquidity Event. To the extent that the aggregate amount of all outstanding Loans exceed the amount of the Commitment in affect immediately after such reduction, all such Loans (to the extent of such excess), together with all accrued and unpaid interest thereon and all fees (if any) then due to the Lender, will be immediately due and payable. (c) The Borrower shall give the Lender at least two (2) Business Days' prior notice of any prepayment pursuant to this Section 1.6 setting forth the date and amount of such prepayment, provided that the failure of the Borrower to give such prior notice will not relieve the Borrower of any of its obligations under this Section 1.6. 1.7 Ranking. The Loans and the Note shall in all respects rank pari passu with all other senior indebtedness of the Borrower, RSL COM and RSL USA, including, but not limited to, the obligations of the Borrower, RSL COM and RSL USA with respect to the Borrower's High Yield Notes. The Loans and the Note shall rank senior to all subordinated indebtedness of the Borrower, RSL COM and RSL USA. 1.8 Interest. (a) Each Loan shall bear interest for the period from and including the date such Loan is made to but excluding the Maturity Date thereof on the unpaid principal amount thereof at a rate per annum for each Interest Period equal to the sum of LIBOR for such Interest Period plus a margin of 4.5%. Notwithstanding the foregoing, the interest rate borne by the Loans shall not exceed any amount in excess of the maximum rate of interest permitted to be charged by applicable law. (b) If all or a portion of (i) the principal amount of any Loan, (ii) any interest payable thereon or (iii) any fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise, but taking into account any applicable grace period under Section 6(a)), such overdue amount shall bear interest at a rate per annum which is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto pursuant to Section 1.8(a) plus two percent (2.0%) and (y) in the case of overdue interest, commitment fees or other amounts due and payable hereunder, the interest rate then in effect for the Loans (but without giving effect to the foregoing clause (x)) plus two percent (2.0%), in each case from the date of such non-payment until such amount is paid in full (after as well as before judgment). (c) Interest shall be payable monthly in arrears on the last day of each Interest Period, provided that interest accruing pursuant to Section 1.8(b) shall be payable from time to time on demand. 1.9 Computation of Interest and Fees. Interest shall be calculated on the basis of a 360-day year for the actual days elapsed. LIBOR for any Interest Period shall be determined by the Lender and notified to the Borrower. Each determination of an interest 3 rate by the Lender pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower in the absence of manifest error. 1.10 Fees. The Borrower shall pay fees to the Lender as follows: (a) a non-refundable arrangement fee in the amount equal to 1.00% of the Commitment, payable in cash on the date of execution of this Agreement; (b) a draw down fee in an aggregate amount equal to 1.00% of the principal amount of each Loan, payable in cash on the date of each drawing of a Loan; and (c) a commitment fee at a rate per annum equal to 1.00% of the daily average of the Lender's undisbursed Commitment, for the period from and including the date hereof to but excluding the Availability Date, payable in cash in arrears on the first day of each month and, with respect to the final payment, on the earlier of (i) the date on which the Commitment has been permanently reduced to zero and (ii) the Availability Date. 1.11 General Provisions as to Payments. The Borrower shall make each payment of principal of, and interest on, the Loans and of all fees hereunder not later than 2:00 p.m., New York City time, on the due date thereof, in Federal or other funds immediately available in New York City, to the Lender in the amount due thereto at its address referred to in Section 11.3. Whenever any payment of principal of, or interest on, the Loans or of fees shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day (unless such an extension would have resulted in a payment falling in another calendar month, in which case the payment shall be made on the next preceding Business Day). If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. 1.12 Taxes. Except as provided below in this Section 1.12, all payments made by the Borrower, RSL COM or RSL USA, as the case may be, under this Agreement, the Note or any other Loan Document shall be made free and clear of, and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties, charges, deductions, withholdings or fees of any nature whatsoever, together with any related penalties, interest thereon or additions thereto, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes of the Lender imposed by: (i) the jurisdiction under the laws of which the Lender is organized; or (ii) the jurisdiction in which the Lender has a permanent establishment to which the Note is attributable. If any such non-excluded taxes, levies, imposts, duties, charges, deductions, withholdings or fees ("Non-Excluded Taxes") are required to be withheld or deducted from any amounts payable to the Lender hereunder, under the Note or under any other Loan Documents, the amounts so payable to the Lender shall be increased to the extent necessary to yield to the Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder, under the Note or under any other Loan Document at the rates or in the amounts specified in this 4 Agreement, the Note and any other Loan Document. Whenever any Non-Excluded Taxes are payable by the Borrower, RSL COM or RSL USA, as promptly as possible thereafter the Borrower, RSL COM or RSL USA, as the case may be, shall send to the Lender for its own account, a certified copy of an original official receipt received by the Borrower, RSL COM or RSL USA, as the case may be, showing payment thereof. If the Borrower, RSL COM or RSL USA, as the case may be, fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Lender the required receipts or other required documentary evidence, the Borrower, RSL COM or RSL USA, as the case may be, shall indemnify the Lender for any incremental taxes, interest, penalties or additions to taxes that may become payable by the Lender as a result of any such failure. The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. SECTION 2. WARRANTS 2.1 Warrant Issuance. In order to induce the Lender to make available the Loans hereunder, RSL COM agrees to issue to the Lender on the date of each drawdown, if any, warrants (each, a "Warrant") to purchase an aggregate of 75,000 of RSL COM's Class A common shares for each $5 million in Loans drawn, up to a maximum aggregate limit of 1,500,000 of RSL COM's Class A common shares. RSL COM will issue warrants to purchase its Class A common shares on a pro rata basis for Loans drawn in other than $5 million increments. Subject to the terms and conditions of this Section 2.1, the Warrants will be exercisable in accordance with and otherwise have the terms and conditions set forth in the Form of Warrant attached to this Loan Agreement as Exhibit A. 2.2 Warrant Registration. The Warrants and the Class A common shares issued upon exercise thereof will be entitled to the registration rights set forth in the Warrant Registration Rights Agreement, dated as of October 3, 1996, between the Borrower and The Chase Manhattan Bank. 2.3 Tax Matters. In connection with any Loan with respect to which RSL COM issues Warrants to the Lender, the Lender and the Borrower shall agree to a valuation of the Warrants so issued, and the Lender and Borrower shall use such valuation for all tax purposes, including the determination of the issue price of such Loan in accordance with U. S. Treasury Reg.ss.1.1273-2(h). For U. S. tax purposes, each Loan with respect to which Warrants are issued to the Lender shall be treated as a separate debt instrument with its own issue price and issue date. SECTION 3. CONDITIONS 3.1 Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 11.1): 5 (a) receipt by the Lender of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Lender in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (b) receipt by the Lender of the duly executed Note evidencing the Borrowers' obligation to the Lender; and (c) receipt by the Lender of all documents it may reasonably request relating to the corporate authority for and the validity of this Agreement and the Note, and any other matters relevant hereto, all in form and substance satisfactory to the Lender. The Lender shall promptly notify the Borrower of the effective date of this Agreement, and such notice shall be conclusive and binding on all parties hereto. 3.2 Drawdown Conditions. The obligation of the Lender to make any Loan is subject to the satisfaction of the following conditions: (a) the Lender shall have received of a Notice of Borrowing as required by Section 1.2; (b) the Lender and the Borrower shall have agreed to the Warrant valuation described in Section 2.3; (c) immediately after the Loan is extended, the aggregate outstanding principal amount of the Loans will not exceed the Commitment; (d) the Borrower has available the capacity or an applicable exemption under the High Yield Notes and their respective indentures to drawdown the Loan; (e) immediately before and after the Loan is extended, no Event of Default shall have occurred and be continuing; (f) the representations and warranties of the Borrower, of RSL COM and of RSL USA contained in this Agreement shall be true and correct in all material respects on and as of the date of the Loan; (g) since March 31, 2000, no Material Adverse Change shall have occurred; (h) RSL COM, RSL USA, the Borrower and the Lender shall have received all consents and approvals, and shall have made all filings and notices, required in connection with the transactions contemplated hereby; 6 (i) no order of any court or governmental agency enjoining any of the transactions contemplated hereby may be in effect, and no action, suit, proceeding or investigation seeking any such order or substantial damages in connection with the transactions contemplated hereby, or that could reasonably be expected to have a Material Adverse Effect, may be pending or threatened; (j) RSL COM shall have delivered a duly executed Warrant to the Lender permitting the Lender to purchase Class A Common Shares in accordance with this Loan Agreement; (k) the Borrower shall have paid all fees and expenses due to the Lenders pursuant to the Loan Documents; and (l) the Lender shall have received a certificate signed by the chief executive officer of the Borrower, dated the date of any drawing of any Loan, to the effect set forth in clauses (c), (d), (e) and (f) of this Section 3.2 (and, with respect to (c), such certificate shall set forth the calculation or exception upon which the Borrower is relying to draw-down the Loan). SECTION 4. REPRESENTATIONS AND WARRANTIES 4.1 Representations of the Borrower, RSL COM and RSL USA. The Borrower, RSL COM and RSL USA, jointly and severally, each represent and warrant to the Lender, on the date hereof and on the date of any drawing of any Loan, as follows: 4.1.1 Corporate Existence and Power. Each of the Borrower, RSL COM and RSL USA is a company duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, and has all corporate powers and authority and all material governmental licenses, authorizations, consents, and approvals required to own, lease and operate its properties and to carry on its business as now conducted. 4.1.2 Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by each of the Borrower, RSL COM and RSL USA of this Agreement, and the execution and delivery by the Borrower of the Note, are within respective corporate powers of the Borrower, RSL COM and RSL USA, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower, RSL COM or RSL USA or of any agreement, judgment, writ, injunction, order, decree or other instrument binding upon the Borrower, RSL COM or RSL USA or result in the creation or imposition of any lien, mortgage, pledge, charge, security interest or encumbrance of any kind (the "Lien") on any asset of the Borrower, RSL COM or RSL USA or any of their respective Subsidiaries. 7 4.1.3 Binding Effect. This Agreement has been duly and validly executed and delivered by each of the Borrower, RSL COM and RSL USA, and assuming the due authorization, execution and delivery by the other parties hereto, constitutes the valid and binding obligation of the Borrower, RSL COM and RSL USA enforceable against each of them in accordance with its terms; and, when executed and delivered, the Note will constitute a valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, in each case except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general principles of equity. 4.1.4 SEC Reports and Financial Statements. (a) RSL COM has filed all required forms, reports and documents with the Securities Exchange Commission (hereinafter collectively referred to as the "Company Reports") required to be filed by it pursuant to the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Securities Act") and the Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), all of which have complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act. (b) None of the Company Reports, including, without limitation, any financial statements or schedules included therein, at the time filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) The consolidated balance sheets and the related consolidated statements of income, cash flow and shareholders' equity (including without limitation the related notes thereto) of RSL COM and its consolidated Subsidiaries included in the financial statements contained in RSL COM's Annual Report on Form 10-K for the year ended December 31, 1999 (the "Company 10-K") and in RSL COM's Quarterly Reports on Form 10-Q for the quarter ended March 31, 2000 (the "Company 10-Q"), present fairly the consolidated financial position of RSL COM and its consolidated Subsidiaries as of their respective dates, and the results of consolidated operations and cash flows for the periods then ended, all in conformity with United States generally accepted accounting principles applied on a consistent basis, except as otherwise noted therein and in the case of unaudited financial statements subject to normal year-end audit adjustments, and except for certain footnote disclosures required by United States generally accepted accounting principles. 4.1.5 Absence of Undisclosed Liabilities. Except for liabilities reflected or reserved against in the consolidated balance sheet of RSL COM and its Subsidiaries as of March 31, 2000 or reflected in the notes thereto, none of RSL COM and its Subsidiaries has any liabilities or obligations (absolute or accrued or contingent, whether accrued or unaccrued and whether due or to become due) other than liabilities and obligations incurred in the ordinary course of business since March 31, 2000 or liabilities 8 or obligations which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 4.1.6 Changes. Since the date of the Company 10-K, and except as set forth in the Company 10-K, the Company 10-Q or any Company Current Report filed prior to the date hereof: (a) no Material Adverse Change has occurred; and (b) there has been no direct or indirect redemption, purchase or other acquisition of any shares of RSL COM's capital stock, or any declaration, setting aside or payment of any dividend or other distribution by RSL COM in respect of RSL COM's capital stock. 4.1.7 Litigation. Since the date of the Company 10-K, and except as set forth in the Company 10-K, the Company 10-Q or any Company Current Report filed prior to the date hereof, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower or RSL COM threatened against or affecting, the Borrower, RSL COM, RSL USA or any of their Subsidiaries before any court or arbitrator or any governmental body, agency or official which could reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity or enforceability of this Loan Agreement or the Note. 4.1.8 Taxes. Each of RSL COM, RSL USA, the Borrower and their Subsidiaries has filed or caused to be filed all income tax returns and all other material tax returns which are required to be filed and has paid (i) all taxes shown to be due and payable on such returns and (ii) all taxes shown to be due and payable on any assessments of which it has received notice made against it or any of its property and all other taxes, fees or other governmental charges imposed on it or any of its property and no tax Lien has been filed, and no claim is being asserted, with respect to any such tax, fee or other charge (other than any (x) taxes, fees or other charges with respect to which the failure to pay, in the aggregate, would not have a Material Adverse Effect or (y) taxes, fees or other charges the amount or validity of which are currently being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves in accordance with United Stated generally accepted accounting principles have been maintained). 4.2 Representations of the Lender. The Lender, represents and warrants to the Borrower, RSL COM and RSL USA, on the date hereof, as follows: 4.2.1 Organization and Authorization. The Lender is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; and the execution, delivery and performance by the Lender of this Agreement are within the Lender's limited liability company powers and have been duly authorized by all necessary limited liability company action. 4.2.2 Binding Effect. This Agreement has been duly and validly executed and delivered by the Lender and, assuming the due authorization, execution and 9 delivery by the other parties hereto, constitutes the valid and binding obligation of the Lender enforceable against the Lender in accordance with its terms, in each case except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general principles of equity. SECTION 5. COVENANTS Until the later of (i) the Availability Date and (ii) the payment in full of the Loans and all other liabilities of the Borrower, RSL COM and RSL USA to the Lender under any of the Loan Documents whether now or hereafter existing: 5.1 Information. RSL COM will deliver to the Lender: (a) as soon as available and in any event within ninety (90) days after the end of each fiscal year of RSL COM, a consolidated balance sheet of RSL COM and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations and cash flows for such fiscal year, accompanied by an opinion of Deloitte & Touche LLP or other independent public accountants of nationally recognized standing that such statements are in accordance with generally accepted accounting principles in the United States, consistently applied; (b) as soon as available and in any event within forty-five (45) days after the end of each of the first three quarters of each fiscal year of RSL COM, a consolidated balance sheet of RSL COM and its Subsidiaries as of the end of such quarter and the related consolidated statements of operations and cash flows for such quarter and for the portion of RSL COM's fiscal year ended at the end of such quarter, certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer or the treasurer of the Borrower; (c) promptly upon the mailing thereof to the shareholders of RSL COM generally, copies of all financial statements, reports, proxy statements or other information so mailed; (d) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower or RSL COM shall have filed with the Securities and Exchange Commission; and (e) from time to time such additional historical information regarding the financial position or business of RSL COM and its Subsidiaries as the Lender may reasonably request. 10 5.2 Notices. Within three (3) days after any officer of the Borrower, RSL COM or RSL USA obtains knowledge of any Event of Default or of any event or condition which with the giving of notice and lapse of time would, unless cured or waived, become an Event of Default, if such event or condition is then continuing, the Borrower will deliver to each Lender a certificate of the chief financial officer or the chief accounting officer or the treasurer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto. 5.3 Insurance. RSL COM, RSL USA and the Borrower will maintain insurance (including but not limited to liability insurance) with responsible and reputable insurers in such amounts and covering such risks as is usually carried by companies engaged in similar business and owning similar properties and such other insurance as is required by law. 5.4 Maintenance and Existence. RSL COM, RSL USA and the Borrower will preserve, renew and keep in full force and effect their corporate existence and their rights, privileges and franchises necessary or desirable in the normal conduct of business. 5.5 Compliance with Law. RSL COM, RSL USA and the Borrower will comply, in all material respects, with all applicable laws, rules, regulations and orders which are of material importance to the conduct of the business, or the ownership of their property (including, without limitation, paying before the same become delinquent, all taxes, assessments and governmental charges upon it or its property), except where the necessity of compliance therewith is contested in good faith. 5.6 Consolidation, Merger, Sale of Assets, Etc. RSL COM shall not consolidate with or merge with or into any Person, or sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of its assets, whether in one transaction or a group of related transactions, to any Person or group of Persons (except for any such transaction constituting a Change of Control, provided that RSL COM fully complies with its obligations under Section 1.6) unless prior to the closing thereof, all outstanding Loans (together with all accrued and unpaid interest thereon and all fees, if any) have been paid and thereupon the Commitment shall have been permanently reduced to zero. 5.7 Use of Proceeds. The Borrower shall use the proceeds of the Loans made under this Agreement in compliance with all legal and regulatory requirements for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U. 5.8 Pari Passu. The Borrower shall ensure that no claims of the Lender will be at any time subordinate to the claims of other unsecured creditors (except to the extent provided under bankruptcy, insolvency and other similar laws of general application relating to or affecting the enforcement of creditors' rights). 5.9 Limitation on Certain Payments. RSL COM shall not, and shall not permit the Borrower or any other of its Subsidiaries, directly or indirectly, to (i) declare 11 or pay any dividend or make any distribution on or in respect of its capital stock (except dividends or distributions payable to RSL COM), or (ii) make any payment on account of the purchase, redemption, defeasance retirement or acquisition of (x) any shares of any capital stock of RSL COM or any of its Subsidiaries, (y) any option, warrant or other right to acquire shares of any capital stock of RSL COM or any of its Subsidiaries, or (z) any debt of RSL COM or any of its Subsidiaries that is subordinated to the Loans, other than (A) dividends or distributions made by RSL COM in kind on a cashless basis with respect to RSL COM Series A preferred shares or other series of preferred shares issued by RSL COM after the date hereof or (B) distributions of RSL COM Class A shares or cash pursuant to roll-up or similar agreements between RSL COM, its Subsidiaries and other shareholders of such Subsidiaries that do not individually or in the aggregate exceed 5% of the value of the capital stock of such Subsidiary. 5.10 Limitation on Liens. RSL COM shall not, and shall not permit the Borrower or any other of its Subsidiaries, directly or indirectly, to create, incur, assume or permit to exist any Lien on any asset now owned or hereafter acquired, or any income or profits therefrom, or assign or convey any right to receive income therefrom, except for any Permitted Lien, or any banker's right of set-off arising by operation of law in the ordinary course of business, unless contemporaneously therewith effective provision is made to secure the Note or, in respect of Liens on RSL COM's property or assets, the guarantee set forth in Section 6 hereof, equally and ratably with such obligation for so long as such obligation is so secured. 5.11 Compensation. RSL COM will not, and will not permit any of its Subsidiaries to, pay any bonus (whether in securities, cash or otherwise) to any executive officer of RSL COM except in accordance with and within the limits provided in the bonus programs of RSL COM and its Subsidiaries, or any contract between RSL COM or any of its Subsidiaries and such officer, in effect on the date hereof. SECTION 6. EVENTS OF DEFAULT The Borrower shall be in default under this Agreement upon the happening of any of the following Events of Default: (a) a default in the payment when due of any amount due with respect to the Loans, or in the performance of any obligation, covenant or liability contained herein or in any of the Notes, which default shall continue unremedied for a period of five (5) days in a case of a payment default, or thirty (30) days after notice thereof in the case of any other default; (b) any representation or warranty of the Borrower, RSL COM or RSL USA set forth herein, or any representation, warranty, or written statement made or furnished to the Lender by or on behalf of the Borrower, RSL COM or RSL USA pursuant hereto, proves to have been false or misleading in any material respect when made or furnished; 12 (c) any change occurs in the condition, financial or otherwise, of the Borrower, RSL COM, RSL USA or any Subsidiary of RSL COM that, in the reasonable opinion of the Lender has or could have a Material Adverse Effect; (d) the Borrower, RSL COM or RSL USA admits in writing its inability to pay its debts generally as such debts become due, or carry on as a going business; (e) a judgment or order for the payment of money in excess of an amount of $5,000,000 is entered against the Borrower, RSL COM or RSL USA and such judgment or order shall continue unsatisfied and unstayed for a period of thirty (30) days; (f) an event of default occurs under the indenture relating to any of the High Yield Notes, or with respect to any other indebtedness of RSL COM, the Borrower or any of their Subsidiaries arising under a single instrument or document or under a series of related instruments or documents in an aggregate amount exceeding $10,000,000; or (g) (i) the Borrower, RSL COM or RSL USA or any of RSL COM's Subsidiaries, shall commence any case, proceeding or other action (x) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (y) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower, RSL USA, or any of RSL COM or its Subsidiaries, shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower, RSL USA, or any of RSL COM or its Subsidiaries, any case, proceeding or other action of a nature referred to in clause (i) above which (x) results in the entry of an order for relief or any such adjudication or appointment or (y) remains undismissed, undischarged or unbonded for a period of ninety (90) days; or (iii) there shall be commenced against the Borrower, RSL USA, or any of RSL COM or its Subsidiaries, any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets 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 90 days from the entry thereof; or (iv) the Borrower, RSL USA, or any of RSL COM or its Subsidiaries, shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above. Upon the occurrence of an Event of Default specified in clause (i) or (ii) of paragraph (g) of this Section with respect to the Borrower, RSL COM or RSL USA, the Loans (with accrued interest thereon) and all other amounts owing under this Agreement shall 13 immediately become due and payable and the Commitment shall be permanently reduced to zero. Upon the occurrence of any other Event of Default, the Lender may, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement to be due and payable forthwith, whereupon the same shall immediately become due and payable, and/or permanently reduce the Commitment to zero. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 7. EXCHANGE NOTES 7.1 Conversion of Loans to Exchange Notes. Upon the occurrence of any Event of Default and the expiration of any applicable cure period, in addition to any other remedies available to the Lender, or immediately after the Maturity Date or at anytime thereafter that the Loans remain unpaid, the Lender may, at its sole option, convert all or any portion of the outstanding principal amount of the Loans, together with any accrued and unpaid interest and fees, into one or more senior convertible notes of the Borrower having the terms set forth in this Section 7 and the term sheet attached hereto as Exhibit B (the "Exchange Notes"). The Exchange Notes will be unconditionally guaranteed as to payment of principal, interest and any other amounts due thereon by RSL COM and RSL USA. 7.2 Issuance of Exchange Notes; Terms. (a) The Exchange Notes will be issued under and subject to the terms of an indenture to be concluded between the Borrower, RSL COM, RSL USA and an indenture trustee reasonably satisfactory to the Lender (the "Exchange Note Indenture"). The terms of the Exchange Note Indenture will be in form and substance reasonably satisfactory to the Lender, but will not contain terms more onerous to the Borrower than the terms of the Dollar Note Indenture, dated as of February 22, 2000, among the Borrower, RSL COM, RSL USA and The Chase Manhattan Bank, as trustee, with respect to the Borrower's 12-7/8% Senior Notes due 2010. The Lender may exercise its option to convert all or any portion of the outstanding principal amount of the Loans, together with any accrued and unpaid interest and fees, into Exchange Notes by delivering notice of its exercise to the Borrower (such notice, the "Exchange Notice") at any time after the Maturity Date or at any time after the occurrence of an Event of Default. The Exchange Notice will state the principal amount of the Exchange Notes to be issued by the Borrower. After the Maturity Date or after the occurrence of an Event of Default, within thirty days (30) days of receipt of the Exchange Notice and in accordance with the terms hereof, the Borrow will execute the Exchange Note Indenture and other ancillary documents required thereby and by Section 7.3 and issue to the Lender the Exchange Notes in an aggregate principal amount set forth in the Exchange Notice and the amount of Loans and accrued but unpaid interest and fees then outstanding will be reduced by the principal amount of the Exchange Notes so issued. The date on which the Exchange Notes are issued is referred to herein as the "Exchange Note Closing Date." 14 (b) The Exchange Notes will mature on the seventh anniversary of the Exchange Note Closing Date. (c) Interest will accrue on the Exchange Notes, commencing from the Exchange Note Closing Date, and be payable in arrears on each March 31, June 30, September 30 and December 31 thereafter until all amounts due and payable under the Exchange Notes has been paid in full, at an annual rate that is equal to the greater of (i) the applicable interest rate of the Loans at the time of the exchange, plus 50 basis points, (ii) the yield in effect two days prior to the Exchange Note Closing Date with respect to U.S. Treasury Notes with a remaining maturity closest to seven years, plus 600 basis points and (iii) the high yield index maintained by Goldman Sachs Group, Inc. for securities having a similar credit rating in effect two days prior to the Exchange Note Closing Date, plus 200 basis points. Notwithstanding the foregoing, after the occurrence and during the continuance of any default under the Exchange Notes or the Exchange Note Indenture, interest will accrue on the Exchange Notes at the then applicable interest rate, plus 200 basis points per annum. (d) At any time and from time to time at the option of the holder thereof upon at least five (5) Business Days' written notice to RSL COM, the Exchange Notes will be convertible, pursuant to the terms and conditions hereof and the Exchange Note Indenture, in whole or in part, into that number of Common Shares equal to the quotient of (i) the principal amount of the Exchange Notes then being converted, plus any accrued and unpaid interest thereon, divided by (ii) the Exchange Note Conversion Price. The Exchange Note Conversion Price will equal the lower of (i) $12 and (ii) the average daily closing bid price of the Common Stock for the ten trading days immediately preceding the Exchange Note Closing Date. (e) Prior to the issuance of the Exchange Notes, the Borrower and the Guarantors will enter into an exchange and registration rights agreement (the "Exchange and Registration Rights Agreement") that will provide for the registration under the Securities Act (or the exchange for identical notes registered under the Securities Act) of the Exchange Notes in accordance with the terms thereof. The Exchange and Registration Rights Agreement will be in form and substance reasonably satisfactory to the Lender, but will not contain terms more onerous for the Borrower than the exchange and registration rights agreement, dated February 22, 2000, between the Borrower and Goldman Sachs, on behalf of the Initial Purchasers defined therein with respect to the Borrower's 12-7/8% Senior Notes due 2010. 7.3 Exchange Note Closing. On or prior to the Exchange Note Closing Date, the Borrower will deliver to the Lender: (i) an Exchange Note Indenture, duly executed by the Borrower, the Guarantors and the trustee for the Exchange Notes, which will be a nationally recognized trustee reasonably acceptable to the Lender; (ii) one or more duly executed and authenticated global Exchange Notes in the form provided by the Exchange Note Indenture; (iii) an Exchange and Registration Rights Agreement, duly executed by the Borrower and the Guarantors; and (iv) the legal opinion of Rosenman & Colin, dated the Exchange Note Closing Date, as to (A) the due organization and good standing of the Borrower and the Guarantors, (B) the due authorization, execution and delivery (and, 15 with respect to the Exchange Notes, authentication) of the Exchange Notes, the Exchange Note Indenture and the Exchange and Registration Rights Agreement by the Borrower and each of the Guarantors and that each of such instruments constitutes the valid and legally binding obligation of the Borrower and the Guarantors and is enforceable in accordance with its terms (subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights), (C) the due issuance of the Exchange Notes and that such issuance does not conflict with or result in a breach or violation of or constitute a default under any indenture of the Borrower and the Guarantors, other material contract or law; and (D) such other matters reasonably requested by the Lender. SECTION 8. GUARANTEE Each of RSL COM and RSL USA jointly and severally, unconditionally and irrevocably guarantees to the Lender: (a) the due, prompt and complete payment by the Borrower of the principal of and interest on the Loans advanced from time to time under this Agreement and any other amount due hereunder and under the Note, when and as the same shall become due and payable, whether at maturity or by acceleration, in accordance with the terms of this Agreement and the Note, and (b) the due, prompt and complete payment of the principal of and interest on the Exchange Notes issued from time to time under this Agreement and any other amount due hereunder or under the Exchange Note Indenture, and (c) the due, prompt and faithful performance of, and compliance with, all other undertakings of the Borrower contained in this Agreement and the Note and in any other Loan Document (the amounts payable by the Borrower under any of the Loan Documents, and all other obligations of the Borrower thereunder, being sometimes collectively hereinafter referred to as the "Guaranteed Obligations"). This guaranty is a guaranty of payment, performance and compliance and not of collectibility and is in no way conditioned or contingent upon any attempt to collect from or enforce performance or compliance by the Borrower or upon any other event or condition whatsoever. If for any reason whatsoever the Borrower shall fail or be unable duly, punctually and fully to pay such amounts as and when the same shall become due and payable or to perform or comply with any other Guaranteed Obligation, whether or not such failure or inability shall constitute an Event of Default hereunder, RSL COM or RSL USA will forthwith pay or cause to be paid such amounts to the Lender, at its address specified in Section 11.3 hereof, in lawful money of the United States, or perform or comply with such Guaranteed Obligations or cause such Guaranteed Obligations to be performed or complied with together with interest (in the amounts and to the extent required) on any amount due and owing from the Borrower. RSL COM and RSL USA, jointly and severally, promptly after demand, will reimburse the Lender for all 16 costs and expenses of collecting such amounts or otherwise enforcing this guarantee, including, without limitation, the reasonable fees and expenses of counsel. The obligations of RSL COM and RSL USA set forth herein constitute the full recourse obligations of RSL COM and RSL USA enforceable against each of them to the full extent of all assets and properties of each of them. The obligations of RSL COM and RSL USA under this Section are primary, absolute and unconditional, are not subject to any counterclaim, set-off, deduction, diminution, abatement, recoupment, suspension, deferment or defense based upon any claim RSL COM, RSL USA or any other Person may have against the Borrower, the Lender or any other Person, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not RSL COM, RSL USA or the Borrower shall have any knowledge or notice thereof). Each of RSL COM and RSL USA unconditionally waives, to the extent permitted by applicable law, (i) any notice that may be required, by statute, rule of law or otherwise, to preserve any rights of the Lender against RSL COM or RSL USA, (ii) presentment to or demand of payment from the Borrower, RSL COM or RSL USA with respect to the Note, the Exchange Notes or protest for nonpayment or dishonor, (iii) any right to the enforcement, assertion, exercise or exhaustion by the Lender of any right, power, privilege or remedy conferred in this Agreement or any other Loan Document or otherwise, (iv) any requirement of diligence on the part of the Lender, (v) any requirement to mitigate the damages resulting from any default under any Loan Document, (vi) any notice of any sale, transfer or other disposition of any right, title to or interest in any Loan by the Lender, and (vii) any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge, release or defense of RSL COM, or RSL USA or surety or which might otherwise limit recourse against RSL COM or RSL USA. SECTION 9. INDEMNIFICATION In the event that the Lender (the "Indemnified Party") becomes involved in any capacity in any action, proceeding or investigation brought by or against any Person, including, without limitation, RSL COM or any equity holders or creditors of RSL COM and RSL USA, in connection with or as a result of any matter referred to in this Agreement, including but not limited to the Loans, RSL COM and RSL USA periodically will reimburse such Indemnified Party for all of its out-of-pocket legal, expert and other expenses (including the out-of-pocket cost of any investigation and preparation) incurred in connection therewith. RSL COM and RSL USA also will indemnify and hold each Indemnified Party harmless against any and all losses, claims, damages, expenses, actions, demands, assessments, costs, judgments, awards, fines, sanctions, penalties, amounts paid in settlement (provided that RSL COM has consented to such settlement), or liabilities ("Damages") to any such Person in connection with or as a result of any matter referred to in this Agreement and without regard to the exclusive or contributory negligence of any of the Indemnified Parties, except to the extent that any such Damages are finally judicially determined to have resulted from the gross negligence, willful misconduct or bad faith of such Indemnified Party in connection with the subject matter of this Agreement (and in the event of such a determination, the 17 Indemnified Party will reimburse RSL COM and RSL USA for any expenses advanced to such Indemnified Party by RSL COM and RSL USA pursuant to the immediately preceding sentence). If for any reason the foregoing indemnification is unavailable to any Indemnified Party or insufficient to hold it harmless, then RSL COM and RSL USA shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages in such proportion as is appropriate to reflect the relative economic interests of RSL COM and RSL USA and RSL COM's equity holders, on the one hand, and such Indemnified Party, on the other hand, in the matters contemplated in this Agreement as well as the relative fault of RSL COM and RSL USA, on the one hand, and such Indemnified Party, on the other hand, with respect to such loss, claim, damage or liability and any other relevant equitable considerations. The reimbursement, indemnity and contribution obligations of RSL COM and RSL USA under this Section will be in addition to any liability which RSL COM and RSL USA may otherwise have, shall extend upon the same terms and conditions to any Affiliate of any Indemnified Party and the directors, agents, advisors, employees and controlling Persons of such Indemnified Party and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of RSL COM and RSL USA, such Indemnified Party, any such Affiliate and any such Person. RSL COM and RSL USA will not be responsible, in connection with any one action or proceeding (or separate but substantially similar proceedings arising out of the same general allegations), for the fees and expenses of more than one firm of attorneys at any time for all Indemnified Parties, except to the extent local counsel, in addition to its regular counsel, is required to effectively defend against such action, provided that if counsel to the Indemnified Parties reasonably determines that there is a conflict of interest among the Indemnified Parties, then the Indemnified Party with respect to which such conflict of interest relates may employ separate counsel at the cost and expense of RSL COM and RSL USA. RSL COM and RSL USA also agree that neither any Indemnified Party nor any of such Affiliates, directors, agents, advisors, employees or controlling Persons will have any liability based on its or their exclusive or contributory negligence or otherwise to RSL COM and RSL USA, any Person asserting claims on behalf or in the right of RSL COM and RSL USA, or any other Person in connection with or as a result of any matter referred to in this Agreement except to the extent that any Damages incurred by RSL COM and RSL USA result from the gross negligence, willful misconduct or bad faith of such Indemnified Party in connection with the subject matter of this Agreement. Prior to entering into any agreement or arrangement with respect to, or effecting, any merger, statutory exchange or other business combination or proposed sale, exchange, dividend or other distribution or liquidation of all or a significant portion of its assets in one or a series of transactions or any significant recapitalization, or reclassification of its outstanding securities, RSL COM shall notify the Indemnified Parties in writing thereof (if not previously so notified) and, if requested by the Indemnified Parties, shall arrange in connection therewith alternative means of providing for the obligations of RSL COM set forth in this Section including the assumption of such obligations by another party, insurance, surety bonds or the creation of an escrow, in each case in an amount and upon terms and conditions satisfactory to the Indemnified Parties. 18 SECTION 10. DEFINITIONS In this Agreement, the following terms shall have the following respective meanings: "Affiliate" means, with regard to any person, any other person who, individually or as a part of a "group" for purposes of Section 13(d) of the Securities Exchange Act, controls, is controlled by or is under common control with, such person. "Agreement" means this Senior Standby Loan and Warrant Agreement, including any exhibits and schedules hereto, as it may be supplemented or amended from time to time in accordance with its terms. "Availability Date" means the earlier of (i) May 30, 2001 and (ii) the date of Change of Control of the Company. "Borrower" shall have the meaning assigned to it in the preamble. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close, which is also a day on which such banks are open for international business (including dealings in dollar deposits) in London. "Change of Control of the Company" means the occurrence of any of the following events: (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 a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire within one year), directly or indirectly, of more than twenty percent (20%) of the total voting power of the equity securities of the Borrower or RSL COM; provided that Permitted Holders beneficially own, directly or indirectly, in the aggregate a lesser percentage of the total voting power of the equity securities of RSL COM 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 RSL COM; or (b) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of RSL COM (together with any new directors whose election by such Board of Directors of RSL COM or whose nomination for election by the shareholders of RSL COM was approved by a vote of a majority of the directors of RSL COM then still in office who were either directors at the 19 beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of RSL COM then in office. "Commitment" means $100,000,000. "Company 10-K" shall have the meaning assigned to it in Section 4.1.4(c). "Company 10-Q" shall have the meaning assigned to it in Section 4.1.4(c). "Company Current Report" means any report filed by RSL COM with the Securities and Exchange Commission on Form 8-K. "Company Reports" has the meaning assigned to it in Section 4.1.4. "Damages" shall have the meaning assigned to it in Section 9. "Events of Default" shall mean any of the events set forth in Section 6. "Exchange Act" shall have the meaning assigned to it in Section 4.1.4. "Exchange and Registration Rights Agreement" has the meaning assigned to it in Section 7.2(e). "Exchange Note Closing Date" is defined in Section 7.2. "Exchange Note Conversion Price" has the meaning assigned to it in Section 7.2(d). "Exchange Note Indenture" has the meaning assigned to it in Section 7.2(a). "Exchange Notes" has the meaning assigned to it in Section 7.1. "Exchange Notice" has the meaning assigned to it in Section 7.2(a). "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government including, without limitation, the European Union. "Guaranteed Obligations" shall have the meaning assigned to it in Section 8. "Guarantors" has the meaning assigned to it in the Preamble. "High Yield Notes" means RSL COM's (i) 12 1/4% Senior Notes due 2006, (ii) 9 1/8% Senior Notes due 2008, (iii) 10 1/8% Senior Discount Notes due 2008, (iv) 10% Senior Discount Notes due 2008, (v) 12% Senior Notes due 2008, 20 (vi) 10 1/2% Senior Notes due 2008, (vii) the 9 7/8% Senior Notes due 2009 and (viii) the 12 7/8% Senior Dollar Notes and Senior Euro Notes due 2010. "Indemnified Party" shall have the meaning assigned to it in Section 9. "Interest Period" means, for each Loan, (a) the period commencing on and including the date of such Loan and ending on but not including the last day of the same month, and (b) thereafter each one-month period commencing on and including the last day of the immediately preceding Interest Period and ending on but excluding the last day of next succeeding month, provided that (i) any Interest Period which would otherwise end on a day which is not a Business Day shall end on the next preceding Business Day and (ii) any Interest Period which would otherwise end after the Maturity Date shall end on the Maturity Date. "Lender" shall have the meaning assigned to it in the preamble. "LIBOR" for any Interest Period means the one month London Interbank Offered Rate for the first day of such Interest Period as set forth in the "Money Rates" column of the Wall Street Journal, or as published on such date (or, if not published on such date, the next day following such date when so published) in such other publication as the Agent may designate. "Lien" shall have the meaning assigned to it in Section 4.1.2. "Liquidity Event" shall have the meaning assigned to it in Section 1.6. "Loan Documents" means the Commitment Letter , this Agreement, the Note, the Warrants, the Exchange Notes, the Exchange Note Indenture, the Exchange and Registration Rights Agreement and any other agreements entered into in connection with the transactions contemplated hereby. "Loans" shall have the meaning assigned to it in Section 1.1. "Material Adverse Change" means any material adverse change in the financial condition, business, operations, assets (taken as a whole), liabilities (taken as a whole) or prospects of the Borrower or of RSL COM and its Subsidiaries, taken as a whole. "Material Adverse Effect" means a material adverse effect on the financial condition, business, operations, assets (taken as a whole), liabilities (taken as a whole) or prospects of the Borrower or RSL COM and its Subsidiaries, taken as a whole, or on the ability of the Borrower or RSL COM to perform its obligations hereunder. "Maturity Date" shall have the meaning assigned to it in Section 1.1. "Non-Excluded Taxes" shall have the meaning assigned to it in Section 1.12. 21 "Note" shall have the meaning assigned to it in Section 1.3. "Notice of Borrowing" shall have the meaning assigned to it in Section 1.2(a). "Permitted Holders" means the Lender and its Affiliates. "Permitted Liens" means (i) the respective rights and interests created by or pursuant to or resulting from the Loan Documents, and the respective rights of the Agent and Borrower as therein provided; (ii) Liens for taxes either not yet due or being contested in good faith (and for the payment of which adequate reserves have been provided) by appropriate proceedings; (iii) materialmen's, mechanics', workers', repairmen's, employees, or other like Liens arising in the ordinary course of business for amounts the payment of which is either not yet delinquent or is being contested in good faith (and for the payment of which adequate reserves have been provided) by appropriate proceedings; (iv) Liens (other than Liens for taxes) arising out of judgments or awards against the Borrower with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith and with respect to which there shall have been secured a stay of execution pending such appeal or proceeding for review; and (v) Liens permitted to be incurred under each of the Indentures in respect of the High Yield Notes outstanding on the date hereof. "Person" means, an individual, corporation, partnership, association, trust or other entity or organization, including a government or political subdivision or any agency or instrumentality thereof. "RSL COM" shall have the meaning assigned in the preamble. "RSL USA" shall have the meaning assigned in the preamble. "Securities Act" shall have the meaning assigned to it in Section 4.1.4. "Subsidiary" means, as to any Person, 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 or (ii) one or more Subsidiaries of such Person. "Telegate Sale" means the consummation of the transactions contemplated by the Option Agreement, dated May 6, 2000 (the "Option Agreement"), between Seat Pagine Gialle S.P.A. and RSL COM Deutschland GmbH, pursuant to which the Borrower or any of its Affiliates receives consideration for the Remaining Shareholding (as defined in the Option Agreement) either from Seat Pagine Gialle S.P.A. or from an intermediary in connection with any hedging transaction with 22 respect to amounts due the Borrower and its Affiliates under the Option Agreement. "Warrant" has the meaning set forth in Section 2.1. "Warrant Registration Rights Agreement" has the meaning assigned to it in Section 2.2. SECTION 11. MISCELLANEOUS 11.1 Amendments and Waivers. Neither this Agreement nor the Note, nor any terms hereof or thereof, may be amended, supplemented or modified except in a writing executed by the parties hereto in accordance with the provisions of this subsection. In the case of any waiver, the Borrower and RSL COM and the Lender shall be restored to their former positions and rights hereunder and under the other Loan Documents, and any Event of Default waived shall be deemed to be cured and not continuing; no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon. 11.2 Successors and Assigns. This Agreement shall inure to the benefit of the Lender and its heirs, personal representatives, successors and assigns and shall be binding upon the Borrower, RSL COM, RSL USA and the respective successors and assigns of each of them, except that none of the Borrower, RSL COM or RSL USA may assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the Lender and, other than to Affiliates, the Lender may not assign or otherwise transfer any of its rights or obligations under this Agreement for so long as the Commitment has not been permanently reduced to zero without the consent of the Borrower. 11.3 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mail with first class postage prepaid, or (ii) if given by any other means, when delivered at the address specified below in this Section 11.3. The Borrower: RSL Communications PLC c/o 810 Seventh Avenue, 32nd Floor New York, N.Y. 10019 Attention: Avery S. Fischer, Esq. telecopy number: 212-445-7529 with a copy to: 23 Rosenman & Colin 575 Madison Avenue New York, New York 10022 Attention: Robert Kohl, Esq. telecopy number: 212-940-8776 RSL COM: RSL Communications, Ltd. c/o 810 Seventh Avenue, 32nd Floor New York, N.Y. 10019 Attention: Avery S. Fischer, Esq. telecopy number: 212-445-7529 with a copy to: Rosenman & Colin 575 Madison Avenue New York, New York 10022 Attention: Robert Kohl, Esq. telecopy number: 212-940-8776 RSL USA: RSL COM U.S.A., Inc. 430 Park Avenue New York, NY 10022 Attention: Avery S. Fischer, Esq. with a copy to: Rosenman & Colin 575 Madison Avenue New York, New York 10022 Attention: Robert Kohl, Esq. telecopy number: 212-940-8776 The Lender: Ronald S. Lauder 767 Fifth Avenue, Suite 4200 New York, N.Y. 10153 telecopy number: 212-572-6758 with a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attention: Louis Begley, Esq. telecopy number: 212-909-6836 24 11.4 Expenses. The Borrower shall pay (i) the reasonable fees and expenses of Debevoise & Plimpton, counsel for the Lender, in connection with the preparation of the Loan Documents or any amendment thereof or any Event of Default or alleged Event of Default thereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Lender, including reasonable fees and expenses of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. The Borrower shall indemnify the Lender against any transfer taxes, documentary taxes, stamp duties, assessments or charges made by any Governmental Authority by reason of the execution, delivery, amendment or enforcement of any of the Loan Documents. 11.5 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Lender, any right, remedy, power or privilege hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 11.6 Survival of Representations and Warranties. All representations and warranties made hereunder and in the Note and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. 11.7 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without, to the extent permitted by law, invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not, to the extent permitted by law, invalidate or render unenforceable such provision in any other jurisdiction. 11.8 Integration. This Agreement and the Note represent the entire agreement of the Borrower, RSL COM, RSL USA, and the Lender with respect to the subject matter hereof, and supersede any and all prior arrangements and understandings, oral or written, relating to the subject matter hereof and the Note. 11.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original but all of which together shall constitute one and the same instrument. 11.10 Governing Law. THIS AGREEMENT, THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR RULES OF CONFLICT OF LAWS TO THE EXTENT SUCH PRINCIPLES OR RULES WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. 25 11.11 Submission to Jurisdiction. EACH OF THE BORROWER, RSL COM, RSL USA AND THE LENDER AGREES THAT, IN CONNECTION WITH ANY LEGAL SUIT OR PROCEEDING ARISING UNDER, OUT OF OR WITH RESPECT TO THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT, IT SHALL SUBMIT TO THE JURISDICTION OF THE UNITED STATES COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR ANY STATE COURT LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND AGREES TO VENUE IN ANY SUCH COURT. 11.12 Trial Without Jury. EACH OF THE BORROWER, RSL COM, RSL USA AND THE LENDER AGREES THAT ANY LITIGATION GROWING OUT OF ANY CONTROVERSY WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT WILL BE TRIED BY A JUDGE SITTING WITHOUT A JURY AND HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING. 11.13 No Counterclaims. THE BORROWER AND RSL COM AND RSL USA HEREBY WAIVE THE RIGHT TO ASSERT COUNTERCLAIMS (OTHER THAN COUNTERCLAIMS RELATED TO THE TRANSACTION CONTEMPLATED HEREIN) IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY NOTE, OR ANY OTHER LOAN DOCUMENT. 26 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written: RSL COMMUNICATIONS PLC By: /s/ ----------------------------------------- Name: Title: RSL COM U.S.A., INC. By: /s/ ----------------------------------------- Name: Title: RSL COMMUNICATIONS, LTD. By: /s/ ----------------------------------------- Name: Title: /s/ ----------------------------------------- Ronald S. Lauder 27 EX-10.3 4 0004.txt WARRANT EXHIBIT 10.3 EXHIBIT A FORM OF WARRANT - -------------------------------------------------------------------------------- THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NEITHER THIS WARRANT NOR SUCH SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933 AND THE APPLICABLE RULES AND REGULATIONS THEREUNDER. - -------------------------------------------------------------------------------- RSL COMMUNICATIONS, LTD. Warrant for the Purchase Class A Common Shares ________ Class A Common Shares FOR VALUE RECEIVED, RSL COMMUNICATIONS, LTD. (the "Company"), a Bermuda corporation, hereby certifies that RONALD S. LAUDER, or his registered assigns (the "Holder") is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the Exercise Period, as hereinafter defined, an aggregate of ________ fully paid and nonassessable Class A Common Shares of the Company, par value $0.00457 per share, at a purchase price per share equal to the Exercise Price as hereinafter defined. The term "Common Stock" shall mean the aforementioned Class A Common Shares, par value $0.00457 per share, of the Company, together with any other equity securities that may be issued by the Company in substitution therefor. The number of shares of Common Stock to be received upon the exercise of this Warrant and the Exercise Price are subject to adjustment from time to time as hereinafter set forth. Section 1. Definitions. The following terms, as used herein, have the following respective meanings: "Act" means the Securities Act of 1933, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exercise period" means the period of time from the Issuance Date until 5:00 P.M., local time in New York City, on the date that is the seventh anniversary of the Issuance Date. "Exercise Price" shall be a price per share of Common Stock equal to $11.50. "Issuance Date" means ____________________. "Unit Warrants" means the Warrants to purchase the Company's Class A Common Stock initially attached to the Senior Notes due 2006 issued by RSL Communications PLC, a United Kingdom corporation and wholly owned subsidiary of the Company. "Warrant Shares" means the shares of Common Stock deliverable upon exercise of this Warrant, as adjusted from time to time, except as provided in Section 10 hereof. Section 2. Exercise of Warrant. Subject to the provisions of Section 10, this Warrant may be exercised in whole or in part, at any time or from time to time, during the Exercise Period, by presentation and surrender hereof to the Company at its principal office at the address set forth on the signature page hereof (or at such other address as the Company may hereafter notify the Holder in writing), or at the office of its stock transfer agent or warrant agent, if any, with the Warrant Exercise Form annexed hereto duly executed and accompanied by proper payment of the Exercise Price for the number of Warrant Shares specified in such form. The Exercise Price shall be paid in cash, in currency of the United States of America. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Warrant Exercise Form, together with the applicable Exercise Price, at such office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or similar issue taxes payable in respect of the issue of the Warrant Shares. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance or delivery of certificates representing Warrants or Warrant Shares in a name other than that of the Holder at the time of surrender for exercise and, until the payment of such tax, shall not be required to issue such Warrant Shares. Section 3. Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of capital stock of the Company from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrance or restrictions on sale and free and clear of all preemptive rights, subject, however, to the provisions of Section 10. 2 Section 4. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined as follows: (i) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such an exchange, the current market value shall be the last reported sale price of the Common Stock on such exchange on the last Business Day prior to the date of exercise of this Warrant or if no such sale is made on such day, the mean of the closing bid and asked prices for such day on such exchange; or (ii) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean of the last bid and asked prices reported on the last Business Day prior to the date of the exercise of this Warrant (A) by the Nasdaq National Market or (B) by the Nasdaq Small Cap market or (C) if reports are unavailable under clause (A) or (B) above by the National Quotation Bureau Incorporated; or (iii) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. Section 5. Exchange, Transfer, Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company for other Warrants of different denominations, entitling the Holder or Holders thereof to purchase in the aggregate the same number of Warrant Shares. The Holder of this Warrant shall be entitled without obtaining the consent of the Company, to assign its interest in this Warrant in whole or in part to any person or persons, subject to the provisions of Section 10. Subject to the provisions of Section 10, upon surrender of this Warrant to the Company, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such instrument of assignment and, if the Holder's entire interest is not being assigned, in the name of the Holder, and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other Warrants that carry the same rights upon presentation hereof at the office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or for which it may be exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction 3 or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. Section 6. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant. Section 7. Anti-dilution Provisions. In case the Company shall, while this Warrant remains in effect, (i) declare a dividend or make a distribution on its Common Stock payable in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class) other than dividends paid in respect of the Company's Series A preferred shares, (ii) subdivide shares of its Common Stock into a greater number of shares, (iii) combine its outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock by reclassification of its Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), the Holder shall be entitled to purchase the aggregate number and kind of shares which, if the Warrant had been exercised immediately prior to such event, the Holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination or reclassification; and the Exercise Price shall automatically be adjusted immediately after the record date, in the case of a dividend or distribution, or the effective date, in the case of a subdivision, combination or reclassification, to allow the purchase of such aggregate number and kind of shares. Such adjustments shall be made successively whenever any event listed above shall occur. No adjustment pursuant to this Section 7 in the number of Warrant Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one whole share; provided, however, that any adjustments which by reason of this sentence are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 7 shall be made to the nearest share. In the event that at any time, as a result of an adjustment made pursuant to this Section 7, the Holder shall become entitled to receive any shares of the capital stock of the Company other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in this Section 7, and the provisions of this Warrant with respect to the Common Stock shall apply on like terms to any such other shares. Section 8. Officers' Certificate. Whenever the number of Warrant Shares purchasable hereunder shall be adjusted as required by the provisions of Section 7, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at 4 its principal office an officers' certificate showing the adjusted number of Warrant Shares purchasable hereunder determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officers' certificate shall be signed by the chairman, president or chief financial officer of the Company and by the secretary or any assistant secretary of the Company. Each such officers' certificate shall be made available at all reasonable times for inspection by the Holder or any holder of a Warrant executed and delivered pursuant to Section 4 hereof and the Company shall, forthwith after each such adjustment, mail a copy, by certified mail, of such certificate to the Holder or any such holder. Section 9. Reclassification, Reorganization, Consolidation or Merger. In case of any Reorganization Transaction (as hereinafter defined), the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such Reorganization Transaction by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such Reorganization Transaction. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 9 shall similarly apply to successive Reorganization Transactions. For purposes of this Section 9, "Reorganization Transaction" shall mean (excluding any transaction covered by Section 7) any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock) or any consolidation or merger of the Company with or into another corporation (other than a merger in which the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock issuable upon exercise of this Warrant) or any sale, lease transfer or conveyance to another corporation of the property and assets of the Company as an entirety. Section 10. Transfer to Comply with the Securities Act of 1933. The Holder, by his acceptance hereof, represents and warrants that he is acquiring the Warrants and any Warrant Shares for investment purposes, for his own account and not in conjunction with any other person, directly or indirectly, and not with an intent to sell or distribute the Warrants or any Warrant Shares except in compliance with applicable United States federal and state securities law in a manner which would not result in the issuance of the Warrants being treated as a public offering. This Warrant and the Warrant Shares may be transferred and assigned; provided, however, that neither this Warrant nor any of the Warrant Shares, nor any interest in either, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, in whole or in part, except in compliance with applicable United States federal and state securities laws and the 5 terms and conditions hereof. Each Certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are registered under the Act, shall bear the following legend: THIS CERTIFICATE AND THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NEITHER THIS CERTIFICATE NOR SUCH SECURITIES NOR ANY INTEREST OR PARTICIPATION THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933 AND THE APPLICABLE RULES AND REGULATIONS THEREUNDER. Any certificate issued at any time in exchange or substitution for any certificate bearing such legend shall also bear such legend unless, in the opinion of counsel for the Company, the securities represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 10 shall be binding upon all subsequent holders of certificates bearing the above legend and all subsequent holders of this Warrant, if any. Section 11. Registration Rights. The Holder shall be entitled to the same rights as the holders of Unit Warrants to registration of the offering of such Holder's Warrant Shares under the Act. Section 12. Listing on Securities Exchanges. The Company shall use its best efforts to list the Warrant Shares on each national securities exchange on which any Common Stock may at any time be listed, subject to official notice of issuance upon the exercise of this Warrant, and shall use its best efforts to maintain, so long as any other shares of its Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall use its best efforts to so list on each national securities exchange, and shall use its best efforts to maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of capital stock of the same class shall be listed on such national securities exchange by the Company. Any such listing shall be at the Company's expense. Section 13. Availability of Information. The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act. The Company shall also cooperate with each Holder of any Warrants and holder of any Warrant Shares in supplying such information as may be necessary for such holder to complete and file any information reporting forms currently or hereafter required by the Securities and Exchange Commission as a condition to the availability of an exemption from the Act for the sale of any Warrants or Warrant 6 Shares. The provisions of this Section 13 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed by its duly authorized officer and to be dated as of _________________. RSL COMMUNICATIONS, LTD. By: _______________________________ Title: Address: 7 WARRANT EXERCISE FORM Dated ________________, 20__ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing ___________ shares of Common Stock and hereby makes payment of ______________ in payment of the exercise price thereof. ------------ INSTRUCTIONS FOR REGISTRATION OF STOCK Name ________________________________________________________________________________ (please typewrite or print in block letters) Address ________________________________________________________________________________ Signature _________________________________________________ ------------ ASSIGNMENT FORM FOR VALUE RECEIVED, ____________________________________ hereby sells, assigns and transfers unto Name ________________________________________________________________________________ (please typewrite or print in block letters) Address ________________________________________________________________________________ its right to purchase _____________ shares of Common Stock represented by this Warrant and does hereby irrevocably constitute and appoint______________________ ___________________________________ Attorney, to transfer the same on the books of the Company, with full power of substitution in the premises. Date: _______________, 19__ Signature __________________________ 8 EX-10.4 5 0005.txt PUBLIC DEED EXHIBIT 10.4 Public Deed No. 44/2000 P U B L I C D E E D (Offentliche Urkunde) Before me, the undersigned Public Notary of the Canton of Zug, Switzerland, Peter B. Arnold, at his offices at Untermuli 6, CH-6300 Zug, Switzerland, appeared on Saturday, this 6th day of May 2000: Mr. Stefan Koller, Attorney at Law and Notary Public, born 23.09.1958, Swiss citizen, residing at CH-6312 Steinhausen, Switzerland, Rebenstrasse 6, having his offices at Untermuli 6, CH-6300 Zug, Switzerland, here not acting in his own name, but as representative, exempt of personal liability, acting without express authority in the name and on behalf of Seat Pagine Gialle S.p.A., Via Aurelio Saffi, 18, I-1038 Turin, Italy and RSL COM Deutschland GmbH, D-60528 Frankfurt am Main, Lyonerstr. 9 and J.P. Morgan Securities Limited, 60 Victoria Embankment, GB-London EC 4Y 0JP and Morgan Stanley Bank AG, Junghofstrasse 13-15, D-60311 Frankfurt am Main under the reservation to supply to the acting notary a forthcoming certified consent by each one of the foregoing parties, in legally appropriate form, as soon as reasonably possible and without undue delay. This having been done, the person appearing declared, requesting that it be notarised, the following: I. RSL Com Deutschland GmbH and Seat Pagine Gialle S.p.A. hereby conclude the Joint Venture Agreement as Annex I with the following Exhibits: 1 Articles of Association of Telegate Holding GmbH, Planegg-Martinsried, Germany, to be amended as shown in Exhibit 1 to the Joint Venture Agreement 2 Business Plan as Exhibit 2 to the Joint Venture Agreement 3 Option Agreement between Seat Pagine Gialle S.p.A. and RSL Com Deutschland GmbH as Exhibit 3, such Exhibit 3 with Sub-Exhibits 1 to 4, with a Share Purchase Agreement in Sub-Exhibit 4, Sub-Exhibit 4 with a Share Transfer Agreement in Annex 1; 4 RSL Com Deutschland GmbH, J.P. Morgan Securities Ltd. and with regard to the Escrow Agreement as referred to below Morgan Stanley Bank AG hereby conclude the Borrowing and Forward Purchase Agreement as Exhibit 4 to the Joint Venture Agreement which consists of: the Overseas Securities Lender's Agreement together with a Schedule concluded between RSL Com Deutschland GmbH and J.P. Morgan Securities Ltd.; the Borrowing Request concluded between RSL Com Deutschland GmbH and J.P. Morgan Securities Ltd.; the Agreement for the Transfer of Shares concluded between RSL Com Deutschland GmbH and J.P. Morgan Securities Ltd., with a shareholders' resolution of May 4, 2000 (Appendix 1), an approval of the managing director of May 4, 2000 (Appendix 2), a shareholders' resolution of May 6, 2000 (Appendix 3), and approval of future shareholder dated May 6, 2000 (Appendix 4); the Escrow Agreement with an Account Opening Application and the General Business Conditions of Morgan Stanley Bank AG concluded between RSL Com Deutschland GmbH, J.P. Morgan Securities Ltd. and Morgan Stanley Bank AG; the ISDA 1992 Multicurrency Cross Border Master Agreement together with a Schedule concluded between RSL Com Deutschland GmbH and J.P. Morgan Securities Ltd.; the Forward Purchase Transaction concluded between RSL Com Deutschland GmbH and J.P. Morgan Securities Ltd.; the Master Netting Agreement concluded between RSL Com Deutschland GmbH and J.P. Morgan Securities Ltd.; 5 RSL Com Deutschland GmbH and Seat Pagine Gialle S.p.A. conclude the Share Purchase Agreement together with a Share Transfer Agreement as Annex 1 to the Share Purchase Agreement as Exhibit 5 to the Joint Venture Agreement; 6 Guarantee given by the Parent Company of RSL and Schedules 5 e (financial statements), 5 i (agreements), 5 l (Betriebsvereinbarungen) , 5 p (litigation), 5.2 (data room index list). II. RSL Com Deutschland GmbH, Seat Pagine Gialle S.p.A., J.P. Morgan Securities Ltd. and Morgan Stanley Bank AG hereby conclude the Arbitration Agreement as Annex II. III. Words and expressions in this deed and its appendices and annexes shall have the meanings defined in the respective part of this deed, and definitions used in one agreement contained in this deed are not necessarily applicable in another agreement contained in this deed. IV. The costs of this deed shall be borne by the Seat Pagine Gialle S.p.A. All other costs shall be borne by the party by which they are incurred. The notary informed the person appearing that - - shareholders in a GmbH can be held jointly and severally liable for capital contributions not fully paid in, - - insofar as the transfer of the title is subject to conditions precedent, the title passes only if those conditions are fulfilled. The above and all appendices and annexes were laid out for inspection to the person appearing and were approved by the person appearing and read out aloud to the person appearing before the notary, approved by the person appearing and executed by him in his own hand as follows: Zug/Switzerland, this 6th day of May 2000 /s/ - -------------------------- Stefan Koller Joint Venture Agreement (Umbrella Agreement) between Seat Pagine Gialle SpA, with domicile in Turin (hereinafter "Seat"), an Italian stock corporation, and RSL COM Deutschland GmbH, with domicile in Frankfurt am Main, a German limited liability company (hereinafter "RSL"), (hereinafter together the "Parties") Preamble Seat is mainly active in the fields of producing and publishing telephone directories and similar publications, and of selling advertising space in such directories and publications, as well as providing direct marketing services, in Italy and elsewhere. RSL is active in the field of providing a broad range of voice, data, internet and value-added product and service solutions within the telecommunications industry. RSL is active in the said field through amongst others (since 1998) a participation of approx. 50.2 % in Telegate Holding GmbH (hereinafter the "Holding"), a German holding company which in turn holds approx. 51% of the shares in Telegate AG (hereinafter "Telegate"), a German stock corporation whose shares are traded on the Frankfurt Neuer Markt and which is also active in the field of providing directory assistance and other information, mostly via telephone but also through an internet portal. Concurrently with the notarization of this Agreement, Seat will notarize an agreement with the sole other shareholder in the Holding, L, (the "L Umbrella Agreement") with a view to acquire L's shareholding in the Holding. RSL wishes to expand the existing cooperation between RSL and Telegate currently consisting of providing call completion services domestically and internationally into a strategic partnership with Seat, as the new joint venture-partner, by means of entering into a joint venture with Seat through joint shareholding in the Holding (as a consequence of L's exit), allowing Seat to take the lead in the joint venture and restricting RSL's role therein to support Seat; it is anticipated that the support by RSL will no longer be needed after a certain period of time. In view of that later time RSL wishes to offer Seat and Seat wishes to offer RSL the right to request Seat to acquire RSL's remaining shareholding in the Holding. RSL wishes to allow Seat to take the lead in the Holding, and thus wishes to transfer to Seat a 1.6 % share in the Holding thereby conferring the majority of the Holding to Seat; via JPMorgan acting as an intermediary in this transaction (hereinafter the "Intermediary"). For that purpose, RSL will transfer the said share to Intermediary in in a separate Borrowing and Forward Purchase Agreement (Exhibit 4 to this Agreement), and Intermediary will transfer the said share to Seat in a separate Share Purchase (Contribution) Agreement (Exhibit 5 to this Agreement). By the present Agreement, Seat and RSL agree what shall apply between them in connection with the above. Section 1 The Principles Governing the Joint Venture 1. Strategic Partnership between RSL and Seat The Parties wish to enter into a strategic partnership with the aim of fostering the growth of Telegate. The undertakings of RSL under this Agreement shall show that RSL as the current majority shareholder in the Holding continues its support of Telegate also after surrendering control to Seat. At the same time, Seat as the new controlling shareholder of the Holding requires flexibility to integrate Telegate into its own overall strategic objectives. The Parties agree that in the Holding Seat shall hold approx. 51.4 % and RSL approx. 48.6 %. For that purpose, RSL shall transfer shares in the Holding with an aggregate nominal value of DM 800 (corresponding in total to approx. 1.6 % of the share capital of the Holding) to Seat, as set forth in Section 2 subparagraph 1 and Section 3 subparagraph 1 below. 2. Scope of Joint Venture Activities The joint venture activities shall relate to the support of Telegate's European and American expansion (see subparagraph a) below) and internet activities (see subparagraph b) below) and Italian expansion in particular (see subparagraph c) below). a) European and American Expansion RSL undertakes to offer support to Telegate regarding the following matters on a non-exclusive basis, and subject to arm's length commercial terms and conditions: (i) Inbound access (ii) Completion services (iii) Network allocation (iv) Real estate allocation (v) Regulatory support (vi) RSL own usage (vii) Billing services b) Cooperation in the Internet Activities RSL undertakes to offer support to Telegate regarding the following matters on a non-exclusive basis, and subject to adequate terms and conditions: (i) Cooperation with RSL ASP (application service provider) activity (ii) Cooperation with RSL free internet access product line (iii) Use of RSL web hosting. Seat undertakes to offer support to Telegate regarding the following matters on a non-exclusive basis, and subject to adequate terms and conditions: (i) Development of 11880.com internet service offering c) Italian Expansion Seat undertakes to offer support to Telegate regarding the following matters on a non-exclusive basis , and subject to adequate terms and conditions: (i) Development of audio services portal activities (ii) Cooperation with Seat on developing White Pages activities (iii) Development of 11880.com internet service offering 3. Implementation a) Articles of Association of the Holding The Parties agree that the Articles of Association of the Holding shall have the form shown in Exhibit 1 to this Agreement. The Parties shall comply with such amended Articles of Association as of the day when Seat becomes a shareholder of the Holding even if the amendment of the Articles of Association (to be resolved upon pursuant to Section 11 subparagraph 1 litt. a) below) should by then not yet be registered with the competent commercial register. b) Business Plan The Parties shall develop in good faith a business plan based on the business targets as set out in Exhibit 2 to this Agreement. Such business plan shall be approved by a shareholders' resolution to be taken no later than September 30, 2000, unless the Parties agree otherwise. Any revision and changes to this plan shall also be agreed upon by way of a shareholders' resolution. c) Strategy Meetings / Working Group The Parties shall establish a working group which shall hold regular meetings in order to review the progress and in order to prepare any necessary modification to the business plan. Meetings shall take place at least every 2 months upon request of either party and shall typically be held by way of telephone-/video conferences. The party inviting to the meeting shall be responsible for drafting the minutes. 4. Structure of the Holding / Obligation to not Sell Share In light of its role assumed in the Joint Venture, RSL undertakes that it will not wholly or partly dispose of its shareholding in the Holding in any way, be it by selling, transferring, encumbering, pledging or granting any other rights to third parties of whatever nature in its shareholding in the Holding to a third party. For each violation of this undertaking, RSL shall owe a penalty equal to the consideration that would have been applicable if the Put Option or the Call Option pursuant to the Option Agreement (Exhibit 3 to this Agreement) had been exercised (at the time of the violation), it being understood that Seat may claim from RSL any higher amount of damage which it can show to have occurred. Seat has also the right to claim from RSL to restore its full and unencumbered shareholding in the Holding, and to then transfer its shareholding in the Holding to Seat at 90 % of the afore-mentioned penalty. 5. Changes in the Holding The Parties agree that the Holding shall continue to hold its present shareholding in Telegate. RSL and Seat will undertake in good faith negotiations with a view to change the size of the shareholding of the Holding in Telegate, if that is necessary in order to allow Seat to acquire the Remaining Shareholding by way of a contribution in kind, as is nearer explained in Section 8 of this Agreement and in the Option Agreement (Exhibit 3 to this Agreement), provided that such change must in no way adversely affect the position of RSL in and with regard to the exercise of the options under the Option Agreement. 6. Changes in Telegate's share capital In the event that during the term of the Joint Venture Telegate intends to increase its share capital in a manner leading to Holding holding only 50% or less of the shares in Telegate RSL shall have the opportunity of either subscribing shares on a pro-rata basis to its indirect shareholding (as a consequence of which the amount of shares in Telegate covered by the put- and call-option according to the Option Agreement shall be adjusted accordingly) or getting sufficient time, but not more than two months after a respective request of Seat (but in no case earlier than January 1, 2001) to obtain consent of its bondholders allowing it to reduce the holding of Holding in Telegate to 50% or less. In the event RSL chooses to seek for the consent of its bondholders and the aforementioned period expires without RSL stating to Seat that approval has been obtained Seat shall be entitled to exercise its call-option under the Option Agreement. Section 2 The Majority-Conferring Share and its Transfer Concurrently to the notarization of the present Agreement, Seat will notarize the L Umbrella Agreement with, whereby Seat will acquire a shareholding of a nominal DM 25,400 corresponding to approx. 49.8 % in the Holding. By virtue of the present Agreement, Seat shall acquire an additional shareholding of approx. 1.6 % in the Holding (as nearer set forth in this Section 2) which additional shareholding shall hereinafter be referred to as the "Majority-Conferring Share". 1. The Majority-Conferring Share shall be a share in the Holding with a nominal value of DM 800 out of a total nominal share capital of the Holding of DM 51,000 and hence representing approx. 1.6 % of the share capital in the Holding. RSL shall create the Majority-Conferring Share by splitting its existing share in the Holding with a nominal value of DM 25,600 into two shares with nominal amounts of DM 24,800 and DM 800 (the Majority-Conferring Share), respectively. Concurrently with the notarization of this Agreement, (i) RSL has declared the said split by the declaration shown in Appendix 2 to the Agreement for the Transfer of Shares attached to the Borrowing and Forward Purchase Agreement (Exhibit 4); (ii) the Holding has approved of the said split, by the declaration shown in Appendix 1 to the Agreement for the Transfer of Shares attached to the Borrowing and Forward Purchase Agreement (Exhibit 4); (iii) and L, RSL and the Intermediary, each in its capacity as (future) shareholder of the Holding, shall approve of the transfers of the Majority-Conferring Share, by the declaration shown in Appendices 1, 3 and 4 to the Agreement for the Transfer of Shares attached to the Borrowing and Forward Purchase Agreement (Exhibit 4). 2. The Majority-Conferring Share shall be transferred from RSL to the Intermediary by virtue of the Borrowing and Forward Purchase Agreement (Exhibit 4). The Intermediary shall transfer the Majority-Conferring Share further to Seat as a contribution in kind to the an increase of the share capital of Seat, through a Share Purchase (Contribution) Agreement which shall be notarized concurrently with this Agreement, which is attached as Exhibit 5 to this Agreement and pursuant to which the transfer to Seat shall become effective at the shortest possible interval before the newly issued shares shall in freely tradeable form be delivered to the Intermediary. Section 3 Consideration 1. The consideration for the Majority-Conferring Share, owed by Seat to the Intermediary (only), shall consist in shares in Seat in such number as is defined in subparagraph 2, and shall be due at such time as is defined in subparagraph 3. The consideration for the Majority-Conferring Share, to which RSL is entitled against the Intermediary (only), shall consist in cash generated by the monetization of the shares due by Seat to the Intermediary, in such amount as set forth in subparagraph 4, and shall be due at such time as set forth in subparagraph 5. 2. The number of shares in Seat due for the Majority-Conferring Share shall be calculated as follows: (i) Firstly, it shall be established what number of Telegate shares the Majority-Conferring Share indirectly represents (Example: If there is a total of 12,730,000 outstanding Telegate shares of which the Holding owns 6,490,577 shares, and the Holding has a registered share capital of DM 51,000, then the Majority-Conferring Share with a nominal value of DM 800 shall represent 101,813 shares in Telegate); (ii) Secondly, the value of the shares in Telegate and Seat shall be assessed. (a) For this purpose, the value of each share in Telegate shall be deemed to be the higher of (aa) 150 and (bb) the official closing price as published by Bloomberg for Telegate shares on the Frankfurt Stock Exchange one day prior to the notarization of this Agreement (hereinafter "T.May3"); whilst (b) the value of each share in Seat shall be the Official Closing Price ("Prezzo di Riferimento") as published by Bloomberg for Seat shares on the Milan Stock Exchange one day prior to the notarization of this Agreement (hereinafter "S.May3"). (iii) By comparing the respective values, which is to be done by dividing (a) the higher of (aa) 150 and (bb) T.May3 by (b) S.May3, the number of Seat shares is obtained which correspond to one Telegate share. 3. Seat shall transfer such number of Seat shares as result from the above calculation to the Intermediary at such moment when an according number of Seat shares will be available following (i) a resolution, to be passed at Seat's extraordinary shareholders' meeting scheduled to take place on or around June 30, 2000, whereby the registered share capital of Seat shall be increased by such an amount and in such ways as is necessary to allow Seat to provide the Intermedi- ary with such number of new Seat shares as will be owed as consideration for (i) the Majority-Conferring Share, and (ii) the Shareholding as defined in and pursuant to the L Umbrella Agreement; and (ii) the completion of such additional steps as are required under Italian law for making the new shares resulting from the said shareholders' resolution on the capital increase, available as freely tradeable shares. The Parties expect the said new Seat shares to be available as freely tradeable shares on or around August 7, 2000. If this is not the case by October 15, 2000, Section 4 subparagraph 3 shall apply. 4. RSL shall receive from the Intermediary a cash amount for the Majority-Conferring Share which is to be calculated as follows (hereinafter the "Cash Equivalent"): (i) Firstly, it shall be established (the same way as in subparagraph 2 (i)) what number of Telegate shares the Majority-Conferring Share indirectly represents; (ii) Secondly, the price of the Telegate share shall be deemed to be the higher of (aa) 150 and (bb) the closing price as published by Bloomberg for the Telegate share on the Frankfurt Stock Exchange one day prior to the notarization of this Agreement; (iii) Thirdly, the number of Telegate shares represented by the Majority-Conferring Share (subparagraph (i)) shall be multiplied with the price of the Telegate share as resulting from subparagraph (ii). 5. The Intermediary shall pay the Cash Equivalent into an escrow account two banking days after the notarization of the Borrowing and Forward Purchase Agreement (Exhibit 4). The escrow shall be released to RSL, including the interest accrued, on the earlier of (i) such day when Seat shall transfer the new Seat shares to the Intermediary, pursuant to subparagraph 3, and (ii) October 16, 2000 provided Seat decides to uphold this agreement pursuant to Section 4 No. 3 (b). 6. The Intermediary is not a party to this Agreement. All arrangements which need to be made between the Intermediary and Seat, and between the Intermediary and RSL in light of the provisions of this Section, are contained in the Borrowing and Forward Purchase Agreement to be notarized by RSL and the Intermediary concurrently with the notarization of this Agreement (Exhibit 4), and in the Sale and Purchase (Contribution) Agreement to be notarized by Seat and the Intermediary concurrently with the notarization of this Agreement (Exhibit 5). Section 4 Conditions Precedent; Event of Termination; Event of Requalification; Rescission 1. Conditions Precedent This Agreement shall not become effective (except for its Section 12, Section 13 subparagraphs 1 and 2, and 14 which shall become effective upon the notarization of this Agreement) prior to the fulfilment of the following conditions precedent: a) The L Umbrella Agreement has been notarized and any agreements and resolutions and other declarations attached to it have been notarized or signed by the parties thereto; b) The transactions contemplated in this Agreement and in the L Umbrella Agreement, have received merger control clearance from the competent antitrust authority or authorities, or the applicable statutory waiting period has expired; c) The ultimate parent company of RSL has provided the guarantee as set forth in Section 10, 2. Automatic Termination This Agreement shall automatically cease to be effective without a need for further declarations from the Parties, and all effects already materialized under this Agreement shall be unwound, (except for its Section 12, Section 13 subparagraphs 1, 2 and 3, and 14) if the resolution by the shareholders' of Seat to be taken pursuant to Section 3 subparagraph 3 (i) is not taken by July 31, 2000. 3. Termination and Requalification In such a case where the resolution by the shareholders' of Seat to be taken pursuant to Section 3 subparagraph 3 (i) has been taken and there is no event of termination pursuant to subparagraph 2, but where the conditions contemplated in Section 3 subparagraph 3 (ii) have not materialized by October 15, 2000, 23.59 p.m., Seat may in its discretion decide whether (a) it terminates this agreement against a break-up fee payable to RSL in the amount of 7,500,000 or (b) whether it upholds this agreement provided however that in this case (b) the consideration to the Intermediary pursuant to Section 3 subparagraph 2 shall no longer be due in the form of new Seat shares, but in the form of a cash amount corresponding to the Cash Equivalent (as defined in Section 3 subparagraph 4). 4. Rescission Seat may rescind this Agreement (zurucktreten) if RSL is not the sole owner of the Majority-Conferring Share; or that RSL is not the sole owner of the Remaining Shareholding (as defined in Section 8), or that L is not the sole owner of the Shareholding as defined in the L Umbrella Agreement, or that the Holding is not the sole owner of the majority of the outstanding shares in Telegate; or that any of the mentioned shareholding and shares is not completely free of any rights, liens and encumbrances whatsoever for the benefit of third parties (except for the requirement under the articles of association of the Holding whereby the transfer of shares in the Holding requires the approval of all other shareholders). Seat may also rescind this Agreement if for any reason not attributable to Seat, the transfer of the Shareholding as defined in the L Umbrella Agreement to Seat is not done or does not become effective by the time due under the L Umbrella Agreement. Seat may declare the rescission pursuant to this subparagraph only prior to the moment when both (i) the transfer of the Shareholding as defined in the L Umbrella Agreement to Seat has become effective and (ii) the transfer of the Majority-Conferring Share to Seat has become effective. Section 5 Guarantees given by R 1. RSL represents and warrants by way of an independent guarantee obligation pursuant toss.ss. 305 and 241 of the German Civil Code ("selbstandiges Garantieversprechen") to Seat that the following statements are true, complete and correct in all material respects as of the time of notarization this Agreement. All of the following guarantees when referring to the "Companies" mean all of the Holding, Telegate and all direct and indirect majority-held German subsidiaries of Telegate including but not limited to Datagate GmbH, 11880.com GmbH, and Telegate Anklam Gesellschaft fur telefonische Informationsdienste mbH. a) Authority to Enter into this Agreement RSL has the corporate power and authority to enter into this Agreement with no requirement for (further) internal or intra-group approvals. All corporate actions, if any, which are necessary and appropriate for RSL to take in order to enter into this Agreement have been taken. b) Absence of Conflicting Obligations Except for this Agreement, there is no contract, option or any other right of another party binding upon (or which at any time in the future may become binding upon) RSL or upon any of the Companies to sell, transfer, pledge, mortgage or in any other way dispose of or encumber any of the shares in any (other) of the Companies. c) The Companies Each of the Companies and teleSAFE.net AG and phonecom Kommunikation GmbH are validly existing under the laws of the jurisdiction which applies to it. With regard to none of the Companies there is a resolution to put it in liquidation or to unwind it in whichever way. With regard to none of the Companies have insolvency proceedings or settlement proceedings of whatever nature been proposed, requested or opened by any person or entity, at any time. d) Unrestricted Share Ownership RSL is the sole and lawful owner of shares with a total nominal value of DM 25.600 in the Holding such shareholding representing the majority shareholding in the Holding whose total registered share capital amounts to DM 51,000. The Holding is the sole and lawful owner of a number of 6,490,577 of all outstanding shares in Telegate which in the total amount to a number of 12,730,000 (not including the authorised share capital of up to another 200,000 shares). Telegate is the sole and lawful direct or indirect owner of 100 % of the shares in Datagate GmbH, 11880.com GmbH and telegate Anklam Gesellschaft fur telefonische Informationsdienste GmbH and of a 33 1/3 % shareholding in teleSAFE.net AG and of a 35 % shareholding in phonecom Kommunikation GmbH. All shares in all of the Companies are duly authorized, validly issued and fully paid up, and free and clear of any third party's rights (including any rights of pledge and rights of first refusal), restrictions, encumbrances and liens whatsoever and no repayment of share capital has been effected, and no share capital increases are pending at the Companies or have been agreed, in particular no share capital increases allowing any party other than one of the Companies to take a shareholding in any of the Companies (except for what has been announced in the agenda of the annual general meeting of Telegate convened for May 31, 2000). e) Financial Statements The financial statements (including the balance sheet and the profit and loss account) as of December 31, 1999 of all the Companies, whether audited or unaudited, consider all the assets, obligations, liabilities and risks of the businesses conducted by the respective Companies, as of December 31, 1999 which should be considered there applying the generally accepted accounting principles of the relevant jurisdiction(s). All financial statements as of December 31, 1998 and December 31, 1999 which have been audited, and have received the unqualified certification (uneingeschrankter Bestatigungsvermerk) by the auditing Wirtschaftsprufer. All financial statements as of December 31, 1998 and December 31, 1999 of the Holding, which have not been audited, are attached to this Agreement as Schedule 5 e in a form signed by the managing director of the Holding. f) No Shareholder Loans There is no financial indebtedness of any of the Companies towards RSL or any company affiliated to RSL (other than the Companies). All business which is being conducted between RSL and any companies affiliated to RSL (other than the Companies) on the one hand and any of the Companies on the other hand is at arm's length and may be terminated by the Companies (should they wish to do so) substantially within such terms and under such conditions as are customary in the industry. g) Conduct of Business Since December 31, 1999 the Companies have not disposed of their businesses or of a material part thereof and the Companies and their businesses have been conducted in their usual and ordinary course in all material respects employing the care of a diligent and conscientious manager (within the meaning of ss. 93 subparagraph 1 of the German Stock Corporation Act and ss. 43 subparagraph 1 of the German Limited Liability Companies Act). Furthermore, since December 31, 1999 there have been no material adverse changes in the financial situation of the Companies. h) Governmental Approvals, Licences and Permits, Compliance with Laws The current operations and activities of the Companies including without limitation their current operations and activites in the five business core areas (i) data (enrichment, combination and sale), (ii) internet, (iii) telephony (technical operations), (iv) TIS (telephony information services) and (v) CCS (call center services) are, to the best knowledge of RSL, all in compliance in all material respects with all laws and governmental regulations and orders. To the extent the operations and activities of the Companies require the the assignment of call numbers or the possession of governmental approvals, licences or permits (including all material approvals, licences or permits as may be required under applicable telecommunications laws, and including the assignment of the call numbers "11880", 11887", "11890" and the interconnect access code "01080"(provided however that the interconnect access "01080" is currently not used by Telegate and may therefore be revoked), such approvals, licences or permits are all being held by the respective Companies. Such assignments, approvals, licences and permits are in full force and effect and will not be terminated due to the transactions contemplated in this Agreement. RSL and Telegate do not know of any circumstances which could justify a revocation of these assignments, approvals, licences or permits. The conditions ("Bedingungen" and/or "Auflagen") accompanying these approvals, licences and permits have been complied with in all material respects. i) Essential Agreements The interconnection agreement dated December 12, 1999 and the billing agreement dated October 12, 1998 Telegate has entered into with Deutsche Telekom AG (hereinafter together the "Essential Agreements") are all in full force and effect pursuant to the terms and conditions thereof, and enforceable in accordance with their terms and conditions against the other parties thereto, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors. Neither Telegate (or any other of the Companies) nor the other parties are in default in any material respect under any material provision of the Essential Agreements. The Companies are not aware that the other party to any of the Essential Agreements has any intention not to continue any of the Essential Agreements as currently practised. Schedule 5 i shows a list of all agreements entered into by any of the Companies which require (irrespective of whether such agreements are considered Essential Agreements) a yearly expenditure in excess of DM 1,000,000 (DM One Million) or which cannot be terminated with one year's notice at the latest. j) Trademarks, Know-how, Other Intellectual Property Rights and Domain Names The Companies are the owners of all know-how the Companies use in their businesses. Telegate is the owner of the trademark "Telegate" (all together hereinafter "Intellectual Property Rights"). Seat is informed about the current status of registration concerning the registered and applied for trademarks. All Intellectual Property Rights are free of liens and encumbrances by third parties. The Companies need not to rely on licence-agreements with third parties. The Companies are the sole and lawful owners, and do not need to rely on licences, of those of the internet domain names "telegate.com", "telegate.de", "travelgate.de" and "11880.com", which internet domain names are in each case clear and free of all liens, encumbrances and any other rights of third parties. To the best knowledge of RSL, there are no claims by third parties challenging any of the Company's rights or title, nor are there any factual violations, in each case with regard to any of the trademarks, domain names, know-how or other intellectual property or name rights of the Companies, or any products which are currently being developed in the Business. To the best knowledge of RSL, the trademarks, domain names, know-how or other intellectual property or name rights of the Companies, and their use do not infringe any third party's rights. k) Technical Equipment All technical equipment used by the Companies in carrying out their businesses, whether owned, leased or licensed, and including without limitation computer hardware, computer programs, switches and all other devices, is in good working order and is sufficient to cover substantially all current needs of the businesses of the Companies. l) Employees All key employees of the Companies have been hired in the ordinary course of business. There have not been any written or oral promises of pay rises or any other additional remuneration to any of the key employees. There are no outstanding payments of salaries, bonuses, vacation pay, social insurance contributions and all other payments due under the employment relationships. No key employee at any of the Companies has made known the intention to leave. RSL or companies affiliated to it (other than the Companies) have not offered employment to any key employee of any of the Companies. No key employees have been given a right to receive a severance payment in case of termination of their employment agreements exceeding the rights provided for by statutory law or collective bargaining agreements, nor have the members of the management board of Telegate been granted any such right to receive a severance payment in cash or in kind. There is no labor litigation with any of the employees of the Companies exceeding in the individual case a value of DM 100,000; and all labor litigation does in the aggregate not exceed a value of DM 500,000. Schedule 5-l shows a complete list of all material shop agreements ("Betriebsvereinbarungen") which the Companies have stipulated with the competent works councils. The Companies are, on the date hereof, not engaged in any material legal dispute with trade unions, shop councils or any other employees organizations. m) Insurances The Companies have taken out, for insured sums as are in accordance with applicable market standards, all the insurances which are mandatory under the law and all such other insurances as are appropriate or customary in the type of business as conducted by the Companies, and all insurance premiums have timely been paid. n) Taxes The Companies have filed all tax returns, which returns are complete and correct in all material respects, required to be filed by them or on their behalf with any tax of governmental authority in any jurisdiction; and have paid in full all federal, state, local or foreign taxes, levy, impost, fees, duties, fiscal and social security and similar charges, including any interest and penalty thereon (collectively "Taxes") shown on such returns or for which they have been assessed, or have, with regard to all Taxes that are or may become due but have not yet been paid, made adequate accruals on their books, in accordance with generally accepted accounting principles applicable in the respective jurisdiction; and none of the Companies is engaged in a dispute with any tax or social security authority. Upon request of RSL, Seat shall cause the Company concerned to appeal at the cost of RSL and in accordance with its instructions, against tax assessments if such appeal may result in taxes being reimbursed to or not to be paid by the respective Company. In order to enable RSL to properly assess the chances of such an appeal and to proceed with such appeal, Seat shall cause the respective Company to make available to RSL all relevant information and documentation. The respective Company may settle with the consent of RSL only which consent will not be unreasonably withheld. o) No Impediments There are no material legal or factual impediments preventing the Companies from carrying on their businesses to the extent and in the manner hitherto conducted, and there are no material unfulfilled obligations imposed on the Companies by the authorities with respect to their businesses. p) Litigation The Companies are not involved as plaintiff or defendant or as a joined party in any litigation, including arbitration proceedings or administrative proceedings, with a litigation value exceeding in the aggregate DM 5,000,000, nor has any such litigation, including arbitration proceedings or administrative proceedings, been threatened to the Companies, or is there a foreseeable need to take recourse to litigation, except in all cases as set forth in Schedule 5 p. 2. Section 460 of the German Civil Code (BGB) shall apply mutatis mutandis. Seat is deemed to know such documents which were contained in the data room in Planegg which was made accessible to representatives and advisers of Seat on March 28 and 29 and April 26 and 27 and May 2, 2000 which are listed in the list attached to this Agreement as Schedule 5.2. 3. The above guarantees shall be deemed to be repeated by RSL also as of the time when the transfer of the Majority-Conferring Share to Seat becomes effective (Section 2 subparagraph 2), provided that (i) before such date RSL will have been given a reasonable opportunity to discuss with one or several members of the board of directors (Vorstand) of Telegate whether the above guarantees are still true, complete and correct in all material respects, and (ii) will have been provided by the management with a statement thereon. To the extent that RSL, as a result of the said discussion, makes specific limiting qualifications the above guarantees shall not be deemed to be repeated. Section 6 Liability for Breach of Guarantees 1. If any of the guarantees given by RSL in Section 5 proves to be partly or wholly incorrect, the Party which learns first about such incorrectness shall inform the other Party thereof. For a period of 90 days starting with such information, RSL shall have the possibility to cure the breach by restoring a situation where the guarantee is true. 2. If RSL is unable to cure the breach or does for other reasons not cure the breach, RSL shall indemnify Seat for the amount that would have to be spent to fully restore the factual situation to the guaranteed situation ("damage"), limited, however, to a part such amount (as defined in subparagraph 3), which shall be paid, at RSL's choice, to either the Company or Companies to which the guarantee which is breached has the closest connection, or to Seat. If the payment of an indemnification occurs at such a time when the Joint Venture as agreed in Section 1 should no longer exist or where a Put Option Acceptance Declaration or a Call Option Acceptance Declaration has been made pursuant to the Option Agreement (Exhibit 3), any amount pursuant to this subparagraph shall be paid, at Seat's choice, to either the Company or Companies to which the guarantee which is breached has the closest connection, or to Seat. 3. Whilst Seat shall have the right to recover full damages pursuant to subparagraph 2 from RSL and L in the aggregate (the latter gives Seat, in the L Umbrella Agreement, the same guarantees as are in this Agreement given by RSL), each of RSL and L shall only be severally liable for the damages. Of each damage, RSL shall bear a part of 25.6/51 (approx. 50.2%) and RSL shall bear a part of 25.4/51 (approx. 49.8 %). 4. Where guarantees are given subject to the (best) knowledge, RSL shall be deemed to have the same knowledge as L has (and L shall, in the L Umbrella Agreement, be deemed to have the same knowledge as RSL has). 5. The amount of the liability of RSL for breaches of guarantees shall be limited as follows: (i) In calculating the aggregate liability of RSL and L, only such individual breaches of guarantees shall be taken into account which represent a damage of 0.5 million or more, provided that they represent in the aggregate a total damage of 5 million or more. (ii) The liability of RSL shall not exceed 33.33 % of the Total Consideration; the Total Consideration shall be for the purposes of this subparagraph 5 (ii) shall mean Cash Equivalent (as defined in Section 3 subparagraph 4 of this Agreement) plus the cash Exercise Price as defined in ss. 4.1 of the Option Agreement. (iii) Until the moment in which the Cash Equivalent (as defined in Section 3 subparagraph 4 of this Agreement) is to be released from escrow, no damages in excess of 33.33 % of the Cash Equivalent (as defined in Section 3 subparagraph 4), shall be payable yet (fallig) by RSL, and after the said moment damages shall be payable in the aggregate only within the limit set forth in subparagraph (ii). This subparagraph (iii) is not to be construed as a limitation whereby Seat shall resort to arbitration (as set forth in Section 12) only after a certain moment in time, or whereby the arbitrators shall give their award only after a certain moment in time. 6. None of the limitations as to the amount of the liability of RSL set forth in subparagraph (3) sentence 2 and subparagraph (5) shall apply in the case of a breach of the guarantee pursuant to which RSL is, as of the time of entering into the Borrowing and Forward Purchase Agreement (Exhibit 4), the sole owner of the Majority-Conferring Share; and the Majority-Conferring Share is completely free of any rights, liens and encumbrances whatsoever for the benefit of third parties. None of the limitations as to the amount of the liability of RSL set forth in subparagraph (3) and subparagraph (5) shall apply in the case of a breach of the guarantee pursuant to which RSL is the sole owner of the Remaining Shareholding; and the Remaining Shareholding is completely free of any rights, liens and encumbrances whatsoever for the benefit of third parties. 7. None of the limitations as to the amount of the liability of RSL set forth in subparagraph (5) shall apply in the case of a breach of the guarantee (given in Section 5 subparagraph 1 d)) pursuant to which the Holding is the sole owner of the majority of the outstanding shares in Telegate and that such shareholding is completely free of any rights, liens and encumbrances whatsoever for the benefit of third parties, as of the time of the notarization of this Agreement. 8. The liability of RSL for breaches of guarantees shall be limited in time as follows: (i) Seat may only bring such claims, which it has, by June 30, 2001, reasonably identified and communicated to RSL. (ii) Where the guarantee given in Section 5 subparagraph 1 n) (Taxes) is breached, the date mentioned in subparagraph (i) shall be replaced by such date which is 6 months after the final tax assessment of the relevant tax has been made by the tax authorities (provided such date is later than the date mentioned in subparagraph (i)). (iii) For breaches of the guarantees given in Sections subparagraphs 6 and 7 of this Section 6 there shall be no limitation in time except as set forth in section 195 of the German Civil Code. 9. If and to the extent there are any claims of Seat under this Section at such time when the Cash Equivalent should be released from escrow or when cash consideration under the Option Agreement becomes due, then such Cash Equivalent shall remain in escrow and such cash consideration shall be put in escrow, in each case upon Seat request, and in each case limited to the amount of Seat's claim (if the pro-rata threshold amounts set forth in subparagraph 5 (i) and (ii) are exceeded), until an arbitral award shall have been given on Seat's claim. The escrow shall be released if Seat does not initiate arbitration procedures within three months from the time when the Cash Equivalent should have been released from escrow or the cash consideration would have become due. The instructions to be given to the bank where the escrow account shall be made pursuant in accordance with this subparapraph 9. 10. No claim under this agreement shall lead to Seat being barred from exercising the call option nor to RSL from exercising the put option under the Option Agreement. Section 7 Guarantees given by San Remo Seat represents and warrants to RSL that the Seat shares to be delivered to the Intermediary pursuant to Section 3 subparagraph 1 will be validly issued, free and clear of any liens, charges, security interests, burdens, encumbrances or other restrictions or limitations of any nature whatsoever (except for such rights which the Intermediary itself may grant to third parties) and will be freely tradeable on the Milan Stock Exchange, as any existing shares of Seat as of the date when they are delivered to the Intermediary. Section 8 Acquisition of Remaining Shareholding and Termination of the Joint Venture 1. The Parties agree that Seat shall be entitled to acquire the Remaining Shareholding, and RSL shall be entitled to request Seat to acquire the Remaining Shareholding as set forth in the Option Agreement (Exhibit 3). The "Remaining Shareholding" means such shares in the Holding which RSL continues to hold after the disposal of the Majority-Conferring Share pursuant to Section 2 of this Agreement, which remaining shares shall have an aggregate nominal value of DM 24,800 and shall represent all of the outstanding share capital of the Holding except for the Majority-Conferring Share and for such shareholding in the Holding as Seat shall acquire under the L Umbrella Agreement. 2. The Parties agree that upon Seat's acquisition of the Remaining Shareholding, the Joint Venture as agreed in Section 1 of this Agreement shall be terminated. Section 9 Non Competition Following Termination of the Joint Venture Following a period of two (2) years after Seat will have acquired the remaining shareholding in the Holding from RSL, RSL and its affiliates shall not directly or indirectly compete with the businesses currently carried out by the Companies in Germany. Section 10 Guarantee by Parent Company of RSL RSL Communication Ltd. in its capacity as the ultimate parent company of RSL guarantees ("garantiert") without limitation the fulfilment of all obligations of RSL arising out or in connection with this Agreement in the form shown in Exhibit 6 to this Agreement. Section 11 Other Documents to be Executed 1. Prior or concurrent to the execution of this Agreement, the following documents shall be executed by the Parties thereto: (i) A shareholder's resolution, by RSL and L, on amendments to the articles of association of the Holding, as shown in Exhibit 1 to this Agreement and as contemplated in Section 1 subparagraph 3 a) of this Agreement; (ii) A filing statement to the competent commercial register of the Holding, (or a power of attorney enabling representatives of Seat to sign the filing statement) whereby the amendments to the articles of association are filed for registration with the commercial register to be signed by the sole managing director of the Holding which filing statement shall be presented to the commercial register forthwith; (iii) Approval of the split of a share held by RSL, by the Holding, as shown in Appendix 1 to the Agreement for the Transfer of Shares attached to the Borrowing and Forward Purchase Agreement (Exhibit 4) and as contemplated in Section 2 subparagraph 1 of this Agreement, to be executed by the sole managing director of the Holding; (iv) Approval of the transfer of the shares held by RSL in the Holding pursuant to this Agreement, by other shareholder L, as shown in Exhibit 6 to this Agreement and as contemplated in Section 2 subparagraph 1 of this Agreement; (v) A Borrowing and Forward Purchase Agreement, to be entered into by RSL and the Intermediary, as shown in Exhibit 4 to this Agreement and as contemplated in Section Section 2 subparagraph 1 of this Agreement; (vi) A Share Purchase (Contribution) Agreement, to be entered into by the Intermediary and Seat, as shown in Exhibit 5 to this Agreement and as contemplated in Section Section 2 subparagraph 2 of this Agreement; (vii) An Option Agreement, to be entered into by RSL and Seat, as shown in Exhibit 3 to this Agreement and as contemplated at the end of Section 1 and in Section 8 of this Agreement; 2. None of the documents to be signed prior or concurrently to the notarization of this Agreement shall thereafter be revoked or amended or otherwise changed without the approval of Seat. 3. The Parties shall also after after the notarization of this Agreement execute such documents and do such other things, and shall cause Intermediary do execute such other documents and do such other things as may be necessary and appropriate to implement the terms and conditions of this Agreement. Section 12 Applicable Law and Arbitration This Agreement shall be governed by German law except for such aspects as may mandatorily be governed by Italian law. Terms to which a German translation has been added shall be interpreted throughout the Agreement in the meaning assigned to the German translation. All disputes arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with the said rules. The arbitration proceedings shall be held in Paris and in English. Section 13 Costs and Taxes 1. Seat shall bear the costs of notarization of this Agreement and of those other agreements and resolutions which are attached to this Agreement. 2. Each Party shall itself bear the costs of its own advisors and its other costs incurred in connection with preparing this Agreement. 3. Each Party shall itself bear any taxes or other public duties which may become payable by it by reason of the transactions contemplated in this Agreement. 4. In the case of an automatic event of termination (Section 4 subparagraph 2) Seat shall reimburse RSL such fees for legal advisers and for an investment bank hired by RSL for the preparation of this Agreement, as are reasonable and usual-in-the-market. Section 14 Confidentiality The Parties shall keep confidential the contents of this Agreement and its attachments, and in particular all aspects regarding the monetization of the Majority-Conferring Share to the extent admissible under the applicable laws, unless they mutually agree otherwise. Any public notice or press release (whether required by law or not) shall be agreed upon by the Parties beforehand. Section 15 No Assignments Neither Seat nor RSL is entitled to transfer without the consent of the other Party rights or obligations arising out of this Agreement to a third party except for the transfer of title guarantees to be assigned to the Intermediary. Section 16 Notices 16.1 Notices or declarations to Seat made in the context of this Agreement shall be deemed to be validly given if sent by registered mail or courier to the following address or such other address as notified in writing by Seat to RSL: RSL COM Deutschland GmbH, c/o RSL Communications, Ltd., attn: Avery S. Fischer, Esq., 810 Seventh Avenue, 39th Floor, New York, NY 10019 16.2 Notices or declarations to RSL made in the context of this Agreement shall be deemed to be validly given if sent by registered mail or courier to the following address or such other address as notified in writing by RSL to Seat: Angelo Novati, CFO, Seat Pagine Gialle SpA, Via Aurelio Saffi 18, 1038 Turin, Italy. Section 17 Miscellaneous 17.1 Should any provision of this Agreement be or become invalid or unenforceable, the validity of the other parts of this Agreement shall not be affected thereby. The same applies if this Agreement contains any omissions. In lieu of the invalid or unenforceable provision or in order to complete any omission, a fair provision shall apply which, to the extent legally permissible, comes as close as possible to what the Parties had intended or would have intended, according to the spirit and purpose of this Agreement if they had considered the matter at the time this Agreement was executed. 17.2 Changes and amendments to this Agreement are only valid if they have been made in writing or, if notarisation is required by law, notarised. Date _______________ /s/ /s/ ________________________ _________________________ RSL COM Deutschland GmbH Seat Pagine Gialle S.p.A. NOTARIAL AUTHENTICATION (Oeffentliche Beurkundung) (Public Deed No. 44/2000) The undersigned Notary Public of the Canton of Zug, Switzerland, lic. iur. Peter B. Arnold, Attorney at Law, hereby certifies and authenticates: The foregoing Agreement corresponds with the intentions and the free will of the party who personally appeared in the capacities as follows: Mr. Stefan Koller, Attorney at Law and Notary Public, born 23.09.1958, Swiss citizen, residing at CH-6312 Steinhausen, Switzerland, Rebenstrasse 6, having his offices at Untermuli 6, CH-6300 Zug, Switzerland, here not acting in his own name, but as representative, exempt of personal liability, acting without express authority in the name and on behalf of Seat Pagine Gialle S.p.A., Via Aurelio Saffi, 18, I-1038 Turin, Italy, and RSL COM Deutschland GmbH, D-60528 Frankfurt am Main, Lyonerstr. 9, and J.P. Morgan Securities Limited, 60 Victoria Embankment, GB-London EC 4Y 0JP, and Morgan Stanley Bank AG, Junghofstrasse 13-15, D-60311 Frankfurt am Main, under the reservation to supply to the acting notary a forthcoming certified consent by each one of the foregoing parties, in legally appropriate form, as soon as reasonably possible and without undue delay. The foregoing Deed and all appendices and annexes thereto were laid out for inspection to and were approved by the person appearing. Subsequently, the Deed was read out aloud to the person appearing before the notary, approved by the person appearing and executed by him in his own hand. This Public Deed is made out in one copy. Zug/Switzerland, this 6th day of May 2000 The Notary Public Peter B. Arnold EX-10.5 6 0006.txt PUBLIC DEED EXHIBIT 10.5 Public Deed No. 83/2000 P U B L I C D E E D (Offentliche Urkunde) Before me, the undersigned Public Notary of the Canton of Zug, Switzerland, Peter B. Arnold, at his offices at Untermuli 6, CH-6300 Zug, Switzerland, appeared on Friday, this 13th day of October 2000: 1. Stefan Koller, born 23 September 1958, Swiss citizen, residing at Rebenstrasse 6, 6312 Steinhausen, Switzerland, Attorney-at-law, having his offices at Untermuli 6, 6300 Zug, Switzerland, here acting not in his own name but in the name and on behalf of - Seat Pagine Gialle S.p.A., Via Aurelio Saffi, 18, I-10138 Torino, Italy, based on the duly legalized power of attorney dated 12 October 2000, which was presented upon notarisation and of which a copy is attached hereto as ENCLOSURE A; - J.P. Morgan Securities Ltd., 60 Victoria Embankment, GB-London EC4Y 0JP, England, based on the duly legalized power of attorney dated 12 October 2000, which was presented upon notarisation and of which a copy is attached hereto as ENCLOSURE B. 2. Hugo Trutsch, born 10 June 1958, Swiss citizen, residing at Rutiweid 2, 6340 Baar, Switzerland, Attorney-at-law, having his offices at Neuhofstrasse 4, 6340 Baar, Switzerland, here acting not in his own name but in the name of and on behalf of RSL COM Deutschland GmbH, D-60528 Frankfurt am Main, Lyonerstr. 9, Germany, based on the duly legalized power of attorney dated 11 October 2000, which was presented upon notarisation and of which a copy is attached hereto as ENCLOSURE C. The question of a prior involvement within the meaning of ss. 3 (1)(7) of the German Notarial Recordings Act was answered in the negative by the individuals appeared herein. This having been done, the persons appearing declared, requesting that it be notarised, the following: AMENDMENT AGREEMENT TO THE JOINT VENTURE AGREEMENT DATED 6 MAY 2000 AS AMENDED ON 10 MAY 2000 1 SEAT PAGINE GIALLE S.P.A. RSL COM DEUTSCHLAND GMBH AND J.P. MORGAN SECURITIES LTD. ---------------------------------------------------- AMENDMENT AGREEMENT TO THE JOINT VENTURE AGREEMENT DATED 6 MAY 2000 AS AMENDED ON 10 MAY 2000 ---------------------------------------------------- CONTENTS CLAUSE PAGE 1. Interpretation..................................................4 2. Amendments to the Joint Venture Agreement.......................4 3. Amendments to the Borrowing Request.............................5 4. Amendments to the Forward Purchase Transaction..................6 5. Release of the Cash Collateral..................................6 6. Regular Information.............................................6 7. Miscellaneous...................................................6 8. Costs and Taxes.................................................6 9. Governing Law - Arbitration.....................................7 2 THIS AMENDMENT AGREEMENT dated 13 October 2000 is made among: (1) Seat Pagine Gialle S.p.A., Via Aurelio Saffi 18, I-10138 Torino, Italy ("Seat"); (2) RSL COM Deutschland GmbH, Lyonerstrasse 9, D-60528 Frankfurt am Main, Germany ("RSL"); and (3) J.P. Morgan Securities Ltd., 60 Victoria Embankment, London, EC4Y 0JP, England ("J.P. Morgan"). WHEREAS (A) Seat and RSL have entered into a Joint Venture Agreement dated 6 May 2000, Public Deed Urk.Nr. 44/2000 of the Public Notary, Peter B. Arnold, Untermuli 6, CH-6300 Zug/Switzerland, which was amended by the Agreement regarding certain clarifications concerning the Public Deeds established by the acting Public Notary Urk.Nr. 43/2000, Urk.Nr. 44/2000 and Urk. Nr. 45/2000 between, inter alia, the parties to this Agreement on 10 May 2000, Public Deed Urk.Nr. 47/2000 of the Public Notary, Peter B. Arnold, Untermuli 6, CH-6300 Zug/Switzerland. Certified copies of these deeds were available for inspection by those present at the notarisation of this Agreement. Those present waived the right to have these deeds read out aloud and to have these deeds annexed to this Agreement. (B) RSL and J.P. Morgan have entered into a Borrowing and Forward Purchase Agreement as Exhibit 4 to the Joint Venture Agreement which consists of (i) an Overseas Securities Lender's Agreement together with a Schedule; (ii) a Borrowing Request; (iii) an Agreement for the Transfer of Shares as Annex 1 to the Borrowing Request together with four appendices; (iv) an Escrow Agreement as Annex 2 to the Borrowing Request (also entered into with Morgan Stanley Bank AG, Junghofstrasse 13-15, D-60311 Frankfurt am Main, Germany, as Escrow Agent) with two appendices; (v) a 1992 ISDA Multicurrency - Cross Border Master Agreement together with a Schedule and the 1991 ISDA Definitions, the 1998 Supplement to the 1991 ISDA Definitions and the 1996 ISDA Equity Derivatives Definitions; (vi) a Forward Purchase Transaction and (vii) a Master Netting Agreement. (C) All conditions of the transactions which should pursuant to the Joint Venture Agreement have taken place by 15 October 2000 will have taken place by that date except that the new Seat shares are not issued and freely tradable. In light of this development and in order to allow for such transactions to be performed still after 15 October 2000, the amendment agreements mentioned in paragraph (D) of these recitals are being entered into. 3 (D) Seat, RSL and J.P. Morgan have agreed to amend the Joint Venture Agreement together with the Borrowing and Forward Purchase Agreement. Seat and J.P. Morgan intend also to enter into an amendment agreement governed by Italian law of even date herewith to amend the Share Purchase Agreement entered into between Seat and J.P. Morgan and attached as Exhibit 5 to the Joint Venture Agreement. 1. INTERPRETATION In this Agreement, including the recitals hereto, except so far as the context otherwise requires and subject to any contrary indication, words and expressions defined and expressed to be construed in the Joint Venture Agreement and the relevant Exhibits to the Joint Venture Agreement shall have the same meaning and construction mutatis mutandis herein. 2. AMENDMENTS TO THE JOINT VENTURE AGREEMENT 2.1 The reference in Section 3 (Consideration) subparagraph 3 of the Joint Venture Agreement to 15 October 2000 shall be amended and replaced by a reference to 30 November 2000 (the "Amended Final Subscription Date"). 2.2 In Section 3 subparagraph 5 the words following the date of October 16, 2000 ("provided Seat decides to uphold this agreement pursuant to Section 4 No. 3 (b)") shall be deleted. 2.3 Section 4 subparagraph 3 shall be completely replaced and amended and shall read as follows: "Final Subscription Date (a) In such a case where the new Seat shares contemplated by Section 3 subparagraph 3 are not available as freely tradable shares on November 30, 2000 (the "Amended Final Subscription Date") due to causes beyond control of Seat, the Parties shall discuss and use their best efforts to postpone the Amended Final Subscription Date. In the case that such discussions do not lead to a postponement of the Amended Final Subscription Date (which would then be the "Agreed Final Subscription Date" but which cannot be later than December 20, 2000 [the "Final Cut off Date"]) by December 20, 2000, then (and only then, following the date of December 20, 2000) the consideration shall become due in the form described in subparagraph (b) below on the next Business Day. However, the consideration shall become due in the form described in subparagraph (b) below already immediately after November 30, 2000 if the new Seat shares contemplated by Section 3 subparagraph 3 are not available as freely 4 tradable shares on November 30, 2000 due to causes under the control of Seat. (b) In the cases refered to in subparagraph (a) the consideration to the Intermediary pursuant to Section 3 subparagraph 2 shall no longer be due in the form of Seat shares, but in the form of a cash amount corresponding to the Cash Equivalent (as defined in Section 3 subparagraph 4).(c) The Parties agree that Seat has in any event the right to deliver (by itself or through a third party as may be instructed by Seat) by the Amended Final Subscription Date (or by the Agreed Final Subscription Date, if such date will be agreed, or by the Final Cut off Date) existing Seat shares in lieu of the new Seat shares contemplated by Section 3 subparagraph 3 provided the existing Seat shares are likewise freely tradable and carry at least the same rights as the new Seat shares. (d) The Parties agree that Seat shall (other than in the version of the Joint Venture Agreement which was notarised on May 6, 2000) no longer have a right to terminate this Agreement against a break-up fee." 2.4 Subject to Section 4 subparagraph 3 of the Joint Venture Agreement as amended, the parties to this Agreement agree that their rights and obligations set forth in the Joint Venture Agreement as amended are irrevocable. 2.5 For the avoidance of doubt, the Option Agreement entered into between Seat and RSL dated 6 May 2000, Public Deed Urk.Nr. 45/2000 of the Notary Public, Peter B. Arnold, Untermuli 6, CH-6300 Zug/Switzerland shall not be affected by this Agreement. Consequently, the parties agree that the Joint Venture Agreement (as amended hereby) is effective and no longer terminable or rescindable by SEAT for any reason and accordingly, the options provided to RSL and SEAT under the Option Agreement entered into between Seat and RSL dated 6 May, 2000, Public Deed Urk.Nr. 45/2000 of the Notary Public, Peter B. Arnold, Untermuli 6, CH-6300 Zug/Switzerland, are fully exerciseable under their terms, as of the respective periods referred to therein. 3. AMENDMENTS TO THE BORROWING REQUEST The right of the Lender to call for the retransfer of the Securities pursuant to Clause 7 (B) of the OSLA and the termination right of the Borrower pursuant to Clause 7 (E) of the OSLA as amended by the Special Terms of the Borrowing Request shall hereby be definitely waived and excluded. 5 4. AMENDMENTS TO THE FORWARD PURCHASE TRANSACTION 4.1 The definition of Purchase Price and Maturity Date under the Terms of the Forward Purchase Transaction shall be amended and construed in light of this Agreement. 4.2 In the definition of Maturity Date under the Terms of Forward Purchase Transaction any reference to 15 October 2000 shall be amended and replaced by a reference to the Amended Final Subscription Date or, where applicable, the Agreed Final Subscription Date (as defined and referred to in Clause 2.3 of this Agreement) or, as the case may be, the Final Cut off Date (as defined and referred to in Clause 2.3 of this Agreement) and any reference to 16 October 2000 shall be amended and replaced by a reference to the next following Business Day (as defined in the Borrowing Request) after the Amended Final Subscription Date or, where applicable, the Agreed Final Subscription Date or, as the case may be, the Final Cut off Date. 4.3 The first sentence of the provisions of Sale and Purchase of Shares of the Forward Purchase Transaction shall be amended and construed in the light of this Agreement and the second sentence of the provisions of Sale and Purchase of Shares of the Forward Purchase Transaction shall be deleted. 5. RELEASE OF THE CASH COLLATERAL Section 3 subparagraph 5 second sentence of the Joint Venture Agreement shall be amended as above and J.P. Morgan shall instruct the Escrow Agent to release the Cash Collateral deposited with the Escrow Agent on 18 October 2000. 6. REGULAR INFORMATION Seat shall instruct law firm Bonelli Erede Pappalardo to regularly inform representatives of RSL about the status of the process by which the new Seat shares come into existence as freely tradable shares. 7. MISCELLANEOUS Section 14 (Confidentiality) and Section 17 (Miscellaneous) of the Joint Venture Agreement shall apply to this Agreement, mutatis mutandis, as if references therein to the agreement were references to this Agreement. 8. COSTS AND TAXES Section 13 - Costs and Taxes subparagraphs 1 through 3 of the Joint Venture Agreement shall apply to this Agreement, mutatis mutandis. 6 9. GOVERNING LAW - ARBITRATION This Agreement shall be governed by and construed in accordance with German law. All disputes arising out of or in connection with this Agreement shall be decided by three arbitrators according to the Rules for Arbitration provided by the International Chamber of Commerce and, where applicable, according to the procedures set out in the Arbitration Agreement entered into inter alia by the Parties hereto dated 6 May 2000. Any arbitration proceedings shall be held in Paris and in the English language. IN WITNESS whereof the parties hereto have executed this Agreement on the date first above written. Signed for and on behalf of Seat Pagine Gialle S.p.A. /s/ - ------------------------- Signed for and on behalf of RSL COM Deutschland GmbH /s/ - ------------------------- Signed for and on behalf of J.P. Morgan Securities Ltd. /s/ - ------------------------- 7 NOTARIAL AUTHENTICATION (Oeffentliche Beurkundung) (Public Deed No. 83/2000) The undersigned Notary Public of the Canton of Zug, Switzerland, lic. iur. Peter B. Arnold, Attorney at Law, hereby certifies and authenticates: The foregoing Agreement corresponds with the intentions and the free will of the parties who personally appeared in the capacities as follows: 1. Stefan Koller, born 23 September 1958, Swiss citizen, residing at Rebenstrasse 6, 6312 Steinhausen, Switzerland, Attorney-at-law, having his offices at Untermuli 6, 6300 Zug, Switzerland, here acting not in his own name but in the name and on behalf of - Seat Pagine Gialle S.p.A., Via Aurelio Saffi, 18, I-10138 Torino, Italy, based on the duly legalized power of attorney dated 12 October 2000, which was presented upon notarisation and of which a copy is attached hereto as ENCLOSURE A; - J.P. Morgan Securities Ltd., 60 Victoria Embankment, GB-London EC4Y 0JP, England, based on the duly legalized power of attorney dated 12 October 2000, which was presented upon notarisation and of which a copy is attached hereto as ENCLOSURE B. 2. Hugo Trutsch, born 10 June 1958, Swiss citizen, residing at Rutiweid 2, 6340 Baar, Switzerland, Attorney-at-law, having his offices at Neuhofstrasse 4, 6340 Baar, Switzerland, here acting not in his own name but in the name and on behalf of RSL COM Deutschland GmbH, D-60528 Frankfurt am Main, Lyonerstr. 9, Germany, based on the duly legalized power of attorney dated 11 October 2000, which was presented upon notarisation and of which a copy is attached hereto as ENCLOSURE C. The foregoing Deed was laid out for inspection to and was approved by the persons appearing. Subsequently, the Deed was read out aloud to the persons appearing before the notary, approved by the person appearing and executed by them in their own hands. This Public Deed is made out in 4 original copies. Zug/Switzerland, this 13th day of October 2000 The Notary Public Peter B. Arnold EX-10.6 7 0007.txt PUBLIC DEED EXHIBIT 10.6 Public Deed No. 45/2000 P U B L I C D E E D (Offentliche Urkunde) Before me, the undersigned Public Notary of the Canton of Zug, Switzerland, Peter B. Arnold, at his offices at Untermuli 6, CH-6300 Zug, Switzerland, appeared on Saturday, this 6th day of May 2000: Mr. Stefan Koller, Attorney at Law and Notary Public, born 23.09.1958, Swiss citizen, residing at CH-6312 Steinhausen, Switzerland, Rebenstrasse 6, having his offices at Untermuli 6, CH-6300 Zug, Switzerland, here not acting in his own name, but as representative, exempt of personal liability, acting without express authority in the name and on behalf of Seat Pagine Gialle S.p.A., Via Aurelio Saffi, 18, I-1038 Turin, Italy and RSL COM Deutschland GmbH, D-60528 Frankfurt am Main, Lyonerstr. 9 under the reservation to supply to the acting notary a forthcoming certified consent by each one of the foregoing parties, in legally appropriate form, as soon as reasonably possible and without undue delay. This having been done, the person appearing declared, requesting that it be notarised, the following: I. RSL Com Deutschland GmbH and Seat Pagine Gialle S.p.A. hereby conclude the Option Agreement as Annex I. II. RSL Com Deutschland GmbH and Seat Pagine Gialle S.p.A. hereby conclude the Arbitration Agreement as Annex II. III. Words and expressions in this deed and its appendices and annexes shall have the meanings defined in the respective part of this deed, and definitions used in one agreement contained in this deed are not necessarily applicable in another agreement contained in this deed. IV. The costs of this deed shall be borne by the Seat Pagine Gialle S.p.A. All other costs shall be borne by the party by which they are incurred. The notary informed the person appearing that - - shareholders in a GmbH can be held jointly and severally liable for capital contributions not fully paid in, - - insofar as the transfer of the title is subject to conditions precedent, the title passes only if those conditions are fulfilled. The above and all appendices and annexes were laid out for inspection to the person appearing and were approved by the person appearing and read out aloud to the person appearing before the notary, approved by the person appearing and executed by him in his own hand as follows: Zug/Switzerland, this 6th day of May 2000 /s/ _______________________________ Stefan Koller OPTION AGREEMENT between 1. Seat Pagine Gialle S.p.A., with domicile in Turin (hereinafter "Seat") and 2. RSL COM Deutschland GmbH, with domicile in Frankfurt am Main (hereinafter "RSL") (each a "Party" and together the "Parties") Whereas a. Seat and RSL have today entered into a Joint Venture Agreement (UR. 44/2000 of the notary Peter B. Arnold, Zug, Switzerland (the "Joint Venture Agreement"). The person appeared declared that they are aware of the content of the previously notarised Joint Venture Agreement, which is available to them and hereby waive their right to have such Joint Venture Agreement be read again to them. Further, the Parties declared that they wish the said Joint Venture Agreement to be attached to this notarial deed but not, however, any of the attachments and schedules or other enclosures to the Joint Venture Agreement. b. In Section 8 of the Joint Venture Agreement it is contemplated that Seat and RSL conclude an agreement regarding a call and a put option. The Parties agree as follows: ss. 1 Definitions Capitalized terms used in this agreement shall have the same meaning ascribed to them in the Joint-Venture Agreement, including the definition of Remaining Shareholding, meaning such share in Telegate Holding GmbH which RSL continues to hold after the disposal of the Majority-Conferring Share pursuant to Section 2 of the Joint Venture Agreement, which remaining share shall have a nominal value of DM 24,800 and shall represent all of the outstanding share capital of the Holding except for the Majority-Conferring Share and for such shareholding in Telegate Holding GmbH as Seat shall have acquired under the L Umbrella Agreement. ss. 2 Call Option 2.1 RSL hereby irrevocably grants an option to Seat, pursuant to which Seat is entitled to purchase the Remaining Shareholding from RSL, by means of acceptance of the irrevocable offer made hereby by RSL to Seat regarding the sale of the Remaining Shareholding by RSL to Seat at the Exercise Price with transfer of title to the Remaining Share becoming effective on the Cash Exercise Date or as of (the shortest possible interval before) the In Kind Exercise Date, as the case may be (the "Call Option"). The Call Option can only be exercised with respect to the total Remaining Holding. 2.2 Seat may exercise the Call Option at any time during the period from February 1, 2002 through December 31, 2002 (the "Call Option Period") by means of a notarised acceptance declaration of the Call Option in the form attached as Exhibit 1 to this Agreement (the "Call Option Acceptance Declaration"). 2.3 Seat may also exercise the Call Option as soon as (but with no limitation in time) RSL Communications Ltd., of Bermuda, ceases to be the ultimate parent company of RSL, or as soon as there will be a shareholder who holds at least 50 % of the outstanding stock of RSL Communications Ltd. different from the current 50 % shareholder(s) (if any) and the majority of the members of the board of directors of RSL Communications Ltd. immediately prior to change of control will be such individuals as were not members of such board of directors on May 4, 2000. 2.4 The purchase of the Remaining Shareholding shall be deemed to be concluded between the Parties if and as soon as the Call Option Acceptance Declaration shall be declared within the Call Option Period in notarised form. Transfer of title as effected by the transfer agreement (Exhibit 4) shall occur within a period of no more than 105 days following the Call Option Acceptance Declaration has been declared or any other date as agreed between the parties. ss. 3 Put Option 3.1 Seat hereby irrevocably grants an option to RSL, pursuant to which RSL is entitled to request from Seat the purchase of the Remaining Shareholding, by means of acceptance of the irrevocable offer made hereby by Seat to RSL regarding the purchase of the Remaining Shareholding by Seat from RSL at the Exercise Price with transfer of title to the Remaining Shareholding becoming effective on the Cash Exercise Date or as of (the shortest possible interval before) the In Kind Exercise Date, as the case may be (the "Put Option"). The Put Option can only be exercised with respect to the total Remaining Shareholding. 3.2 RSL may exercise the Put Option at any time during the period from January 1, 2001 through January 31, 2002 (the "Put Option Period") by means of a notarised acceptance declaration of the Put Option in the form attached as Exhibit 2 to this Agreement (the "Put Option Acceptance Declaration"). 3.3 The purchase agreement of the Remaining Shareholding shall be deemed to be concluded between the Parties if and as soon as the Put Option Acceptance Declaration shall be declared within the Put Option Period in notarised form. Transfer of title as effected by the transfer agreement (Exhibit 4) shall occur within a period of no more than 105 days following the Put Option Acceptance Declaration has been declared or any other date as agreed between the parties. ss. 4 Exercise Price 4.1 The Exercise Price payable by Seat upon exercise of the Call or the Put Option shall be, at the option of Seat, payable either in cash or in newly issued Seat Shares fungible with all other outstanding shares of Seat at the Cash Exercise Date (in case of a cash payment) or the In Kind Exercise Date (in case of an in kind payment) in accordance with the following provisions: (i) A payment in cash of the Exercise Price is only permissible if Seat notifies RSL within no more than 30 days following receipt by Seat or RSL (as the case may be) of the Put or Call Acceptance Declaration of its intention to pay in cash in which case the payment of the Exercise Price shall become due on the 35th day following the receipt by Seat or RSL (as the case may be) of the Put or Call Acceptance Declaration (the "Cash Exercise Date") in an amount hereinafter referred as the "Exercise Price". The Exercise Price shall be calculated as follows: Firstly, it shall be established what number of Telegate shares the Majority-Conferring Share indirectly represents (following the method set forth in Section 3 subparagraph (i) of the Joint Venture Agreement); Secondly, such number shall be multiplied with the average closing price (in Euro) of Telegate common stock on the Frankfurt Exchange during January 2001 (appropriately adjusted for stock splits or similar transactions after the date hereof), provided, however, that if such average closing price is less than Euro 127.50, the Exercise Price shall be equal to Euro 127.50, and provided further that if such average is greater than Euro 161.25, the Exercise Price shall be equal to Euro 161.25. (ii) A payment in kind of the Exercise Price by means of newly issued shares fungible with all other outstanding shares of Seat is only permissible if Seat - does not exercise its option referred to in the preceding paragraph (either by means of letting the respective period expire or by means of express declaration); - invites for a shareholders' meeting to be held no later than 45 days after the expiration of the 30-day period set forth in the preceding paragraph for the purpose of resolving on a capital increase against contribution of the Remaining Shareholding at an exchange ratio to be determined by applying the calculation set forth in Section 3 subparagraph 2 of the Joint Venture Agreement with the provisos that (a) "T.May3" shall have the meaning assigned to it in the Joint Venture Agreement, and that (b) "S.May3" shall be replaced by "S.not.day" meaning the average closing price as published by Bloomberg for Seat shares on the Milan Stock Exchange on the day when Seat notifies RSL of its intention to pay in cash, pursuant to ss. 4.1 (i) of this Agreement; and - provides RSL with an irrevocable opportunity to borrow Seat Shares from an existing shareholder of Seat in an amount equal to the Consideration Seat Shares at market rates for purposes of effecting a hedge, which hedge may alternatively be through an intermediary entity, provided that in both cases the hedge must be such that market disruption of the Seat shares are avoided, for a period from the time from the 35th day as described in ss. 4.1 (i) until such time when the Consideration Seat Shares are delivered by Seat to RSL. It is understood that the cost of such hedge should be borne by RSL. 4.2 In the event that the shareholders' meeting approves the capital increase against contribution in kind as described in ss. 4.1., in the period mentioned therein, and such additional steps as are required under Italian law for making the new shares resulting from the said shareholders' resolution on the capital increase available as freely tradeable shares, have been accomplished by the 105th day following the exercise of the Put or the Call Option, then the Consideration Seat Shares shall be delivered to RSL no later than the 105th day following the exercise of the Put or the Call Option (the "In Kind Exercise Date"). 4.3 In the event that either (i) the shareholders' meeting of Seat does not approve the capital increase against contribution in kind as described in ss. 4.1 in the period therein, or (ii) such additional steps as are required under Italian law for making the new shares resulting from the said shareholders' resolution on the capital increase available as freely tradeable shares and the subsequent issuance and delivery of the Consideration Seat Shares to RSL have not been accomplished by the 105th day following the exercise of the Put or the Call Option , for what reason so ever, then Seat undertakes to purchase the Remaining Shareholding at the purchase price equal to the Exercise Price from RSL within 5 days following the expiration of the respective period mentioned in ss. 4.1 subparagraph (ii) and ss. 4.2, in accordance with the provisions in ss. 6.2 first hyphen. ss. 5 Condition Precedent The Call Option is only exercisable if the Put Option has not been previously exercised. ss. 6 Undistributed Earnings The Remaining Shareholding shall be purchased and transferred pursuant to this Agreement together with the right to all undistributed earnings. ss. 7 Transfer of Title to the Remaining Shareholding 7.1 Upon exercise of the respective Put or Call Option transfer of title to the Remaining Shareholding shall take place at the offices of Arnold Wehinger Kaelin & Ferrari, Zug, Switzerland or another place to be agreed between the Parties. 7.2 In order to effect transfer of title to the Remaining Shareholding - - in case of a cash payment, (x) RSL and Seat shall execute the transfer of the Remaining Shareholding by means of using the form attached as Exhibit 3 pursuant to which title to the Remaining Shareholding shall be transferred by RSL to Seat subject only to the condition of payment of the Exercise Price referred to in ss. 4.1.; (y) Seat warrants that the cash amount referred to in ss. 4.1. as the Exercise Price shall be immediately be paid by electronic means to RSL to an account of RSL to be notified by RSL to Seat prior to the date when transfer of title to the Remaining Shareholding is effected; and (z) delivery by Seat of a copy of an irrevocable payment instruction with respect to the payment of the Exercise price referred to in ss. 4.1.; and - - in case of a payment in kind, RSL and Seat shall notarise the transfer of the Remaining Shareholding by means of using the form attached as Exhibit 4 pursuant to which title to the Remaining Shareholding shall be transferred by RSL to Seat against issuance of the Consideration Seat Shares. ss. 8 Guarantees The Remaining Shareholding upon exercise of the Put or Call Option shall be sold with the same guarantees as are given and limited in Sections 6 and 7 of the Joint Venture Agreement but only to the extent such guarantees are not yet time-barred. ss. 9 Unrestricted exerciseability of the Put Option RSL is entitled to exercise the Put Option, and Seat is entitled to exercise the Call Option, under any circumstances and irrespective of events and changes occurred in the meantime and particularly independent of the status of the Joint Venture. Seat acknowledges to be obliged to purchase the Remaining Shareholding at the Exercise Price in a case where the Joint Venture turns out to fail to be an economic success. RSL shall, however, not be entitled to exercise the Put Option, and Seat shall not be entitled to exercise the Call Option, in such cases where any of the conditions precedent to the effectiveness of the Joint Venture Agreement has not been met (Section 4 subparagraph 1 of the Joint Venture Agreement), or where the event of termination set forth in Section 4 subparagraph 2 of the Joint Venture Agreement has occurred and Seat has not (declared to wish to proceed for a cash consideration), or where the Joint Venture Agreement has been rescinded pursuant to Section 4 subparagraph 4 of the Joint Venture Agreement. ss. 10 Confidentiality The Parties shall keep confidential the contents of this Agreement and its attachments, and in particular all aspects regarding the monetization of the Majority-Conferring Share to the extent admissible under the applicable laws, unless they mutually agree otherwise. Any public notice or press release (whether required by law or not) shall be agreed upon by the Parties beforehand. ss. 11 Costs All notarial costs arising in the context of this agreement and the transfer of title of the Remaining Shares as provided for in the respective Exhibits to this agreement shall be borne by Seat. Each party shall bear its cost and expenses (including those of its advisers). ss. 12 Notices 12.1 Notices or declarations to Seat made in the context of this Agreement shall be deemed to be validly given if sent by registered mail or courier to the following address or such other address as notified in writing by Seat to RSL: Angelo Novati, CFO, Seat Pagine Gialle S.p.A., Via Aurelio Saffi, 18 - 1038 Turin, Italy 12.2 Notices or declarations to RSL made in the context of this Agreement shall be deemed to be validly given if sent by registered mail or courier to the following address or such other address as notified in writing by RSL to Seat: RSL COM Deutschland GmbH, c/o RSL Communications, Ltd., attn: Avery S. Fischer, Esq., 810 Seventh Avenue, 39th Floor, New York, NY 1001. ss. 13 Miscellaneous 13.1 Should any provision of this Agreement be or become invalid or unenforceable, the validity of the other parts of this Agreement shall not be affected thereby. The same applies if this Agreement contains any omissions. In lieu of the invalid or unenforceable provision or in order to complete any omission, a fair provision shall apply which, to the extent legally permissible, comes as close as possible to what the Parties had intended or would have intended, according to the spirit and purpose of this Agreement if they had considered the matter at the time this Agreement was executed. 13.2 Changes and amendments to this Agreement are only valid if they have been made in writing or, if notarisation is required by law, notarised. ss. 14 No Assignability The assignment of any rights under this agreement requires the prior written consent of the other party. ss. 15 Arbitration All disputes arising out of or in connection with the Option Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with the said rules. The arbitration proceedings shall be held in Paris and in English. Date,___________ /s/ /s/ ________________________________ ________________________________________ Seat Pagine Gialle S.p.A. RSL COM Deutschland GmbH NOTARIAL AUTHENTICATION (Oeffentliche Beurkundung) (Public Deed No. 45/2000) The undersigned Notary Public of the Canton of Zug, Switzerland, lic. iur. Peter B. Arnold, Attorney at Law, hereby certifies and authenticates: The foregoing Agreement corresponds with the intentions and the free will of the party who personally appeared in the capacities as follows: Mr. Stefan Koller, Attorney at Law and Notary Public, born 23.09.1958, Swiss citizen, residing at CH-6312 Steinhausen, Switzerland, Rebenstrasse 6, having his offices at Untermuli 6, CH-6300 Zug, Switzerland, here not acting in his own name, but as representative, exempt of personal liability, acting without express authority in the name and on behalf of Seat Pagine Gialle S.p.A., Via Aurelio Saffi, 18, I-1038 Turin, Italy, and RSL COM Deutschland GmbH, D-60528 Frankfurt am Main, Lyonerstr. 9, under the reservation to supply to the acting notary a forthcoming certified consent by each one of the foregoing parties, in legally appropriate form, as soon as reasonably possible and without undue delay. The foregoing Deed and all appendices and annexes thereto were laid out for inspection to and were approved by the person appearing. Subsequently, the Deed was read out aloud to the person appearing before the notary, approved by the person appearing and executed by him in his own hand. This Public Deed is made out in one copy. Zug/Switzerland, this 6th day of May 2000 The Notary Public Peter B. Arnold EX-10.7 8 0008.txt PUBLIC DEED Exhibit 10.7 Public Deed No. 47/2000 PUBLIC DEED (Offentliche Urkunde) Before me, the undersigned Public Notary of the Canton of Zug, Switzerland, Peter B. Arnold, at his offices at Untermuli 6, CH-6300 Zug, Switzerland, appeared on this 10th day of May 2000: Mr. Stefan Koller, Attorney at Law and Notary Public, born 23rd September 1958, Swiss citizen, residing at Rebenstrasse 6, CH-6312 Steinhausen, Switzerland, here not acting in his own name, but as representative, exempt of personal liability, acting without express authority in the name and on behalf of Seat Pagine Gialle S.p.A., Via Aurelio Saffi 18, I-10138 Turin, Italy and Ligapart AG, Neuhofstrasse 4, CH-6341 Baar and J. P. Morgan Securities Limited, 60 Victoria Embankment, GB-London EC 4Y 0JP and Morgan Stanley Bank AG, Junghofstrasse 13-15, D-60311 Frankfurt am Main and RSL COM Deutschland GmbH, Lyoner Strasse 9, D-60528 Frankfurt am Main - 2 - under the reservation to supply to the acting Public Notary a forthcoming certified consent of each one of the foregoing parties, in legally appropriate form, as soon as reasonably possible and without undue delay. This having been done, the person appearing declared, requesting that it be notarised, the following: I. An agreement regarding certain clarifications concerning the Public Deeds established by the acting Public Notary Urk.Nr. 43/2000, Urk.Nr. 44/2000, Urk.Nr. 45/2000, all dated 6th May, 2000. II. Words and expressions in this deed and its appendices and annexes shall have the meanings defined in the respective part of this deed, and definitions used in one agreement contained in this deed are not necessarily applicable in another agreement contained in this deed. III. The costs of this deed shall be borne by Seat Pagine Gialle S.p.A. All other costs shall be borne by the party by which they are incurred. IV. The Arbitration Agreement laid down in Public Deed Urk.Nr. 46/2000, dated 6th May, 2000 of the acting Public Notary (hereinafter the "Arbitration Agreement") shall also apply to disputes in connection with the present notarial deed. The original of the Arbitration Agreement was available for inspection to those appearing during the notarisation. After having been informed by the Notary, those appearing declared that they waive the requirement of reading out loud the Arbitration Agreement and the requirement of attaching the Arbitration Agreement to this deed. The statements and declarations made by Mr. Stefan Koller in the Arbitration Agreement are hereby approved in full for which our consent is hereby given irrevocably. The above and all appendices and annexes were laid out for inspection to the person appearing and were approved by the person appearing and read out aloud to the person appearing before the Notary, approved by the person appearing and executed by him in his own hand as follows: - 3 - Zug/Switzerland, this 10th day of May 2000 /s/ _________________________ Stefan Koller - 4 - Agreement regarding certain clarifications concerning the Public Deeds established by the acting Public Notary Urk.Nr. 43/2000, Urk.Nr. 44/2000, Urk.Nr. 45/2000, all dated 6th May, 2000 I. The Umbrella Agreement between Seat Pagine Gialle S.p.A., Ligapart AG, J. P. Morgan Securities Limited and Morgan Stanley Bank AG, Public Deed Urk.Nr. 43/2000 dated 6th May 2000 of the acting Public Notary, requires certain clarifications as follows: 1. Page 3 second last paragraph of the Introduction to the Public Deed should read at the beginning of the paragraph " Option Agreement to be entered into between Seat Pagine Gialle S.p.A. and RSL Com Deutschland GmbH ..." instead of "Option Agreement between Seat Pagine Gialle S.p.A. and RSL Com Deutschland GmbH ..." 2. Whenever reference is made to "R", such reference is deemed to be read "RSL Com Deutschland GmbH". 3. The words at the end of Section 1 subparagraph 2 "the transfer to Seat shall become effective as soon as the shareholders' resolution contemplated in Section 2 subparagraph 3 (i) shall be taken" shall be read as "the transfer to Seat shall become effective at the shortest possible interval before the newly issued shares shall in freely tradable form be delivered to the Intermediary". - 5 - 4. In Section 2, subparagraph 2, litt. (ii) "one day prior to notarization of this Agreement" shall in both cases be read as "May 3, 2000 ". 5. In Section 2, subparagraph 2 (ii) (page 3) the nomination of the currency missing in front of the amount "150" is Euro. 6. In Section 2 subparagraph 2 (iii) (page 3) the nomination of the currency missing in front of the amount "150" is Euro. 7. In Section 2 subparagraph 4 (ii) (page 4) the nomination of the currency missing in front of the amount "150" is Euro. 8. In Section 2, subparagraph 4, litt. (ii) "one day prior to notarization of this Agreement" shall be read as "May 3, 2000 ". 9. In Section 3, subparagraph 1 (a) (page 5) "other declarations attached to it have been signed by the parties thereto" should be read "other declarations attached to it have been notarized or signed by the parties thereto." 10. In Section 4, subparagraph 1 (e) (page 9) the word "and" in the eigth line before the words "have received the unqualified certification" shall be deleted. 11. In Section 3, subparagraph 3, second paragraph (page 6) the nomination of the currency missing in front of the amount "7,500,000" is Euro. 12. In Section 3, subparagraph 3, second paragraph, litt. (ii) (page 6) the reference should be read as "pursuant to Section 2 subparagraph 1" instead of "pursuant to Section 1 subparagraph 1". 13. In Section 4 subparagraph 1 j) forth-last line (page 11) the words "of those" in front of "of the internet domain" shall be deleted. - 6 - 14. In Section 5 subparagraph 5 (i) (page 15) the nomination of the currency missing in front of the amounts "0.5 million" and "5 million" is Euro. 15. In Section 11 (page 19) "R" should be read as "Ligapart". 16. Wherever in the Umbrella Agreement and/or its appendices the address of Ligapart AG is mentioned, it should read as "Ligapart AG, Neuhofstr. 4, CH-6341 Baar". 17. In Appendix 1 to Annex 1 to Exhibit 2 (shareholders' resolution dated 4 May 2000) the amount in no. 1 shall be DM 72.936.500,79 instead of DM 72.926.500,79. 18. In Appendix 1 to Annex 1 to Exhibit 2 (shareholders' resolution dated 4 May 2000) in the last line of the first page the German word "Jahresfehlbetrag" shall be read as "Jahresuberschu(beta)" and the English word "loss" should read as "profit". 19. Whenever reference is made to "1038 Turin", such reference is deemed to be read "10138 Turin". II. Certain provisions of the Joint Venture Agreement between Seat Pagine Gialle S.p.A. and RSL COM Deutschland GmbH (Annex I of Urk.Nr. 44/2000 dated 6th May 2000 of the acting Public Notary, and Annex II of Urk.Nr. 43/2000 dated 6th May 2000 of the acting Public Notary) shall be clarified as follows: - 7 - 1. Whenever reference is made to "L", such reference shall be deemed to be made to "Ligapart AG", and whenever reference is made to "San Remo" such reference shall be read as a reference to "Seat". 2. In Section 1, paragraph 3. a) (page 4) the reference shall read as "Section 11 para. 1 litt (i)" instead of "Section 11 para. 1 litt (a)". 3. Section 1, subparagraph 6 (page 6) shall at the end be amended by the following additional wording: "RSL confirms that, also during the period before the above date, it is not the intent of RSL to block such increases in cash or in kind of the share capital of Telegate as may be considered appropriate by Telegate. Where the existing restrictions on RSL in favor of certain bondholders prevent RSL from giving its approval to such increases of the share capital without having obtained the consent of such bondholders, RSL shall use its best efforts to obtain such consent. If, however, RSL in its reasonable judgement after consultation with Seat believes that such consent cannot be obtained during the period before the above date, RSL and Seat shall in good faith work together to identify and implement suitable alternative solutions to the share capital increase." 3. In Section 3, subparagraph 2 (ii) (page 8), "one day prior to notarization of this Agreement" shall in both cases be read as "May 3, 2000". 4. In Section 3 paragraph 2 (ii) (page 8) the nomination of the currency missing in front of the amount "150" is Euro. 5. In Section 3 paragraph 2 (iii) (page 8) the nomination of the currency missing in front of the amount "150" is Euro. 6. In Section 3, paragraph 4 (ii) (page 9) "one day prior to notarization of this Agreement" shall be read as "May 3, 2000". - 8 - 7. In Section 3 paragraph 4 (ii) (page 8) the nomination of the currency missing in front of the amount "150" is Euro. 8. In Section 3, paragraph 5, bottom line (page 9), the reference to "Section 4 no. 3 (b)" should be read "Section 4 subparagraph 3 (b)". 9. In Section 4 subparagraph 3, (page 11) the nomination of the currency missing in front of the amount "7,500,000" is Euro. 10. In Section 5 paragraph 1 j), in the forth-last line of subparagraph 2, (page 16) the words "of those" in front of "of the internet domain" shall be deleted. 11. In Section 6 paragraph 5 (i) (page 20) the nomination of the currency missing in front of the amounts "0.5 million" and "5 million" is Euro. 12. In Section 11 (page 25), litt. (iv), third line, "as shown in Exhibit 6" should be read as "by the declaration shown in Appendices 1 and 3 to Annex 1 to Exhibit 4". 13. In Appendix 1 to Annex 1 to Exhibit 4 of the Joint Venture Agreement (shareholders' resolution dated 4 May 2000) the amount in no. 1 should be DM 72.936.500,79 instead of DM 72.926.500,79. 14. In Appendix 1 to Annex 1 to Exhibit 4 of the Joint Venture Agreement (shareholders' resolution dated 4 May 2000) in the last line of the first page the German word "Jahresfehlbetrag" should be read as "Jahresuberschu(beta)" and the English word "loss" shall be read as "profit". 15. In Exhibit 5, sec. 11 (ii) to the Joint Venture Agreement "Lorenzo Pelliccioli" shall be read as "Angelo Novati". - 9 - 16. Whenever reference is made to "1038 Turin", such reference is deemed to be read "10138 Turin". III. Certain provisions of the Option Agreement between Seat Pagine Gialle S.p.A. and RSL COM Deutschland GmbH (Urk.Nr. 45/2000 dated 6th May 2000 of the acting Public Notary, and Exhibit 3 to the Joint Venture Agreement contained in Annex I of Urk.Nr. 44/2000 dated 6th May 2000 of the acting Public Notary, and Exhibit 3 to the Joint Venture Agreement contained in Annex II of Urk.Nr. 43/2000 dated 6th May 2000 of the acting Public Notary) shall be clarified as follows: 1. ss. 2.3: The wording after "(if any)" should be read "and the majority of the members of the board of directors of RSL Communications Ltd. will be represented by individuals different from those holding such office immediately prior to the change of control." 2. In the wording ofss.4.1 (i), second subpara., third line (page 3), the reference should be to "Section 3, subparagraph 2, litt. (i) of the Joint Venture Agreement". 3. ss. 4.1.(ii), second hyphen: the words following (a) until (b) shall be replaced as follows: "T.May3" shall have the meaning assigned to it as Exercise Price in cash in the preceding paragraph (i) of this section of this Agreement, and that 4. ss. 4.1.(ii), second hyphen: the words following (b) until the beginning of the third hyphen shall be replaced as follows: - 10 - "S.May3" shall be replaced by "S.not.day" meaning the average closing price as published by Bloomberg for Seat shares on the Milan Stock Exchange on the earlier day of (x) the day when Seat notifies RSL of its intention to pay in kind or (y) the day of the expiration of the 35 day period set forth in ss. 4.1.(i) of this Agreement (the total amount of Seat Shares to be delivered is hereinafter referred to as "Consideration Seat Shares"); and 5. ss. 4.1.(ii), third hyphen shall be read as follows: - provides RSL with an irrevocable opportunity to borrow Seat Shares from an existing shareholder of Seat in an amount equal to the Consideration Seat Shares at market rates for purposes of effecting a hedge, which hedge may alternatively also be effected through an intermediary entity, provided that in both cases the hedge must be such that market disruptions of the Seat Shares are avoided, for a period from the time from the 35th day as described in ss. 4.1.(i) or such earlier date at which Seat notifies RSL of its intention to pay in kind until such time when the Consideration Seat Shares are delivered by Seat to RSL. It is understood that the cost of such hedge shall be borne by RSL. 6. ss. 4.3, bottom line (page 5): the reference to "ss.6.2, first hyphen" shall be read as a reference to "ss.7.2, first hyphen". 7. ss. 9, second paragraph, sixth line (page 6): the parenthesis should be read before the words "and Seat has not...". 8. Certain provisions of the Exhibit 4 to the Option Agreement (Share Purchase Agreement) contained in Urk.Nr. 45/2000 dated 6th May 2000 of the acting Public Notary, and in Exhibit 3 to the Joint Venture Agreement contained in Annex I of Urk.Nr. 44/2000 dated 6th May 2000 of the acting Public Notary, and in Exhibit 3 to the Joint Venture Agreement contained in Annex II of Urk.Nr. 43/2000 dated - 11 - 6th May 2000 of the acting Public Notary, shall be clarified as follows: a) Article 3.1, first subparagraph (page 3): the words "of Section 4, paragraph 2 of the Option Agreement" shall be read as "ofss.4.1 of the Option Agreement". b) In Article 8 (ii) "Lorenzo Pelliccioli" shall be read as "Angelo Novati". 9. Whenever reference is made to "1038 Turin", such reference is deemed to be read "10138 Turin". IV. The Escrow Agreement between RSL COM Deutschland GmbH, Morgan Stanley Bank AG and J.P. Morgan Securities Ltd dated 6th May 2000 contained as Exhibit IV in the Joint Venture Agreement referred to in II. above requires certain clarifications as follows: 1. Section 1.2. shall be amended at the end as follows: Any applicable source or withholding Tax payable on the interest shall be deducted from the interest accrued. 2. Section 2.1. shall be amended in its fourth line from the top and reads as follows: ... that the Escrow Agent confirms, having received written confirmation from J.P. Morgan, that the shareholders' meeting of Seat Pagine Gialle ... - 12 - 3. Section 5 shall be replaced as follows: This Agreement shall in all respects be governed by and construed in accordance with the laws of Germany. V. The Escrow Agreement between Ligapart AG, Morgan Stanley Bank AG and J.P. Morgan Securities Ltd dated 6th May 2000 contained as Exhibit II in the Umbrella Agreement referred to in I. above requires certain clarifications as follows: 1. Section 1.2. shall be amended at the end as follows: Any applicable source or withholding Tax payable on the interest shall be deducted from the interest accrued. 2. Section 2.1. shall be amended in its fourth line from the top and reads as follows: ... that the Escrow Agent confirms, having received written confirmation from J.P. Morgan, that the shareholders' meeting of Seat Pagine Gialle ... 3. Section 5 shall be replaced as follows: This Agreement shall in all respects be governed by and construed in accordance with the laws of Germany. - 13 - Zug/Switzerland, May 10, 2000 Seat Pagine Gialle S.p.A. Morgan Stanley Bank AG /s/ /s/ ________________________________ ______________________________________ Ligapart AG RSL COM Deutschland GmbH /s/ /s/ ________________________________ ______________________________________ J.P. Morgan Securities Limited /s/ ________________________________ - 14 - Public Deed No. 47/2000 NOTARIAL AUTHENTICATION (Oeffentliche Beurkundung) (Public Deed No. 47/2000) The undersigned Notary Public of the Canton of Zug, Switzerland, lic. iur. Peter B. Arnold, Attorney at Law, hereby certifies and authenticates: The foregoing Agreement corresponds with the intentions and the free will of the party who personally appeared in the capacities as follows: Mr. Stefan Koller, Attorney at Law and Notary Public, born 23.09.1958, Swiss citizen, residing at CH-6312 Steinhausen, Switzerland, Rebenstrasse 6, having his offices at Untermuli 6, CH-6300 Zug, Switzerland, here not acting in his own name, but as representative, exempt of personal liability, acting without express authority in the name and on behalf of Seat Pagine Gialle S.p.A., Via Aurelio Saffi 18, I-10138 Turin, Italy, and Ligapart AG, Neuhofstrasse 4, CH-6341 Baar, and J. P. Morgan Securities Limited, 60 Victoria Embankment, GB-London EC 4Y 0JP and Morgan Stanley Bank AG, Junghofstrasse 13-15, D-60311 Frankfurt am Main, and RSL COM Deutschland GmbH, Lyoner Strasse 9, D-60528 Frankfurt am Main, under the reservation to supply to the acting notary a forthcoming certified consent by each one of the foregoing parties, in legally appropriate form, as soon as reasonably possible and without undue delay. The foregoing Deed and all appendices and annexes thereto were laid out for inspection to and were approved by the person appearing. Subsequently, the Deed was read out aloud to the person appearing before the notary, approved by the person appearing and executed by him in his own hand. This Public Deed is made out in one copy. Zug/Switzerland, this 10th day of May 2000 The Notary Public Peter B. Arnold EX-27 9 0009.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 SEP-30-2000 98,648 52,752 317,154 37,171 14,259 585,246 700,746 193,087 1,824,498 534,086 1,529,392 0 115,000 269 (432,843) 1,824,498 0 1,149,273 816,480 1,440,137 7,380 0 123,832 (389,606) 1,773 (391,379) 0 0 0 (391,379) (6.89) (6.89)
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