Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-70449
[Logo]
OFFER TO EXCHANGE
any and all outstanding
13 1/4% Senior Notes due 2008
($150,000,000 aggregate principal amount outstanding)
for
13 1/4% Senior Notes due 2008
of
VERSATEL TELECOM INTERNATIONAL N.V.
TERMS OF EXCHANGE OFFER
- Expires 5:00 p.m., New York City time, February 23, 1999, unless
extended
- Not subject to any other condition other than that the
Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the Securities and
Exchange Commission
- All Outstanding Notes that are validly tendered and not validly
withdrawn will be exchanged
- Tenders of Outstanding Notes may be withdrawn any time prior to
5.00 p.m., New York City time, on the date of the expiration of
the Exchange Offer
- The exchange of Notes will not be a taxable exchange for U.S.
federal income tax purposes
- We will not receive any proceeds from the Exchange Offer
- The terms of the Exchange Notes to be issued are substantially
similar to the Outstanding Notes, except for transfer
restrictions and registration rights relating to the
Outstanding Notes
- We intend to list the Exchange Notes on the Luxembourg Stock
Exchange
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See "Risk Factors" beginning on page 17 for a discussion of certain
matters that should be considered by prospective investors.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
exchange offer, nor have any of these organizations determined that this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------
The date of this Prospectus is January 25, 1999.
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The exchange offer is not being made to, nor will we accept surrenders
for exchange from, holders of Outstanding Notes in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
No dealer, salesperson or other individual has been authorized to give
any information or make any representation not contained in this prospectus in
connection with the offering covered by this prospectus. If given or made, such
information or representation must not be relied upon as having been authorized
by the Company. This prospectus does not constitute an offer or a solicitation
in any jurisdiction where, or to any person to whom, it is unlawful to make such
offer or solicitation. Neither the delivery of this prospectus, nor any
distribution of securities made hereunder shall under any circumstances, create
any implication that there has not been any change in the facts set forth in
this prospectus or in the affairs of the Company since the date hereof.
The securities may not be offered or sold in or into the United Kingdom
except in circumstances that do not constitute an offer to the public within the
meaning of the Public Offers of Securities Regulations 1995. All applicable
provisions of the Financial Services Act 1986 must be complied with in respect
of anything done in relation to securities in, from or otherwise involving the
United Kingdom.
The securities may not be offered, transferred or sold, as part of
their initial distribution or at any time thereafter, to any individual or legal
entity established, domiciled or resident in The Netherlands. The Company
confirms that any announcement of an offer of the securities, as part of their
initial distribution, any advertisement relating to such offer and any such
offer itself will comply with all applicable securities laws in the countries in
which the securities are offered. A statement to that effect will be submitted
to the Dutch securities authorities ("Stichting Toezicht Effecten Verkeer")
before the securities are offered. This statement will also be mentioned in all
offers and offer documents.
We confirm, having made all reasonable inquiries, that this prospectus
contains all information which is material in the context of the exchange of the
Notes, that the information contained herein is true and accurate in all
material respects and is not misleading in any material respect, that the
opinions and intentions expressed herein are honestly held and that there are no
other facts the omission of which would make any of such information or the
expression of any such opinions or intentions misleading in any material
respect. The Company accepts responsibility accordingly.
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SUMMARY
This summary may not contain all the information that may be important
to you. You should read this entire prospectus, including the financial data and
related notes, before making an investment decision. Unless the context
otherwise requires, the terms the "Company," "VersaTel," "our company" and "we"
refer to VersaTel Telecom International N.V. and its subsidiaries as a combined
entity, except where it is made clear that such term means only the parent
company. You should carefully consider the information set forth under the
heading "Risk Factors." In addition certain statements include forward-looking
statements which involve risks and uncertainties. See "Disclosure Regarding
Forward-Looking Statements." Certain terms used in our business are explained in
the "Glossary" at the end of this prospectus.
The Exchange Offer
We completed on December 3, 1998 a private offering of units consisting
of $150,000,000 13 1/4% Senior Notes (the "Outstanding Notes") and 150,000
warrants to purchase a total of 1,000,050 Class B Shares. On the same day, we
entered into a registration rights agreement with the initial purchasers in the
private offering in which we agreed, among other things, to deliver to you this
prospectus and to complete this exchange offer within 180 days of the issuance
of the Outstanding Notes. The units were separated upon commencement of this
exchange offer. You cannot tender for exchange the warrants issued as part of
the private offering. You should read the discussion under the heading "Summary
Description of the Exchange Notes" and "Description of the Exchange Notes" for
further information regarding the registered notes.
We believe that the notes issued in this exchange offer (the "Exchange
Notes" and, together with the Outstanding Notes, the "Notes") may be resold by
you without compliance with the registration and prospectus delivery provisions
of the Securities Act of 1933, subject to certain conditions. You should read
the discussion under the headings "Summary of the Terms of Exchange Offer" and
"The Exchange Offer" for further information regarding the exchange offer and
resale of the Notes.
The Company
We are a rapidly growing alternative telecommunications service
provider based in Amsterdam, The Netherlands. Our objective is to become the
leading alternative provider of facilities-based national and international
telecommunications services in the Benelux region. We currently provide high
quality, competitively priced, international and national long distance
telecommunications services in The Netherlands and Belgium, primarily to small-
and medium-sized businesses, and wholesale telecommunications services to other
carriers. With the acquisition of CS Net B.V. in November 1998, we will also be
able to offer our business customers certain internet and intranet services.
At present, the Benelux market is dominated by the former monopoly
telecommunications carriers, KPN Telecom in The Netherlands, Belgacom in
Belgium, and P&T Luxembourg in Luxembourg. The Benelux region has several
characteristics which we believe make the Benelux region an excellent market for
an alternative telecommunications provider, including:
o One of the world's highest population densities;
o A relatively high per capita GDP;
o A center of European trade and transport; and
o A relatively large and growing telecommunications market.
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We believe we can capitalize on this opportunity by capturing a portion
of the incremental growth of the market and by winning market share from the
dominant incumbent service providers.
Network Plan
We are building a network infrastructure which is designed to connect
all major business and population centers in the Benelux region and to provide
local access in high density business areas as well as international
connectivity to Germany, France and the United Kingdom (the "VersaTel Network"
or the "Network").
The VersaTel Network will consist of three integrated elements:
o Benelux Overlay Network. We are constructing an overlay
network that will connect the major commercial centers in the
Benelux region (the "Benelux Overlay Network"). The initial
phase of the Benelux Overlay Network will be a fiber-optic
ring connecting Amsterdam and Brussels via The Hague,
Rotterdam and Antwerp (the "Netherlands Randstad Stage").
o Local Access Network. We plan to establish local access
infrastructure in areas with high business concentrations (the
"Local Access Network") along the Benelux Overlay Network
beginning in 1999. The Local Access Network will connect
business customers directly to the VersaTel Network.
o International Network. We intend to build or acquire
additional direct fiber-optic links connecting the Benelux
Overlay Network to interconnection points in Germany, France
and the United Kingdom (the "International Network"). We
reached an agreement in October 1998 with TelNetWork Holding
B.V., known as Global Crossing, whereby we will obtain dark
fiber from Amsterdam to London and from the Belgian-French
border to Paris and in return will provide Global Crossing
with cable ready ducts from the Dutch coast near Amsterdam to
the Belgian-French border.
Business Strategy
Our objective is to become the leading alternative provider of
facilities-based national and international telecommunications services in the
Benelux region. The principal elements of our strategy are to:
o Target the Roll-Out of Our Network. We plan to deploy the
Benelux Overlay Network in the major business and population
centers first, pass as many business as economically feasible
and commence deployment of the Local Access Network as
segments of the Benelux Overlay Network are completed.
o Expand Our Customer Base. We intend to leverage the growth of
our Network, our product and service offerings and our sales
and marketing capabilities to expand our customer base.
o Increase Product and Service Offerings. We intend to provide
new products and services in order to attract additional
customers, enhance customer loyalty and increase the
utilization of our Network by existing customers.
o Focus on Superior Customer Service. We strive to maintain a
competitive advantage over our competitors in our target
market through the provision of superior customer service.
o Expand our Facilities Based Wholesale Services. As we deploy
our Network we expect to service other telecommunications
service providers with excess network capacity, as well as
swap dark fiber, conduits and rights-of-way as a means of
accelerating the deployment of our Network.
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Regulatory and Competitive Environment
The European telecommunications market has historically been dominated
by monopoly PTTs. With a series of directives, the European Commission ("EC")
has been instrumental in opening the telecommunications market to competition.
As part of the liberalization of the telecommunications market, PTTs must now
offer cost-oriented interconnection agreements to alternative service providers.
In addition, the EC has mandated carrier selection, carrier pre-selection and
number portability. We have and will continue to maintain a proactive approach
to regulatory issues on both a national and European level. We believe that this
approach will help ensure compliance by the PTTs with EC directives, allow us to
take advantage of regulatory opportunities and help us influence a regulatory
framework that fosters a competitive environment. Liberalization has resulted in
increased competition from new market entrants, reduced long distance tariffs
and increased traffic volumes as well as the emergence of new service offerings
and enhanced product and price awareness.
Management
VersaTel was founded by R. Gary Mesch, the Company's Managing Director.
Mr. Mesch has substantial experience in telecommunications in the United States,
where he founded NovaNet Communications, Inc. ("NovaNet"), a regional carrier in
Colorado, which was acquired by ICG Communications in 1994, and in Europe, where
he acted as a strategic adviser to several large telecommunications carriers.
VersaTel's management team also includes W. Greg Mesch, Chief Operations
Officer, brother of R. Gary Mesch. W. Greg Mesch was the Chief Operations
Officer of Esat Telecom Limited, the predecessor of Esat Telecom Group plc, a
facilities-based long distance and wireless carrier in Ireland, from 1993 to
1996.
Recent Developments
o Recent Offerings. In May 1998, we completed a private offering of
units consisting of $225,000,000 13 1/4% Senior Notes due 2008 and
warrants to purchase 1,500,000 Class B Shares of the Company (the
"First Offering"). On December 4, 1998, we completed a public
exchange offer pursuant to which all notes issued in the First
Offering were exchanged for notes registered with the Securities
and Exchange Commission. We completed on December 3, 1998 a
private offering of units consisting of $150,000,000 13 1/4%
Senior Notes due 2008 and warrants to purchase 1,000,050 Class B
Shares of the Company (the "Second Offering"). The Outstanding
Notes issued as part of the Second Offering can now be tendered
for exchange.
o Changes to Legal and Capital Structure. On October 15, 1998, we
converted our legal structure from a private company with limited
liability (besloten vennootschap met beperkte aansprakelijkheid)
("B.V.") to a company with limited liability (naamloze
vennootschap) ("N.V."), and changed our name from VersaTel Telecom
B.V. to VersaTel Telecom International N.V.
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In December 1998, we transferred substantially all
of our assets and liabilities (except the Notes and the notes
issued in the First Offering) to our subsidiaries. As a result
of the transfer, we are a holding company with no material assets,
other than the stock of our subsidiaries. Prior to the First
Offering, we completed a four part recapitalization resulting in a
share capital increase from NLG 7.0 million to NLG 50.1 million.
o Business Developments. After obtaining a license to operate
facilities and provide telecommunications services in Belgium in
the third quarter of 1998, we commenced operations in Belgium and
installed a Nortel DMS 100 switch in Antwerp.
We recently completed 140 kilometers of the Benelux Overlay
Network and continue to construct an additional 100 kilometers.
These portions of our Network are not yet operational. The fiber
swap agreement with Global Crossing provides us with additional
dark fiber on the route from Amsterdam to London and from the
Belgian-French border to Paris.
In May 1998, we acquired a 55% interest in Bizztel Telematica
B.V., a small, regional switchless reseller with over 400 small-
and medium-sized business customers in The Netherlands and in
August 1998, we acquired the remaining 45% of equity of Bizztel
Telematica B.V. In November 1998, we acquired CS Net B.V., a
provider of internet and intranet services to business customers.
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Summary of the Terms of the Exchange Offer
This Exchange Offer (the "Exchange Offer") relates to the exchange of
up to $150,000,000 aggregate principal amount of Outstanding Notes for an equal
aggregate principal amount of Exchange Notes. The Exchange Notes will be our
obligations and are entitled to the benefits of the indenture relating to the
Outstanding Notes. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Outstanding Notes except that the
Exchange Notes have been registered under the Securities Act of 1933, and
therefore are not subject to restrictions on transfer and not entitled to the
benefits of the registration rights granted under the registration rights
agreement, executed as a part of the Second Offering, dated December 3, 1998
among VersaTel and the initial purchasers.
Registration Rights.................. On December 3, 1998, we and the initial
purchasers agreed that you, as a holder of
the Outstanding Notes, would be entitled
to exchange your Notes for registered
Notes with substantially identical terms.
This Exchange Offer is intended to satisfy
these rights. After the Exchange Offer is
complete, you will no longer be entitled
to any exchange or registration rights
with respect to your Notes.
The Exchange Offer................... We are offering to exchange $1,000
principal amount of 13 1/4% Senior Notes
due 2008 which have been registered under
the Securities Act of 1933 for each $1,000
principal amount of our 13 1/4% Senior
Notes due 2008 which were issued in the
Second Offering. In order to be exchanged,
an Outstanding Note must be properly
tendered and accepted. All Outstanding
Notes that are validly tendered and not
validly withdrawn will be exchanged.
As of this date, there are $150 million in
aggregate principal amount of Notes
outstanding.
We will issue registered Notes on or
promptly after the expiration of the
Exchange Offer.
Resale of the Exchange
Notes.............................. Based on an interpretation by the staff of
the Securities and Exchange Commission set
forth in no-action letters issued to third
parties, including "Exxon Capital Holdings
Corporation" (available May 13, 1988),
"Morgan Stanley & Co. Incorporated"
(available June 5, 1991), "Mary Kay
Cosmetics, Inc." (available June 5, 1991)
and "Warnaco, Inc." (available October 11,
1991), we believe that the notes issued in
the exchange offer may be offered for
resale, resold and otherwise transferred
by you without compliance with the
registration and prospectus delivery
provisions of the Securities Act of 1933
provided that:
o you are acquiring the Notes issued in
the Exchange Offer in the ordinary
course of business;
o you are not participating, do not
intend to participate, and have no
arrangement or understanding with any
person to participate, in the
distribution of the Notes issued to
you in the Exchange Offer;
o you are not a broker-dealer who
purchased such Outstanding Notes
directly from us for resale pursuant
to Rule 144A or any other available
exemption under the Securities Act of
1933; and
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o you are not an "affiliate" of ours.
If our belief is inaccurate and you
transfer any Note issued to you in the
Exchange Offer without delivering a
prospectus meeting the requirements of the
Securities Act of 1933 or without an
exemption from registration of your Notes
from such requirements, you may incur
liability under the Securities Act of
1933. We do not assume or indemnify you
against such liability, but we do not
believe that any such liability should
exist.
Each broker-dealer that is issued
Notes in the Exchange Offer for its own
account in exchange for Notes which were
acquired by such broker-dealer as a result
of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus meeting the
requirements of the Securities Act of
1933, in connection with any resale of the
Notes issued in the Exchange Offer. The
letter of transmittal states that by so
acknowledging and by delivering a
prospectus, such broker-dealer will not be
deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act of 1933. A broker-dealer
may use this prospectus for an offer to
resell, resale or other retransfer of the
Notes issued to it in the Exchange Offer.
We have agreed that, for a period of 180
days after the date of this prospectus, we
will make this prospectus and any
amendment or supplement to this prospectus
available to any such broker-dealer for
use in connection with any such resales.
We believe that no registered holder of
the Outstanding Notes is an affiliate (as
such term is defined in Rule 405 of the
Securities Act of 1933) of VersaTel.
Expiration of Exchange
Offer.............................. The Exchange Offer will expire at 5:00
p.m., New York City time, on February 23,
1999, unless we decide to extend the
expiration date.
Accrued Interest on the
Exchange Notes and the
Outstanding Notes.................. The Exchange Notes will bear interest from
December 3, 1998. Holders of Outstanding
Notes whose Notes are accepted for
exchange will be deemed to have waived the
right to receive any payment in respect of
interest on such Outstanding Notes accrued
from December 3, 1998 to the date of the
issuance of the Exchange Notes.
Consequently, holders who exchange their
Outstanding Notes for Exchange Notes will
receive the same interest payment on May
15, 1999 (the first interest payment date
with respect to the Outstanding Notes and
the Exchange Notes) that they would have
received had they not accepted the
Exchange Offer.
Termination of the Exchange
Offer.............................. We may terminate the Exchange Offer if we
determine that our ability to proceed with
the Exchange Offer could be materially
impaired due to any legal or governmental
action, new law, statute, rule or
regulation or any interpretation of the
staff of the Securities and Exchange
Commission of any existing law, statute,
rule or regulation. We do not expect any
of the foregoing conditions to occur,
although there can be no assurance that
such conditions will not occur. Holders of
Outstanding Notes will have certain rights
against our company under the registration
rights agreement executed as part of the
offering of the Outstanding Notes should
we fail to consummate the Exchange Offer.
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Procedures for Tendering
Outstanding Notes.................. If you are a holder of a Note and you wish
to tender your Note for exchange pursuant
to the Exchange Offer, you must transmit
to The Bank of New York, as exchange
agent, on or prior to the expiration date:
either
o a properly completed and duly
executed letter of transmittal, which
accompanies this prospectus, or a
facsimile of the letter of
transmittal, including all other
documents required by the letter of
transmittal, to the exchange agent at
the address set forth on the cover
page of the letter of transmittal; or
o a computer-generated message
transmitted by means of the
Automated Tender Offer Program system
of The Depository Trust Company
("DTC") and received by the exchange
agent and forming a part of a
confirmation of book entry transfer
in which you acknowledge and agree to
be bound by the terms of the letter
of transmittal.
and, either
o a timely confirmation of book-entry
transfer of your Outstanding Notes
into the exchange agent's account at
DTC pursuant to the procedure for
book-entry transfers described in
this prospectus under the heading
"The Exchange Offer -- Procedure for
Tendering," must be received by the
exchange agent on or prior to the
expiration date; or
o the documents necessary for
compliance with the guaranteed
delivery procedures described below.
By executing the letter of transmittal,
each holder will represent to us that,
among other things, (1) the Notes to be
issued in the Exchange Offer are being
obtained in the ordinary course of
business of the person receiving such
Exchange Notes whether or not such person
is the holder, (2) neither the holder nor
any such other person has an arrangement
or understanding with any person to
participate in the distribution or such
Exchange Notes and (3) neither the holder
nor any such other person is an
"affiliate," as defined in Rule 405 under
the Securities Act of 1933, of VersaTel.
Special Procedures for Beneficial
Owners............................. If you are a beneficial owner of
registered Notes that are registered in
the name of a broker, dealer, commercial
bank, trust company or other nominee and
you wish to tender such Notes in the
Exchange Offer, you should promptly
contact such person in whose name your
Notes are registered and instruct such
person to tender on your behalf. If you,
as such beneficial holder, wish to tender
on your own behalf you must, prior to
completing and executing the letter of
transmittal and delivering your
Outstanding Notes, either make appropriate
arrangements to register ownership of the
Outstanding Notes in your name or obtain a
properly completed bond power from the
registered holder. The transfer of record
ownership may take considerable time.
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Guaranteed Delivery
Procedures......................... If you wish to tender your Notes and time
will not permit your required documents to
reach the exchange agent by the expiration
date, or the procedure for book-entry
transfer cannot be completed on time or
certificates for registered notes cannot
be delivered on time, you may tender your
Notes pursuant to the procedures described
in this prospectus under the heading "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights.................... You may withdraw the tender of your Notes
at any time prior to 5:00 p.m., New York
City time, on February 23, 1999, unless
your Notes were previously accepted for
exchange.
Acceptance of Outstanding
Notes and Delivery of Exchange
Notes.............................. Subject to certain conditions (as
summarized above in "Termination of the
Exchange Offer" and described more fully
under the "The Exchange Offer --
Termination"), we will accept for exchange
any and all Outstanding Notes which are
properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on
the expiration date. The Exchange Notes
issued pursuant to the Exchange Offer will
be delivered promptly following the
expiration date.
Certain U.S. Federal Income Tax
Consequences....................... The exchange of the Notes will generally
not be a taxable exchange for United
States federal income tax purposes. We
believe you will not recognize any taxable
gain or loss or any interest income as a
result of such exchange.
Use of Proceeds...................... We will not receive any proceeds from the
issuance of Exchange Notes pursuant to the
Exchange Offer. We will pay all expenses
incident to the Exchange Offer.
Exchange Agent....................... United States Trust Company of New York is
serving as exchange agent in connection
with the Exchange Offer. The exchange
agent can be reached at Corporate Trust
Administration, 770 Broadway, 13th Floor,
New York, NY 10003. For more information
with respect to the Exchange Offer, the
telephone number for the exchange agent is
(800) 548-6565 and the facsimile number
for the exchange agent is (212) 780-0592.
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Summary Description of the Exchange Notes
Issuer............................... VersaTel Telecom International N.V.
Notes Offered........................ $150,000,000 aggregate principal amount of
13 1/4 Senior Notes due 2008.
Maturity Date........................ May 15, 2008.
Interest Payments Dates.............. May 15 and November 15 of each year,
commencing May 15, 1999.
Ranking.............................. The Notes will be general unsecured
(except to the extent described under
"Escrow Account" below) obligations and
will rank senior in right of payment to
any of our future indebtedness that is, by
its terms or by the terms of the agreement
or instrument governing such indebtedness,
expressly subordinated in right of payment
to the Notes and equal in right of payment
to all of our existing and future senior
indebtedness, including the notes issued
in the First Offering. At September 30,
1998, after giving effect to the Second
Offering, we would have had approximately
$368.0 million of senior indebtedness. We
transferred in December 1998 substantially
all of our assets and liabilities (other
than the Notes and the notes issued in the
First Offering) to certain of our
subsidiaries. After such transfer, we
became a holding company with limited
assets and operate our business through
our subsidiaries. Any right of VersaTel,
as a holding company, and its creditors,
including holders of the Notes, to
participate in the assets of any of our
subsidiaries upon any liquidation or
administration of such subsidiary will be
subject to the prior claims of the
creditors of such subsidiary. The claims
of our creditors, are effectively
subordinated to all existing and future
third-party indebtedness and liabilities,
including trade payables, of our
subsidiaries. At September 30, 1998, after
giving effect to the transfer of
substantially all of our assets and
liabilities (other than the Notes and the
notes issued in the First Offering) to
certain of our subsidiaries, our
subsidiaries would have had total
liabilities of $24.9 million reflected on
our balance sheet.
Escrow Account....................... Concurrently with the completion of the
Second Offering, we purchased, pledged and
transferred to the trustee under the
indenture governing the Notes, for your
benefit, U.S. Government Securities in
such amounts as will be sufficient upon
scheduled interest and principal payments
of such securities to provide for the
payment in full of the first five
scheduled interest payments on the Notes
(excluding any additional amounts and any
liquidated damages). We used approximately
$46.5 million to acquire these government
securities. We pledged these government
securities to the trustee for your
benefit, as holders of the Notes and
deposited them into an escrow account held
by an escrow agent for the benefit of the
trustee and you, as holders of the Notes,
in accordance with an escrow agreement. We
may use the funds in the escrow account to
pay interest payments on the Notes to you.
If the maturity date of the Notes
accelerates, under the escrow agreement,
the amount remaining in the escrow account
will be paid to the trustee, who can
use the remaining amount to pay any
amounts owing on the Notes as provided in
the indenture governing the Notes. Before
such disbursement, any uninvested funds
contained in the escrow account will be
invested in cash equivalents.
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Optional Redemption.................. We may redeem the Notes, in whole or in
part, at any time on or after May 15, 2003
at the redemption prices set forth in this
prospectus, plus accrued and unpaid
interest, additional amounts, if any, and
liquidated damages, if any, to the
redemption date. We may also redeem the
Notes, at our option, in whole, but not in
part, at any time at a redemption price
equal to the aggregate principal amount of
the Notes being redeemed, together with
accrued and unpaid interest and liquidated
damages, if any, to the redemption date
and all additional amounts then due and
which will become due as a result of the
redemption or otherwise in the event of
certain changes affecting Netherlands
withholding taxes. See "Description of the
Exchange Notes -- Optional Redemption."
Before November 15, 2001, we may redeem up
to 35% of the aggregate principal amount
of the Notes with the net proceeds of a
public equity offering at a price equal to
113 1/4% of the aggregate principal amount
of the Notes redeemed plus accrued and
unpaid interest, additional amounts, if
any, and liquidated damages, if any,
provided that at least 65% of the
aggregate principal amount of the Notes
originally issued remains outstanding
immediately after such redemption and
provided that we give notice of such
redemption within 30 days of the closing
of any such public equity offering. See
"Description of the Exchange Notes --
Optional Redemption."
Change of Control.................... Upon certain change of control events,
each holder of the Notes may require us to
repurchase all or a portion of its Notes
at a purchase price equal to 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest, thereon to
the date of repurchase, plus additional
amounts, if any, and liquidated damages,
if any to the date of repurchase. See
"Description of the Exchange Notes --
Certain Definitions" for the definition of
a change of control.
Withholding Taxes;
Additional Amounts................. Unless required by law, all our payments
in respect of the Notes will be made
without withholding or deduction for or on
account of any taxes imposed by or within
any relevant taxing jurisdiction. Subject
to certain exceptions and limitations, we
will be required to pay any additional
amounts as may be necessary in order that
the net amounts received by you after any
withholding or deduction in respect of any
such taxes required by law shall equal the
respective amounts of principal and
interest that would have been received in
respect of the Notes in the absence of
such withholding or deduction. See
"Description of the Exchange Notes --
Withholding Taxes."
Certain Covenants.................... The indenture governing the Notes contains
covenants that, among other things, limit
our ability and the ability of certain of
our subsidiaries to:
o incur certain additional
indebtedness,
o pay dividends on, redeem or
repurchase our capital stock,
o make certain investments,
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o issue or sell capital stock of
certain of our subsidiaries,
o engage in transactions with
affiliates,
o create certain liens,
o sell assets,
o guarantee indebtedness,
o restrict dividend or other payments
to us, and
o consolidate, merge or transfer all or
substantially all our assets and the
assets of our subsidiaries on a
consolidated basis.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description
of the Exchange Notes" in this prospectus.
Exchange Offer; Registration
Rights............................. Under the registration rights agreement
executed as part of the Second Offering,
we have agreed to:
o file a registration statement within
90 days after the issue date of the
Notes enabling noteholders to
exchange the privately placed notes
for publicly registered notes with
substantially identical terms,
o use our best efforts to cause the
registration statement to become
effective within 150 days after the
issue date of the Notes,
o consummate the exchange offer within
180 days after the issue date of
the Notes, and
o use our best efforts to file a shelf
registration statement for the resale
of the Notes if we cannot complete an
Exchange Offer within the time
periods listed above and in certain
other circumstances.
The interest rate on the Notes will
increase if we do not comply with our
obligations under the registration rights
agreement. See "The Exchange Offer."
Trustee, Escrow Agent
and Paying Agent................... United States Trust Company of New York.
Listing.............................. The Notes are eligible for trading in the
PORTAL market. We intend to apply to list
the Exchange Notes on the Luxembourg Stock
Exchange.
11
<PAGE>
Consequences of Failure to Exchange
Untendered Outstanding Notes that are not exchanged for Exchange Notes
pursuant to the Exchange Offer will remain restricted securities. Outstanding
Notes will continue to be subject to the following restrictions on transfer: (1)
Outstanding Notes may be resold only if registered pursuant to the Securities
Act of 1933, if an exemption from registration is available under the Securities
Act of 1933, or if neither such registration nor an exemption is required by
law, (2) Outstanding Notes shall bear a legend restricting transfer in the
absence of registration or an exemption from registration and (3) a holder of
Outstanding Notes who desires to sell or otherwise dispose of all or any part of
its Outstanding Notes under an exemption from registration under the Securities
Act of 1933, if requested by us, must deliver to us an opinion of independent
counsel experienced in Securities Act matters, reasonably satisfactory in form
and substance to us, that such an exemption is available. See "Risk Factors --
Consequences of Failure to Exchange."
Risk Factors
For a discussion of certain factors that should be considered carefully
in connection with an investment in the Exchange Notes, see "Risk Factors"
beginning on page 17.
12
<PAGE>
Summary Financial and Other Data
The summary financial data for VersaTel, presented below, as of and for
the three fiscal years ended December 31, 1995, 1996 and 1997 have been derived
from the financial statements of VersaTel, which have been prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and
have been audited by Arthur Andersen, independent public accountants (together
with the notes thereto, the "Audited Financial Statements"). The summary
financial data as of and for the nine months ended September 30, 1997 and 1998
have been derived from the unaudited financial statements of VersaTel, which
have been prepared in accordance with U.S. GAAP and on a basis which management
believes is consistent with that of the Audited Financial Statements (the
"Unaudited Financial Statements" and, together with the Audited Financial
Statements, the "Financial Statements"). The unaudited financial data for the
nine months ended September 30, 1997 and 1998 include all normal and recurring
adjustments necessary for the fair presentation of the results of operations and
financial condition of the Company for such periods. You should read the data
below in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations" and the Financial
Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Nine Months Ended September 30,
-------------------------------------------- ----------------------------------
1995(1) 1996 1997 1997 1998
------- ------ ---------------------- ---------- ---------------------
NLG NLG NLG $(2) NLG NLG $(2)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue............................... 52 6,428 18,896 10,051 14,263 25,880 13,766
Operating expenses:
Cost of revenue excl. depreciation
and amortization................. 117 4,954 17,405 9,258 11,170 21,120 11,234
Selling, general and administrative 538 5,485 17,527 9,323 10,929 30,002 15,958
Depreciation and amortization...... 11 453 3,237 1,722 1,238 4,914 2,614
------ --------- -------- -------- -------- -------- --------
Total operating expenses......... 666 10,892 38,169 20,303 23,337 56,036 29,806
------ --------- --------- --------- --------- --------- ---------
Loss from operations.................. (614) (4,464) (19,273) (10,252) (9,074) (30,156) (16,040)
Interest expense (income), net........ 1 269 534 284 330 14,962 7,959
Currency loss (gain).................. -- -- 53 28 -- (4,747) (2,525)
------- --------- ---------- ---------- --------- --------- ---------
Net loss.............................. (615) (4,733) (19,860) (10,564) (9,404) (40,371) (21,474)
======= ========= ========== ========== ========= ========== ==========
Net loss per share (Basic and Diluted) (0.18) (0.95) (2.20) (1.17) (1.06) (2.65) (1.41)
Weighted average number of shares
outstanding........................ 3,327 5,004 9,042 9,042 8,910 15,248 15,248
Cash Flow Data:
Net cash provided by (used in) operating
activities.......................... (715) (1,718) 5,766 3,067 832 (179,473) (95,464)
Net cash used in investing activities. (234) (2,569) (14,516) (7,721) (5,238) (24,076) (12,806)
Net cash provided by financing
activities.......................... 1,109 8,571 5,807 3,089 1,874 441,851 235,027
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of September 30,
1995 1996 1997 1998
----------- ------------ ------------------------- ----------------------
NLG NLG NLG $(2) NLG $(2)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and restricted cash.................... 160 4,443 1,495 795 395,166 210,195
Working capital (excluding cash and
restricted cash).......................... 436 (2,704) (24,774) (13,178) (36,515) (19,423)
Capitalized finance cost.................... -- -- -- -- 19,333 10,284
Property, plant and equipment, net.......... 224 2,340 13,619 7,244 23,161 12,320
Construction in progress.................... -- -- -- -- 10,407 5,536
Goodwill.................................... -- -- -- -- 1,478 786
Total assets................................ 820 8,160 19,331 10,282 459,880 244,617
Total long-term obligations (including
current portion).......................... 614 4,185 8,491 4,516 423,022 225,012
Total shareholders' equity (deficit)........ (120) 146 (18,214) (9,688) (9,510) (5,059)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1997 1997 1997 1998 1998 1998
---------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Number of billable minutes (thousands)(3) .......... 5,769 6,230 7,127 12,432 26,863 34,021
Average revenue per billable minute (NLG) .......... 0.87 0.85 0.65 0.51 0.35 0.30
Total customers-- business (at period end) ......... 1,152 1,463 2,014 2,619 3,810 5,022
Total customers-- residential (at period end) ...... -- -- 230 617 1,054 1,436
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended December 31, September 30,
---------------------------------------- -----------------------------
1995 1996 1997 1997 1998
-------- -------- -------------------- -------- -------------------
NLG NLG NLG $(2) NLG NLG $(2)
(In thousands, except ratio)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Financial Data:
EBITDA(4) .................................. (603) (4,011) (16,036) (8,530) (7,836) (25,242) (13,426)
Capital expenditures ....................... 213 2,569 14,516 7,721 5,238 24,076 12,806
Ratio of earnings to fixed charges(5) ..... -- -- -- -- -- -- --
Deficiency of Earnings plus fixed charges to
cover fixed charges(6) ................... (614) (4,464) (19,326) (10,280) (9,075) (25,408) (13,515)
</TABLE>
- ----------
(1) The summary financial data for fiscal year 1995 reflects the financial
results of the Company for the period from October 10, 1995, the date of
incorporation, through December 31, 1995.
(2) Solely for the convenience of the reader, Dutch guilder amounts have been
translated into U.S. dollars at the Noon Buying Rate on September 30, 1998
of NLG 1.88 per $1.00.
(3) Billable minutes are those minutes during which a call is connected to the
VersaTel switch and for which the Company bills a customer.
(4) EBITDA consists of earnings (loss) before interest expense, income taxes,
depreciation, amortization and foreign exchange gain (loss). EBITDA is
included because management believes it is a useful indicator of a company's
ability to incur and service debt. EBITDA should not be considered as a
substitute for operating earnings, net income, cash flow or other statements
of operations or cash flow data computed in accordance with U.S. GAAP or as
a measure of the Company's results of operations or liquidity. Funds
depicted by this measure may not be available for management's discretionary
use (due to covenant restrictions, debt service payments, the expansion of
the VersaTel Network, and other commitments). Because all companies do not
calculate EBITDA identically, the presentation of EBITDA contained herein
may not be comparable to other similarly entitled measures of other
companies.
(5) The ratio of earnings to fixed charges is calculated by dividing (i) income
(loss) from continuing operations before income taxes ("Earnings") plus
fixed charges by (ii) fixed charges. Fixed charges consist of interest
expense. Earnings plus fixed charges were insufficient to cover fixed
charges by NLG 0.6 million in 1995, NLG 4.5 million in 1996, NLG 19.3
million in 1997, NLG 9.1 million for the nine months ended September 30,
1997 and NLG 25.4 million for the nine months ended September 30, 1998.
(6) The deficiency of earnings plus fixed charges to cover fixed charges is
calculated by adding (i) income (loss) from continuing operations before
income taxes plus (ii) fixed charges. Fixed charges consist of interest
expense.
14
<PAGE>
SERVICE OF PROCESS AND
ENFORCEABILITY OF CIVIL LIABILITIES
VersaTel is incorporated under the laws of The Netherlands and
substantially all of its assets are located outside the United States. In
addition, most of VersaTel's Management Board, Supervisory Board and executive
officers are not residents of the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon such persons or to enforce against such persons or VersaTel judgments of
United States courts based upon civil liabilities under the United States
federal securities laws. The United States and The Netherlands do not have a
treaty providing for the reciprocal recognition and enforcement of judgments, so
United States judgments are not directly enforceable in The Netherlands.
However, a final judgment for the payment of money obtained in a United States
court, which is not subject to appeal or any other means of contestation and is
enforceable in the United States, would in principle be upheld by a Netherlands
court of competent jurisdiction when asked to render a judgment in accordance
with such final judgment by a United States court, without substantive
re-examination or relitigation on the merits of the subject matter thereof;
provided that such judgment has been rendered by a court of competent
jurisdiction, in accordance with rules of proper procedure, that it has not been
rendered in proceedings of a penal or revenue nature and that its content and
possible enforcement are not contrary to public policy or public order of The
Netherlands. Notwithstanding the foregoing, there can be no assurance that
United States investors will be able to enforce against the Company, or
executive officers or members of the Management or Supervisory Boards, or
certain experts named herein who are residents of The Netherlands or other
countries outside the United States, any judgments in civil and commercial
matters, including judgments under the federal securities laws. VersaTel has
been advised by its Netherlands counsel, Stibbe Simont Monahan Duhot, that there
is doubt as to whether a Netherlands court would impose civil liability on
VersaTel, or on its executive officers or the members of the Management or
Supervisory Boards, in an original action based solely upon the federal
securities laws of the United States brought in a court of competent
jurisdiction in The Netherlands against the Company or such members.
VersaTel is organized under the laws of The Netherlands and its
executive offices are located at Paalbergweg 36, 1105 BV Amsterdam-Zuidoost, The
Netherlands, and its telephone number is +31-20-430-4300.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us, including, among other things:
o Our anticipated expansion plans for the VersaTel Network and
growth strategies,
o Our expectation of the impact of this expansion on our
revenue potential, cost basis and margins,
o Our expectation of the competitiveness of our services,
o Our intention to introduce new products and services,
o Anticipated trends and conditions in our industry, including
regulatory reform and the liberalization of
telecommunications services across Europe, and
o Our ability to compete, both nationally and internationally.
In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this Prospectus might not occur. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
----------------------
15
<PAGE>
PRESENTATION OF INFORMATION
We publish our financial statements in Dutch guilders. In this
prospectus, references to "U.S. dollars" or "$" are to United States dollars,
references to "Dutch guilders" or "NLG" are to the currency of The Netherlands
and references to "Belgian francs" or "BEF" are to the currency of Belgium.
Solely for the convenience of the reader, this Prospectus contains translations
of certain Dutch guilder amounts into U.S. dollars at specified rates. These
translations should not be construed as representations that the Dutch guilder
amounts actually represent such U.S. dollar amounts or could be converted into
U.S. dollars at the rate indicated or at any other rate. Unless otherwise
indicated, the translations of Dutch guilders into U.S. dollars have been made
at NLG 1.88 per $1.00, the noon buying rate in the City of New York for cable
transfers in Dutch guilders as certified for customs purposes by the Federal
Reserve Bank of New York ("Noon Buying Rate") on September 30, 1998. See
"Exchange Rate Information" for historical information regarding the Noon Buying
Rate. On January 8, 1999, the Noon Buying Rate was NLG 1.91 per $1.00. See "Risk
Factors -- Risks Associated with Exchange Rate Fluctuations" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
discussion of the effects of exchange rate fluctuations on the Company. For
information regarding recent rates of exchange between Dutch guilders and U.S.
dollars, see "Exchange Rate Information." This prospectus contains translations
of certain Belgian franc amounts into U.S. dollars at specified rates. These
translations should not be construed as representations that the Belgian francs
amounts actually represent such U.S. dollar amounts or could be converted into
U.S. dollars at the rate indicated or at any other rate. Unless otherwise
indicated, the translation of Belgian francs into U.S. dollars has been made at
BEF 34.48 per $1.00, the noon buying rate in the City of New York for cable
transfers in Belgian francs as certified for customs purposes by the Federal
Reserve Bank of New York on September 30, 1998.
16
<PAGE>
RISK FACTORS
Prospective participants in the Exchange Offer should consider
carefully the following factors in evaluating the Company and its business in
addition to the other information contained in this prospectus.
Substantial Indebtedness
We have substantial indebtedness. After giving effect to the Second
Offering we would have had, as of September 30, 1998 (on a pro forma basis),
outstanding debt of approximately NLG 691.9 million, our stockholders' equity
would have been approximately NLG (7.6) million and our assets would have been
approximately NLG 721.1 million. We may, subject to limits imposed by our debt
obligations, continue to incur substantial additional debt, as the indentures
governing the Notes and the notes issued in the First Offering do not limit the
amount of indebtedness that we may incur to finance the cost of the development
of our Network. We expect that much of such further debt will likely be secured
against our assets. Therefore, if we enter into bankruptcy, liquidation or
similar proceedings, those assets that have been used as collateral may be
seized by our creditors and therefore may not be available to repay you. See
"Selected Financial and Other Data", the Financial Statements included elsewhere
in this prospectus, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Description of Certain Indebtedness" and
"Description of the Exchange Notes."
Our high level of indebtedness and the limits imposed by our debt
obligations could have the following effects:
o we may have difficulty in paying the interest on our outstanding
debt and any newly incurred debt;
o we may have difficulty finding sources of financing for working
capital and capital expenditure requirements and to assist paying
the interest on our outstanding debt;
o we will not be able to use a significant portion of our cash flow
in our business or to react to industry or economic changes,
because of the portion of cash flow directed to paying interest
and principal on our debt; and
o we may not be able to react as quickly to changes in our business
as our competitors who have less debt and financial restrictions,
which may put us at a disadvantage and make us more vulnerable to
adverse changes in economic conditions.
Although we have entered into an escrow agreement pursuant to which we
have agreed to deposit with the escrow agent pledged securities in such amount
as will be sufficient to cover the first five scheduled interest payments on the
Notes, the ability to deal freely with the funds in the escrow account following
an event of default under the indenture governing the Notes may be limited by
applicable bankruptcy, insolvency, liquidation, or other similar legislation or
legal principles. See "Description of the Exchange Notes -- Escrow Account."
Continuing Operating Losses
For the nine months ended September 30, 1998, we had a loss from
operating activities of NLG 30.2 million and negative EBITDA of NLG 25.2
million. For the year ended December 31, 1997, we had a loss from operating
activities of NLG 19.3 million and negative EBITDA of NLG 16.0 million and for
the year ended December 31, 1996 we had a loss from operating activities of NLG
4.5 million and negative EBITDA of NLG 4.0 million. In addition, we had an
accumulated deficit of NLG 65.6 million and NLG 25.2 million as of September 30,
1998 and December 31, 1997, respectively. Although we have experienced revenue
growth since we commenced operations in 1995, there can be no assurance we will
continue to grow. As we continue to incur more costs resulting from expanding
and developing our Network, we expect to continue to incur significant further
operating losses for the foreseeable future as we incur additional costs in our
build out of the Network, the expansion of our marketing and sales force and the
introduction of new telecommunication services and products. You should also be
aware that the prices of
17
<PAGE>
telecommunications services have fallen in Europe in recent years, and as
competition increases, we expect that prices will continue to decline. As the
cost of providing services decreases and the number of our customers increase,
we expect these price reductions to be at least partially offset, but you should
be aware that we can not be certain that we will achieve or, if achieved, be
able to maintain operating profits in the future.
Debt Service Obligations
After giving pro forma effect to the recapitalization, the First
Offering and the Second Offering, our interest expense for the year ended
December 31, 1997 would have been NLG 93.4 million. Accordingly, we will need to
increase substantially our net cash flow in order to meet our debt service
obligations, including our obligations with respect to the Notes and the notes
issued in the First Offering. There is no certainty that we will be able to
generate sufficient cash flows from operating activities to pay our interest and
principal repayment obligations on our outstanding debt. Our ability to improve
our operating performance and financial results will depend not only on our
ability to successfully implement our business plan, but also upon economic,
financial, competitive, regulatory and other factors beyond our control,
including, fluctuations in exchange rates and general economic conditions in the
Benelux region. There can be no assurance that we will generate sufficient
positive cash flow from operating activities in the future to service our debt
and allow us to make necessary capital expenditures. If we are unable to meet
the repayment obligations, we may have to refinance our debt, sell our assets or
obtain new financing. If we cannot refinance or otherwise satisfy our debt
obligations we will be in default under such obligations which could in turn
result in other debt (including the Exchange Notes), becoming immediately due
and payable. See "-- Considerable Capital Required to Expand the Network" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Adverse Consequences to Holders of Notes as a Result of a Holding Company
Structure; Structural Subordination of the Notes
In December 1998, we transferred substantially all of our assets and
liabilities (except the Notes and the notes issued in the First Offering) to our
subsidiaries. Since the transfer we are a holding company with no material
assets, other than the stock of our subsidiaries. Our subsidiaries now conduct
substantially all of our operations and directly own substantially all of our
assets. You should be aware that our subsidiaries have no obligation, contingent
or otherwise, to pay any amount pursuant to the Notes or to make any funds
available for such payment. Therefore, our operating cash flow and ability to
meet our debt obligations, including your Notes, will depend on the cash flow
provided by our subsidiaries in the form of loans, dividends or other payments
to us as shareholder. The ability of our subsidiaries to make such payments to
us will depend on their earnings, tax considerations and legal restrictions.
Although the indenture governing the Notes limits the ability of our
subsidiaries to enter into consensual restrictions on their ability to pay
dividends and to make other payments, such limitations are subject to a number
of significant qualifications. See "Description of the Exchange Notes -- Certain
Covenants -- Limitation on Dividend and other Payment Restrictions Affecting
Restricted Subsidiaries." In the event of insolvency, liquidation, dissolution
or reorganization of any of our subsidiaries, the creditors of each subsidiary
would be entitled to payment in full from such subsidiary's assets. After paying
their own creditors, our subsidiaries may not have any remaining assets for
distribution to us as shareholder and, consequently, there may not be any assets
available for payment to you as noteholders. The Notes, therefore, are
effectively subordinated to the obligations of our subsidiaries.
Considerable Capital Required to Expand the Network
We will require significant amounts of capital to develop and expand
our Network, which also includes expanding our sales and marketing efforts and
our product and service offerings. We expect that the capital raised from the
First Offering and the Second Offering and the recapitalization in the first
half of 1998 together with other available financings and cash flow from
operations will be sufficient for our anticipated capital requirements and
anticipated losses until December 1999.
However, if these sources are not sufficient or if our plans or
assumptions change or prove to be incorrect we may have to seek other sources of
financing (such as lines of credit with commercial banks or vendors or
additional public financings), we may have to delay or abandon some of our
development and expansion plans or we may have to seek additional financing
earlier than anticipated. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." We may
not be able to obtain additional financing or, if we can, on a timely basis or
on terms favorable to us. Our current debt obligations also restrict our ability
to raise additional financing and how we may use any such additional financing.
In addition, such additional financing is likely to be subject to additional
financial restrictions.
18
<PAGE>
If we are unable to acquire additional capital on acceptable terms, our business
and our ability to pay interest and principal on the Notes may be seriously
adversely affected.
Significant Challenges in Expanding the Network
Our future success is dependent upon our ability to build and maintain
our own telecommunications network. Our success will depend specifically on our
ability to obtain and maintain:
o experienced and qualified management and staff;
o additional switch sites;
o interconnection with PTTs' and other carriers' networks;
o the necessary licenses;
o additional transmission facilities (either through
construction or access to an existing facility); and
o the necessary easements and rights-of-way from property
owners, competitors and various levels of government.
We are not certain that our current cost estimates are correct or that
we will meet our current development schedule relating to construction of the
Network. Recently, we experienced a delay in obtaining rights-of-way on
approximately 60 kilometers of public property due to the uncertainty expressed
by some local governments as to the implications of the new telecommunications
act which was recently adopted by the Netherlands parliament. Although these
rights-of-way have now been obtained, these delays prevented us from completing
the Netherlands Randstad Stage within the time originally anticipated. In
addition, the successful implementation of our construction and expansion
strategy will be subject to a variety of other risks, including operating and
technical problems, regulatory uncertainties, delays in the full implementation
of the EC directives regarding telecommunications liberalization, competition,
the availability of capital and the risk of damage to software and hardware
resulting from adverse weather conditions, fire, power loss, natural disasters
and other causes. Any significant increase in costs or any further delay in the
schedule could have a negative effect on our financial condition and our ability
to make payments on the Notes and our other obligations. Even if the Network is
successfully developed, we may not be able to operate it efficiently.
We have entered into agreements for the design and construction of key
components of our Network. However, we have not entered into definitive
agreements relating to the development and construction of significant other
portions of the Network and we cannot guarantee that we will enter into these
agreements or, further, if we enter into these agreements, that the construction
will be completed efficiently. Further, our Network depends on technology and
products we obtain from vendors that also supply our competitors. Such vendors
might stop supplying us and we might not be able to find suitable replacements.
The development of our Network is based on projections of the growth in
traffic volumes and routing preferences and the most cost-effective means of
constructing our Network. If these projections are incorrect, it could have a
material adverse effect on our business. See "Business -- Network."
Difficulties in Upgrading and Protecting our Network
The success of our Network will also be dependent on our continued
ability to provide high quality telecommunications services through upgrading
our systems and our ability to protect our network from external damage. As we
grow, the timing and implementation of our upgrades will become more important.
We cannot guarantee that the quality and availability of our services will not
be disrupted because of our inability to make timely or error-free upgrades to
our network. Also, our Network may be subject to external damage, in particular
from contruction work, but also from events such as floods and other accidents,
that can disrupt service.
19
<PAGE>
We have established design and management techniques to address any disruptions
that may occur; however, any prolonged difficulty in accessing our Network may
threaten our relationship with our customers and have an adverse impact on our
business.
Our Limited History and Experience
We were founded in October 1995 and, as a result, we have limited
experience as an operating company and we have generated only limited revenues.
We have recently entered the Belgian market and intend to enter the Luxembourg
market. In both of these markets, we have limited or no operating experience and
services have previously been provided primarily by the national PTTs.
Accordingly, our prospects must be considered in light of the risks, expenses
and delays inherent in establishing operations in a market with long established
competitors and other more recent entrants to the market.
Risks Associated with a Rapidly Changing Industry; Technology
The European telecommunication industry is changing rapidly due to,
among other factors, liberalization, privatization of PTTs, technology
improvements, expansion of telecommunications infrastructure and the
globalization of the world's economies and trade. Such changes may happen at any
time and can significantly affect our operations. There can be no assurance that
one or more of these factors will not occur as we expect or will not have
unforeseen effects which could have a material adverse effect on us. There can
also be no assurance, even if these factors turn out as anticipated, that our
strategy will be successful in this rapidly evolving market.
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new products and services, and
increased availability of transmission capacity, as well as the increasing
utilization of the internet for voice and data transmission. Our success will
depend substantially on our ability to predict which of the many possible
current and future networks, products and services will be important to finance,
establish and maintain. In particular, as we further expand and develop our
Network, we will become increasingly exposed to the risks associated with the
relative effectiveness of our technology and equipment. The cost of
implementation of emerging and future technologies could be significant, and
there can be no assurances that we will select appropriate technology and
equipment or that we will obtain appropriate new technology on a timely basis or
on satisfactory terms. The failure to obtain effective technology and equipment
may adversely affect our ability to provide competitive products and service,
and the viability of our operations and could have a material adverse impact on
our business. See "-- Difficulties in Upgrading and Protecting our Network."
Dependence on Key Personnel in a Competitive Environment
Our success depends on the continued employment of our managing
director and other key personnel. Several of our key employees have been with
our company for only a short period of time. All of our executive officers work
on a full-time basis for us. You should also be aware that we do not have any
"key person" insurance. At December 31, 1998, approximately 9% of our full-time
employees, including one member of our key management and technical personnel,
were working pursuant to consultancy agreements, which are terminable by the
consultant at will. This issue is important to us in light of the intense
competition for qualified personnel in the telecommunications industry in Europe
and the limited availability of qualified individuals. Our financial condition
and ability to pay interest and principal on the Notes depends upon a successful
business plan being implemented by qualified personnel. The loss of key
personnel could adversely affect our business.
Risks Associated with Managing Growth
Our growth strategy has and will continue to place a significant strain
on our management resources. Our ability to manage this growth will require us
to substantially enhance our management, financial and information systems and
to effectively develop and train our employee base. Management is currently in
the process of addressing certain potential weaknesses in our systems of
internal controls that have been identified by our auditors. In this respect,
management has revised its financial, collection of data and call billing
procedures. Managing our growth will become even more challenging as we increase
our target markets and our product and service offerings. Our business could be
materially adversely affected if we are unable to implement or effectively
manage our growth.
Dependence on our Competitors
We do not own any of the telecommunications transmission infrastructure
that we presently use. We use the telecommunications transmission infrastructure
of other carriers in the Benelux region and we depend on interconnection
agreements with these carriers to connect our customers to our own Network. Most
of the carriers with whom we maintain infrastructure and interconnection
agreements are our competitors. Our profitability depends on
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(a) our ability to maintain agreements that provide access to the facilities of
our competitors (who may try to limit our access) and (b) our ability to
maintain access to these facilities on a timely basis and at attractive rates.
Our dependence on third parties to provide our customers with access to our
Network makes us susceptible to price fluctuations, service disruptions and
cancellations that are outside of our control and historically have and could
result in the loss of some customers. For example, in October 1998, we
experienced two temporary disruptions as a result of a malfunction of KPN
Telecom's software which led to customers temporarily having to switch off our
Network. We believe that we lost a limited number of customers due to those
service disruptions. We are not certain that such disruptions will not occur
from time to time in the future again. See "-- Competing Against Dominant Market
Participants," "-- Risks Associated with Changes in Regulatory Environment" and
"Business -- Regulation."
Risks Associated with the Year 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Because of this programming
convention, software, hardware or firmware may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including among others, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
We are undertaking a comprehensive program to address the Year 2000
issue with respect to the following:
o Our information technology systems;
o The telephony switching network (including equipment
installed at customers' premises);
o Our non-information technology systems (including buildings,
plant, equipment, and other infrastructure systems that may
contain embedded micro controller technology);
o The systems of our major vendors (insofar as they relate to
our business); and
o Our customers.
This program involves four "Steps": (1) a wide ranging assessment of
Year 2000 problems that might affect us; (2) the development and implementation
of remedies to address discovered problems; (3) the testing of our systems; and
(4) an analysis of our worst case scenario. We expect to complete Steps 1 and 2
of this program by the end of the first quarter of 1999 and Steps 3 and 4 by the
end of the second quarter of 1999.
We believe that the worst effect of the Year 2000 issue would be the
inability of customers to complete calls. Nortel, the manufacturer of our
switches, has informed us that it believes our switches to be Year 2000
compliant. We will be approaching Nortel for guarantees regarding this
compliance.
Our new billing system, which will be introduced in the third quarter
of 1999, has been certified to be Year 2000 compliant . Even if it were to fail,
we believe that bills could still be distributed by modifying the timestamp on
the call detail record. The ability of our customer care team to supply quality
service would be seriously affected if our OSS systems failed. We are asking for
certificates of Year 2000 compliance from these manufacturers. Our ability to
collect direct debit payments depends upon financial institutions' computer
systems. We are seeking assurances of Year 2000 compliance from the financial
institutions we use.
No assurance can be given that we will be successful in obtaining valid
assurances, certificates or guarantees, that the Year 2000 issue will not have
an adverse effect on us, that any effects could be resolved or that we would be
reimbursed for any additional expenditure under any of the assurances,
certificates or guarantees that we expect to obtain or otherwise. We expect to
incur specific Year 2000 charges that are estimated to be less than NLG 2
million, the majority of which will be incurred during 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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Competing Against Dominant Market Participants
The European telecommunications industry is a very competitive market
that is subject both to the continued dominance of PTTs and to the arrival of
other new entrants.
PTTs have significant competitive advantages over non-PTT market
participants which include:
o cost advantages as a result of economies of scale;
o greater market presence and network coverage;
o greater brand name recognition, customer loyalty and
goodwill;
o control over domestic transmission lines and control over the
access to these lines by other participants; and
o close ties to national regulatory authorities which may be
reluctant to adopt policies that would adversely affect their
competitive position.
Our policy in this competitive environment has been to price our
products and services at a discount to the PTTs, and to offer high quality
customer service, products and services. However, the prices of long distance
calls in most of our markets have decreased substantially and our larger
competitors have been able to use their larger financial resources to create
severe price competition. We believe that prices will continue to decrease for
the forseeable future and that PTTs and other providers will continue to improve
their product offerings, increasing these competitive pressures.
Our competition in the Benelux region also comes from new market
entrants including Telfort B.V., RSL Communications Ltd., Viatel, Inc., Telenet
N.V., EnerTel N.V., Telegroup, Inc. and Mobistar. Further, we believe that as a
result of the introduction of the euro, there will be a greater transparency in
prices in our market which may lead to further price competition. Sustained
price competition could have a material adverse effect on our business.
See "Business -- Competition."
Risks Associated with Exchange Rate Fluctuations
The principal and interest due on the Notes is payable in U.S. dollars.
However, our revenues will largely be in Dutch guilders, Belgian francs and
increasingly in euros. Therefore, our ability to pay the interest and principal
due will also be dependent on future exchange rates.
A significant amount of the proceeds obtained from the First Offering
and the Second Offering has been retained in U.S. dollars. The costs and
expenses relating to the construction of our Network and the development of our
sales and marketing resources will largely be in Dutch guilders, Belgian francs
and increasingly in euros. Therefore, the construction of our Network and the
development of our sales and marketing resources will also be subject to
currency exchange rate fluctuations as we exchange the proceeds from the First
Offering and the Second Offering to pay our construction costs. In addition we
denominate our financial reports in Dutch guilders while maintaining significant
U.S. dollar denominated assets and liabilities, and so our reported results of
operations may be significantly affected by exchange rate movements. In
addition, we will become subject to greater foreign exchange fluctuations as we
expand into markets outside The Netherlands and begin to receive revenues
denominated in currencies other than Dutch guilders, although the introduction
of the euro will largely eliminate these risks as all three Benelux countries
have adopted the euro as their legal currency.
Risks Associated with Acquisitions, Investments and Strategic Alliances
As part of our business strategy, we may enter into strategic alliances
with, or make investments in, companies in business areas that are complementary
to our current operations. Any such future strategic alliances, acquisitions
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or investments would involve risks. Our strategy presents risks inherent in
assessing the value, strengths and weaknesses of acquisition and investment
opportunities, and in integrating and managing newly-acquired operations and
improving their operating efficiency. In addition, such acquisitions and
investments could divert the resources and management time of the Company. There
can be no assurance that any desired strategic alliance, acquisition or
investment could be made in a timely manner or on terms and conditions
acceptable to us. There can also be no assurance that we will be successful in
identifying attractive acquisition candidates, completing and financing
additional acquisitions on favorable terms, or integrating the acquired
businesses or assets into its existing operations.
Risk Associated with International Expansion
We are subject to all the inherent risks associated with our plan to
expand internationally, including complying with various regulatory and tax
regimes and staffing and maintaining foreign operations, any of which could
result in a material adverse effect on our future operations.
Objections to Corporate Actions by a Shareholder and Control by Shareholders
Cromwilld Limited owns 15.0% of the outstanding ordinary shares, on a
fully diluted basis, after giving effect to the First Offering and Second
Offering. Cromwilld objected to the recapitalization, the First Offering and the
Second Offering and has threatened to challenge our actions in court. Cromwilld
has threatened legal challenges to nullify certain of our actions and to nullify
resolutions approved by our shareholders which could in principle invalidate
this Exchange Offer. Cromwilld is controlled by Denis O'Brien, a member of our
supervisory board. Based upon advice from our legal counsel, we believe that,
although we can give no assurances, Cromwilld's challenges, if filed, will have
no legal basis and are without merit. Nonetheless, we are uncertain whether or
not Cromwilld will, in an attempt to frustrate our actions, block any of our
actions that require approval of all of our shareholders. You should also be
aware that Cromwilld and four other shareholders currently own 79.5% of our
shares (on a fully diluted basis). These shareholders have the power to exercise
voting and management control. The interests of these shareholders may be
different to your interests.
Risks Associated with Changes in Regulatory Environment
The implementation of directives and regulations of the European Union
intended to liberalize the telecommunications market will enable us to gain
access to telecommunications networks controlled by PTTs. A number of directives
have been implemented by the European Union members, but several directives
still remain to be implemented in the member states, including the Benelux
nations. A delay in the implementation of these directives and regulations could
have a material adverse effect on our business.
Our operations depend on the licenses, authorizations and registrations
that we have obtained in The Netherlands, Belgium and the United Kingdom and the
success of our applications for additional licenses, authorizations and
registrations in these and other jurisdictions. We have no guarantees that we
will be able to maintain or renew these licenses, authorizations and
registrations. The loss of, or failure to obtain, licenses, authorizations or
registrations or a substantial limitation thereof could have a material adverse
effect on our business. See "Business -- Regulation."
Risk of Fraud and Bad Debt
Our revenues for the three months ended December 31, 1997 were
negatively impacted by a case of fraud in October 1997, which we estimate
resulted in a loss of approximately NLG 1,000,000. The fraud involved the
unauthorized use of one of our test codes. As a result, a large number of calls
were originated over the course of four days and the associated origination and
termination costs were expensed as miscellaneous operating expenses. In
addition, some of our regular customers were unable to complete calls through
our Network. We lost revenue from such customers and offered credits to these
customers. While we believe that changes in the technology we employ will
curtail potential fraudulent use of our facilities, we do not have in place
insurance coverage for potential fraud.
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Any reoccurrence of the fraudulent use of our facilities could have a material
adverse effect on our business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Although we make the appropriate provisions for non-payment of monies
owed to us by our customers, as we move into the residential market the level of
bad debt is likely to increase. Any significant increase in the level of bad
debt could have a material adverse effect on our business.
Investment Company Considerations
Our U.S. counsel has advised us that, in their opinion, we are not an
"investment company" which is required to be registered under the U.S.
Investment Company Act of 1940. In rendering such opinion our U.S. counsel did
not independently establish or verify any information or facts supplied by us
and, with our permission, assumed and relied entirely on the completeness and
accuracy of the information we supplied. We intend to carry on our business in
order to avoid becoming an "investment company." If we were to be deemed an
"investment company" under the U.S. Investment Company Act of 1940 we would be
effectively precluded from implementing this Exchange Offer. You should also be
aware that if we were deemed to be an "investment company", we could be subject
to administrative or legal proceedings which might mean that contracts to which
we are party might be rendered unenforceable or subject to recission.
Change of Control May Cause Default Under the Indenture
Pursuant to the terms of the Notes, each holder can require us to
repurchase their Notes where a change in control of VersaTel occurs. However,
our existing contractual obligations or an inability to obtain adequate
resources may prevent us from repurchasing the Notes. Our failure to repurchase
the Notes would be an event of default under the indenture governing the Notes.
See "Description of the Exchange Notes."
Absence of Public Market
There is no established trading market for the Notes. The initial
purchasers in the Second Offering informed us that they intend to make a market
in the Outstanding Notes and, if issued, the Exchange Notes. However, the
initial purchasers are under no obligation to do so and may discontinue making a
market at anytime.
However the Notes are eligible for trading in the PORTAL market by
qualified institutional buyers. In addition, we intend to apply for a listing of
the Notes on the Luxembourg Stock Exchange. Nonetheless, the liquidity of any
market for the Notes will depend upon the number of holders of the Notes, our
performance, the market for similar securities and the prospects for our
industry generally. Also, the market for non-investment grade debt has been
subject to substantial price swings. Therefore, we cannot make any assurances
that an active trading market will develop or, if a market develops, what the
liquidity of that market will be.
Consequences of Failure to Exchange
Untendered Outstanding Notes that are not exchanged for Exchange Notes
pursuant to this Exchange Offer will remain restricted securities. Outstanding
Notes will continue to be subject to the following restrictions on transfer: (i)
Outstanding Notes may be resold only if registered pursuant to the Securities
Act of 1933, if an exemption from registration is available thereunder, or if
neither such registration nor such exemption is required by law, (ii)
Outstanding Notes shall bear a legend restricting transfer in the absence of
registration or an exemption therefrom and (iii) a holder of Outstanding Notes
who desires to sell or otherwise dispose of all or any part of its Outstanding
Notes under an exemption from registration under the Securities Act of 1933, if
requested by us, must deliver to us an opinion of independent counsel
experienced in Securities Act matters, reasonably satisfactory in form and
substance to us, that such exemption is available.
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Original Issue Discount Consequences
The Outstanding Notes were issued with original issue discount for U.S.
federal income tax purposes. The Exchange Notes generally will be treated as a
continuation of the Outstanding Notes for U.S. federal income tax purposes.
Consequently, holders of the Exchange Notes generally will be required to
include original issue discount and stated interest on the Exchange Notes in
gross income for such purposes. See "U.S. Tax Considerations" for a more
detailed discussion of the U.S. federal income tax consequences for the holders
resulting from the Exchange Offer.
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USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated herein, the Company will receive in exchange Outstanding Notes in
like principal amount. The Outstanding Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any change in the Indebtedness
(as defined on page 95) of the Company.
The net proceeds from the Second Offering were approximately $139.0
million, after deducting underwriting discounts and commissions and estimated
fees and expenses. The Company plans to use the net proceeds from the Second
Offering to finance the cost (including the cost of design, development,
construction, acquisition, installation or integration) of assets used in the
telecommunications business acquired by the Company or certain subsidiaries of
the Company or the acquisition of interests in other entities principally
engaged in the telecommunications business. Prior to the application of the net
proceeds from the Second Offering, as described above, such funds will be
invested by the Company in short-term investment grade securities.
THE EXCHANGE OFFER
General
In connection with the Second Offering, the Company entered into a
registration rights agreement (the "Registration Rights Agreement") with Lehman
Brothers Inc., Lehman Brothers International (Europe) and Paribas Corporation
(the "Initial Purchasers") and agreed to (i) file within 90 days, and use its
reasonable best efforts to cause to be declared effective within 150 days, of
the date of the original issuance of the Outstanding Notes a registration
statement (the "Registration Statement") of which this prospectus (the
"Prospectus") is a part with respect to a registered offer to exchange the
Outstanding Notes for the Exchange Notes with terms substantially identical in
all material respects to the Outstanding Notes (the "Exchange Offer") and (ii)
use its reasonable best efforts to cause the Exchange Offer to be consummated on
or before 30 days after the date on which the Registration Statement is declared
effective by the Securities and Exchange Commission (the "Commission").
In the event that (i) the Company is not permitted to file the
Registration Statement or to consummate the Exchange Offer on account of changes
in law or the applicable interpretations of the staff of the Commission, (ii)
any holder that is a "qualified institutional buyer", as defined in Rule 144A
under the Securities Act of 1933 (a "Qualified Institutional Buyer"), notifies
the Company at least 20 business days prior to the consummation of the Exchange
Offer that (a) applicable law or Commission policy prohibits the Company from
participating in the Exchange Offer, (b) such holder may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and that this Prospectus is not appropriate or available for such
resales by such holder or (c) such holder is a broker-dealer and holds Notes
acquired directly from the Company or an affiliate of the Company, (iii) the
Exchange Offer is not for any other reason consummated within 180 days after the
original issue date of the Outstanding Notes, (iv) any holder (other than a
Participating Broker-Dealer) is not eligible to participate in the Exchange
Offer, or in the case of any holder that participates in the Exchange Offer,
such holder does not receive Exchange Notes on the date of the exchange that may
be sold without restriction under federal securities laws (other than due solely
to the status of such holder as an affiliate of the Company within the meaning
of the Securities Act or due to the requirement that such holder deliver a copy
of this Prospectus in connection with any resale of the Exchange Notes) or (v)
the Exchange Offer has been completed and in the opinion of counsel for the
Initial Purchasers a Registration Statement must be filed and a prospectus must
be delivered by the Initial Purchasers in connection with any offering or sale
of Transfer Restricted Securities (as defined in the Registration Rights
Agreement), the Company will use its reasonable best efforts to file, within 90
days of the earliest to occur of the preceding events, a shelf registration
statement pursuant to the Securities Act with respect to the resale of the
Outstanding Notes (the "Shelf Registration Statement") and to keep the Shelf
Registration Statement effective until the second anniversary of the Issue Date.
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In the event that (i) neither the Registration Statement nor the Shelf
Registration Statement is filed with the Commission on or prior to the 90th day
following the date of original issue of the Outstanding Notes, (ii) neither the
Registration Statement nor the Shelf Registration Statement is declared
effective on or prior to the 150th day following the date of original issue of
the Outstanding Notes, (iii) the Exchange Offer is not consummated on or before
30 days after the 150th day following the date of original issue of the
Outstanding Notes, or (iv) (a) the Registration Statement is filed and declared
effective but thereafter ceases to be effective or fails to be usable for its
intended purpose at any time prior to the time that the Exchange Offer is
consummated and is not declared effective within 5 business days thereafter or
(b) the Shelf Registration Statement is filed and declared effective but
thereafter ceases to be effective or fails to be usable for its intended purpose
at any time during the Effectiveness Period (as defined in the Registration
Rights Agreement) and is not declared effective again within five business days
thereafter, the interest rate borne by the Outstanding Notes shall be increased
by one-half of one percent per annum following such 90-day period in the case of
clause (i) above, following such 150-day period in the case of clause (ii)
above, following such 30-day period in the case of clause (iii) above, or
commencing on the day the applicable registration statement ceases to be
effective or usable for its intended purpose without being declared effective
again within 5 business days in the case of clause (iv) above. The aggregate
amount of such increase from the original interest rate pursuant to these
provisions will in no event exceed 1.5 percent per annum. Upon (w) the filing of
the Registration Statement or the Shelf Registration Statement for the Exchange
Offer after the 90-day period described in clause (i) above, (x) the
effectiveness of the Registration Statement or Shelf Registration Statement
after the 150-day period described in clause (ii) above, (y) the consummation of
the Exchange Offer after the 30-day period described in clause (iii) above, or
(2) the effectiveness or usability of the Registration Statement which had
ceased to remain effective or be usable, or the effectiveness or usability of
the Shelf Registration Statement which had ceased to remain effective or be
usable, the interest rate borne by the Outstanding Notes from the date of such
filing, effectiveness, usability or the day before the date of consummation, as
the case may be, will be reduced to the original interest rate if the Company is
otherwise in compliance with such requirements.
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying letter of transmittal (the "Letter of
Transmittal"), the Company will accept all Outstanding Notes validly tendered
prior to 5:00 p.m., New York City time, on February 23, 1999 (the "Expiration
Date"). The Company will issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Outstanding Notes accepted in the
Exchange Offer. Holders may tender some or all of their Outstanding Notes
pursuant to the Exchange Offer in denominations of $1,000 and integral multiples
thereof.
Based on no-action letters issued by the staff of the Commission to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold and otherwise transferred by any holder thereof (other than (i) a
broker-dealer who purchased such Outstanding Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that the holder is acquiring the Exchange Notes in its ordinary course
of business and is not participating and does not intend to participate, and has
no arrangements or understanding with any person to participate, in the
distribution of the Exchange Notes. Holders of Outstanding Notes wishing to
accept the Exchange Offer must represent to the Company that such conditions
have been met.
Each broker-dealer that receives Exchange Notes in exchange for
Outstanding Notes held for its own account, as a result of market-making or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, such
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The Prospectus, as it may be amended or
supplemented from time to time, may be used by such broker-dealer in connection
with resales of Exchange Notes received in exchange for Outstanding Notes. The
Company has agreed that, for a period of 180 days after the Expiration Date, it
will make this Prospectus and any amendment or supplement to this Prospectus
available to any such broker-dealer for use in connection with any such resale.
See "Plan of Distribution."
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As of the date of this Prospectus, $150 million aggregate principal
amount of the Outstanding Notes is outstanding. In connection with the issuance
of the Outstanding Notes, the Company arranged for the Outstanding Notes
initially purchased by Qualified Institutional Buyers to be issued and
transferable in book-entry form through the facilities of DTC, acting as
depositary. The Exchange Notes will also be issuable and transferable in
book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal,
is being sent to all registered holders as of January 21, 1999 (the "Record
Date").
The Company shall be deemed to have accepted validly tendered
Outstanding Notes when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will
act as agent for the tendering holders of Outstanding Notes for the purpose of
receiving Exchange Notes from the Company and delivering Exchange Notes to such
holders.
If any tendered Outstanding Notes are not accepted for exchange because
of an invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Outstanding Notes will be returned, without
expenses, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Outstanding Notes who tender in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "-- Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean February 23, 1999 unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Outstanding Notes an announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any
Outstanding Notes, to extend the Exchange Offer or to terminate the Exchange
Offer and to refuse to accept Outstanding Notes not previously accepted, if any
of the conditions set forth herein under "-- Termination" shall have occurred
and shall not have been waived by the Company (if permitted to be waived by the
Company), by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, and (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the
Outstanding Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the
Outstanding Notes of such amendment.
Without limiting the manner by which the Company may choose to make
public announcements of any delay in acceptance, extension, termination or
amendment of the Exchange Offer, the Company shall have no obligation to
publish, advertise, or otherwise communicate any such public announcement, other
than by making a timely release to the Dow Jones News Service.
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Interest on the Exchange Notes
The Exchange Notes will bear interest from December 3, 1998, payable
semiannually on May 15 and November 15 of each year commencing on May 15, 1999,
at the rate of 13 1/4% per annum. Holders of Outstanding Notes whose Outstanding
Notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on the Outstanding Notes accrued from
December 3, 1998 until the date of the issuance of the Exchange Notes.
Consequently, holders who exchange their Outstanding Notes for Exchange Notes
will receive the same interest payment on May 15, 1999 (the first interest
payment date with respect to the Outstanding Notes and the Exchange Notes) that
they would have received had they not accepted the Exchange Offer.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the
Outstanding Notes (unless such tender is being effected pursuant to the
procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Outstanding Notes
by causing DTC to transfer such Outstanding Notes into the Exchange Agent's
account in accordance with DTC's Automated Tender Offer Program ("ATOP").
Although delivery of Outstanding Notes may be effected through book-entry
transfer into the Exchange Agent's account at DTC, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received or
confirmed by the Exchange Agent at its addresses set forth herein under "--
Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Outstanding Notes will constitute an
agreement between such holder and the Company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its
address set forth herein. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect such
tender for such holders.
The method of delivery of Outstanding Notes and the Letters of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the holders. Instead of delivery by mail, it is recommended
that holders use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure timely delivery. No Letter of Transmittal or
Outstanding Notes should be sent to the Company.
Only a holder of Outstanding Notes may tender such Outstanding Notes in
the Exchange Offer. The term "holder" with respect to the Exchange Offer means
any person in whose name Outstanding Notes are registered on the books of the
Company or any other person who has obtained a properly completed bond power
from the registered holder, or any person whose Outstanding Notes are held of
record by DTC who desires to deliver such Outstanding Notes by book-entry
transfer at DTC.
Any beneficial holder whose Outstanding Notes are registered in the
name of his broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial holder wishes
to tender on his own behalf, such beneficial holder must, prior to completing
and executing the Letter of Transmittal and delivering his Outstanding Notes,
either make appropriate arrangements to register ownership of the Outstanding
Notes in such holder's name
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or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" (an "Eligible Institution")
within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), unless the Outstanding Notes tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by appropriate bond powers which authorize
such person to tender the Outstanding Notes on behalf of the registered holder,
in either case signed as the name of the registered holder or holders appears on
the Outstanding Notes.
If the Letter of Transmittal or any Outstanding Notes or bond powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All the questions as to the validity, form, eligibility (including time
of receipt), acceptance and withdrawal of the tendered Outstanding Notes will be
determined by the Company in its sole discretion, which determinations will be
final and binding. The Company reserves the absolute right to reject any and all
Outstanding Notes not validly tendered or any Outstanding Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Outstanding Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Outstanding Notes nor shall any of
them incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such irregularities
have been cured or waived. Any Outstanding Notes received by the Exchange Agent
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned without cost by the Exchange
Agent to the tendering holder of such Outstanding Notes unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion to
(a) purchase or make offers for any Outstanding Notes that remain outstanding
subsequent to the Expiration Date, or, as set forth under "Termination," to
terminate the Exchange Offer and (b) to the extent permitted by applicable law,
purchase Outstanding Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers may differ
from the terms of the Exchange Offer.
By tendering, each holder of Outstanding Notes will represent to the
Company that, among other things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the holder,
that neither the holder nor any other person has an arrangement or understanding
with any person to participate in the distribution of the Exchange Notes and
that neither the holder nor any such other person is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act.
30
<PAGE>
Guaranteed Delivery Procedures
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available, or (ii) who cannot deliver
their Outstanding Notes, the Letter of Transmittal, or any other required
documents to the Exchange Agent prior to the Expiration Date, or if such holder
cannot complete the procedure for book-entry transfer on a timely basis, may
effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed
"notice of guaranteed delivery" in the form accompanying this
Prospectus (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder of the Outstanding Notes, the
certificate number or numbers of such Outstanding Notes and the
principal amount of Outstanding Notes tendered, stating that the tender
is being made thereby, and guaranteeing that, within five business days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Outstanding
Notes to be tendered in proper form for transfer and any other
documents required by the Letter of Transmittal, will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Outstanding Notes in proper form for transfer (or confirmation
of a book-entry transfer into the Exchange Agent's account at DTC of
Outstanding Notes delivered electronically) and all other documents
required by the Letter of Transmittal are received by the Exchange
Agent within five business days after the Expiration Date.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Outstanding Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date unless previously accepted for exchange.
To withdraw a tender of Outstanding Notes in the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the business day prior to the Expiration Date and prior to acceptance
for exchange thereof by the Company. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Outstanding Notes to be
withdrawn (the "Depositor"), (ii) identify the Outstanding Notes to be withdrawn
(including the certificate number or numbers and principal amount of such
Outstanding Notes), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Outstanding Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfers sufficient to permit the Trustee with respect to the
Outstanding Notes to register the transfer of such Outstanding Notes into the
name of the Depositor withdrawing the tender and (iv) specify the name in which
any such Outstanding Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) for such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Outstanding
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Outstanding Notes so withdrawn are validly tendered. Any Outstanding
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Outstanding Notes may be tendered by following one of
the procedures described above under "-- Procedures for Tendering" at any time
prior to the Expiration Date.
31
<PAGE>
Termination
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to accept for exchange, or exchange Exchange Notes for, any
Outstanding Notes not therefore accepted for exchange, and may terminate or
amend the Exchange Offer as provided herein before the acceptance of such
Outstanding Notes if: (i) any action or proceeding is instituted or threatened
in any court or by or before any governmental agency with respect to the
Exchange Offer, which, in the reasonable judgment of the Company, might
materially impair the Company's ability to proceed with the Exchange Offer or
(ii) any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by the staff of the
Commission or court of competent jurisdiction in a manner, which, in the
reasonable judgment of the Company, might materially impair the Company's
ability to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as
set forth above, the Company may (i) refuse to accept any Outstanding Notes and
return any Outstanding Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Outstanding Notes tendered prior
to the expiration of the Exchange Offer, subject to the rights of such holders
of tendered Outstanding Notes to withdraw their tendered Outstanding Notes, or
(iii) waive such termination event with respect to the Exchange Offer and accept
all properly tendered Outstanding Notes that have not been withdrawn. If such
waiver constitutes a material change in the Exchange Offer, the Company will
disclose such change by means of a supplement to this Prospectus that will be
distributed to each registered holder of Outstanding Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders of the Outstanding Notes, if the Exchange Offer would
otherwise expire during such period.
Exchange Agent
United States Trust Company of New York, the Trustee under the
Indenture, has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
By Mail or Hand Delivery: United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
Facsimile Transmission: (212) 780-0592
Confirm by Telephone: (800) 548-6565
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone.
The Company will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, Letters of Transmittal
and related documents to the beneficial owners of the Outstanding Notes and in
handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company.
32
<PAGE>
The Company will pay all transfer taxes, if any, applicable to the
exchange of Outstanding Notes pursuant to the Exchange Offer. If, however,
certificates representing Exchange Notes or Outstanding Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
holder of the Outstanding Notes tendered, or if tendered Outstanding Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Outstanding Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
33
<PAGE>
EXCHANGE RATE INFORMATION
The table below sets forth, for the periods and dates indicated,
certain information concerning the Noon Buying Rates for Dutch guilders
expressed in U.S. dollars per Dutch guilder. On September 30, 1998, the Noon
Buying Rate was NLG 1.88 per $1.00.
<TABLE>
<CAPTION>
Period
Period High Low Average(1) Period End
- -------------------------------------------- ------------------ ------------------ ------------- --------------
<S> <C> <C> <C> <C>
1994........................................ 1.98 1.67 1.82 1.74
1995........................................ 1.75 1.52 1.60 1.60
1996........................................ 1.76 1.61 1.69 1.73
1997........................................ 2.12 1.73 1.95 2.03
1998........................................ 2.09 1.81 1.98 1.88
1999 (through January 8, 1999).............. 1.91 1.87 1.89 1.91
</TABLE>
- ----------
(1) The average of the Noon Buying Rates on the last day of each full month
during the period.
Netherlands law does not impose restrictions that would affect the
remittance of interest or other payments to nonresident holders of the Notes or
any other foreign exchange controls. Fluctuations in the exchange rate between
the Dutch guilder and the U.S. dollar in the past are not necessarily indicative
of fluctuations that may occur during the term of the Notes.
34
<PAGE>
CAPITALIZATION
The following table sets forth the cash and restricted cash and the
capitalization of the Company as of September 30, 1998 (i) on an historical
basis and (ii) on an as adjusted basis, assuming the consummation of the Second
Offering on such date and the maintenance of the estimated net proceeds thereof
as cash, as if the Second Offering had occurred on September 30, 1998. See "Use
of Proceeds." You should read the information set forth in the following table
in conjunction with the Financial Statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
As of September 30, 1998
-----------------------------------------------
Actual As Adjusted(1)
----------- ---------------------------
NLG NLG(2) $(3)
(In thousands)
<S> <C> <C> <C>
Cash and restricted cash(4) .................................................. 395,166 656,392 349,145
======== ======== ========
Current maturities of long-term debt ......................................... 482 482 256
Long-term debt (less current portion):
Other debt:
13 1/4% Senior Notes due 2008(5) ........................................... 422,539 422,539 224,755
-------- -------- --------
13 1/4% Senior Notes due 2008(6) ........................................... -- 268,849 143,005
-------- -------- --------
Total debt .............................................................. 423,021 691,870 368,016
-------- -------- --------
Shareholders' equity:
Ordinary Shares, par value NLG 0.10 per share-- 44,550,000 ................. 1,943 1,943 1,034
shares authorized; 19,427,405 shares issued and
outstanding
Warrants(7) ................................................................ 3,341 5,212 2,772
Additional paid-in capital ................................................. 50,787 50,787 27,014
Accumulated deficit ........................................................ (65,580) (65,580) (34,883)
-------- -------- --------
Total shareholders' equity (deficit) .................................... (9,509) (7,638) (4,063)
-------- -------- --------
Total capitalization .................................................... 413,512 684,232 363,953
======== ======== ========
</TABLE>
- ----------
(1) Reflects the Second Offering as if it had been completed on September
30, 1998, and the maintenance of the net proceeds thereof as cash. See
"Security Ownership of Principal Stockholders and Management" and "Certain
Relationships and Related Transactions."
(2) Solely for the convenience of the reader, the U.S. dollar amount of the
Notes has been translated into Dutch guilders at the Noon Buying Rate on
September 30, 1998 of NLG 1.88 per $1.00.
(3) Solely for the convenience of the reader, Dutch guilder amounts have
been translated into U.S. dollars at the Noon Buying Rate on September 30,
1998 of NLG 1.88 per $1.00.
(4) The estimated net cash proceeds from the Second Offering of NLG 261.2
million ($139.0 million) have been added to cash pending application of such
proceeds as described in "Use of Proceeds."
(5) 13 1/4% Senior Notes due 2008 issued as of May 27, 1998. For the purposes of
this table, NLG 3.3 million has been allocated to the warrants issued in
connection with the First Offering.
(6) 13 1/4% Senior Notes due 2008 issued as of December 3, 1998. For the
purposes of this table, NLG 1.9 million has been allocated to the warrants
issued in connection with the Second Offering.
(7) For the purposes of this table, NLG 3.3 million has been allocated to
the warrants issued in connection with the First Offering and NLG 1.9
million has been allocated to the warrants issued in connection with the
Second Offering.
There has been no material change in the capitalization of the Company
since September 30, 1998.
35
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The selected financial data for VersaTel, presented below, as of and
for the two fiscal years ended December 31, 1996 and December 31, 1997 have been
derived from the Audited Financial Statements of VersaTel, which have been
audited by Arthur Andersen, independent public accountants. The summary
financial data for the nine months ended September 30, 1997 and September 30,
1998 have been derived from the Unaudited Financial Statements, which have been
prepared in accordance with U.S. GAAP and on a basis which management believes
is consistent with that of the Audited Financial Statements. The unaudited
financial data for the nine months ended September 30, 1997 and 1998 include all
normal and recurring adjustments necessary for the fair presentation of the
results of operations and financial condition of the Company for such periods.
You should read the information set forth below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations" and the Financial Statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Nine Months Ended September 30,
---------------------------------------------- ----------------------------------
1995 1996 1997 1997 1998
---------- ---------- ----------------------- --------- ----------------------
NLG NLG NLG $(1) NLG NLG $(1)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ......................................... 52 6,428 18,896 10,051 14,263 25,880 13,766
Operating expenses:
Cost of revenue excl. depreciation and
amortization .................................. 117 4,954 17,405 9,258 11,170 21,120 11,234
Selling, general and administrative ............. 538 5,485 17,527 9,323 10,929 30,002 15,958
Depreciation and amortization ................... 11 453 3,237 1,722 1,238 4,914 2,614
------ ------- ------- ------- ------- ------- -------
Total operating expenses ........................ 666 10,892 38,169 20,303 23,337 56,036 29,806
------ ------- ------- ------- ------- ------- -------
Loss from operations ............................ (614) (4,464) (19,273) (10,252) (9,074) (30,156) (16,040)
Interest expense (income), net .................. 1 269 534 284 330 14,962 7,959
Currency loss (gain) ............................ -- -- 53 28 -- (4,747) (2,525)
------ ------- ------- ------- ------- ------- -------
Net loss ........................................ (615) (4,733) (19,860) (10,564) (9,404) (40,371) (21,474)
====== ======= ======= ======= ======= ======= =======
Net loss per share (Basic and Diluted) .......... (0.18) (0.95) (2.20) (1.17) (1.06) (2.65) (1.41)
Weighted average number of shares
outstanding ................................... 3,327 5,004 9,042 9,042 8,910 15,248 15,248
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of September 30,
------------------------------------------- ---------------------
1995 1996 1997 1998
---------- ----------- ------------------- ---------------------
NLG NLG NLG $(1) NLG $(1)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and restricted cash ..................................... 160 4,443 1,495 795 395,166 210,195
Working capital (excluding cash and restricted cash) ......... 436 (2,704) (24,774) (13,178) (36,515) (19,423)
Capitalized finance cost ..................................... -- -- -- -- 19,333 10,284
Property, plant and equipment, net ........................... 224 2,340 13,619 7,244 23,161 12,320
Construction in progress ..................................... -- -- -- -- 10,407 5,536
Goodwill ..................................................... -- -- -- -- 1,478 786
------ ------ ------- -------- -------- --------
Total assets ................................................. 820 8,160 19,331 10,282 459,880 244,617
Total long-term obligations (including current portion)....... 614 4,185 8,491 4,516 423,022 225,012
Total shareholders' equity (deficit) ......................... (120) 146 (18,214) (9,688) (9,510) (5,059)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Nine Months Ended September 30,
--------------------------------------------- -----------------------------------------
1995 1996 1997 1997 1998
-------- ------- ---------------- --------- ----------------------------
NLG NLG NLG $(1) NLG NLG $(1)
(In thousands, except ratio)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Financial Data:
SG&A as a percentage of revenue ....... 194.2% 85.3% 92.8% 92.8% 76.6% 115.9% 115.9%
EBITDA(2) ............................. (603) (4,011) (16,036) (8,530) (7,836) (25,242) (13,426)
Capital expenditures .................. 213 2,569 14,516 7,721 5,238 24,076 12,806
Cash Flow Data:
Net cash provided by (used in) operating
activities .......................... (715) (1,718) 5,766 3,067 832 (179,473) (95,464)
Net cash used in investing activities . (234) (2,569) (14,516) (7,721) (5,238) (24,076) (12,806)
Net cash provided by financing
activities .......................... 1,109 8,571 5,807 3,089 1,874 441,851 235,027
Other Data:
Total customers (at period end) ....... 35 670 2,245 2,245 1,464 6,461 6,461
Number of billable minutes (in
thousands)(3) ....................... 51 6,487 23,361 23,361 16,234 73,316 73,316
Average revenue per billable minute ... 1.03 0.99 0.81 0.43 0.88 0.35 0.19
</TABLE>
- -------------------
(1) Solely for the convenience of the reader, Dutch guilder amounts have been
translated into U.S. dollars at the Noon Buying Rate on September 30, 1998
of NLG 1.88 per $1.00.
(2) EBITDA consists of earnings (loss) before interest expense, income taxes,
depreciation, amortization and foreign exchange gain (loss). EBITDA is
included because management believes it is a useful indicator of a
company's ability to incur and service debt. EBITDA should not be
considered as a substitute for operating earnings, net income, cash flow or
other statements of operations or cash flow data computed in accordance
with U.S. GAAP or as a measure of a company's results of operations or
liquidity. Funds depicted by this measure may not be available for
management's discretionary use (due to covenant restrictions, debt service
payments, the expansion of the VersaTel Network, and other commitments).
Because all companies do not calculate EBITDA identically, the presentation
of EBITDA contained herein may not be comparable to other similarly
entitled measures of other companies.
(3) Billable minutes are those minutes during which a call is connected to the
VersaTel switch and for which the Company bills a customer.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements contained elsewhere in this Prospectus. See
"Selected Financial and Other Data." Certain information contained below and
elsewhere in this Prospectus, including information with respect to the
Company's plans and strategy for its business, are forward-looking statements.
See "Disclosure Regarding Forward-Looking Statements."
Overview
VersaTel is a rapidly growing alternative telecommunications service
provider based in Amsterdam, The Netherlands. VersaTel's objective is to become
the leading-alternative provider of facilities-based national and international
telecommunications services in the Benelux region. The Company currently
provides high quality competitively priced international and national long
distance telecommunications services in The Netherlands, primarily to small- and
medium-sized businesses and selected residential customers. The Company also
offers national and international telecommunications services to Belgium for
small- and medium-sized businesses. The VersaTel Network currently operates
through a Nortel DMS 100 switch located in Amsterdam and connections to other
carriers, including KPN Telecom. The Company also expects that an additional
Nortel DMS 100 switch located in Antwerp will become operational by the end of
1998. Business and residential customers access the VersaTel Network indirectly
by dialing (manually, through an auto-dialer or through pre-programmed PBX's)
the Company's "1611" carrier select code. Wholesale customers access the Network
directly through leased lines. Prior to liberalization and the implementation of
the "1611" code, business and residential customers used the six-digit Virtual
Private Network ("VPN") code or the Company's Direct Inward System Access
("DISA") code, which involves a two stage call set-up. Both the VPN and DISA
codes are currently being phased out as customers are being migrated to the
"1611" carrier select code.
Revenues
VersaTel currently derives most of its revenues from the provision of
long distance telecommunications services in The Netherlands. VersaTel provides
international long distance and national long distance services to its customer
base of small- and medium-sized businesses as well as selected residential
customers. The Company also provides wholesale services to other
telecommunications service providers.
VersaTel's revenues are derived primarily from minutes of
telecommunications traffic billed. The following table sets forth the total
revenues and billable minutes of use attributable to VersaTel's operations for
the years ended December 31, 1996 and December 31, 1997 and for the nine months
ended September 30, 1997 and September 30, 1998 as well as the total number of
customers as of December 31, 1996 and December 31, 1997 and as of September 30,
1998. All of VersaTel's 1996 and 1997 revenues were derived from The
Netherlands. VersaTel started generating revenues in Belgium in October 1998 and
is expecting to start generating revenues in Luxembourg in 1999.
Fiscal Years Ended Nine Months Ended
December 31, September 30,
----------------- -----------------
1996 1997 1997 1998
(NLG in thousands)
Revenues
Business customers ......... 6,143 16,948 12,868 22,917
Residential customers....... 0 11 -- 233
Wholesale customers......... 285 1,937 1,395 2,730
------ ------ ------ ------
Total ................... 6,428 18,896 14,263 25,880
38
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended Nine Months Ended
December 31, September 30,
----------------------- --------------------
1996 1997 1997 1998
----------------------- ---------------------
<S> <C> <C> <C> <C>
Billable Minutes of Use
Business customers......................................... 6,237 21,469 14,910 61,650
Residential customers...................................... 0 42 0 1,022
Wholesale customers........................................ 250 1,850 1,324 10,644
------ --------- ------- --------
Total................................................... 6,487 23,361 16,234 73,316
Customers (At period end)
Business customers......................................... 669 2,014 1,463 5,022
Residential customers...................................... 0 230 -- 1,436
Wholesale customers........................................ 1 1 1 3
------ ------- -------- --------
Total................................................... 670 2,245 1,464 6,461
</TABLE>
Currently, small- to medium-sized businesses generate the majority of
VersaTel's revenues. VersaTel expects revenues from the residential customer
segment to grow substantially with increased awareness of its "1611" carrier
select code, future introduction of carrier pre-selection, additional marketing
efforts and the introduction of new products and services targeted at
residential customers. In the future, the Company also expects to derive
revenues from monthly charges, incoming calls and new services as a result of
directly connecting business customers to the VersaTel Network. The Company also
derives a limited amount of revenues from switched voice services offered to
other telecommunications service providers on a wholesale basis. As the Benelux
Overlay Network is completed and as the Company has capacity available, it
intends to increase its marketing efforts in the wholesale segment to increase
utilization of the Network. The Company expects to expand its wholesale
offerings to include the sale of dark fiber, conduit and rights-of-way access to
help offset the cost of constructing the Network.
VersaTel's revenues are derived from minutes of telecommunications
traffic billed and revenues are allocated to the period in which the traffic has
occurred. VersaTel generally prices its services at a discount to the local PTTs
and expects to continue this pricing strategy as the Company expands its
operations. In general, PTTs have been reducing their rates over the last few
years. As a result, VersaTel has experienced and expects to continue to
experience declining revenue per minute. KPN Telecom reduced its prices most
recently in May and July 1998 with reductions of approximately 10.0% and 15.0%,
respectively, which are expected to have an adverse impact on margins in the
near term. Additionally, the Company expects to increase its national billable
minutes, which are priced at lower rates than international minutes. As national
and wholesale billable minutes increase as a percentage of total billable
minutes, average revenue per billable minute will further decline. However, due
to technological improvements, liberalization of the European telecommunications
market and increased available transmission capacity, both from third parties
and as the VersaTel Network is built out, VersaTel expects costs per minute to
decline as well. Management believes that the decline of per minute prices will
out-pace the decline in per minute costs in 1999, resulting in downward pressure
on operating margins. Management believes that over the long-term, this trend
will reverse and operating margins will thereby improve; however, there can be
no assurances that this will occur. If reductions in costs do not in fact
out-pace reductions in revenues, VersaTel may experience a substantial reduction
in its margins on calls which, absent a significant increase in billable minutes
of traffic carried or increased charges for additional services, would have a
material adverse effect on VersaTel's business and financial results. In
addition, the introduction of the euro will lead to a greater transparency for
prices in the European telecommunications market, which may lead to further
competition and price decreases. See "Risk Factors -- Competing Against Dominant
Market Participants."
39
<PAGE>
Cost of Revenues
VersaTel's costs of revenues are comprised of origination costs,
network costs and termination costs and are both fixed and variable. Origination
costs represent the cost of carrying traffic from the customer to the VersaTel
Network. Origination charges for calls transported to the VersaTel Network are
variable and are incurred on a per minute basis, including the call set-up
charges. Origination charges for business and residential customers are charged
by the PTT either to VersaTel, in the case of the "1611" and VPN codes, or
directly to customers, in the case of the DISA code. In cases where the business
or residential customer is charged directly by the PTT for the origination
costs, VersaTel reimburses the customer by means of a credit to the customer's
account. The charges credited directly to the customer are a result of the use
of the DISA access code and, as noted above, are being phased out by the
Company. Origination costs billed directly to customers by the PTT are not
included in the revenues of VersaTel. The charges credited to the customer are
recorded as cost of revenues.
The Company has experienced a significant decrease in origination costs
and expects that these will continue to decrease significantly over time due to
competition and regulatory orders. In July 1998, the Netherlands regulatory
authority, the Onafhankelijke Post en Telecommunicatie Autoriteit ("OPTA"),
ruled that origination and termination charges be reduced by 55% and 30%,
respectively. In addition, as VersaTel builds-out its Network, it intends to
connect directly as many business customers as economically feasible to the
VersaTel Network, thereby eliminating origination charges for these customers.
These decreases would be offset to some extent by amortization and depreciation
charges associated with the construction of the Network. There can be no
assurance that the trend in decreasing access costs will continue. As a result,
if origination costs do not continue to decrease, anticipated decreases in
revenues per minute would cause the Company to experience a decline in gross
margins per billable minute which would have a material adverse effect on the
Company's business and financial performance. See "Risk Factors -- Competing
Against Dominant Market Participants."
Currently, network costs represent the cost of transporting traffic
between the VersaTel switch and points of interconnection using leased lines.
However, as VersaTel builds-out the Network, the Company will establish more
points of interconnection and, as a result, expects network costs to rise in the
future.
Termination costs are the per minute costs associated with using
carriers to carry a call from the point of interconnection to the final
destination. Through least-cost routing, the VersaTel switch directs calls to
the most cost- efficient carrier for the required destination. As VersaTel
builds-out the Network to new points of interconnection, the Company expects to
be able to reduce average termination costs per minute. For example, once
VersaTel establishes a direct link from Amsterdam to Rotterdam, the Company will
no longer pay for national termination costs on that route and will only pay
local termination costs from the point of interconnection in Rotterdam to the
final destination in that city. The Company also believes that per minute
termination costs will continue to decrease due to several additional factors
including: (i) the incremental build-out of the VersaTel Network which will
increase the number of carriers with which it interconnects; (ii) the increase
of minutes originated by VersaTel which should lead to higher volume discounts
available to the Company; (iii) more rigorous implementation of the EC
directives requiring cost-based termination rates and leased line rates; and
(iv) emergence of new telecommunication service providers and the construction
of new transmission facilities resulting in increased competition. There can be
no assurance, however, that the trend in decreasing termination costs will
continue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are comprised primarily of
salaries, employee benefits, office and administrative expenses, professional
and consulting fees and marketing costs. These expenses have increased as the
Company has developed and expanded its workforce, and are expected to continue
to increase as new operations are established and the Company expands. Selling,
general and administrative expenses as a percentage of revenue will continue to
vary from period to period as a result of start-up costs relating to expansion
into new regions.
The Company has grown substantially since its inception and intends to
continue to grow by adding more sales, marketing and customer support staff. In
addition, the Company expects to establish additional sales offices in the
future. The expansion of its sales, marketing and customer support staff and the
development of additional sales
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offices involves substantial training costs and start-up costs, a large portion
of which will be reflected as fixed costs and recorded as selling, general and
administrative charges. Accordingly, the Company's results of operations will
vary depending on the timing and speed of the Company's expansion strategy and,
during a period of rapid expansion, selling, general and administrative expenses
will be relatively higher than during more stable periods of growth. See
"Business -- Sales and Marketing -- Sales and Marketing Staff."
Depreciation and Amortization
The Company capitalizes and depreciates its fixed assets, including
switching equipment and fiber-optic cable, over periods ranging from two to
twenty-five years. In addition, the Company capitalizes and amortizes the cost
of installing dialers at customer sites. The development of the VersaTel Network
will require large capital expenditures and larger depreciation charges in the
future. Increased capital expenditures will adversely affect the Company's
future operating results due to increased depreciation charges and interest
expense. See "Business -- Strategy" and "-- Network."
Foreign Exchange
The Company has substantial U.S. dollar denominated assets and
liabilities and its revenues are generated and costs incurred in a number of
currencies. The Company is therefore exposed to fluctuations in the U.S. dollar
and other currencies, which may result in foreign exchange gains and/or losses.
Only a limited number of equipment purchases and consultancy activities are
billed to the Company in currencies other than Dutch guilders. The Company
reviews on a weekly basis the currency risk of U.S. dollars to Dutch guilders.
Based on its currency requirements for Dutch guilders, the Company from time to
time hedges a portion of its foreign currency risk in order to lock into a rate
for a given time.
Results of Operations
For the nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997
Revenues increased by NLG 11.6 million to NLG 25.9 million for the nine
months ended September 30, 1998 from NLG 14.3 million for the nine months ended
September 30, 1997, representing an increase of 81.1%. The growth in revenues
resulted primarily from the addition of new customers, the introduction of
national long distance services in The Netherlands and an increase in wholesale
traffic. Revenue for the nine months ended September 30 of 1998 as compared to
the same period in 1997 was negatively impacted by general price reductions
initiated by KPN Telecom in May 1998 of approximately 10.0% and in July of 1998
of approximately 15.0%. VersaTel responded to these price reductions by reducing
its own prices.
Billable minutes of use increased by 57.1 million to 73.3 million for
the nine months ended September 30, 1998 from 16.2 million for the nine months
ended September 30, 1997, representing an increase of 352.5%. The number of
customers increased by 4,997 to 6,461 as of September 30, 1998 from 1,464 as of
September 30, 1997.
Cost of revenues increased by NLG 9.9 million to NLG 21.1 million for
the nine months ended September 30, 1998 from NLG 11.2 million for the nine
months ended September 30, 1997, primarily reflecting an increase in billable
minutes. This increase was partially offset by declines in per minute
international termination and origination costs resulting from the migration of
customers from the DISA and VPN codes to the "1611" carrier select code.
Selling, general and administrative expense increased by NLG 19.1
million to NLG 30.0 million for the nine months ended September 30, 1998 from
NLG 10.9 million for the nine months ended September 30, 1997, representing an
175.2% increase. This primarily resulted from an increase in the cost of staff
(including temporary personnel and consultants) in the areas of network
operations, customer service, sales and marketing, installation services,
accounting personnel, a major brand advertising campaign and one time related
start-up expenses for Belgium operations network expenses.
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Depreciation and amortization expenses increased by NLG 3.7 million to
NLG 4.9 million for the nine months ended September 30, 1998 from NLG 1.2
million for the nine months ended September 30, 1997. This increase was
primarily related to capital expenditures incurred in connection with the
deployment of the Nortel DMS 100 switch in Amsterdam and an increase in the
number of dialers installed due to customer growth and the purchase of computer
equipment and office furniture.
Currency exchange gains, net, increased to NLG 4.7 million for the nine
months ended September 30, 1998 from no gain/loss for the nine months ended
September 30, 1997 as a result of the net gains of the Company's dollar
denominated assets and liabilities on the balance sheet.
Interest income increased by NLG 8.1 million to NLG 8.1 million for the
nine months ended September 30, 1998 from NLG 20,000 for the nine months ended
September 30, 1997. This increase was primarily related to the Company's
positive cash balance as a result of the First Offering.
Interest expense increased by NLG 22.8 million to NLG 23.1 million for
the nine months ended September 30, 1998 from 0.3 million for the nine months
ended September 30, 1997. This increase is primarily related to the accrual of
interest expense on the notes issued in the First Offering.
For the fiscal year ended December 31, 1997 compared to the fiscal year ended
December 31, 1996
Revenues increased by NLG 12.5 million to NLG 18.9 million in the
fiscal year ended December 31, 1997 from NLG 6.4 million in the fiscal year
ended December 31, 1996, representing a 194.0% increase. The growth in revenue
resulted primarily from an increased number of customers, as well as increased
usage from existing customers. In both years, all revenues were generated in The
Netherlands.
Billable minutes of use increased by 16.9 million to 23.4 million in
the fiscal year ended December 31, 1997 from 6.5 million in the fiscal year
ended December 31, 1996, representing a 260.1% increase. The number of customers
increased by 1,575 to 2,245 as of December 31, 1997, from 670 as of December 31,
1996.
VersaTel's revenues in 1997 were negatively impacted by KPN Telecom's
June 1997 introduction of a volume- based business customer discount plan
allowing for discounts of approximately 10.0% and by a general price reduction
in October 1997 of approximately 28.0%. In order to maintain VersaTel's price
discount relative to KPN Telecom's prices, VersaTel also introduced a discount
plan in June 1997 and again reduced its prices in October 1997. As a result of
the overall reduction in prices, VersaTel's revenues for the fourth quarter of
1997 were 13.0% lower than its revenues of NLG 5.3 million for the third quarter
of 1997. However, billable minutes of use for the fourth quarter were 14.4%
higher than the billable minutes of use for the third quarter. The Company
expects KPN Telecom to continue to lower its prices and create new discount
plans on a regular basis and the Company expects to adjust its pricing
accordingly.
Cost of revenues increased by NLG 12.4 million to NLG 17.4 million in
the fiscal year ended December 31, 1997 from NLG 5.0 million in the fiscal year
ended December 31, 1996, representing a 251.3% increase. As a percentage of
revenues, cost of revenues increased to 92.1% in the fiscal year ended December
31, 1997 from 77.1% in the fiscal year ended December 31, 1996, primarily as a
result of tariff reductions by the Company to respond to those implemented by
KPN Telecom which exceeded reductions in origination and termination costs.
VersaTel's revenues for the three months ended December 31, 1997 were
negatively impacted by a case of fraud in October 1997, which the Company
estimates affected approximately four days of customer traffic. The fraud
involved the unauthorized use of one of the Company's test codes. As a result, a
large number of calls were originated, primarily through ethnic calling shops,
over the course of four days and the associated origination and termination
costs of NLG 0.6 million were expensed as miscellaneous operating expenses. In
addition, as a result of excessive call volumes, some customers were unable to
complete calls through the VersaTel Network and reverted to KPN Telecom
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for service. The Company lost revenues from such customers and offered credits
to these customers to cover the price differential between KPN Telecom and
VersaTel retroactively. As a result, VersaTel estimates the total losses from
the incident to be approximately NLG 1.0 million. The Company has filed the case
with the local authorities and is currently determining the possibility of
filing a claim against certain parties for the cost of service and lost revenue.
The Company believes that the risk of future fraud has been reduced with the
introduction of the "1611" access code (which does not allow the type of fraud
that occurred from the unauthorized use of a test code to occur) and by tracking
multiple calls with the same access code.
Selling, general and administrative expenses increased by NLG 12.0
million to NLG 17.5 million in the fiscal year ended December 31, 1997 from NLG
5.5 million in the fiscal year ended December 31, 1996, primarily as a result of
the Company's increased sales, and an increase in customer service, billing,
collections and accounting staff required to support revenue growth. Staff
levels grew by 38, to 70 employees at December 31, 1997 from 32 employees at
December 31, 1996, an increase of approximately 118.8%. As a percentage of
revenues, selling, general and administrative expenses increased to 92.8% in the
fiscal year ended December 31, 1997 from 85.3% in the fiscal year ended December
31, 1996, as a result of the Company's continuing investments in back-office
infrastructure and in people. Bad debt expense was NLG 81,000 for the fiscal
year ended December 31, 1997, or 0.4% of revenues.
Depreciation and amortization expenses increased by NLG 2.7 million to
NLG 3.2 million in the fiscal year ended December 31, 1997, from NLG 0.5 million
in the fiscal year ended December 31, 1996, primarily due to increased capital
expenditures incurred in connection with the expansion and deployment of the
VersaTel Network.
Interest expense, net increased by NLG 0.2 million to NLG 0.5 million
in the fiscal year ended December 31, 1997 from NLG 0.3 million in the fiscal
year ended December 31, 1996, primarily due to increased shareholders' loans.
Liquidity and Capital Resources
The Company has incurred significant operating losses and negative cash
flows as a result of the development of its business and the VersaTel Network.
Prior to the First Offering, the Company had financed its growth primarily
through equity and subordinated loans from its shareholders. In May 1998, the
Company issued notes and warrants in the First Offering and raised net proceeds
of $216.2 million, $78.9 million of which was invested in U.S. government
securities placed in escrow to fund the first six interest payments on the notes
issued in the First Offering. In December 1998, the Company issued the
Outstanding Notes and warrants in the Second Offering and raised net proceeds of
$139.5 million, $46.5 million of which was invested in U.S. government
securities placed in escrow to fund the first five interest payments on the
Notes. For a description of the terms of the notes issued in the First Offering,
see "Description of Certain Indebtedness." The Company has since used a
significant amount of the remaining net proceeds of the First Offering to make
capital expenditures related to the expansion and development of the VersaTel
Network, to fund operating losses and for other general corporate purposes.
Although the Company currently maintains significant cash balances, it
will require substantial additional capital to continue funding the cost of the
VersaTel Network. The estimated net proceeds of the Second Offering of
approximately $139.0 million will be used for that purpose. The Company also
used approximately $46.5 million to acquire Pledged Securities (as defined in
"Description of the Exchange Notes -- Certain Definitions") to be placed in
escrow to fund the first five interest payments on the Notes.
From and after November 15, 2001, the Company will be required to fund
substantial interest payments on the Notes and the notes issued in the First
Offering on a current basis. The Company will need to substantially increase its
net cash flow in order to meet its debt service obligations at that time,
including its obligations on the Notes. See "Risk Factors -- Substantial
Indebtedness."
To date, the Company has made limited use of bank facilities and
capital lease financing. The Company may seek to raise senior secured debt
financing as well as vendor financing as additional sources of funds for the
expansion
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of the VersaTel Network over the near term. See "Risk Factors -- Considerable
Capital Required to Expand the Network."
Net cash provided by operating activities was NLG 5.8 million in the
fiscal year December 31, 1997 compared to negative NLG 1.7 million in the fiscal
year ended December 31, 1996. This was primarily the result of an increase in
accounts payable of NLG 18.7 million in the fiscal year ended December 31, 1997.
The increase in accounts payable was mainly caused by non-paying of current
payables as a result of the liquidity difficulties discussed below.
Net cash used in investing activities was NLG 14.5 million in the
fiscal year ended December 31, 1997 and NLG 2.6 million in the fiscal year ended
December 31, 1996. Substantially all the cash utilized by investing activities
in each fiscal year resulted from an increase in capital expenditures to expand
the VersaTel Network. The Company does not expect any material disruption nor
any material expenditures in connection with the transition of its billing and
information systems to the year 2000.
Net cash provided by financing activities was NLG 5.8 million in the
fiscal year ended December 31, 1997 and NLG 8.6 million in the fiscal year ended
December 31, 1996. Net cash provided by financing activities in the fiscal year
ended December 31, 1997 resulted mainly from NLG 1.5 million of capital
contributions and NLG 4.5 million of subordinated loans obtained from one of the
Company's shareholders. For the fiscal year ended December 31, 1996, net cash
provided by financing activities of NLG 8.6 million resulted from NLG 5.0
million of capital contributions and NLG 3.2 million of subordinated loans
obtained from the Company's shareholders, as well as capital leases to an amount
of NLG 0.4 million.
Prior to the First Offering, the Company experienced liquidity
difficulties, which resulted in attachments to its bank account by certain
creditors. This situation was resolved by the contribution of new equity by
certain of the Company's shareholders and the issuance of guarantees for the
benefit of one of the creditors.
In February 1998, as part of the Recapitalization two of the three
shareholders of the Company, Telecom Founders and NeSBIC, a subsidiary of
Fortis, invested an additional NLG 7.2 million in equity capital in the Company.
Although this contribution was received in February 1998, the formal
shareholders meeting approving the amount to be labelled as capital was not
executed until April 17, 1998. In addition, NeSBIC and Cromwilld converted their
subordinated convertible notes totaling NLG 3.6 million into Ordinary Shares of
the Company, and NeSBIC converted its NLG 4.5 million bridge loan into Ordinary
Shares of the Company. The third component of the Recapitalization was comprised
of a new equity investment by Paribas of NLG 12.8 million. Lastly, the Company
received from Telecom Founders, NeSBIC, Paribas and NPM an additional NLG 15.0
million in equity capital immediately prior to the closing of the First
Offering. As a result of the Recapitalization, the Company's share capital
increased from NLG 7.0 million to NLG 50.1 million. See "Security Ownership of
Principal Shareholders and Management."
Risks Associated with the Year 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Because of this programming
convention, software, hardware or firmware may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including among others, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Year 2000 and VersaTel's Readiness
VersaTel is undertaking a comprehensive program to address the Year
2000 issue with respect to the following:
1. The Company's information technology systems;
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2. The telephony switching network (including equipment
installed at customers' premises);
3. The Company's non-information technology systems (including
buildings, plant, equipment and other infrastructure systems
that may contain embedded micro controller technology);
4. The systems of the Company's major vendors (insofar as they
relate to the Company's business); and
5. The Company's customers.
This program involves four "Steps": (1) a wide ranging assessment of
Year 2000 problems affecting the Company; (2) the development and implementation
of remedies to address discovered problems; (3) the testing of the Company's
systems; and (4) an analysis of the worst case scenario for the Company. The
Company expects to complete Steps 1 and 2 of this program in the first quarter
of 1999 and Steps 3 and 4 by the end of the second quarter of 1999.
Steps 1-2: Assessment of Year 2000 Issues, Development and Implementation of
Remedies
The Information Technology Systems. The Company is currently undergoing
a major program to replace all of its existing OSS systems for billing, customer
care and mediation and expects to have completed the replacement program by the
end of the second quarter of 1999. In selecting the new OSS systems, the Company
asks for guarantees from the manufacturers of Year 2000 compliance. The Company
is also checking all its custom designed software for Year 2000 compliance.
The Company uses Windows 95 and Windows NT 4.0 as its operating
systems. The Company expects to upgrade all of its Windows 95 operating systems
to Windows 98, which is Year 2000 compliant, in the first quarter of 1999. The
Company expects to install the latest service pack for its NT 4.0 operating
systems which is Year 2000 compliant in the first quarter of 1999. The Company
does not presently use any other desktop or server operating systems.
The Telephony Switching Network. The Company has consulted with Nortel,
the manufacturer of its DMS 100 telephony switches and believes that its
switches will be Year 2000 compliant before the end of 1998. The Company is
currently upgrading its switch operating software to EURO-8, which is Year 2000
certified and is also investigating the Year 2000 compliance of its routers
installed at customer premises to direct traffic on to the VersaTel Network.
The Non-Information Technology Systems. The Company's office buildings
have the following embedded systems: monitor alarm (intrusion and sensors),
personnel registration plus floor access, fire alarm, climate control and
electrical power maintenance (generators). The Company's facilities management
team is currently investigating if the embedded systems are Year 2000 compliant
and intends to ensure that they will be by the end of the fourth quarter of
1998.
Major Vendor's Systems. The Company is asking all of its major vendors
to demonstrate their approach to the Year 2000 problem and to give guarantees
that the millennium will not interrupt their services to the Company. The
Company is informing its vendors that Year 2000 compliance in their services and
products is an essential element of the existing business relationship. The
managers responsible for each vendor relationship are asking for these
guarantees and the response to date has been positive. The Company is now
formalizing these requests, sending letters, and compiling a list of vendors'
responses.
Customers' Systems. The Company's customer services department intends
to discuss with customers the Year 2000 issue, including whether such customer
is Year 2000 compliant and to suggest that, where this issue has not been
resolved, the customer seek advice. No assurances can be given that the
Company's customers will either take such advice or be Year 2000 compliant on a
timely basis.
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Step 3: Testing of the Company's Systems
VersaTel intends to conduct a full operational test of its entire
business by the end of the second quarter of 1999, when the Company expects that
all of its systems and processes will be Year 2000 compliant. The Company's
services and products are primarily provided to business customers who operate
Monday through Friday and therefore it plans to conduct this test during a
weekend. Certain customers have approved this plan and have agreed to
participate in the test.
Step 4: Worst Case Scenario
The Company believes that the worst effect of the Year 2000 issue would
be the inability of customers to complete calls. Nortel, the manufacturer of the
Company's switches, has conducted extensive Year 2000 tests with the EURO-8
software and has informed the Company that it believes the Company's switches
are Year 2000 compliant. The Company will be approaching Nortel for guarantees
regarding this compliance.
If the Company's Year 2000 compliant billing system fails to function
correctly, the Company believes that bills could still be distributed by
modifying the call detail record's timestamp to reflect a pre-Year 2000 date.
The ability of the Company's customer care team to supply quality
service would be significantly affected if the OSS systems were not available.
Service provisioning, additional services and the development of new customers
could not continue effectively if the automated provisioning systems fail. The
Company is asking for certificates from the manufacturers of these systems that
they are Year 2000 compliant.
The Company's ability to collect revenues depends upon certain
financial institutions' computer systems, because approximately 50% of its
retail customers pay by way of direct debit facilities. The Company is seeking
assurances from these financial institutions that they are Year 2000 compliant.
The Company believes that it is not very likely that any of the above
situations will occur due to the assurances of Year 2000 compliance that it
expects to receive from its vendors, software and systems programmers, customers
and financial institutions. In the event that one or more of the situations
should occur, the Company would attempt to rectify the problem with the
appropriate people. However, no assurance can be given that the Company will be
successful in obtaining valid assurances or guarantees, that the Year 2000 issue
will not have a material adverse effect on the Company, that any Year 2000
effects could be resolved or that the Company would be reimbursed for any
additional expenditure under any of the assurances or guarantees that it expects
to obtain or otherwise.
Costs Related to the Year 2000 Issue
To date, the Company has incurred approximately NLG 200,000 in costs
for its Year 2000 program. A substantial portion of costs for the Year 2000
issue will be included in the replacement of the current generation of operating
support systems. The Company is replacing these systems to support the business
growth and not specifically to remedy the Year 2000 problem. The Company expects
to incur additional specific Year 2000 charges that are estimated to be less
than NLG 2 million, the majority of which will be incurred during 1999.
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BUSINESS
Overview
VersaTel is a rapidly growing alternative telecommunications service
provider based in Amsterdam, The Netherlands. VersaTel's objective is to become
the leading alternative provider of facilities-based national and international
telecommunications services in the Benelux region. The Company, formed on
October 10, 1995, currently provides high quality, competitively priced,
international and national long distance telecommunications services in The
Netherlands and Belgium, primarily to small- and medium-sized businesses, and
wholesale telecommunications services to other carriers. With over 5,000
business customers, the Company is a leading alternative to KPN Telecom, the
former monopoly telecommunications carrier of The Netherlands, in the small- and
medium-sized business market. The Company's business customer base has grown
from 669 as of December 31, 1996 to 5,022 as of September 30, 1998. In addition,
the Company offers its services to targeted residential customers. As of
September 30, 1998, the Company had 1,436 residential customers. The Company's
revenues for the year ended December 31, 1997 were approximately NLG 18.9
million and for the nine months ended September 30, 1998 were approximately NLG
25.9 million.
Currently, VersaTel's primary service offerings consist of
international and national long distance services. VersaTel has recently
introduced services aimed at the residential market including VersaContact, a
dial-around service, and calling cards. In addition to its retail voice and data
services, the Company offers wholesale switched voice services to other
telecommunications service providers. These services include international
gateway and national termination services in The Netherlands. With the
acquisition of CS Net in early November 1998, VersaTel will be able to offer its
business customers certain internet and intranet services. VersaTel plans to
offer additional services, including local access and high speed data services
to its business customers over the next 18 months.
VersaTel was one of the first carriers in The Netherlands to obtain a
carrier select code and to obtain full interconnection with KPN Telecom.
Customers access VersaTel's services by dialing (manually or through an auto-
dialer) the Company's select codes or through leased lines. The Company's Nortel
DMS 100 switch located in Amsterdam connects customers' calls to the required
destination using the most cost efficient routing. The Company has installed a
Nortel DMS 100 switch in Antwerp and is currently testing the switch with the
intention of bringing the switch on-line by the end of 1998. In addition to
interconnection agreements with KPN Telecom and Belgacom, VersaTel has a
national carrier agreement with Castel N.V., one of the largest regional cable
television companies in The Netherlands, and international carrier agreements
with companies such as Telfort B.V., WorldCom Inc., FaciliCom International Inc.
and Global One Communications B.V.
The Benelux Market Opportunity
VersaTel was founded to capitalize on the opportunities created by the
liberalization of the telecommunications market in the Benelux region. With a
population of approximately 26.2 million, the Benelux market is characterized by
one of the world's highest population densities (approximately 351 persons per
square kilometer) and relatively high income levels (a per capita GDP of
approximately $24,033 in 1997). Located in the heart of Europe in a relatively
small geographic area, the Benelux region is a major transportation and trade
gateway, generating a relatively high level of telecommunications traffic.
According to EITO (European Information Technology Observatory), the total
Benelux telecommunications services market amounted to approximately $14.0
billion in 1997, and would, according to EITO, if ranked as a single country,
have been the fifth largest market in telecommunications services expenditures
in western Europe behind Germany, France, the United Kingdom and Italy. The
Company expects that the importance of telecommunications will continue to
increase as the Benelux market liberalizes, and that total telecommunications
revenues as a percentage of GDP in the Benelux region (2.6% in 1997). At
present, the Benelux market is dominated by the former monopoly
telecommunications carriers, KPN Telecom, Belgacom, and P&T Luxembourg, in,
respectively, The Netherlands, Belgium and Luxembourg. The Company believes that
the Benelux telecommunications market represents a substantial opportunity which
it can capitalize on by capturing a portion of the incremental growth of the
market and by winning market share from the PTTs.
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The following chart illustrates the relative importance of the Benelux
telecommunications market.
CHART
[Top 10 International Traffic Markets (in millions of minutes of outgoing
international telephone traffic ("MiTTs"), 1997)(1)]
United States 22,700
United Kingdom 6,600
Germany 5,333
Canada 4,286
France 3,545
Benelux (2) 2,395
Italy 2,352
Switzerland 2,164
Japan 1,792
Hong Kong 1,718
- ----------
(1) Source: Telegeography 1999. All outgoing MiTT market data is 1997
information.
(2) The Benelux market figure is the aggregate figure of all outgoing MiTTs of
The Netherlands, Belgium, and Luxembourg, net of intra-Benelux outgoing
international MiTTs.
The Company currently operates in The Netherlands and in Belgium and
plans to extend its operations to Luxembourg by mid-1999. The following is a
brief description of each country comprising the Benelux market.
The Netherlands
With a population of 15.6 million and a population density of
approximately 376 persons per square kilometer, The Netherlands is the most
densely populated country in Europe. This high population density will enable
the Company to reach a larger number of potential customers with a less
extensive network and, as a result, lower capital expenditures. Due to its
location in the heart of western Europe and its connections with the rest of
western Europe through major highways, railroads and waterways, distribution and
the export and import of products and services account for a significant portion
of the national economy. The Netherlands per capita GDP was U.S. $23,609 in
1997. Total telecommunications expenditures accounted for approximately 2.8% of
the GDP of The Netherlands in 1997.
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According to EITO, the Netherlands market accounted for approximately
5.1% of western Europe's telecommunications services expenditures, making it the
sixth largest market in western Europe. EITO also estimates that the Netherlands
market for telecommunication services has grown at a rate of 12.9%, 11.6% and
9.0% for the years 1995, 1996 and 1997, respectively, and also estimates that
the total size of the Netherlands telecommunications services market in 1997 was
$8.7 billion.
Belgium and Luxembourg
With a population of 10.2 million and a population density of 334
persons per square kilometer, Belgium is a relatively densely populated country.
It is host to a number of international organizations, including the European
Commission, parts of the European Parliament and NATO headquarters. Belgian per
capita GDP was $24,137 in 1997.
With a population of 423,000, Luxembourg is the smallest Member State
of the European Union ("EU"). It is a financial center and host to a large
number of EU institutions. The country has the highest GDP per capita in Europe
($37,132 versus $21,527 for the EU in 1997).
According to EITO, total telecommunications expenditures accounted for
approximately 2.3% of combined Belgian and Luxembourg GDP in 1997, the combined
Belgian and Luxembourg market accounted for approximately 3.1% of western
Europe's telecommunications services expenditures and the combined Belgian and
Luxembourg market for telecommunications services has grown at a rate of 14.0%,
10.6% and 10.3% for the years 1995, 1996 and 1997, respectively. EITO also
estimates that the total size of the combined Belgian and Luxembourg
telecommunications services market in 1997 was $5.26 billion which accounted for
approximately 2.0% of the GDP of the countries.
The VersaTel Network
Network Plan. The Company is building a network infrastructure which is
designed to connect all major business and population centers in the Benelux
region and provide local access in high density business areas as well as
international connectivity to Germany, France and the United Kingdom. VersaTel
believes that the demographics and high concentration of businesses in the
Benelux market will enable the Company to access a substantial portion of the
business and residential market with relatively low capital expenditures. The
Company plans to establish one of the first integrated overlay networks in the
Benelux region and plans for the Network to connect to most of the PTTs' points
of interconnection, pass within five kilometers of more than 270,000 businesses
and cover all major population centers. VersaTel believes that its Network will
enable the Company to better control costs, ensure access to bandwidth, offer a
broader portfolio of services and improve margins.
The VersaTel Network will consist of three integrated elements:
o Benelux Overlay Network. VersaTel is constructing the Benelux
Overlay Network that will connect the major commercial centers
in the Benelux region, including most interconnection points
with the PTTs and other telecommunications service providers.
The Company has been acquiring rights-of- way, ducts and dark
fiber from public authorities, utilities and other
telecommunications companies. The initial phase of the Benelux
Overlay Network will be a fiber-optic ring connecting
Amsterdam and Brussels via The Hague, Rotterdam and Antwerp.
The Netherlands Randstad Stage is expected to be completed in
early 1999. The remainder of the Benelux Overlay Network is
expected to connect an additional 23 major business centers in
the Benelux region. Upon completion, the Company expects that
the Benelux Overlay Network will consist of approximately
2,200 route kilometers of fiber-optic rings.
o Local Access Network. VersaTel intends to establish local
access infrastructure in areas with high business
concentrations along the Benelux Overlay Network. The Local
Access Network will connect business customers directly to the
VersaTel Network. The Local Access Network will consist of
both
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fiber-optic cable and radio links. The Company intends to
start implementing local access early in 1999, shortly after
the first segment of the Benelux Overlay Network becomes
operational. The Company plans to install up to 1,500 route
kilometers of local access infrastructure.
o International Network. The Company reached an agreement in
October 1998 with Global Crossing whereby the Company will
obtain dark fiber from Amsterdam to London and from the
Belgian- French border to Paris and in return will provide
Global Crossing with cable ready ducts from the Dutch coast
near Amsterdam to the Belgian-French border. VersaTel intends
to build or acquire additional direct fiber-optic links
connecting the Benelux Overlay Network to other
interconnection points in Germany, France and the United
Kingdom. VersaTel expects to complete fiber-optic links to its
initial interconnection points in Dusseldorf, Lille, Paris and
London in 1999.
The figure below sets forth the elements of the Company's Network.
[Network Design Graph]
Services Networks
International Networks
Benelux Overlay Network
Local Access Networks
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Network Design and Implementation. VersaTel's Network will utilize
advanced technology to achieve high reliability, low operating costs and rapid
capacity expansion. The key attributes of the network architecture include self-
healing, shared protection rings, diverse routing and separate paths into
redundant network nodes and interconnection points.
The Company's network architecture is designed to allow for substantial
expansion in capacity. The Company will provide for future capacity by
installing additional underground ducts, fiber pairs, building space and
building systems (such as power equipment) when building out the VersaTel
Network, since the marginal construction costs associated with providing future
capacity are low. For example, eight ducts will be installed along most
fiber-optic routes -- one for the initial cable installation, one as back-up and
maintenance space with the remainder for growth and/or trading purposes. Each
duct can hold one or more fiber cables. The initial fiber-optic cable installed
contains 96 fibers. In addition, the Company intends to implement management
systems that will have the capacity, flexibility and design architecture to
support anticipated expansion.
The Company intends to use advanced network equipment and management
systems to maintain low operating costs. These technologies automate many of the
functions for both network and service management. In addition, the Network will
be controlled from a single network management center, supported by a redundant
backup center. Having a single center controlling the entire Network, including
local access links, will minimize the staff required to manage network and
service operations.
The Network will use SDH transmission equipment, the industry standard
for creating bandwidth from the underlying transmission medium whether
microwave, fiber-optic cables or satellite. SDH equipment automates most of the
functions of defining, routing and connecting service bandwidth and reroutes
these channels in the event failures occur. The Company intends to continue to
use Nortel DMS switching equipment for its voice-grade circuit-switching
network. The Nortel DMS 100 switch is capable of supporting all "intelligent
network" and value-added services common in the industry. The Company intends to
establish data communications and internet service networks utilizing the
Benelux Overlay Network.
The Company is installing one of the first STM-64 (10 Gbps) fiber
networks in the Benelux region (20 Gbps including back-up capacity). This high
capacity is expected to provide a very competitive, low cost per bit
transmitted. In the future, capacity could be expanded to 160 Gbps per fiber
pair with existing WDM technology and even further as this technology is
improved. In addition, VersaTel intends to have the first deployment of Nortel's
Reunion broadband radio system in the Benelux region. This will provide high
speed Internet access as well as low cost customer access to all the services
VersaTel plans to offer.
The Company has tailored the proposed routing of the Benelux Overlay
Network to support its strategy of targeting small- and medium-sized businesses.
The Company expects that the Network will pass more businesses within five
kilometers than the networks of most other carriers. The Company believes that
although this plan will increase route length and construction costs, it will
lower the costs of local access substantially and will, ultimately, minimize the
total cost of serving its target market.
To provide local access, the Network has been designed with physical
access points at intervals averaging every 1.5 kilometers. All aspects of
network planning will integrate local customer access with the Benelux Overlay
Network. The Company believes centralized control of both local access and
overlay infrastructure as well as integrated network and service management
systems will allow the Company to deliver faster service provisioning and fault
repair, better service management and lower cost. As a result, the Company
believes that its network implementation will provide it with an advantage over
most of its competitors.
The Local Access Network will consist of both fiber-optic links and
point-to-multipoint radio connections to customers. VersaTel will decide the
means of local access based primarily on the density of the customers
anticipated in an area and the customers' distance from the Benelux Overlay
Network. Fiber-optic cables will be used to connect to office buildings and
business parks near the Benelux Overlay Network. Radio technology, which is
evolving rapidly
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as a capital efficient means of providing flexible bandwidth, will be used to
connect to more dispersed customers. VersaTel is working with Nortel, a world
leader in this point-to-multipoint radio technology, to become a pioneer in
implementing this technology in Europe. The Company recently received a license
which allows it to test this point-to- multipoint technology in The Netherlands.
VersaTel intends to begin a trial in January 1999 in which selected business
customers will be connected to the Benelux Overlay Network via wideband and
broadband wireless access. The Company believes it will be able to offer local
access customers a broader range of services, higher service quality, faster
service provisioning and lower costs than its competitors.
The International Network will include links from the Benelux Overlay
Network to the main interconnection points in Germany, France and the United
Kingdom. Interconnection locations will initially be Dusseldorf, Lille, Paris
and London. Later, Aachen, Cologne, Frankfurt and Metz are expected to be added.
The international links will also employ design principles of diverse routing,
as well as redundant and self-healing rings. The Company intends to build the
international links by purchasing or leasing dark fiber, swapping capacity with
alternative carriers and building its own infrastructure.
VersaTel has entered into a framework agreement with Nortel to supply
all initial transmission equipment and network management systems through a
turn-key project. VersaTel also has a similar arrangement with Detron, a Benelux
contractor for the engineering and construction of the fiber network. In
addition, pursuant to the agreement with Nortel, the Company has negotiated
contracts with Nortel to provide implementation and operations services as well
as vendor financing. See "Risk Factors -- Significant Challenges in Expanding
the Network."
The civil engineering and construction companies that have been engaged
are responsible for obtaining rights-of-way, civil engineering, physical
construction and testing of the Benelux Overlay Network. The Benelux Overlay
Network has utilized rights-of-way of public authorities, pipeline companies,
power and gas companies and others. Under the new telecommunications
legislation, the Company expects to have improved rights-of-way on public lands
in The Netherlands. The Company also expects to have rights-of-way on public
lands in Belgium, after obtaining its license. Separately, the Company may also
negotiate rights-of-way from private landowners. See "Risk Factors --
Significant Challenges in Expanding the Network" and "-- Regulation."
The Company expects to operate the entire Network and to own
substantially all of the network equipment and most fiber-optic links. The
Company plans to utilize fiber-optic cable for most of the Benelux Overlay
Network. To accelerate implementation, VersaTel intends to acquire trench space,
ducts, dark fiber and leased capacity from other infrastructure operators,
particularly on international links. Potential partners are interested in
obtaining dark fiber capacity and, in some cases, will trade fiber capacity on
routes already constructed, as illustrated by the agreement reached with Global
Crossing.
Business Strategy
VersaTel's objective is to become the leading alternative provider of
facilities-based national and international telecommunications services in the
Benelux region. The principal elements of the Company's strategy are:
o Targeted Network Roll-out. The Benelux Overlay Network's
routing is designed to cover the major business and population
centers in the Benelux region and pass as many businesses as
economically feasible. As individual segments of the Benelux
Overlay Network are completed, the Company intends to connect
business customers directly via the Local Access Network. For
example, the first segment of the Benelux Overlay Network,
when completed, will connect the Netherlands Randstad Stage,
Antwerp and Brussels and will pass within five kilometers of
approximately 100,000 businesses. The Company believes that
this targeted network roll-out strategy will allow it to gain
market share rapidly, increase revenues and improve margins.
o Grow Customer Base. The Company intends to leverage the growth
of its facilities-based Network, its product and service
offerings and its sales and marketing capabilities to expand
its customer base.
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The Company believes it has developed strong brand recognition
in its target market of small- and medium-sized businesses and
intends to capitalize on this by increasing its direct sales
force, introducing new distribution channels and targeting new
customer segments, including high-usage residential customers.
o Increase Product and Service Offerings. The Company intends to
provide new products and services in order to attract
additional customers, enhance customer loyalty and increase
network utilization by its existing customer base. In addition
to international long distance, VersaTel has also introduced
national long distance, dial-around services and calling cards
to its customers. With the acquisition of CS Net, VersaTel
will be able to offer certain internet and intranet services
to its business customers. The Company also expects to
introduce local access and high speed data services over the
next 18 months.
o Focus on Superior Customer Service. VersaTel strives to
maintain a competitive advantage over its competitors in its
target markets by providing superior customer service. The
Company believes that its target market of small- and
medium-sized businesses has been particularly underserved by
the PTTs and that providing a high level of customer service
is a key element to establishing customer loyalty and
attracting new customers. The Company has dedicated customer
service representatives who initiate contact with customers on
a routine basis to ensure satisfaction and market new
products. In addition, the Company provides detailed monthly
billing statements and monthly call management reports which
identify savings to customers and enable them to manage their
telecommunications expenditures more effectively.
o Expand Facilities-Based Wholesale Services. The Company
currently offers international gateway services as well as
domestic termination services for both international and
national carriers. In addition, as VersaTel deploys its
Network, the Company intends to offer additional wholesale
services, including leased lines, conduits, dark fiber and
managed bandwidth in order to increase network utilization and
to offset the cost of network construction. The Company
expects the creation of network capacity in the form of dark
fiber, conduits and rights-of-way will provide a trading
currency to be used with other carriers as a means of
accelerating the deployment of the VersaTel Network.
o Pursue Selective Acquisitions and Strategic Relationships. The
Company plans to continue to acquire other alternative
telecommunications service providers and Internet service
providers in order to accelerate the growth of its customer
base, Network and service portfolio. In addition, the Company
is actively pursuing strategic relationships with alternative
carriers in Germany, France and the United Kingdom in order to
establish interconnection agreements, to partner on
infrastructure projects and to expand its geographic reach.
Products and Services
Current Products and Services Offerings
The Company currently offers the following products and services:
Long Distance. VersaTel offers international and national long distance
telecommunications services to over 6,000 customers in The Netherlands. The
Company began offering switched-based international long distance services to
business customers in 1995, to telecommunication services providers in 1996 and
to residential customers in December 1997. Historically, the Company has focused
primarily on the sale of international voice and data services to small- and
medium-sized businesses; however, with the liberalization of the Netherlands
telecommunications market, the Company has expanded its service offerings to
include national long distance services. International and national long
distance services are the Company's core products as it expands in other
markets. The Company began
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offering international services in Belgium in the third quarter of 1998 and
plans to begin offering national long distance services.
Calling Cards. The Company currently offers post-paid calling cards and
plans, in the near future, to offer pre-paid calling cards. The Company's
post-paid calling card is provided to the Company's business customers and high
international volume residential customers. The post-paid calling card provides
international and national call access in all countries where available through
one toll-free number worldwide. Call charges are itemized and appear on the call
management report. The Company expects to offer pre-paid calling cards
throughout the Benelux region by the third quarter of 1999.
Wholesale Switched Voice Services. In addition to its retail switched
voice and data services, the Company offers wholesale switched services to other
telecommunications service providers. These services include international
gateway and national termination services in The Netherlands. The increase in
traffic volume generated by offering these services allows the Company to obtain
greater volume discounts. As the Company completes its Network, it will be able
to offer wholesale services over its own Network throughout the Benelux region,
Germany, France and the United Kingdom, thus increasing network utilization and
improving gross margins.
Future Products and Service Offerings
VersaTel continually evaluates potential product and service offerings
as well as competitors' offerings in order to retain and expand its customer
base and to increase revenue per customer. The Company places a high priority on
the development of new products and services and expects to introduce the
following:
ISDN Primary Rate services. The Company plans to offer ISDN primary
rate services to its customers in the Benelux region in the first quarter of
1999. This service will primarily target the business market with digital PABX's
and high volume outgoing and incoming traffic. Currently, ISDN is the fastest
growing service for business telephony in the West-European market.
Virtual POP dial-in services. The Company plans to offer virtual
Point-of-Presence dial-in services for independent Internet service providers
and for business customers by the second quarter of 1999. This service will be
positioned as cost efficient dial-in capability for Internet service providers
and for the business market seeking effective remote access capabilities for
their employees and customers.
Enhanced Switched Voice Services. The Company is developing advanced
call service offerings that are expected to appeal to its core customer segment,
including voice mail, VPN, voice response, personal numbering and automated
secretary. VersaTel's present switched voice system is capable of supporting
most of these enhanced services. The remaining equipment required to offer these
enhanced services is expected to be installed in 1999. These services are
expected to aid in customer retention and increase network utilization and
average revenue per customer.
Managed Bandwidth Services. With the completion of the initial links in
the Benelux Overlay Network and its International Network, the Company will be
able to participate in the market for selling bandwidth capacity. The Company is
planning service offerings beginning with E1 channels (2 Mbps) up to STM-1
channels (155 Mbps). The Company expects to provide these services primarily to
its wholesale customers, particularly at locations where the Company is the only
alternative to KPN Telecom.
Data Communication Services. VersaTel plans to offer high-speed data
communications services to its small- and medium-sized business customers
beginning in the third quarter of 1999. The Company believes that there is a
growing market for high-speed data communications services, such as frame relay,
Ethernet, and ATM services in the small- and medium-sized business market. Data
communications services and the specific protocols are evolving rapidly and the
Company is currently developing its portfolio of data communications services
and the roll-out sequence.
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Internet Access Services. VersaTel plans to acquire other Internet
service providers, to accelerate the introduction of Internet services to its
target market. Demand for Internet services is growing rapidly in the Benelux
region, as small- and medium-sized businesses are starting to use these services
for e-mail, data retrieval, information services and electronic commercial
transactions. The Company expects that Internet services will generate an
increasingly large share of telecommunications industry revenue as a result of
both the introduction of new applications and substitution for various existing
services.
Sales and Marketing
VersaTel seeks to capitalize on its position as a leading alternative
telecommunications services provider that offers comprehensive customer service
and low-cost communications services in The Netherlands with a focus on
small-and medium-sized businesses and residential customers. VersaTel believes
that it has created a prominent brand name in its target market that it expects
to successfully apply throughout the Benelux region. The Company brands all of
its products and services offerings with "Versa," such as VersaBizz (post-paid
calling cards), VersaCall (voice services), VersaFax (facsimile services) and
VersaData (data communications). VersaTel markets its products and services
through several marketing channels, including database marketing, targeted
telemarketing, brand and promotional advertising, direct mail and the Company's
direct sales force.
Customers
The Company markets its services on a retail basis to its business and
residential customers and on a wholesale basis to other carriers.
Small- and Medium-sized Businesses. The Company's target customers are
small- and medium-sized businesses (under 100 employees). The Company focuses
particularly on those business and industry segments which have historically
generated significant volumes of national and international traffic, such as
shipping, transport, import and export and agri/horti culture. The Company
believes that the small- and medium-sized business segment has been underserved
by the PTTs and the major alternative service providers. Traditionally, the PTTs
and the other major carriers have focused on offering their lowest rates and
best services primarily to larger, higher volume business customers.
Residential Customers. VersaTel has begun targeting residential
customers. The Company's initial focus is to market its services to employees of
its business customers and residential customers in certain niche markets
characterized by high volume calling patterns. In addition, the Company markets
its services to residential customers in The Netherlands via marketing
communications methods such as direct mail, multi-level marketing and
telemarketing. The Company believes that this approach is a cost-effective way
of targeting the residential market segment.
Wholesale Customers. The Company markets its wholesale services to
international and domestic carriers. The wholesale sales effort is supported by
senior management's existing relationships in the industry. The Company intends
to establish a carrier sales force with account managers focusing on specific
carrier customers.
Sales and Marketing Staff
The Company's sales force is composed of direct sales personnel,
telemarketers and independent sales agents. Marketing to small- and medium-sized
businesses is currently conducted by over 26 direct sales personnel in Amsterdam
and 13 in Antwerp. In the future, the Company expects to significantly expand
its direct sales force and open additional sales offices in Rotterdam and
Brussels. The Company's sales personnel make direct calls to prospective and
existing business customers, analyze business customers' usage and service
needs, and demonstrate how the Company's service package will improve a
customer's communications capabilities and costs. Each member of the Company's
sales force is required to complete the Company's intensive training program. In
addition, the Company has a telemarketing group that screens prospective
customers and verifies call volumes.
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VersaTel recently established a sales agents program under which sales
agents receive commissions, but are not employed by the Company. Agents are
provided with an advertising and sales promotion budget based on the volume of
their sales. The Company currently has over 80 such sales agents and intends to
continue to increase this program.
Customer Service
VersaTel strives to maintain a competitive advantage over its
competitors in its target markets by providing superior customer service. The
Company believes that providing a high level of customer service is a key
element to establishing customer loyalty and attracting new customers. The
Company has dedicated customer service representatives who initiate contact with
its customers on a routine basis to ensure customer satisfaction and market new
products. In addition, the Company provides detailed monthly billing statements
and monthly call management reports which identify savings to customers and
enable them to manage their telecommunications expenditures more effectively.
VersaTel also believes that technology plays an important role in
customer satisfaction. Advanced technological equipment is crucial to enabling
the Company to provide a high quality of service to its customers. The Company
has installed sophisticated status-monitoring and diagnostic equipment on its
NOC and plans to install similar units on its SDH network. This equipment allows
the Company to identify and remedy network problems before they are detected by
customers. By providing superior customer service and through the effective use
of technology, VersaTel expects to maintain a competitive advantage in its
target markets.
Billing and Information Systems
The Company must process millions of call detail records quickly and
accurately in order to produce customer bills in a timely and efficient manner.
Call detail records are collected, backed-up, processed and verified by VersaTel
on a daily basis. This data is then transmitted electronically to a printing
company for printing and then returned to VersaTel for verification and
distribution. The Company is currently reviewing its billing systems in
anticipation of continued growth and anticipates replacing its current billing
system by the second quarter of 1999. The Company does not expect any material
disruption in its billing or information systems as a result of the Year 2000.
In addition, the Company has planned and budgeted replacements and enhancements
to its information systems to handle growth in the size and complexity of the
Company, its customer base and its product portfolio in areas such as work flow,
fixed asset management, sales support and service provisioning. See "Risk
Factors -- Risks Associated with Managing Growth."
Competition
Until recently, the telecommunications market in each EU Member State
has been dominated by the national PTT. Since the implementation of a series of
EC directives beginning in 1990, the EU Member States have started to liberalize
their respective telecommunications markets, thus permitting alternative
telecommunications providers to enter the market. Liberalization has coincided
with technological innovation to create an increasingly competitive market,
characterized by still-dominant PTTs as well as an increasing number of new
market entrants. Competition in the European long distance telecommunications
industry is driven by numerous factors, including price, customer service, type
and quality of services and customer relationships.
In The Netherlands, Belgium and Luxembourg, the Company competes or
will compete primarily with the national PTTs. As the former monopolist
providers of telecommunications services in these countries, the PTTs have an
established market presence, fully-built networks and financial and other
resources that are substantially greater than those of the Company. In addition,
the national PTTs own and operate virtually all of the infrastructure which the
Company must currently access to provide its services. The Company estimates
that in each of these countries the national PTT still controls the vast
majority of the telecommunications market.
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In addition, various new providers of telecommunications services have
entered the market in each of these countries, targeting various segments of the
market in these countries. Companies such as EnerTel, Telfort B.V., a company
formed by British Telecom and Nederlandse Spoorwegen N.V., the Netherlands
railroad company, as well as Global One Communications, Worldcom Inc. and Esprit
Telecom plc compete with KPN Telecom in The Netherlands for contracts with large
multinational companies. Unisource N.V., Concert, France Telecom, AT&T,
Worldcom, Esprit Telecom plc. and Telenet N.V. compete with Belgacom in Belgium
for contracts with large multinational companies. The Company does not currently
serve this segment of the business market, as the Company believes that it does
not presently have a competitive advantage to successfully target large
corporate customers.
In VersaTel's primary target market of small- and medium-sized
businesses, competitors include RSL Communications Ltd. and Viatel, Inc. in both
The Netherlands and in Belgium. In the residential customer market, the Company
competes with companies such as EnerTel N.V., Tele2 A.B., Telegroup, Inc.,
Viatel, Inc. and callback operators in The Netherlands. In Belgium, the
residential customer market has only recently been aggressively targeted by
service providers such as Mobistar, Telenet N.V. and Telegroup, Inc.
Regulation
In Europe, the traditional system of monopoly PTTs has ensured the
development of broad access to telecommunications services; however, it has also
restricted the growth of high quality and competitively priced voice and data
services. The liberalization in European telecommunications market is intended
to address these market deficiencies by ending PTTs' monopolies, allowing new
telecommunications service providers to enter the market and increasing the
competition within the European telecommunications market. The inefficiencies of
the traditional monopoly system combined with the EU liberalization initiatives
have created the current market opportunity for the Company's product and
service offerings.
The current regulatory framework in the EU and in the countries in
which the Company provides its services or intends to provide its services is
briefly described below. There can be no assurance that future regulatory,
judicial and legislative changes will not have a material adverse effect on the
Company, that national or international regulators or third parties will not
raise material issues with regard to the Company's compliance or noncompliance
with applicable regulations or that any changes in applicable laws or
regulations will not have a material adverse effect on the Company. See "Risk
Factors -- Risks Associated with Changes in Regulatory Environment."
European Union
Starting in 1987, the EC Green Paper on Telecommunications charted the
course for the current changes in the EU telecommunications industry by
advancing principles such as separation of operators from regulators,
transparency of procedures and information, cost orientation of tariffs, access
to monopoly infrastructure networks and the liberalization of services. In 1990,
the EU Member States approved two directives that established these principles
in EU law: the Open Network Provision ("ONP") Framework Directive and the EC
Services Directive. These two directives set forth the basic rules for access to
the PTT public networks and the liberalization of the provision of all
telecommunications services within the EU except for "voice telephony."
The ONP Framework Directive established the conditions under which
competitors and users could gain cost- oriented access to the PTTs' public
networks. The EC Services Directive abolished the existing monopolies on, and
permitted the competitive provision of, all telecommunications services with the
exception of "voice telephony." The intended effect of the Services Directive
was to permit the competitive provision of all services, other than voice
telephony, including value-added services and voice services to closed user
groups ("CUGs"). As a result, many new entrants entered the market, labeling
their services as CUG services, while in fact providing voice telephony
services.
In 1992, the EC approved the ONP Leased Line Directive, which required
the PTTs to lease lines to competitors and end-users, and to establish cost
accounting systems for those products by the end of 1993. The national
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regulatory authorities were to use this cost information to set cost-oriented
tariffs for leased lines. This Directive has recently been amended. The purpose
of the revised ONP Leased Lines Directive is to ensure that, in a competitive
market, all users continue to have access to leased lines from at least one
operator, under harmonized conditions of access and use.
In 1996, the EU issued the Full Competition Directive, which requires
EC Member States to permit alternative infrastructure providers, such as
existing networks of cable companies, railroads, electric and other utility
companies, to resell capacity on these networks for the provision of services
other than voice telephony from July 1996. This allows the Company to lease
transmission capacity from companies other than the PTTs. The Full Competition
Directive also established January 1, 1998 as the date by which all EU Member
States (with the exception of Spain, Greece, Portugal, Ireland and Luxembourg,
each of which may delay implementation for various periods) must establish a
legal framework which removes all remaining restrictions on the provision of
telecommunications services, including "voice telephony." Subject to the
foregoing, each EU Member State is obliged, under EU law, to enforce the terms
of the Full Competition Directive. Enforceability of the Full Competition
Directive may be challenged at the EU level or at the EU Member State level. See
"Risk Factors -- Risks Associated with Changes in Regulatory Environment."
In addition to the Full Competition Directive, the EU issued the
Licensing Directive in April 1997 and the Interconnection Directive in June
1997. The Licensing Directive establishes a common framework for general
authorizations and individual licenses in the field of telecommunication
services. The Licensing Directive is intended to allow telecommunications
operators to benefit from an EU-wide market for telecommunications and establish
a common framework for national authorization regimes and seeks to facilitate
cross-border networks and services. The Interconnection Directive standardizes
regulatory frameworks to be implemented by EU Member States and their national
regulatory authorities, including the regulation of public telecommunications
networks and services. The Interconnection Directive governs the manner in which
alternative network operators and service providers are permitted to
interconnect with the PTTs' public networks. The Interconnection Directive
requires national regulators to ensure that interconnection agreements with
parties with significant market power provide for access at cost-oriented rates.
The Interconnection Directive has been amended to provide for carrier
selection (ensuring that end-users can on a call-by-call basis select the long
distance or international carrier of their choice) as of January 1, 1998, and
carrier pre-selection (ensuring end-users can prior to the time calls are made
select the long distance or international carrier of their choice) and number
portability (the ability of end-users to keep their numbers when changing
operators) by January 1, 2000. Carrier selection and carrier pre-selection are
required to be made available by carriers with significant market power. The
Interconnection Directive indicates that significant market power could be
assumed if the carrier's market share exceeds 25%, but Member States may adopt
different standards.
Despite these regulatory initiatives supporting the liberalization of
the telecommunications market, most EU Member States are still in the initial
stages of liberalizing their telecommunications markets and establishing
competitive regulatory structures to replace the monopolistic environment in
which the PTTs previously operated. For example, most EU Member States have only
recently established a national regulatory authority. In addition, the
implementation, interpretation and enforcement of these EC directives differ
significantly among the EU Member States. While some EU Member States have
embraced the liberalization process and achieved a high level of openness,
others have delayed the full implementation of the directives and maintain
several levels of restrictions on full competition.
An overview of the regulatory framework in the individual markets where
the Company operates or intends to operate is described below. This discussion
is intended to provide a general outline, rather than a comprehensive discussion
of the more relevant regulations and current regulatory posture of these
jurisdictions. VersaTel requires licenses, authorizations or registrations in
all countries in which it operates to provide its services. Licenses,
authorizations and/or registrations have been obtained in The Netherlands and
Belgium. The Company intends to apply for such licenses and registrations in
Luxembourg in the future. The Company has received an International Facilities
License (IFL) in the United Kingdom. Although the Company expects that these
licenses and registrations will be granted, there can be no assurance that
VersaTel will be
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able to obtain such licenses, authorizations or registrations or that VersaTel's
operations will not become subject to other regulatory authorization or
registration requirements in the countries in which it operates or plans to
operate.
The Netherlands
The Telecommunications Act of 1998 provides the current regulatory
framework in The Netherlands. This new telecommunications act came into force on
December 15, 1998, and remedied the old legislative and regulatory patchwork
that existed as a result of the implementation of a series of EC directives. The
new telecommunications act contains provisions that give registered
telecommunication services providers rights-of-way, subject to certain
conditions, thereby facilitating the construction of the Network. In addition,
The Netherlands may require KPN Telecom to offer unbundled access to local
customer access lines at the Main Distributing Frame (MDF) in KPN Telecom's
central exchange offices. However, the conditions applicable to this type of
access are not clear at present. Further regulation on this issue is expected.
Another important development is the introduction of carrier pre-selection or
equal access as of January 1, 2000.
As part of the liberalization of the Netherlands telecommunications
market, a new independent supervisory authority, the Onafhankelijke Post en
Telecommunicatie Autoriteit ("OPTA"), was established by the Ministry of Traffic
and Waterways. OPTA started its activities on August 1, 1997. OPTA's main tasks
include ensuring compliance with the telecommunications laws and regulations in
The Netherlands, granting licenses for telecommunications activities and
resolving disputes among market participants, such as disputes regarding
interconnection rates. Although no assurances can be given, the initial rulings
of OPTA have given the Company confidence that new providers of
telecommunications services will be granted fair and equal access to the market
in The Netherlands.
In August 1997, VersaTel obtained one of the first Netherlands
authorizations to operate as a telecommunications service provider of public
voice telephony (other than KPN Telecom). In September 1997, VersaTel obtained
an infrastructure license with rights-of-way for the construction and operation
of telecommunications facilities in a limited geographic area. In December 1998,
the Company obtained the first authorizations under the new telecommunications
act to operate as a public telecommunications services provider and network
operator.
Since its start in October 1995, VersaTel has adopted a proactive
regulatory strategy. In October 1996, VersaTel successfully challenged KPN
Telecom's use of its invoice records to offer VersaTel's customers additional
discounts. In a warning letter to KPN Telecom, the Directorate for Competition
(DG IV) of the EC held this to be an abuse of power by KPN Telecom. Not only did
the EC require PTT Telecom to stop using information regarding the calling
behavior of customers for competitive activities, such as approaching VersaTel's
customers with discounts and other special offers, it also questioned the
legitimacy of KPN Telecom's discount plans for business customers. The EC
requires that such discounts be based on actual cost savings and not on
predatory pricing tactics. OPTA, to whom the European Commission had delegated
this matter, has recently ruled that these discount plans indeed violate
competition law principles and has required KPN Telecom to change them.
The Company's legal and regulatory strategy has enabled VersaTel to
become one of the first voice telephony competitors in The Netherlands to
interconnect with KPN Telecom and to implement a carrier select code in all of
KPN Telecom's telephone switches. The introduction of carrier pre-selection in
The Netherlands, which is expected to be introduced in January 2000 will allow
customers the option to pre-select a carrier other than KPN Telecom for all
their international and national long distance calls. The Company continues to
seek to obtain lower interconnection rates from KPN Telecom. In July 1998, OPTA
ruled that origination and termination charges be reduced by 55% and 30%,
respectively. The terms and conditions of interconnection have had and will
continue to have a material effect on the competitive position of the Company.
See "Risk Factors -- Dependence on our Competitors."
In December 1998, OPTA issued a ruling on KPN Telecom's end-user
tariffs, which were deemed contrary to the principles on cost-orientation. As a
result, KPN Telecom will have to lower its end-user tariffs for its national
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long distance services by approxiamtely 10%. It is expected that OPTA's ruling
will have some negative effects on competition in the market in The Netherlands.
Belgium
Belgium started the liberalization of its telecommunications market in
1991 with an amendment to the Belgian public post and telecommunications act. It
provided the basis for the privatization of Belgacom, and allowed new entrants
to the telecommunications services market to provide all services, with the
exception of voice telephony, upon obtaining a license. At the same time a new
regulatory entity was introduced, the Belgisch Instituut voor Post en
Telecommunicatie, under the Ministry of Economy and Telecommunications.
A further amendment to this act was adopted by the Belgian Parliament
in December 1997, to implement the liberalization of voice telephony and
infrastructure. The amended act was published in the Belgian Official Journal on
January 19, 1998, but in order to implement the amended act certain
administration regulations are required. To prevent any delays in providing
access to the market for new entrants, the Ministry of Economy and
Telecommunications issued a notice which opened the way for temporary licenses
for service providers and infrastructure operators. It is expected that the
definitive regulatory framework will be in place within the next few months.
VersaTel has obtained licenses to operate facilities and provide
telecommunications services in Belgium. For marketing purposes VersaTel has
reserved the same carrier select code "1611" as it currently uses in The
Netherlands. In August 1998, VersaTel has obtained interconnection with Belgacom
for carrier selection and call termination services.
Luxembourg
The Luxembourg telecommunications market has been liberalized since
July 1, 1998, six months after liberalization in most other EU Member States.
Until that date, P&T Telecom Luxembourg, a state-owned company, had a 100%
monopoly in the provision of basic voice telephony and telecommunications
infrastructure. A new regulatory entity, the Institut Luxembourgeois des
Telecommunications, has been installed to oversee the newly deregulated market.
Under this new regulatory regime, competition is expected to develop along the
same lines as in the other Benelux countries.
Property
The Company's principal executive offices are located at Paalbergweg
36, Amsterdam-Zuidoost, The Netherlands. The office space currently leased by
the Company at this location will expire in May 2001.
Employees
As of September 30, 1998, the Company had 119 full-time employees and
30 full-time consultants. In addition, the Company employs approximately 32
temporary employees at any given time. None of the Company's employees is
represented by a labor union or covered by a collective bargaining agreement,
and the Company has never experienced a work stoppage. The Company considers its
employee relations to be good.
Intellectual Property
The Company has registered the trademark (woordmerk) "VersaTel" with
the Benelux trademark bureau (Benelux Merkenbureau). Applications for such
registrations are pending in the other EU Member States.
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Legal Proceedings
The Company has filed complaints in the past with the European
Commission, OPTA and the Minister of Transport and Waterways of The Netherlands,
as part of its regulatory strategy. The Company also makes routine filings with
the regulatory agencies and governmental authorities in the countries in which
the Company operates or intends to operate. In addition, Cromwilld, one of the
Shareholders, has objected to the Recapitalization, the First Offering and the
Second Offering and has threatened to challenge in court certain of the
Company's actions in connection with the Recapitalization, the First Offering
and the Second Offering.
The Company is from time to time involved in routine litigation in the
ordinary course of business. The Company believes that no currently pending
litigation to which it is a party will have a material adverse effect on the
Company's financial position or results of operations.
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MANAGEMENT
The members of the Supervisory Board and the Management Board of the
Company and certain other significant employees of the Company and their
respective ages and positions with the Company are set forth below.
Management Board
R. Gary Mesch is the sole managing director (statutair directeur) of
the Company.
Supervisory Board
Name Age Position
- -------------------------- ---- --------
Leopold W.A.M. van Doorne............... 39 Chairman
Denis O'Brien........................... 40 Member
Hans Wackwitz........................... 43 Member
James Meadows........................... 46 Member
Executive Officers
Name Age Position
- -------------------------- ---- -----------------
R. Gary Mesch........................... 45 Managing Director
W. Greg Mesch........................... 38 Chief Operations Officer
Raj Raithatha........................... 36 Chief Financial Officer
Larry Hendrickson....................... 56 Chief Technology Officer
Marc A.J.M. van der Heijden............. 39 Legal Counsel
Maurice J.J.J.M. Bergmans............... 33 Manager Belgium Operations
John J.L. de Rooij...................... 40 Sales Manager
Leo Y.J. van der Veen................... 42 Finance Manager
Andy Cooper............................. 36 Network Manager(1)
L. Michiel van Dis...................... 35 Manager Customer Care
- ----------
(1) Mr. Cooper serves in this position as a consultant to the Company.
Supervisory Board
Under Netherlands law and the Articles of Association of the Company,
the management of the Company is entrusted to the Management Board (Directie)
under the supervision of the Supervisory Board (Raad van Commissarissen). Under
the laws of The Netherlands, Supervisory Directors cannot at the same time be
Managing Directors of the same company. The primary responsibility of the
Supervisory Board is to supervise the policies pursued by the Management Board
and the general course of affairs of the Company and its business. In fulfilling
their duties, the members of the Supervisory Board are required to act in the
best interests of the Company and its business.
Pursuant to the Articles of Association, the Supervisory Board consists
of such number of members as may be determined by the general meeting of
shareholders. The December 1996 Shareholders Agreement (the "Shareholders'
Agreement") specifies that the Supervisory Board shall consist of four members.
See "Certain Relationships and Related Transactions -- Shareholders' Agreement."
The members of the Supervisory Board are appointed by the general meeting of
shareholders. Resolutions of the Supervisory Board require the approval of a
majority of the members. The Shareholders' Agreement sets out the specific rules
for voting. The Supervisory Board meets each time this is deemed necessary by
one of its members. Members of the Supervisory Board shall periodically retire
in accordance with a roster drawn up by the general meeting of shareholders.
Every retiring Supervisory Director may be reappointed, provided that such
Supervisory Director has not attained the age of 72. A member of the
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Supervisory Board must retire not later than on the day of the general meeting
of shareholders held in the fiscal year in which such member reaches the age of
72.
A member of the Supervisory Board may at all times be suspended or
removed by the general meeting of shareholders, at any time. The members of the
Supervisory Board may receive such compensation as may be determined by the
general meeting of shareholders.
Management Board
The management of the Company is entrusted to the Management Board
under the supervision of the Supervisory Board. The Articles of Association
provide that the Management Board may from time to time adopt written policies
governing its internal organization. Such written policies require the approval
of the Supervisory Board. In addition, the Articles of Association list certain
actions which require prior approval of the Supervisory Board. Such actions
include, among other things: (i) borrowing or lending money; (ii) participating
directly or indirectly in the capital of another company; (iii) making any
investments; and (iv) providing security in the name of the Company or its
property.
The Management Board consists of such number of members as may be
determined by the general meeting of shareholders. In addition, the general
meeting of shareholders appoint the members of the Management Board.
The general meeting of shareholders has the power to suspend or dismiss
members of the Management Board. The Supervisory Board also has the power to
suspend members of the Management Board. If a member of the Management Board is
temporarily prevented from acting, the remaining members of the Management Board
shall temporarily be responsible for the management of the Company. If all
members of the Management Board are prevented from acting, a person appointed by
the Supervisory Board (who may be a member of the Supervisory Board) will be
temporarily responsible for the management of the Company. The compensation and
other terms and conditions of employment of the members of the Management Board
are determined by the general meeting of shareholders.
Biographies
R. Gary Mesch has served as Managing Director of VersaTel individually
or through his position as President of Open Skies International Inc. ("Open
Skies") since October 1995. In 1991 he founded and became President of Open
Skies, a telecommunications consultancy with operations based in Amsterdam,
which provided consulting for early stage development of competitive European
telecommunications businesses. From 1991 to 1995 Open Skies advised such clients
as Unisource, PTT Telecom International, Inmarsat, NEC and Eurocontrol. In 1984
he founded and until 1990 managed the commercial operations of NovaNet, a
Denver-based regional provider of satellite-based long distance networks.
NovaNet was acquired by ICG Communications in 1993. From 1981 to 1983 he served
as director of sales for Otrona Advanced Systems, a Colorado-based manufacturer
of high performance computer systems. From 1975 to 1981 he served as a senior
systems engineer with Westinghouse Electric. Mr. Gary Mesch holds a B.S. in
Electrical Engineering from the University of Colorado and an M.B.A. from Denver
University.
Leopold W.A.M. van Doorne has served as Chairman of the Supervisory
Board of the Company on behalf of NeSBIC since December 1995. Since 1996, Mr.
van Doorne has been the Managing Director of NeSBIC Groep B.V., a venture
capital company and a subsidiary of Fortis, an international group of more than
100 companies operating in the fields of insurance, banking and investments.
Worldwide, Fortis has over 35,000 employees. From 1994 to 1996 he served as
Managing Director of NeSBIC Venture Management B.V. From 1990 to 1994 he was
Regional Director of Banque de Suez Nederland N.V. Mr. van Doorne serves as a
member of the supervisory board of various other companies. Mr. van Doorne holds
a degree in law from the University of Utrecht.
Denis O'Brien, Jr. has served as a member of the Supervisory Board of
the Company on behalf of Cromwilld since December, 1996. Mr. O'Brien is Chairman
of the Board and Chief Executive Officer of Esat Telecom Group Plc,
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a public company listed on NASDAQ. In addition to his positions with Esat, Mr.
O'Brien has been the Chairman of the Board of Esat Digifone since 1996, and the
Chairman of the Board and Chief Executive Officer of Esat Telecom, which he
founded in 1991. Prior to that time, he was employed by Guinness Peat Aviation
("GPA Group"), from 1983 to 1985. Mr. O'Brien holds an M.B.A. from Boston
College.
Hans Wackwitz has served as a member of the Supervisory Board of the
Company on behalf of Paribas since August 1998. Mr. Wackwitz is a member of the
management board of COBEPA S.A. and Paribas N.V. From 1991 to 1993 he was
employed by Paribas Capital Markets and responsible for the Benelux region
within the investment banking group. From 1986 to 1991 he served at various
management positions at Bankers Trust Company, including vice president
corporate finance, vice president short term finance and vice president money
market. Mr. Wackwitz holds a degree in economics from the Rijks Universiteit
Groningen and an M.B.A. from Columbia University.
James R. Meadows has served as a member of the Supervisory Board of the
Company on behalf of Telecom Founders since August 1998. Mr. Meadows is Senior
Vice-President and co-founder of PrimeTEC International, Inc., a U.S.-based
international telecommunications services provider, since 1997. From 1989 to
1997 he served as Director Government Affairs at Capital Network System, Inc.
(CNSI), a telecommunications services provider. Mr. Meadows is the President of
America's Carriers Telecommunications Association (ACTA) and is a member of the
Board of Directors of Lone Star 2000, a public policy foundation. Mr. Meadows
holds a degree in history from the University of Texas at Austin.
W. Greg Mesch has served as Chief Operations Officer of VersaTel since
April 1998. From the Company's inception in 1995 until August 1998, he served as
a member of the Supervisory Board of the Company on behalf of Telecom Founders
and has performed operations consulting roles for the Company. From 1993 to
1997, Mr. Greg Mesch was a consultant to Esat Telecom in Ireland serving in the
role of Chief Operations Officer. From 1986 to 1992, he served as Chief
Executive Officer of Nova-Net. Nova-Net was a company he founded with his
brother Mr. Gary Mesch. Mr. Mesch has been a Director of In o Touch Associates
Ltd., a U.K.-based telecommunications consulting firm, since 1997. Mr. Mesch has
an M.B.A. from Denver University.
Raj Raithatha has served as Chief Financial Officer of the Company
since April 1998. From 1994 to April 1998 he has served as Chief Financial
Officer and Director of Business Development of ACC Corp.'s European Operations.
From 1992 to 1994 he served as Finance Director of Bay Trading Company. From
1989 to 1992 he served as divisional finance director at Securiguard Group Plc
and from 1987 to 1989 he was financial controller at Harrison Willis. From 1983
to 1987 he was employed by KPMG Peat Marwick. Mr. Raithatha holds a degree in
economics and mathematics from the University of Cardiff, Wales.
Larry Hendrickson has served as Chief Technology Officer of the Company
since April 1998. From 1994 to 1998 he was senior consultant and partner of DDV
Telecommunications Strategies, a Benelux-based telecommunications consulting
company, and from 1993 to 1994 he was an independent telecommunications
consultant. From 1986 to 1993 he served at various management positions at
Cincinnati Bell, including President of Europe Group, President and Chief
Executive Officer of LDN Communications (Cincinnati Bell) and President of the
Mobile Communications Division of Cincinnati Bell Information Systems. From 1964
to 1986 he was employed by AT&T. Mr. Hendrickson holds a B.S. in management from
the Massachusetts Institute of Technology and completed the Advanced Management
Program at Harvard Business School.
Marc A.J.M. van der Heijden has served as Legal Counsel to the Company
since June 1998. Mr. van der Heijden served as regulatory counsel to the Company
on matters of telecommunications law and regulatory policy since October 1995 as
an independent consultant. As an independent consultant on telecommunications
law he has acted as advisor to the European Commission, the Governments of The
Netherlands and the United Kingdom, and various telephone companies, such as
France Telecom and KPN Telecom, and financial institutions, such as ABN AMRO and
Nederlandse Investerings Bank. He worked as an expert for KPMG Peat Marwick on
bidding processes for mobile telephony and sale of cable companies.
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Maurice J.J.J.M. Bergmans has served as Manager Belgium Operations of
the Company since April 1998. He joined the Company in 1997 and he served as
business development manager of the Company since November 1997. From 1989 to
1996 he worked at Koning en Hartman B.V., a business unit of Getronics N.V., a
publicly traded company in The Netherlands. At Koning en Hartman B.V. he held
several positions in product marketing and management in the area of telephony
and interactive voice response activities and services. Mr. Bergmans holds a
degree in computer science.
John J.L. de Rooij has served as Sales Manager of the Company since
October 1995. From 1989 to 1995 he served as sales manager at Lanier Office
Products, initially as sales manager for fax and copier products for The
Netherlands and subsequently for the entire Benelux region. The last three years
at Lanier's he acted as the European Training Manager. From 1986 to 1989 he
served as account manager for Wang Laboratories, The Netherlands. Mr.
de Rooij holds a degree in biology.
Leo Y.J. van der Veen has served as Finance Manager of the Company
since November 1997. From 1995 to 1997 he worked as European Finance Manager at
Morton Automotive Safety Products. From 1994 to 1995 he served as controller
Benelux of Stratus Computers. From 1983 to 1993 he served as Director Finance &
Administration Benelux and in various other financial positions at NCR Benelux.
Mr. van der Veen holds a masters degree in international management from the
American Graduate School of International Management and degrees in business
administration and mechanical engineering.
Andy Cooper has served as Network Manager of the Company since June
1997 as an independent consultant. From 1985 to 1997, he worked at Mercury
Communications Ltd. in the United Kingdom. From 1993 to 1994, he was seconded to
Cable and Wireless Plc., Mercury's parent. His responsibilities included network
development, transmission systems maintenance, switch operations, VPN, ISDN,
Centrex and intelligent networking.
L. Michiel van Dis has served as Manager Customer Care of the Company
since May 1997. From 1991 to 1992 he worked at KLM (Royal Dutch Airlines). In
1992, he joined Independent Mail B.V. as operations manager and subsequently
became general manager of this company. Independent Mail B.V., a re-mail house
for DHL, was taken over by KPN N.V., the holding company of KPN Telecom and the
Dutch Postal Service, in 1996. From 1996 to 1997 he worked as an independent
consultant, primarily for Independent Mail B.V. Mr. van Dis holds a degree in
business administration.
Executive Compensation
The total aggregate compensation for the Supervisory Board of the
Company as a group for 1997 was NLG 37,500. The total aggregate compensation
(including amounts paid pursuant to management and consulting agreements) of all
executive officers (including the Managing Director) of the Company as a group
for 1997 was NLG 2,108,619. See "Certain Relationships and Related Transactions
- -- Additional Agreements."
During 1997, VersaTel did not accrue any amounts to provide pension,
retirement and similar benefits to the executive officers of the Company or to
any of the Managing or Supervisory Directors of the Company.
Stock Option Plans
1997 Stock Option Plan
In December 1996, VersaTel's shareholders approved the 1997 Stock
Option Plan (the "1997 Plan"). The 1997 Plan provides for the grant of options
to certain key employees of the Company to purchase depositary receipts issued
for Ordinary Shares of the Company. Under the 1997 Plan, no options have been
granted with an expiration date of more than five years after the granting of
the option. The option exercise price is determined in the particular grant of
the option.
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The option holder is not entitled to retain any depositary receipts
received by the option holder as a result of the exercise of its option. Upon
exercise of its option by the option holder, the option holder is required to
offer the depositary receipts received by it to the Company or to another party
designated by the Company at the Purchase Price (as defined in the 1997 Plan).
Unless otherwise specified in the particular grant of the option, the Purchase
Price will be the fair market value of the Ordinary Shares minus a penalty
discount. The 1997 Plan contains provisions in the event of a dispute regarding
the fair market value of the Ordinary Shares. The penalty discount, if any, is
determined by the length of employment of the particular option holder.
Pursuant to the Shareholders' Agreement, Telecom Founders, Cromwilld
and NeSBIC must make available the shares underlying the depositary receipts to
be issued under the 1997 Plan. As of the date of this Prospectus, 199,000
options to purchase 199,000 depositary receipts had been granted under the 1997
Plan and the Company does not intend to grant any more options under the 1997
Plan.
1998 Stock Option Plan
In March 1998, VersaTel's shareholders approved the 1998 Stock Option
Plan (the "1998 Plan"). The 1998 Plan allows the Company to grant options to
employees to purchase depositary receipts issued for Ordinary Shares of the
Company. The option period will commence at the date of the grant and will last
five years. The option exercise price shall be the economic value of the
depositary receipt at the date of the grant of the option. The 1998 Plan
contains specific provisions for the determination of the economic value of the
depositary receipts.
The option holder is not entitled to retain any depositary receipts
received by the option holder as a result of the exercise of its option. Upon
exercise of its option by the option holder, the option holder is required to
offer the depositary receipts received by it, within one year after the end of
the option period, to the Company or to another party designated by the Company,
at a purchase price equal to the economic value of the depositary receipts.
As of the date of this Prospectus, 2,500,000 options to purchase
2,500,000 depositary receipts have been granted under the 1998 Plan and the
Company does not intend to grant any more options under the 1998 Plan.
The depositary receipts issued under both the 1997 Plan and the 1998
Plan will be administered by the Stichting Administratiekantoor VersaTel.
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SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Ordinary Shares of the Company, as of September 30,
1998, by each beneficial owner of 5.0% or more of the Ordinary Shares and by
executive officers and directors of the Company as a group.
Number
of shares Percent(1)
--------- ----------
Telecom Founders B.V. (2)............................... 3,375,292 17.4%
NeSBIC Venture Fund C.V................................. 7,581,448 39.0
Cromwilld Limited (3)................................... 3,653,024 18.8
Paribas Deelnemingen N.V................................ 3,641,170 18.7
Nederlandse Participatie Maatschappij N.V............... 1,176,471 6.1
----------- ------
Total................................................. 19,427,405 100.0%
All directors and executive officers as a group (4)..... 7,028,316 36.2
- ----------
(1) Does not give effect to dilution from the exercise of 150,000 outstanding
warrants covering 1,000,050 Ordinary Shares issued in the Second Offering
and 225,000 outstanding warrants covering 1,500,000 Ordinary Shares issued
in the First Offering or of options granted to employees covering 2,699,000
Ordinary Shares. See "Management -- Stock Option Plans."
(2) Telecom Founders B.V., a Netherlands company is a wholly-owned subsidiary
of Relyt Holdings N.V., a Netherlands Antilles company owned by R. Gary
Mesch. The Shareholders' Agreement requires Mr. Mesch to own more than
50.0% of the shares of Telecom Founders B.V. Certain of the officers and
directors of the Company have beneficial interests in Telecom Founders B.V.
(3) Cromwilld Limited, an Isle of Man company, is controlled by Denis O'Brien,
a member of the Supervisory Board of the Company. The Shareholders'
Agreement requires Mr. O'Brien to own more than 90.0% of the shares of
Cromwilld Limited.
(4) Reflects the 3,375,292 shares held by Telecom Founders B.V., beneficial
ownership of which may be attributed to Mr. Mesch, and 3,653,024 shares
held by Cromwilld Limited, beneficial ownership of which may be attributed
to Mr. O'Brien.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Shareholders' Agreement
In December 1996, Telecom Founders, NeSBIC and Cromwilld entered into a
participation and shareholders' agreement (the "Shareholders' Agreement"), which
contains, among other things, provisions restricting the transfer of shares of
the Company, provisions relating to appointment of members of the Management
Board and the Supervisory Board and provisions with respect to the funding of
the Company. The Shareholders' Agreement superseded a prior shareholders'
agreement among VersaTel's initial shareholders. Pursuant to the Shareholders'
Agreement, the Company issued new shares to the shareholders and certain
shareholders provided subordinated convertible loans to the Company. These
subordinated convertible loans have been converted into equity as part of the
Recapitalization. As part of the Recapitalization, Paribas and NPM have agreed
to be bound by the terms of the Shareholders' Agreement pursuant to deeds of
accession and acknowledgment.
The Shareholders' Agreement contains provisions restricting the
transfer of shares of the Company (such provisions also provided for an
amendment of the Articles of Association of the Company containing similar
transfer restrictions). If a shareholder wishes to transfer its shares, it must
first offer the other shareholders the right to purchase such shares. See
"Description of Capital Stock -- Restriction on Transfer of Shares." In
addition, no shareholder may transfer its shares unless the transferee has
accepted and agreed to be bound by the provisions of the Shareholders'
Agreement, nor will the Company issue shares to any person unless such person
accepts and agrees to be bound by the Shareholders' Agreement.
The Shareholders' Agreement provides that the Supervisory Board of the
Company shall be composed of four members. NeSBIC and Cromwilld each have the
right to nominate one member of the Supervisory Board, whereas Telecom Founders
has the right to nominate two members of the Supervisory Board, one of which
will have to be reasonably acceptable to both NeSBIC and Cromwilld. As part of
the Recapitalization and pursuant to an agreement between Paribas and Telecom
Founders, Telecom Founders has agreed with Paribas to nominate the person to be
designated from time to time by Paribas as one of its members of the Supervisory
Board. The member of the Supervisory Board appointed upon nomination of NeSBIC
shall have a deciding vote in case of a tie in votes. Pursuant to the
Shareholders' Agreement, the Management Board requires the prior approval of the
Supervisory Board for certain transactions. See "Management -- Management
Board."
The Shareholders' Agreement will terminate upon any of the following
events: (i) by written agreement of all the parties thereto or (ii) upon the
joint sale and transfer by the parties to the Shareholders' Agreement of the
entire share capital of the Company or (iii) the listing of the entire share
capital of the Company on any securities market.
Recapitalization
In February 1998, as part of the Recapitalization, two of the three
shareholders of the Company, Telecom Founders and NeSBIC, a subsidiary of
Fortis, invested an additional NLG 7.2 million in equity capital in the Company.
In addition, NeSBIC and Cromwilld, the third shareholder of the Company,
converted their subordinated convertible Notes totaling NLG 3.6 million into
Ordinary Shares of the Company; and NeSBIC converted its NLG 4.5 million bridge
loan into Ordinary Shares of the Company. The third component of the
Recapitalization was comprised of a new equity investment by Paribas of NLG 12.8
million. Lastly, the Company received from Telecom Founders, NeSBIC, Paribas and
NPM an additional NLG 15.0 million in equity capital immediately prior to the
closing of the First Offering. As a result of the Recapitalization, the invested
equity in the Company has increased from NLG 7.0 million to NLG 50.1 million.
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Additional Agreements
Mr. Greg Mesch is also a director of In o Touch Associates Ltd., a
London-based telecommunications consulting company that performs services for
the Company. The amounts paid by the Company in respect of these services are
not material.
Related Transactions
Paribas, an affiliate of Paribas Corporation, one of the Initial
Purchasers in the Second Offering, holds 18.7% of the Ordinary Shares of the
Company, and Mr. Hans Wackwitz has served on the Supervisory Board of the
Company on behalf of Paribas since August 1998. See "Management" and "Securities
Ownership of Principal Shareholders and Management."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
In the First Offering in May 1998, the Company issued units consisting
of $225,000,000 principal amount of 13 1/4% Senior Notes due 2008 and warrants
to purchase 1,500,000 Class B Shares of the Company. The units were sold to
Lehman Brothers, Inc., as initial purchaser, who subsequently sold them to
certain institutional investors in reliance on certain exemptions under the
Securities Act. On December 4, 1998, the Company completed a public exchange
offer pursuant to which all the notes issued in the First Offering (the "First
Notes") were exchanged for notes registered under the Securities Act. As a
result of the consummation of that exchange offer, the Company is now subject to
the information reporting requirements of the Exchange Act. Interest on the
First Notes will be paid semi-annually on May 15 and November 15, beginning
November 15, 1998. The First Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after May 15, 2003, at 106.625% of their
principal amount, plus accrued interest, declining to 100% of their principal
amount, plus accrued interest, on or after May 15, 2006. The First Notes may
also be redeemed at the option of the Company, in whole but not in part, at any
time at a redemption price equal to the aggregate principal amount thereof, plus
liquidated damages, if any, to the date fixed by the Company for redemption, and
all additional amounts, if any, then due and which will become due as a result
of the redemption or otherwise, in the event of certain changes affecting
Netherlands taxes or as a result of any change in the application of Netherlands
tax laws or regulations that require the Company to pay additional amounts that
the Company determines cannot be avoided by taking reasonable steps. The First
Notes rank equal to the Notes in right of payment and all other senior
indebtedness of the Company and will be senior in right of payment to any future
subordinated indebtedness of the Company.
The indenture used in the First Offering (the "First Offering
Indenture") contains covenants applicable to the Company and its subsidiaries,
including limitations on or prohibitions of certain indebtedness, restricted
payments, dividends and other payments affecting restricted subsidiaries, the
issuance and sale of capital stock of restricted subsidiaries, transactions with
stockholders and affiliates, liens, asset sales, issuances of guarantees of
Indebtedness by restricted subsidiaries, sale-leaseback transactions,
consolidations and mergers and provision of financial statements and reports.
The First Offering Indenture also requires the Company to commence and
consummate an offer to purchase the First Notes upon certain events constituting
or which may constitute a change of control of the Company. In addition, under
certain circumstances, the Company is required by the First Offering Indenture
to offer to purchase the First Notes with the proceeds of certain Asset Sales
(as defined in the First Offering Indenture). The First Offering Indenture
provides for events of default which, if any of them occurs, would permit or
require the principal of, premium, if any, interest and any other monetary
obligations on the First Notes to become or to be declared to be immediately due
and payable. Holders of First Notes may under certain circumstances be entitled
to receive additional payments in respect of taxes and similar charges in
respect of payments on the First Notes. The terms of such covenants, such
required offers to purchase, such events of default and their consequences and
such additional payments, as well as related definitions, set forth in the First
Offering Indenture are substantially identical to those applicable to the Notes
(except that the Notes include an optional redemption provision with the net
proceeds of certain equity offerings by the Company), which are more fully
summarized below under "Description of the Exchange Notes--Certain Covenants,"
"--Consolidation, Merger and Sale of Assets," "--Repurchase of Notes upon a
Change of Control," "--Events of Default," "--Withholding Taxes" and "--Certain
Definitions." The First Offering Indenture is subject to, and governed by, the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The summary of material terms and conditions of the First Notes and the
First Offering Indenture set forth or referred to in the preceding paragraphs
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all of the provisions of the First Offering Indenture,
including the definition of certain terms therein and those terms made a part
thereof by the Trust Indenture Act.
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DESCRIPTION OF THE EXCHANGE NOTES
General
The Outstanding Notes were issued under an Indenture (the "Indenture")
dated December 3, 1998 between the Company and the United States Trust Company
of New York, as trustee (the "Trustee"). The Exchange Notes will be issued under
the Indenture, which will be qualified under the United States Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), upon the effectiveness of
the Registration Statement of which this Prospectus is a part. The form and
terms of the Exchange Notes are the same in all material respects as the form
and terms of the Outstanding Notes, except that the Exchange Notes will have
been registered under the Securities Act and, therefore, will not bear legends
restricting transfer thereof (other than those relating to the offer and sale of
Exchange Notes in The Netherlands and the United Kingdom). Upon the consummation
of the Exchange Offer, Holders of the Outstanding Notes will not be entitled to
registration rights under, or the contingent increase in interest rate provided
pursuant to, the Registration Rights Agreement. The Exchange Notes will evidence
the same debt as the Outstanding Notes and will be treated as a single class
under the Indenture with any Outstanding Notes that remain outstanding. The
Outstanding Notes and Exchange Notes are herein collectively referred to as the
"Notes."
The following summary of certain provisions of the Indenture and the
Escrow Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Indenture Act, and to all
of the provisions of the Indenture and the Escrow Agreement, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act. Copies of the Indenture, the
Escrow Agreement and the Registration Rights Agreement have been filed with the
Commission as an Exhibit to the Registration Statement of which this Prospectus
is a part. The definitions of certain terms used in the following summary are
set forth under "-- Certain Definitions."
Application will be made to list the Exchange Notes on the Luxembourg
Stock Exchange. If and so long as the Exchange Notes are listed on the
Luxembourg Stock Exchange, the Company will maintain a special agent or, as the
case may be, a paying and transfer agent in Luxembourg. See "General Listing
Information."
Ranking
The Notes will be general unsecured (except to the extent described
under "-- Escrow Account" below) obligations of the Company and will rank senior
in right of payment to all future indebtedness of the Company that is, by its
terms or by the terms of the agreement or instrument governing such
indebtedness, expressly subordinated in right of payment to the Notes and equal
in right of payment with all existing and future senior indebtedness of the
Company, including the First Notes and the Outstanding Notes.
The Company transferred in December 1998 substantially all of its
assets and liabilities (other than the Notes and the First Notes) to certain of
its Restricted Subsidiaries. After such transfer, the Company became a holding
company with limited assets and will operate its business through its Restricted
Subsidiaries. Any right of the Company and its creditors, including Holders of
the Notes, to participate in the assets of any of the Company's Subsidiaries
upon any liquidation or administration of any such Subsidiary will be subject to
the prior claims of the creditors of such Subsidiary. The claims of creditors of
the Company, including Holders of the Notes, will be effectively subordinated to
all existing and future third-party indebtedness and liabilities, including
trade payables, of the Company's Subsidiaries. At September 30, 1998, after
giving pro forma effect to the transfer of substantially all of the Company's
assets and liabilities (other than the Notes and the First Notes) to certain of
its Restricted Subsidiaries as described above, the Company's Subsidiaries would
have had total liabilities of $24.9 million reflected on the Company's balance
sheet. The Company and its Subsidiaries may incur other debt in the future,
including secured debt.
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The Notes will not be entitled to any security and will not be entitled
to the benefit of any guarantees, except under the circumstances described under
"-- Certain Covenants -- Limitation on Issuances of Guarantees of Indebtedness
by Restricted Subsidiaries."
Principal, Maturity and Interest
The Notes will be limited to $150,000,000 in aggregate principal amount
and will mature on May 15, 2008. The redemption price at maturity will be 100%.
The Notes will bear interest at the rate of 13.25% per annum, payable
semi-annually in arrears on each May 15 and November 15 (each an "Interest
Payment Date"), commencing on May 15, 1999 to the Person in whose name the Note
(or any predecessor Note) is registered at the close of business on the
preceding May 1 or November 1, as the case may be. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. Principal of, premium, if
any, interest, Additional Amounts, if any, and Liquidated Damages, if any, on
the Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest, Additional Amounts (as defined on page 88), if
any, and Liquidated Damages (as defined in the Registration Rights Agreement),
if any, may be made by check mailed to the Holders of the Notes at their
respective addresses set forth in the register of Holders of Notes. Until
otherwise designated by the Company, the Company's office or agency in New York
will be the office of the Trustee maintained for such purpose. The Notes are
currently represented by two global Notes in registered, global form without
interest coupons. The global Notes shall be exchanged by the Company (with
authentication by the Trustee) for one or more Definitive Notes (the "Definitive
Notes"), if (a) DTC (i) has notified the Company that it is unwilling or unable
to continue as, or ceases to be, a clearing agency registered under the Exchange
Act and (ii) a successor to DTC registered as a clearing agency under the
Exchange Act is not able to be appointed by the Company within 90 days of such
notification or (b) at any time at the option of the Company. If an Event of
Default (as defined on page 84) occurs and is continuing, the Company shall, at
the request of the Holder thereof, exchange all or part of a global note for one
or more Definitive Notes (with authentication by the Trustee); provided,
however, that the principal amount of such Definitive Notes and such global note
after such exchange shall be $1,000 or integral multiples thereof. The Exchange
Notes will be issued in minimum denominations of $1,000 (in principal amount)
and integral multiples thereof. If Definitive Notes are issued, the Company will
appoint Kredietbank S.A. Luxembourgeoise, or such other Person located in
Luxembourg and reasonably acceptable to the Trustee, as an additional paying and
transfer agent. Upon the issuance of Definitive Notes, Holders will be able to
receive principal, interest, Additional Amounts, if any, and Liquidated Damages,
if any, on the Notes and will be able to transfer Definitive Notes at the
Luxembourg office of such paying and transfer agent, subject to the right of the
Company to mail payments in accordance with the terms of the Indenture. In case
of transfer of part only of a Definitive Exchange Note, the new Definitive Notes
will be available at the office of the transfer agent. Payment of principal on
the Definitive Notes will be made upon their surrender at an office of the
paying agent in Luxembourg.
Escrow Account
Concurrently with the consummation of the Second Offering, pursuant to
the Escrow Agreement, the Company purchased, pledged and transferred to the
Escrow Agent, for the benefit of the Holders of the Notes, U.S. Government
Securities in such amounts as will be sufficient upon scheduled interest
payments of such securities to provide for the payment in full of the first five
scheduled interest payments on the Notes (excluding, in each case, any
Additional Amounts and any Liquidated Damages). The Company used approximately
$46.5 million of the net proceeds of the Second Offering to acquire the Pledged
Securities. The Pledged Securities were pledged to the Escrow Agent for the
benefit of the Holders of the Notes and deposited in the Escrow Account held by
the Escrow Agent for the benefit of the Trustee and the Holders of the Notes in
accordance with the Escrow Agreement. The Escrow Agreement provides, among other
things, that funds may be disbursed from the Escrow Account for interest
payments on the Notes. The Escrow Agent has been instructed to cause any
uninvested funds in the Escrow Account to be invested, pending disbursement, in
cash equivalents (as provided in the Escrow Agreement). Interest earned on the
Pledged Securities and any such cash equivalents will be added to the related
Escrow Account.
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Under the Escrow Agreement, the Company has granted to the Trustee, for
the benefit of the Holders, a first priority and exclusive security interest in
the Escrow Collateral. The Escrow Agreement provides that the Trustee may
foreclose on the Escrow Collateral upon acceleration of the maturity of the
Notes. Under the terms of the Indenture, the proceeds of the Escrow Collateral
will be applied, first, to amounts owing to the Trustee in respect of fees and
expenses of the Trustee, and second, to amounts owing on the Notes as provided
in the Indenture. The ability of Holders to realize upon the Escrow Collateral
may be subject to certain bankruptcy law limitations in the event of the
bankruptcy of the Company.
Upon payment in full of the first five scheduled interest payments
(including any Additional Amounts and any Liquidated Damages), if no Default has
occurred and is continuing, the Escrow Collateral will be released to the
Company.
Mandatory Redemption
The Company will not be required to make mandatory redemptions or
sinking fund payments prior to maturity of the Notes.
Optional Redemption
Except as described below and in the following paragraph or under
"Redemption for Taxation Reasons," the Notes will not be redeemable at the
Company's option prior to May 15, 2003. On or after May 15, 2003, the Notes will
be subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' prior notice, published in a leading
newspaper having a general circulation in New York (which is expected to be The
Wall Street Journal) and in Amsterdam (which is expected to be Het Financieele
Dagblad) (and, if and so long as the Exchange Notes are listed on the Luxembourg
Stock Exchange and the rules of such Stock Exchange shall so require, a
newspaper having a general circulation in Luxembourg (which is expected to be
the Luxemburger Wort)) or, in the case of Definitive Notes, mailed by
first-class mail to each Holder's registered address (and, if and so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange and the rules of such
Stock Exchange shall so require, a newspaper having a general circulation in
Luxembourg (which is expected to be the Luxemburger Wort)), at the redemption
prices (expressed as a percentage of principal amount) set forth below, plus
accrued and unpaid interest, Additional Amounts, if any, and Liquidated Damages,
if any, to the applicable redemption date (and, in the case of Definitive Notes,
subject to the right of Holders of record on the relevant record date to receive
interest and Additional Amounts, if any, and Liquidated Damages, if any, due on
the relevant interest payment date in respect thereof), if redeemed during the
twelve-month period beginning on May 15 of each of the years indicated below:
Redemption
Year Price
- ------------------ ----------
2003.......................................................... 106.625%
2004.......................................................... 104.417%
2005.......................................................... 102.208%
2006 and thereafter........................................... 100.000%
In addition, at any time on or prior to November 15, 2001, the Company
may, at its option, redeem up to 35% of the aggregate principal amount of the
Notes at a redemption price equal to 113 1/4% of the aggregate principal amount
thereof plus accrued and unpaid interest, Additional Amounts, if any, and
Liquidated Damages, if any, to the date of redemption (and in the case of
Definitive Notes, subject to the right of Holders of record on the relevant
record date to receive interest and Liquidated Damages, if any, due on the
relevant interest payment date and Additional Amounts, if any, in respect
thereof), with the Net Cash Proceeds of one or more Public Equity Offerings
received by, or invested in, the Company; provided that, in each case, at least
65% of the aggregate original principal amount of the Notes remains outstanding
immediately after the occurrence of such redemption; and provided further that
notice of any such redemption must be within 30 days of the date of the closing
of any such Public Equity Offering. In the event of any redemption of the Notes,
payments will be made as described under "-- Principal, Maturity and Interest."
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In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal securities exchange, if any, on which such Notes are listed or, if
such Notes are not so listed or such exchange prescribes no method of selection,
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate, although no Note of $1,000 in
original principal amount or less shall be redeemed in part. If any Note is to
be redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued and
delivered to the Depositary, or, in the case of Definitive Notes, issued in the
name of the Holder thereof in each case upon cancellation of the original Note
and will be available at the offices of the paying agent. On and after the
redemption date, interest ceases to accrue on the Notes or portions thereof
called for redemption. The Luxembourg Stock Exchange will be informed of the
number of Outstanding Notes after any Optional Redemption.
Redemption for Taxation Reasons
The Notes may be redeemed, at the option of the Company, in whole but
not in part, at any time upon giving not less than 30 nor more than 60 days'
notice to the Holders (which notice shall be irrevocable), at a redemption price
equal to the aggregate principal amount thereof, plus Liquidated Damages, if
any, to the date fixed by the Company for redemption (a "Tax Redemption Date"),
and all Additional Amounts (see "-- Withholding Taxes"), if any, then due and
which will become due on the Tax Redemption Date as a result of the redemption
or otherwise, if the Company determines that, as a result of (i) any change in,
or amendment to, the laws or treaties (or any regulations or rulings promulgated
thereunder) of The Netherlands (or any political subdivision or taxing authority
of The Netherlands) affecting taxation which becomes effective on or after the
Issue Date, or (ii) any change in position regarding the application,
administration or any new or different interpretation of such laws, treaties,
regulations or rulings (including a holding, judgment or order by a court of
competent jurisdiction), which change, amendment, application or interpretation
becomes effective on or after the Issue Date, the Company is, or on the next
Interest Payment Date would be, required to pay Additional Amounts, and the
Company determines that such payment obligation cannot be avoided by the Company
taking reasonable measures.
Notwithstanding the foregoing, no such notice of redemption shall be
given earlier than 90 days prior to the earliest date on which the Company would
be obligated to make such payment or withholding if a payment in respect of the
Notes were then due. Prior to the publication or, where relevant, mailing of any
notice of redemption of the Notes pursuant to the foregoing, the Company will
deliver to the Trustee an opinion of an independent tax counsel of recognized
standing to the effect that the circumstances referred to above exist. The
Trustee shall accept such opinion as sufficient evidence of the satisfaction of
the conditions precedent described above, in which event it shall be conclusive
and binding on the Holders.
Certain Covenants
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that if no Default
or Event of Default shall have occurred and be continuing at the time, or would
occur as a consequence, of the Incurrence of any such Indebtedness, the Company
may Incur Indebtedness if immediately thereafter the ratio of (i) the aggregate
principal amount of Indebtedness of the Company and its Restricted Subsidiaries
on a consolidated basis outstanding as of the Transaction Date to (ii) the pro
forma Consolidated Cash Flow (the "Indebtedness to Consolidated Cash Flow
Ratio") for the preceding two full fiscal quarters multiplied by two, determined
on a pro forma basis as if any such Indebtedness had been Incurred and the
proceeds thereof had been applied at the beginning of such two fiscal quarters,
would be greater than zero and less than or equal to 5.0 to 1.
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(b) Notwithstanding the foregoing, (except for Indebtedness under
subsection (vii) below) the Company and (except for Indebtedness under
subsections (v), (vi) and (x)(A) below) any Restricted Subsidiary may Incur each
and all of the following:
(i) Indebtedness (other than Acquired Indebtedness) Incurred
to finance the cost (provided that such Indebtedness is Incurred at any
time on or before, or within 90 days following, the incurrence of such
cost) (including the cost of design, development, construction,
acquisition, installation or integration) of assets used in the
Permitted Business or Equity Interests of (A) a Restricted Subsidiary
that owns principally such assets from a Person other than the Company
or a Restricted Subsidiary of the Company or (B) any Person that is
principally engaged in the Permitted Business, that would become a
Restricted Subsidiary and owns principally such assets; provided that
(x) any such Indebtedness of a Restricted Subsidiary must be Incurred
under one or more Credit Facilities, under one or more Capitalized
Leases or from the vendor of the assets, property or services acquired
with the proceeds of such Indebtedness, (y) the amount of such
Indebtedness of a Restricted Subsidiary may not exceed the Fair Market
Value of the assets so acquired and (z) the amount of such Indebtedness
of the Company, Incurred to acquire Equity Interests under clauses (A)
and (B) above, may not exceed the Fair Market Value of such assets of
any Restricted Subsidiary or any such Person so acquired;
(ii) Indebtedness of any Restricted Subsidiary to the Company
or Indebtedness of the Company or any Restricted Subsidiary to any
other Restricted Subsidiary; provided that any subsequent issuance or
transfer of any Capital Stock which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness not permitted by this clause (ii) (other
than to the Company or another Restricted Subsidiary) shall be deemed,
in each case, to constitute the Incurrence of such Indebtedness; and
provided further that Indebtedness of the Company to a Restricted
Subsidiary must be unsecured and subordinated in right of payment to
the Notes;
(iii) Indebtedness issued in exchange for, or the net proceeds
of which are used to refinance or refund, then outstanding Indebtedness
of the Company or a Restricted Subsidiary, other than Indebtedness
Incurred under clauses (ii), (iv), (vii), (viii) and (xii) of this
paragraph, and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, and
reasonable fees and expenses); provided that such new Indebtedness
shall only be permitted under this clause (iii) if (A) in case the
Notes are refinanced in part or the Indebtedness to be refinanced or
refunded is equal to the Notes, such new Indebtedness, by its terms or
by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made equal
to, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of
payment to the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made
subordinate in right of payment to the Notes at least to the extent
that the Indebtedness to be refinanced or refunded is subordinated to
the Notes, (C) the Stated Maturity of such new Indebtedness, determined
as of the date of Incurrence of such new Indebtedness, is no earlier
than the Stated Maturity of the Indebtedness being refinanced or
refunded and (D) such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, has a Weighted Average Life to
Maturity which is not less than the remaining Weighted Average Life to
Maturity of the Indebtedness to be refinanced or refunded; and provided
further that in no event may Indebtedness of the Company be refinanced
or refunded by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or
appeal bonds or letters of credit supporting Trade Payables, in each
case provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements
do not increase the Indebtedness of the obligor outstanding at any time
other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder, and (C) arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from
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Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness
Incurred for the purpose of financing such acquisition by the Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary), in a principal amount not to exceed the gross proceeds
actually received by the Company or any Restricted Subsidiary in
connection with such disposition;
(v) Indebtedness, to the extent that the net proceeds thereof
are promptly (A) used to repurchase Notes tendered in a Change of
Control Offer or (B) deposited to defease all of the Notes as described
below under "Legal Defeasance and Covenant Defeasance";
(vi) Indebtedness of the Company represented by the Notes;
(vii) Indebtedness represented by a Guarantee of the Notes and
Guarantees of other Indebtedness of the Company by a Restricted
Subsidiary, in each case permitted by and made in accordance with the
"Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries" covenant;
(viii) Indebtedness under one or more Credit Facilities, in an
aggregate principal amount at any one time outstanding not to exceed
the greater of (x) NLG 70.0 million and (y) 80.0% of Eligible Accounts
Receivable at any one time outstanding, subject to any permanent
reductions required by any other terms of the Indenture;
(ix) Acquired Indebtedness; provided that the aggregate amount
of such Acquired Indebtedness (other than the Indebtedness Incurred
under one or more Credit Facilities, under one or more Capitalized
Leases or from the vendor of assets, property or services acquired with
the proceeds of such Indebtedness) of the Person that is to become a
Restricted Subsidiary or be merged or consolidated with or into the
Company or any Restricted Subsidiary in the contemplated transaction,
outstanding at the time of such transaction does not exceed the Fair
Market Value of the plant, property and equipment (excluding property,
plant and equipment securing any of the Credit Facilities or vendor
financings or subject to any Capital Leases referred to in this clause
(ix)) of any Restricted Subsidiary so acquired;
(x) Indebtedness of (A) the Company not to exceed, at any one
time outstanding, 2.00 times the Net Cash Proceeds from (1) the
issuance and sale, other than to a Subsidiary, of Equity Interests
(other than Redeemable Stock and excluding any Ordinary Shares issued
in connection with the Recapitalization) of the Company and (2) capital
contributions made in the Company (other than by a Subsidiary) less, in
each case, the amount of such proceeds used to make Restricted Payments
as provided in clause (C)(2) of the first paragraph or clause (iii) or
(iv) of the second paragraph of the "Limitation on Restricted Payments"
covenant and (B) the Company or Acquired Indebtedness of a Restricted
Subsidiary (provided that any such Indebtedness of such Restricted
Subsidiary must be incurred under one or more Credit Facilities, under
one or more Capitalized Leases or from the vendor of the assets,
property or services acquired with the proceeds of such Indebtedness)
not to exceed, at any one time outstanding, the fair market value of
any Telecommunications Assets acquired by the Company or such
Restricted Subsidiary in exchange for Equity Interests of the Company
issued after the Issue Date; provided, however, that in determining the
fair market value of any such Telecommunications Assets so acquired, if
the estimated fair market value of such Telecommunications Assets
exceeds (x) $2.0 million (as estimated in good faith by the Board of
Directors), then the fair market value of such Telecommunications
Assets will be determined by a majority of the Board of Directors of
the Company, which determination will be evidenced by a resolution
thereof, and (y) $10.0 million (as estimated in good faith by the Board
of Directors), then the Company will deliver the Trustee a written
appraisal as to the fair market value of such Telecommunications Assets
prepared by an internationally recognized investment banking or public
accounting firm (or, if no such investment banking or public accounting
firm is qualified to prepare such an appraisal, by an internationally
recognized appraisal firm); and provided further that such Indebtedness
(other than the Indebtedness Incurred under one or more
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Credit Facilities, under one or more Capitalized Leases or from the
vendor of assets, property or services acquired with the proceeds of
such Indebtedness) does not mature prior to the Stated Maturity of the
Notes and the Weighted Average Life to Maturity of such Indebtedness is
longer than that of the Notes;
(xi) Indebtedness outstanding as of the Issue Date; and
(xii) Indebtedness (in addition to Indebtedness permitted
under clauses (i) through (x) above) in an aggregate principal amount
outstanding at any one time not to exceed the greater of (A) NLG 100
million and (B) an amount equal to 5% of the Company's consolidated net
tangible assets as of such date.
(c) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness otherwise
included in the determination of such particular amount shall not be included;
provided, however, that the forgoing shall not in any way be deemed to limit the
provisions of "-- Limitation on Issuances of Guarantees of Indebtedness by
Restricted Subsidiaries." For purposes of determining compliance with this
"Limitation on Indebtedness" covenant, (A) in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole discretion, shall
classify (or from time to time reclassify) such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses and (B) the principal amount of Indebtedness issued at a price that is
less than the principal amount thereof shall be equal to the amount of the
liability in respect thereof determined in conformity with U.S. GAAP.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on account of any Equity Interest in the Company or any Restricted Subsidiary to
the holders thereof, including any dividend or distribution payable in
connection with any merger or consolidation (other than (A) dividends or
distributions payable solely in Equity Interests (other than Redeemable Stock)
of the Company, (B) dividends or distributions made only to the Company or a
Restricted Subsidiary and (C) pro rata dividends or distributions on Capital
Stock of a Restricted Subsidiary held by Persons other than the Company or a
Restricted Subsidiary), (ii) purchase, redeem, retire or otherwise acquire for
value any Equity Interests of the Company or any Equity Interests of any
Restricted Subsidiary (other than any such Equity Interests owned by the Company
or any Restricted Subsidiary), (iii) make any principal payment or redeem,
repurchase, defease, or otherwise acquire or retire for value, in each case,
prior to any scheduled repayment, or maturity, any Indebtedness of the Company
that is subordinated in right of payment to the Notes, or (iv) make any
Investment, other than a Permitted Investment, in any Person (all such payments
or any other actions described in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments") unless, at the time of, and
after giving effect to, the proposed Restricted Payment:
(A) no Default or Event of Default shall have occurred and be
continuing;
(B) the Company could Incur at least $1.00 of additional Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant; and
(C) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) after the Issue Date is less than the sum of (1) Cumulative
Consolidated Cash Flow minus 150% of Cumulative Consolidated Fixed Charges plus
(2) 100% of the aggregate Net Cash Proceeds received by the Company after the
Issue Date as a capital contribution or from the issuance and sale of its Equity
Interests (other than Redeemable Stock, and excluding any Ordinary Shares issued
in connection with the Second Offering or the Recapitalization) to a Person
(other than a Restricted Subsidiary of the Company), plus (3) the aggregate
amount by which Indebtedness (other than any Indebtedness subordinated in right
of payment to the Notes) of the Company or any Restricted Subsidiary is reduced
on the Company's balance sheet upon the conversion or exchange (other than by
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a Restricted Subsidiary of the Company) subsequent to the Issue Date into Equity
Interests (other than Redeemable Stock and less the amount of any cash, or the
fair value of property, distributed by the Company or any Restricted Subsidiary
upon such conversion or exchange) and plus (4) without duplication of any amount
included in the calculation of Consolidated Net Income, in the case of repayment
of, or return of capital in respect of, any Investment constituting a Restricted
Payment made after the Issue Date, an amount equal to the lesser of the
repayment of, the return of capital with respect to, such Investment and the
cost of such Investment, in either case less the cost of the disposition of such
Investment and net of taxes.
The foregoing provisions shall not prohibit: (i) the payment of any
dividend within 60 days after the date of declaration thereof if, at said date
of declaration, such payment would comply with the provisions of the Indenture;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of paragraph
(b) of the "Limitation on Indebtedness" covenant; (iii) the repurchase,
redemption or other acquisition of Equity Interests in the Company in exchange
for, or out of the Net Cash Proceeds of, a substantially concurrent capital
contribution or offering of Equity Interests (other than Redeemable Stock) in
the Company to any Person (other than a Restricted Subsidiary); (iv) the
repurchase, redemption or other acquisition of Indebtedness of the Company which
is subordinated in right of payment to the Notes in exchange for, or out of the
Net Cash Proceeds of, a substantially concurrent capital contribution or
offering of Equity Interests (other than Redeemable Stock) in the Company to any
Person (other than a Restricted Subsidiary); (v) the purchase of any
subordinated Indebtedness at a purchase price not greater than 101% of the
principal amount thereof following a Change of Control pursuant to an obligation
in the instruments governing such subordinated Indebtedness to purchase or
redeem such subordinated Indebtedness as a result of such Change of Control;
provided, however, that no such purchase or redemption shall be permitted until
the Company has completely discharged its obligations described under "--
Repurchase of Notes upon a Change of Control" (including the purchase of all
Notes tendered for purchase by holders) arising as a result of such Change of
Control; (vi) repurchases of warrants issued in connection with the Second
Offering and warrants issued in connection with the First Offering in accordance
with the provisions set forth in the applicable warrant agreement; and (vii)
repurchases of Equity Interests of the Company from employees of the Company or
any of its Restricted Subsidiaries deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise price of
such options; provided that any payments made pursuant to this clause (vii) may
not exceed in aggregate $500,000 in any fiscal year of the Company; provided
that, in the case of clauses (ii) through (vii), no Default or Event of Default
shall have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein.
Each Restricted Payment permitted pursuant to the immediately preceding
paragraph (other than the Restricted Payment referred to in clause (ii) thereof)
and the Net Cash Proceeds from any capital contribution or issuance of Equity
Interests referred to in clauses (iii) and (iv), shall be included in
calculating whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to any
subsequent Restricted Payments. In the event the proceeds of an issuance of
Equity Interests (other than Redeemable Stock) of the Company are used for the
redemption, repurchase or other acquisition of the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
the Notes.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Equity Interests of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary, or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
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The foregoing provisions shall not prohibit any encumbrances or
restrictions: (i) existing under or by reason of any agreement in effect on the
Issue Date, and any amendments, supplements, extensions, refinancings, renewals
or replacements of such agreements; provided that the encumbrances and
restrictions in any such amendments, supplements, extensions, refinancings,
renewals or replacements are no more restrictive than those encumbrances or
restrictions that are then in effect and that are being amended, supplemented,
extended, refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law; (iii) existing with respect to any Restricted Subsidiary
acquired by the Company or any Restricted Subsidiary after the Issue Date, or
the property or assets of such Restricted Subsidiary, and existing at the time
of such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired, and any amendments, supplements, extensions, refinancings,
renewals or replacements of agreements containing such encumbrances or
restrictions; provided that the encumbrances and restrictions in any such
amendments, supplements, extensions, refinancings, renewals or replacements are
no more restrictive than those encumbrances or restrictions that are then in
effect and that are being amended, supplemented, extended, refinanced, renewed
or replaced; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is, or is subject to, a
lease, purchase mortgage obligation, license, conveyance or contract or similar
property or asset, (B) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or assets of
the Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture or (C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the aggregate,
materially detract from the value of property or assets of the Company or any
Restricted Subsidiary to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock in, or property and assets of, such Restricted Subsidiary;
provided that such restriction shall terminate if such transaction is abandoned
or if such transaction is not consummated within six months of the date such
agreement was entered into; or (vi) contained in the terms of any Indebtedness
or any agreement pursuant to which such Indebtedness was issued if (A) the
encumbrance or restriction applies only in the event of a payment default or a
default with respect to a financial covenant contained in such Indebtedness or
agreement, (B) the encumbrance or restriction is not materially more
disadvantageous to the holders of the Notes than is customary in comparable
financings (as determined by the Board of Directors) and (C) the Board of
Directors determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest payments
on the Notes. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
the Company or any Restricted Subsidiary from creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant that limit the right of the debtor to dispose of the assets securing
such Indebtedness.
Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue, transfer, convey, sell, lease or otherwise
dispose of any shares of Capital Stock (including options, warrants or other
rights to purchase shares of such Capital Stock) of such Restricted Subsidiary
or any other Restricted Subsidiary to any Person (other than (i) to the Company
or a Wholly Owned Restricted Subsidiary, (ii) issuances of director's qualifying
shares or sales to foreign nationals of shares of Capital Stock of foreign
Restricted Subsidiaries, in each case, to the extent required by applicable law
and (iii) Strategic Minority Capital Stock Issues), unless (A) immediately after
giving effect to such issuance, transfer, conveyance, sale, lease or other
disposition, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and (B) any Investment in such Person remaining after giving effect
to such issuance, transfer, conveyance, sale, lease or other disposition would
have been permitted to be made under the "Limitation on Restricted Payments"
covenant if made on the date of such issuance, transfer, conveyance, sale, lease
or other disposition (valued as provided in the definition of "Investment").
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Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction or series of
transactions (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any direct
or indirect holder (or any Affiliate of such holder) of 5% or more of any class
of Capital Stock of the Company or with any Affiliate of the Company or any
Restricted Subsidiary, unless (i) such transaction or series of transactions is
on terms that are no less favorable to the Company or such Restricted Subsidiary
than could reasonably be obtained in a comparable arm's-length transaction with
a Person that is not such a holder or Affiliate, (ii) if such transaction or
series of transactions involves aggregate consideration in excess of $2.0
million, then the Company shall deliver to the Trustee a resolution set forth in
an Officers' Certificate adopted by a majority of the Board of Directors,
including a majority of the independent, disinterested directors, approving such
transaction or series of transactions and certifying that such transaction or
series of transactions comply with clause (i) above, and (iii) if such
transaction or series of transactions involves aggregate consideration in excess
of $5.0 million, then the Company will deliver to the Trustee a written opinion
as to the fairness to the Company or such Restricted Subsidiary of such
transaction or series of transactions from a financial point of view from an
internationally recognized investment banking firm (or, if an investment banking
firm is generally not qualified to give such an opinion, by an internationally
recognized appraisal firm or accounting firm).
The foregoing limitation does not limit and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
and (iii) payment of dividends or other distributions in respect of Equity
Interests of the Company or any Restricted Subsidiary permitted by the
"Limitation on Restricted Payments" covenant.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien (other
than Permitted Liens) on any asset or property of the Company or any Restricted
Subsidiary without making effective provisions for all of the Notes and all
other amounts due under the Indenture to be directly secured equally and ratably
with (or, if the obligation or liability to be secured by such Lien is
subordinated in right of payment to the Notes, prior to) the obligation or
liability secured by such Lien.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or disposed of and (ii) at
least 80% of the consideration received for such Asset Sale consists of cash or
Cash Equivalents or Replacement Assets or the assumption of Indebtedness which
ranks equal in right of payment to the Notes.
The Company shall, or shall cause the relevant Restricted Subsidiary
to, apply the Net Cash Proceeds from an Asset Sale within 270 days of the
receipt thereof to (A) permanently repay unsubordinated Indebtedness of the
Company or Indebtedness of any Restricted Subsidiary, in each case owing to a
Person other than the Company or any of its Restricted Subsidiaries, (B) invest
in Replacement Assets, or (C) in any combination of repayment, prepayment, and
reinvestment permitted by the foregoing clauses (A) and (B).
The Indenture provides that any Net Cash Proceeds from the Asset Sale
that are not invested as provided and within the time period set forth in the
second paragraph of this "Limitation on Asset Sales" covenant will be deemed to
constitute "Excess Proceeds." If at any time the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company shall, within 30 business days
thereafter, make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase on a pro rata basis the maximum principal amount of Notes, that is an
integral multiple of $1,000 that may
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be purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the outstanding principal amount thereof, plus accrued and
unpaid interest thereon, plus Additional Amounts, if any, and Liquidated
Damages, if any, to the date fixed for the closing of such offer (and, in the
case of Definitive Notes, subject to the right of a Holder of record on the
relevant record date to receive interest and Liquidated Damages, if any, due on
the relevant interest payment date and Additional Amounts, if any, in respect
thereof), in accordance with the procedures set forth in the Indenture. The
Company will commence an Asset Sale Offer with respect to Excess Proceeds within
thirty business days after the date that Excess Proceeds exceeds $5.0 million by
publishing or, where relevant, mailing the notice required pursuant to the terms
of the Indenture, with a copy to the Trustee. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, subject to applicable law, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
selection of such Notes for purchase will be made by the Trustee in the same
manner as the Notes are redeemed, as described under "-- Optional Redemption."
Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder and will
comply with the applicable laws of any non-U.S. jurisdiction in which an Asset
Sale Offer is made, in each case, to the extent such laws or regulations are
applicable in connection with the repurchase of the Notes pursuant to an Asset
Sale Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the Indenture, the Company will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in the Indenture by virtue
thereof.
Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee of all of the Company's obligations under the Notes
and the Indenture on terms substantially similar to the guarantee of such
Indebtedness, except that if such Indebtedness is by its express terms
subordinated in right of payment to the Notes, any such assumption, Guarantee or
other liability of such Restricted Subsidiary with respect to such Indebtedness
shall be subordinated in right of payment to such Restricted Subsidiary's
assumption, Guarantee or other liability with respect to the Notes substantially
to the same extent as such Indebtedness is subordinated to the Notes and (ii)
such Restricted Subsidiary waives, and will not in any manner whatsoever claim
or take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Guarantee; provided any Restricted Subsidiary may guarantee Indebtedness of the
Company under a Credit Facility if such Indebtedness is Incurred in accordance
with the "-- Limitation on Indebtedness" covenant.
Notwithstanding the foregoing, any Guarantee of all of the Company's
obligations under the Notes and the Indenture by a Restricted Subsidiary may
provide by its terms that it will be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's and each Restricted
Subsidiary's Equity Interests in, or all or substantially all of the assets of,
such Restricted Subsidiary (which sale, exchange or transfer is not prohibited
by the Indenture) or (ii) the release or discharge of the guarantee which
resulted in the creation of such Guarantee, except a discharge or release by or
as a result of payment under such guarantee.
Business of the Company; Restriction on Transfers of Existing Business
The Company will not, and will not permit any Restricted Subsidiary to,
be principally engaged in any business or activity other than a Permitted
Business. In addition, the Company and any Restricted Subsidiary will not be
permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary
(i) any of the licenses, permits or
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authorizations used in the Permitted Business of the Company and any Restricted
Subsidiary or (ii) any material portion of the "property and equipment" (as such
term is used in the Company's consolidated financial statements) of the Company
or any Restricted Subsidiary used in the licensed service areas of the Company
and any Restricted Subsidiary.
Provision of Financial Statements and Reports
The Company will file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, (i) all
annual and quarterly financial statements and other financial information that
would be required to be contained in a filing with the Commission on Forms 20-F
and 10-Q if the Company were required to file such Forms (which financial
statements shall be prepared in accordance with U.S. GAAP), including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual financial information, a report
thereon by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. Such quarterly financial
information shall be filed with the Commission within 45 days following the end
of each fiscal quarter of the Company, and such annual financial information
shall be furnished within 90 days following the end of each fiscal year of the
Company. Such annual financial information shall include the geographic segment
financial information required to be disclosed by the Company under Item 101(d)
of Regulation S-K under the Securities Act. The Company will also be required
(a) to file with the Trustee, and provide to each Holder, without cost to such
Holder, copies of such reports and documents within 15 days after the date on
which the Company files such reports and documents with the Commission or the
date on which the Company would be required to file such reports and documents
if the Company were so required, and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective holder promptly upon request. In addition, for so
long as the Notes remain outstanding and the Company is not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act nor exempt
from reporting under Rule 12g3-2(b) of the Exchange Act, the Company shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, any information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act and, to any beneficial holder of Notes,
information of the type that would be filed with the Commission pursuant to the
foregoing provisions, upon the request of any such holder, if and so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange and the rules of such
stock exchange shall require, copies of all reports and information described
above will be available during normal business hours at the office of the
listing agent in Luxembourg.
Repurchase of Notes upon a Change of Control
Upon the occurrence of a Change of Control, the Company will make an
offer to purchase all or any part (equal to $1,000 aggregate principal amount
and integral multiples thereof) of the Notes pursuant to the offer described
below (the "Change of Control Offer") at a price in cash (the "Change of Control
Payment") equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest thereon to the date of repurchase, plus Additional Amounts,
if any, and Liquidated Damages, if any, to the date of repurchase (and in the
case of Definitive Notes, subject to the right of holders of record on the
relevant record date to receive interest and Liquidated Damages, if any, due on
the relevant interest payment date and Additional Amounts, if any, in respect
thereof). The Indenture provides that within 30 days following any Change of
Control, the Company will publish notice of such in a leading newspaper having a
general circulation in New York (which is expected to be the Wall Street
Journal) and in Amsterdam (which is expected to be Het Financieele Dagblad)
(and, if and so long as the Exchange Notes are listed on the Luxembourg Stock
Exchange and the rules of such Stock Exchange shall so require, a newspaper
having a general circulation in Luxembourg (which is expected to be the
Luxemburger Wort)) or, in the case of Definitive Notes, mail a notice to each
Holder (and if and so long as the Exchange Notes are listed on the Luxembourg
Stock Exchange and the rules of such Stock Exchange shall so require, will
publish notice in a newspaper having a general circulation in Luxembourg (which
is expected to be the Luxemburger Wort)), with a copy to the Trustee, with the
following information: (i) a Change of Control Offer is being made pursuant to
the covenant entitled "Repurchase of Notes upon a Change of Control" and
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all Notes properly tendered pursuant to such Change of Control Offer will be
accepted for payment; (ii) the purchase price and the purchase date, which will
be no earlier than 30 days nor later than 60 days from the date such notice is
published, or where relevant, mailed, except as may be otherwise required by
applicable law (the "Change of Control Payment Date"); (iii) any Note not
properly tendered will remain outstanding and continue to accrue interest and
Liquidated Damages, if any; (iv) unless the Company defaults in the payment of
the Change of Control Payment, all Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest, as the case may be, and
to accrue Liquidated Damages, if any, on the Change of Control Payment Date; (v)
Holders electing to have any Notes purchased pursuant to a Change of Control
Offer will be required to surrender the Notes, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Notes completed, to the paying
agent and at the address specified in the notice prior to the close of business
on the third Business Day preceding the Change of Control Payment Date; Holders
electing to have any Notes purchased pursuant to a Change of Control Offer will
be required to surrender such Notes, with the form entitled "Option of Holders
to elect Purchase" on the reverse of the Notes completed, to any office of the
paying agent; (vi) Holders will be entitled to withdraw their tendered Notes and
their election to require the Company to purchase such Notes; provided, however,
that the Paying Agent receives, not later than the close of business on the last
day of the offer period, a facsimile transmission or letter setting forth the
name of the Holder, the principal amount of Notes tendered for purchase, and a
statement that such Holder is withdrawing his tendered Notes and his election to
have such Notes purchased; and (vii) that Holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the principal amount of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder and will
comply with the applicable laws of any non-U.S. jurisdiction in which a Change
of Control Offer is made, in each case, to the extent such laws or regulations
are applicable in connection with the repurchase of the Notes pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of the Indenture, the Company
will comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations contained in the Indenture by virtue
thereof. The provisions relating to the Company's obligation to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the Holders of a majority in principal
amount of the Notes.
The Indenture provides that on the Change of Control Payment Date, the
Company will, to the extent permitted by law, (i) accept for payment all Notes
or portions thereof properly tendered pursuant to the Change of Control Offer,
(ii) deposit with the paying agent an amount equal to the aggregate Change of
Control Payment in respect of all Notes or portions thereof so tendered and
(iii) deliver, or cause to be delivered, to the Trustee for cancellation the
Notes so accepted together with an Officers' Certificate stating that such Notes
or portions thereof have been tendered to and purchased by the Company. The
Indenture will provide that the paying agent will promptly either (x) pay to the
Holder against presentation and surrender (or, in the case of partial payment,
endorsement) of the Global Notes or (y) in the case of Definitive Notes, mail to
each Holder of Notes the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and deliver to the Holder of the Global Notes
a new Global Note or Notes or, in the case of Definitive Notes, mail to each
Holder a new Definitive Note, as applicable, equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided, however, that
each new Definitive Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Company will inform the Luxembourg Stock Exchange and will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
If the Company is unable to repay all of its Indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
holders of Indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase of
Notes, then the Company will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a period
of 30 consecutive days after written notice is given to the Company by the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes outstanding. In addition, the failure by the Company to repurchase Notes
at
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the conclusion of the Change of Control Offer will constitute an Event of
Default without any waiting period or notice requirements.
There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless the consents referred to above are obtained, require the Company to
repay all Indebtedness then outstanding which by its terms would prohibit such
Note repurchase, either prior to or concurrently with such Note repurchase.
The existence of a Holder's right to require the Company to repurchase
such holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
Consolidation, Merger and Sale of Assets
The Company will not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or in a series of related transactions) to, any Person or permit any
Person to merge with or into the Company and the Company will not permit any of
its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or the Company and its Restricted Subsidiaries, taken as a whole, to any
other Person or Persons, unless: (i) the Company will be the continuing Person,
or the Person (if other than the Company) (the "Surviving Entity") formed by
such consolidation or into which the Company is merged or that acquired or
leased such property and assets of the Company will be a corporation organized
and validly existing under the laws of The Netherlands, Germany, France,
Belgium, the United Kingdom or the United States of America, any state thereof
or the District of Columbia and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of the obligations of the
Company with respect to the Notes and under the Indenture, the Escrow Agreement
and the Registration Rights Agreement; (ii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company, or any Person becoming the successor obligor of the
Notes, shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis
the Company, or any Person becoming the successor obligor of the Notes, as the
case may be, (A) prior to the third anniversary of the Issue Date, would have an
Indebtedness to Consolidated Cash Flow Ratio no greater than such ratio
immediately prior to such transaction or (B) on or after the third anniversary
of the Issue Date, could Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant; (v) the Company delivers
to the Trustee an Officers' Certificate (attaching the arithmetic computations
to demonstrate compliance with clauses (iii) and (iv)) and an Opinion of
Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture complies with the Indenture and (vi) the Company
shall have delivered to the Trustee an opinion of tax counsel reasonably
acceptable to the Trustee stating that (A) Holders will not recognize income,
gain or loss for U.S. federal or Netherlands income tax purposes as a result of
such transaction and (B) no taxes on income (including taxable capital gains)
will be payable under the tax laws of the Relevant Taxing Jurisdiction by a
Holder who is or who is deemed to be a non-resident of the Relevant Taxing
Jurisdiction in respect of the acquisition, ownership or disposition of the
Notes, including the receipt of principal of, premium and interest paid pursuant
to such Notes.
Events of Default
The following constitute "Events of Default" under the Indenture: (a)
default for 30 days or more in the payment when due of interest on the Notes or
Additional Amounts, if any, or Liquidated Damages, if any, with respect to the
Notes; (b) default in the payment of principal of (or premium, if any, on) any
Note when the same becomes due
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and payable at maturity, upon acceleration, redemption or otherwise; (c) default
in the payment of principal or interest on Notes required to be purchased
pursuant to an Asset Sale Offer as described under "Limitation on Asset Sales"
or pursuant to a Change of Control Offer as described under "Repurchase of Notes
upon a Change of Control"; (d) failure to perform or comply with the provisions
described under "Consolidation, Merger and Sale of Assets"; (e) default in the
performance of or breach of any other covenant or agreement of the Company in
the Indenture or the Escrow Agreement or under the Notes and such default or
breach continues for a period of 30 consecutive days after written notice by the
Trustee or the holders of 25% or more in aggregate principal amount of the
Notes; (f) a default occurs on any other Indebtedness of the Company or any
Restricted Subsidiary if either (x) such default is a failure to pay principal
of such Indebtedness when due after any applicable grace period and the
principal amount of such Indebtedness is in excess of $5.0 million or (y) as a
result of such default, the maturity of such Indebtedness has been accelerated
prior to its scheduled maturity and such default has not been cured within the
shorter of (i) 60 days and (ii) the applicable grace period, and such
acceleration has not been rescinded, and the principal amount of such
Indebtedness together with the principal amount of any other Indebtedness of the
Company and its Restricted Subsidiaries that is in default as to principal, or
the maturity of which has been accelerated, aggregates $5.0 million or more; (g)
failure to pay final judgments and orders against the Company or any Restricted
Subsidiary (not covered by insurance) aggregating in excess of $5.0 million
(treating any deductibles, self-insurance or retention as not so covered), which
final judgments remain unpaid, undischarged and unstayed for a period in excess
of 30 consecutive days following entry of the final judgment or order that
causes the aggregate amount for all such final judgments or orders outstanding
and not paid, discharged or stayed to exceed $5.0 million; (h) a court having
jurisdiction in the premises enters a decree or order for (A) relief in respect
of the Company or any of its Significant Subsidiaries in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any of
its Significant Subsidiaries or for all or substantially all of the property and
assets of the Company or any of its Significant Subsidiaries or (C) the winding
up or liquidation of the affairs of the Company or any of its Significant
Subsidiaries and, in each case, such decree or order shall remain unstayed and
in effect for a period of 30 consecutive days; (i) the Company or any of its
Significant Subsidiaries (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any of its Significant Subsidiaries or for all or substantially
all of the property and assets of the Company or any of its Significant
Subsidiaries or (C) effects any general assignment for the benefit of creditors;
or (j) the Company challenges the Lien on the Escrow Collateral under the Escrow
Agreement prior to such time as the Escrow Collateral is to be released to the
Company, or the Escrow Collateral shall become subject to any Lien other than
the Lien under the Escrow Agreement.
If an Event of Default (other than an Event of Default specified in
clauses (h) or (i) above) occurs and is continuing under the Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes, then outstanding, by written notice to the Company, may declare the
principal of, premium, if any, interest and other monetary obligations
(including Additional Amounts, if any, and Liquidated Damages, if any) on all
the then outstanding Notes to be immediately due and payable. Upon such a
declaration, such principal of, premium, if any, interest and other monetary
obligations on the Notes shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (f)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company and/or the relevant Restricted Subsidiaries or waived by the holders of
the relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clauses (h) or (i)
above occurs, the principal of, premium, if any, accrued interest and other
monetary obligations on the Notes then outstanding shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder. Holders of at least a majority in principal amount
of the outstanding Notes by written notice to the Company and to the Trustee,
may waive all past defaults and rescind and annul a declaration of acceleration
and its consequences if (i) all existing Events of Default, other than the
nonpayment of the principal of, premium, if any, interest and other monetary
obligations on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived
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and (ii) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction. For information as to the waiver of defaults,
see "-- Amendment, Supplement and Waiver."
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Indenture will provide that the Trustee may
withhold from Holders of Notes notice of any continuing Default (except a
Default relating to the payment of principal, premium, if any, interest,
Additional Amounts, if any, or Liquidated Damages, if any) if it determines that
withholding notice is in their interest. The Indenture will further provide that
the Trustee shall have no obligation to accelerate the Notes if in the best
judgment of the Trustee acceleration is not in the best interest of the Holders.
The Indenture requires that the Company delivers annually an Officers'
Certificate to the Trustee certifying that a review has been conducted of the
activities of the Company and the Company's performance under the Indenture and
that the Company has fulfilled all obligations thereunder or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default and the nature and status thereof. The Company will also be obligated to
notify the Trustee of any default or defaults in the performance of any
covenants or agreements under the Indenture within five business days of
becoming aware of any such default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the
Company shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason of
such obligations or their creation. Each Holder of the Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver and release may not be
effective to waive liabilities under the U.S. federal securities laws, and it is
the view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The obligations of the Company under the Indenture will terminate
(other than certain obligations) and will be released upon payment in full of
all of the Notes. The Company may, at its option and at any time, elect to have
all of its obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") and cure all then existing Events of Default except for (i) the
rights of Holders of outstanding Notes to receive payments in respect of the
principal of, premium, if any, interest, Additional Amounts, if any, and
Liquidated Damages, if any, on such Notes when such payments are due or on the
redemption date solely out of the trust created pursuant to the Indenture, (ii)
the Company's obligations with respect to Notes concerning issuing temporary
Notes, or, where relevant, registration of such Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance"), and thereafter any omission
to comply with such obligations shall not constitute a Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment on other indebtedness, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance
with respect to the Notes,
(i) the Company must irrevocably deposit, or cause to be irrevocably
deposited, with the Trustee, in trust, for the benefit of the Holders of the
Notes, cash in U.S. dollars, U.S. Government Securities or a combination thereof
and, in such amounts as will be sufficient, in the opinion of an internationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, interest, Additional Amounts, if any, and Liquidated Damages,
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if any, due on the outstanding Notes on the stated maturity date or on the
applicable redemption date, as the case may be, of such principal, premium, if
any, interest, Additional Amounts, if any, and Liquidated Damages, if any, due
on the outstanding Notes;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee (A) an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions and
exclusions, (1) the Company has received from, or there has been published by,
the U.S. Internal Revenue Service a ruling or (2) since the Issue Date, there
has been a change in the applicable U.S. federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel in the United
States shall confirm that, subject to customary assumptions and exclusions, the
Holders of the outstanding Notes will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such Legal Defeasance and will
be subject to U.S. federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred and (B) an opinion of counsel in The Netherlands reasonably
acceptable to the Trustee to the effect that (1) Holders will not recognize
income, gain or loss for Netherlands income tax purposes as a result of such
Legal Defeasance and will be subject to Netherlands income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred and (2) payments from the defeasance
trust will be free and exempt from any and all withholding and other income
taxes of whatever nature imposed or levied by or on behalf of The Netherlands or
any political subdivision thereof or therein having the power to tax;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee (A) an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such Covenant Defeasance and will be subject to such tax on the same amounts,
in the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred and (B) an opinion of counsel in The
Netherlands reasonably acceptable to the Trustee to the effect that (1) Holders
will not recognize income, gain or loss for Netherlands income tax purposes as a
result of such Covenant Defeasance and will be subject to Netherlands income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred and (2) payments from the
defeasance trust will be free and exempt from any and all withholding and other
income taxes of whatever nature imposed or levied by or on behalf of The
Netherlands or any political subdivision thereof or therein having the power to
tax;
(iv) no Default or Event of Default shall have occurred and be
continuing with respect to certain Events of Default on the date of such
deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material agreement or
instrument to which the Company is a party or by which the Company is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under any
applicable Netherlands and U.S. federal or state law, and that the Trustee has a
perfected security interest in such trust funds for the ratable benefit of the
Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of defeating, hindering, delaying or defrauding any creditors of the Company or
others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
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that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, as the case may be, have been complied with.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
as to all Notes issued thereunder when either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to the Company) have been delivered to
the Trustee for cancellation; or (ii) (A) all such Notes not theretofore
delivered to such Trustee for cancellation have become due and payable by reason
of the making of a notice of redemption or otherwise or will become due and
payable within one year and the Company has irrevocably deposited or caused to
be deposited with such Trustee as trust funds in trust an amount of money
sufficient to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation for principal, premium, if
any, and accrued and unpaid interest and Additional Amounts, if any, and
Liquidated Damages, if any, to the date of maturity or redemption; (B) no
Default with respect to the Indenture or the Notes shall have occurred and be
continuing on the date of such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Company is a party
or by which it is bound; (C) the Company has paid, or caused to be paid, all
sums payable by it under such Indenture; and (D) the Company has delivered
irrevocable instructions to the Trustee under such Indenture to apply the
deposited money toward the payment of such Notes at maturity or the redemption
date, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an opinion of counsel to the Trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
Withholding Taxes
All payments made by the Company on the Notes (whether or not in the
form of Definitive Notes) will be made without withholding or deduction for, or
on account of, any present or future taxes, duties, assessments or governmental
charges of whatever nature (collectively, "Taxes") imposed or levied by or on
behalf of The Netherlands or any jurisdiction in which the Company or any
Surviving Entity is organized or is otherwise resident for tax purposes or any
political subdivision thereof or any authority having power to tax therein or
any jurisdiction from or through which payment is made (each a "Relevant Taxing
Jurisdiction"), unless the withholding or deduction of such Taxes is then
required by law. If any deduction or withholding for, or on account of, any
Taxes of any Relevant Taxing Jurisdiction, shall at any time be required on any
payments made by the Company with respect to the Notes, including payments of
principal, redemption price, interest or premium, the Company will pay such
additional amounts (the "Additional Amounts") as may be necessary in order that
the net amounts received in respect of such payments by the Holders of the Notes
or the Trustee, as the case may be, after such withholding or deduction, equal
the respective amounts which would have been received in respect of such
payments in the absence of such withholding or deduction; except that no such
Additional Amounts will be payable with respect to:
(i) any payments on a Note held by or on behalf of a Holder or
beneficial owner who is liable for such Taxes in respect of such Note by reason
of the Holder or beneficial owner having some connection with the Relevant
Taxing Jurisdiction (including being a citizen or resident or national of, or
carrying on a business or maintaining a permanent establishment in, or being
physically present in, the Relevant Taxing Jurisdiction) other than by the mere
holding of such note or enforcement of rights thereunder or the receipt of
payments in respect thereof;
(ii) any Taxes that are imposed or withheld as a result of a change in
law after the Issue Date where such withholding or imposition is by reason of
the failure of the Holder or beneficial owner of the Note to comply with any
request by the Company to provide information concerning the nationality,
residence or identity of such holder or beneficial owner or to make any
declaration or similar claim or satisfy any information or reporting
requirement, which is required or imposed by a statute, treaty, regulation or
administrative practice of the Relevant Taxing Jurisdiction as a precondition to
exemption from all or part of such Taxes;
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(iii) except in the case of the winding up of the Company, any Note
presented for payment (where presentation is required) in the Relevant Taxing
Jurisdiction; or
(iv) any Note presented for payment (where presentation is required)
more than 30 days after the relevant payment is first made available for payment
to the Holder.
Such Additional Amounts will also not be payable where, had the
beneficial owner of the Note been the Holder of the Note, he would not have been
entitled to payment of Additional Amounts by reason of clauses (i) to (iv)
inclusive above.
Upon request, the Company will provide the Trustee with documentation
satisfactory to the Trustee evidencing the payment of Additional Amounts. Copies
of such documentation will be made available to the Holders upon request.
The Company will pay any present or future stamp, court or documentary
taxes, or any other excise or property taxes, charges or similar levies which
arise in any jurisdiction from the execution, delivery or registration of the
Notes or any other document or instrument referred to therein, or the receipt of
any payments with respect to the Notes, excluding any such taxes, charges or
similar levies imposed by any jurisdiction outside of The Netherlands, the
United States of America or any jurisdiction in which a Paying Agent is located,
other than those resulting from, or required to be paid in connection with, the
enforcement of the Notes or any other such document or instrument following the
occurrence of any Event of Default with respect to the Notes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture
and the Notes issued thereunder may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes), and any existing Default or Event of Default and
its consequences or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
of the Outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for the Notes).
The Indenture provides that without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Notes held by a
nonconsenting Holder of the Notes): (i) reduce the principal amount of the Notes
whose Holders must consent to an amendment, supplement or waiver, (ii) reduce
the principal of or change the fixed maturity of any such Note or alter or waive
the provisions with respect to the redemption of the Notes with respect to the
timing or amount of payment thereof, (iii) reduce the rate of or change the time
for payment of interest on any Note, (iv) waive a Default in the payment of
principal of, premium, if any, interest, Additional Amounts, if any, or
Liquidated Damages, if any, on the Notes (except a rescission of acceleration of
the Notes by the Holders of at least a majority in aggregate principal amount of
either series of such Notes and a waiver of the payment default that resulted
from such acceleration with respect to such series of Notes), or in respect of a
covenant or provision contained in the Indenture which cannot be amended or
modified without the consent of all Holders, (v) make any Note payable in money
other than that stated in such Notes, (vi) make any change in the provisions of
the Indenture relating to waivers of past Defaults or the rights of Holders of
such Notes to receive payments of principal, premium, if any, interest,
Additional Amounts, if any, or Liquidated Damages, if any, on such Notes, (vii)
make any change in the amendment and waiver provisions in the Indenture, (viii)
make any change in the provisions of the Indenture described under "--
Withholding Taxes" that adversely affects the rights of any Holder of the Notes,
(ix) amend the terms of the Notes or the Indenture in a way that would result in
the loss of an exemption from any of the Taxes described thereunder or an
exemption from any obligation to withhold or deduct Taxes as described
thereunder unless the Company agrees to pay Additional Amounts, if any, in
respect thereof, (x) modify the provisions of the Escrow Agreement or the
Indenture relating to the Escrow Collateral in any manner adverse to the Holders
or release the Escrow Collateral from the Lien under the Escrow Agreement or
permit any other obligation to be secured by the Escrow Collateral or (xi)
impair the right of any Holder of the Notes to receive payment of principal of,
interest, Liquidated Damages, if any, on such Holder's Notes
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on or after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such Holder's Notes.
The Indenture provides that, notwithstanding the foregoing, without the
consent of any Holder of Notes, the Company and the Trustee together may amend
or supplement the Indenture or the Notes (i) to cure any ambiguity, omission,
defect or inconsistency, (ii) to provide for uncertificated Notes in addition to
or in place of certificated Notes, (iii) to comply with the covenant relating to
mergers, consolidations and sales of assets, (iv) to provide for the assumption
of the Company's obligations to Holders of such Notes, (v) to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, (vi) to add covenants for the benefit of the Holders or to
surrender any right or power conferred upon the Company, (vii) to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act, (viii) to provide for the
issuance of the Exchange Notes or (ix) to execute and deliver any documents
necessary or appropriate to release Liens or any Escrow Collateral as permitted
by the Escrow Agreement.
The consent of the Holders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
Notices
Notices regarding the Notes will be (i) published in a leading
newspaper having a general circulation in New York (which is expected to be The
Wall Street Journal) and in Amsterdam (which is expected to be Het Financieele
Dagblad) and, if and so long as the Exchange Notes are listed on the Luxembourg
Stock Exchange and the rules of such Stock Exchange shall so require, a
newspaper having a general circulation in Luxembourg (which is expected to be
the Luxemburger Wort)) or (ii) in the case of Definitive Notes, mailed to
Holders by first-class mail at their respective addresses as they appear on the
registration books of the Registrar (and, if and so long as the Exchange Notes
are listed on the Luxembourg Stock Exchange and the rules of such Stock Exchange
shall so require, published in a newspaper having a general circulation in
Luxembourg (which is expected to be the Luxemburger Wort)). Notices given by
publication will be deemed given on the first date on which publication is made
and notices given by first-class mail, postage prepaid, will be deemed given
five calendar days after mailing.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; provided, however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Indenture provides that the Holders of a majority in principal
amount of the outstanding Notes issued thereunder will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee, subject to certain exceptions. The Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of such Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
Governing Law
The Indenture and the Notes are, subject to certain exceptions,
governed by and construed in accordance with the internal laws of the State of
New York.
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Enforceability of Judgments
Since most of the operating assets of the Company and its Subsidiaries
are outside the United States, any judgment obtained in the United States
against the Company or a Subsidiary, including judgments with respect to the
payment of principal, premium, if any, interest, Additional Amounts, if any,
Liquidated Damages, if any, redemption price and any purchase price with respect
to the Notes, may not be collectible within the United States.
The Company has been informed by its Netherlands counsel, Stibbe Simont
Monahan Duhot, that in such counsel's opinion the laws of The Netherlands
applicable therein permit an action to be brought in a court of competent
jurisdiction in The Netherlands on a judgment of a United States federal court
or a court of the State of New York sitting in the borough of Manhattan in the
City of New York respecting the enforcement of the Notes and the Indenture;
subject to certain exceptions the principal of which may be summarized as
follows: a final judgment for the payment of money obtained in a United States
court, which is not subject to appeal or any other means of contestation and is
enforceable in the United States, would in principle be upheld by a Netherlands
court of competent jurisdiction when asked to render a judgment in accordance
with such final judgment by a United States court, without substantive
re-examination or relitigation on the merits of the subject matter thereof;
provided that such judgment has been rendered by a court of competent
jurisdiction, in accordance with rules of proper procedure, that it has not been
rendered in proceedings of a penal or revenue nature and that its content and
possible enforcement are not contrary to public policy or public order of The
Netherlands.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in
the Indenture. Reference is made to the Indenture for the full definition of all
terms as well as any other capitalized term used herein for which no definition
is provided. For purposes of the Indenture, unless otherwise specifically
indicated, the term "consolidated" with respect to any Person refers to such
Person consolidated with its Restricted Subsidiaries, and excludes from such
consolidation any Unrestricted Subsidiary as if such Unrestricted Subsidiary
were not an Affiliate of such Person. For purposes of the following definitions
and the Indenture generally, all calculations and determinations shall be made
in accordance with U.S. GAAP and shall be based upon the consolidated financial
statements of the Company and its subsidiaries prepared in accordance with U.S.
GAAP.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary or is merged or
consolidated with or into the Company or any Restricted Subsidiary or assumed in
connection with an Asset Acquisition by the Company or a Restricted Subsidiary
and not incurred in connection with, or in anticipation of, such Person becoming
a Restricted Subsidiary, such merger or consolidation or such Asset Acquisition;
provided that Indebtedness of such Person which is redeemed, defeased, retired
or otherwise repaid at the time of or immediately upon the consummation of the
transactions by which such Person becomes a Restricted Subsidiary or is merged
or consolidated with or into the Company or any Restricted Subsidiary or such
Asset Acquisition shall not be Indebtedness.
"Affiliate" is defined to mean, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person, is
defined to mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Asset Acquisition" is defined to mean (i) any capital contribution (by
means of transfers of cash or other property to others or payments for property
or services for the account or use of others, or otherwise) by the Company or
any Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted
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Subsidiary or shall be consolidated, merged with or into the Company or any
Restricted Subsidiary or (ii) an acquisition by the Company or any of its
Restricted Subsidiaries of the property and assets of any Person (other than the
Company or any of its Restricted Subsidiaries) that constitute substantially all
of an operating unit or line of business of such Person or which is otherwise
outside the ordinary course of business.
"Asset Disposition" is defined to mean the sale or other disposition by
the Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary of the Company) of (i) all or substantially all of
the Equity Interests in any Restricted Subsidiary of the Company or (ii) all or
substantially all of the assets that constitute an operating unit or line of
business of the Company or any of its Restricted Subsidiaries or which is
otherwise outside the ordinary course of business.
"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person (other than the Company or any of its
Restricted Subsidiaries) of (i) all or any of the Equity Interests in any
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or line of business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business (including the
receipt of proceeds paid on account of the loss of or damage to any property or
asset and awards of compensation for any asset taken by condemnation, eminent
domain or similar proceedings). For the purposes of this definition, the term
"Asset Sale" shall not include (a) any transaction consummated in compliance
with "-- Consolidation, Merger and Sale of Assets" and the creation of any Lien
not prohibited by "-- Certain Covenants -- Limitation on Liens"; provided,
however, that any transaction consummated in compliance with such "--
Consolidation, Merger and Sale of Assets" description involving a sale,
conveyance, assignment, transfer, lease or other disposal of less than all of
the properties or assets of the Company and the Restricted Subsidiaries shall be
deemed to be an Asset Sale with respect to the properties or assets of the
Company and Restricted Subsidiaries that are not so sold, conveyed, assigned,
transferred, leased or otherwise disposed of in such transaction; (b) sales of
property or equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or any
Restricted Subsidiary, as the case may be; and (c) any transaction consummated
in compliance with "-- Certain Covenants -- Limitation on Restricted Payments."
In addition, solely for purposes of "-- Certain Covenants -- Limitation on Asset
Sales," any sale, conveyance, transfer, lease or other disposition of any
property or asset, whether in one transaction or a series of related
transactions, involving assets with a Fair Market Value not in excess of $1.0
million in any fiscal year shall be deemed not to be an "Asset Sale."
"Board of Directors" is defined to mean the Supervisory Board of the
Company.
"Board Resolution" is defined to mean a duly authorized resolution of
the Board of Directors.
"Capital Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, including, without
limitation, if such Person is a partnership, partnership interests (whether
general or limited) and any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, such partnership.
"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with U.S. GAAP, is required to be capitalized and reflected as a liability on
the balance sheet of such Person; and "Capitalized Lease Obligation" is defined
to mean, at the time any determination thereof is to be made, the discounted
present value of the rental obligations under such lease.
"Cash Equivalents" is defined to mean, (a) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than 360 days from the
date of acquisition; (b) certificates of deposit and eurodollar time deposits
with maturities of 360 days or less from the date
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of acquisition, bankers' acceptances with maturities not exceeding 360 days and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500 million; provided, however, that securities
deposited in the Escrow Account may have a Stated Maturity as late as May 15,
2001; (c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (a) and (b) entered into
with any financial institution meeting the qualifications specified in clause
(b) above; (d) commercial paper rated P-1, A-1 or the equivalent thereof by
Moody's Investors Service, Inc. or Standard & Poor's Ratings Group,
respectively, and in each case maturing within six months after the date of
acquisition; (e) marketable direct obligations of the United Kingdom, The
Netherlands, Belgium, Germany or France or obligations fully and unconditionally
guaranteed by such sovereign nation (or any agency thereof), of the type and
maturity described in clauses (a) through (d) above of foreign obligors, which
have ratings described in such clauses or equivalent ratings from comparable
foreign rating agencies; and (f) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(a) through (e) above.
"Change of Control" is defined to mean such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
(other than a Permitted Holder) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total
voting power of the then outstanding Voting Stock of the Company on a fully
diluted basis; (ii) individuals who at the beginning of any period of two
consecutive calendar years constituted the Board of Directors (together with any
directors who are members of the Board of Directors on the date hereof and any
new directors whose election by the Board of Directors or whose nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds of the members of the Board of Directors then still in office who either
were members of the Board of Directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of such Board of Directors then
in office; (iii) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company to any
such "person" or "group" (other than to a Restricted Subsidiary); or (iv) the
merger or consolidation of the Company with or into another corporation or the
merger of another corporation with or into the Company with the effect that
immediately after such transaction any such "person" or "group" of persons or
entities shall have become the beneficial owner of securities of the surviving
corporation of such merger or consolidation representing a majority of the total
voting power of the then outstanding Voting Stock of the surviving corporation.
"Consolidated Cash Flow" is defined to mean with respect to any Person
for any period, the (i) Consolidated Net Income of such Person for such period
plus, to the extent deducted in computing such Consolidated Net Income (and
without duplication) Consolidated Fixed Charges, (ii) any provision for taxes
(other than taxes (either positive or negative) attributable to extraordinary
and non recurring gains or losses or sales of assets), (iii) any amount
attributable to depreciation and amortization expense and (iv) all other
non-cash items reducing Consolidated Net Income (excluding any non-cash charge
to the extent that it requires or represents an accrual of, or reserve for, cash
charges in any future period), less all non-cash items increasing Consolidated
Net Income (excluding any items which represent the reversal of an accrual of,
or reserve for, anticipated cash charges at any prior period), all as determined
on a consolidated basis for such Person and its Restricted Subsidiaries in
accordance with U.S. GAAP; provided, however, that there shall be excluded
therefrom the Consolidated Cash Flow of (if positive) of any Restricted
Subsidiary (calculated separately for such Restricted Subsidiary in the same
manner as provided above) that is subject to a restriction which prevents the
payment of dividends or the making of distributions to the Company or another
Restricted Subsidiary to the extent of such restriction.
"Consolidated Fixed Charges" is defined to mean, with respect to any
Person for any period, Consolidated Interest Expense plus dividends declared and
payable on Preferred Stock.
"Consolidated Interest Expense" is defined to mean with respect to any
Person for any period, the aggregate amount of interest in respect of
Indebtedness (including capitalized interest, amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation) calculated in accordance with U.S. GAAP; all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
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acceptance financing; the net costs associated with Interest Rate Agreements;
and interest on Indebtedness that is Guaranteed or secured by such Person or any
of its Restricted Subsidiaries), less the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by such Person and its Restricted Subsidiaries during such
period; excluding, however, any amount of such interest of any Restricted
Subsidiary to the extent the net income of such Restricted Subsidiary is
excluded in the calculation of Consolidated Net Income pursuant to the last
proviso of such definition.
"Consolidated Net Income" is defined to mean with respect to any Person
for any period, the aggregate net income (or loss) of such Person and its
Restricted Subsidiaries for such period determined on a consolidated basis and
in conformity with U.S. GAAP; provided that the following items shall be
excluded in computing Consolidated Net Income (without duplication): (i) the net
income (or loss) of any Restricted Subsidiary accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with such
Person or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such Restricted Subsidiary are acquired by such Person or
any of its Restricted Subsidiaries; (ii) any gains or losses (on an after-tax
basis) but not losses attributable to Asset Sales; (iii) all extraordinary gains
and gains from Currency Agreements or Interest Rate Agreements and gains from
the extinguishment of debt; (iv) the net income (or loss) of any other Person
(other than net income (or loss) attributable to a Restricted Subsidiary) in
which such other Person (other than such Person or any of its Restricted
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to such Person or any of its
Restricted Subsidiaries by such other Person during such period; (v) net gains
attributable to write-ups of assets or write-downs of liabilities (determined
after taking into account losses attributable to write-downs of assets or
write-ups of liabilities up to but not in excess of such gains); and (vi) the
cumulative effect of a change in accounting principles after the Issue Date; and
provided further that there shall be further excluded therefrom the net income
(but not the net loss) of any Restricted Subsidiary (calculated separately for
such Restricted Subsidiary in the same manner as provided above) that is subject
to a restriction which prevents the payment of dividends or the making of
distributions to the Company or another Restricted Subsidiary to the extent of
such restriction.
"Consolidated Net Worth" is defined to mean, at any date of
determination, stockholders' equity as set forth on the most recently available
quarterly or annual consolidated balance sheet of such Person and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of determination), less any amounts attributable to Redeemable Stock or any
equity security convertible into or exchangeable for Indebtedness, the cost of
treasury stock and the principal amount of any promissory notes receivable from
the sale of Equity Interests in the Company or any of its Restricted
Subsidiaries, each item to be determined in conformity with U.S. GAAP (excluding
the effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52).
"Credit Facilities" is defined to mean one or more senior credit
agreements, senior loan agreements or similar senior facilities with banks or
other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Cumulative Consolidated Cash Flow" is defined to mean, for the period
beginning on the Issue Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, Consolidated Cash Flow of the Company and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with U.S. GAAP.
"Cumulative Consolidated Fixed Charges" is defined to mean, for the
period beginning on the Issue Date through and including the end of the last
fiscal quarter (taken as one accounting period) preceding the date of any
proposed Restricted Payment, Consolidated Fixed Charges of the Company and its
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with U.S. GAAP.
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"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement and any other arrangement or agreement designed to
provide protection against fluctuations in currency values.
"Default" is defined to mean any event that is, or after notice or
passage of time or both would be, an Event of Default.
"Eligible Accounts Receivable" is defined to mean the accounts
receivables (net of any reserves and allowances for doubtful accounts in
accordance with U.S. GAAP) of any Person that are not more than 60 days past
their due date and that were entered into in the ordinary course of business on
normal payment terms as shown on the most recent consolidated balance sheet of
such Person filed with the Commission, all in accordance with U.S. GAAP.
"Equity Interests" is defined to mean Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Escrow Account" is defined to mean the account established by the
Escrow Agent pursuant to the terms of the Escrow Agreement for the deposit of
the U.S. Government Securities purchased by, or purchased at the direction of,
the Company with a portion of the net proceeds from the Second Offering.
"Escrow Agent" is defined to mean United States Trust Company of New
York, as escrow agent under the Escrow Agreement.
"Escrow Agreement" is defined to mean the Escrow Agreement, dated as of
the date of the Indenture, among the Escrow Agent, the Trustee and the Company,
governing the disbursement of funds from the Escrow Account.
"Escrow Collateral" is defined to mean all funds and securities in the
Escrow Account and the proceeds thereof.
"Fair Market Value" is defined to mean, with respect to any asset or
property, the price (after taking into account any liabilities relating to such
assets) which could be negotiated in an arm's-length free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of
which is under any compulsion to complete the transaction; provided, however,
that the Fair Market Value of any such asset or assets shall be determined
conclusively by the Board of Directors acting in good faith, which determination
shall be evidenced by a resolution of such Board delivered to the Trustee.
"Guarantee" is defined to mean any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any Indebtedness or other
obligation in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof) of any other Person; provided that
the term "Guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Equity Interests in any Person; provided
that neither the accrual of interest shall be considered an Incurrence of
Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any
date of determination (without duplication), (i) all indebtedness of such
Person, whether or not contingent (A) in respect of borrowed money, (B)
evidenced by bonds, debentures, Notes or other similar instruments or letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto), (C) representing the balance deferred and unpaid of the
purchase price of property or services, which purchase price is due more than
six months after the date of placing such property in service or taking delivery
and title thereto or the completion of such services, except Trade Payables, (D)
representing Capitalized Lease Obligations, (ii) all Indebtedness of other
Persons secured by a Lien on any asset of such
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Person, whether or not such Indebtedness is assumed by such Person; provided
that the amount of such Indebtedness shall be the lesser of (A) the fair market
value of such asset at such date of determination and (B) the amount of such
Indebtedness, (iii) all Indebtedness of other Persons Guaranteed by such Person
to the extent such Indebtedness is Guaranteed by such Person, (iv) the maximum
fixed redemption or repurchase price of Redeemable Stock of such Person at the
time of determination and (v) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided (x) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with U.S. GAAP and (y) that Indebtedness shall
not include any liability for federal, state, local or other taxes.
"Interest Rate Agreement" is defined to mean any interest rate swap
agreement, interest rate cap agreement, interest rate insurance, and any other
arrangement or agreement designed to provide protection against fluctuations in
interest rates.
"Investment" in any Person is defined to mean any direct or indirect
advance, loan or other extension of credit (including, without limitation, by
way of Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with U.S. GAAP, recorded
as accounts receivable on the balance sheet of such Person or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other tangible or intangible property to others or any payment for any property
or services for the account or use of others), or any purchase or acquisition of
Equity Interests, bonds, notes, debentures, or other similar instruments issued
by, any other Person. For purposes of the definition of "Unrestricted
Subsidiary," the "Limitation on Restricted Payments" covenant and the
"Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries"
covenant described above, (i) "Investment" shall include (a) the Fair Market
Value of the assets (net of liabilities) of any Restricted Subsidiary of the
Company at the time that such Restricted Subsidiary of the Company is designated
an Unrestricted Subsidiary and shall exclude the Fair Market Value of the assets
(net of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and
(b) the Fair Market Value, in the case of a sale of Equity Interests in
accordance with the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant such that a Person no longer constitutes a
Restricted Subsidiary, of the remaining assets (net of liabilities) of such
Person after such sale, and shall exclude the fair market value of the assets
(net of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its Fair Market Value at the time of such transfer.
"Issue Date" is defined to mean the date on which the Notes were
originally issued under the Indenture.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind in respect of an asset, whether or not
filed, recorded or otherwise perfected under applicable law (including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof, any sale with recourse against the seller or any Affiliate
of the seller, or any option or other agreement to sell or give any security
interest).
"Most Recent Balance Sheet" is defined to mean, with respect to any
Person, the most recent consolidated balance sheet of such Person reported on by
a recognized firm of independent accountants without qualification as to scope.
"Net Cash Proceeds" is defined to mean, (a) with respect to any Asset
Sale, the proceeds of such Asset Sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations (to the extend
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or
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Cash Equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing agreements),
(iii) payments made to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
of the Company as a reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with U.S. GAAP; provided that such amounts which cease
to be held as reserves shall be deemed Net Cash Proceeds; and (b) with respect
to any capital contribution or any issuance or sale of Equity Interests (other
than Redeemable Stock), the proceeds of such capital contribution, issuance or
sale in the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or Cash
Equivalents (except to the extent (1) such obligations are financed, directly or
indirectly, with money borrowed from the Company or any Restricted Subsidiary or
otherwise financed or sold with recourse to the Company or any Restricted
Subsidiary or (2) the capital contribution or purchase of the Equity Interests
is otherwise financed, directly or indirectly, by the Company or any Restricted
Subsidiary, including through funds contributed, extended, guaranteed or
otherwise advanced by the Company or any Affiliate) and proceeds from the
conversion of other property received when converted to cash or Cash
Equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Officers' Certificate" is defined to mean a certificate signed on
behalf of the Company by two officers of the Company, one of whom must be the
principal executive officer, the principal financial officer, the treasurer or
the principal accounting officer of the Company that meets the requirements set
forth in the Indenture.
"Permitted Business" is defined to mean the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii)
constructing, creating, developing or marketing communications related network
equipment, software and other devices for use in a telecommunications business
or (iii) evaluating, participating or pursuing any other activity or opportunity
that is primarily related to those identified in clause (i) or (ii) above.
"Permitted Holder" is defined to collectively mean Telecom Founders
B.V., NeSBIC Venture Fund C.V., Cromwilld Limited, Paribas Deelnemingen N.V.,
Nederlandse Participatie Maatschappij N.V. and any Affiliate of the foregoing
Persons.
"Permitted Investment" is defined to mean (i) an Investment in a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; (ii) payroll, travel and similar advances to cover
matters that are expected at the time of such advance ultimately to be treated
as expenses in accordance with U.S. GAAP; (iii) stock, obligations or securities
received in satisfaction of judgments; (iv) Investments in any Person (the
primary business of which is related, ancillary or complementary to the business
of the Company on the date of such Investment) at any one time outstanding
(measured on the date each such Investment was made without giving effect to
subsequent changes in value) in an aggregate amount not to exceed the greater of
(x) $10.0 million and (y) 5.0% of the Company's total consolidated assets as of
the end of the most recently completed fiscal quarter; (v) Investments in Cash
Equivalents; (vi) Investments made as a result of the receipt of noncash
consideration from any Asset Sale made in compliance with the "Limitation on
Asset Sales" covenant; (vii) Investments made in the ordinary course of the
telecommunications business in the Permitted Business and on ordinary business
terms in the Permitted Business in consortia formed to construct transmission
infrastructure for use primarily in the Permitted Business, provided such
Investment entitles the Company to rights of way or rights of use on such
transmission infrastructure; (viii) Investments made in the ordinary course of
the telecommunications business and on ordinary
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business terms as partial payment for constructing a network relating
principally to the Permitted Business; and (ix) any Investment in Pledged
Securities.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with U.S. GAAP shall have been made; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with U.S. GAAP shall have been made; (iii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (v) Liens (including extensions and renewals thereof)
upon real or personal property of a Restricted Subsidiary purchased or leased
after the Issue Date; provided that (a) such Lien is created solely for the
purpose of securing Indebtedness Incurred by such Restricted Subsidiary in
compliance with the "Limitation on Indebtedness" covenant (1) to finance the
cost of the item of property or assets subject thereto and such Lien is created
prior to, at the time of or within six months after the later of the acquisition
and the Incurrence of such Indebtedness or (2) to refinance any Indebtedness of
a Restricted Subsidiary previously so secured, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c) any
such Lien shall not extend to or cover any property or assets other than such
item of property or assets; (vi) any interest or title of a lessor in the
property subject to any Capitalized Lease or operating lease of a Restricted
Subsidiary which, in each case, is permitted under the Indenture; (vii) Liens on
property of, or on Equity Interests in or Indebtedness of, any Person existing
at the time such Person becomes, or becomes a part of, any Restricted
Subsidiary; provided that such Liens were not created, incurred or assumed in
contemplation of such transaction and do not extend to or cover any property or
assets of the Company or any Restricted Subsidiary other than the property or
assets so acquired; (viii) Liens arising from the rendering of a final judgment
or order against the Company or any Restricted Subsidiary of the Company that
does not give rise to an Event of Default; (ix) Liens encumbering customary
initial deposits and margin deposits and other Liens that are either within the
general parameters customary in the industry or incurred in the ordinary course
of business, in each case, securing Indebtedness under Interest Rate Agreements
and Currency Agreements; (x) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Issue Date; (xi) Liens existing on the
Issue Date or securing the Notes or any Guarantee of the Notes; (xii) Liens
granted after the Issue Date on any assets or Equity Interests in the Company or
its Restricted Subsidiaries created in favor of the holders; (xiii) Liens
created in connection with the incurrence of any Indebtedness permitted to be
Incurred under clause (iii) of paragraph (b) of the "Limitation on Indebtedness"
covenant; provided that the Indebtedness which it refinances is secured by
similar Liens; (xiv) Liens securing Indebtedness under Credit Facilities
incurred in compliance with clause (viii) of paragraph (b) of the "Limitation on
Indebtedness" covenant; and (xv) Liens with respect to the Escrow Account
arising under the Escrow Agreement.
"Pledged Securities" is defined to mean the U.S. Government Securities
purchased by the Company with a portion of the net proceeds from the Second
Offering and deposited in the Escrow Account.
"Preferred Stock" is defined to mean, with respect to any Person, any
and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"Pro forma Consolidated Cash Flow" is defined to mean with respect to
any Person for any period, the Consolidated Cash Flow of such Person for such
period calculated on a pro forma basis to give effect to any Asset Disposition
or Asset Acquisition (including acquisitions of other Persons by merger,
consolidation or purchase of
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Equity Interests) during such period as if such Asset Disposition or Asset
Acquisition had taken place on the first day of such period and income (or
losses) ceased to accrue or accrued, as the case may be, therefrom from such
date.
"Public Equity Offering" is defined to mean an underwritten primary
public offering of Ordinary Shares of the Company pursuant to an effective
registration statement under the Securities Act.
"Redeemable Stock" is defined to mean, with respect to any Person, any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Redeemable Stock or (iii) is redeemable or must be purchased, upon the
occurrence of certain events or otherwise, by such Person at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to purchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Notes shall not constitute Redeemable Stock if (x) the "asset sale" or "change
of control" provisions applicable to such Capital Stock are not more favorable
to the holders of such Capital Stock than the terms applicable to the Notes and
described under "-- Certain Covenants -- Limitation on Asset Sales" and "--
Repurchase of Notes upon a Change of Control" and (y) any such requirement only
becomes operative after compliance with such terms applicable to the Notes
including the purchase of any Notes tendered pursuant thereto.
"Replacement Assets" is defined to mean any property, plant or
equipment of a nature or type that are used or usable in Permitted Businesses.
"Restricted Subsidiary" is defined to mean, at any time, any direct or
indirect Subsidiary of the Company that is then not an Unrestricted Subsidiary.
"Share Capital" is defined to mean, at any time of determination, the
stated capital of the Equity Interests (other than Redeemable Stock) and
additional paid-in capital of the Company as set forth on the Most Recent
Balance Sheet of the Company at such time.
"Stated Maturity" is defined to mean, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Strategic Minority Capital Stock Issues" is defined to mean issuances
or sales of common stock of a Restricted Subsidiary, principally engaged in
business outside The Netherlands, to a Person which is principally engaged in
the Permitted Business and which has an equity market capitalization, a net
asset value or annual revenues of at least $500 million, which issuances or
sales do not represent more than 49% of the outstanding common stock of such
Restricted Subsidiary; provided that any such Strategic Minority Capital Stock
Issue is made to only one such Person with respect to any Restricted Subsidiary.
"Subsidiary" is defined to mean, with respect to any Person (i) any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is at the time of determination owned, directly or
indirectly, by such Person or one or more other Subsidiaries of such Person and
(ii) any partnership, joint venture, limited liability company or similar entity
of which (A) more than 50% of the capital accounts, distribution rights, total
equity and voting interests or general or limited partnership interests, as
applicable, are owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person or a combination thereof
whether in the form of membership, general, special or limited partnership or
otherwise and (B) such Person or any Restricted Subsidiary of such Person is a
controlling general partner, co-venturer, manager or similar position or
otherwise controls such entity.
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"Telecommunications Assets" is defined to mean, with respect to any
Person, assets used in the Permitted Business (or Equity Interests of a Person
that becomes a Restricted Subsidiary, the assets of which consist principally of
such Telecommunications Assets) that are purchased or acquired by the Company or
a Restricted Subsidiary after the Issue Date.
"Trade Payables" is defined to mean any accounts payable or any other
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by the Company or any of its Restricted Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods and
services.
"Transaction Date" is defined to mean, with respect to the Incurrence
of any Indebtedness by the Company or any of its Restricted Subsidiaries, the
date such Indebtedness is to be Incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company which at the time of determination is an Unrestricted Subsidiary (as
designated by the Board of Directors in the manner provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary, or any of its Subsidiaries, owns any Equity Interests or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (a) the Company certifies in an
Officers' Certificate that such designation complies with the covenants
described under "Limitation on Restricted Payments," (b) such Subsidiary is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might reasonably be
obtained in a comparable arm's-length transaction at the time from Persons who
are not Affiliates of the Company, (c) neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe
for additional Equity Interests in such Subsidiary or any Subsidiary of such
Subsidiary or (2) to maintain or preserve such Subsidiary's financial condition
or to cause such Subsidiary to achieve any specified levels of operating results
and (d) such Subsidiary and its Subsidiaries has not at the time of designation,
and does not thereafter, Incur any Indebtedness other than Unrestricted
Subsidiary Indebtedness. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; provided that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant described above on a pro forma basis taking into account
such designation and (y) no Default or Event of Default shall have occurred and
be continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the resolution of
the Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"Unrestricted Subsidiary Indebtedness" is defined to mean Indebtedness
of any Unrestricted Subsidiary (i) as to which neither the Company nor any
Restricted Subsidiary is directly or indirectly liable (by virtue of the Company
or any such Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), and (ii) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Indebtedness of the Company or any Restricted Subsidiary to
declare, a default on such Indebtedness of the Company or any Restricted
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"U.S. GAAP" is defined to mean, at any date of determination, generally
accepted accounting principles as in effect in the United States of America
which are applicable at the date of determination and which are consistently
applied for all applicable periods.
"U.S. Government Securities" is defined to mean direct obligations of,
or obligations guaranteed by, the United States of America for the payment of
which obligations or guarantee the full faith and credit of the United States is
pledged and are not callable or redeemable at the option of the issuer thereof.
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"Voting Stock" is defined to mean with respect to any Person, Capital
Stock of any class or kind ordinarily entitled to vote for the election of
directors thereof at a meeting of Stockholders called for such purpose, without
the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" is defined to mean, at any date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) (a) the sum of the products of the number of years from such date
of determination to the dates of each successive scheduled principal payment of,
or redemption or similar payment with respect to, such Indebtedness multiplied
by (b) the amount of such principal payment, by (ii) the sum of all such
principal payments.
"Wholly Owned Restricted Subsidiary" is defined to mean any Restricted
Subsidiary all of the outstanding voting Equity Interests (other than directors'
qualifying shares) of which are owned, directly or indirectly, by the Company.
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CERTAIN TAX CONSIDERATIONS
Netherlands Tax Considerations
The following is a summary of the principal Netherlands tax
consequences relevant to the exchange, ownership and disposition of Notes to
U.S. Holders (as defined below for the purposes of this section "Netherlands Tax
Considerations"). This summary is not exhaustive of all the possible tax
consequences that may be relevant to Holders in light of their particular
circumstances and potential investors are advised to consult their own tax
advisors in order to determine the final tax consequences of the exchange,
ownership and disposition of Notes in their own particular circumstances. In
particular, this summary does not cover all tax consequences applicable to joint
venture vehicles, such as LLC's and partnership structures.
This summary is based on the tax laws of The Netherlands, as well as
the Convention between the United States of America and the Kingdom of The
Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income (the "Treaty"), to the extent they were
published and effective as of January 5, 1999. Changes made to these laws or
Treaty after that date may have retroactive effect, and may effect the tax
consequences described herein.
The outline is based on the assumption that the U.S. Holder:
(i) is not and has not been for at least five years, a resident or
deemed resident of The Netherlands for purposes of Netherlands
tax legislation; and
(ii) does not have or will not obtain an enterprise or an interest
in an enterprise which, in whole or in part, is carried on
through a permanent establishment or a permanent
representative in The Netherlands and to which enterprise or
part of an enterprise the Notes are attributable; and
(iii) is not directly entitled (the term directly means, in this
context, not through the beneficial ownership of shares or
similar securities) to all or a share of the profits of an
enterprise that is managed and controlled in The Netherlands
while the Notes form part of the assets of, or are otherwise
attributable to, such enterprise; and
(iv) does not have or will not obtain a substantial interest (as
defined below) or deemed substantial interest in VersaTel
according to the criteria under Netherlands tax law currently
in force or in the event such Holder does have such an
interest, this substantial interest qualifies as asset of, or
is otherwise attributable to an enterprise; and
(v) does not carry out and has not carried out employment
activities on the territory of The Netherlands, or as director
or board member of an entity resident in The Netherlands or as
a civil servant of a Netherlands public body with which the
holding of the Notes is connected; and
(vi) can obtain full benefit under the Treaty
(hereinafter, "U.S. Holder").
With respect to point (iv) for Netherlands income and/or corporate
income tax purposes, a person (individual or corporate body as defined under
Netherlands tax law) holds among others directly or indirectly a substantial
interest, if such person owns or is deemed to own (e.g., directly and/or
indirectly via call options or warrants) an interest of at least 5.0% in the
issued capital of a company residing in The Netherlands ("a Substantial
Interest").
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Netherlands Income Tax
A U.S. Holder of Notes is not subject to Netherlands Corporate Income
Tax ("NCIT") or Netherlands Individual Income Tax ("NIIT") under the above
assumptions.
Interest, Withholding Tax and Tax Treaty Limitations
Interest paid to a U.S. Holder that does not have a Substantial
Interest is not subject to NCIT or NIIT. Furthermore, according to article 12 of
the Treaty, interest paid to a U.S. Holder entitled to the benefits of the
Treaty can only be subject to NCIT or NIIT in the country of residence of the
recipient of the interest. As a result, no NCIT or NIIT will be due on interest
paid to a U.S. Holder that has a Substantial Interest, provided they can obtain
full benefit of the Treaty.
The Netherlands will not levy withholding taxes on the payment of
interest under the Notes, provided that the interest payment is not dependent on
the profits of the Company. If such link can be established there is a risk that
the interest would be subject to Netherlands withholding tax. For this
discussion it is assumed that such link cannot be established.
Capital Gains
Under Netherlands laws, capital gains realized upon disposition of any
or all of the Notes by a U.S. Holder are only taxable if the U.S. Holder has a
Substantial Interest or if the U.S. Holder has an enterprise or an interest in
an enterprise that is, in whole or in part, carried on through a permanent
establishment or a permanent representative in The Netherlands and to which
Netherlands enterprise, the Notes are attributable. Moreover, as a result of
article 14 of the Treaty, the right to tax capital gains realized upon
disposition of any or all of the Notes by a U.S. Holder entitled to the benefits
of the Treaty, is allocated to the United States, unless allocable to a
Netherlands enterprise referred to above.
Net Wealth Tax
A U.S. Holder of the Notes will not be subject to Netherlands net
wealth tax in respect thereof provided that:
(i) such U.S. Holder is not an individual or, if he or she is
an individual, provided that the Holder is neither a resident of The
Netherlands nor deemed to be a resident of The Netherlands; and
(ii) the U.S. Holder does not have an enterprise or an
interest in an enterprise that is, in whole or in part, carried on
through a permanent establishment or a permanent representative in The
Netherlands and to which enterprise or part of an enterprise, as the
case may be, to which enterprise the Notes are attributable; and
(iii) such U.S. Holder is not directly entitled (the term
directly means, in this context, not through the beneficial ownership
of shares or similar securities) to all or a share of the profits of an
enterprise that is managed and controlled in The Netherlands while the
Notes form part of the assets of, or are otherwise attributable to,
such enterprise.
Gift, Estate or Inheritance Taxes
No gift, estate or inheritance taxes will arise in The Netherlands in
respect of the transfer of a Note by way of gift by a person who is neither a
resident nor a deemed resident of The Netherlands, or on the death of such
person, provided that:
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(i) the transfer is not construed as a gift made by or on
behalf of a person who is a resident or a deemed resident of The
Netherlands; and
(ii) the Notes do not form part of the assets of, and are not
otherwise attributable to, an enterprise owned by the donor or the
deceased or in which the donor or the deceased owned an interest and
which in whole or in part is carried on through a permanent
establishment or a permanent representative in The Netherlands; and
(iii) such Notes form part of the assets of, and are not
otherwise attributable to an enterprise that is managed and controlled
in The Netherlands and to which all or a share of the profits thereof
the Holder of a note is directly entitled (the term directly means, in
this context, not as the beneficial owner of shares or similar
securities).
U.S. Tax Considerations
The following discussion, subject to the limitations set forth herein,
describes the material U.S. federal income tax considerations relevant to the
acquisition, ownership and disposition of Exchange Notes in general and in the
context of the Exchange Offer and is the opinion of Shearman & Sterling, special
tax counsel to the Company. This summary is based on the Internal Revenue Code
of 1986, as amended (the "Code"), existing and proposed Treasury regulations,
revenue rulings, administrative interpretations and judicial decisions (all as
currently in effect and all of which are subject to change, possibly with
retroactive effect). Except as specifically set forth herein, this summary deals
only with Exchange Notes held as capital assets by a U.S. Holder (as defined
below) within the meaning of Section 1221 of the Code. This summary does not
discuss all of the tax consequences that may be relevant to holders in light of
their particular circumstances or to holders subject to special tax rules, such
as insurance companies, financial institutions, dealers in securities or foreign
currencies, tax-exempt investors, persons holding the Exchange Notes as part of
a short-sale, hedging transaction, "straddle," conversion transaction or other
integrated transaction, U.S. Holders owning 10% or more of the stock of the
Company, or U.S. Holders whose functional currency (as defined in Section 985 of
the Code) is not the U.S. dollar. Persons considering the acquisition of the
Exchange Notes should consult with their own tax advisors with regard to the
application of the U.S. federal income tax laws to their particular situations
as well as any tax consequences of purchasing, holding and disposing of the
Exchange Notes, including the applicability and effect of the laws of any state,
local or foreign jurisdiction.
As used in this section "U.S. Tax Considerations," the term "U.S.
Holder" means a beneficial owner of a exchange note who or that is for U.S.
federal income tax purposes (i) a citizen or resident of the United States, (ii)
a corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) an
estate the income of which is subject to U.S. federal income taxation regardless
of its source, or (iv) a trust if both: (A) a U.S. court is able to exercise
primary supervision over the administration of the trust, and (B) one or more
U.S. persons have the authority to control all substantial decisions of the
trust.
General
Exchange Offer
An exchange of Notes for Exchange Notes pursuant to the Exchange Offer
will not be a taxable event for U.S. federal income tax purposes. The Exchange
Notes received by a Holder pursuant to the Exchange Offer generally will be
treated as a continuation of the Outstanding Notes in the hands of such Holder.
A U.S. Holder must continue to include original issue discount ("OID") on the
Exchange Notes and will have the same tax basis and holding period in the
Exchange Notes as the Outstanding Notes.
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The Notes
Under applicable authorities, the Exchange Notes should be treated as
indebtedness for U.S. federal income tax purposes. In the unlikely event the
Exchange Notes are treated as equity, the amount of any actual or constructive
Company distributions on any such Exchange Note would first be taxable to the
holder as dividend income to the extent of the issuer's current and accumulated
earnings and profits, and next would be treated as a return of capital to the
extent of the holder's tax basis in the Exchange Note, with any remaining amount
treated as gain from the sale of an Exchange Note. Moreover, in such event a
U.S. Holder would be subject to special U.S. federal income tax rules if the
Company were classified as a "passive foreign investment company" for U.S.
federal income tax purposes. This discussion assumes that the Exchange Notes
will constitute indebtedness of the Company for U.S. federal income tax
purposes.
Payment of Interest
Interest on the Exchange Notes will generally be taxable to a United
States Holder as ordinary income at the time it is paid or accrued in accordance
with the U.S. Holder's method of accounting for tax purposes. In addition to
interest on the Exchange Notes, a U.S. Holder will be required to include in
income Additional Amounts, if any, and withholding tax withheld by The
Netherlands or any other Relevant Taxing Jurisdiction from interest payments, if
any, notwithstanding that such withheld tax would not in fact be received by
such U.S. Holder. Thus, a U.S. Holder may be required to report income in an
amount greater than the cash received with respect of payments made on the
Exchange Notes. A U.S. Holder may be entitled to deduct or credit the amount of
any applicable withholding tax, subject to applicable limitations in the Code.
The rules governing the foreign tax credit are complex. Interest income on the
Exchange Notes generally will constitute foreign source income and generally
will be considered "passive" income (or "high withholding tax interest" if the
applicable withholding tax is imposed at a rate of 5% or more) or "financial
services" income for foreign tax credit purposes. Prospective investors should
consult their own tax advisors concerning the application of the foreign tax
credit rules to their particular circumstances.
The Outstanding Notes were issued with OID and this OID will carryover
to the Exchange Notes. As such, regardless of their method of tax accounting,
U.S. Holders of the Exchange Notes will be required to include in gross income
for U.S. federal income tax purposes an amount equal to the sum of "daily
portions" of OID on an Exchange Note attributable to each day during the taxable
year on which the U.S. Holder holds the Exchange Note as such OID accrues, in
accordance with a constant yield method based on a compounding of interest,
before the receipt of cash payments attributable to such OID. Under this method,
U.S. Holders of the Exchange Notes generally will be required to include in
gross income increasingly greater amounts of OID in successive accrual periods,
with a corresponding increase in their tax basis in the Exchange Note for the
amounts so included.
Dispositions
Upon the sale, exchange or retirement of an Exchange Note, a U.S.
Holder will recognize taxable gain or loss in an amount equal to the difference,
if any, between such holder's adjusted tax basis in such Exchange Note and the
amount realized on such sale, exchange or retirement. Gain or loss recognized by
a U.S. Holder on the sale, exchange or retirement of an Exchange Note generally
will be capital gain or loss (except with respect to amounts received upon a
disposition attributable to accrued but unpaid interest, which will be taxable
as ordinary income). For certain noncorporate taxpayers (including individuals),
such gain will be eligible to be taxed at a preferential rate if the U.S.
Holder's holding period for the Exchange Notes exceeds one year. Prospective
investors should consult their own tax advisors with respect to the effect of
the capital gains provisions of the Code. The deductibility of capital losses is
subject to limitations. Further, gain realized by a U.S. Holder on the sale,
exchange or any other disposition of an Exchange Note will generally be treated
as United States source income and, under recently issued Treasury regulations,
a loss on such disposition also would be allocated to reduce U.S. source income,
subject ot applicable limitations.
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As a result of certain limitations on the U.S. foreign tax credit under
the Code, a U.S. Holder may not be able to claim a U.S. foreign tax credit for
Netherlands withholding taxes, if any, imposed on the proceeds received upon the
sale, exchange, repurchase by the Company or other disposition of Exchange
Notes. Prospective investors should consult their own tax advisors concerning
the application of the U.S. foreign tax credit rules to their particular
situations.
Backup Withholding
"Backup" withholding and information reporting requirements may apply
to certain payments of principal and interest on an Exchange Note and to certain
payments of proceeds of the sale or retirement of an Exchange Note. The Company,
its agent, a broker, the Trustee or any paying agent, as the case may be, will
be required to withhold tax from any payment that is subject to backup
withholding at a rate of 31.0% of such payment if the U.S. Holder fails to
furnish his taxpayer identification number (social security number or employer
identification number), to certify that such U.S. Holder is not subject to
backup withholding, or to otherwise comply with the applicable requirements of
the backup withholding rules. Certain U.S. Holders (including, among others, all
corporations) are not subject to the backup withholding and reporting
requirements. Any amounts withheld under the backup withholding rules from a
payment to a U.S. Holder generally may be claimed as a credit against such
holder's U.S. federal income tax liability provided that the required
information is furnished to the Internal Revenue Service.
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PLAN OF DISTRIBUTION
Based on positions taken by the staff of the Commission set forth in
no-action letters issued to Exxon Capital Holdings Corp. and Morgan Stanley &
Co. Inc., among others, the Company believes that Exchange Notes issued pursuant
to the Exchange Offer in exchange for Outstanding Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) a broker-dealer who acquired Notes directly from
the Company, or (iii) broker-dealers who acquired Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions for the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes, provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the staff of the Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Outstanding Notes to the Initial
Purchasers thereof) with the Prospectus contained in the Registration Statement.
Pursuant to the Registration Rights Agreement, the Company has agreed to permit
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such Exchange Notes. The Company has agreed that, for a period of 180
days after the Exchange Offer has been consummated, it will make this
Prospectus, and any amendment or supplement to this Prospectus, available to any
broker-dealer that requests such documents in the Letter of Transmittal.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer". In
addition, each holder who is a broker-dealer and who receives Exchange Notes for
its own account in exchange for Outstanding Notes that were acquired by it as a
result of market-making activities or other trading activities, will be required
to acknowledge that it will deliver a prospectus in connection with any resale
by it of such Exchange Notes.
Holders who tender Outstanding Notes in the Exchange Offer with the
intention to participate in a distribution of the Exchange Notes may not rely
upon the Exxon Capital Holdings Corp., the Morgan Stanley & Co. Inc. or similar
no-action letters.
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange
Offer other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Outstanding Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act, as
set forth in the Registration Rights Agreement.
107
<PAGE>
LEGAL MATTERS
Certain legal matters regarding the validity of the Exchange Notes
offered hereby and the United States federal income tax consequences of the
Exchange Offer will be passed upon for the Company by Shearman & Sterling.
Certain matters of Netherlands corporate law will be passed upon for the Company
by Stibbe Simont Monahan Duhot, Amsterdam, The Netherlands.
INDEPENDENT AUDITORS
The financial statements of VersaTel as of December 31, 1997 and 1996,
and for each of the two years in the period ended December 31, 1997 included in
this Prospectus, have been audited by Arthur Andersen, independent auditors, as
set forth in their report appearing elsewhere herein.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form F-4 under the Securities Act with respect to the Exchange Notes offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
Exchange Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of certain documents are not
necessarily complete, and, in each instance, reference is made to the copy of
the document filed as an exhibit to the Registration Statement, and each such
statement is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such financial information includes annual reports containing
consolidated financial statements and notes thereto, together with an opinion
thereon expressed by an independent public accounting firm, as well as quarterly
reports containing unaudited consolidated financial statements for the first
three quarters of each fiscal year. The Registration Statement, as well as such
other information, when so filed, can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; and at the Commission's regional offices
at Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661-2511, and Seven World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained from the Commission at prescribed
rates through its Public Reference Section at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the Company will file periodic
reports and other filings with the Commission through its Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system, which will be publicly
available through the Commission's site on the Internet's World Wide Web located
at http://www.sec.com. The Company will also make such reports available to
prospective purchasers of the Exchange Notes, securities analysts and
broker-dealers upon their request. The Company will also make available such
reports at the office of the paying agent in Luxembourg when the Notes are
listed on the Luxembourg Stock Exchange. As a foreign private issuer, the
Company is exempt from certain provisions of the Exchange Act prescribing the
furnishing and content of proxy statements to shareholders and relating to
short-swing profits reporting and liability.
108
<PAGE>
GENERAL LISTING INFORMATION
Listing
Application will be made to list the Exchange Notes on the Luxembourg
Stock Exchange. The Articles of Association of the Company and the legal notice
relating to the issue of the Notes will be deposited prior to the listing with
the Registrar of the District Court in Luxembourg (Greffier en Chef du Tribunal
d'Arrondissement a Luxembourg), where such documents are available for
inspection and where copies thereof can be obtained upon request. As long as the
Exchange Notes are listed on the Luxembourg Stock Exchange, an Agent for making
payments on, and transfers of, the Exchange Notes will be maintained in
Luxembourg.
Comments
The Company has obtained all necessary consents, approvals and
authorizations in connection with the issue of the Notes. The issue of the Notes
was authorized by resolutions of the Supervisory Board on the Company passed on
December 3, 1998.
No Material Change
Except as disclosed in this Prospectus, there has been no material
change in the financial position of the Company since September 30, 1998 and no
material adverse change in the financial position or prospects of the Company
since September 30, 1998.
Litigation
The Company is not involved in any litigation or arbitration
proceedings which relate to claims or amounts which are material in the context
of the issue of the Notes or that may have, or have had during the 12 months
preceding the date of this Prospectus, a material adverse effect on the
financial position of the Company, nor, so far as any of them is aware, is any
such proceeding pending or threatened.
Auditors
The consolidated accounts of the Company for the two years ended
December 31, 1997 have been prepared in accordance with United States generally
accepted accounting principles ("U.S. GAAP") and have been audited by Arthur
Andersen in accordance with U.S. GAAP. The unaudited consolidated interim
accounts for the nine months ended September 30, 1997 and 1998 were prepared in
accordance with U.S. GAAP. Arthur Andersen has given and not withdrawn its
written consent to the issue of this Prospectus with the inclusion in it of
their report in the form and context in which it is included.
Documents Available
Copies of the following documents may be inspected at the specified
office of the Paying and Transfer Agent in Luxembourg.
o Articles of Association of the Company;
o the Registration Rights Agreement relating to the Outstanding
Notes;
o the Indenture relating to the Notes (which includes the form
of the Note certificates); and
o the Escrow Agreement.
109
<PAGE>
In addition, copies of the most recent consolidated financial
statements of the Company for the preceding financial year, and any interim
quarterly financial statements published by the Company, will be available at
the specified office of the Paying and Transfer Agent in Luxembourg for as long
as the Exchange Notes are listed on the Luxembourg Stock Exchange.
Clearing Systems
The CUSIP number for the Notes distributed pursuant to Rule 144A
represented by the 144A Global Note is 925301 AF 0. The CUSIP number for the
Notes distributed pursuant to Regulation S is N 93195 AD 2. The CUSIP number for
the Exchange Notes is 925301 AG 8.
Notices
All notices shall be deemed to have been given upon (i) the mailing by
first class mail, postage prepaid, of such notices to Holders of the Notes at
their registered addresses as recorded in the Register; and (ii) so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange and it is required by
the rules of the Luxembourg Stock Exchange, publication of such notice to the
Holders of the Notes in English in a leading newspaper having general
circulation in Luxembourg (which is expected to be the Luxembourg Wort) or, if
such publication is not practicable, in one other leading English language daily
newspaper with general circulation in Europe, such newspaper being published on
each Business Day in morning editions, whether or not is shall be published in
Saturday, Sunday or holiday editions.
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants................................................................. F-2
Balance Sheets as of December 31, 1996 and 1997.......................................................... F-3
Statements of Operations for the Years Ended December 31, 1996 and 1997.................................. F-4
Statements of Shareholders' Equity for the Years Ended December 31, 1996 and 1997........................ F-5
Statements of Cash Flows for the Years Ended December 31, 1996 and 1997.................................. F-6
Notes to Financial Statements............................................................................ F-7
Balance Sheets as of September 30, 1997 and 1998......................................................... F-14
Statements of Operations for the Nine Month Periods Ended September 30, 1997 and 1998.................... F-15
Statements of Cash Flows for the Nine Month Periods Ended September 30, 1997 and 1998.................... F-16
Notes to Interim Financial Statements.................................................................... F-17
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VersaTel Telecom B.V.
We have audited the balance sheets as of December 31, 1996 and 1997 of
VERSATEL TELECOM B.V. and the statements of operations, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in The Netherlands which do not differ in any significant respect from
United States generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of VersaTel Telecom
B.V. as of December 31, 1996 and 1997 and the result of its operations and its
cash flows for the years then ended, in conformity with United States generally
accepted accounting principles.
ARTHUR ANDERSEN
Amsterdam, The Netherlands
May 20, 1998
F-2
<PAGE>
VERSATEL TELECOM B.V.
BALANCE SHEETS
December 31, 1996 and 1997
1996 1997
------ ------
NLG NLG
ASSETS
Current Assets:
Cash.......................................................................... 4,290,119 1,345,981
Current portion of restricted cash............................................ 100,000 75,980
Accounts receivable, net of allowance for doubtful accounts of
NLG 30,000 and NLG 65,000, respectively.................................... 1,209,224 1,804,373
Inventory..................................................................... 135,411 417,572
Prepaid expenses and other.................................................... 32,472 1,995,251
------------ ------------
Total current assets....................................................... 5,767,226 5,639,157
---------- ------------
Restricted Cash, net of current portion......................................... 53,157 72,932
------------ --------------
Property and Equipment, net..................................................... 2,339,550 13,619,207
---------- -----------
Total assets.......................................................... 8,159,933 19,331,296
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................................. 1,957,993 20,674,434
Due to related parties........................................................ 217,987 248,525
Accrued liabilities........................................................... 1,652,704 7,690,886
Current portion of deferred income............................................ -- 98,434
Current portion of capital lease obligations.................................. 252,895 278,661
----------- -----------
Total current liabilities.................................................. 4,081,579 28,990,940
----------- -----------
Deferred Income, net of current portion......................................... -- 341,648
----------- -----------
Capital Lease Obligations, net of current portion............................... 327,013 107,813
----------- -----------
Subordinated Convertible Shareholder Loans...................................... 3,605,000 8,105,000
----------- -----------
Shareholders' Equity:...........................................................
Ordinary Shares, NLG 0.10 par value, 44,550,000 shares
authorized, 8,910,000 issued and outstanding at December 31,
1996 and 9,579,643 issued and outstanding at December 31,
1997....................................................................... 891,000 957,964
Additional paid-in capital.................................................... 4,603,975 6,037,011
Accumulated deficit........................................................... (5,348,634) (25,209,080)
---------- -----------
Total shareholders' equity................................................. 146,341 (18,214,105)
----------- -----------
Total liabilities and shareholders' equity............................ 8,159,933 19,331,296
========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-3
<PAGE>
VERSATEL TELECOM B.V.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996 and 1997
1996 1997
------ -----
NLG NLG
OPERATING REVENUES 6,428,178 18,895,766
OPERATING EXPENSES:
Cost of Revenues, excluding depreciation........... 4,953,829 17,405,302
Selling, general and administrative................ 5,485,159 17,526,930
Depreciation....................................... 453,165 3,236,784
---------- -----------
Total operating expenses........................ 10,892,153 38,169,016
---------- -----------
Operating loss............................. (4,463,975) (19,273,250)
---------- -----------
OTHER INCOME (EXPENSES):
Foreign currency exchange losses, net.............. -- (52,618)
Interest income.................................... 3,980 20,686
Interest expense-- third parties................... (24,584) (41,283)
Interest expense-- related parties................. (248,882) (513,981)
---------- -----------
(269,486) (587,196)
Net loss................................... (4,733,461) (19,860,446)
========== ===========
NET LOSS PER SHARE (Basic and Diluted)............... (0.95) (2.20)
Weighted average number of shares outstanding...... 5,004,247 9,042,094
The accompanying notes are an integral part of these
financial statements.
F-4
<PAGE>
VERSATEL TELECOM B.V.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
Number
of
shares Ordinary Additional Accumulated
outstanding shares capital deficit Total
----------- -------- --------- ---------- ----------
NLG NLG NLG NLG
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 4,950,000 495,000 -- (615,173) (120,173)
Shareholder contributions............ 3,960,000 396,000 4,603,975 -- 4,999,975
Net loss............................. -- -- (4,733,461) (4,733,461)
--------- ------- --------- ---------- -----------
Balance, December 31, 1996............. 8,910,000 891,000 4,603,975 (5,348,634) 146,341
Shareholder contributions............ 669,643 66,964 1,433,036 -- 1,500,000
Net loss............................. -- -- (19,860,446) (19,860,446)
--------- ------- --------- ----------- -----------
Balance, December 31, 1997............. 9,579,643 957,964 6,037,011 (25,209,080) (18,214,105)
========= ======= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-5
<PAGE>
VERSATEL TELECOM B.V.
STATEMENTS OF CASH FLOWS For The
Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
------ -----
NLG NLG
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss......................................................................... (4,733,461) (19,860,446)
Adjustments to reconcile net loss to net cash used in operating
activities --
Depreciation.................................................................. 453,165 3,236,784
Restricted cash............................................................... -- 4,245
Deferred income............................................................... -- 440,082
Changes in other operating assets and liabilities
Accounts receivable........................................................... (1,157,287) (595,149)
Inventory..................................................................... (113,595) (282,161)
Prepaid expenses and other.................................................... 329,947 1,962,779)
Accounts payable.............................................................. 1,753,825 18,716,441
Due to related parties........................................................ 217,987 30,538
Accrued liabilities........................................................... 1,530,958 6,038,182
----------- -----------
Net cash provided by (used in) operating activities...................... (1,718,461) 5,765,737
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures............................................................. (2,569,171) (14,516,441)
----------- ------------
Cash Flows from Financing Activities:
Proceeds (redemptions) from capital lease obligations............................ 421,284 (193,434)
Proceeds from subordinated convertible shareholder loans......................... 3,150,000 4,500,000
Shareholder contributions........................................................ 4,999,975 1,500,000
----------- ------------
Net cash provided by financing activities................................ 8,571,259 5,806,566
----------- ------------
Net Increase (Decrease) in Cash.................................................... 4,283,627 (2,944,138)
Cash, beginning of the year........................................................ 6,492 4,290,119
----------- ------------
Cash, end of the year.............................................................. 4,290,119 1,345,981
=========== ============
Supplemental Disclosures of Cash Flow Information:
Cash paid for --
Interest (net of amounts capitalized)......................................... 96,189 510,208
Income taxes.................................................................. -- --
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-6
<PAGE>
VERSATEL TELECOM B.V.
NOTES TO FINANCIAL STATEMENTS
1. General
VersaTel Telecom B.V. ("VersaTel" or the "Company"), incorporated in
Amsterdam on October 10, 1995, provides international and national
telecommunication services in The Netherlands.
2. Financial Condition and Operations
For the year ended December 31, 1997, the Company had a loss from
operating activities of NLG 19,273,250 and negative working capital of NLG
23,351,783 at December 31, 1997. In addition, the Company had an accumulated
deficit of NLG 25,209,080 as of December 31, 1997. The Company expects to incur
operating losses and net losses for the foreseeable future as it incurs
additional costs associated with the development and expansion of the Company's
network, the expansion of its marketing and sales organization and the
introduction of new telecommunications services. In addition, prices in the
telecommunications industry in Europe have declined in recent years and, as
competition continues to increase, the Company expects that prices will continue
to decline. Management of the Company believes that the Company will be able to
borrow additional financing in order to develop its network, thereby increasing
its traffic volume. Also, management believes that it is able to reduce the cost
of providing telecommunication services, commensurate with the decline of the
prices. To sustain its current level of operations and fund its negative working
capital requirements as of December 31, 1997, management has obtained necessary
financial support commitments from certain of its existing shareholders to
enable it to continue its operations through December 31, 1998. See also Note
19. (Subsequent events.)
3. Significant Accounting Principles
(a) Basis of Financial Statements
The Company maintains its accounts under Dutch tax and corporate
regulations and has made certain out-of- book memorandum adjustments to these
records presenting the accompanying financial statements in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP").
(b) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(c) Foreign Currency Transactions
The Company's functional currency is the Dutch guilder. Transactions
involving other currencies are converted into Dutch guilders using the exchange
rates which are in effect at the time of the transactions.
At the balance sheet date, monetary assets and liabilities which are
denominated in other currencies are adjusted to reflect the current exchange
rates. Gains or losses resulting from foreign currency remeasurements are
reflected in the accompanying statements of operations. In 1996, these gains or
losses were not material.
F-7
<PAGE>
(d) Inventory
Inventory, consisting primarily of dialers to be installed at customer
locations, is stated at the lower of cost (first-in, first-out) or market value.
Dialers installed at customer locations remain the Company's property and are
capitalized under property and equipment as telephony equipment and are
depreciated on a straight-line basis in 2 or 3 years. The cost of installing
these dialers at customer locations is also capitalized and amortized over the
lifetime of the dialers.
(e) Pensions and Post Retirement Benefits
Effective January 1, 1996, the Company adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post Retirement Benefits."
Under this Statement certain disclosures should be made related to pensions and
post retirement benefits. The Company has no pension plan or other post
retirement benefit and an analysis made by management indicated that no
additional disclosure is required.
(f) Advertising Expenses
Advertising costs are expensed as incurred.
The expenses related to direct-mail and other marketing methods are
expensed when incurred and included in the advertising expenses.
(g) Recognition of Operating Revenues and Cost of Revenues
Operating revenues are recognized when the service is rendered. Cost of
revenues is recorded in the same period as the revenues are recorded. In order
to properly match the cost of revenues with the associated revenues, these costs
are accrued in the balance sheet under accrued liabilities.
Origination costs billed directly to customers by the PTT (applicable
in the case of the DISA code) are not included in the revenues of the Company.
The Company does reimburse these costs to its customers by means of a credit to
the customer's account. This credit is recorded as cost of revenues.
The cost of telecommunication usage charged by the third party carriers
to the Company in connection with the telecommunication services rendered by the
Company to its customers, as well as other telecommunication costs, including
leased lines, are included in cost of revenues.
The Company did not incur any material upfront expenses in concluding
inter connection and national and international carriers agreements. All
expenses incurred on an ongoing basis as a result of these agreements are
expensed as incurred.
The expenses incurred as a result of obtaining licenses are expensed as
incurred.
(h) Statement of Financial Accounting Standards ("SFAS") No. 131
"Disclosures about Segments of an Enterprise and Related Information"
has been issued and is effective for fiscal years beginning after December 15,
1997. SFAS No. 131 requires certain disclosures about business segments of an
enterprise, if applicable. The adoption of SFAS No. 131 is not expected to have
a significant effect on the Company's financial statements or disclosures.
F-8
<PAGE>
4. Restricted Cash
Restricted cash balances of NLG 153,157 and NLG 148,912 at December 31,
1996 and 1997, respectively, include mainly amounts restricted in connection
with bank guarantees given to lessors of the Company's buildings.
The restriction on cash terminates upon cancellation of the lease
agreements for the respective buildings. One of the leases will be terminated in
1998, and the restricted balance related to this lease of NLG 75,980 has been
classified under current assets. The remaining leases, which have restricted
balances of NLG 72,932, will terminate in 2001.
5. Prepaid Expenses and Other
Included in this caption as of December 31, 1997 is an amount
of NLG 1,563,644 related to Tax on Value Added.
6. Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on a straight-line basis over the
estimated useful life of the related asset. Property and equipment operated by
the Company under a capital lease agreement are capitalized.
Listed below are the major classes of property and equipment and their
estimated useful lives in years as of December 31, 1996 and 1997:
Useful Life 1996 1997
----------- ------ ------
NLG NLG
Leasehold improvements.................. 5 40,050 911,092
Telecommunications equipment............ 2-10 2,375,755 14,749,839
Other................................... 3-5 388,173 1,546,392
----------- -----------
Property and equipment................ 2,803,978 17,207,323
Less: Accumulated depreciation........ 464,428 3,588,116
----------- -----------
Property and equipment, net........... 2,339,550 13,619,207
=========== ===========
Presented under deferred income is cash received in connection with the
sublease by the company of part of its building. The received amount is released
to the income statement over the period of the sublease.
The short-term portion of the deferred income is presented under
short-term liabilities.
7. Long-Lived Assets
Effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance
with SFAS No. 121, long-lived assets to be held and used by the Company are
reviewed to determine whether any events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. For long-lived
assets to be held and used, the Company bases its evaluation on such impairment
indicators as the nature of the assets, the future economic benefit of the
assets, any historical or future profitability measurements, as well as other
external market conditions or factors that may be present. If such impairment
indicators are present or other factors exist that indicate that the carrying
amount of the asset may not be recoverable, the Company determines whether an
impairment has occurred through the use of an undiscounted cash flow analysis of
assets at the lowest level for which identifiable cash flows exist. If an
impairment has occurred, the Company recognizes a loss for the difference
between the carrying amount and the estimated value of the asset. The fair value
of the asset is measured using quoted market prices or, in the absence of quoted
market prices, fair value is based on an estimate of discounted
F-9
<PAGE>
cash flow analysis. During the years ended December 31, 1996 and 1997 the
Company's analyses indicated that there was not an impairment of its long-lived
assets.
8. Accrued Liabilities
The accrued liabilities per December 31, 1997 and 1996 are built up as
follows:
1996 1997
--------- ---------
NLG NLG
Accrued traffic cost.............................. 4,733,579 905,569
Other (all individually under 5%)................. 2,957,307 747,135
--------- ---------
7,690,886 1,652,704
========= =========
9. Capital Lease Obligations
The Company entered into a master lease agreement with a finance
company to lease certain telecommunications and EDP equipment. Commitments for
minimum rentals under non-cancellable leases at the end of 1997 are as follows:
Capitalized Leases
------------------
1998................................................... NLG 298,167
1999................................................... 80,433
2000................................................... 20,315
2001................................................... 23,761
2002................................................... 3,997
-----------
Total minimum lease payments........................... 426,673
Less amount representing interest...................... 40,199
-----------
Present value of net minimum lease payments,
including current maturities of NLG 278,661.......... NLG 386,474
===========
Property, plant and equipment at year-end include the following amounts
for capitalized leases:
1997 1996
------------ -----------
Telecommunications equipment....................... NLG 819,840 NLG 770,000
Other.............................................. 27,860 --
----------- -----------
847,700 770,000
Less allowances for depreciation................... 461,226 190,092
----------- -----------
NLG 386,474 NLG 579,908
10. Subordinated Convertible Shareholder Loans
The Company had subordinated convertible shareholder loans with
outstanding balances of NLG 3,605,000 at December 31, 1996 and NLG 8,105,000 at
December 31, 1997. The loans bear interest at a rate of 10.0% per annum. The
loans will be repaid in quarterly installments, commencing September 30, 1998 to
June 30, 2001. The Company's creditors are entitled to convert NLG 3,605,000 of
the subordinated convertible shareholder loans to Ordinary Shares at a rate of
NLG 7.69 per share of the outstanding principal amount in the following
situations:
o Default on interest payments or repayments;
o Sale by the Company of (all or a portion of) the operating
activities, without the consent of the creditor;
F-10
<PAGE>
o Bankruptcy or voluntary termination of the Company.
The subordinated convertible shareholder loan obtained during 1997 of
which NLG 4,500,000 was outstanding as at December 31, 1997, can be converted by
the creditor at a rate of NLG 3.36, of the outstanding principal amount at any
time during the period between December 1, 1997 and June 20, 1998. Any unpaid
amounts as at June 20, 1998 will be automatically converted into Ordinary Shares
at the rate of NLG 3.36 per share.
The subordinated convertible shareholder loans have been converted into
Ordinary Shares subsequent to December 31, 1997. See Note 19. (Subsequent
Events.)
11. Net Loss Per Share
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, "Earnings per Share" ("SFAS 128"). The Company adopted
SFAS 128 for the year ended December 31, 1997. SFAS 128 replaced the primary
earnings per share calculation with a basic earnings per share calculation and
modified the calculation of diluted earnings per share. Adoption of SFAS 128 did
not affect the calculation of net loss per share for the Company. Diluted net
loss per share is calculated by dividing net loss by the weighted average number
of shares outstanding and dilutive stocks outstanding, calculated under the
treasury stock method. Because the Company has operating losses since inception,
options are anti-dilutive.
12. Employee Benefit Plans
(a) 1997 Stock Option Plan
In December 1996, the shareholders approved the 1997 Stock Option Plan
(the "1997 Plan"). The 1997 Plan provides for the grant of options to certain
key employees of the Company to purchase depositary receipts issued for Ordinary
Shares of the Company. Under the 1997 Plan, no options may be granted with an
expiration date of more than five years after the granting of the option. The
options will be granted for free with an exercise price to be determined in the
particular grant of the option.
The option holder is not entitled to retain any depositary receipts
received by the option holder as a result of the exercise of its option. Upon
exercise of its option by the option holder, the option holder is required to
offer the depositary receipts received by it to the Company or to another party
designated by the Company, at the Purchase Price (as defined in the 1997 Plan).
Unless otherwise specified in the particular grant of the option, the Purchase
Price will be the fair market value of the Ordinary Shares minus a penalty
discount. The 1997 Plan contains provisions in the event of a dispute regarding
the fair market value of the Ordinary Shares. The penalty discount, if any, is
determined by the length of employment of the particular option holder.
Pursuant to the Shareholders' Agreement, Telecom Founders, Cromwilld
and NeSBIC must make available the shares underlying the depositary receipts to
be issued under the 1997 Plan.
As of May 20, 1998, 199,000 options to purchase 199,000 depositary
receipts had been granted under the 1997 Plan and the Company does not intend to
grant any more options under the 1997 Plan.
The Company accounts for the 1997 Plan under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for stock
options awarded under these plans been determined consistent with FASB Statement
No. 123, the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
F-11
<PAGE>
1997
------------
NLG
Net Loss:...................................... As reported (19,860,446)
Pro forma (19,886,957)
Net loss per share (basic and diluted):........ As reported (2.20)
Pro forma (2.20)
Of the 199,000 options outstanding at December 31, 1997, 149,500 have
exercise and weighted average exercise prices of NLG 1.26 and a weighted average
remaining contract life of 4.5 years. All of these options are exercisable. Of
the remaining 49,500 options outstanding at December 31, 1997, 49,500 have
exercise and weighted average exercise prices of NLG 0.59 and a weighted average
remaining contract life of 4.0 years. All of these options are exercisable.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for fiscal 1997: risk free rate of 5.75%; expected dividend
yield of 0.00%; expected life of 5 years; and expected volatility of 0.00%.
The fair value of the depository receipts at the date of the grant
equals the exercise price of the options granted under the 1997 Stock Option
Plan.
(b) 1998 Stock Option Plan
In March 1998, the shareholders approved the 1998 Stock Option Plan
(the "1998 Plan"). The 1998 Plan provides for the grant of options to employees
to purchase depositary receipts issued for Ordinary Shares of the Company. The
option period will commence at the date of the grant and will last five years.
The option exercise price shall be the economic value of the depositary receipt
at the date of the grant of the option. The 1998 Plan contains specific
provisions for the determination of the economic value of the depositary
receipts.
The option holder is not entitled to retain any depositary receipts
received by the option holder as a result of the exercise of its option. Upon
exercise of its option by the option holder, the option holder is required to
offer the depositary receipts received by it, within one year after the end of
the option period, to the Company or to another party designated by the Company,
at a purchase price equal to the economic value of the depositary receipts.
As of May 20, 1998, 2,175,000 options to purchase 2,175,000 have been
granted under the 1998 Plan and the Company estimates to grant a total of
2,500,000 options to purchase 2,500,000 depositary receipts under the 1998 Plan.
The fair value of the depository receipts at the date of the grant
equals the exercise price of the options granted under the 1998 Stock Option
Plan. This value was based on recent transactions conducted on an at arm's
length basis, with third parties becoming shareholders.
The depositary receipts issued under both the 1997 Plan and the 1998
Plan will be administered by the Stichting Administratiekantoor VersaTel.
13. Taxes
The Company had income tax carry-forwards of NLG 1,872,022 at December
31, 1996 and NLG 8,193,178 at December 31, 1997, which may be utilized to reduce
future income taxes payable.
The income tax carry-forwards do not expire and can be utilized
indefinitely under Netherlands tax legislation. A valuation allowance has been
established for the entire amount of the Net Operating Loss carry-forwards due
to the uncertainty of its recoverability.
F-12
<PAGE>
There were no significant temporary differences which gave rise to
deferred tax assets and liabilities at December 31, 1996 or 1997.
14. Advertising Expenses
The total amount of advertising expenses was NLG 3,743,285 for the year
ended December 31, 1997. The comparable expenses for the year ended December 31,
1996 amounted to NLG 1,589,815.
15. Related Party Transactions
At December 31, 1996 and 1997, the Company had various accounts payable
to and accruals outstanding relating to related parties. These relate mainly to
interest payable on the subordinated convertible shareholder loans of
approximately NLG 174,000 and NLG 199,000 at December 31, 1996 and 1997.
16. Credit Facilities
The Company maintains a credit facility under which it can borrow up to
NLG 100,000. As of December 31, 1996 and 1997, no amounts were outstanding under
this credit facility.
17. Rent and Operating Lease Commitments
Future minimum commitments in connection with rent and other operating
lease agreements are as follows at December 31, 1997:
1998.................................................. NLG 1,828,000
1999.................................................. 1,461,000
2000.................................................. 1,331,000
2001.................................................. 371,000
2002.................................................. 4,000
Rent and operating lease expenses amounted to approximately NLG 271,000
in 1996 and NLG 585,000 in 1997.
18. Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments
whether or not recognized in the balance sheet. The carrying amounts reported in
the consolidated balance sheets for cash, trade receivables, accounts payable
and accrued expenses approximate fair value based on the short-term maturity of
these instruments. The carrying amount of the Company's borrowings under the
long-term debt agreements approximates fair value as the interest rates on these
long term debts approximates the current market interest rates.
19. Subsequent Events
Subsequent to December 31, 1997 the Company received additional
shareholder contributions of NLG 35,000,000. Furthermore, subordinated
convertible shareholder loans were converted into common stock for a total
amount of NLG 8,105,000.
F-13
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
BALANCE SHEETS
September 30, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
------ ------
NLG NLG
ASSETS
<S> <C> <C>
Current Assets:
Cash.......................................................... 1,757,990 239,647,819
Current portion of restricted cash............................ 13,825 --
Accounts receivable, net of allowance for doubtful accounts... 2,150,661 5,898,552
Inventory..................................................... 518,435 1,128,695
Prepaid expenses and other.................................... 2,563,956 3,307,981
------------ -----------
Total current assets....................................... 7,004,867 249,983,047
------------ -----------
Restricted Cash, net of current portion......................... -- 155,517,867
------------ -----------
Capitalized finance costs, net.................................. -- 19,333,330
------------ -----------
Property and Equipment, net..................................... 6,339,057 23,161,261
------------ -----------
Construction in progress........................................ -- 10,406,731
------------ -----------
Goodwill........................................................ -- 1,477,582
------------ -----------
Total assets............................................... 13,343,924 459,879,818
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................. 11,590,947 11,443,960
Due to related parties........................................ -- --
Accrued liabilities........................................... 4,952,252 34,924,226
Current portion of deferred income............................ -- 157,003
Current portion of capital lease obligations.................. 274,644 325,346
------------- -----------
Total current liabilities.................................. 16,817,843 46,850,535
------------- -----------
Deferred Income, net of current portion......................... -- --
------------- -----------
Capital Lease Obligations, net of current portion............... 179,002 --
------------- -----------
Subordinated Convertible Shareholder Loans...................... 5,605,000 --
------------- -----------
Long Term Debt (131/4% Senior Notes)............................. -- 422,539,286
------------- -----------
Shareholders' Equity:
Ordinary Shares, NLG 0.10 par value, 44,550,000 shares
authorized,
8,910,000 issued and outstanding at September 30, 1997 and 891,000 1,942,741
19,427,405 issued and outstanding at September 30, 1998....
Additional paid-in capital.................................... 4,603,975 50,786,536
Warrants...................................................... -- 3,341,000
Accumulated deficit........................................... (14,752,896) (65,580,280)
------------- -----------
Total shareholders' equity................................. (9,257,921) (9,510,003)
------------- -----------
Total liabilities and shareholders' equity................. 13,343,924 459,879,818
============= ===========
</TABLE>
F-14
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
STATEMENTS OF OPERATIONS For the
Nine Month Periods Ended September 30, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
------------ -----------
NLG NLG
<S> <C> <C>
OPERATING REVENUES........................................................ 14,262,632 25,880,335
OPERATING EXPENSES:
Cost of revenues, excluding depreciation and amortization 11,169,554 21,120,277
Selling, general and administrative..................................... 10,929,293 30,001,986
Depreciation and amortization........................................... 1,238,377 4,913,693
------------ -----------
Total operating expenses............................................. 23,337,224 56,035,956
------------ -----------
Operating loss....................................................... (9,074,592) (30,155,621)
------------ -----------
OTHER INCOME (EXPENSES):
Currency exchange gain.................................................. 6 4,747,232
Interest income......................................................... 20,686 8,143,802
Interest expense--third parties......................................... (34,424) (20,296,407)
Interest expense--related parties....................................... (315,939) (2,810,398)
------------ -----------
(329,671) (10,215,771)
------------ -----------
Net loss............................................................. (9,404,263) (40,371,392)
============ ===========
NET LOSS PER SHARE (Basic and Diluted).................................... (1.06) (2.65)
Weighted average number of shares outstanding............................. 8,910,000 15,247,579
</TABLE>
F-15
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended September 30, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
------ -----
NLG NLG
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. (9,404,263) (40,371,392)
Adjustments to reconcile net loss to net cash used in operating
activities --
Depreciation and amortization..................................... 1,238,377 4,913,693
Restricted cash................................................... 139,332 (155,368,955)
Deferred income................................................... -- (283,079)
Currency translation adjustment................................... -- 192
Changes in other operating assets and liabilities
Accounts receivable............................................... (941,437) (4,094,179)
Inventory......................................................... (383,024) (711,123)
Prepaid expenses and other........................................ (2,531,483) (1,312,730)
Accounts payable.................................................. 9,632,954 (9,230,474)
Due to related parties............................................ (217,987) (248,525)
Accrued liabilities............................................... 3,299,548 27,233,340
------------ -------------
Net cash provided by (used in) operating activities.......... 832,017 (179,473,232)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................. (5,237,884) (24,075,808)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (redemptions) from capital lease obligations................ (126,262) (61,128)
Proceeds from subordinated convertible shareholder loans............. 2,000,000 (8,105,000)
Finance costs, net................................................... -- (20,000,000)
Proceeds from senior notes........................................... -- 422,539,286
Shareholder contributions............................................ -- 49,075,302
Goodwill paid on acquisition......................................... -- (1,597,582)
------------ -------------
Net cash provided by financing activities.................... 1,873,738 441,850,878
------------ -------------
NET INCREASE (DECREASE) IN CASH........................................ (2,532,129) 238,301,838
CASH, beginning of the year............................................ 4,290,119 1,345,981
------------ -------------
CASH, end of the year.................................................. 1,757,990 239,647,819
============ =============
</TABLE>
F-16
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V. AND ITS SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
As of September 30, 1998 and for the Nine
Month Periods Ended September 30, 1997 and 1998
(All Amounts Expressed in Dutch Guilders)
1. Financial Presentation and Disclosures
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of VersaTel Telecom International N.V.,
formerly known as VersaTel Telecom B.V., and its wholly-owned subsidiaries (the
"Company") have been prepared in conformity with US generally accepted
accounting principles ("US GAAP") and contain all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the Company's
consolidated financial position as of September 30, 1998, and the results of
operations and cash flows for the three months and nine months ended September
30, 1997 and 1998.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the Company's 1997 audited financial
statements and the notes related thereto. The results of operations for the nine
months period ended September 30, 1998 may not be indicative of the operating
results for the full year.
As of September 30, 1998, the Company wholly-owned the following
subsidiaries:
-- VersaTel Telecom Europe B.V.
-- VersaTel Telecom Netherlands B.V.
-- VersaTel Telecom Belgium N.V.
-- Bizztel Telematica B.V.
All intercompany assets, liabilities and transactions have been
eliminated in consolidation.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured as its fair value. It also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999 and can not be applied retroactively. The Company has not yet
quantified the impacts of adopting SFAS No. 133 on the financial statements and
have not determined the timing of or method of our adoption of SFAS No. 133.
2. Financial Condition and Operations
For the year ended December 31, 1997, the Company had a loss from
operating activities of NLG 19,273,250 and negative working capital of NLG
23,351,783 at December 31, 1997. For the nine-month period ended September 30,
1998, the loss from operating activities amounted to NLG 40,371,392 and the
positive working capital at September 30, 1998 amounted to NLG 203,132,512. In
addition, the Company had an accumulated deficit of NLG 25,209,080
F-17
<PAGE>
as of December 31, 1997 and of NLG 65,580,280 as of September 30, 1998. The
Company expects to incur operating losses and net losses for the foreseeable
future as it incurs additional costs associated with the development and
expansion of the Company's network, the expansion of its marketing and sales
organization and the introduction of new telecommunications services. In
addition, prices in the telecommunications industry in Europe have declined in
recent years and, as competition continues to increase, the Company expects that
prices will continue to decline. Management of the Company believes that the
Company will be able to borrow additional financing in order to develop its
network and by that increasing traffic volume. Also, management believes that it
is able to reduce the cost of providing telecommunication services, commensurate
with the decline of the prices. To sustain its current and future level of
operations the Company issued a private debt offering with gross proceeds of
US$225,000,000 on May 20, 1998 repayable in 2008. The private debt offering
consists of 13 1/4% senior notes due 2008 and warrants to purchase 1,500,000
Ordinary Shares of the Company. The costs in connection with the private debt
offering of NLG 20.0 million have been capitalized and are being amortized over
the duration of the underlying offering (10 years).
3. Recapitalization
To increase the equity of the Company by means of the conversion of
subordinated debt and cash contribution by its shareholders, the Company has
completed the following four part Recapitalization.
In February 1998, NeSBIC converted its NLG 4.5 million bridge loan into
Ordinary Shares of the Company. In addition, Telecom Founders and NeSBIC
invested an additional NLG 7.2 million in equity capital in the Company which
was formally contributed on April 17, 1998. In addition, NeSBIC and Cromwilld
converted their subordinated convertible notes totaling NLG 3.6 million into
Ordinary Shares of the Company in April 1998. The third component included a new
equity investment by Paribas of NLG 12.8 million. In May 1998, NeSBIC, Telecom
Founders, Paribas and NPM have invested an additional NLG 15.0 million in equity
capital. Accordingly, the invested equity in the Company has increased from NLG
7.0 million to NLG 50.1 million.
The conversion price of NLG 3.36 per share used for the conversion of
the 1996 and 1997 loans was approved in separate shareholder resolutions, dated
March 2, 1998 and September 30, 1997, respectively.
The estimated fair value at the date of the extinguishment of the
shareholder loans amounted to NLG 4.45 per share, which represented the price
paid by an unrelated party on April 8, 1998 for the Company's ordinary shares.
As the conversion took place very shortly thereafter on April 17, 1998, the
price paid by the new shareholder was deemed to be fair value on the date of
extinguishment.
Cromwilld, one of the shareholders of the Company, has objected to the
above Recapitalization. Based upon advice from the Company's legal counsel, the
impact of this objection is considered to be remote.
4. Construction in Progress
The company continues to build out its network and is securing rights
of way for the Benelux Overlay Network. The resulting assets as of September 30,
1998 have been recorded at cost under the caption "Construction in progress."
Reference is also made to Note 6.
5. Acquisition
On May 29, 1998 and August 10, 1998, the Company acquired the shares of
Bizztel Telematica B.V. ("Bizztel") in two phases. The figures of Bizztel are
included in the financial statements as of September 30, 1998. The key figures
of Bizztel as included in the financial statements of VersaTel as of September
30, 1998 of VersaTel are sales of NLG 176,000, total assets NLG 311,000, total
equity of NLG (679,256) and net loss for the period of NLG (213,502).
F-18
<PAGE>
The Company applied the purchase accounting method. The goodwill, being
the difference between the purchase price amounting to NLG 1,131,827 in total
and the net asset value as of acquisition date, is being capitalized and
amortized in 5 years.
Since the impact on the revenues, net income and earnings per share
data on the consolidated Company figures is not material, pro forma figures have
been omitted.
6. Commitments Not Reflected in the Balance Sheet
Commitments in connection to the roll-out of the Company's network, not
yet recorded on the balance sheet, amount to approximately NLG 36 million as of
September 30, 1998. Reference is also made to Note 4.
7. Subsequent Event
In November 1998 the Company acquired CSNet Group. The key figures of
CSNet Group as of July 31, 1998 are summarized as follows: sales NLG 2,023,000,
total assets NLG 1,491,000, and net income for the period ended July 31, 1998
NLG 173,000.
F-19
<PAGE>
ANNEX A
GLOSSARY
Access costs -- The costs paid by long distance carriers to the local
telephone companies for accessing the local networks of the local telephone
companies to originate and terminate long distance calls.
ADM (Add-drop multiplexer) -- A multiplexer which controls cross
connect between individual circuits by software, permitting dynamic cross
connect of individual 64 kbps circuits within an El line.
Bandwidth -- The range of frequencies that can be passed through a
medium, such as glass fibers, without distortion. The greater the bandwidth, the
greater the information-carrying capacity of such medium. For fiber optic
transmission, electronic transmitting devices determine the bandwidth, not the
fibers themselves. Bandwidth is measured in Hertz (analog) or Bits Per Second
(digital).
Bps -- Bits per second; the basic measuring unit of speed in a digital
transmission system; the number of bits that a transmission facility can convey
between a sending location and a receiving location in one second.
Carrier pre-selection -- The ability of end users to select the long
distance or international operator of their choice prior to the time their calls
are made.
Carrier selection -- The ability of end users to select on a
call-by-call basis the long distance or international operator of their choice.
Closed user group -- A group of customers with some affiliation with
one another and which are treated for regulatory purposes as not being the
public.
Dark fiber -- Fiber that lacks the requisite electronic and optronic
equipment necessary to use the fiber for transmission.
Facilities-based carrier -- A company that owns or leases its
international network facilities including undersea fiber optic cables and
switching facilities rather than reselling time provided by another
facilities-based carrier.
Fiber-optic cable -- The medium of choice for the telecommunications
industry. Fiber is immune to electrical interferences and environmental factors
that affect copper wiring and satellite transmission. Fiber-optic technology
involves sending laser light pulses across glass strands in order to transmit
digital information. A strand of fiber-optic cable is as thick as a human hair
yet has more bandwidth capacity than a copper wire the width of a telephone
pole.
Interconnect -- Connection of a telecommunications device or service to
the PSTN.
ISDN -- Integrated Services Digital Network; switched network
providing end-to-end digital connectivity for simultaneous transmission of voice
and/or data over multiple multiplexed communications channels and employing
transmission and out-of-band signaling protocols that conform to
internationally-defined standards.
Local loop -- That portion of the local telephone network that connects
the customer's premises to the local exchange provider's central office or
switching center. This includes all the facilities starting from the customer
premise interface which connects to the inside wiring and equipment at the
customer premise to a terminating point within the switching wire center.
A-1
<PAGE>
Mbps -- Megabits per second, a measurement of speed for digital signal
transmission expressed in millions of bits per second.
NOC -- Network operations center.
Nodes -- Locations within the network housing electronic equipment
and/or switches which serve as intermediate connection points to send and
receive transmission signals.
Number Portability -- The ability of end users to keep their number
when changing operators.
PBX (Private Branch Exchange) -- A switching system within an office
building that allows calls from outside to be routed directly to the individual
instead of through a central number. A PBX also allows for calling within an
office by way of four-digit extensions.
POP (Points of Presence) -- Switches owned or leased by an
interexchange carrier that is located near a local exchange carrier's switch and
that enables the interexchange carrier to access the local exchange carrier's
customers and/or services.
PSTN (Public Switched Telephone Network) -- A telephone network which
is accessible by the public through private lines, wireless systems and pay
phones.
PTT (Postal, Telephone and Telegraph Company) -- The dominant carrier
or carriers in each Member State of the EU, until recently, often, but not
always, government-owned or protected.
Reseller -- A carrier that does not operate its own transmission
facilities (although it may own its own switches or other equipment), but
obtains communications services from another carrier for resale to the public
for profit.
SDH (Synchronous Digital Hierarchy) -- SDH is a set of standards for
optical communications transmission systems that define optical rates and
formats, signal characteristics, performance, management and maintenance
information to be embedded within the signals and the multiplexing techniques to
be employed in optical communications transmission systems. SDH facilitates the
interoperability of dissimilar vendors' equipment and benefits customers by
minimizing the equipment necessary for telecommunications applications. SDH also
improves the reliability of the local loop connecting customers' premises to the
local exchange provider, historically one of the weakest links in the service
delivery.
Switch -- A sophisticated computer that accepts instructions from a
caller in the form of a telephone number. Like an address on an envelope, the
numbers tell the switch where to route the call. The switch opens or closes
circuits or selects the paths or circuits to be used for transmission of
information. Switching is a process of interconnecting circuits to form a
transmission path between users. Switches allow telecommunications service
providers to connect calls directly to their destination, while providing
advanced features and recording connection information for future billing.
Traffic -- A generic term that includes any and all calls, messages and
data sent and received by means of telecommunications.
WDM (Wavelength Division Multiplexing) -- A multiplexing technique
allowing multiple different signals to be carried simultaneously on a fiber by
allocating resources according to frequency on non-overlapping frequency bands.
A-2
<PAGE>
PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY
VersaTel Telecom International N.V.
Paalbergweg 36
1105 BV Amsterdam-Zuidoost
The Netherlands
INDEPENDENT AUDITORS
Arthur Andersen
Prof. W.H. Keesomlaan 8
1183 DJ Amstelveen
The Netherlands
LEGAL ADVISERS
As to U.S. Law As to Dutch Law
Shearman & Sterling Stibbe Simont Monahan Duhot
599 Lexington Avenue Strawinskylaan 2001
New York, New York 10022-6069 1077 ZZ Amsterdam
The Netherlands
TRUSTEE, REGISTRAR, PRINCIPAL PAYING AND TRANSFER AGENT
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
LISTING AGENT, PAYING AND TRANSFER AGENT
Kredietbank, S.A. Luxembourgeoise
43, Boulevard Royal
L-2955 Luxembourg
<PAGE>
No dealer, salesperson or any other person has been authorized to give
any information or to make any representations in connection with this Exchange
Offer other than those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than those to which it
relates, nor does it constitute an offer to sell or a solicitation of an offer
to buy the notes in any jurisdiction where, or to any person to whom, it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any time
subsequent to the date hereof.
TABLE OF CONTENTS
Page
Summary 1
Service of Process and Enforceability of Civil Liabilities 15
Disclosure Regarding Forward-Looking Statements 15
Presentation of Information 16
Risk Factors 17
Use of Proceeds 26
The Exchange Offer 26
Exchange Rate Information 34
Capitalization 35
Selected Financial and Other Data 36
Management's Discussion and Analysis of Financial
Condition and Results of Operations 38
Business 47
Management 62
Security Ownership of Principal Shareholders and Management 67
Certain Relationships and Related Transactions 68
Description of Certain Indebtedness 70
Description of the Exchange Notes 71
Certain Tax Considerations 102
Plan of Distribution 107
Legal Matters 108
Independent Auditors 108
Available Information 108
General Listing Information 109
Index to Financial Statements F-1
Glossary A-1
<PAGE>
[logo]
VERSATEL
TELECOM
INTERNATIONAL N.V.
Offer to Exchange
13 1/4% Senior Notes due 2008
for all Outstanding
13 1/4% Senior Notes due 2008
PROSPECTUS
January 25, 1999
