<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 20-F/A
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-59979
VERSATEL TELECOM INTERNATIONAL N.V.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
THE NETHERLANDS
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
PAALBERGWEG 36,1105 BV AMSTERDAM ZUIDOOST, THE NETHERLANDS, +31 20 750 1000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
American Depositary Shares, each representing one ordinary share, par
value NLG 0.05 per share
Ordinary shares, par value NLG 0.05 per share
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
none
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)
OF THE ACT:
$225,000,000 13 1/4% Senior U.S. Dollar Notes due 2008
$150,000,000 13 1/4% Senior U.S. Dollar Notes due 2008
$180,000,000 11 7/8% Senior U.S. Dollar Notes due 2009
E120,000,000 11 7/8% Senior Euro Notes due 2009
INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT:
Ordinary shares issued and outstanding: 79,224,986
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No ___
Indicate by check mark which financial statement item the Registrant has elected
to follow:
Item 17 ___ Item 18 X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction and Exchange Rate Information.................. ii
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the United States Private
Securities Litigation Reform Act of 1995........ iv
PART I
ITEM 1: DESCRIPTION OF BUSINESS........................... 1
Overview................................... 1
Business Strategy.......................... 2
Recent Developments........................ 3
Our Network................................ 5
Products and Services...................... 8
Sales and Marketing........................ 10
Customers.................................. 11
Customer Service........................... 12
Billing and Information Systems............ 12
Minority Holdings.......................... 12
Competition................................ 13
Regulation................................. 14
Intellectual Property...................... 20
Employees.................................. 20
VersaPoint................................. 21
Certain Risks Which May Affect Our
Business.................................... 24
ITEM 2: DESCRIPTION OF PROPERTY........................... 37
ITEM 3: LEGAL PROCEEDINGS................................. 37
ITEM 4: CONTROL OF REGISTRANT............................. 38
ITEM 5: NATURE OF TRADING MARKET.......................... 39
ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS................................ 39
ITEM 7: TAXATION.......................................... 40
ITEM 8: SELECTED FINANCIAL DATA........................... 54
ITEM 9: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............. 55
ITEM 9A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK..................................... 63
ITEM 10: DIRECTORS AND OFFICERS OF REGISTRANT.............. 64
ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS............ 67
ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES.................................... 68
ITEM 13: INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.... 69
PART II
ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED........ 70
PART III
ITEM 15: DEFAULTS UPON SENIOR SECURITIES................... 70
ITEM 16: CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
REGISTERED SECURITIES........................... 70
PART IV
ITEM 17: FINANCIAL STATEMENTS.............................. 70
ITEM 18: FINANCIAL STATEMENTS.............................. 70
ITEM 19: FINANCIAL STATEMENTS AND EXHIBITS................. 71
Appendix A -- Glossary...................................... A-1
</TABLE>
i
<PAGE> 3
INTRODUCTION AND EXCHANGE RATE INFORMATION
VersaTel Telecom International N.V. is a company with limited liability
(naamloze vennootschap) organized under the laws of The Netherlands. Its
principal executive offices are located at Paalbergweg 36, 1105 BV
Amsterdam-Zuidoost, The Netherlands and its telephone number is +31 20 750 1000.
Unless the context otherwise requires in this Annual Report on Form 20-F (the
"Annual Report"), the terms the "Company," "VersaTel," "our company", "we" and
"us" 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.
VersaTel's financial statements that form part of this Annual Report are
presented in Dutch guilders and are prepared in accordance with accounting
principles generally accepted in the United States ("U.S. GAAP").
References to "U.S. dollars" or "$" are to United States dollars,
references to "Dutch guilders" or "NLG" are to the currency of The Netherlands,
references to "Belgian francs" or "BEF" are to the currency of Belgium,
references to "Deutsche marks" and "DEM" are to the currency of Germany and
references to "euros" or "E" are to the common currency of certain participating
member states of the European Union. Solely for the convenience of the reader,
we translate 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 2.19 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 December 31, 1999. On
March 17, 2000, the Noon Buying Rate was NLG 2.27 per $1.00.
DUTCH GUILDERS TO U.S. DOLLARS
The table below sets forth, for the periods and dates indicated, certain
information concerning the Noon Buying Rates for Dutch guilders expressed in
Dutch guilders per U.S. dollar through December 31, 1998 and, for periods
thereafter, the exchange rate of Dutch guilders per U.S. dollar (calculated
based on the Noon Buying Rate for euro). On December 31, 1999, the exchange rate
for Dutch guilders per U.S. dollar (calculated based on the Noon Buying Rate of
euro per U.S. dollar on such date) was NLG 2.19 per $1.00.
<TABLE>
<CAPTION>
PERIOD
PERIOD HIGH LOW AVERAGE(1) PERIOD END
- ------ ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
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................................................... 2.20 1.87 2.08 2.19
2000 (through March 17)................................ 2.31 2.13 2.27 2.27
</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 dividend or other payments to nonresident holders of the ordinary
shares 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 in the future.
BELGIAN FRANCS TO U.S. DOLLARS
The table below sets forth, for the periods and dates indicated, certain
information concerning the Noon Buying Rates for Belgian francs expressed in
Belgian francs per U.S. dollar through December 31, 1998 and, for periods
thereafter, the exchange rate of Belgian francs per U.S. dollar (calculated
based on the Noon Buying Rate for euro). On December 31, 1999, the exchange rate
for Belgian francs per U.S. dollar (calculated based on the
ii
<PAGE> 4
Noon Buying Rate of euro per U.S. dollar on such date) was BEF 40.06 per $1.00.
The exchange rate of the Luxembourg franc to the U.S. dollar is the same as that
of the Belgian franc to the U.S. dollar.
<TABLE>
<CAPTION>
PERIOD
PERIOD HIGH LOW AVERAGE(1) PERIOD END
- ------ ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
1995................................................... 32.14 27.94 29.47 29.43
1996................................................... 32.27 29.50 30.97 31.71
1997................................................... 38.82 31.76 35.81 37.08
1998................................................... 38.50 33.19 36.31 34.36
1999................................................... 40.28 34.15 38.14 40.06
2000 (through March 17)................................ 42.20 39.03 41.59 41.61
</TABLE>
- ---------------
(1) The average of the Noon Buying Rates on the last day of each full month
during the period.
Fluctuations in the exchange rate between the Belgian franc and the U.S.
dollar in the past are not necessarily indicative of fluctuations that may occur
in the future.
DEUTSCHE MARKS TO U.S. DOLLARS
The table below sets forth, for the periods and dates indicated, certain
information concerning the Noon Buying Rates for Deutsche marks expressed in
Deutsche marks per U.S. dollar through December 31, 1998 and, for periods
thereafter, the exchange rate of Deutsche marks per U.S. dollar (calculated
based on the Noon Buying Rate for euro). On December 31, 1999, the exchange rate
for Deutsche marks per U.S. dollar (calculated based on the Noon Buying Rate of
euro per U.S. dollar on such date) was DEM 1.94 per $1.00.
<TABLE>
<CAPTION>
PERIOD
PERIOD HIGH LOW AVERAGE(1) PERIOD END
- ------ ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
1995................................................... 1.56 1.36 1.43 1.43
1996................................................... 1.57 1.44 1.51 1.54
1997................................................... 1.88 1.54 1.74 1.80
1998................................................... 1.85 1.64 1.76 1.67
1999................................................... 1.95 1.66 1.85 1.94
2000 (through March 17)................................ 2.05 1.89 2.02 2.02
</TABLE>
- ---------------
(1) The average of the Noon Buying Rates on the last day of each full month
during the period.
Fluctuations in the exchange rate between the Deutsche mark and the U.S.
dollar in the past are not necessarily indicative of fluctuations that may occur
in the future.
U.S. DOLLARS TO EURO
Each of The Netherlands, Belgium, Luxembourg and Germany has adopted the
euro as of January 1, 1999. The table below sets forth, for the periods and
dates indicated, certain information concerning the Noon Buying Rates for euros
expressed in U.S. dollars per euro. On December 31, 1999, the exchange rate for
U.S. dollars per euro (calculated based on the Noon Buying Rate of U.S. dollar
per euro for such date) was $1.01 per E1.00.
<TABLE>
<CAPTION>
PERIOD
PERIOD HIGH LOW AVERAGE(1) PERIOD END
- ------ ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
First Quarter 1999..................................... 1.18 1.07 1.11 1.08
Second Quarter 1999.................................... 1.08 1.03 1.04 1.03
Third Quarter 1999..................................... 1.08 1.01 1.06 1.06
Fourth Quarter 1999.................................... 1.09 1.00 1.02 1.01
First Quarter 2000 (through March 17).................. 1.03 0.96 0.97 0.97
</TABLE>
- ---------------
(1) The average of the Noon Buying Rates on the last day of each full month
during the period.
Fluctuations in the exchange rate between the euro and the U.S. dollar in
the past are not necessarily indicative of fluctuations that may occur in the
future.
iii
<PAGE> 5
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE UNITED
STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains forward-looking statements within the meaning
of the U.S. Private Securities Litigation Reform Act of 1995. 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:
- our anticipated expansion plans for our network and growth strategies,
- our expectations about the impact of our expansion plans on our revenue
potential, cost basis and margins,
- our ability to compete, both nationally and internationally,
- our intention to introduce new products and services, and
- anticipated trends and conditions in our industry, including regulatory
reform and the liberalization of telecommunications services in Europe.
In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this Annual Report might not occur.
Important factors that could cause actual results to differ materially from
expectations reflected in such forward-looking statements ("cautionary
statements") are disclosed in this Annual Report, including, without limitation,
in conjunction with the forward-looking statements included in this Annual
Report and under "Risk Factors". All subsequent written and oral forward-looking
statements attributable to the company, its subsidiaries or persons acting on
their behalf are expressly qualified in their entirety by the cautionary
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Given these considerations, readers are cautioned not to
place undue reliance on such forward-looking statements.
iv
<PAGE> 6
PART I
ITEM 1: DESCRIPTION OF BUSINESS
OVERVIEW
We are a rapidly growing, competitive communications network operator in
our target market of the Benelux and Northwest Germany. We are a leading
alternative to the former monopoly telecommunications carriers in these regions.
Our objective is to become the leading fully integrated provider of local
access, facilities-based broadband services, including voice, data and Internet
services, to customers in our target market. We provide high-quality,
competitively priced telecommunications, data and Internet services to four
targeted market segments:
- Business Services -- small- and medium-sized businesses located
throughout our target market.
- Local Access Services -- high bandwidth users within our target market
located near to and who may be directly connected with our network.
- Data Services -- high bandwidth data customers with multiple sites
throughout our target market.
- Carrier Services -- other telecommunications, data and Internet service
providers.
We recently reorganized certain of our Internet activities into a separate
business unit and appointed a new senior management team recruited primarily
from UUNet to manage these activities. This unit, VersaTel Internet, will focus
primarily on the small business and residential Internet market across Western
Europe. VersaTel Internet will provide broadband Internet connectivity through
DSL to deliver business-rich content, applications and simple web hosting to the
small business market. VersaTel Internet will also provide consumer oriented
content and Internet access. It will consist of:
- Zon -- one of the largest residential ISP/portals in The Netherlands
with over 400,000 subscribers.
- VuurWerk -- a leading web hosting company in The Netherlands targeting
small- and medium-sized businesses with over 12,000 web hosting
customers and 35,000 domain name registrations.
- CS Net -- a business-to-business e-commerce facilitator.
- ITinera -- a Belgian web-hosting company and ISP.
- 24hours -- a business ISP/portal and Application Service Provider
("ASP").
- area 44 -- an ISP targeting small- and medium-sized businesses and
residential customers.
We believe this reorganization will maximize our ability to accelerate our
customer growth, develop our content and provide application services in order
to capitalize swiftly on opportunities in the rapidly growing European Internet
market. We believe our 50% stake in VersaPoint (as mentioned below) will provide
us significant competitive advantages in providing DSL broadband access to both
business and residential customers. We will continue to develop proprietary
content, purchase content, and seek partnerships to create new content.
We recently announced plans to create a new company with NorthPoint
Communications to deliver digital subscriber line (DSL) services across Western
Europe. This new company, VersaPoint, will combine NorthPoint's DSL network
deployment and operations expertise with our established broadband local access
network, DSL operations in the Benelux and Germany, and local market and
regulatory experience in Europe. We believe that our relationship with
VersaPoint will help us accelerate our ability to offer DSL services to
customers in all of our target markets.
Our fully integrated broadband network provides end-to-end connectivity to
our customers. Our network has been designed to pass through all the major
population and business centers in the Benelux and to connect city centers,
business parks and buildings along its route. We believe that our recent German
acquisitions along with
1
<PAGE> 7
the continued expansion of our network in Germany will further our ability to
provide local access services to German customers. Our network's design consists
of three fully integrated elements:
- Backbone Infrastructure -- multiple, integrated fiber optic rings
connecting major population and business centers in our target market.
- Local Access Infrastructure -- high bandwidth fiber optic and radio
connectivity to customers along our network route.
- International Infrastructure -- fiber optic rings connecting our network
with points of presence in London, Dusseldorf, Frankfurt and Paris.
As of December 31, 1999, approximately 1,499 kilometers of fiber-ready duct
in the Benelux has been constructed and we now have in service four self-healing
rings consisting of approximately 1,370 kilometers of fiber. We have completed
construction of a total of 13 business park rings and 3 city rings representing
over 110 kilometers of operational local access fiber.
As of December 31, 1999, we had over 30,000 customers and over 900
employees. Our revenues grew from NLG 39.6 million for the year ended December
31, 1998 to NLG 129.0 million for the year ended December 31, 1999. After giving
pro forma effect to the acquisitions of Svianed and VEW Telnet our revenues
would have been NLG 197.3 for the year ended December 31, 1999.
BUSINESS STRATEGY
Our objective is to become the leading fully integrated provider of local
access, facilities-based broadband services, including voice, data and Internet
services to customers in our target market. The principal elements of our
strategy are:
- CONTINUE TO EXPAND OUR BROADBAND NETWORK. We intend to continue to
expand our fully integrated broadband network to allow us to provide
voice, data and Internet services to an increasing number of customers
throughout our target market. We have designed our network to pass the
major points of interconnection of other service providers and to
connect to major Internet exchanges. In addition, we have started
constructing the infrastructure to connect local-access customers in the
Benelux to our network. We believe that the extension of our network to
include Northwestern Germany will give us the ability to connect local
access customers in this market to our network. We are also deploying
the latest network technologies, such as IP over DWDM (dense wave
division multiplexing) and DSL services. We intend to continue to
identify and implement the most advanced technologies in order to
maximize the capacity of our network and to expand our service
offerings.
- MAINTAIN FOCUS ON TARGETED CUSTOMER SEGMENTS. We believe the recent
formation of our Internet division and our VersaPoint joint venture with
NorthPoint Communications will allow our senior management to maintain
focus on the operations of our core business by letting a separate group
of senior managers concentrate on opportunities presented by the growth
of the Internet and DSL services sectors. We have continued and will
continue to tailor our network, sales, support and products to meet the
needs of the small- and medium-sized business and high bandwidth users
along our network within our target market.
- EXPAND DSL SERVICES. We plan to generate additional revenue and traffic
on our network by offering high speed, high capacity DSL data and
Internet access service to business customers and to residential
customers through our new Internet unit. We believe that our
relationship with VersaPoint will help us to accelerate our ability to
offer DSL services to customers in our target market as well as reduce
the operating costs and capital expenditures associated with providing
such services. We also plan to generate additional revenue by leasing
our network to VersaPoint whenever possible to provide it with
transmission capacity to link VersaPoint's DSL equipment located at
"central offices" leased by VersaPoint from local PTTs to our network.
We believe the VersaPoint joint venture will capture a portion of the
pan-European market DSL opportunity as well as accelerate our entrance
into the German market.
2
<PAGE> 8
- EXPAND INTERNET ACTIVITIES. We plan to increase our Internet activities
and pursue new initiatives in the Internet services area, primarily
through our newly formed Internet division. This division will be
managed by a separate team of executives, some of which have been
recruited from MCI Worldcom's Internet subsidiary, UUNet. We believe
this reorganization will maximize our ability to accelerate our customer
growth, develop our content, and provide application services in order
to capitalize on opportunities in the rapidly growing European Internet
market.
- DEVELOP BROADBAND WIRELESS AND MOBILE INITIATIVES. We intend to develop
a presence in the Wireless Local Loop and third generation Mobile, or
Universal Mobile Telecommunications Systems ("UMTS") activities that
will be introduced in our target market by participating in the expected
auction of licenses to provide such services. We believe that, if we are
successful in this effort, a wireless product offering will be a
valuable asset in serving our customers' needs.
- FOCUS ON SUPERIOR CUSTOMER SERVICE. We strive to maintain a competitive
advantage by providing superior customer service in terms of
responsiveness, accuracy and quality. We believe that our target market
has been particularly underserved by the PTTs and that providing a high
level of customer service is a key element to attracting and retaining
customers. We were one of the first communications companies in our
target market to provide detailed monthly billing statements and monthly
call management reports. We intend to continue investing in our customer
care and operational support systems to enable us to maintain a
competitive advantage.
- PURSUE SELECTIVE ACQUISITIONS AND STRATEGIC RELATIONSHIPS. We plan to
continue to acquire or enter into partnerships with other
telecommunications, data and Internet service providers in order to
accelerate the growth of our customer base, our network and our service
portfolio. We have established a presence in Northwest Germany through
our recent acquisition of VEW Telnet and expect to extend our presence
in this region upon the completion of our pending acquisition of KomTel.
In addition, through our formation of VersaPoint, we believe that we
have established a means to eventually offer DSL services to customers
throughout our target market. We will continue to pursue additional
strategic relationships and selective acquisitions which will serve to
accelerate the growth of or augment our existing operations.
RECENT DEVELOPMENTS
PENDING ACQUISITION OF KOMTEL
On March 15, 2000 we announced that we had reached a definitive agreement
to purchase 80% of the outstanding common shares of KomTel, a leading
alternative fiber network operator in the Schleswig-Holstein and Hamburg regions
of Northern Germany, from the electric utility company, Stadtwerke Flensburg
GmbH and other shareholders.
Under the agreement, we have agreed to pay E 61.6 million in cash and will
repay at closing or assume approximately E 13.0 million of existing debt.
Stadtwerke Flensburg will retain a 20% interest in KomTel until 2002 at which
point we have an option to purchase and Stadtwerke Flensburg has the right to
sell, the remaining 20% for E 15.4 million.
We believe our acquisition of KomTel, together with our recent acquisition
of VEW Telnet, will allow us to further develop our German operations in a
region with a population of 4.5 million and more than 150,000 addressable
businesses. At December 31, 1999, KomTel had more than 3,000 business customers,
38,000 Internet customers and 160 employees.
Through KomTel, we will gain access to 1,078 km of fiber optic network
(most of which is leased), containing an average of 32 fibers. KomTel also
operates in 27 central office locations and VersaTel expects KomTel to connect
an additional 39 central office sites to its network by the end of 2000.
3
<PAGE> 9
VERSAPOINT
On March 8, 2000, we entered into a joint venture agreement with NorthPoint
Communications Group, Inc., a provider of high-speed, local data network
services in the United States, to form a new company, VersaPoint. VersaPoint
intends to rapidly deploy DSL equipment and sell DSL services on a wholesale
basis to Internet Service Providers and communications companies throughout the
Benelux and Northwest Germany, and eventually across Western Europe. Pursuant to
the joint venture agreement, we have agreed to purchase DSL services, when
available, from VersaPoint, and VersaPoint has agreed to lease lines, when
available, from VersaTel. VersaTel also has agreed to allow VersaPoint to
install its DSL equipment in more than 50 central office locations in The
Netherlands and Germany and to allow VersaPoint to lease VersaTel's existing
transmission lines in those areas. NorthPoint has agreed to provide VersaPoint
with certain management services to implement VersaPoint's strategy. We expect
that VersaPoint will launch its services by the end of the third quarter of
2000. By purchasing DSL services from VersaPoint, we believe we will accelerate
our ability to offer DSL services to business and residential customers
throughout our target market.
24HOURS
On March 6, 2000, we launched "24hours", a Dutch language business
ISP/portal. 24hours targets the rapidly growing small- and medium-sized business
market in The Netherlands. 24hours has rights to certain exclusive content
provided by Elsevier Bedrijfsinformatie, a division of Reed Elsevier, including
content from its business publication FEM/De Week, one of the leading Dutch
weekly financial magazines. In addition to providing internet access and
business rich content, we expect that 24hours will also become an ASP to the
business market in The Netherlands by the end of the third quarter of 2000.
VERSATEL INTERNET
We recently reorganized our Internet activities into a separate business
unit and appointed a new senior management team recruited primarily from UUNet
to manage these activities. This business unit, VersaTel Internet, will focus
primarily on the small business and residential Internet markets. It will
consist of Zon, one of the largest residential ISP/portals in The Netherlands
with over 400,000 subscribers; VuurWerk, a leading web hosting company in The
Netherlands for the small business market with over 12,000 web hosting customers
and 35,000 domain name registrations; CS Net, a leading business-to-business
e-commerce facilitator; ITinera, a leading Belgian web hosting company and ISP;
and 24hours, our new Dutch language business ISP/portal.
ACQUISITION OF VEW TELNET
On December 1, 1999 we acquired VEW Telnet, a competitive network operator
in the Northwest Rhine region of Germany, from VEW Energie, a German power
company. As a result of this acquisition we now provide voice, data and Internet
services to approximately 4,400 business customers in one of the highest density
areas of Europe. VEW Telnet's 1,300 km fiber optic network which is leased for a
term of 30 years from VEW Energie will be directly connected to our network by
the end of the first quarter, 2000. It consists of an STM-16 ring and 7 STM-4
rings with over 160 SDH nodes/points-of-presence and seven points of
interconnection with Deutsche Telekom. These rings are being upgraded to STM-64
and STM-16, respectively, this year. We also have obtained the right to use VEW
Energie's power network rights-of-way when VEW Energie expand their own network.
VEW Telnet had revenues of DEM 19.5 million for the financial year ended
December 31, 1998 and of DEM 40.0 million for the financial year ended December
31, 1999, including the period from December 1, 1999 to December 31, 1999 during
which VEW Telnet was a subsidiary of ours.
VEW Telnet's assets include 36 co-location sites at Deutsche Telekom MDF
locations in the Northwest Rhine region of Germany. Voice, data and Internet
services provided by VEW Telnet over Deutsche Telekom unbundled lines are
growing rapidly, with over 20,000 voice grade equivalent lines in service at the
end of February 2000. We intend to expand the number of MDF sites in service
rapidly to cover approximately 40% of the business customers in the Northwest
Rhine region of Germany to over 130 sites by the end of 2000 and approximately
80% of businesses with 325 MDF sites by the end of 2001. These sites will be
connected initially with leased lines from both Deutsche Telekom and local city
operators. Most connections will be replaced with
4
<PAGE> 10
fiber to be constructed by VEW Telnet. In addition, we have entered into a
12-month telecommunications services contract with them with an additional five
year "right of last offer" provision.
ZON
We launched Zon on August 31, 1999, as a residential ISP/portal, along with
our marketing and distribution partners Radio 538, a leading commercial radio
station in The Netherlands among 15 to 35 year olds, and Free Record Shop, a
leading music retail chain in The Netherlands. VersaTel currently owns 90% of
the issued and outstanding share capital of Zon and Radio 538 and Free Record
Shop own 10%, collectively, with an option to acquire an additional 10% of Zon's
share capital based on certain performance incentives. Free Record Shop and
Radio 538 are providing marketing and distribution support for Zon's products.
As of December 31, 1999, Zon provided Internet service to more than 275,000
subscribers. For the month ended December 31, 1999, Zon customers generated over
80.9 million terminating minutes for VersaTel as well as approximately 6.7
million page views for Zon's web site. In a recent marketing survey regarding
the brand-awareness of free Internet service providers in The Netherlands, Zon
scored highest with 23% brand-awareness.
Zon focuses primarily on individual Internet users in The Netherlands. Zon
offers subscribers Internet access and e-mail without registration or
subscription fees. Subscribers therefore only pay local dial-in telephone costs.
Current and new Internet users can subscribe to Zon by accessing the Zon web
site through a free subscription CD-ROM which is available at Free Record Shop
in The Netherlands or by calling Zon's toll-free number.
ACQUISITION OF SVIANED
On June 11, 1999, we acquired Svianed, the third largest provider of data
services in The Netherlands. As a result of this acquisition, we now provide
data services to approximately 50 customers through Svianed's existing network,
which connects to over 600 buildings and utilizes over 700 leased lines covering
approximately 6,000 kilometers. These customers consist primarily of
institutions in the financial services and banking industries, and include the
principal social insurance organization and the largest financial institution in
The Netherlands. The Svianed network has 50 regional points of presence and
transports traffic at speeds of up to 150 Mbps. Svianed had revenues of NLG 56.7
million for the financial year ended December 31, 1998 and NLG 68.6 million for
the financial year ended December 31, 1999, including the period from June 11,
1999 to December 31, 1999 during which Svianed was our subsidiary.
Our acquisition of Svianed has significantly accelerated our offering of
broadband data services by combining our market presence with Svianed's data and
network management expertise. We have begun to migrate Svianed's traffic onto
portions of our network where possible in order to reduce our reliance on leased
lines. We believe that, over time, this will significantly enhance the quality
of our service offering and reduce our costs.
ACQUISITIONS OF VUURWERK, SPEEDPORT, ITINERA AND CS NET
We acquired VuurWerk and SpeedPort in May 1999, ITinera in June 1999 and CS
Net in November of 1998. VuurWerk is a leading provider of web hosting,
co-location, access and e-commerce services in The Netherlands and Belgium.
SpeedPort is a provider of Internet co-location and connectivity solutions for
high bandwidth Internet and e-commerce applications. ITinera is a Belgium-based
Internet service provider and web-hosting company with over 950 business
customers. CS Net enables Internet-based trade communities to conduct
business-to-business transactions in specific trade communities.
OUR NETWORK
Our high bandwidth network has been designed and built to provide flexible,
broadband local access to business customers with connectivity to major business
and population centers in the Benelux and to certain international destinations.
We believe that our recent German acquisitions along with the continued
expansion of our network in Germany will further our ability to provide local
access services to German customers. Our network carries voice, data and
Internet traffic and supports all major protocols, including Frame Relay, ATM
and
5
<PAGE> 11
IP. We connect with the major Internet exchanges in Amsterdam, Brussels, London,
Paris and Frankfurt and expect to connect with Dusseldorf during the second
quarter of 2000 and have increased the number and quality of peering
arrangements with carriers of IP traffic such as Scarlet, Rocade, Host IT and
Bellnet and our Internet subsidiaries, Zon and VuurWerk, to enhance our presence
in the rapidly expanding European Internet services market.
NETWORK DESIGN PRINCIPLES
Our network is designed to be scalable, flexible, reliable and efficient:
- SCALABILITY. Our network offers high capacity in all of its components,
including ducts, fibers, DWDM, SDH and operating support system
platforms. We have multiple ducts, each of which is capable of carrying
over 300 fibers, on all routes in the Benelux. We believe this will
provide sufficient excess capacity for future growth and will allow us
to trade and sell a portion of our excess capacity to other operators.
We have installed DWDM equipment on our initial fibers, which allows us
to transmit multiple frequencies of light on the same fiber strand. As a
result, the capacity of a single fiber can be currently increased by 16
times. Our SDH equipment is currently capable of transmitting at the
rate of 10 Gbps (STM-64), with the ability to make 20 Gbps available, if
necessary. We have also obtained the right to use VEW Energie's power
network rights-of-way when VEW Energie expand their own network. We
believe that this will give us a cost-effective way of building
additional fiber network in the Northwest Rhine region of Germany.
- FLEXIBILITY. Our network's design enables us to respond to changes in
service offerings and network standards and protocols. We currently have
two Nortel DMS 100 digital circuit switches in Amsterdam, one in each of
Rotterdam and Antwerp, and expect to have an additional Nortel DMS
switch installed in Brussels in the third quarter of 2000. We also have
a Nokia switch in each of Recklinghausen, Dortmund and Munster, and
expect to have an additional Nortel switch installed in S-Hertogenbosch
in the third quarter of 2000. We currently have a Cisco data switch in
Amsterdam, Rotterdam and Antwerp and expect to have an additional Cisco
data switch installed in Brussels in the third quarter of 2000. We also
use Newbridge data switches in The Netherlands and Ascend data switches
in eleven locations in Germany. The Nokia and Nortel switches enable us
to deliver voice and ISDN telecommunications services and the Cisco,
Newbridge and Ascend data switches allow us to support multiple data
communications protocols including IP, IPX (Novell), ATM and Frame
Relay. We are also continuously modifying our network to ensure that it
can support new technologies, such as high speed, high capacity DSL
Internet and network access services, as they become available.
- RELIABILITY. Our network provides redundancy at multiple levels by
using a self-healing, shared protection ring structure to provide dual
direction routing capability in the event of cable damage or equipment
failure. SDH equipment automates most of the functions of routing and
connecting service bandwidth and reroutes these functions in the event
of failure. Our data and voice/ISDN networks also have alternate routing
capability to assure high availability of the services they deliver. We
have selected transmission equipment from recognized international
vendors such as Nortel, Nokia, Cisco, Newbridge, Ascend and Siemens.
- EFFICIENCY. We have constructed our network in a manner which we
believe will provide us with excess capacity to allow for future growth
in an efficient manner. We also believe that our use of high quality
components and equipment in the maintenance of our network contributes
to its efficient operation.
NETWORK ELEMENTS
Our network consists of the following integrated elements:
- BACKBONE INFRASTRUCTURE. Our backbone infrastructure carries voice,
data and Internet traffic and supports all major protocols, including
Frame Relay, ATM and IP. It extends to all major commercial and
population centers in the Benelux and the Northwest Rhine region of
Germany, including most interconnection points with PTTs, other
telecommunications network operators and major Internet
6
<PAGE> 12
exchanges. We have designed the route of our backbone infrastructure so
that it passes through as many businesses as possible by going through
business communities and past major bandwidth users. Approximately 90,000
businesses are located within one kilometer and approximately 270,000
businesses are located within five kilometers of our network backbone. A
small portion of our network is being constructed jointly with other
carriers and some rural sections are being completed by purchases of dark
fiber and, pending the completion of construction, through leased lines.
As of December 31, 1999, 1,499 kilometers of fiber-ready duct has been
constructed in the Benelux and we now have in service four self-healing
rings consisting of 1,370 kilometers of fiber.
- LOCAL ACCESS INFRASTRUCTURE. Our local access network infrastructure
consists of city rings and business park rings. We began construction of
fiber optic infrastructure in business parks in January 1999. We
connected our first customers shortly after the initial ring of the
Benelux network became operational in May 1999. We have completed
construction of a total of 13 business park rings and 3 city rings
representing over 110 kilometers of operational local access fiber. In
addition, through VersaPoint, we will be offering DSL technology to
customers when each of these technologies becomes available.
- INTERNATIONAL INFRASTRUCTURE. As of December 31, 1999, we have
established an international network extending our backbone
infrastructure to several major interconnection and Internet exchange
points in Western Europe. Initially, these points are London, which we
connected in March 1999, Frankfurt, which we connected in May 1999, and
Paris, which we connected in November 1999. We expect to connect
Dusseldorf during the second quarter of 2000. This international
infrastructure consists of one or more fiber pairs in fully redundant
ring structures. We also are considering acquiring fiber optic capacity
to the United States to improve our network's Internet connectivity.
Most of our international infrastructure consists of fiber or SDH
capacity obtained from other operators, along with transmission
equipment owned and operated by us.
SERVICE PLATFORMS
Our network incorporates service platforms to deliver each of the major
service categories we offer or plan to offer. A digital circuit switching
platform delivers voice and ISDN services. A data communications platform based
on ATM supports all major data protocols with high quality service. An Internet
services platform supports the Internet services we provide to end-users and our
offering of outsourced services to ISPs and content providers. An SDH
transmission platform provides highly reliable transmission capacity for our
other services and for capacity leased to other operators, service providers and
customers. In parallel, we are implementing an additional new platform of IP
equipment connected directly to DWDM/fiber which is intended to support all
types of services. We believe that by integrating the functions of SDH, ATM and
circuit switching, this platform will provide a lower cost and a more flexible
design than traditional equipment.
DATA CENTERS
We have established large scale data centers in all of the major cities in
The Netherlands to house our transmission, IP routing and switching facilities.
These data centers also offer hosting, co-location and interconnection services
to high-volume customers, such as ISPs, in secure, controlled sites with direct
access to our network. We are also constructing Internet co-location facilities
in London, Paris and Frankfurt.
PEERING AND TRANSIT ARRANGEMENTS
We have a number of informal arrangements with various ISPs allowing us to
exchange traffic with each other without incurring transit costs. These
so-called "peering" or transit arrangements are typically established with an
ISP when the volume of traffic we send to the ISP is approximately equal to the
volume of traffic we receive from the ISP. Once a peering arrangement is
established with an ISP, we are typically no longer required to pay charges in
respect of traffic originating on our network and terminating with such ISP. We
currently have peering arrangements with 98 ISPs, including Belgacom, Euronet,
PSINet Europe, Demon Internet, @Home Benelux, World Online, A2000 and other
major ISPs in the Internet market in western Europe. We expect to enter
7
<PAGE> 13
into additional peering arrangements with network-based ISPs in order to support
our Internet services. In addition, we expect to sell approximately 50 transit
connections to ISPs and content providers.
NETWORK MANAGEMENT
We monitor our network 24 hours a day, seven days a week, at our network
operations center. Our network operations center is able to identify network
interruptions as soon as they occur and allows us to reroute traffic to ensure
termination. Our network operations center also has an uninterrupted power
supply as well as redundant communications access and computer processors. We
control our own points of presence in the Benelux which allows us immediate
access to our equipment and network for rapid service restoration when
necessary. We own our points-of-presence in Germany and certain of these
points-of-presence are maintained by VEW Energie.
We have provided for a back-up network operations center in the event our
primary network operations center is forced off-line. We also are constructing a
new network operations center in our new headquarters building which is expected
to become operational during the second quarter of 2000.
NETWORK IMPLEMENTATION
We have entered into a framework agreement with Nortel to supply most of
our transmission equipment, including SDH, radio, voice/ISDN switching and the
SDH network management system. This agreement includes vendor financing for all
Nortel products and services. We have also entered into similar agreements with
Cisco and Newbridge to provide our data communications platforms and related
support services. We have agreements with leading construction companies in The
Netherlands and Belgium for network construction, and we are currently
negotiating network construction agreements in Germany. These construction
companies are responsible for obtaining rights-of-way, civil engineering,
physical construction and testing of our network. We have retained experienced
agents in each of The Netherlands, Belgium and Germany to assist the
construction companies in obtaining rights-of-way.
PRODUCTS AND SERVICES
We currently offer a wide range of business and carrier products and
services and continually evaluate potential product and service offerings,
including competitors' offerings, in order to retain and expand our customer
base and to increase revenue per customer. We also offer products and services
to residential customers.
BUSINESS PRODUCTS AND SERVICES OFFERINGS
We currently offer the following products and services to business
customers:
LONG DISTANCE TELEPHONY. We offer international and national long distance
telephony services to over 8,300 business customers in The Netherlands, over
3,100 business customers in Belgium and over 4,400 business customers in
Germany. Our telephony service is offered through our "1611" carrier select code
by dial-around and least-cost routing software installed in our customer PBXs in
the Benelux and by carrier pre-selection in Germany.
DSL SERVICES. We offer DSL data and Internet access services to selected
customers in The Netherlands on a trial basis and in Germany on a commercial
basis and expect to offer DSL data and Internet access services to customers in
all of our target market, subject to regulatory approval. We intend to provide
these services in part by purchasing such services from our VersaPoint joint
venture. DSL technology allows for secure high speed Internet access and data
transmission using the existing copper telephone wires connected to most homes
and businesses.
ISDN SERVICES. We offer ISDN primary rate services to our customers in the
Benelux and ISDN primary rate and basic rate services in Germany. These services
are principally targeted at the business market with digital PBXs and high
volumes of outgoing and incoming traffic. Currently, ISDN is the fastest growing
service for business telephony in the Western European market.
8
<PAGE> 14
LAN TO LAN INTERCONNECT SERVICES. We offer high speed LAN (local area
network) to LAN interconnect services for multi-site business customers. This
service addresses business customers that need to interconnect their multiple
LANs to share centralized computer data and applications efficiently. We provide
end-to-end management of the wide area network, including the routers, at
customers' premises.
FRAME RELAY AND NATIVE ATM SERVICES. We offer high speed Frame Relay and
ATM services mainly for large business customers. This service addresses
business customers that need Wide Area Network capabilities between their
multiple sites.
DEDICATED INTERNET CONNECTIVITY. We offer dedicated high speed Internet
access services to business customers. This service provides high bandwidth
access to the Internet, domain names, e-mail facilities, news feeds from news
groups and web space for hosting web-sites.
REMOTE ACCESS SERVICES. We offer efficient remote access services to
business customers, enabling employees to access the corporate LAN from home.
These home offices have secure access to the corporate network, data and
applications.
IP-BASED ELECTRONIC TRANSACTION SERVICES. We offer Internet-based,
business-to-business transaction services to customers in similar industries
that act as comprehensive sources of information, interaction and electronic
commerce for their users.
DIAL-IN INTERNET ACCESS SERVICES. We offer dial-in Internet access
services for small- and medium-sized businesses and package it with our long
distance telephony service.
WEB HOSTING SERVICES. We offer web hosting services aimed at the business
market. This service consists of an integrated package of a domain name, e-mail
accounts, web space for hosting corporate web-sites and on-line web-site
statistics. We currently have more than 35,000 domain registrations and more
than 12,000 web hosting customers.
TOLL-FREE (0800) SERVICES. We offer both "on-net" and "off-net" toll-free
(0800) services to our business customers. This service is positioned to serve
both our target market of small- and medium-sized businesses as well as internal
and external call centers.
CARRIER PRODUCTS AND SERVICES
We currently offer the following products and services to carrier
customers:
CALL TERMINATION SERVICES. We offer switched services to other
telecommunications service providers, including international and national call
termination services in the Benelux. As we complete our international network,
we will be able to offer competitive call termination services in Germany,
France and the United Kingdom.
DATA CENTERS AND CO-LOCATION FACILITIES. We provide co-location services
for carriers wishing to extend and expand their networks by housing their own
computing and telecommunications equipment inside our data centers and other
co-location facilities within the Benelux, Northwest Germany, Frankfurt and
London.
NETWORK CAPACITY FACILITIES. We sell and trade rights-of-way, ducts, dark
fiber, wavelength and high bandwidth SDH capacity to other carriers. We also
provide tele-housing and interconnect facilities at our selected premises.
VIRTUAL POINT-OF-PRESENCE DIAL-IN SERVICES. We offer virtual
point-of-presence services for telecommunications, data and Internet service
providers in order to allow cost-efficient dial-in capability and effective
remote access capabilities for their customers.
INTERNET TRANSIT SERVICES. We offer Internet transit services to
telecommunications and Internet service providers seeking transit services
between major Internet exchanges.
LEASED CIRCUIT SERVICES. We offer resilient E1, E3, T3 and STM-1 leased
lines to other carriers and services providers within the Benelux, and will
lease lines to our VersaPoint joint venture for the operation of its
9
<PAGE> 15
DSL services. We provide high quality and managed "point-to-point" or
"point-to-multipoint" circuits via our fiber and SDH network.
ISP HOSTING SERVICES. Through our VersaTel Internet division we provide
hosting facilities for ISPs such as Zon, our ISP launched last year which offers
residential Internet access services. With more than 400,000 subscribers to
date, Zon is one of the largest ISPs in The Netherlands.
We also expect to introduce carrier select and preselect hosting services
for resellers, application hosting services, and Voice Over IP gateway and
clearing house services within the next 12 months.
RESIDENTIAL PRODUCTS AND SERVICES
INTERNET ACCESS SERVICES. Our VersaTel Internet subsidiary offers dial-up
and ISDN Internet access services to residential customers and expects to offer
DSL Internet access service to residential customers in The Netherlands and
Germany within the next 12 months. Residential Internet services are offered
primarily by VersaTel Internet's Free Internet service provider Zon. Zon offers
dial-up Internet access, e-mail and certain web hosting services, as well as
general information content.
SALES AND MARKETING
We seek to capitalize on our position as a competitive communications
service provider that offers comprehensive customer service and competitively
priced communications services in the Benelux and Northwest Germany with a focus
on small- and medium-sized businesses. We believe that we have created a
prominent brand name in our target market that we expect to apply successfully
throughout the Benelux and Northwest Germany. We market the majority of our
products and services under the VersaTel brand name through several marketing
channels, including database marketing, targeted telemarketing, brand and
promotional advertising, direct mail and our sales force.
Our sales force is comprised of direct sales personnel, telemarketers and
independent sales agents. At December 31, 1999, we had 80 direct sales personnel
in The Netherlands, 30 in Belgium and 16 in Germany. In the future, we expect to
increase the number of our direct sales personnel and open additional sales
offices in selected locations. Our sales personnel make direct calls to
prospective and existing business customers, analyze business customers' usage
and service needs, and demonstrate how our services may improve a customer's
communications capabilities and costs. Each member of our sales force is
required to complete our intensive training program. In addition, we have a
telemarketing group that screens prospective customers and monitors existing
call volumes to identify prospective customers.
Our sales force is organized in the following four groups to target the
primary customer segments with a focused product portfolio that matches the
needs of these customer segments:
BUSINESS SERVICES. Our business services sales force targets small- and
medium-sized businesses throughout our target market. The customers targeted by
this group currently access our network indirectly by either manually dialing or
automatically dialing through an auto-dialer or through a pre-programmed PBX our
"1611" carrier select code. The services offered to these customers also include
ISDN, Internet and LAN to LAN interconnection services.
LOCAL ACCESS SERVICES. Our local access services sales force targets
potential customers along our network with a high bandwidth service package
consisting of voice, data and Internet products. Unlike most other competitive
alternative communications services providers who focus primarily on large
international cities, we will be able to offer high bandwidth services to our
customers at any point along our network. The customers targeted by this team
will access our network directly through leased lines or, upon its deployment,
through our own local access infrastructure.
DATA SERVICES. Our data services sales force targets potential customers
with multiple locations throughout our target market with high bandwidth
requirements. These potential customers include medium- to large-sized
organizations that are located more than five kilometers from our network or do
not seek a direct connection to our network.
10
<PAGE> 16
CARRIER SERVICES. Our carrier services sales force markets our product
portfolio to other telecommunications and ISPs, including switchless resellers,
in our target market and the countries reached by our international network. Our
focus is on developing a broad range of services that address the specific needs
of carrier customers.
CUSTOMERS
We market our services on a retail basis to business and certain selected
residential customers and on a wholesale basis to other carriers and service
providers.
SMALL- AND MEDIUM-SIZED BUSINESSES. Our target customers are primarily
small- and medium-sized businesses (businesses with fewer than 500 employees)
and larger customers of high bandwidth data services. We focus particularly on
business and industry segments which have historically generated significant
volumes of national and international traffic, such as financial services,
information technology services, transportation and import and export. We
believe 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.
CARRIER CUSTOMERS. Our carrier customers are global and regional network
operators, ISPs and switchless resellers serving specific market segments in the
Benelux. We focus primarily on high capacity and high volume customers. We
believe that new entrants to the telecommunications services market that provide
voice, data or Internet services in the Benelux region will require quality
carrier services and high bandwidth services to develop their market position.
RESIDENTIAL CUSTOMERS. Our residential customers are primarily subscribers
to our free ISP Zon. Zon offers dial-up Internet access services, e-mail and
certain web-hosting services to residential subscribers as well as general
information content. Zon receives fees from KPN Telecom based on the local call
traffic generated by subscribers and generates advertising revenues from banner
advertisements.
Our initial focus with respect to residential customers had been to market
our services to employees of our business customers and to residential customers
in certain niche markets characterized by high-volume calling patterns.
Recently, we have refocused our efforts and now intend to access the residential
market for long distance telephony services only in our capacity as a wholesaler
of carrier hosting services to switchless resellers of long distance telephony
to residential customers. We believe that this approach is a more cost-effective
way of generating long distance telephony revenues from the residential market
segment.
The following table sets forth our customer base for telephony services as
of the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------
1995 1996 1997 1998 1999
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
THE NETHERLANDS
-- Business customers......................... 34 669 2,014 6,272 8,311
-- Residential customers...................... -- -- 230 1,698 1,615
-- Wholesale customers........................ 1 1 1 4 21
BELGIUM
-- Business customers......................... -- -- -- 368 3,103
-- Wholesale customers........................ -- -- -- -- 5
GERMANY
-- Business customers......................... -- -- -- -- 4,421
-- Residential customers...................... -- -- -- -- 1,533
-- Wholesale customers........................ -- -- -- -- 19
----- ----- ----- ----- ------
TOTAL........................................... 35 670 2,245 8,342 19,028
===== ===== ===== ===== ======
</TABLE>
11
<PAGE> 17
CUSTOMER SERVICE
Our goal is to maintain an advantage over our competitors in our target
markets by providing superior customer service. We believe that providing a high
level of customer service is a key element to establishing customer loyalty and
attracting new customers. We have dedicated customer service representatives who
initiate contact with our customers on a routine basis to ensure customer
satisfaction and market new products. Customer service representatives are
available 24 hours a day, 365 days a year. In addition, we provide detailed
monthly billing statements and monthly call management reports which identify
savings to customers and enable them to manage their telecommunications
expenditures more effectively.
We also believe that technology plays an important role in customer
satisfaction. Advanced technological equipment is crucial to enabling the
provision of high quality service to our customers. We seek to reduce technical
risks as much as possible by buying proven products from world leaders in the
applicable technology. We have installed sophisticated status-monitoring and
diagnostic equipment at our network operations center and plan to install
similar units on our SDH equipment and in our new network operations center.
This equipment allows us to identify and remedy network problems before they are
detected by customers. We believe that by providing superior customer service
and through the effective use of technology, we can maintain a competitive
advantage in our target markets.
BILLING AND INFORMATION SYSTEMS
We are in the process of replacing our billing, customer care and sales
support system. Sophisticated billing and information systems are vital to our
growth and our ability to bill and receive payments from customers, to reduce
our credit exposure and to monitor costs. We had scheduled to replace our
existing billing system during the second quarter of 1999 with a billing system
designed by Saville Systems. We have experienced multiple delays in the
implementation of this new system and have been forced to rely in the meantime
on upgrades of our current system. These upgrades have not always been
successful and in 1999 and early 2000 we had certain difficulties in invoicing
customers promptly. These difficulties included problems with invoicing certain
customers as a result of a year 2000 specific problem. We believe that we have
now however resolved these problems and expect to complete the implementation of
our new billing system by the second quarter of 2000.
We have planned and budgeted enhancements to our information systems to
handle the growth in the size and complexity of our business, our customer base
and our product portfolio in areas such as work flow, fixed asset management,
sales support and service provisioning.
MINORITY HOLDINGS
We have interests in the following city carriers as a result of our
acquisition of VEW Telnet:
TELEBEL GESELLSCHAFT FUR TELEKOMMUNIKATION BERGISCHES LAND MBH, WUPPERTAL,
GERMANY
- Shares held by VEW Telnet: 25.1%
- Additional shareholders: Wuppertaler Stadtwerke AG, Wuppertal GmbH,
Engel GmbH & Co. KG, Stadtsparkasse Wuppertal, Stadtsparkasse Solingen
and Vermogensbetrieb Stadt Solingen
- 750,000 inhabitants in license area
DOKOM GESELLSCHAFT FUR TELEKOMMUNIKATION MBH, DORTMUND, GERMANY
- Shares held by VEW Telnet: 10%
- Additional shareholders: Stadt Dortmund, Dortmunder Stadtwerke AG,
Dortmunder Energie-und Wasserversorgung GmbH, Stadtsparkasse Dortmund
and Westfalische Ferngas-AG
- 600,000 inhabitants in license area
RUHRNET GESELLSCHAFT FUR TELEKOMMUNIKATION MBH, SCHWERTE, GERMANY
- Shares held by VEW Telnet: 24%
12
<PAGE> 18
- Additional shareholders: Technopark Schwerte GmbH, Stadtsparkasse
Schwerte and Stadtwerke Schwerte GmbH
- 100,000 inhabitants in license area
We are currently in discussions regarding a potential sale of these
investments in exchange for IRU capacity in the region.
We also hold an interest of 5% in BORnet GmbH, Stadtlohn, Germany which is
another city carrier, and an interest of 9% in Hot Orange B.V., an e-commerce
company in The Netherlands. We also have certain cooperation agreements with
additional city carriers in Germany.
COMPETITION
Until recently, the telecommunications market in each EU Member State was
dominated by its respective PTT. Since the implementation of a series of
European Commission directives beginning in 1990, the EU Member States have
started to liberalize their respective telecommunications markets, 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, Luxembourg and Germany, we compete or will
compete primarily with the national PTTs. As the former monopoly 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 ours. In addition, the national PTTs own and operate
virtually all of the infrastructure which we must currently access to provide
our services. We estimate that in each of these countries the national PTT still
controls the vast majority of the telecommunications market, including the
market with respect to DSL services.
In addition, various new providers of telecommunications services have
entered the market in each of these countries, targeting various segments of the
market. Companies such as Telfort, a company formed by British Telecom and
Nederlandse Spoorwegen N.V., the Netherlands railroad company, as well as Global
One Communications, MCI Worldcom, GTS/Esprit Telecom and EnerTel, compete with
KPN Telecom for contracts with large multinational companies in The Netherlands.
MCI Worldcom, British Telecom, AT&T, TeleNet, France Telecom, COLT Telecom,
Unisource, a subsidiary of KPN Telecom, and GTS/Esprit Telecom compete with
Belgacom for contracts with large multinational companies in Belgium.
13
<PAGE> 19
The following table sets forth important competitors in the areas of voice,
data, Internet and carrier services:
<TABLE>
<CAPTION>
MARKET THE NETHERLANDS BELGIUM GERMANY
- ------ --------------- ------- -------
<S> <C> <C> <C>
Voice KPN Telecom Belgacom Deutsche Telekom
Telfort MCI Worldcom MCI Worldcom
MCI Worldcom GTS/Esprit Telecom Mobilcom
GTS/Esprit Telecom Mannesmann
COLT Telecom Viag Interkom
Data KPN Telecom Belgacom Deutsche Telekom
Global One MCI Worldcom MCI Worldcom
Telfort COLT Telecom
Mannesmann
Business Internet KPN Telecom Belgacom Deutsche Telekom
MCI Worldcom/UUNet TeleNet MCI Worldcom
Wirehub Mannesmann
EuroNet AOL/Bertelsmann
Residential Internet World Online Wanadoo T-Online
Chello Internet Online AOL
Freeler Sky Net CompuServe
Freebel
Carrier Services KPN Telecom Belgacom Deutsche Telekom
MCI Worldcom MCI Worldcom MCI Worldcom
EnerTel/WorldPort GTS/Esprit Telecom Mannesmann
GTS/Esprit Telecom Viag Interkom
</TABLE>
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 the 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
VersaTel's product and service offerings.
The current regulatory framework in the EU and in the countries in which we
provide our services or intend to provide our 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 us, that national
or international regulators or third parties will not raise material issues with
regard to our compliance or noncompliance with applicable regulations or that
any changes in applicable laws or regulations will not have a material adverse
effect on us.
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
14
<PAGE> 20
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. As a result, many
new entrants entered the market, labeling their services as closed user group
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
regulatory authorities were to use this cost information to set cost-oriented
tariffs for leased lines. The purpose of the 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 EC issued the Full Competition Directive, which requires EU
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 VersaTel to lease transmission capacity
from companies other than the PTTs. The Full Competition Directive also
established January 1, 1998 as the date by which the EU Member States had to
establish a legal framework which removes all remaining restrictions on the
provision of telecommunications services, including voice telephony. Although
Spain, Greece, Portugal, Ireland and Luxembourg were each allowed to delay
implementation for various periods, only Greece had not implemented the Full
Competition Directive as of January 1, 1999. 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.
In addition to the Full Competition Directive, the EC 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 select the long distance or international
carrier of their choice on a call-by-call basis) as of January 1, 1998, and
carrier pre-selection (ensuring that end-users can select the long distance or
international carrier of their choice prior to the time calls are made) 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.
In December 1999 the European Commission published a draft policy document
to review the present regime for telecommunication regulations in the European
Union, which in general continues the present regime. After consultations with
the industry and other stakeholders, a political review is likely to lead to a
new set of directives which will take effect around the year 2003. Certain
principal issues which are likely to be changed include institutional structure
and the reduction of the size of the regulatory framework.
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
15
<PAGE> 21
high level of openness, others have delayed the full implementation of the
directives and maintain several levels of restrictions on full competition.
There are currently few laws and regulations that specifically regulate
communications on the Internet. European and U.S. Government authorities and
agencies are considering laws and regulations that address issues such as user
privacy, pricing, on-line content regulation and taxation of on-line products
and services. In November 1995, the EC adopted a general directive regarding
certain privacy rights of citizens of EU Member States and in December 1997, the
EU adopted another directive designed to specifically address privacy rights in
the area of telecommunications services. These directives impose restrictions on
the collection and use of personal data, guaranteeing citizens of EU Member
States the right of access to their data, the right to know where the data
originated and the right to recourse in the event of unlawful processing.
Although, to the best of our knowledge, no European court has ever held a
telecommunications services provider liable for content transmitted over its
network, we can give no assurances that no laws or regulations will be adopted
that will impose such liability, or that any future court rulings will not
impose such liability. Any future regulation of the Internet could impose
restrictions on the way we conduct our business and could seriously affect our
business.
An overview of the regulatory framework in the individual markets where we
operate or intend 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. We
require licenses, authorizations or registrations in all countries in which we
operate to provide our services. Licenses, authorizations and/or registrations
have been obtained in The Netherlands and Belgium and we have received an
International Facilities License in the United Kingdom. We intend to apply for
such licenses and registrations in Luxembourg and France in the near future.
Although we expect that these licenses and registrations will be granted, there
can be no assurance that we will be able to obtain such licenses, authorizations
or registrations or that our operations will not become subject to other
regulatory authorization or registration requirements in the countries in which
we operate or plan 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 had 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 VersaTel Network.
As part of the liberalization of the Netherlands telecommunications market,
the new independent supervisory authority, 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. The rulings of OPTA, to date, have given us
confidence that new providers of telecommunications services will be granted
fair and equal access to the market in The Netherlands.
The Telecommunications Act also requires providers of public
telecommunications services to comply with the specific privacy provisions
contained in the act, which are based on the privacy directive of December 1997.
In general, providers of public telecommunications services must ensure the
protection of personal data and privacy of subscribers and remove the processed
data on subscribers with respect to the actual use of the network. In The
Netherlands, ISPs are considered to be providers of public telecommunications
services referred to in the Telecommunications Act. As a result, ISPs are also
bound by the specific privacy provisions for providers of public
telecommunications services contained in the Telecommunications Act.
In August 1997, we obtained one of the first Netherlands registrations to
operate as a telecommunications service provider of public voice telephony
(other than KPN Telecom). In September 1997, we obtained an infrastructure
license with rights-of-way for the construction and operation of
telecommunications facilities in a limited geographic area. In December 1998, we
obtained the first authorizations under the new telecommunications act to
operate as a public telecommunications services provider and network operator.
We have received
16
<PAGE> 22
licenses which allow us to test point-to-multipoint radio technology in The
Netherlands. It is expected that The Netherlands Government will conduct an
auction of five frequency blocks in the 26 Giga Hertz band, of two frequency
blocks each of the 3.5 and 2.6 Giga Hertz bands for this point-to-multipoint
radio technology (fixed-wireless access) in 2000. It is also expected that The
Netherlands Government will conduct an auction of licenses to provide
third-generation UMTS technology mobile telecommunications licences in 2000.
Since our founding in October 1995, we have adopted a proactive regulatory
strategy. In October 1996, we successfully challenged KPN Telecom's use of our
invoice records to offer our 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 KPN Telecom to
stop using information regarding the calling behavior of customers for
competitive activities, such as approaching our 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 EC had delegated this matter, has recently ruled that these discount plans
indeed violate competition law principles and has required KPN Telecom to change
them.
We were 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 was introduced on January 1, 2000, allows customers the
option to pre-select a carrier other than KPN Telecom for all their
international and national long distance calls. We continue to seek to obtain
lower interconnection rates from KPN Telecom. In July 1998, OPTA required KPN
Telecom to reduce its origination and termination charges by approximately 55%
and 30%, respectively, and in December 1998 that such reduced rates should apply
through to December 31, 1999. These rates may be increased retroactively for the
period from January 1, 2000 to December 31, 2000. The terms and conditions of
interconnection have had and will continue to have a material effect on the
competitive position of VersaTel.
In December 1998, OPTA issued a ruling on KPN Telecom's national long
distance end-user tariffs, which were deemed contrary to the principles on cost
orientation. As a result, KPN Telecom lowered its end-user tariffs for its
national long distance services by approximately 10% in January 1999 and by
approximately 20% in May 1999. It is expected that OPTA's ruling will have some
negative effects on competition in The Netherlands.
In December 1998, VersaTel filed a complaint with OPTA asserting that the
limited access provided by KPN Telecom to the KPN Telecom network hampered
VersaTel's growth. Our customers often experienced busy signals when they tried
to dial into the VersaTel Network through our access code. Other Netherlands
telecommunications services providers voiced similar complaints. OPTA ruled that
KPN Telecom must allow us access to their entire interconnection network. In
addition, OPTA ruled that KPN Telecom would be responsible for the additional
costs associated with the implementation of such ruling. The ruling does not
affect KPN Telecom's access rates.
In March 1999, OPTA issued a ruling, requiring KPN Telecom to offer
unbundled access to local customer access lines at the MDF in KPN Telecom's
central exchange offices. Unbundled local access enables us to offer a high
speed access to end-users that are not directly connected to our network.
In September 1999, the mobile operators KPN Telecom and Libertel were found
to have significant market power which effectively means that other companies
such as VersaTel can request transparent and non-discriminatory interconnection
with the networks of these operators. Libertel has however objected to this
finding which has consequently suspended its effect until such time as a
decision is made as to the validity of such objection. We have in turn objected
to such suspension and are awaiting a decision as to whether it should continue
to apply.
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 Belgium
17
<PAGE> 23
Institute for Post and Telecommunications (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
administrative 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.
On the basis of the amended telecommunications act, we applied for a
license to construct and operate public telecommunications infrastructure and a
license to provide voice telephony nationwide. Both licenses were granted in
June 1998. For marketing purposes, we have reserved the same carrier select code
"1611" as we currently use in The Netherlands. In August, 1998, we obtained
interconnection with Belgacom for carrier selection and call termination
services in advance of concluding a definitive interconnect agreement in
November 1998.
In July 1998, various Royal Decrees were published to replace the temporary
regime with a definitive one. On that basis, we had to file new applications for
an infrastructure license and a license for voice services. On November 9, 1998,
we were the first alternative telecommunications services provider to obtain a
definitive license for the provision of voice services. On December 21, 1998, we
obtained a definitive infrastructure license in Belgium and thereby obtained
rights of way in all of Belgium and a special interconnect tariff which is 15%
below the tariff for non-facilities based voice service providers.
Pursuant to the new telecommunications act, Belgacom was required as of
January 1, 2000, to introduce number portability and carrier pre-selection
(equal access). However, we expect the implementation to commence by July 2000.
Belgacom is also expected to approve radio local-access and auction
fluid-generation UMTS mobile telecommunications licenses by the end of 2000.
The Belgisch Instituut voor Post en Telecommunicatie is also expected to
grant licenses for the utilization of point-to-multipoint systems for broadband
fixed wireless access. However, the procedure of assignment has not been chosen
by the Belgisch Instituut voor Post en Telecommunicatie. VersaTel intends to
file applications once such procedures are implemented.
In September 1999, Belgacom introduced a number of new discount schemes
which VersaTel deems to be anti-competitive. VersaTel filed a complaint at the
relevant court dealing with competition issues requesting the court to suspend
these discount schemes. A ruling on this complaint is expected in 2000.
GERMANY
The German Telecommunications Act of July 25, 1996, ended the legal
monopoly of Deutsche Telekom AG for the provision of voice telephony and of
public telecommunications networks, and immediately liberalized all
telecommunications activities, but postponed effective liberalization of voice
telephony until January 1, 1998. Since January 1, 1998, the German
telecommunications market has been completely open to competition and a new
regulatory authority, the Regulierungsbehorde fur Telekommunikation und Post
("RTP"), was installed. The German Telecommunications Act has been complemented
by several Ordinances. The most significant Ordinances concern license fees,
rate regulation, interconnection, universal service, frequencies and customer
protection.
Under the German regulatory scheme, the RTP can grant licenses in four
license classes. A license is required for operation of transmission lines that
extend beyond the limits of a property and that are used to provide
telecommunications services for the general public. The licenses required for
the operation of transmission lines are divided into 3 infrastructure license
classes: mobile telecommunications (license class 1); satellite (license class
2); and telecommunications services for the general public (license class 3). In
addition to the infrastructure licenses, an additional license is required for
operation of voice telephony services on the basis of self-operated
telecommunications networks (license class 4). A class 4 license does not
include the right to operate transmission lines. Licensees that operate
transmission lines crossing the boundary of a property have the
18
<PAGE> 24
right to install transmission lines on, in and above public roads, squares,
bridges and public waterways without payment; however, when installing
transmission lines a planning agreement must be obtained from the relevant
authorities. The RTP establishes license fees, and the level of fees imposed on
licensees is the subject of several complaints to the RTP and German courts. VEW
Telnet has obtained both a class 3 license and a class 4 license for the
Westfalia-Lippe region.
Fixed Network Market: The RTP approved, among other things, distance-based
interconnection rates which Deutsche Telekom can charge alternative network
operators to interconnect their network and route their traffic through the
network of Deutsche Telekom. The more points of interconnection ("POIs") a
carrier establishes and connects with the network of Deutsche Telekom, the
shorter are the distances Deutsche Telekom carries the traffic and the lower are
the distance-based interconnection rates such carrier has to pay to Deutsche
Telekom.
The current standard draft interconnection agreement and the network
concept of Deutsche Telekom requires that carriers interconnecting with Deutsche
Telekom establish 23 POIs within certain time frames. Such migration concept
might lead to further investments by us in the future. The delivery periods to
receive E1 interconnection connections from Deutsche Telekom are very long and
might postpone the growth of our business in Germany in the future.
The RTP has extended the current rate regime, which expired on December 31,
1999, for an interim period until a new regime receives the RTP's approval. It
is expected that the new interconnection regime will contain element-based rates
instead of distance-based rates as well as several changes in the standard
interconnection agreements. The RTP announced that it might consider Deutsche
Telekom not in all segments of the market as a market dominating carrier. These
segments would fall outside the scope of the rate regulation regime and Deutsche
Telekom would no longer be obliged to request prior approval of its rates from
the RTP.
Internet/Data Services: A broad variety of local and nationwide Internet
access and content providers offer their services in the German market. Internet
access charges have decreased in recent months and alternative carriers operate
their own backbone networks but are still to a large extent dependent on the
interconnection rates to address the traffic to their subscribers.
Local Loop: In the local loop (access to the subscriber lines), the market
position of Deutsche Telekom two years after liberalization is still extremely
strong and only a limited number of competitors are currently operating. These
alternative carriers focus mainly on business customers and are active primarily
in the metropolitan areas with a high density of inhabitants. With the
allocation of Wireless Local Loop point-to-multipoint frequencies to alternative
carriers in the fall of 1999, the RTP expects that competition in the local loop
will increase in the near future. In addition, Deutsche Telekom is in the
process of selling its broadcasting cable network which has been split for this
purpose into nine regions. The broadcasting network is considered after further
investments by the new owners as the second alternative network in the local
loop. These networks will compete in the future with VEW Telnet's network.
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 Luxembourg Institute of Telecommunications (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.
In the second quarter of 1998, the Institut Luxembourgeois des
Telecommunications, in co-operation with the Ministry of Telecommunications,
published most of the secondary legislation and rulings with the intention to
provide a full liberalization of the telecommunications market. However, in the
third quarter of 1998, the EC initiated an infringement procedure against
Luxembourg asserting the insufficient implementation of the liberalization
directives and certain other directives. It primarily concerned the definition
of "universal service," the vocal telephony licensing procedure, the financing
of the Luxembourg Institute of Telecommunications and
19
<PAGE> 25
the adaptation of the Luxembourg law in line with the EC Satellite Directive. In
most instances, the situation was assessed as resulting mainly from delays in
the adoption of the secondary legislation.
In January 1999, the Luxembourg government started a consultation period
which may lead to an assignment procedure for frequencies to operate
point-to-multipoint systems for broadband fixed wireless access.
INTELLECTUAL PROPERTY
We have registered the trademark "VersaTel" with the Benelux trademark
bureau (Benelux Merkenbureau). Applications for similar registrations are
pending in the other EU Member States. We have obtained rights to the Internet
domain name "www.versatel.com" and initiated formal registration procedures with
Internic, the European Union domain registration authority.
We have been operating our free Internet service under the Zon name since
September 1999 and have applied for trade mark registration of the Zon name and
logo. Sun Microsystems has contested our use of the Zon name and we are
currently in discussion with them on this matter. We can give no assurance that
we will reach a satisfactory agreement with Sun Microsystems enabling us to
continue to use the Zon name, nor that our applications will be successful or
that the Zon name and logo will not be successfully attacked by third parties
alleging prior rights or that the trade mark is otherwise valid.
EMPLOYEES
As of December 31, 1999, VersaTel had 902 full-time employees and
approximately 180 full-time consultants. In addition, we employ approximately 55
temporary employees at any given time. None of our employees is represented by a
labor union or covered by a collective bargaining agreement, and we have never
experienced a work stoppage. We consider our employee relations to be good.
20
<PAGE> 26
VERSAPOINT
VERSAPOINT
On March 8, 2000, we entered into a joint venture agreement with NorthPoint
Communications Group, Inc., a provider of high-speed, local data network
services in the United States, to form a new company, VersaPoint. VersaPoint
intends to deploy DSL equipment and sell DSL services on a wholesale basis to
Internet Service Providers and communications companies throughout the Benelux
and Northwest Germany, and eventually across Western Europe. Pursuant to the
joint venture agreement, we have agreed to purchase DSL services, when
available, from VersaPoint, and VersaPoint has agreed to lease lines, when
available, from VersaTel. VersaTel also has agreed to allow VersaPoint to
install its DSL equipment in more than 50 central office locations in The
Netherlands and Germany and to allow VersaPoint to lease VersaTel's existing
transmission lines in those areas. NorthPoint has agreed to provide VersaPoint
with certain management services to implement VersaPoint's strategy. We expect
that VersaPoint will launch its services by the end of the third quarter of
2000. By purchasing DSL services from VersaPoint, we believe we will accelerate
our ability to offer DSL services to business and residential customers
throughout our target market.
SHAREHOLDERS' AGREEMENT
In connection with the formation of VersaPoint we have entered into a
shareholders' agreement with Northpoint Communications Group, Inc. and
NorthPoint B.V. i.o. relating to the funding, ownership and governance of the
VersaPoint joint venture.
Funding. The shareholders' agreement provides that VersaPoint N.V. is to
be incorporated with an authorized capital of 1 billion class A and class B
shares each and 500 million class C shares. We are required to make an initial
cash capital contribution of E50 million in return for 500 million class A
shares. NorthPoint is required to make an initial cash capital contribution of
E50 million and will receive 500 million class B shares. The shareholders'
agreement requires that half of this initial capital contribution must be made
at the date of incorporation of VersaPoint N.V., which is expected to be March
31, 2000. The shareholders' agreement sets forth the procedures by which
additional funding for VersaPoint may be obtained, and, in addition, stipulates
that:
(i) any additional funding shall, as much as possible, be in the form of
debt financing and
(ii) any equity financing shall be approved by NorthPoint and us.
Ownership. All class A shares of VersaPoint shall be issued only to us or
one of our subsidiaries and all class B shares shall be issued only to
NorthPoint or one of its subsidiaries. In certain circumstances, NorthPoint and
we will be entitled to maintain the percentage ownership in VersaPoint, through
the acquisition of additional shares, at the time of an issuance of additional
shares. Subject to both NorthPoint and our approval, a third-party may acquire
equity of VersaPoint only in the form of class C shares. Any person who acquires
class C shares must become a party to the shareholders' agreement and must agree
to be bound by its terms. Each share of VersaPoint shall be entitled to one vote
and the rights attached to class A and class B shares will be equivalent.
The shareholders' agreement also provides that if either NorthPoint or we
receive an offer to purchase all or part of the shares of VersaPoint held by
either of us, the shareholder that receives the offer must first offer those
shares subject to the offer to the other shareholder on the same terms. The
non-offering shareholder can elect to purchase the shares offered by the
offering shareholder or it can require that any party who purchases the offering
shareholder's shares of VersaPoint must also purchase a proportionate amount of
its own shares on the same terms. In addition, NorthPoint and we shall not be
permitted to acquire class C shares from any person unless the other is given an
opportunity to purchase a proportionate amount of the class C shares.
Governance. VersaPoint will have a supervisory board that will, for so
long as NorthPoint and we each hold 10% of the outstanding share capital of
VersaPoint, consist of one member nominated by each of us and NorthPoint. In
addition, another supervisory board member may be nominated by each of us and
NorthPoint for each additional 20% of the share capital of VersaPoint that we
and NorthPoint hold. As a result, on the incorporation of VersaPoint, it is
expected that there will be three supervisory board members appointed by each of
NorthPoint and us. Other shareholders of NorthPoint will not have any rights to
appoint supervisory board
21
<PAGE> 27
members. The right to appoint the chairman of the supervisory board shall
alternate between NorthPoint and us. We may however lose this right if our
ownership of VersaPoint falls below 50%, as may NorthPoint if its ownership in
VersaPoint falls below the same level. The first chairman of the supervisory
board will be nominated by us.
The management board of VersaPoint shall consist of members appointed at a
general meeting of shareholders and shall be responsible for the operations of
VersaPoint. The shareholders will determine the size of the management board and
one member of the management board, determined by the shareholders, shall be the
chief executive officer of VersaPoint.
All resolutions of the shareholders require the approval of the majority of
the votes cast at a general meeting of shareholders in which at least a majority
of the class A shares, held by us, and the class B shares, held by NorthPoint,
are represented and are also voted in favor of the resolution. Certain matters
will require the approval of both NorthPoint and us. These matters include:
- the appointment, supervision and dismissal of a member of the management
board,
- the adoption of an annual operating plan and budget that is inconsistent
with the previously adopted annual operating plan and budget,
- the issuance of additional shares or the repurchase of outstanding
shares,
- an amendment of the articles of association of VersaPoint or the
dissolution or liquidation of VersaPoint,
- the declaration or payment of a dividend and
- the appointment of auditors.
Certain decisions of the management board require the approval of the
shareholders of VersaPoint. These include decisions related to certain matters
not contemplated in the annual operating plan and budget of VersaPoint, entering
into a new business or a material change in business strategy, significant
matters related to any subsidiary of VersaPoint and entering into or terminating
significant agreements with other parties. Other decisions of the management
board, including significant decisions that are contemplated by the annual
operating plan and budget of VersaPoint, require approval of the supervisory
board.
The shareholders' agreement includes a non-competition provision that
prevents NorthPoint and us from competing, directly or indirectly, with
VersaPoint, which will market its DSL services to wholesale customers throughout
Western Europe. However, in certain circumstances and subject to certain
procedures, we have the right to engage in the business to be conducted by
VersaPoint in order to build and operate our MDF sites and other DSL assets
where our involvement is incidental to our telecommunications operations. The
shareholders' agreement also provides mechanisms for the sale of certain of our
MDF sites and DSL assets to VersaPoint.
The shareholders' agreement shall remain in force indefinitely, and is
subject to amendment or termination if incompatible or inconsistent with the
listing of the shares of VersaPoint on a stock exchange.
COMMERCIAL SERVICES AGREEMENT
In connection with the creation of VersaPoint and entering into a
shareholder's agreement with NorthPoint and its subsidiary NorthPoint B.V. i.o.,
we have entered into a commercial services agreement with VersaPoint and
NorthPoint to provide VersaPoint with the necessary telecommunications
infrastructure and management, sales and marketing expertise to deploy its DSL
- -- digital subscriber lines -- services throughout Europe.
The commercial services agreement requires us to, among other things,
provide VersaPoint with all the necessary technology and information to order
unbundled digital loops from incumbent local exchange carriers, to make
available MDF -- main distribution frame -- space that we have leased at the
central offices of incumbent local exchange carriers and for us to make our
colocation and data centers and our transport and transmission services over our
network available to VersaPoint on terms that are at least as favorable as
offered by us to third-party customers. VersaPoint will be required, where our
co-location and data centers and our transport and transmission services are
competitive, to use our centers and services. We are also required, to the
extent
22
<PAGE> 28
possible, to allow VersaPoint to benefit from the agreements we have entered
into with vendors, contractors and incumbent local exchange carriers as our
affiliate. In addition, we are required to second to VersaPoint an interim chief
operating officer, interim chief financial officer, interim human resources
director, interim regulatory director and at least an additional 15 other
employees for up to 12 months.
NorthPoint is required to provide VersaPoint with certain DSL related
technology and services and also allow VersaPoint to benefit, to the extent
possible, from the agreements it has entered into with its vendors and
contractors as its affiliate. NorthPoint is also required to second to
VersaPoint an interim chief executive officer, interim chief information
officer, interim technical director, interim commercial director and at least an
additional 15 other employees for up to 12 months.
NorthPoint and our employees seconded to VersaPoint will continue to be
paid by their respective employers. VersaPoint will reimburse NorthPoint and us,
as the case may be, for the salary paid to such employee, including any
retirement and benefit plan payments (but excluding benefits received by such
employee under employee stock option plans).
All the proprietary information developed by VersaPoint, even where based
on the proprietary information of NorthPoint or us, shall be owned by
VersaPoint. NorthPoint and we will have the right to use this proprietary
information developed by VersaPoint, subject to the terms of a license agreement
and the payment of a license fee. We have granted VersaPoint a royalty-free
license to use "Versa" as part of its corporate name. Such license shall
terminate as soon as we no longer hold shares of VersaPoint and, at that time,
VersaPoint shall cease to use "Versa" as part of or in its trade name.
The term of the commercial services agreement shall be for ten years and
will automatically renew thereafter for one year periods. It can be terminated
by consent of all parties or in the event of a material breach.
23
<PAGE> 29
CERTAIN RISKS WHICH MAY AFFECT OUR BUSINESS
OUR HISTORY OF SUBSTANTIAL NET LOSSES MAY CONTINUE INDEFINITELY AND MAKE IT
DIFFICULT TO FUND OUR OPERATIONS.
For the year ended December 31, 1999 we had a loss from operating
activities of NLG 212.3 million and negative EBITDA of NLG 154.1 million. For
the year ended December 31, 1998, we had a loss from operating activities of NLG
46.5 million and negative EBITDA of NLG 40.0 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. In addition, we had an accumulated
deficit of NLG 528.5 million and NLG 92.3 million as of December 31, 1999 and
December 31, 1998, respectively. We expect to continue to incur significant
further operating losses for the foreseeable future as we incur additional costs
in the build out of our network, our expansion into Germany, the expansion of
our marketing and sales force and the introduction of new communications
services and products, including our Internet and DSL services. In addition, the
acquisitions of Svianed and VEW Telnet have caused, and the proposed acquisition
of KomTel will further cause us to incur additional operating losses. Although
we have experienced revenue growth since we commenced operations in 1995, there
can be no assurance our revenues will continue to grow. You should also be aware
that the prices of voice, data and Internet communications services have fallen
significantly in Europe in recent years, and as competition increases, we expect
that prices will continue to decline. As the cost of providing services
decreases, we expect these price reductions to be at least partially offset, but
you should be aware that we cannot be certain that we will achieve or, if
achieved, be able to maintain operating profits in the future.
OUR SUBSTANTIAL INDEBTEDNESS MAY HINDER OUR GROWTH AND PUT US AT A COMPETITIVE
DISADVANTAGE.
We have substantial indebtedness. In May 1998, we issued and sold units
consisting of $225,000,000 13 1/4% Senior Notes due 2008 and warrants to
purchase 3,000,000 (as adjusted) ordinary shares of VersaTel (the "First High
Yield Offering"). In December 1998, we issued and sold units consisting of
$150,000,000 13 1/4% Senior Notes due 2008 and warrants to purchase 2,000,100
(as adjusted) ordinary shares of VersaTel (the "Second High Yield Offering"). In
July 1999, we issued and sold $180,000,000 11 7/8% Senior Dollar Notes due 2009
and E120,000,000 11 7/8% Senior Euro Notes due 2009 (the "Third High Yield
Offering"), which was used in part to refinance interim loans (the "Interim
Loans") used for the purpose of financing in part our acquisition of Svianed. In
December 1999 we issued and sold 15,000,000 ordinary shares and E300,000,000 4%
Senior Convertible Notes due 2004 (the "First Convertible Notes Offering"), the
proceeds of which were used in part to fund capital expenditures related to VEW
Telnet, the roll-out of our DSL network, as well as working capital and other
general corporate purposes. As of December 31, 1999, our total long-term
obligations (including current portion) were approximately NLG 2,222.8 million.
Subject to limits imposed by our indebtedness, we may continue to incur
substantial additional indebtedness because the indentures governing the notes
issued in the First High Yield Offering (the "First Notes"), the notes issued in
the Second High Yield Offering (the "Second Notes"), the notes issued in the
Third High Yield Offering (the "Third Notes"; and together with the First Notes
and the Second Notes, the "High Yield Notes"), as well as the convertible notes
issued in the First Convertible Note Offering (the "Convertible Notes") do not
limit the amount of indebtedness that we may incur to finance the cost of the
development of our network.
COVENANTS IN OUR DEBT AGREEMENTS RESTRICT OUR ABILITY TO BORROW AND INVEST,
WHICH COULD IMPAIR OUR ABILITY TO EXPAND OR FINANCE OUR FUTURE OPERATIONS.
The indentures governing the High Yield Notes contain a number of covenants
that impose significant operating and financial restrictions on us and our
subsidiaries. These restrictions significantly limit, and in some cases
prohibit, among other things, our and certain of our subsidiaries' ability to
incur more indebtedness, create liens on assets, enter into business
combinations or engage in certain activities with our subsidiaries. These
covenants will also likely prohibit us from paying dividends or making other
distributions in respect of the ordinary shares for the foreseeable future. A
failure to comply with these restrictions would constitute a default under the
indentures governing the High Yield Notes, as well as under the Convertible
Notes, and as a consequence the High Yield Notes and the Convertible Notes could
become immediately due and payable, which would seriously adversely affect our
business and our shareholders' equity.
24
<PAGE> 30
Our high level of indebtedness and the limits imposed by our indebtedness
could have the following effects, among others:
-- we may have difficulty in paying the interest on our outstanding debt
and any newly incurred debt,
-- we may have difficulty finding sources of financing for working
capital, our capital expenditure requirements and the interest
payments on our outstanding debt,
-- we will be unable to use a significant portion of our cash flow in
our business and we may be unable to react to industry or economic
changes, because of the portion of cash flow directed to paying
interest and principal on our debt, and
-- we may be unable 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.
In order to obtain additional flexibility with respect to our operations
generally, and Versatel Internet and the acquisition of wireless licenses in
particular, we may seek consents from holders of the High Yield Notes to amend
certain of our covenants. Such consents would likely involve the payment of fees
to such holders. We can provide no assurance, however, that we will successfully
obtain such consents on satisfactory terms. If we are unable to obtain such
consents, we may not be able to develop and operate VersaTel Internet and our
wireless operations as we currently intend.
We are currently holding a substantial amount of cash which is being
maintained in U.S. government securities and European commercial paper.
DESPITE CURRENT LEVELS OF INDEBTEDNESS, WE MAY STILL BE ABLE TO INCUR
SUBSTANTIALLY MORE INDEBTEDNESS, WHICH COULD INTENSIFY THE RISKS DESCRIBED
ABOVE.
The indentures governing the High Yield Notes and the terms of the
Convertible Notes do not limit the amount of indebtedness that may be incurred
to finance the cost of development of our network and for certain other purposes
and permit us to incur a significant amount of additional indebtedness in the
future. In addition, our failure to comply with the covenants and restrictions
contained in the agreements governing any additional borrowings could trigger
defaults under such agreements. If we incur additional indebtedness, the related
risks that we now face could intensify. We anticipate that we will incur
additional indebtedness in the future.
POSSIBLE INABILITY TO MEET OUR DEBT SERVICE OBLIGATIONS MAY RESULT IN OUR
OUTSTANDING INDEBTEDNESS BECOMING DUE AND PAYABLE.
Our consolidated net interest expense for the year ended December 31, 1999
NLG 128.9 million. Our EBITDA for the year ended December 31, 1999 was
approximately NLG (154.1) million. Unlike the holders of the First Notes and the
Second Notes, the holders of the Third Notes and the Convertible Notes, do not
have the benefit of any securities placed in escrow to fund any interest
payments on such Notes. Accordingly, we will have to increase substantially our
net cash flow in order to meet our debt service obligations. In addition, after
May 15, 2001, we will no longer be able to rely on cash that has been set aside
in escrow to meet our debt service obligations on the First Notes and the Second
Notes. There is no certainty that we will be able to generate sufficient cash
flow from operating activities to pay interest and principal on the High Yield
Notes, the Convertible Notes or any other 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, Germany, and the rest of Europe. If we are unable to meet the repayment
obligations, we may have to refinance our indebtedness, including the High Yield
Notes and the Convertible Notes, sell our assets or obtain new financing. We
cannot assure you that any such refinancing would be possible or that any such
sales of assets or additional financing could be achieved. If we cannot
refinance or otherwise satisfy our debt obligations, we will be in default under
such obligations, which could in turn result in the High Yield Notes, the
Convertible Notes and other indebtedness becoming immediately due and payable.
Any
25
<PAGE> 31
default under the High Yield Notes or the Convertible Notes would have a
material adverse effect on our shareholders' equity.
WE WILL NEED TO OBTAIN CONSIDERABLE CAPITAL TO EXPAND OUR NETWORK WHICH MAY NOT
BE AVAILABLE ON ACCEPTABLE TERMS
We will require significant amounts of capital to further develop and
expand our network, our sales and marketing efforts and our product and service
offerings, including our DSL and Internet services. We expect that the capital
raised from the initial public offering of our ordinary shares completed in July
1999 (the "Initial Public Offering") the offering of 15,000,000 ordinary shares
completed in December 1999 (also referred to as the New Equity Offering, and
together with the Initial Public Offering referred to as the Equity Offerings),
the High Yield Offerings and the Convertible Notes Offerings, together with
other available financing and cash flow from operations, will be sufficient to
fund our current capital requirements and anticipated losses for at least the
next 12 to 18 months. However, we continually re-evaluate our business
objectives and are considering further acquisitions, expansions of our services
and acceleration of our current plans and we may raise additional capital during
the next 12 months. In the past, we have raised substantially more capital more
quickly than we had originally anticipated for similar reasons. We also have
substantial discretion with respect to how we use the proceeds we raise.
Although we believe that this additional capital would enable us to accelerate
our expansion plans, we cannot assure you that we will utilize these additional
proceeds effectively. Pending such utilization, we will invest the proceeds in
cash, government securities, or short term, investment grade interest bearing
investments permitted under the terms of the indentures governing the High Yield
Notes so as to avoid becoming an investment company under the U.S. Investment
Company Act of 1940. We are currently holding a substantial amount of cash from
our prior offerings.
If these sources are not sufficient or if our plans or assumptions change
or prove to be incorrect, 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. We may not be able to obtain additional financing or
we may not be able to obtain it on a timely basis or on terms favorable to us.
Our current debt obligations also restrict our ability to raise additional
financing and our subsequent use of any such additional financing. In addition,
any such additional financing is likely to be subject to additional financial
restrictions. A failure to acquire additional capital on acceptable terms may
seriously and adversely affect our business.
WE MAY ENCOUNTER DELAYS IN IMPLEMENTING ELEMENTS OF OUR BUSINESS STRATEGY, WHICH
COULD ADVERSELY AFFECT OUR GROWTH
Our future success depends upon our ability to expand and operate our
telecommunications network and our ability to successfully develop our existing
and new products and services. Our success will depend specifically on our
ability to obtain and maintain, among other things:
- experienced and qualified management and staff,
- additional switch, MDF and co-location sites,
- interconnection with the networks of PTTs and other carriers,
- necessary licenses,
- additional transmission facilities and
- 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. In 1998, we experienced a delay in obtaining rights-of-way on
approximately 60 kilometers of public property due to the uncertainty expressed
by some local governmental authorities as to the implications of a new
Netherlands telecommunications act. Although we ultimately obtained these
rights-of-way, these delays prevented us from completing part of our network
within our originally anticipated time frame. We and certain other carriers are
currently experiencing difficulties in obtaining a right-of-way necessary to
extend our networks to Brussels. In addition, we experienced additional delays
in the
26
<PAGE> 32
planned construction of the network due to flooding resulting from severe
weather conditions. More recently, we have experienced more delays and
difficulties than we had anticipated in connecting customer premises to
completed segments of our local access networks, forcing us to lease expensive
transmission capacity from third parties in the interim. We also have
experienced delays in migrating traffic generated by Svianed, one of our recent
acquisitions, onto our network, requiring us to maintain more expensive leased
line capacity. 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 European Commission 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 material adverse effect on our financial condition. Even if we
successfully develop our network, we cannot assure you that we will 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 our network and we cannot guarantee you that we will enter into
these agreements. Even if we enter into such agreements, we cannot be certain
that the development and construction will proceed as planned or will be
completed efficiently. In the past, we have been unsatisfied with some of such
arrangements. Further, our network depends on technology and products obtained
from vendors who also supply our competitors. Such vendors may stop supplying us
and we might not be able to find suitable replacements.
The development of our network is based on our projections of the growth in
traffic volumes and routing preferences and the most cost-effective means of
constructing our network. If our projections prove to be incorrect, it could
have a material adverse effect on our business.
IF WE FAIL TO MANAGE OUR RAPID GROWTH, OUR BUSINESS WILL BE ADVERSELY AFFECTED
Our growth strategy has placed and will continue to place a significant
strain on our management resources. In particular, our acquisitions and their
integration, including our acquisitions of VEW Telnet, Svianed, SpeedPort,
VuurWerk and ITinera and our pending acquisition of KomTel, will require a
significant amount of management time and resources. Our ability to manage this
growth will require us to substantially enhance our management, financial and
information systems and effectively develop and train our rapidly increasing
number of employees. Our billing system was identified by our auditors in 1998
as a potential weakness in our system of internal controls and has since been
replaced by a system designed by Saville Systems. Consequently we have, among
other things, revised our collection of financial data and call billing
procedures. In addition, we have introduced a customer care system designed by
Clarify. We have experienced delays in implementing the Saville system and full
implementation of such system will take longer than originally anticipated. As a
result of these delays, we have been forced to rely on upgrades of our current
system. These upgrades have not always been successful, and in 1999 and early
2000 we had difficulties in invoicing customers promptly. These difficulties
included problems with invoicing customers as a result of a year 2000 specific
problem. Although we believe we have corrected the problem, we cannot assure you
that these problems will not recur, and any such recurrance could have a
material adverse effect on customer relations and results of operations. In
addition, we will need to transfer the data collection, billing and customer
care functions of our recently acquired businesses onto our systems which may
cause delays in our collection and billing procedures and cause additional
implementation costs.
27
<PAGE> 33
As a result of our rapid growth, we have experienced problems with our
systems and controls. Although we believe that we have satisfactorily addressed
these problems, we cannot assure you that these problems or potential weaknesses
identified by ourselves or our auditors will not occur. Any such problems would
have a material adverse effect on our business, financial condition or results
of operations. Managing our growth will become even more challenging as we
expand our target markets and increase our product and service offerings. Our
inability to achieve or effectively manage this growth could materially and
adversely affect our business.
WE MAY HAVE DIFFICULTIES IN UPGRADING AND PROTECTING OUR NETWORK
The success of our network also depends on our continued ability to provide
high-quality telecommunication services by upgrading our systems and protecting
our network from external damage. As we grow, the timing and implementation of
these upgrades will become more important. We cannot guarantee you 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 construction work,
but also from events such as floods and other accidents that can disrupt
service. In particular, the construction of our Benelux network was delayed due
to significant rain and flooding of our ducts in The Netherlands during the last
three months of 1998. While we have established design and management techniques
to address any disruptions that may occur, any prolonged difficulty in accessing
our network may threaten our relationship with our customers and have a material
adverse impact on our business.
In connection with our recent acquisition of VEW Telnet, we entered into a
network maintenance agreement with VEW Telnet's former parent VEW Energie and,
as a result, we will be dependent on VEW Energie to maintain and protect a
portion of our network.
OUR MARGINS HAVE DECREASED RECENTLY BECAUSE OF OUR NEED TO LEASE TRANSMISSION
CAPACITY TO SUPPORT OUR INCREASING CUSTOMER BASE
We have aggressively pursued new customers and as a result have expanded
our customer base faster than we have been able to roll out our network. While
we believe that over the long term this will result in higher levels of revenue
and profitability, in the short term this situation has forced us to lease
expensive transmission capacity from third parties. More recently, we have
experienced more delays and difficulties than we had anticipated in connecting
customer premises to completed segments of our local access networks, forcing us
to lease expensive transmission capacity from third parties in the interim. We
have also experienced delays in migrating traffic generated by Svianed onto our
network, requiring us to maintain more expensive leased lines. As a consequence,
our margins have deteriorated in recent quarters, and we expect that they will
continue to decrease until we complete our network rollout and can migrate the
customers that are connected to our network by these leased lines to our own
network.
FAILURE TO COMPLETE THE KOMTEL ACQUISITION MAY ADVERSELY AFFECT OUR EXPANSION
PLANS IN GERMANY
We have recently agreed to acquire 80% of the outstanding common shares of
KomTel, a leading alternative fiber network operator in the Schleswig-Holstein
and Hamburg regions of Northern Germany. Although the closing of the acquisition
is anticipated to occur in the second quarter of 2000, we can provide no
assurance that the closing will not be delayed or the agreement terminated prior
to closing. The completion of the offerings is not conditional on the closing of
the KomTel acquisitions. If the Komtel acquisition is not completed, we may have
difficulty implementing our expansion plans in Germany and identifying an
alternative investment opportunity offering comparable returns and benefits to
our current business.
WE MAY HAVE DIFFICULTY INTEGRATING OUR ACQUIRED BUSINESSES
We have brought senior managers of many of our acquired businesses into our
management team and are relying on these individuals to assist us in integrating
these acquired businesses with our existing operations. There can be no
guarantee that we will be able to attract and retain managers from any newly
acquired businesses or be successful in integrating any new managers and
businesses from our recent acquisitions. In connection with the acquisition of
VEW Telnet and KomTel, we may suffer unexpected delays and costs in the
integration of
28
<PAGE> 34
VEW Telnet and KomTel due to our lack of prior operating experience in Germany.
In addition, we will need to devote certain of our senior managers to running
the VEW Telnet and KomTel businesses acquired and integrating it into our
operations. Accordingly, these managers will not be able to focus on managing
our existing operations.
We expect to realize operating synergies as a result of our recent
acquisitions. However, there is no assurance that we will be able achieve such
benefits or that the expected benefits will be realized within the time frame we
contemplate.
EXPANSION OF OUR DSL BUSINESS WILL REQUIRE US TO MAKE SIGNIFICANT CAPITAL
INVESTMENTS AND MAY POSE SIGNIFICANT TECHNICAL AND OPERATIONAL CHALLENGES
The expansion of our DSL business will require significant capital
investment. Because our DSL business is relatively new, we have limited
operating and financial data upon which to evaluate this business. Our DSL
business is in a developmental stage and is operating in a new and rapidly
evolving market. Some of the risks we face in establishing a successful DSL
business include:
- the timing and willingness of the former monopoly telecommunications
services providers in the European Union, commonly known as PTTs, to
provide us with central office space and the prices, terms and
conditions on which they make the space available to us. Central office
space is an important factor in our DSL strategy because we must secure
physical space from these entities for our equipment in order to provide
our services in our targeted markets;
- our ability to identify, access and initiate service in our target
regions,
- our ability to succeed in securing the unbundled lines or telephone
wires that connect each DSL end-user to our equipment located in the
central offices of the PTTs,
- PTTs have in the past imposed significant obstacles on our ability to
efficiently install our services, and we expect that they will continue
to do so, particularly as our DSL services will be a source of
significant competition for their lucrative business of providing leased
fiber optic lines. In particular, these PTTs must cooperate with us for
(a) the provision and maintenance of transmission facilities, and (b)
the use of their technology and capabilities to meet certain
telecommunication needs of our customers and to maintain our service
standards and
- certain tests indicate that some types of DSL technology may cause
interference with and be interfered with by other signals present in
PTTs' copper plant, usually with lines in close proximity. Such
interference concerns have been, and we expect may in the future
continue to be, used by the PTTs as a reason to delay the development of
our services.
The DSL business is expected to be extremely competitive. COLT Telecom, for
example, recently announced its intention to significantly expand its DSL
business efforts throughout Europe.
WE MUST ESTABLISH AND ENHANCE OUR ZON BRAND IN ORDER TO COMPETE EFFECTIVELY IN
THE FREE INTERNET SERVICE MARKET
We believe that in order to develop Zon into a viable business, we must
continue to invest significant marketing and other resources in order to
establish, maintain and enhance the Zon brand. We have been operating our free
Internet service under the Zon name since September 1999 and have applied for
trade mark registration of the "Zon" name and logo. Sun Microsystems has
contested our use of the Zon name and we are currently in discussion with them
on this matter. We cannot assure you that we will reach a satisfactory agreement
with Sun Microsystems enabling us to continue to use the Zon name, nor that our
applications will be successful or that the Zon name and logo will not be
successfully attacked by third parties alleging prior rights or that the trade
mark is otherwise valid. In order to attract and retain users and to promote and
maintain our brand or future brands we may need to substantially increase our
marketing and development expenditures. Our ability to raise financing for these
activities, on a stand-alone basis or otherwise, is limited by the terms of our
current debt instruments. Our business could be adversely affected if our
efforts are unproductive or if we cannot increase our brand awareness.
29
<PAGE> 35
THE COMPETITION FOR USERS IN THE INTERNET SERVICE MARKET IS VERY INTENSE AND MAY
RESULT IN A DECREASE IN OUR USER BASE AND IN OUR REVENUE
Our Internet division operates in the Internet services market, which is
extremely competitive. Our Internet competitors include many large companies
that have substantially greater market presence and greater financial,
technical, marketing and other resources. Our Internet operations compete for
registered and other users, and, consequently, e-commerce and advertising
revenue, directly or indirectly, with the following categories of companies:
- traditional providers of Internet access in the Benelux which currently
charge for Internet access, such as Planet Internet, World Online, World
Access, Chello, Sky Net and Online Internet,
- online service providers which charge for Internet access, consisting
primarily of U.S. providers such as AOL and Compuserve,
- other free online services in the Benelux such as Freeler, Wanadoo,
Wish, Freebel and NOK NOK,
- some Benelux retailers who offer free Internet access, such as My Web,
- universal and specialised Internet sites containing comprehensive
information and services, or portals, consisting primarily of U.S. sites
such as Yahoo!, Excite, Lycos, Infoseek and Netscape,
- Internet communities, such as Geocities and FortuneCity and
- high speed and broadband Internet access providers in the Benelux.
As a result of this competition, our Internet division's user base, as well
as our connectivity, e-commerce and advertising revenue may decrease, which
could have a material adverse effect on our operations.
COMPETITION IS HEIGHTENED BY THE RAPID GROWTH IN THE NUMBER OF LOW COST AND FREE
PROVIDERS OF INTERNET ACCESS
Our Internet division's competition in the Internet area is likely to
increase because the Internet services market has no substantial barriers to
entry, low or no switching costs for registered users and no switching costs for
other users. Numerous companies have introduced free Internet access in the
Benelux, while some existing online services have stopped charging access fees.
Because VersaTel Internet's registered users have a variety of no-cost
alternatives to our service, they may have more than one Internet account or may
switch to another free Internet access provider if they are unable to gain
access to our service. As a result, usage of VersaTel Internet's services by
registered users may decrease and/or our customer turnover may increase. This
would reduce our connectivity, e-commerce and advertising revenues and may make
it more difficult for us to attract and retain advertisers.
THE MARKET FOR INTERNET ADVERTISING IS UNCERTAIN AND OUR ADVERTISING REVENUE MAY
DECREASE
We expect to derive a substantial amount of revenue from Internet
advertising. However, the demand and market acceptance for Internet advertising
is uncertain. There are currently no standards for the measurement of the
effectiveness of Internet advertising. If such standards do not develop,
existing advertisers may not continue their levels of Internet advertising.
Furthermore, advertisers that have traditionally relied upon other advertising
media may be reluctant to advertise on the Internet. VersaTel Internet's
business would be adversely affected if the market for Internet advertising
fails to develop or develops more slowly than expected.
Different pricing models are used to sell advertising on the Internet. It
is difficult to predict which, if any, will emerge as the industry standard.
This makes it difficult to project our future advertising rates and revenue. Our
advertising revenue could also be adversely affected if we are unable to adapt
to new forms of Internet advertising. Moreover, software programs that limit or
prevent advertising from being delivered to an Internet user's computer are
available. Widespread adoption of this software would adversely affect the
commercial viability of Internet advertising and adversely affect our revenues.
30
<PAGE> 36
Furthermore, we believe that the number of Internet companies relying on
Web-based advertising revenue will increase greatly in the future. In addition,
VersaTel Internet also competes for advertisers and advertising revenue with
traditional forms of media such as newspapers, magazines, radio and television.
Accordingly, it is likely that VersaTel Internet will face increased
competition, resulting in increased pricing pressures on our advertising rates
which could in turn have a material adverse effect on our business, results of
operations and financial condition.
VERSATEL INTERNET'S ABILITY TO COLLECT PERSONAL DATA ON ITS REGISTERED USERS MAY
BE RESTRICTED AND MAY HINDER OUR ABILITY TO GENERATE E-COMMERCE OR ADVERTISING
REVENUE
We must comply with applicable data protection legislation, which limits
our ability to collect and use personal information relating to our users.
Increased awareness on the part of the public of privacy issues and changes to
legislation with which we may have to comply could impact our ability to use
such personal information for the benefit of our business, which could affect
our financial results.
VERSATEL INTERNET MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE OUR USERS'
PERSONAL INFORMATION
If third parties penetrate our security or otherwise misappropriate our
users' personal information or credit card information, we could be subject to
liability. These liabilities could include claims for unauthorised purchases
with credit card information, impersonation or other similar fraud claims. They
could also include claims for violation of data protection rights. If such
claims are not settled, they could result in litigation which could have an
adverse effect on our business.
INTERNET SECURITY CONCERNS COULD HINDER E-COMMERCE
The need to transmit confidential information securely over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. VersaNet's business may be affected by problems caused by computer
viruses, security breaches and other inappropriate uses of our network, such as
e-mail "spamming", or junk e-mail. Any well-publicized compromise of security
could deter people from using the Internet or using it to conduct transactions
that involve transmitting confidential information. VersaTel Internet may incur
significant costs to protect itself against the threat of security breaches or
to alleviate problems caused by such breaches. In addition, alleviating these
problems may cause interruptions, delays or cessation in service to our users,
which could cause them to stop using our service or assert claims against
VersaTel Internet or cause us to lose revenues for the time our site is not
operational.
ONE CUSTOMER REPRESENTS A SIGNIFICANT PORTION OF OUR REVENUES
As a result of our acquisition of Svianed in June 1999, in excess of 17% of
our revenues for the year ended December 31, 1999, on a combined pro forma basis
with Svianed and VEW Telnet, would have come from the Gak group of companies.
The Gak group is under contract to use our data services until May 2001. We
cannot assure you that we will be able to retain the Gak group as a customer
after May 2001 or that our revenues from the Gak group would not thereafter be
significantly curtailed. We cannot assure you that any such lost revenues could
be replaced. A loss of the revenues derived from the Gak group, without
significant replacement revenue from other sources could have a material adverse
effect on our business.
OUR LIMITED HISTORY AND EXPERIENCE COULD PLACE US AT A DISADVANTAGE TO
ESTABLISHED COMPETITORS AND MAY NOT BE A RELIABLE BASIS FOR EVALUATING OUR
PROSPECTS
We were founded in October 1995 and, as a result, we have limited
experience as an operating company and have generated only limited revenues. We
entered the Belgian market in the third quarter of 1998 and intend to enter the
Luxembourg market this year. In both of these markets, we have limited or no
operating experience and services had previously been provided primarily by the
national PTTs. Through our acquisition of VEW Telnet in December 1999, we have
also entered the German market in which we have no prior operating experience.
Through our acquisitions of CS Net in November 1998, SpeedPort and VuurWerk in
May 1999, and Svianed and ITinera in June 1999, and our launch of Zon in August
1999, we have entered several markets for Internet-based
31
<PAGE> 37
services which represent new and rapidly developing markets for us. Accordingly,
you should consider our prospects in light of the risks, expenses and delays
inherent in establishing operations in markets with long established competitors
and other recent entrants and the risks associated with establishing operations
in new technologically advanced industries.
IF WE DO NOT ADAPT TO THE RAPID CHANGES IN THE TELECOMMUNICATIONS INDUSTRY, WE
COULD LOSE CUSTOMERS OR MARKET SHARE
The European telecommunications industry is changing rapidly due to, among
other factors, liberalization, privatization of PTTs, technological
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. We cannot assure you 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. We also cannot assure
you that, even if these factors turn out as anticipated, 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 Internet-based technologies 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, such as technologies
relating to our DSL service or UMTS wireless technology, could be significant,
and we cannot assure you that we will select appropriate technology and
equipment or that we will obtain appropriate new technology on a timely basis or
on satisfactory terms. Our failure to obtain effective technology and equipment
may adversely affect our ability to offer competitive products and services and
the viability of our operations and could result in us losing customers or
market share.
THE LOSS OF OUR KEY PERSONNEL COULD AFFECT OUR GROWTH AND FUTURE SUCCESS
Our success depends in significant part on the continued employment of
certain of our key executive officers, including Gary Mesch, our managing
director, Greg Mesch, our vice president for corporate development, Raj
Raithatha, our vice president for finance and chief financial officer, Larry
Hendrickson, our vice president for technology and chief technology officer and
Marc van der Heijden, our vice president for legal and regulatory affairs. We
have not yet identified or hired a complete management team to support our
acquisition of VEW Telnet and certain of our senior managers will need to devote
substantial time to running the acquired business and integrating it into our
operations. We will also need to hire increasing numbers of qualified technical,
sales and marketing, and support personnel to successfully implement our
expansion plans. We do not have any "key person" insurance. There is intense
competition for qualified personnel in our industry in Europe and the limited
availability of qualified individuals could become an issue of increasing
concern in the future. Our financial condition depends upon qualified personnel
implementing a successful business plan. The loss of any of the individuals
listed above or our inability to identify, attract and retain other necessary
qualified personnel could adversely affect our business.
WE ARE DEPENDENT ON OUR COMPETITORS TO PROVIDE OUR CUSTOMERS WITH ACCESS TO OUR
NETWORK
We do not own most of the telecommunications transmission infrastructure
that we presently use. We use extensively the telecommunications transmission
infrastructure of other carriers in the Benelux and Germany and we depend on
interconnection agreements with these carriers to connect our customers to our
own network. Most of these carriers are our competitors. Svianed in particular
currently depends heavily upon leased lines procured from KPN Telecom.
Interconnection rates fluctuate and may be increased as a result of cost
increases on the side of the dominant providers. For example, the Dutch
regulator OPTA approved an increase in interim rates for the 1999-2000 period
for interconnection. Definitive rates will only be known at the end of 2000.
32
<PAGE> 38
Our profitability significantly depends on our ability to achieve access,
on a timely basis and at attractive rates, to the facilities of our competitors,
who may try to limit such access. In particular, the expansion of our DSL
business beyond the current trial phase depends upon access to co-location
facilities and existing copper infrastructure controlled by the PTTs.
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. These occurrences historically
have resulted in the loss of some customers and could result in customer losses
in the future. For example, in October 1998, we experienced two temporary
disruptions as a result of a malfunction in the software of KPN Telecom, 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. Such
disruptions may occur from time to time in the future. Recently, certain Dutch
mobile operators have instituted call-blocking to prevent lower cost refiling
alternatives for fixed-to-mobile calls.
Svianed's network is comprised of leased lines from KPN Telecom and
Internet uplinks from UUNet. Svianed's profitability depends on its ability to
continue to have access to the facilities of KPN Telecom and UUNet.
WE EXPECT TO ENCOUNTER INCREASING COMPETITION FROM DOMINANT MARKET PARTICIPANTS
AND NEW ENTRANTS
The European telecommunications industry is a very competitive market that
is subject to both the continued dominance of PTTs and the arrival of new
entrants.
PTTs have significant competitive advantages over non-PTT market
participants which include:
- cost advantages as a result of economies of scale,
- greater financial resources, market presence and network coverage,
- greater brand name recognition, customer loyalty and goodwill,
- control over domestic transmission lines and control over the access to
these lines by other participants, and
- close ties to national regulatory authorities that 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 greater financial resources to create severe price
competition. We believe that prices will continue to decrease for the
foreseeable future and that PTTs and other providers will continue to improve
their product offerings, which will increase these competitive pressures.
Our competition in the Benelux and Germany also comes from newer market
entrants including MCI WorldCom, Telfort, GTS/Esprit Telecom, COLT Telecom and
other more recent Internet-based competitors. 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.
EXCHANGE RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR BUSINESS
A significant portion of our indebtedness is denominated in U.S. dollars.
However, our revenues have been and will continue to be denominated in Dutch
guilders, Belgian francs, Deutsche marks and, increasingly, in euros. Therefore,
our ability to pay the interest and principal due on the Notes will be affected
by changes in the exchange rates between the U.S. dollar and the euro.
We denominate our financial reports in Dutch guilders while we maintain
significant U.S. dollar denominated assets and liabilities, so our reported
results of operations may be significantly affected by exchange rate
33
<PAGE> 39
movements. Furthermore, we will become subject to greater foreign exchange
fluctuations if we expand our operations outside the Benelux and Germany and
begin to receive revenues denominated in currencies other than from countries
that have adopted the euro as their currency.
ANY INABILITY TO IDENTIFY FUTURE ACQUISITION OPPORTUNITIES AND TO PURSUE SUCH
OPPORTUNITIES MAY HINDER OUR GROWTH
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 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 our resources and consume the time of our management.
We cannot assure you that any desired strategic alliance, acquisition or
investment can be made in a timely manner or on terms and conditions acceptable
to us. We cannot assure 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 our
existing operations.
WE MAY ENCOUNTER DELAYS, OPERATIONAL PROBLEMS AND INCREASED COST IF WE ARE
UNABLE TO ACQUIRE KEY EQUIPMENT FROM OUR MAJOR SUPPLIERS
We are dependent on third party suppliers of hardware and software
components, including Nortel, Cisco, Nokia, Newbridge, Siemens, Hewlett Packard,
Microsoft and Netscape. Although we attempt to maintain a number of vendors for
each product, a failure by a supplier to deliver quality products to us on a
timely basis or our inability to develop alternate sources if and as required
could result in delays which could have a material adverse effect on us.
Our recourse against suppliers who fail to deliver products to us on a
timely basis is restricted by contractual liability limitations in supply
agreements and purchase orders and, in many cases, by practical considerations
relating to our desire to maintain good relationships with suppliers. Moreover,
we cannot be sure that we will be able to obtain such products on the scale we
require at an affordable cost or at all. Neither can we be certain that our
suppliers will not enter into exclusive arrangements with our competitors or
stop selling their products or components to us at commercially reasonable
prices or at all. Any failure of our sole or limited-source suppliers to provide
products or components that comply with our standards could have a material
adverse effect on us.
OBSTACLES ASSOCIATED WITH THE EFFECTIVE IMPLEMENTATION OF THE LIBERALIZATION IN
THE EUROPEAN TELECOMMUNICATIONS MARKETS MAY ADVERSELY AFFECT OUR BUSINESS
The European telecommunications industry is subject to a significant degree
of regulation. The national governments of the EU Member States were required to
pass legislation to liberalize the telecommunications markets within their
countries to implement European Commission directives. Although most of the EU
Member States have now implemented the required legislation, they have done so
on an inconsistent, and sometimes unclear, basis. In addition, the legislation
and/or its implementation has, in certain circumstances, imposed significant
obstacles on the ability of carriers to proceed with the necessary licensing
process. Such barriers include requirements that carriers make significant
capital commitments to build infrastructure, complete extensive application
documentation and pay significant license fees. Implementation has also been
slow in certain EU Member States as a result of such EU Member State's failure
to dedicate the resources necessary to have a functioning regulatory body in
place. Although we have obtained the necessary licenses, authorizations and
registrations to operate our business in the jurisdictions in which we currently
operate, we will have to obtain additional licenses and authorizations if we
expand our business to other countries. We are not certain that we will be able
to obtain such licenses and authorizations on a timely basis. The above factors
and other potential obstacles associated with the effective implementation of
liberalization could have a material adverse effect on our operations by
preventing us from expanding our operations as quickly as currently intended.
34
<PAGE> 40
There are currently few laws and regulations that specifically regulate
communications on the Internet. European and U.S. government authorities and
agencies are considering laws and regulations that address issues such as user
privacy, infringement pricing, on-line content regulation, intellectual property
ownership and taxation of on-line products and services. The EU has adopted two
directives that impose restrictions on the collection and use of personal data,
guaranteeing citizens of EU Member States the right of access to their data, the
right to know where the data originated and the right to recourse in the event
of unlawful processing. However, to the best of our knowledge, no European court
has ever held a telecommunications services provider liable for content
transmitted over its network, although we cannot assure you that laws or
regulations will not be adopted that will impose such liability, or that any
future court rulings will not impose such liability. Any future regulation of
the Internet that imposes restrictions on the way we conduct our business could
seriously adversely affect our business, financial condition and results of
operations.
CHANGE OF CONTROL MAY CAUSE DEFAULT UNDER OUR INDENTURES
Pursuant to the terms of our outstanding series of notes, each holder can
require us to repurchase its notes in the event a change of control of VersaTel.
However, our existing contractual obligations or an inability to obtain adequate
resources may prevent us from offering to repurchase such notes. Our failure to
offer to repurchase the notes would be an event of default under the indentures
governing the Notes and would, therefore, materially adversely affect our
business.
VOLATILITY OF SHARE PRICES
Recently, stock markets in the United States and Europe have experienced
significant price and volume fluctuations and the market prices of securities of
telecommunications service providers and technology companies, particularly
Internet-related companies, have been highly volatile. Investors may lose all or
part of their investment. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation in
the United States has often been instituted against such a company. The
institution of such litigation against us could result in substantial costs and
a diversion of our management's attention and resources, which could materially
adversely affect our business, results of operations and financial conditions.
WE HAVE ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT A CHANGE IN
CONTROL, EVEN IF IT WOULD BENEFIT SHAREHOLDERS
Our articles of association provide for the possible issuance of preference
shares A, preference shares B and one priority share. Such shares may be issued
pursuant to a resolution of the general meeting of shareholders. However, our
management board has obtained from the shareholders at a general meeting the
authority to issue preference shares and the priority share subject only to the
prior approval of the supervisory board. The issuance of preference shares or
the priority share may deter or prevent a takeover attempt, including an attempt
that might result in a premium over the market place for our ordinary shares:
-- Preference shares A and preference shares B. Upon obtaining authority
from the general meeting of shareholders to issue preference shares,
our management board is expected to grant a call option on preference
shares, which in the case of preference shares B will not exceed 100%
of all our other outstanding shares, to an independent foundation
(stichting) to be established under Netherlands law. In the event of a
threatened hostile take-over bid, the foundation may exercise this
option. The issuance of such preference shares could therefore inhibit
a change of control.
-- Priority share. Upon obtaining authority from the general meeting of
shareholders to issue the priority share, our management board is
expected to grant a call option on the priority share to an
independent foundation (stichting) to be established under Netherlands
law. In the event of a threatened hostile take-over bid, the
foundation may exercise this option. The priority share carries
special voting rights. The issuance of this priority share could
therefore inhibit a change of control.
35
<PAGE> 41
PAYMENTS OF DIVIDENDS
We have never declared or paid any cash dividends on our ordinary shares.
We currently intend to retain any future earnings to finance operations, expand
our network, repay outstanding obligations and finance future acquisitions.
Therefore, we do not expect to pay any dividends in the foreseeable future. In
addition, the indentures governing the High Yield Notes severely limit, and for
the foreseeable future effectively prohibit, our ability to pay cash dividends
on our capital stock.
WE MAY BE CLASSIFIED AS AN INVESTMENT COMPANY
We may qualify as an investment company under the U.S. Investment Company
Act of 1940, as amended, because we may own investment securities that have a
value exceeding 40% of our unconsolidated assets not including U.S. government
securities and we may not qualify for any exemption under the Investment Company
Act. If we qualify as an investment company and choose not to register with the
Commission, we may not, among other things, be allowed to conduct a public
offering of securities in the United States in the future which would materially
adversely affect our ability to raise additional capital.
In order to avoid registering as an investment company, we are relying on
Rule 3a-2, which provides a temporary exemption from investment company status
for a period of up to one year from the receipt of funds, provided that we have
bona fide intent to be engaged primarily, as soon as reasonably possible and in
any event at the end of one year, in a business other than that of investing,
reinvesting, owning, holding or trading in securities. We may not rely on Rule
3a-2 more than once in any three-year period.
In order to ensure that we do not qualify as an investment company at the
end of our one-year exemption, we may have to invest proceeds from our offerings
in U.S. government securities. Such investments, if not hedged, would expose us
to currency exchange rate fluctuations since most of our obligations are
non-dollar denominated. The cost of any hedge of this currency exchange rate
exposure would be significant.
NETHERLANDS CORPORATE LAW MAY REMOVE OUR SHAREHOLDERS' RIGHTS TO ELECT OUR
SUPERVISORY BOARD
Under Netherlands corporate law, we will be required to modify our
corporate governance if after three consecutive financial years we fail to
satisfy the requirements under Dutch corporate law for large companies (the
"Large Company Rules"). The Large Company Rules shift authority from the
shareholders to the supervisory board and grant employees a degree of
codetermination of our affairs.
We will be subject to the Large Company Rules if we or one of our
subsidiaries institutes a work council. Under Netherlands law, we are required
to facilitate a works council, but no works council existed as of December 31,
1999. We will be exempt from the Large Company Rules, however, if, among other
things, the majority of our employees and those of our subsidiaries are employed
outside The Netherlands. As of the date of this Offering Memorandum,
approximately 60% of our employees were employed in The Netherlands.
Under the Large Company Rules, members of our supervisory board would no
longer be elected by the shareholders, but would be appointed by the supervisory
board itself. The general meeting of shareholders and employees, through a works
council, each would have the right to:
(i) make nonbinding recommendations for members of the supervisory board and
(ii) object to a proposed appointment of a member of the supervisory board, but
such appointment would still take place if the objection were declared
unfounded by the Enterprise Chamber of the Amsterdam Court of Appeal. The
general meeting of shareholders and the works council also must be informed
by the supervisory board of the names of the persons to be appointed to the
supervisory board before such appointments become final. In addition, under
the Large Company Rules the supervisory board appoints, and can suspend and
dismiss, members of the management board. Members of the management board,
however, cannot be dismissed by the supervisory board until the general
meeting of shareholders has been consulted.
Accordingly, if we become subject to the Large Company Rules, our
shareholders will lose the ability to elect and remove our supervisory board.
36
<PAGE> 42
PASSIVE FOREIGN INVESTMENT COMPANY CONSEQUENCES
For the year 1998, we were a "passive foreign investment company" (a
"PFIC") for U.S. federal income tax purposes. Although we were not a PFIC for
1999, there is a significant possibility that we may become a PFIC in 2000. This
will depend upon the sources of our income and the relative values of our
passive assets (such as cash) and our non-passive assets (such as goodwill). We
currently hold a substantial amount of cash as working capital. Furthermore, the
value of our goodwill is a function of the trading price of our shares and
therefore is subject to significant change throughout the year. A decrease in
the market value of our shares therefore could cause us to become a PFIC. U.S.
Holders that own Shares, ADSs or Warrants at any time during a taxable year for
which we are a PFIC will be subject to a complex set of rules under the Internal
Revenue Code and, generally, could in effect be subject to additional tax upon
certain distributions by us or upon a sale or other disposition of such Shares,
ADSs or Warrants. We urge investors to consult their own tax advisors regarding
the application of the PFIC rules to their particular circumstances.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
Holders of the Second Notes will be required to include original issue
discount and stated interest on their Second Notes in gross income for such
purposes. See "Item 7: Taxation -- U.S. Tax Considerations" for a more detailed
discussion of the U.S. federal income tax consequences for the holders of the
Second Notes.
ITEM 2: DESCRIPTION OF PROPERTY
Our principal executive offices are located at Paalbergweg 36, 1105 BV
Amsterdam-Zuidoost, The Netherlands. The lease agreement for this location will
expire in May 2003. We recently entered into a lease agreement for a new head
office in Amsterdam. We will move most of our employees to this new office
space, which is located at Hullenbergweg 111, 1101 CL Amsterdam-Zuidoost, The
Netherlands in April 2000. The new lease agreement will expire on February 1,
2010.
Our Belgian offices are located at Noorderlaan 133 in Antwerp. The lease
agreement for this location will expire in May 2007.
Our German offices are located at Unterste Wilms Strasse 29, 44143
Dortmund, Germany. The building is owned by VEW Energie, the former owner of VEW
Telnet. The agreement between us and VEW Energie for the acquisition of VEW
Telnet also provided for continuing use of VEW Energie buildings, including the
building in which these offices are located, on mutually agreeable terms.
VuurWerk has offices located at Richard Holkade 10, 2033 PZ Haarlem, The
Netherlands. The lease agreement for these offices expires in December 2005.
CS Net has offices located at Brugweg 56, 2741 KZ Waddinxveen, The
Netherlands. The lease agreement for these offices expires in August 2006.
SpeedPort has offices located at Entrada 111-114, 1096 6EA Amsterdam. The
lease agreement for these offices expires in January 2005.
ITinera has offices located at Dam 171, 8500 Kortrijk, Belgium. The lease
agreement for these offices expires in August 2006.
ITEM 3: LEGAL PROCEEDINGS
VersaTel 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. We also make routine filings with the regulatory
agencies and governmental authorities in the countries in which we operate or
intend to operate.
Cromwilld, one of the shareholders of the Company, objected to the 1998
recapitalization as described in the Company's Form 20-F (filed with the
Securities and Exchange Commission on March 30, 1999), and to the issuance of
the two tranches of units consisting of warrants and senior notes as described
in the Form 20-F, and
37
<PAGE> 43
threatened to challenge in court certain of the Company's actions in connection
therewith. In January 1999, Cromwilld filed, pursuant to article 2:345 of the
Netherlands Civil Code, a petition with the Enterprise Chamber of the Court of
Appeals in Amsterdam requesting the appointment of one or more experts to
investigate the management and affairs of the Company. In May 1999, the
Enterprise Chamber denied Cromwilld's request.
On July 20, 1999, the Company entered into, along with its shareholders and
certain other parties, a Settlement Agreement with Cromwilld Limited, in order
to resolve disputes arising out of a pre-existing shareholders' agreement and
other matters. The major terms of the Settlement Agreement provide for:
- the transfer of 146,988 of our ordinary shares held by Telecom Founders
B.V. to Cromwilld;
- the issuance of 200,000 shares of the Company on July 20, 1999 to
Cromwilld at a price of NLG 7.50 per ordinary share;
- the ability for Cromwilld to include 1,800,000 of its ordinary shares in
the initial public offering of the Company;
- certain piggyback registration rights in favor of Cromwilld that will
take effect 180 days from the date of the initial public offering of the
Company;
- the payment by us of $300,000 for Cromwilld's fees and expenses related
to the Settlement Agreement and certain other matters;
- the acknowledgment by all parties to the shareholders' agreement of the
Company that the shareholders' agreement will be terminated concurrently
with the closing of the initial public offering of the Company;
- the withdrawal by Cromwilld of its pending legal proceedings against the
Company and its shareholders;
- Cromwilld's full cooperation with the initial public offering of the
Company; and
- the obligation of the Company's shareholders, including Cromwilld, to
procure the resignation or dismissal of Cromwilld's nominee, Denis
O'Brien, from the Supervisory Board of the Company, after the completion
of the initial public offering.
As of December 31, 1999, all of the terms of the Settlement Agreement,
except with respect to certain piggyback registration rights provided to
Cromwilld (which have not yet taken effect), have been completed.
VersaTel is from time to time involved in routine litigation in the
ordinary course of business. We believe that no currently pending litigation to
which VersaTel is a party will have a material adverse effect on our financial
position or results of operations.
ITEM 4: CONTROL OF REGISTRANT
VersaTel was incorporated under the law of The Netherlands on October 10,
1995, as a private company with limited liability, referred to as besloten
vennootschap met beperkte aansprakelijkheid or a B.V. VersaTel converted its
legal structure from a B.V. to a public company with limited liability, referred
to as naamloze vennootschap or an N.V., on October 15, 1998. VersaTel has its
corporate seat in Amsterdam, The Netherlands. VersaTel is registered under
number 33272606 at the Commercial Register in Amsterdam, The Netherlands.
On April 13, 1999, VersaTel effected a 2-for-1 stock split. On July 14,
1999, a general meeting of shareholders approved an amendment to VersaTel's
articles of incorporation to provide for, among other things, a consolidation of
its Class A shares and Class B shares into one single class of ordinary shares
and the possible issuance of preference shares A, preference shares B and a
priority share.
The authorized share capital of VersaTel was increased on December 22, 1999
to NLG 18.5 million, consisting of 175 million ordinary shares with a par value
of NLG 0.05 each, 20 million preference shares A with a par value of NLG 0.05
each, 175 million preference shares B with a par value of NLG 0.05 each and one
priority share with a par value of NLG 0.05. The authorized capital of VersaTel
may further be increased by a shareholders' resolution and subsequent amendment
of the articles of association. The issued capital must at all times at least
equal 20.0% of the authorized capital.
38
<PAGE> 44
As of December 31, 1999, 79,224,986 ordinary shares are issued and
outstanding. The following table sets forth information regarding the beneficial
ownership of the ordinary shares of VersaTel as of December 31, 1999, by each
beneficial owner of 5.0% or more of the ordinary shares and by the executive
officers and directors of VersaTel as a group.
<TABLE>
<CAPTION>
NUMBER PERCENT OF SHARES
NAME OF BENEFICIAL OWNER OF SHARES OUTSTANDING(1)
- ------------------------ ---------- -----------------
<S> <C> <C>
NeSBIC Venture Fund C.V.(2)................................. 15,162,896 19.1%
Paribas Deelnemingen N.V.................................... 7,282,340 9.2
Cromwilld Limited........................................... 5,853,036 7.4
Telecom Founders B.V.(3).................................... 5,663,568 7.1
---------- ----
Total..................................................... 33,961,840 42.8%
All directors and executive officers as a group(4).......... 7,603,568 9.6%
</TABLE>
- ---------------
(1) Percentages do not reflect the issuance of an aggregate of 130,000 shares
approved for issuance by our shareholders in connection with earn-out
obligations relating to the acquisitions of SpeedPort and ITinera. Does not
give effect to dilution from the exercise of warrants covering 4,441,022
ordinary shares issued in the First High Yield Offering and the Second High
Yield Offering that have not been exercised as of December 31, 1999 or to
options outstanding to employees covering 5,204,760 ordinary shares (all as
adjusted to give effect to the 2-for-1 stock split on April 13, 1999).
(2) Includes 1,274,510 ordinary shares held by NeSBIC Groep B.V., an affiliate
of NeSBIC Venture Fund C.V.
(3) 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 Company understands that Telecom Founders B.V. has issued
depositary receipts representing a substantial portion nearly half of its
shareholding in VersaTel to certain persons, including officers and
directors of VersaTel.
(4) Reflects (i) 5,663,568 shares held by Telecom Founders B.V., beneficial
ownership of which may be attributed to Mr. R. Gary Mesch and other
executive officers of VersaTel upon the exchange of their depositary
receipts in the Company, and (ii) 1,940,000 shares issued as a result of
options exercised by certain executive officers.
ITEM 5: NATURE OF TRADING MARKET
The Company's ordinary shares are currently listed on the Amsterdam Stock
Exchange and the American Depository Shares (ADSs) of the Company are listed on
the Nasdaq National Market, each under the symbol "VRSA." On December 30, 1999,
the last reported sale price of our ordinary shares on the Amsterdam Stock
Exchange was NLG 35.00. On December 31,1999, the last reported sale price of our
ADSs, each representing one ordinary share, on the Nasdaq National Market was
$34 15/16. The warrants are not listed on any exchange.
The High Yield Notes and the Convertible Notes are eligible for trading in
the PORTAL market by qualified institutional buyers. In addition, the First
Notes, Second Notes, and Third Notes are listed on the Luxembourg Stock
Exchange. However, the liquidity of any market for the High Yield Notes and the
Convertible Notes will depend upon the number of holders of such 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.
ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
There are no legislative or other legal provision currently in force in the
Netherlands or arising under the Articles of Association restricting the payment
of dividends to holders of VersaTel's ordinary shares or ADSs not
39
<PAGE> 45
resident in The Netherlands, except for regulations restricting the remittance
of dividends and other payments in compliance with European Union sanctions.
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.
ITEM 7: TAXATION
NETHERLANDS TAX CONSIDERATIONS
The following discussion, subject to the limitations set forth therein,
describes the material Netherlands tax consequences of the acquisition,
ownership and disposition of the Shares and the acquisition, ownership,
disposition and conversion of the Notes, and is the opinion of Arthur Andersen,
special Netherlands tax counsel (belastingadviseurs) to VersaTel. This opinion
represents Arthur Andersen's interpretation of existing law. This opinion does
not address the income taxes imposed by any political subdivision of The
Netherlands or any tax imposed by any other jurisdiction. This opinion does not
discuss all the tax consequences that may be relevant to the holders in light of
their circumstances or to holders that are subject to special treatment under
applicable law and is not intended to be applicable in all respects to all
categories of investors. Changes in VersaTel's organizational structure or the
manner in which VersaTel conducts its business may invalidate this opinion.
Changes in the applicable laws may invalidate this opinion and this opinion will
not be updated to reflect such subsequent changes. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THEIR
ACQUIRING, OWNING AND DISPOSING OF THE SHARES AND THE ACQUISITION, OWNERSHIP,
DISPOSITION AND CONVERSION OF THE NOTES.
SUBSTANTIAL INTEREST
A shareholder that owns, either via shares, warrants, conversion rights or
options, directly or indirectly, 5% or more of any class of shares, or 5% or
more of the total issued share capital of a company (a "Substantial Interest"),
is subject to special rules. Profit participation rights which give the holder
rights to all 5% or more of the annual profit or 5% or more of the liquidation
proceeds of the target company will also qualify as substantial interest. A
deemed substantial interest is present if (part of) a substantial interest has
been disposed of, or is deemed to have been disposed of, on a non-recognition
basis and the shareholder continues to own share in the company. With respect to
individuals, attribution rules exist in determining the presence of a
Substantial Interest. In the situation that a shareholder has or is deemed to
have a Substantial Interest in a Company, then all the Notes, Warrants and
Shares or ADSs such shareholder holds will form a part of this Substantial
Interest. Unless indicated otherwise, the term "shareholder", as used herein,
includes individuals and entities (as defined under Netherlands tax law) holding
ordinary shares, but does not include any such person having a Substantial
Interest in VersaTel.
TAX CONSEQUENCES FOR RESIDENTS OR DEEMED RESIDENTS OF THE NETHERLANDS
DIVIDEND WITHHOLDING TAX
Dividends that VersaTel distributes are subject to withholding tax at a
rate of 25%, unless:
1. the participation exemption applies and the ordinary shares are
attributable to the business carried out in The Netherlands, or
2. dividends are distributed to a qualifying EU corporate shareholder
satisfying the conditions of the EU directive, or
3. the rate is reduced by treaty.
Dividends may include:
- distributions of cash,
40
<PAGE> 46
- distributions of property in kind,
- constructive dividends,
- hidden dividends,
- liquidation proceeds in excess of our recognized paid-in capital,
- consideration for the repurchase of Warrants, Shares and/or ADSs by us,
in excess of our recognized paid-in capital,
- proceeds from the redemption of shares in excess of our recognized
paid-in capital,
- stock dividends equal to their nominal value (unless distributed out of
our recognized paid-in share premium), and
- the repayment of paid-in capital not recognized as capital.
The term "recognized paid-in capital" or "share premium relates to our
paid-in capital or share premium as recognized for Netherlands tax purposes.
Generally, a shareholder that resides, or is deemed to reside, in The
Netherlands will be allowed a credit against Netherlands income tax or
corporation tax for the tax withheld on dividends paid on ordinary shares. A
legal entity resident in The Netherlands that is not subject to Netherlands
corporate income tax may, under certain conditions, request a refund of the tax
withheld.
Dividends VersaTel pays to a corporate shareholder that qualifies for the
"participation exemption" (as defined in Article 13 of The Netherlands
Corporation Tax Act 1969 (the "Corporation Tax Act")) will not be subject to the
dividend withholding tax if the ordinary shares are attributable to the
shareholder's business carried out in The Netherlands. A resident corporate
shareholder will qualify for the participation exemption if, among other things,
the resident shareholder owns generally at least 5% of the nominal paid-up
capital.
INTEREST WITHHOLDING TAX
The Netherlands will not levy withholding taxes from resident holders on
any payments under the Notes.
INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX ON INCOME DERIVED FROM SHARES
OR ADSS
If the Shares or ADSs are held by an individual who resides, or is deemed
to reside, in The Netherlands, income derived from the Shares or ADSs is subject
to Netherlands income tax on a net income basis at graduated rates. An
individual generally is entitled to a dividend exemption of NLG 1,000 a year
(NLG 2,000 a year for married couples). Ordinary shares distributed to
individual shareholders from our share premium account (as recognized for
Netherlands tax purposes) are also exempt from Netherlands income tax. The
dividend exemption is not available to an individual shareholder if the ordinary
shares:
1. are attributable to a trade or business carried on by the shareholder,
or
2. form part of a Substantial Interest.
Dividends accruing to individual shareholders that hold a Substantial
Interest are subject to income tax at a rate of 25% on a net basis.
Dividends received from Shares or ADSs or ordinary shares by an entity that
resides, or is deemed to reside, in The Netherlands will be subject to
Netherlands corporation tax on a net basis unless the company's shareholding
qualifies for the participation exemption. Dividends received from ordinary
shares by a pension fund as defined in the Corporation Tax Act are not subject
to Netherlands corporation tax.
INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX ON INCOME DERIVED FROM NOTES
If the Notes are held by an individual who resides, or is deemed to reside,
in The Netherlands, income derived from the Notes is subject to Netherlands
income tax on a net income basis at graduated rates. An
41
<PAGE> 47
individual generally is entitled to an interest exemption of NLG 1,000 a year
(NLG 2,000 a year for married couples) The interest exemption is not available
to an individual shareholder if the Notes are:
1. attributable to a trade or business carried on by the shareholder, or
2. form part of a Substantial Interest.
Interest received from Notes by a corporate holder that resides, or is
deemed to reside, in The Netherlands will be subject to Netherlands corporation
tax on a net basis if the notes are (deemed) attributable to a trade or business
carried on (or deemed to be carried on) by the holder. Interest received from
Notes by a pension fund as defined in the Corporation Tax Act is not subject to
Netherlands corporation tax.
INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX ON INCOME DERIVED FROM WARRANTS
The issue of the Warrant to an individual, not carrying on a business, nor
having a Substantial Interest in VersaTel, who reside, or is deemed to reside in
The Netherlands, constitutes taxable income on the value of the Warrant, if the
related Note is issued at par. If the related Note is issued below par, the
difference is taxable at (partial) redemption, The holding period of the Warrant
does not constitute taxable income.
The value of the Warrant held by an individual holder, not carrying on a
business, nor having a Substantial Interest in VersaTel, will not constitute
taxable income, if the interest percentage on the related Note is not lower than
0.5% of the market interest rate.
For individual holders carrying on a business, and corporate holders the
Warrant constitutes a business asset, creating taxable income depending on
subsequent value increase or decrease.
CAPITAL GAINS REALIZED FROM THE SALE OR EXCHANGE OF SHARES OR ADSS
Capital gains derived from the sale, conversion or disposition of Shares or
ADSs by an individual shareholder who resides, or is deemed to reside, in The
Netherlands are not subject to Netherlands income tax, provided:
1. the Shares or ADSs were not acquired directly or indirectly by VersaTel
or a subsidiary of VersaTel,
2. the shareholder did not have a (deemed) Substantial Interest in
VersaTel's share capital at the time of the sale or exchange, and
3. the Shares or ADSs were not assets of a business.
Capital gains realized by an individual shareholder that is a resident or a
deemed resident of The Netherlands on the disposal of Shares or ADSs forming
part of a (deemed) Substantial Interest are subject to tax at a rate of 25%.
Capital gains realized by an individual resident shareholder from the sale or
exchange of Shares or ADSs forming part of the assets of a shareholder's
business are subject to tax on a net income basis at the progressive income tax
rates.
If the Shares or ADSs are held by an entity that is a resident or a deemed
resident of The Netherlands, capital gains realized from the sale or exchange of
the Shares or ADSs are subject to corporation tax if the Shares are (deemed)
attributable to a trade or business carried on (or deemed to be carried on) by
the holder, unless the shareholding qualifies for the participation exemption.
If the Shares or ADSs are held by a qualifying pension fund, gains realized from
the sale or exchange of ordinary shares are exempt from Netherlands corporation
tax.
Capital Gains realized from the Sale or Exchange of Notes
Capital gains derived from the sale of the Notes by an individual holder
will not be subject to individual income tax provided the individual holder does
not own a (deemed) substantial interest in VersaTel and provided the Notes are
not assets of a business. Any interest or accretion received on the Notes and
any interest accrued in the period between the date of the latest interest
payment and the date of disposal of the Notes by individuals will be subject to
Netherlands individual income tax.
42
<PAGE> 48
Capital gains derived from the sale of the Notes, interest and accretion
received by a corporate holder that resides, or is deemed to reside, in The
Netherlands will be subject to Netherlands corporate income tax if the notes are
(deemed) attributable to a trade or business carried on (or deemed to be carried
on) by the holder.
Capital Gains realized from the Sale or Exercise of Warrants
The taxation of capital gains realized from the sale or exercise of
Warrants will be the same as the taxation of capital gains realized from the
sale of Shares or ADSs described above, except for the participation exemption
which does not apply to capital gains realized from the sale or exchange of
Warrants.
Net Wealth Tax
An individual who resides, or is deemed to reside, in The Netherlands
generally will be subject to a net wealth tax at a rate of 0.7% on the fair
market value of the Notes, Warrants, Shares and/or ADSs.
Gift Tax and Inheritance Tax
Netherlands gift tax or inheritance tax will be due with respect to a gift
or inheritance of Notes, Warrants, Shares and/or ADSs from a person who resided,
or was deemed to have resided, in The Netherlands at the time of the gift or his
or her death. Netherlands tax will be due in the case of a gift of Notes,
Warrants Shares and/or ADSs by an individual who at the time of the gift was
neither resident nor deemed to be resident in The Netherlands, if such
individual dies within 180 days after the date of the gift, while being resident
or deemed resident in The Netherlands. A Dutch national is deemed to have been
resident in The Netherlands if he or she was a resident in The Netherlands at
any time during the ten years preceding the date of the gift or the date of his
or her death. For gift tax purposes, each person (regardless of nationality) is
deemed to be a Netherlands resident if he or she was a resident in The
Netherlands at any time during the 12 months preceding the date of the gift. The
ten-year and 12-month residency rules may be modified by treaty.
Liability for payment of the gift tax or inheritance tax rests with the
donee or heir, respectively. The rate at which these taxes are levied is
primarily dependent on the fair market value of the gift or inheritance and the
relationship between the donor and donee or the deceased and his or her heir(s).
Exemptions may apply under specific circumstances.
TAX CONSEQUENCES FOR NON-RESIDENTS OF THE NETHERLANDS
This subsection applies to U.S. Holders (as defined below).
DIVIDEND WITHHOLDING TAX
Dividends VersaTel distributes are subject to withholding tax at a rate of
25%, unless:
1. the participation exemption applies and the ordinary shares are
attributable to the business carried out in The Netherlands, or
2. dividends are distributed to a qualifying EU corporate shareholder
satisfying the conditions of the EU directive, or
3. the rate is reduced by treaty.
Dividends may include: distributions of cash, distributions of property in
kind, constructive dividends, hidden dividends, liquidation proceeds in excess
of our recognized paid-in capital, consideration for the repurchase of Warrants,
Shares and/or ADSs by us, in excess of our recognized paid-in capital, proceeds
from the redemption of shares in excess of our recognized paid-in capital, stock
dividends equal to their nominal value (unless distributed out of our recognized
paid-in share premium), and the repayment of paid-in capital not recognized as
capital.
The term "recognized paid-in capital" or "share premium" relates to our
paid-in capital or share premium as recognized for Netherlands tax purposes.
43
<PAGE> 49
A non-resident shareholder may benefit from a reduced dividend withholding
tax rate pursuant to an income tax treaty in effect between the shareholder's
country of residence and The Netherlands. Under most Netherlands income tax
treaties, the withholding tax rate is reduced to 15% or less, provided that:
1. the recipient shareholder does not have a permanent establishment in The
Netherlands to which the ordinary shares are attributable, and
2. the recipient shareholder is the beneficial owner of the dividends.
Under the Income Tax Treaty of December 18, 1992 concluded between The
Netherlands and the United States (the "Treaty"), dividends we pay to a resident
of the United States generally will be subject to a dividend withholding tax
rate of 15%. The rate may be reduced to 5% if the beneficial owner is a United
States corporation that directly holds 10% or more of the voting power in our
Company. The Treaty exempts from withholding tax dividends received by exempt
pension trusts and exempt organizations, under conditions as defined in the
Treaty. Except in the case of exempt organizations, dividends paid may benefit
from the reduced dividend withholding tax rate (or exemption from dividend
withholding tax) by filing the proper forms in advance of the dividend payment.
Exempt organizations remain subject to the statutory withholding rate of 25% and
must file a return to claim a refund of the tax withheld.
A shareholder may not claim Treaty benefits unless:
1. the shareholder is a "resident" of the United States, as that term is
defined in the Treaty, and
2. Article 26 (the "treaty shopping rules") does not preclude the
shareholder's ability to claim Treaty benefits.
The withholding of tax on dividend distributions on Shares or ADSs to a
non-resident corporate shareholder carrying on a business through a Netherlands
permanent establishment is not required as long as:
1. The Netherlands participation exemption applies, and
2. the Shares or ADSs form a part of the permanent establishment's business
assets.
To qualify for the participation exemption, this entity should hold
generally at least 5% of our nominal paid-up capital and the Shares or ADSs must
form a part of the permanent establishment's business assets.
INTEREST WITHHOLDING TAX
The Netherlands will not levy withholding taxes from non-resident holders
on payments under the Notes.
INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX ON INCOME DERIVED FROM
NOTES, WARRANTS, SHARES AND/OR ADSS
A non-resident holder of Notes, Warrants, Shares and/or ADSs will not be
subject to Netherlands income tax on interest and/or dividends received from
VersaTel, provided such holder does not or has not:
1. carried on a business in The Netherlands through a permanent
establishment or a permanent representative that includes in its assets
the Notes, Warrants, Shares and/or ADSs,
2. held a Substantial Interest in VersaTel's share capital or, in the event
the non-resident holder has held a Substantial Interest in VersaTel,
such interest was a business asset in the hands of the holder,
3. shared directly (not through the beneficial ownership of shares or
similar securities) in the profits of an enterprise managed and
controlled in The Netherlands that owned or was deemed to have owned the
Notes, Warrants, Shares and/or ADSs, and
4. carried out employment activities in The Netherlands or served as a
director or board member of any entity resident in The Netherlands, or
served as a civil servant of a Netherlands public entity with which the
holding of the Notes, Warrants, Shares and/or ADSs was connected.
44
<PAGE> 50
Income derived from Shares or ADSs by a non-resident corporate shareholder,
carrying on a business through a permanent establishment in The Netherlands, are
not subject to Netherlands corporation tax, provided:
1. The Netherlands participation exemption applies, and
2. the Shares or ADSs are attributable to the business carried out in The
Netherlands.
To qualify for the participation exemption, the shareholder must generally
hold at least 5% of our nominal paid-up capital and meet other requirements.
CAPITAL GAINS REALIZED FROM THE SALE OR EXCHANGE OF NOTES, WARRANTS, SHARES
AND/OR ADSS
A non-resident holder of Notes, Warrants, Shares and/or ADSs will not be
subject to Netherlands income tax on capital gains derived from the sale,
conversion or disposition of Notes, Warrants, Shares and/or ADSs, provided the
non-resident holder does not have or has not:
1. carried on a business in The Netherlands through a permanent
establishment or a permanent representative that included in its assets
the Notes, Warrants, Shares and/or ADSs,
2. held a Substantial Interest in VersaTel's share capital or, in the event
the non-resident holder has held a Substantial Interest in VersaTel,
such interest was a business asset in the hands of the holder,
3. shared directly (not through the beneficial ownership of shares or
similar securities) in the profits of an enterprise managed and
controlled in The Netherlands which owned or was deemed to have owned
Notes, Warrants, Shares and/or ADSs, and
4. carried out employment activities in The Netherlands, or served as a
director or board member of any entity resident in The Netherlands, or
served as a civil servant of a Netherlands public entity, with which the
holding of the Notes, Warrants, Shares and/or ADSs was connected.
Capital gains derived from the sale, conversion or disposition of Shares or
ADSs by a non-resident corporate shareholder, carrying on a business through a
permanent establishment in The Netherlands, are not subject to Netherlands
corporation tax, provided:
1. The Netherlands participation exemption applies, and
2. the Shares or ADSs are attributable to the business carried out in The
Netherlands.
To qualify for the participation exemption, the shareholder must generally
hold at least 5% of our nominal paid-up capital and meet other requirements.
Under most Netherlands tax treaties, the right to tax capital gains
realized by a non-resident shareholder from the sale or exchange of Shares or
ADSs is in many cases allocated to the shareholder's country of residence.
NET WEALTH TAX
A non-resident individual shareholder will not be subject to Netherlands
net wealth tax in respect of the Notes, Warrants, Shares and/or ADSs provided
the non-resident shareholder does not or has not:
1. carried on a business in The Netherlands through a permanent
establishment or a permanent representative that included in its assets
the Notes, Warrants, Shares and/or ADSs, and
2. shared directly (not through the beneficial ownership of shares or
similar securities) in the profits of an enterprise managed and
controlled in The Netherlands, which owned or was deemed to have owned
Notes, Warrants, Shares and/or ADSs.
45
<PAGE> 51
GIFT TAX AND INHERITANCE TAX
A gift or inheritance of Notes, Warrants, Shares and/or ADSs from a
non-resident holder will not be subject to Netherlands gift tax or inheritance
tax in the hands of the donee or heir provided the non-resident holder was not:
1. a Dutch national who has been resident in The Netherlands at any time
during the 10 years preceding the date of gift or the date of death or,
in the event he or she was resident in The Netherlands during such
period, the non-resident holder was not a Dutch national at the time of
gift or death;
2. solely for the purpose of the gift tax, a resident of The Netherlands at
any time during the 12 months preceding the time of the gift (however,
in case of a gift by an individual who at the time of the gift was
neither resident nor deemed to be resident in The Netherlands and such
individual dies within 180 days after the date of the gift, while being
resident or deemed to be resident in The Netherlands, such tax will be
due);
3. engaged in a business in The Netherlands through a permanent
establishment or a permanent representative which included in its assets
Notes, Warrants, Shares and/or ADSs; and
4. shared directly (not through the beneficial ownership of shares or
similar securities) in the profits of an enterprise managed and
controlled in The Netherlands which owned or is deemed to have owned
Notes, Warrants, Shares and/or ADSs.
TAX REFORM 2001
In The Netherlands a major tax reform is pending which should become
effective as of January 1, 2001. It will in particular change the taxation in
relation to Notes, Warrants, Shares and/or ADSs held by individual holders
resident or deemed resident of The Netherlands which are not part of a so-called
substantial interest. According to the proposed legislation Netherlands
individual resident holders or deemed Netherlands resident holders of Notes,
Warrants, Shares and/or ADSs will be taxed annually on a deemed income of 4% of
the average annual value of the Notes, Warrants, Shares and/or ADSs at a rate of
30%, regardless whether any interest and/or dividend is received, capital gains
are realized or capital losses are suffered. On the other hand, the net wealth
tax will be abolished. Since this legislation is still pending, it may be
subject to change.
EUROPEAN UNION PROPOSAL
In 1998 the European Commission submitted to the Council of Ministers of
the European Union a proposal requiring paying agents in an EU Member State to
withhold tax at a minimum rate of 20% from interest, discount and premium
payments to individuals residing in other EU Member States or institute an
information exchange system to report these payments to the tax authorities of
the other EU Member State. The tax would not be withheld if an individual due
such payments provides the paying agent a certificate obtained from the tax
authorities of the EU Member State in which the individual is resident,
confirming that the authorities are aware of the payment due to the individual.
The information exchange system would require a member state to supply other
member states the details of any payments made by paying agents within its
jurisdiction to individuals resident in such other member states. If the
proposal is adopted, it will apply to payments made after December 31, 2000.
U.S. TAX CONSIDERATIONS
The following discussion describes the material U.S. federal income tax
consequences that may be relevant to the purchase, ownership and disposition of
Shares, Notes, ADSs or Warrants to a prospective purchaser that is a U.S. Holder
(as defined below). This discussion is based on the Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed Treasury regulations
("Regulations"), administrative and judicial interpretations thereof, all as in
effect on the date hereof and all of which are subject to change, possibly with
retroactive effect, and differing interpretations. In addition, this discussion
deals only with Shares, Notes, ADSs and Warrants held by a U.S. Holder as
capital assets within the meaning of Section 1221 of the Code. This discussion
46
<PAGE> 52
does not address all of the tax consequences that may be relevant to prospective
purchasers of Shares, Notes, ADSs or Warrants in light of their particular
circumstances or to persons subject to special tax rules, such as insurance
companies, financial institutions, dealers in securities or foreign currencies,
tax-exempt investors, persons holding Shares, Notes, ADSs or Warrants as a
position in a "straddle," conversion or other integrated transaction, persons
owning, directly, indirectly or constructively, 10% or more of the total
combined voting power of all classes of the Company's stock or persons whose
functional currency (as defined in Section 985 of the Code) is not the U.S.
dollar. Prospective purchasers of Shares, Notes, ADSs or Warrants should consult
with their own tax advisors regarding the application of the U.S. federal income
tax laws to their particular situations as well as to any additional tax
consequences of purchasing, holding or disposing of Shares, Notes, ADSs or
Warrants, including the applicability and effect of the tax laws of any state,
local or foreign jurisdiction.
As used in this section, the term "U.S. Holder" means a beneficial owner of
a Share, Notes, ADS or Warrant who or that is for U.S. federal income tax
purposes (i) a citizen or individual resident of the United States, (ii) a
corporation or partnership 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 a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust.
In general, for U.S. federal income tax purposes, U.S. Holders of American
depositary receipts evidencing ADSs will be treated as the owners of the Shares
represented by the ADSs.
WARRANTS
EXERCISE OF WARRANTS
Upon the exercise of a Warrant, a U.S. Holder will not recognize gain or
loss (except to the extent of cash, if any, received in lieu of the issuance of
fractional Shares) and will have an adjusted tax basis in the Shares acquired
pursuant to such exercise equal to such U.S. Holder's tax basis in the Warrant
plus the exercise price of the Warrant. The holding period for such Shares so
acquired will commence on the date after the date of exercise of the Warrant. If
any cash is received in lieu of fractional Shares, the U.S. Holder will
recognize gain or loss in an amount and of the same character that such U.S.
Holder would have recognized if such U.S. Holder had received such fractional
Shares and then immediately sold them for cash back to the Company.
SALE, EXCHANGE OR OTHER DISPOSITION OF WARRANTS
Subject to the discussion in "Passive Foreign Investment Company" ("PFIC")
below, the sale, exchange or other disposition of a Warrant will generally
result in the recognition of capital gain or loss to the U.S. Holder in an
amount equal to the difference between the amount realized and such U.S.
Holder's tax basis in the Warrant. As a result of certain limitations under the
foreign tax credit provisions of the Code, a U.S. Holder may be unable to claim
a foreign tax credit for Netherlands withholding taxes, if any, imposed on the
proceeds received upon a sale, exchange or other disposition of Warrants.
LAPSE
If a Warrant expires unexercised, a U.S. Holder will recognize a capital
loss equal to such U.S. Holder's tax basis in the Warrant. Such capital loss
may, subject to certain limitations, be used to offset capital gains, if any,
otherwise realized by a U.S. Holder.
ADJUSTMENTS
Under Section 305 of the Code, adjustments to the exercise price or
conversion ratio of the Warrants which occur under certain circumstances, or the
failure to make such adjustments, may result in the receipt of taxable
constructive dividends by a U.S. Holder to the extent of the Company's current
or accumulated earnings and profits, regardless of whether there is a
distribution of cash or property, if such change has the effect of increasing
47
<PAGE> 53
the holder's proportionate interest in the earnings and profits or assets of the
Company. In general, anti-dilution adjustments are not treated as resulting in
taxable constructive dividends.
SHARES AND ADSS
CASH DISTRIBUTIONS
Subject to the PFIC discussion below, to the extent that a distribution on
Shares or ADSs (other than liquidating distributions and certain distribution in
redemption of Shares or ADSs) is paid to a U.S. Holder out of the Company's
current or accumulated earnings and profits (as determined for U.S. federal
income tax purposes), such distribution will be includible in the U.S. Holder's
gross income as foreign source dividend income in an amount equal to the U.S.
dollar value of such distribution (without reduction for any applicable foreign
withholding tax). Therefore, in the event that any foreign tax is withheld from
a distribution on the Shares or ADSs, a U.S. Holder generally will be required
to report gross income in an amount greater than the cash received (although, as
discussed below, such U.S. Holder may be eligible to claim a deduction or a
foreign tax credit in respect of such foreign tax). To the extent that the
amount of any distribution on the Shares or ADSs exceeds the current and
accumulated earnings and profits of the Company (as determined for U.S. federal
income tax purposes), a U.S. Holder's pro rata share of such excess amount would
be treated first as a nontaxable return of capital that would be applied against
and would reduce the U.S. Holder's tax basis in its Shares or ADSs (but not
below zero), and then as gain from the sale or exchange of property.
Distributions in excess of the Company's current and accumulated earnings, and
profits (as determined for U.S. federal income tax purposes) generally will not
give rise to foreign source income and a U.S. Holder may be unable to claim a
foreign tax credit in respect of any Netherlands or other foreign withholding
tax imposed on such distributions unless (subject to applicable limitations) the
U.S. Holder has other foreign source income in the appropriate category for
foreign tax credit purposes. The Company believes that it does not presently
have current or accumulated earnings and profits for U.S. federal income tax
purposes. However, the Company cannot predict whether it will have any such
earnings and profits for future taxable years.
Subject to certain conditions and limitations (including certain minimum
holding period requirements), the U.S. dollar value of the foreign income taxes,
if any, withheld from a distribution to a U.S. Holder on the Shares or ADSs as
calculated on the date of any such foreign withholding may be claimed as a
credit against the U.S. Holder's U.S. federal income tax liability.
Alternatively, a U.S. Holder may claim a deduction for such amount of foreign
income taxes withheld in a taxable year, but only if such U.S. Holder does not
elect to claim a foreign tax credit in respect of any foreign taxes paid by it
in the taxable year. However, with respect to any withholding tax that may be
imposed by The Netherlands, because Netherlands tax law may not require the
Company to remit the full amount of such withholding tax to The Netherlands
taxing authorities, U.S. Holders may be limited in their ability to deduct or
credit such Netherlands withholding tax for U.S. federal income tax purposes.
Dividends on Shares or ADSs generally will constitute "passive income" or, in
the case of certain U.S. Holders, "financial services income" for U.S. foreign
tax credit purposes. Special rules apply to certain individuals whose foreign
source income during the taxable year consists entirely of "qualified passive
income" and whose creditable foreign taxes paid or accrued during the taxable
year do not exceed $300 ($600 in the case of a joint return).
The rules relating to foreign tax credits are extremely complex and the
availability of a foreign tax credit depends on numerous factors. U.S. Holders
of Shares or ADSs should consult their own tax advisors concerning the
application of the U.S. foreign tax credit rules to their particular situations.
The U.S. dollar value of any distribution to a U.S. Holder on Shares or
ADSs that is paid in a foreign currency will be calculated by reference to the
exchange rate in effect at the time the distribution is received by the U.S.
Holder (or a nominee, custodian or other agent of the U.S. Holder). A U.S.
Holder generally should not recognize any foreign currency gain or loss if such
foreign currency is converted into U.S. dollars on the day received. If a U.S.
Holder does not convert such foreign currency into U.S. dollars on the date of
receipt, however, such Holder may recognize foreign currency gain or loss (which
generally will be taxable as ordinary income or loss) upon a subsequent sale or
other disposition of the foreign currency.
48
<PAGE> 54
A corporate U.S. Holder will not be entitled to a dividends received
deduction with respect to distributions on Shares or ADSs by the Company.
SALE, EXCHANGE OR OTHER DISPOSITION OF SHARES OR ADSS
Except as otherwise noted in the PFIC discussion below, a U.S. Holder
generally will recognize capital gain or loss on the sale or other disposition
(including a redemption) of Shares equal to the difference between the amount
realized on that sale or other disposition and the U.S. Holder's adjusted tax
basis in the Shares. Subject to the PFIC discussion below, such gain or loss
generally will be capital gain or loss and, in the case of an individual U.S.
Holder, the maximum marginal U.S. federal income tax rate applicable to that
gain will be lower than the maximum marginal U.S. federal income tax rate
applicable to ordinary income if that U.S. Holder's holding period of those
Shares exceeds one year. Gain or loss recognized by a U.S. Holder generally will
be treated as from sources within the United States for U.S. foreign tax credit
limitation purposes. The deductibility of capital losses is subject to
limitations.
A Non-U.S. Holder generally will not be subject to U.S. federal income or
withholding tax on any gain realized on the sale or exchange of Shares unless
that gain is effectively connected with the conduct by that Non-U.S. Holder of a
trade or business in the United States.
PASSIVE FOREIGN INVESTMENT COMPANY STATUS
In general, a foreign corporation will be classified as a PFIC with respect
to a U.S. Holder if, for any taxable year in which the U.S. Holder held ordinary
shares, either (i) at least 75% of its gross income for the taxable year
consists of passive income or (ii) at least 50% of the average value (determined
on the basis of a quarterly average) of the corporation's assets in a taxable
year is attributable to assets that produce or are held for the production of
passive income. For this purpose, passive income generally includes dividends,
interest, royalties, rents (other than rents and royalties derived from the
active conduct of a trade or business and not derived from a related person),
annuities and gains from assets that produce passive income. The Company was a
PFIC for its 1998 taxable year, but was not a PFIC for its 1999 year. Because
this is a factual determination that must be made annually, there is a
significant possibility that the Company may become a PFIC for its 2000 year.
This will depend upon the sources of the Company's income and the relative
values of the Company's passive assets such as cash and its non-passive assets,
including goodwill. The Company has substantial passive assets in the form of
cash from previous offerings. Furthermore, since the goodwill of a
publicly-traded corporation such as the Company is largely a function of the
trading price of is shares, the valuation of that goodwill is subject to
significant change throughout each year. Accordingly, it is possible that the
Company may become a PFIC due to changes in the nature of its income or its
assets, or as the result of a decrease in the trading price of its shares.
If the Company were a PFIC, a special tax regime would apply to both (a)
any "excess distribution" by the Company (generally, the U.S. Holder's ratable
share of distributions in any year that are greater than 125% of the average
annual distributions received by such U.S. Holder in the three preceding years
or its holding period, if shorter) and (b) any gain realized on the sale or
other disposition (including a pledge) of the ordinary shares. Under this
regime, any excess distribution and realized gain would be treated as ordinary
income and would be subject to tax as if (a) the excess distribution or gain had
been realized ratably over the U.S. Holder's holding period, (b) the amount
deemed realized had been subject to tax in each year of that holding period at
the highest applicable tax rate in effect for that year, and (c) the interest
charge generally applicable to underpayments of tax had been imposed on the
taxes deemed to have been payable in those years.
A U.S. Holder of Shares could elect, provided the Company complies with
certain reporting requirements, to have the Company treated, with respect to
that U.S. Holder's Shares, as a "qualified electing fund" ("QEF"). If such an
election is made in the first taxable year that a U.S. Holder holds or is deemed
to hold the Company's stock and for which the Company is determined to be a
PFIC, such electing U.S. Holder would include annually in gross income (but only
for each year that the Company actually meets the PFIC income or asset test) its
pro rata share of the Company's annual ordinary earnings and annual net capital
gains (at ordinary and capital gain rates, respectively), whether or not such
amounts are actually distributed to the U.S. Holder. These amounts
49
<PAGE> 55
would be included in income by an electing U.S. Holder for its taxable year in
which or with which the Company's taxable year ends.
The QEF election is made on a shareholder-by-shareholder basis and can be
revoked only with the consent of the IRS. The Company will supply the PFIC
annual information statement to all shareholders for each year, if any, in which
it determines that it is a PFIC. Prospective investors should consult their own
tax advisors concerning the advisability and timing of making a QEF election. In
addition, certain classes of investors, such as regulated investment companies,
may be subject to special rules and should consult their own tax advisors
concerning the application of U.S. federal income tax rules governing PFICs in
their particular circumstances.
In certain circumstances, a U.S. Holder, in lieu of being subject to the
PFIC rules discussed above, may make an election to include gain on the stock of
a PFIC as ordinary income under a mark-to-market method provided that such stock
is regularly traded on a qualified exchange. Under recently finalized
regulations, the AEX should constitute a qualified exchange.
U.S. HOLDERS OF ORDINARY SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISERS
CONCERNING THE APPLICATION OF THE PFIC RULES (INCLUDING THE ADVISABILITY AND
TIMING OF MAKING THE QEF OR MARK-TO-MARKET ELECTION).
NOTES
Interest paid on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time it is received or accrued, depending on the U.S.
Holder's method of accounting for U.S. federal income tax purposes.
In the case of interest paid in euros to a U.S. Holder that uses the cash
method of tax accounting, the amount includable in income by such U.S. Holder
will be the U.S. dollar value of that interest payment, based on the exchange
rate in effect on the date of receipt, regardless of whether the payment is in
fact converted into U.S. dollars. No foreign currency gain or loss will be
recognized with respect to the receipt of such interest payment.
In the case of interest paid in euros to a U.S. holder that uses the
accrual method of tax accounting, such U.S. Holder will be required to include
in income the U.S. dollar value of the amount of interest accrued on a Note
during an accrual period. Such a U.S. Holder may determine the amount of the
interest to be recognized in accordance with either of two methods. Under the
first method, the amount of interest accrued will be based on the average
exchange rate in effect during the interest accrual period or, with respect to
an accrual period that spans two taxable years, the part of the period within
the taxable year. Under the second method, the U.S. Holder may elect to
determine the amount of interest accrued on the basis of the exchange rate in
effect on the last day of the accrual period or, in the case of an accrual
period that spans two taxable years, the exchange rate in effect on the last day
of the part of the period within the taxable year. If the last day of the
accrual period is within five business days of the date the interest payment is
actually received, electing U.S. Holders may instead translate that accrued
interest at the exchange rate in effect on the day of actual receipt. Any
election to use the second method will apply to all debt instruments held by
such U.S. Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the U.S. Holder, and will be
irrevocable without the consent of the U.S. Internal Revenue Service.
A U.S. Holder utilizing either of the foregoing two methods will recognize
ordinary income or loss with respect to accrued interest on the date of receipt
of the interest payment (including a payment attributable to accrued but unpaid
interest upon the sale or retirement of a Note). The amount of ordinary income
or loss will equal the difference between the U.S. dollar value of the foreign
currency payment received (determined on the date the payment is received) in
respect of the accrual period and the U.S. dollar value of interest that has
accrued during that accrual period (as determined under the method utilized by
the U.S. Holder).
Euros received as interest on the Notes will have a tax basis equal to
their U.S. dollar value at the time the interest payment is received. Gain or
loss, if any, realized by a U.S. Holder on a sale or other disposition of that
foreign currency will be ordinary income or loss and will generally be income
from sources within the United States for foreign tax credit limitation
purposes.
Interest (and, with respect to the Second Notes, OID) on the Notes will be
treated as foreign source income for U.S. federal income tax purposes, which may
be relevant in calculating a U.S. Holder's foreign tax credit
50
<PAGE> 56
limitation for U.S. federal income tax purposes. The limitation on foreign taxes
eligible for the United States foreign tax credit is calculated separately with
respect to specific classes of income. For this purpose, the interest on the
Notes should generally constitute "passive income" or, in the case of certain
U.S. Holders, "financial services income".
A Non-U.S. Holder generally will not be subject to U.S. federal income or
withholding tax on interest (and, with respect to the Second Notes, OID)
received or accrued on the Notes, unless that income is effectively connected
with the conduct by that Non-U.S. Holder of a trade or business in the United
States.
SECOND NOTES
The Second Notes were issued with original issue discount ("OID").
Regardless of their method of accounting, U.S. Holders of the Second Notes will
be required to include an amount equal to the sum of "daily portions" of such
OID attributable to each day during the taxable year on which the U.S. Holder
holds the Second Note in income for federal income tax purposes as it accrues,
in accordance with a constant yield method based on a compounding of interest,
before the receipt of cash payments attributable to such income. Under this
method, U.S. Holders of the Second Notes generally will be required to include
in income increasingly greater amounts of OID in successive accrual periods.
The daily portions of OID required to be included in a U.S. Holder's gross
income in a taxable year will be determined on a constant yield basis by
allocating to each day a pro rata portion of the OID on such Second Note that is
attributable to the "accrual period" in which such day is included. Accrual
periods with respect to a Second Note may be of any length selected by the U.S.
Holder and may vary in length over the term of the Second Note as long as (1) no
accrual period is longer than one year and (2) each scheduled payment of
interest or principal on the Second Note occurs on either the final or first day
of an accrual period.
The amount of the OID attributable to each accrual period will be the
difference between (1) the product of the "adjusted issue price" of the Second
Note at the beginning of such accrual period and the "yield to maturity" of the
Second Note (stated in a manner appropriately taking into account the length of
the accrual period), and (2) qualified stated interest allocable to the accrual
period. The "yield to maturity" is the discount rate that, when used in
computing the present value or all payments to be made under the Second Note,
produces an amount equal to the issue price of the Second Note (specified in the
Offering Memorandum for the Second Notes). The adjusted issue price of a Second
Note at the beginning of an accrual period is equal to the issue price of the
Second Note, increased by any OID accrued during prior accrual periods and
decreased by any cash payment (other than qualified stated interest) received
with respect to the Second Note on or before the first day of the accrual
period. Accordingly, a U.S. Holder of a Second Note will be required to include
OID thereon in gross income for U.S. federal income tax purposes in advance of
the receipt of cash in respect of such income. The amount of OID allocable to an
initial short accrual period may be computed using any reasonable method if all
other accrual periods, other than a final short accrual period, are of equal
length. The amount of OID allocable to the final accrual period at maturity of
the Second Note is the difference between (x) the amount payable at the maturity
of the Second Note (other than qualified stated interest) and (y) the Note's
adjusted issue price as of the beginning of the final accrual period.
MARKET DISCOUNT; ACQUISITION PREMIUM
If a U.S. Holder purchases a Note for an amount that is less than the
"revised issue price" of the Note at the time of acquisition, the amount of such
difference will be treated as "market discount" for U.S. federal income tax
purposes, unless such difference is less than a specified de minimis amount. The
"revised issue price" of a debt obligation generally equals the sum of its issue
price and the total amount of OID includable in the gross income of all Holders
for periods before the acquisition of the debt obligation by the current Holder
(without regard to any reduction in such income resulting from acquisition
premium) and less any cash payments in respect of such debt obligation (other
than qualified stated interest). Under the market discount rules, a U.S. Holder
will be required to treat any principal payment on, or any gain on the sale,
exchange, retirement or other disposition of, a Note as ordinary income to the
extent of the market discount which has not previously been included in income
and is treated as having accrued on such Note at the time of such payment or
disposition. If a
51
<PAGE> 57
U.S. Holder makes a gift of a Note, accrued market discount, if any, will be
recognized as if such U.S. Holder has sold such Note for a price equal to its
fair market value. In addition, the U.S. Holder may be required to defer, until
the maturity of the Note or, in certain circumstances, the earlier disposition
of the Note in a taxable transaction, the deduction of a portion of the interest
expense on any indebtedness incurred or continue to purchase or carry such Note.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the Note,
unless the U.S. Holder elects to accrue market discount on a constant interest
method. A U.S. Holder of a Note may elect to include market discount in income
currently as it accrues (on either a straight-line basis or constant interest
method), in which case the rules described above regarding the deferral of
interest deductions will not apply. This election to include market discount in
income currently, once made, is irrevocable and applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the
Internal Revenue Service.
U.S. Holder who purchases a Note for an amount that is greater than the
adjusted issue price of such Note, but that is less than or equal to the sum of
all amounts payable on the Note after the purchase date, will be considered to
have purchased such Note at an "acquisition premium." Under the acquisition
premium rules of the code and the OID Regulations, the amount of OID which such
U.S. Holder must include in its gross income with respect to such Note for any
taxable year will be reduced for each accrual period by an amount equal to the
product of (1) the amount of OID otherwise includable for the period and (2) a
fraction, the numerator of which is the acquisition premium and the denominator
of which is the OID remaining from the date the Note was purchased to its
maturity date.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A U.S. Holder's tax basis in a Note will generally equal its "U.S. dollar
cost", reduced by the amount of any payments received by the U.S. Holder with
respect to the Note that are not interest payments. The U.S. dollar cost of a
Note purchased with a foreign currency will generally be the U.S. dollar value
of the purchase price on the date of purchase.
A U.S. Holder will generally recognize gain or loss on the sale, exchange
or retirement of a Note equal to the difference between the amount realized on
the sale, exchange or retirement (except to the extent such amount is
attributable to accrued interest (and, with respect to the Second Notes, OID),
which will be taxable as ordinary income) and the adjusted tax basis of the
Note. The amount realized on the sale, exchange or retirement of a Note for an
amount of foreign currency will be the U.S. dollar value of that amount on (i)
the date payment is received in the case of a cash basis U.S. Holder or (ii) the
date of disposition in the case of an accrual basis U.S. Holder.
Gain or loss recognized by a U.S. Holder on the sale, exchange or
retirement of a Note that is attributable to changes in currency exchange rates
relating to the principal thereof will be ordinary income or loss and will equal
the difference between the U.S. dollar value of the U.S. Holder's purchase price
of the Note in foreign currency determined on the date of the sale, exchange or
retirement, and the U.S. dollar value of the U.S. Holder's purchase price of the
Note in foreign currency determined on the date the U.S. Holder acquired the
Note. The foregoing foreign currency gain or loss will be recognized only to the
extent of the total gain or loss realized by the U.S. Holder on the sale,
exchange or retirement of the Note, and will generally be treated as from
sources within the United States for U.S. foreign tax credit limitation
purposes.
Any gain or loss recognized by a U.S. Holder in excess of foreign currency
gain or loss recognized on the sale, exchange or retirement of a Note would
generally be U.S. source capital gain or loss. In the case of an individual U.S.
Holder, any such gain will be subject to preferential U.S. federal income tax
rates if that U.S. Holder satisfies certain prescribed minimum holding periods.
The deductibility of capital losses is subject to limitations.
A U.S. Holder will have a tax basis in any foreign currency received on the
sale, exchange or retirement of a Note equal to the U.S. dollar value of the
foreign currency at the time of the sale, exchange or retirement. Gain or loss,
if any, realized by a U.S. Holder on a sale or other disposition of that foreign
currency will be ordinary
52
<PAGE> 58
income or loss and will generally be income from sources within the United
States for foreign tax credit limitation purposes.
A Non-U.S. Holder generally will not be subject to U.S. federal income or
withholding tax on any gain realized on the sale, exchange, or retirement of
Notes unless that gain is effectively connected with the conduct by that
Non-U.S. Holder of a trade or business in the United States.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING REQUIREMENTS
U.S. backup withholding tax and information reporting requirements
generally apply to certain payments to certain nonexempt holders. Information
reporting generally will apply to payments of dividends or interest on (as the
case may be), and to proceeds from the sale or redemption of Notes or Shares by
a payor within the United States to a holder of Notes or Shares (other than an
"exempt recipient", including a corporation, a payee that is a Non-U.S. Holder
that provides an appropriate certification and certain other persons). A payor
within the United States will be required to withhold 31% of any payments of
dividends or interest on (as the case may be), and of the proceeds from the sale
or redemption of Notes or Shares within the United States to a holder (other
than an "exempt recipient") if that holder fails to furnish its correct taxpayer
identification number or otherwise fails to comply with those backup withholding
tax requirements. The amount of any backup withholding from a payment to a U.S.
Holder will be allowed as a credit against the U.S. Holder's U.S. federal income
tax liability.
Final United States Treasury Regulations relating to backup withholding and
information reporting have been issued that modify certain of the foregoing
rules with respect to payments on Notes or Shares made after December 31, 2000.
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE APPLICATION
OF THE BACKUP WITHHOLDING AND INFORMATION REPORTING REQUIREMENTS, INCLUDING THE
NEW REGULATIONS, WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
53
<PAGE> 59
ITEM 8: SELECTED FINANCIAL DATA
The selected financial data for VersaTel, presented below, as of and for
the five fiscal years ended December 31, 1995, 1996, 1997, 1998 and 1999 have
been derived from the Audited Financial Statements of VersaTel, which have been
audited by Arthur Andersen, independent public accountants. 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 Annual
Report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
----- ------ ------- ------- -------------------
NLG NLG NLG NLG NLG $(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................... 52 6,428 18,896 39,561 129,000 58,904
Operating expenses:
Cost of revenue excluding depreciation and
amortization............................. 117 4,954 17,405 31,821 100,615 45,943
Selling, general and administrative........ 538 5,485 17,527 47,733 182,483 83,326
Depreciation and amortization.............. 11 453 3,237 6,473 58,206 26,578
----- ------ ------- ------- -------- --------
Total operating expenses................... 666 10,892 38,169 86,027 341,304 155,847
----- ------ ------- ------- -------- --------
Loss from operations....................... (614) (4,464) (19,273) (46,466) (212,304) (96,943)
Interest expense, net...................... 1 269 534 25,810 128,943 58,878
Currency loss (gain)....................... -- -- 53 (5,146) 96,267 43,957
----- ------ ------- ------- -------- --------
Net loss before income taxes............... (615) (4,733) (19,860) (67,130) (437,514) (199,778)
===== ====== ======= ======= ======== ========
Provision for income taxes................. -- -- -- (7) 962 439
----- ------ ------- ------- -------- --------
Net loss before minority share............. (615) (4,733) (19,860) (67,137) (436,552) (199,339)
Minority share............................. -- -- -- -- (372) (170)
----- ------ ------- ------- -------- --------
Net loss................................... (615) (4,733) (19,860) (67,137) (436,180) (199,169)
Net loss per share (Basic and Diluted)..... (0.09) (0.47) (1.10) (2.06) (8.56) (3.91)
Weighted average number of shares
outstanding.............................. 6,654 10,008 18,084 32,622 50,929 50,929
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
---- ------ ------- ------- ---------------------
NLG NLG NLG NLG NLG $(1)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and restricted cash.................. 160 4,443 1,495 583,570 2,315,724 1,057,408
Working capital (excluding cash and
restricted cash)........................ 436 (2,704) (24,774) (46,851) (227,904) (104,066)
Capitalized finance cost.................. -- -- -- 28,750 62,265 28,432
Property, plant and equipment, net........ 224 2,340 13,619 38,608 512,790 234,151
Construction in progress.................. -- -- -- 46,019 180,271 82,316
Goodwill.................................. -- -- -- 4,556 434,072 198,206
Total assets.............................. 820 8,160 19,331 723,397 3,665,035 1,673,532
Total long-term obligations (including
current portion)........................ 614 4,185 8,492 688,796 2,222,832 1,014,992
Total shareholders' equity (deficit)...... (120) 146 (18,214) (34,073) 1,118,757 510,848
</TABLE>
54
<PAGE> 60
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
------- ------ ------- -------- ----------------------
NLG NLG NLG NLG NLG $(1)
(IN THOUSANDS, EXCEPT RATIO)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
SG&A as a percentage of revenue...... 1194.2% 85.3% 92.8% 120.7% 141.5% 141.5%
EBITDA(2)............................ (603) (4,011) (16,036) (39,993) (154,098) (70,365)
Capital expenditures................. 213 2,569 14,516 77,255 383,014 174,892
CASH FLOW DATA:
Net cash provided by (used in)
operating activities............... (715) (1,718) 5,765 (37,322) (154,462) (70,531)
Net cash used in investing
activities......................... (234) (2,569) (14,516) (112,036) (1,041,322) (475,489)
Net cash provided by financing
activities......................... 1,109 8,571 5,807 520,008 2,993,942 1,367,097
</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 December 31, 1999
of NLG 2.19 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.
ITEM 9: 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 Annual Report. See
"Selected Financial Data." Certain information contained below and elsewhere in
this Annual Report, including information with respect to our plans and strategy
for our business, may include forward-looking statements. See "Cautionary
Statement for Purposes of the "Safe Harbor" Provisions of the United States
Private Securities Litigation Reform Act of 1995."
OVERVIEW
We are a rapidly growing, competitive communications network operator in
our target market of the Benelux and Northwest Germany. We are a leading
alternative to the former monopoly telecommunications carriers in these regions.
Our objective is to become the leading fully integrated provider of local
access, facilities-based broadband services, including voice, data and Internet
services, to customers in our target market. We provide high-quality,
competitively priced telecommunications, data and Internet services to four
targeted market segments:
- Business Services -- small- and medium-sized businesses located
throughout our target market.
- Local Access Services -- high bandwidth users within our target market
located near to and who may be directly connected with our network.
- Data Services -- high bandwidth data customers with multiple sites
throughout our target market.
- Carrier Services -- other telecommunications, data and Internet service
providers.
As of December 31, 1999, we had over 30,000 customers and over 900
employees. Our revenues grew from NLG 39.6 million for the year ended December
31, 1998 to NLG 129.0 million for the year ended December 31,
55
<PAGE> 61
1999. After giving pro forma effect to the acquisitions of Svianed and VEW
Telnet our revenues would have been NLG 197.3 for the year ended December 31,
1999.
Our growth to date has been driven by the continued increase in the number
of minutes of use for voice and, particularly, the increase in data and Internet
traffic, primarily as a result of our acquisition of Svianed and the continued
development of our data and Internet businesses. In addition, we expect revenues
to increase further as a result of our acquisition in December 1999 of VEW
Telnet and our continuing expansion into Germany. We anticipate that net losses
also will continue to increase due to increasing selling, general and
administrative costs related to the expansion of our business, the short-term
leasing of access capacity, higher borrowing costs and increased depreciation
and amortization costs resulting from the continuing build-out of our network.
Currency fluctuations between the euro and the U.S. dollar also may have an
adverse impact on our results of operations.
REVENUES
Historically, our revenues were derived primarily from the provision of
long distance telecommunications services in The Netherlands and more recently
in Belgium. VersaTel's customer base predominately consists of small- and
medium-sized businesses and to a lesser extent residential customers. With the
acquisition of Svianed, we started to generate revenues from data services from
larger-sized customers such as GAK-Group, which accounted for 15.6% of our 1999
revenues. With the acquisition of VEW Telnet, we have begun deriving revenues
from Germany. We also provide carrier services to other telecommunications, data
and Internet service providers.
Until our acquisition of Svianed, our revenues had been derived primarily
from minutes of telecommunications traffic billed. The percentage of our
revenues that consist of fixed monthly fees has increased substantially as a
result of our increased bandwidth services resulting from the acquisition of
Svianed. With the acquisition of VEW Telnet, we expect this percentage to
further increase as we continue to deploy our network and expand our data and
Internet service offerings. The following table sets forth the total revenues
attributable to our operations for the years ended December 31, 1997, December
31, 1998, and December 31, 1999, as well as our total number of customers for
telephony services, based on the number of invoices issued, as of December 31,
1997, December 31, 1998, and December 31, 1999. As a result of our recent
acquisitions, however, our total number of customers, is more than 30,000 as of
December 31, 1999.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
(NLG IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Business customers
Telephony.............................................. 16,948 34,472 69,844
Data................................................... -- -- 31,093
Internet............................................... -- 897 10,891
Residential customers
Telephony.............................................. 11 386 893
Internet............................................... -- -- 630
Wholesale customers....................................... 1,937 3,806 15,649
------ ------- -------
Total.................................................. 18,896 39,561 129,000
TELEPHONY CUSTOMERS (AT PERIOD END)
Business customers........................................ 2,014 6,640 15,835
Residential customers..................................... 230 1,698 3,148
Wholesale customers....................................... 1 4 45
------ ------- -------
Total.................................................. 2,245 8,342 19,028
</TABLE>
56
<PAGE> 62
In 1997, all our revenues were generated in The Netherlands. In October
1998, VersaTel started generating revenues in Belgium and in December 1999, we
started generating revenues in Germany. The geographical composition of our
revenues in 1997, 1998 and 1999 was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -------
(NLG IN THOUSANDS)
<S> <C> <C> <C>
The Netherlands............................................. 18,896 39,324 115,305
Belgium..................................................... -- 237 9,733
Germany..................................................... -- -- 3,962
------ ------ -------
Total..................................................... 18,896 39,561 129,000
</TABLE>
Historically, small- to medium-sized businesses have generated the majority
of VersaTel's revenues. We have also derived increasing amounts of revenue from
providing services, including switched voice and co-location services, to other
telecommunications, data and Internet service providers. As a result of our
acquisition of Svianed, we derive a substantial portion of our revenues from
providing data and Internet services to larger customers. We have changed our
approach to reaching residential customers by offering carrier select hosting
services to switchless resellers, who themselves target the residential market.
We believe that this approach is a more cost-effective way of reaching
residential customers. As our network expands and as we have available capacity,
we intend to increase our marketing efforts in the carrier services segment to
increase the use of our network and to capture revenues and margins from markets
we do not target directly.
Our revenues, which are derived both from minutes of communications traffic
billed and fixed broadband and subscription fees, are allocated to the period in
which the traffic has terminated or fees have been generated. The percentage of
our revenues attributable to fixed fees has increased recently, principally as a
result of the Svianed acquisition. In addition, through our own number ranges in
The Netherlands and Belgium, through number portability in The Netherlands and
through Internet traffic generated by Zon, which forms a part of our Internet
division, we generate revenues from terminating minutes. We generally price our
communications services at a discount to the local market prices and expect to
continue this pricing strategy as we expand our operations. In general, prices
for communications services have decreased over the last several years. As a
result, we have experienced and expect to continue to experience declining
revenues per minute. This trend has accelerated as the number of traffic minutes
attributable to internet traffic generated by Zon has increased. KPN Telecom
reduced its prices per minute of telecommunications traffic billed in January
1999, May 1999, October 1999 and January 2000 with reductions of approximately
10.0%, 20.0%, 5.0% and 2.0%, respectively, which are expected to have an adverse
impact on margins in the near term as we have responded by reducing our prices.
In Belgium, Belgacom introduced several discount programs for selected customer
groups, which discounts were subsequently matched by VersaTel. Germany has
experienced similar levels of price reductions. Additionally, we expect to
increase our national billable minutes, which are priced at lower rates than
international minutes. As national and wholesale billable minutes and minutes
attributable to termination of our Internet traffic 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 we build out our network, we expect
costs per minute to decline as well. Management believes that the decline of per
minute prices will outpace the decline in per minute costs in the near term,
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 outpace reductions in revenues, we may experience a
substantial reduction in our margins on calls which, absent a significant
increase in billable minutes of traffic carried or increased charges for other
services, would have a material adverse effect on our business and financial
results. In addition, the introduction of the euro has made pricing more
transparent in the European telecommunications market, which may lead to further
competition and price decreases. See "Item 1: Description of Business -- Certain
Factors Which May Affect Our Business -- Competing Against Dominant Market
Participants."
57
<PAGE> 63
COST OF REVENUES
Our 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 to VersaTel.
We have experienced a significant decrease in origination costs and expect
that these will continue to decrease significantly over time due to competition
and regulatory orders. In July 1998, the Netherlands regulatory authority
Onafhankelijke Post en Telecommunicatie Autoriteit ("OPTA"), ruled that
origination and termination charges be reduced by 55% and 30%, respectively.
These reductions have been upheld by OPTA in 1999 during an appeal by KPN
Telecom. We expect that the interconnection charges will continue to decrease,
although at a more moderate rate. In addition, as we continue to build out our
network, we intend to connect directly as many business customers as
economically feasible to the network, thereby eliminating our origination
charges for these customers. These decreases would be offset to some extent by
amortization and depreciation charges associated with the continuing build out
of our 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 us to
experience a decline in gross margins per billable minute, which would have a
material adverse effect on our business and financial performance. See "Item 1:
Description of Business -- Certain Risk Factors Which May Affect the
Business -- Competing Against Dominant Market Participants."
Network costs represent the cost of transporting traffic between our
switches and points of interconnection and consist of depreciation and
amortization costs and the cost of leased lines. To date, our network costs have
primarily consisted of the cost of leased lines as well as Internet uplink
costs. Over time, we expect a reduction in the cost of our leased lines as
traffic is shifted onto our owned network. In addition, as we provision
Svianed's traffic onto our network, we will experience a significant reduction
in the cost of leased lines currently attributable to Svianed. This shift of
traffic, however, has not occurred as rapidly as we had originally anticipated
due to our focus on expanding our network to connect new customers and central
office locations to generate new revenues. This has negatively impacted our
operating margins in recent periods. We expect depreciation and amortization
costs to increase due to depreciation of the TelNet network and the continuing
build out of our backbone network. See "-- Depreciation and Amortization."
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, our switches direct calls to the most cost-efficient
carrier for the required destination. As we build out our network to new points
of interconnection, we expect to be able to reduce average termination costs per
minute. For example, once we establish a direct link from Amsterdam to
Rotterdam, we will no longer pay for national termination costs on that route
and will only pay local and regional termination costs from the point of
interconnection in Rotterdam to the final destination in that city. We also
believe that per minute termination costs will continue to decrease due to
several additional factors, including: (i) the incremental build out of our
network, which will increase the number of carriers with which we interconnect;
(ii) the increase of minutes we originate, which should lead to higher volume
discounts available to us; (iii) more rigorous implementation of the EC
directives requiring cost-based termination rates and leased line rates; and
(iv) the emergence of new telecommunication service providers and the
construction of new transmission facilities, which should result in increased
competition. There can be no assurance, however, that the trend of 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 we
have developed and expanded our workforce, and they are expected to continue to
increase as we expand and establish new operations. Selling, general and
administrative expenses as a percentage of revenue will
58
<PAGE> 64
continue to vary from period to period as a result of start-up costs relating to
expansion into new businesses and regions such as Northwest Germany and
complementary businesses such as Versatel Internet.
We have grown substantially since our inception and we intend to continue
to grow by adding more sales, marketing and customer support staff and by
establishing additional sales offices. This growth involves substantial training
and start-up costs, a large portion of which will be reflected as fixed costs
and will be recorded as selling, general and administrative charges.
Accordingly, our results of operations will vary depending on the timing and
speed of our 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 "Item 1: Description of
Business -- Sales and Marketing -- Sales and Marketing Staff."
DEPRECIATION AND AMORTIZATION
We capitalize and depreciate our fixed assets, including switching and
transmission equipment, routers, fiber optic cable, and rights of use, over
periods ranging from two to 30 years. In addition, we capitalize and amortize
the cost of installing dialers at customer sites. The development of our network
will require large capital expenditures and larger depreciation charges in the
future. In particular, our acquisition of Svianed and our recent acquisition of
VEW Telnet can be expected to significantly increase our goodwill amortization
charges in future periods. Increased capital expenditures will adversely affect
our future operating results due to increased depreciation charges and interest
expense. See "Item 1: Description of Business -- Strategy" and "Item 1:
Description of Business -- Network."
FOREIGN EXCHANGE
We have substantial U.S. dollar denominated assets and liabilities and our
revenues are generated and costs incurred in other currencies, primarily the
Dutch guilder. We are therefore exposed to fluctuations in the U.S. dollar and
other currencies, which may result in foreign exchange gains and/or losses. The
Netherlands, Belgium and Germany have all adopted the euro, and, as a result, we
are no longer exposed to any fluctuations between the Dutch guilder, the Belgian
franc and the Deutsche mark. A number of equipment purchases and consultancy
activities are billed to VersaTel in currencies other than Dutch guilders.
RESULTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE FISCAL YEAR ENDED
DECEMBER 31, 1998
REVENUES increased by NLG 89.4 million to NLG 129.0 million for the fiscal
year ended December 31, 1999 from NLG 39.6 million for the fiscal year ended
December 31, 1998, representing an increase of 226.1%. The growth in revenues
resulted primarily from the addition of new customers, the introduction of
national long distance data and Internet services in The Netherlands, the
acquisition of Svianed, the introduction of national and international long
distance services in Belgium and an increase in wholesale traffic. Included in
the revenues for the year ended December 31, 1999 are the revenues of Svianed,
from the date of the acquisition (June 1, 1999) of NLG 41.5 and the revenues of
VEW Telnet, from the date of the acquisition (December 1, 1999) of NLG 4.0.
Revenues for the fiscal year ended December 31, 1999 as compared to the same
period in 1998 were negatively impacted by frequent price reductions resulting
from competitive pressures.
The number of customers for telephony services increased by 10,686 to
19,028 as of December 31, 1999 from 8,342 as of December 31, 1998. As a result
of our recent acquisitions, however, our total number of customers, increased to
more than 30,000 as of December 31, 1999. In addition, since the inception of
Zon on August 31, 1999 it has generated over 400,000 subscribers to its Internet
services as of March 15, 2000.
COST OF REVENUES increased by NLG 68.8 million to NLG 100.6 million for the
fiscal year ended December 31, 1999 from NLG 31.8 million for the fiscal year
ended December 31, 1998, representing an increase of 216.2%. This increase is
primarily the result of an increase in our operations, including increases in
billable minutes, interconnect capacity and short-term network capacity
requirements (leased lines) in Belgium, Internet uplinks and international
leased lines to London and Frankfurt. Leased line costs also increased as a
result of using leased lines to connect customers directly to our backbone
network as demand for our services
59
<PAGE> 65
exceeded our ability to build out these customer connections without
unreasonable delay to the customer. We also experienced delays in migrating
Svianed traffic from leased lines to our backbone network. Finally, our cost of
revenues also has increased as Dutch mobile operators have instituted
call-blocking to prevent lower cost international refiling alternatives for
fixed-to-mobile calls. The acquisitions of Svianed and VEW Telnet added NLG 20.9
million and NLG 2.7 million, respectively, to cost of revenues for the period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased by NLG 134.8 million
to NLG 182.5 million for the year ended December 31, 1999 from NLG 47.7 million
for the year ended December 31, 1998, representing a 282.3% increase. The
increase was partially due to a one-time, non-cash charge of NLG 27.7 million
during the second quarter of 1999 related to a revaluation of employee stock
options. Excluding this one-time charge the selling, general and administrative
expenses increased by NLG 107.1 million to NLG 154.8 million, representing an
increase of 224.3%, primarily as a result of an increase in the cost of staff
(including temporary personnel and consultants, the use of which increased
significantly during the current year) in the areas of network operations,
customer service, sales and marketing, installation services, accounting
personnel, additional facilities cost, expenses related to the expansion of our
Belgium operations, additional expenses as a result of the acquisitions of VEW
Telnet, Svianed, VuurWerk, ITinera and start-up expenses related to Zon.
DEPRECIATION AND AMORTIZATION EXPENSES increased by NLG 51.7 million to NLG
58.2 million for the year ended December 31, 1999 from NLG 6.5 million for the
year ended December 31, 1998. This increase primarily resulted from the
expansion of the network, including the expansion of the Nortel DMS-100 switch
in Amsterdam and the deployment of a Nortel DMS 100 switch in Antwerp and
Rotterdam and CISCO data switches in Amsterdam, Rotterdam and Antwerp. The
increase in depreciation and amortization expense also resulted from the
purchase of additional IT-equipment for new customer support systems, an
increase in the number of dialers, the purchase of computer equipment and office
furniture for new employees as well as amortization of goodwill of NLG 20.2
million and 0.5 million as a result of the respective acquisitions of Svianed
and VEW Telnet.
INTEREST INCOME increased by approximately NLG 16.5 million to NLG 28.3
million for the year ended December 31, 1999 from NLG 11.9 million for the year
ended December 31, 1998. This increase was primarily related to VersaTel's
positive cash balance as a result of the High Yield Offerings and the Initial
Public Offering, as well as the Convertible Note Offering and the Second Equity
Offering.
INTEREST EXPENSE increased by NLG 119.6 million to NLG 157.3 million for
the year ended December 31, 1999 from NLG 37.7 million for the year ended
December 31, 1998. This increase is primarily related to the accrual of interest
expense on the indebtedness issued in the High Yield Offerings and the
Convertible Note Offering.
CURRENCY EXCHANGE LOSSES, NET, increased by NLG 101.4 million to NLG 96.3
million for the year ended December 31, 1999 from a net gain of NLG 5.1 million
for the year ended December 31, 1998 due to currency exchange losses on
VersaTel's U.S. dollar denominated liabilities resulting from appreciation of
the U.S. dollar against the euro.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE FISCAL YEAR ENDED
DECEMBER 31, 1997
REVENUES increased by NLG 20.7 million to NLG 39.6 million for the fiscal
year ended December 31, 1998 from NLG 18.9 million for the fiscal year ended
December 31, 1997, representing an increase of 109.4%. The growth in revenues
resulted primarily from the addition of new customers, the introduction of
national long distance services in The Netherlands, the acquisition of CS Net
B.V., the introduction of services in Belgium and an increase in wholesale
traffic. Revenues for the fiscal year ended December 31, 1998 as compared to the
same period in 1997 were negatively impacted by general price reductions
initiated by KPN Telecom in May 1998 and July 1998 of approximately 10.0% and
approximately 15.0%, respectively. VersaTel responded to these price reductions
by reducing its own prices and VersaTel's revenues would have been higher
without such price reductions.
60
<PAGE> 66
Billable minutes of use increased by 98.2 million to 121.6 million for the
fiscal year ended December 31, 1998 from 23.4 million for the fiscal year ended
December 31, 1997, representing an increase of 420.5%. The number of customers
increased by 6,097 to 8,342 as of December 31, 1998 from 2,245 as of December
31, 1997.
COST OF REVENUES increased by NLG 14.4 million to NLG 31.8 million for the
fiscal year ended December 31, 1998 from NLG 17.4 million for the fiscal year
ended December 31, 1997, primarily reflecting an increase in billable minutes,
increasing interconnect capacity and short-term network capacity requirements
(leased lines) in Belgium. 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 30.2 million
to NLG 47.7 million for the fiscal year ended December 31, 1998 from NLG 17.5
million for the fiscal year ended December 31, 1997, representing a 172.3%
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 onetime related
start-up expenses for Belgium operations network expenses.
DEPRECIATION AND AMORTIZATION EXPENSES increased by NLG 3.3 million to NLG
6.5 million for the fiscal year ended December 31, 1998 from NLG 3.2 million for
the fiscal year ended December 31, 1997. This increase was primarily related to
capital expenditures incurred in connection with the deployment of the Nortel
DMS 100 switches in Amsterdam and Antwerp, the expansion and deployment of the
Network and an increase in the number of dialers installed due to customer
growth and the purchase of computer equipment and office furniture for new
employees.
CURRENCY EXCHANGE GAINS, NET, increased to NLG 5.1 million for the fiscal
year ended December 31, 1998 from a loss of NLG 0.05 million for the fiscal year
ended December 31, 1997 as a result of the net gains of VersaTel's U.S. dollar
denominated assets and liabilities on the balance sheet.
INTEREST INCOME increased by NLG 11.9 million to NLG 11.9 million for the
fiscal year ended December 31, 1998 from NLG 0.02 million for the fiscal year
ended December 31, 1997. This increase was primarily related to VersaTel's
positive cash balance as a result of the First Offering and the Second Offering.
INTEREST EXPENSE increased by NLG 37.1 million to NLG 37.7 million for the
fiscal year ended December 31, 1998 from NLG 0.6 million for the fiscal year
ended December 31, 1997. This increase is primarily related to the accrual of
interest expense on the High Yield Notes.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred significant operating losses and negative cash flows as a
result of the development of our business and network. Prior to May 1998, we
financed our growth primarily through equity and subordinated loans from our
shareholders. In May 1998, we issued notes and warrants in the First High Yield
Offering and raised net proceeds, after transaction expenses, of $216.2 million,
$80.6 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
High Yield Offering. In December 1998, we issued notes and warrants in the
Second High Yield Offering and raised net proceeds, after transaction expenses,
of $139.5 million, $45.7 million of which was invested in U.S. government
securities placed in escrow to fund the first five interest payments on the
notes issued in the Second High Yield Offering.
In July 1999, we issued E120,000,000 11 7/8% Senior Euro Notes due 2009 and
$180,000,000 11 7/8% Senior Dollar Notes due 2009 in the Third High Yield
Offering and raised net proceeds, after transaction expenses, of E116.1 million
and $173.9 million, respectively, $152.1 million of which was used to repay
certain interim loans, obtained to acquire Svianed. Concurrently with the Third
High Yield Offering, VersaTel and a number of selling shareholders sold
21,250,000 ordinary shares in the form of Shares and ADSs in the Initial Public
Offering. In August 1999, VersaTel sold an additional 3,187,500 ordinary shares
in connection with an over-allotment option granted to the underwriters in the
Initial Public Offering. VersaTel raised aggregate net proceeds, after
transaction expenses, of the sale of shares and ADSs of E174.5 million and $35.5
million, respectively, in the Initial Public
61
<PAGE> 67
Offering. The ordinary shares have been listed on the AEX under the symbol
"VRSA" and the ADSs have been listed on the NASDAQ National Market under the
symbol "VRSA".
In December 1999, we issued and sold 15,000,000 ordinary shares for
aggregate net proceeds, after offering expenses, of approximately E506.6 million
in the Second Equity Offering and E300,000,000 of 4% Senior Convertible Notes
due 2004 in a private placement to institutional investors. With respect to the
Convertible Notes offering, we raised aggregate net proceeds, after offering
expenses, of approximately E292.5 million.
VersaTel has used a significant amount of the net proceeds of the High
Yield Offerings, the Initial Public Offering, the Second Equity Offering and the
Convertible Notes Offering to make capital expenditures related to the expansion
and development of its network, to acquire various companies, to fund operating
losses and for other general corporate purposes.
To date, VersaTel has made limited use of bank facilities and capital lease
financing. VersaTel may seek to raise senior secured debt financing in the
future to fund the expansion of its network and for general corporate purposes.
Although we currently maintain significant cash balances, we will require
additional capital to continue funding the expansion and development of our
network and service offerings. In addition to continuing the build out of our
network, we expect that we will need additional capital to expand our local
access network, invest in Internet activities, fund our investment in VersaPoint
and the fiber transmission related to the DSL roll-out as well as for
acquisitions. In addition, we anticipate that we may want to participate in
auctions for UMTS wireless licenses in our target market.
We are in the process of conducting an offering of approximately 8.5
million of our ordinary shares (approximately 4.25 million of which are to be
sold by certain of our shareholders), approximately E300 million initial
principal amount of convertible notes and approximately E300 million of senior
notes. We expect that the gross proceeds to us of these offerings of
approximately E1,100 million, combined with our existing cash balances, together
with other available financings and cash flows from operations, will provide us
with sufficient capital to fund planned capital expenditures and anticipated
losses for at least the next 12 to 18 months. We expect that we will need to
raise substantial additional funds through public or private financings or from
financial institutions.
We were required to meet our debt service obligations on the notes issued
in the Third High Yield Offering out of cash reserves and net cash flow on
January 15, 2000. Starting December 17, 2000, we were required to meet our debt
service under the Convertible Notes. In addition, starting November 15, 2001,
our funds that have been placed in escrow to cover interest payments on the
notes issued in the First High Yield Offering and the Second High Yield Offering
will have been exhausted. As a result, we will need to increase substantially
our net cash flow in order to meet our debt service obligations.
The general rate of inflation has been low in the Benelux and Germany in
recent years. We do not expect that inflationary pressures in the future, if
any, will have a material effect on our results of operations or financial
condition.
Net cash used in operating activities was NLG 154.5 million for the year
ended December 31, 1999 compared to NLG 37.3 million for the year ended December
31, 1998. This increase was primarily the result of an increase in operating
losses incurred during 1999.
Net cash used in investing activities was NLG 1,041.3 million in the year
ended December 31, 1999 and NLG 112.0 million in the year ended December 31,
1998. This increase was the result of the acquisitions we completed during the
second quarter of 1999, as well as ongoing capital expenditures to expand our
network and operations.
Net cash provided by financing activities was NLG 2,993.9 million the year
ended December 31, 1999 and NLG 520.0 million in the year ended December 31,
1998. This increase was primarily the result of the Initial Public Offering, the
Third High Yield Offering, the Second Equity Offering and the Convertible Notes
Offering.
62
<PAGE> 68
ITEM 9A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial department manages our funding, liquidity and exposure to
foreign exchange rate risks. It is our policy not to enter into any transactions
of a speculative nature.
Our debt obligations that are denominated in U.S. dollars expose us to
risks associated with changes in the exchange rates between the U.S. dollar and
the Dutch guilder and Belgian franc (which currencies are now both pegged to the
euro) in which our revenues are denominated. However, in conjunction with the
First High Yield Offering and the Second High Yield Offering, we have placed in
escrow and pledged for the benefit of the holders of the notes issued in the
First High Yield Offering and the Second High Yield Offering U.S. government
securities sufficient to pay interest due on the notes issued in the First High
Yield Offering and the Second High Yield Offering until and including the
scheduled interest payment on May 15, 2001.
The notes issued in the First High Yield Offering and the Second High Yield
Offering will mature on May 15, 2008 and the notes issued in the Third High
Yield Offering will mature on July 15, 2009. The Convertible Notes will mature
on December 17, 2004 unless previously redeemed or converted, VersaTel is not
required to make any mandatory redemptions (other than an offer to repurchase
these notes upon a change in control of VersaTel) prior to maturity of these
notes. Since the interest rate on each of the notes issued in the First High
Yield Offering, the Second High Yield Offering, the Third High Yield Offering is
fixed and the effective interest rate on the Convertible Notes increases at
fixed increments, we have limited our exposure to risks due to fluctuations of
interest rates. At December 31, 1999, the fair value of the notes issued in the
First High Yield Offering, the Second High Yield Offering and the Third High
Yield Offering was approximately $718.1 million.
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, 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 these offerings and the remaining proceeds from the Initial Public
Offering and the High Yield Offerings, to pay our construction costs. However,
as of December 31, 1999 we had exchanged all but $46.9 million of the proceeds
from these offerings into Dutch guilders. Prior to the application of the net
proceeds from these offerings, such funds have been invested in short-term
investment grade securities. VersaTel from time to time hedges a portion of its
foreign currency risk in order to lock into a rate for a given time. In
addition, we may become subject to greater foreign exchange fluctuations as we
continue to expand our operations outside The Netherlands and receive more
revenues denominated in currencies other than Dutch guilders, although the
introduction of the euro has largely eliminated these risks as all three Benelux
countries and Germany have adopted the euro as their legal currency.
63
<PAGE> 69
ITEM 10: DIRECTORS AND OFFICERS OF REGISTRANT
The members of the supervisory board and the management board of VersaTel
and other significant employees of VersaTel and their respective ages and
positions are set forth below.
MANAGEMENT BOARD
R. Gary Mesch is the sole managing director (statutair directeur) of
VersaTel.
SUPERVISORY BOARD
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Leo W. A. M. van Doorne................... 40 Chairman
Johan G. Wackwitz......................... 44 Member
James R. Meadows.......................... 47 Member
Sander van Brummelen...................... 57 Member
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
R. Gary Mesch............................. 46 Managing Director
W. Greg Mesch............................. 39 Vice President Corporate Development
Raj Raithatha............................. 37 Vice President Finance and Chief Financial
Officer
Larry Hendrickson......................... 56 Vice President Technology and Chief Technology
Officer
Marc A. J. M. van der Heijden............. 40 Vice President Legal and Regulatory Affairs
Frits R. Kunnen........................... 64 Chief Operations Officer
Aad T. Beekhuis........................... 52 Chief Network Officer
</TABLE>
SUPERVISORY BOARD
Under Netherlands law and the articles of association of VersaTel, the
management of VersaTel 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 VersaTel and its business. In fulfilling their
duties, the members of the supervisory board are required to act in the best
interests of VersaTel 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 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 supervisory board meets each time
this is deemed necessary by one of its members. Every retiring supervisory
director may be reappointed, provided that such supervisory director has not
attained the age of 72. A member of the 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 any time be suspended or removed
by the general meeting of shareholders. 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 VersaTel 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
64
<PAGE> 70
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 VersaTel 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 appoints 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 VersaTel. 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 VersaTel. The compensation and
other terms and conditions of employment of the members of the management board
are determined by the general meeting of shareholders.
POTENTIAL APPLICATION OF RULES ON LARGE COMPANIES
Under Netherlands law, we would be required to modify our system of
corporate governance after the end of the third consecutive financial year
following the year in which we continuously satisfy the requirements under Dutch
corporate law for large companies ("Structuurvennootschappen") as set out in
Sections 152 through 164 of Book 2 of the Dutch Civil Code (the "Large Company
Rules"). The Large Company Rules shift authority from the shareholders to the
supervisory board and grant employees a degree of codetermination of our
affairs.
Under the Large Company Rules, members of our supervisory board would no
longer be elected by the shareholders at the general meeting of shareholders,
but would be appointed by the supervisory board itself. The general meeting of
shareholders and employees, through a works council, each would have the right
to:
(i) make nonbinding recommendations for members of the supervisory board and
(ii) object to a proposed appointment of a member of the supervisory board, but
such appointment would still take place if the objection were declared
unfounded by the Enterprise Chamber of the Amsterdam Court of Appeal. The
general meeting of shareholders and the works council also must be informed
by the supervisory board of the names of the persons to be appointed to the
supervisory board before such appointments become final. In addition, under
the Large Company Rules the supervisory board appoints, and can suspend and
dismiss, members of the management board. Members of the management board,
however, cannot be dismissed by the supervisory board until the general
meeting of shareholders has been consulted. Currently, the general meeting
of shareholders appoints the members of our management board. The
supervisory board also would adopt the annual accounts of the Company under
the Large Company Rules, but the general meeting of shareholders must
approve such adoption. Furthermore, certain corporate actions, including
the issuance of debt or equity, the making of certain investments,
termination of a large number of employees and far-reaching changes in the
working conditions of a large number of employees, require supervisory
board approval under the Large Company Rules.
We would be subject to the Large Company Rules and be required to revise
our system of corporate governance if we or one of our subsidiaries institutes a
work council under the Netherlands Works Council Act. Under Netherlands law, we
are required to facilitate a works council, but no works council existed as of
December 31, 1999. We would be exempt from the Large Company Rules, however, if,
among other things, the majority of our employees and those of our subsidiaries
are employed outside The Netherlands. As of the date of this Offering
Memorandum, approximately 60% of our employees were employed in The Netherlands.
A works council is a representative body of the employees of a Dutch
company elected by the employees. The management board of any company with a
works council must seek the non-binding advice of the works council before
taking certain decisions such as those related to a major restructuring or a
change of control. Other decisions directly governing employment, such as those
affecting employee compensation systems, or pension or
65
<PAGE> 71
profit sharing plans, may only be taken with the works council's approval. A
works council may recommend a candidate for the supervisory board and may also
object to the appointment of a proposed candidate to the supervisory board.
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 he managed the commercial operations of NovaNet, a
Denver-based provider of satellite-based data communications 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.
LEO W. A. M. VAN DOORNE has served as Chairman of the Supervisory Board of
VersaTel 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 200 companies operating in the
fields of insurance, banking and investments. Worldwide, Fortis has over 58,000
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.
JOHAN G. WACKWITZ has served as a member of the Supervisory Board of
VersaTel since August 1998. Mr. Wackwitz is a member of the management board of
COBEPA S.A. and Paribas Deelnemingen N.V. From 1991 to 1993 he was employed by
Paribas in its capital markets division and responsible for the Benelux within
the investment banking group. From 1979 to 1991 he served at various management
positions at Bankers Trust Company. Mr. Wackwitz serves as a member of the
supervisory board of various other companies. 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
VersaTel since August 1998. Mr. Meadows has been 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 of Government Affairs at Capital Network System, Inc. (CNSI), a
telecommunications services provider. Mr. Meadows is a member of the Board of
Directors of Lone Star 2000, a public policy foundation, and of Comptel. Mr.
Meadows holds a degree in history from the University of Texas at Austin.
SANDER VAN BRUMMELEN has served as a member of the Supervisory Board of
VersaTel since July 1999. Mr. Van Brummelen has been a Managing Director of Gak
Holding since 1996. From 1992 to 1996 he served as a principal director of Gak
and from 1982 to 1992 he served as IT director of Gak. From 1979 to 1982 he
served in managing positions at KPN Telecom. Mr. van Brummelen serves as a
member of the supervisory boards of various other companies. Mr. van Brummelen
holds a degree in technical engineering from the University of Delft.
W. GREG MESCH has served as Vice President Corporate Development since
October 1999. He has served as Chief Operations Officer of VersaTel from April
1998 to October 1999. From VersaTel's inception in 1995 until August 1998, he
served as a member of the Supervisory Board of VersaTel nominated by Telecom
Founders and has performed operations consulting roles for VersaTel. From 1993
to 1997, Mr. Mesch was the Chief Operations Officer of Esat Telecom plc, a
public company listed on NASDAQ. From 1986 to 1992, he served as Chief Executive
Officer of Nova Net, a Denver-based provider of satellite-based data
communications networks, which he founded with his brother Mr. Gary Mesch. Mr.
Mesch has been a Director of In-Touch Associates Ltd., a U.K.-based
telecommunications consulting firm, since 1997 and is an Advisory Board Member
to NeSBIC Converging Technologies Fund. Mr. Mesch has an M.B.A. from Denver
University.
66
<PAGE> 72
RAJ RAITHATHA has served as Vice President Finance and Chief Financial
Officer of VersaTel since April 1998. From 1994 to April 1998 he 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 Vice President Technology and Chief
Technology Officer of VersaTel 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 Vice President Legal and
Regulatory Affairs of VersaTel since June 1998. Mr. van der Heijden has served
as regulatory counsel to VersaTel 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
EC, 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. Mr. Van der Heijden holds a degree in law.
FRITS R. KUNNEN has served as Chief Operations Officer since October 1999.
He has served as Director Special Assignments from October 1998 to October 1999.
Mr. Kunnen has served in these capacities pursuant to a consultancy agreement.
In 1991, he founded Sharp Electronics Benelux B.V., for which he served as
President and Chief Executive Officer from 1991 to 1997. From 1990 to 1991 he
served as Managing Director and Member of the Group Council of the Samas Group
N.V., where he was responsible for the Office Equipment and Software divisions.
From 1989 to 1990 he was Interim Manager of the Defense and Control Systems
Division and finally as Director of Far East Operations of Philips N.V., where
he was responsible for the divestment of this division. From 1960 to 1989 he
served as Group Product Manager, Regional Manager and Director of the Components
Division of Philips N.V. Mr. Kunnen holds a degree in electronics from the
University of Delft.
AAD T. BEEKHUIS has served as Chief Network Officer since March 2000. From
April 1999 to March 2000 Mr. Beekhuis served as Project Director of KPN Telecom
responsible for the strategy and rollout program for the ADSL network. From July
1998 to March 1999 he served as Project Director with Nokia where he was
responsible for launch of the BEN mobile network in The Netherlands. From 1995
to 1998 Mr. Beekhuis served as a Project Manager responsible for rollout of the
fixed communications network, and later as an Interim Manager responsible for
TelFort's rollout of its mobile network. From 1993 to 1995 Mr. Beekhuis served
as a Managing Director with RAM Mobile Data C.V. From 1973 to 1993, he worked in
strategic marketing, sales and other positions at KPN Telecom.
ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS
The total aggregate compensation for the Supervisory Board of the Company
as a group for 1999 was NLG 86,458. 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 1999
was NLG 2,831,323. See "Item 13: Interest of Management in Certain
Transactions -- Additional Agreements."
During 1999, 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.
67
<PAGE> 73
ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The Company has established four stock option plans: the 1997 Stock Option
Plan (the "1997 Plan"), the 1998 Stock Option Plan (the "1998 Plan"), the 1999
Stock Option Plan (the "1999 Plan") and the 2000 Stock Option Plan (the "2000
Plan").
1997 STOCK OPTION PLAN
In December 1996, our shareholders approved the 1997 Stock Option Plan. The
1997 Plan provides for the grant of options to certain key employees of VersaTel
to purchase ordinary shares of VersaTel. 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.
As of December 31, 1999, 398,000 options to purchase 398,000 ordinary
shares had been granted under the 1997 Plan.
1998 STOCK OPTION PLAN
In March 1998, our shareholders approved the 1998 Stock Option Plan. The
1998 Plan allows VersaTel to grant options to employees to purchase ordinary
shares of VersaTel. The option period will commence at the date of the grant and
will last five years. The option exercise price is determined in the particular
grant of the option. We reserved 5,000,000 ordinary shares for issuance under
the 1998 Plan.
As of December 31, 1999, 5,000,000 options to purchase 5,000,000 ordinary
shares have been granted under the 1998 Plan and the Company does not intend to
grant any more options under the 1998 Plan. As of December 31, 1999, 1,940,000
options granted under the 1999 Plan had been exercised for a total of 1,940,000
shares.
1999 STOCK OPTION PLAN
In January 1999, our shareholders approved the 1999 Stock Option Plan. The
1999 Plan allows VersaTel to grant options to employees to purchase ordinary
shares of VersaTel. The option period will commence at the date of the grant and
will last five years. The option exercise price determined in the particular
grant of the option. We have reserved 2,500,000 ordinary shares for issuance
under the 1999 Plan.
As of 31 December 1999, 1,908,500 options to purchase 1,908,500 ordinary
shares have been granted under the 1999 Plan. VersaTel expects to grant the
remaining 591,500 options under the 2000 Plan.
2000 STOCK OPTION PLAN
In December 1999, our supervisory board approved the 2000 Stock Option
Plan. The 2000 Plan allows VersaTel to grant options to employees to purchase
ordinary shares of VersaTel. The option period will commence at the date of the
grant and will last five years. The option exercise price shall be determined by
VersaTel. We have reserved 3,000,000 ordinary shares for issuance under the 2000
Plan.
We granted 200,000 options to purchase ordinary shares under the 2000 Plan
in March 2000. We expect to grant the remaining 2,800,000 options to purchase
ordinary shares under the 2000 Plan along with the 591,500 options remaining
from the 1999 Plan.
As of the date of this offering memorandum, there have been 4,750,000
options granted to our executive officers. No options have been granted to any
of our supervisory board members.
68
<PAGE> 74
ITEM 13: INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
SETTLEMENT AGREEMENT
On July 20, 1999, the Company entered into, along with its shareholders and
certain other parties, a Settlement Agreement with Cromwilld Limited in order to
resolve disputes arising out of a pre-existing shareholders' agreement and other
matters. See "Item 3: Legal Proceedings".
CONSULTING SERVICES
Mr. Greg Mesch is a director of In-Touch Associates Ltd., a London-based
telecommunications consulting company that performs services for VersaTel. The
amounts paid by VersaTel in respect of these services are not material. Mr. Greg
Mesch was paid L15,000 in 1999 for his services to In-Touch Associates Ltd.
LOANS TO DIRECTORS AND OFFICERS
As of the date hereof no loans were outstanding from VersaTel to any of its
directors or officers.
69
<PAGE> 75
PART II
ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15: DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16: CHANGES IN SECURITIES AND CHANGES IN SECURITY
FOR REGISTERED SECURITIES
None.
PART IV
ITEM 17: FINANCIAL STATEMENTS
Not Applicable.
ITEM 18: FINANCIAL STATEMENTS
Reference is made to Item 19(a) for a list of all financial statements
filed as a part of this Annual Report on Form 20-F.
70
<PAGE> 76
ITEM 19: FINANCIAL STATEMENTS AND EXHIBITS
(A) LIST OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants -- VersaTel Telecom
International N.V......................................... F-2
Report of Independent Public Accountants -- VEW Telnet
GmbH...................................................... F-3
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-5
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999.............. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-7
Notes to Financial Statements............................... F-8
</TABLE>
(B) LIST OF EXHIBITS
The following is the list of exhibits attached to this Annual Report on
Form 20-F.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1 -- Deed of Incorporation and Articles of Association (as
amended) of the Company
2(1) -- Indenture, dated May 27, 1998, between VersaTel and
United States Trust Company of New York, as Trustee
3(2) -- Indenture, dated December 3, 1998, between VersaTel and
United States Trust Company of New York, as Trustee
4(1) -- Escrow Agreement, dated May 27, 1998, between VersaTel
and United States Trust Company of New York, as Trustee and
Escrow Agent
5(2) -- Escrow Agreement, dated December 3, 1998, between
VersaTel and United States Trust Company of New York, as
Trustee and Escrow Agent.
6 -- Principal Paying Agent, Conversion Agent, Conversion
Calculation Agent and Registrar Agreement, dated December
17, 1999 between VersaTel and ING Bank N.V.
7 -- Shareholders Agreement, dated March 8, 2000, among
VersaTel, Northpoint Communications Group, Inc., Northpoint
B.V.i.o. and VersaPoint N.V. i.o.
8 -- Commercial Services Agreement, dated March 8, 2000, among
Northpoint Communications Group, Inc., VersaTel and
VersaPoint N.V. i.o.
</TABLE>
- ---------------
(1) Previously filed as an exhibit to the VersaTel's Registration Statement on
Form F-4 (File Number 333-59979) initially filed with the Securities and
Exchange Commission on July 27, 1998 and incorporated herein by reference.
(2) Previously filed as an exhibit to the VersaTel's Registration Statement on
Form F-4 (File Number 333-70449) initially filed with the Securities and
Exchange Commission on January 12, 1999 and incorporated herein by
reference.
71
<PAGE> 77
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VERSATEL TELECOM INTERNATIONAL N.V.
By: /s/ R. GARY MESCH
------------------------------------
Name: R. Gary Mesch
Title: Managing Director
By: /s/ RAJ RAITHATHA
------------------------------------
Name: Raj Raithatha
Title: Chief Financial Officer
Dated: March 17, 2000
72
<PAGE> 78
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Report of Independent Public Accountants -- VersaTel Telecom
International N.V......................................... F-2
Report of Independent Public Accountants -- VEW Telnet
GmbH...................................................... F-3
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-5
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999.............. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VersaTel Telecom International N.V.
We have audited the accompanying consolidated balance sheets as of December
31, 1998 and 1999 of VERSATEL TELECOM INTERNATIONAL N.V. and the consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These consolidated 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 did not audit the 1999 financial statements of VEW Telnet GmbH,
which statements reflect total assets and total revenues of 7.1% and 2.7% of the
related consolidated totals. Those statements were audited by another auditor
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for this entity, is based solely on the report of the other
auditor.
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 audits and the report
of the other auditor provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of VersaTel Telecom International N.V. as of December 31,
1998 and 1999 and the result of their operations and their cash flows for each
of the years in the period ended, in conformity with United States generally
accepted accounting principles.
ARTHUR ANDERSEN
Amsterdam, The Netherlands
March 15, 2000
F-2
<PAGE> 80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: VersaTel International N.V.
We have audited the balance sheet of VEW Telnet Gesellschaft fur
Telekommunikation und Netzdienste mbH, Dortmund, as of December 31, 1999 and the
statements of operations, shareholders' equity and cash flows for the one month
ended December 31, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Germany 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.
VEW Telnet Gesellschaft fur Telekommunikation and Netzdienste mbH, Dortmund
is a wholly owned subsidiary of the VersaTel group. The financial statements of
the company were prepared for consolidation purposes. As described in Note 2,
VersaTel Telecom International N.V., Amsterdam, Niederlande, the ultimate Parent
of VEW Telnet Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund,
has guaranteed the continued financial support of the Company through January 1,
2001.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VEW Telnet Gesellschaft fur
Telekommunikation und Netzdienste mbH, Dortmund, as of December 31, 1999, and
the results of its operations and cash flows for the one month ended December
31, 1999, in conformity with United States generally accepted accounting
principles.
BDO Deutsche Warentreuhand
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Dusseldorf, Germany
February 11, 2000
F-3
<PAGE> 81
VERSATEL TELECOM INTERNATIONAL N.V.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS OF DUTCH GUILDERS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
--------- -------
NLG NLG
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... 2,170,172 372,014
Restricted cash, current portion.......................... 98,241 89,752
Accounts receivable, net.................................. 29,479 7,902
Inventory, net............................................ 4,470 1,083
Unbilled revenues......................................... 29,136 4,014
Prepaid expenses and other................................ 65,217 8,895
--------- -------
Total current assets................................... 2,396,715 483,660
--------- -------
Fixed Assets:
Property and equipment, net............................... 512,790 38,608
Construction in progress.................................. 180,271 46,019
--------- -------
Total fixed assets..................................... 693,061 84,627
--------- -------
Restricted cash, net of current portion................... 47,311 121,804
Capitalized finance costs, net............................ 62,265 28,750
Other non-current assets.................................. 31,611 --
Goodwill, net............................................. 434,072 4,556
--------- -------
Total assets........................................... 3,665,035 723,397
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... 156,828 39,863
Due to related parties.................................... -- 806
Accrued liabilities....................................... 161,420 28,005
Unearned revenue.......................................... 5,198 --
Current portion of capital lease obligations.............. 32,760 71
--------- -------
Total current liabilities.............................. 356,206 68,745
--------- -------
Capital lease obligations, net of current portion........... 59,972 37
Long-term debt.............................................. 11,174 670
Long-term debt (Senior Notes)............................... 2,118,926 688,018
--------- -------
Total liabilities...................................... 2,546,278 757,470
--------- -------
Shareholders' Equity:
Ordinary shares, NLG0.05 par value........................ 3,961 1,949
Additional paid-in capital.................................. 1,638,720 51,112
Warrants.................................................... 4,602 5,212
Accumulated deficit......................................... (528,526) (92,346)
--------- -------
Total shareholders' equity............................. 1,118,757 (34,073)
--------- -------
Total liabilities and shareholders' equity............. 3,665,035 723,397
========= =======
</TABLE>
F-4
<PAGE> 82
VERSATEL TELECOM INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS OF DUTCH GUILDERS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
NLG NLG NLG
<S> <C> <C> <C>
OPERATING REVENUES...................................... 129,000 39,561 18,896
OPERATING EXPENSES:
Cost of revenues, excluding depreciation and
amortization....................................... 100,615 31,821 17,405
Selling, general and administrative................... 182,483 47,733 17,527
Depreciation and amortization......................... 58,206 6,473 3,237
---------- ---------- ---------
Total operating expenses........................... 341,304 86,027 38,169
---------- ---------- ---------
Operating loss..................................... (212,304) (46,466) (19,273)
---------- ---------- ---------
OTHER INCOME (EXPENSES):
Foreign currency exchange gains (losses), net......... (96,267) 5,146 (53)
Interest income....................................... 28,342 11,857 21
Interest expense -- third parties..................... (157,285) (37,522) (41)
Interest expense -- related parties................... -- (145) (514)
---------- ---------- ---------
Total other expenses, net.......................... (225,210) (20,664) (587)
---------- ---------- ---------
Loss before income taxes........................... (437,514) (67,130) (19,860)
BENEFIT FROM/(PROVISION FOR) INCOME TAXES............... 962 (7) --
---------- ---------- ---------
Loss before minority interest...................... (436,552) (67,137) (19,860)
MINORITY INTEREST....................................... 372 -- --
---------- ---------- ---------
Net loss......................................... (436,180) (67,137) (19,860)
========== ========== =========
NET LOSS PER SHARE (Basic and Diluted).................. (8.56) (2.06) (1.10)
Weighted average number of shares outstanding........... 50,928,989 32,622,194 18,084,188
</TABLE>
F-5
<PAGE> 83
VERSATEL TELECOM INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS OF DUTCH GUILDERS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL
SHARES ORDINARY PAID-IN ACCUMULATED
OUTSTANDING SHARES CAPITAL WARRANTS DEFICIT TOTAL
----------- -------- ---------- -------- ----------- ----------
NLG NLG NLG NLG NLG
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.... 17,820,000 891 4,604 -- (5,349) 146
Shareholder contributions....... 1,339,286 67 1,433 -- -- 1,500
Net loss........................ -- -- -- -- (19,860) (19,860)
---------- ----- --------- ----- -------- ----------
Balance at December 31, 1997.... 19,159,286 958 6,037 -- (25,209) (18,214)
Shareholder contributions....... 19,695,524 985 44,750 5,212 -- 50,947
Shares issued for acquisition... 130,000 6 325 -- -- 331
Net loss........................ -- -- -- -- (67,137) (67,137)
---------- ----- --------- ----- -------- ----------
Balance, December 31, 1998...... 38,984,810 1,949 51,112 5,212 (92,346) (34,073)
Shareholder contributions....... 37,380,008 1,869 1,544,593 -- -- 1,546,462
Shares issued for acquisition... 425,000 21 9,345 -- -- 9,366
Warrants exercised.............. 495,168 25 585 (610) -- --
Options exercised............... 1,940,000 97 4,220 -- -- 4,317
Deferred compensation........... -- -- 27,673 -- -- 27,673
Issuance of subsidiary shares... -- -- 1,192 -- -- 1,192
Net loss........................ -- -- -- -- (436,180) (436,180)
---------- ----- --------- ----- -------- ----------
Balance, December 31, 1999...... 79,224,986 3,961 1,638,720 4,602 528,526 1,118,757
========== ===== ========= ===== ======== ==========
</TABLE>
F-6
<PAGE> 84
VERSATEL TELECOM INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS OF DUTCH GUILDERS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
NLG NLG NLG
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................ (436,180) (67,137) (19,860)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization........................... 58,206 6,473 3,273
Amortization finance cost............................... 4,004 1,250 --
Restricted cash......................................... 89,543 149 4
Unearned revenue........................................ (3,260) (440) 440
Stock based compensation................................ 27,673 -- --
Changes in other operating assets and liabilities
Accounts receivable..................................... (7,887) (6,098) (595)
Inventory............................................... (1,160) (665) (282)
Prepaid expenses and other.............................. (74,381) (10,914) (1,963)
Accounts payable........................................ 104,882 19,189 18,716
Due to related parties.................................. (806) 557 30
Accrued liabilities..................................... 84,904 20,314 6,038
---------- -------- --------
Net cash provided by (used in) operating
activities......................................... (154,462) (37,322) 5,765
---------- -------- --------
Cash flows from Investing activities:
Capital expenditures.................................... (383,014) (77,255) (14,516)
Capitalized finance costs............................... (37,519) (30,000) --
Acquisition of business, net of cash acquired........... (620,789) (4,781) --
---------- -------- --------
Net cash used in investing activities................ (1,041,322) (112,036) (14,516)
---------- -------- --------
Cash Flows from Financing Activities:
Payments under capital lease obligations................ -- (297) (193)
Repayment of subordinated convertible shareholder
loans................................................ -- (8,105) 4,500
Proceeds from short-term loan, net...................... 15,372 -- --
Proceeds from long-term debt............................ 11,174 670 --
Proceeds from long-term debt (Senior Notes)............. 1,303,878 688,018 --
Restricted cash......................................... 102,181 (211,556) --
Warrants issued......................................... -- 5,212 --
Shareholder contributions............................... 1,561,337 46,066 1,500
---------- -------- --------
Net cash from financing activities................... 2,993,942 520,008 5,807
---------- -------- --------
Net Increase (Decrease) in Cash........................... 1,798,158 370,668 (2,944)
Cash, beginning of the year............................... 372,014 1,346 4,290
---------- -------- --------
Cash, end of the year..................................... 2,170,172 372,014 1,346
========== ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid for --
Interest (net of amounts capitalized)................ 102,181 26,260 510
Income taxes......................................... -- -- --
Acquisitions of property and equipment through capital
leases.................................................. 88,344 -- --
</TABLE>
F-7
<PAGE> 85
VERSATEL TELECOM INTERNATIONAL N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS UNLESS INDICATED
OTHERWISE)
1. GENERAL
Versatel Telecom International N.V. ("VersaTel" or the "Company"),
incorporated in Amsterdam on October 10, 1995, provides international and
national telecommunication services in the Netherlands, Belgium, Luxembourg and
Northwest Germany.
2. FINANCIAL CONDITION AND OPERATIONS
For the year ended December 31, 1999, the Company had a loss from operating
activities of NLG 436,180. In addition, the Company had an accumulated deficit
of NLG 528,526 as of December 31, 1999.
Although 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, it has a positive working capital of NLG 2,040,509 at December 31,
1999, which should enable it to continue its operations through December 31,
2000.
3. SIGNIFICANT ACCOUNTING PRINCIPLES
(a) Basis of Presentation
The accompanying consolidated financial statements of the company have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP"). 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.
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 U.S.
GAAP.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the operations
of the following wholly-owned (directly or indirectly, unless indicated
otherwise) subsidiaries:
-- VersaTel Telecom Europe B.V.
-- VersaTel Telecom Netherlands B.V.
-- VersaTel Telecom Belgium N.V.
-- Bizztel Telematica B.V.
-- CS Net B.V.
-- CS Engineering B.V.
-- Numedi Net N.V. (70% owned by the Company)
-- Amstel Alpha B.V.
-- SpeedPort N.V.
-- Glabana U.S.A., Inc.
F-8
<PAGE> 86
-- 7-klapper Beheer B.V.
-- VuurWerk Internet B.V.
-- VuuWerk Access B.V.
-- ITinera Services N.V.
-- Svianed B.V.
-- Zon Netherlands N.V. (90% owned by the Company)
-- VEW Telnet GmbH
-- VersaTel Deutschland Holding GmbH
-- VersaTel Deutschland Verwaltungs GmbH
The results of the subsidiaries are included from the respective dates of
acquisition or incorporation by the Company during 1999. All significant
intercompany accounts and transactions have been eliminated.
On May 1, 1999 the Company acquired 100 percent of the shares in Speedport
N.V., Amstel Alpha B.V. and Glabana U.S.A. Inc. The key figures of these
companies as included in the December 31, 1999 financial statements of VersaTel
are sales of NLG 1,434 total assets of NLG 6,473 total (negative) equity NLG
(6,546) and net loss for the period of NLG (6,368). The Company applied the
purchase accounting method. The goodwill, being the difference between the
purchase price amounting to NLG 8,374 in total and the net asset value as of
acquisition date, is being capitalized and amortized in 10 years.
On May 20, 1999 the Company acquired 100 percent of the shares of VuurWerk
Internet B.V., VuurWerk Acces B.V. and 7-Klapper Beheer B.V. The key figures of
these companies as included in the financial statements of VersaTel are sales
NLG 3,869 total assets of NLG 5,566 total equity of NLG 251 and net income for
the period of NLG 37. The Company applied the purchase accounting method. The
goodwill, being the difference between the purchase price amounting to NLG
30,000 in total and the net asset value as of acquisition date, is being
capitalized and amortized in 10 years.
On June 1, 1999 the Company acquired 100 percent of the shares of ITinera
Services N.V. The key figures of ITinera Services N.V. as included in the
December 31, 1999 financial statements of VersaTel are sales of NLG 692, total
assets of NLG 1,318 total (negative) equity of NLG (896) and net loss for the
period of NLG (1,232). The Company applied the purchase accounting method. The
goodwill, being the difference between the purchase price amounting to NLG 2,000
in total and net asset value as of acquisition date, is being capitalized and
amortized in 10 years.
On June 11, 1999 the Company acquired the shares of Svianed B.V. The key
figures of Svianed B.V. as included in the December 31, 1999 financial
statements of VersaTel are sales NLG 41,459 total assets of NLG 41,820 total
equity of NLG 13,620 and net loss for the period of NLG (998). The Company
applied the purchase accounting method. The goodwill, being the difference
between the purchase price amounting to NLG 356,077 in total and the net asset
value as of acquisition date, is being capitalized and amortized in 10 years.
In August 1999 the Company incorporated Zon Netherlands B.V. On November
11, 1999, Free Record Shop, a music retail chain in The Netherlands, and Radio
538, a commercial radio station in The Netherlands, each obtained a minority
interest in Zon Netherlands B.V. of 5.0 percent and each will provide marketing
and distribution support for Zon's products. On the same day, Zon's legal
structure was converted from a B.V. to an N.V. and its name was changed to Zon
Netherlands N.V. The key figures of Zon Netherlands N.V. as included in the
December 31, 1999 financial statements of VersaTel are sales NLG 848, total
assets of NLG 4,687, total (negative) equity NLG (9,584) and net loss for the
period of NLG (18,606).
On December 1, 1999 VersaTel Deutschland Holding GmbH, Frankfurt, Germany
and VersaTel Deutschland Verwaltungs GmbH, Frankfurt, Germany acquired 100
percent (99.09 percent resp. 0.91 percent) of the shares of VEW Telnet GmbH. The
key figures of VEW Telnet GmbH as included in the December 31, 1999 financial
F-9
<PAGE> 87
statements of VersaTel are sales of NLG 2,633, total assets of NLG 259,781,
total equity of NLG 112,963 and net loss for the period of NLG (4,977). The
Company applied the purchase accounting method. The goodwill, being the
difference between the total minimum purchase price amounting to NLG 112,940 in
total and the net asset value as of acquisition date, is being capitalized and
amortized in 10 years. Furthermore, an earn-out arrangement with the former
shareholder has been agreed-upon. Any payment resulting from this earn-out
arrangement will be recorded as an adjustment to the purchase price upon the
time they become certain. No such adjustments have yet been recorded. Reference
is made to note 4 for additional information on the acquisition of VEW Telnet
GmbH.
Except for Svianed B.V. and VEW Telnet GmbH for these entities, pro forma
financial statements have been omitted for materiality reasons. Reference is
made to note 4, for subject pro forma information.
(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.
(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.
(e) Advertising Expenses
Advertising costs are expensed as incurred and amounted to NLG 1,972, NLG
5,259 and NLG 13,068 in 1997, 1998 and 1999, respectively. These costs do not
include the advertising costs incurred in connection with obtaining finance and
issuance of Shares.
(f) Intangible Assets
Goodwill originating from the acquisition of investments represents the
difference of the net asset value and the acquisition cost of the investments at
the time of the acquisition. The goodwill is amortized on a straight-line basis
over a period varying from 5 to 10 years. Total accumulated amortization per
December 31, 1999 amounts to NLG 24,222.
Capitalized finance costs are costs incurred in connection with the
issuance of Senior Notes (the "Notes") during 1998 and 1999 by the Company.
Amortization is being recorded over the term of the Notes as interest expense in
the consolidated statement of operations.
(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.
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, is included in cost of revenues.
(h) Segmental Reporting
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 company considers its operations to be in one business segment
and internally makes operating decisions, allocates resources and assesses
performance based on one segment. Accordingly, the adoption of
F-10
<PAGE> 88
SFAS No. 131 did not have an effect on the Company's financial statements, as
the Company currently manages its operations as one segment under the guidelines
of the new standard.
(i) Recently Issued Accounting Standards
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued the Statement of Position 98-1
("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which provides guidance on accounting for the costs
of computer software developed or obtained for internal use. This SOP requires
computer software costs that are incurred in the preliminary project stage to be
expensed as incurred. Once the capitalization criteria of the SOP have been met,
directly attributable development costs should be capitalized. It also provides
guidance on the treatment of upgrade and maintenance expenditures. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. Costs incurred
prior to initial application of this SOP, whether capitalized or not, should not
be adjusted to the amounts that would have been capitalized had this SOP been in
effect when those costs were incurred. The Company has adopted this SOP in its
1999 consolidated financial statements. The adoption of this SOP did not have a
material effect on the 1999 consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 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 a liability
measured as its fair value. It also requires that changes in the derivative's
fair value be recognized currently into 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 as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000 and cannot be applied retroactively. The company
has not yet quantified the impact of adopting SFAS No. 133 on the financial
statements and has not determined the timing or method of adoption of SFAS No.
133.
(j) Ordinary shares and stock split
On April 13, 1999, a two-for-one stock split was effected, resulting in all
per share and weighted average share amounts being restated to reflect this
stock split.
Ordinary shares, with a par value of NLG 0.05 and consisting of 140,000,000
class A shares and 10,000,000 class B shares, of which 17,820,000, 19,159,286
and 38,984,810 class A shares were outstanding at December 31, 1996, 1997 and
1998, respectively. No class B shares were issued.
On July 14, 1999, a general meeting of shareholders approved an amendment
to VersaTel's articles of incorporation to provide for, among other things, a
consolidation of its Class A shares and Class B shares into one single class of
ordinary shares and the possible issuance of preference shares A, preference
shares B and a priority share.
The authorized share capital of VersaTel was increased on December 22, 1999
to NLG 18.5 million, consisting of 175 million ordinary shares with a par value
of NLG 0.05 each, 20 million preference shares A with a par value of NLG 0.05
each, 175 million preference shares B with a par value of NLG 0.05 each and one
priority share with a par value of NLG 0.05.
As of December 31, 1999, 79,224,986 ordinary shares are issued and
outstanding.
4. ACQUISITION OF SVIANED AND VEW TELNET GMBH.
Svianed
The acquisition in June 1999 of Svianed was accounted for as a purchase.
Accordingly, the purchase price was allocated to the net assets acquired based
upon their estimated fair market values. The excess purchase price over the
estimated fair value of net assets acquired amounted to approximately NLG 358
million, which has been
F-11
<PAGE> 89
accounted for as goodwill and is being amortized over ten years using the
straight line method. This allocation was based on preliminary estimates and may
be revised at a later date. The accompanying consolidated statements of
operations reflect the operating results of Svianed since the acquisition. Pro
forma unaudited consolidated operating results of the Company and Svianed for
the years ended December 31, 1999 and 1998, assuming the acquisition had been
made as of the beginning of the respective periods are summarized below (in
thousands of NLG except per share amounts):
<TABLE>
<CAPTION>
THE YEAR ENDED
DECEMBER 31
----------------------
1998 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... 96,244 156,182
Net loss.................................................... (171,876) (480,662)
Net loss per share.......................................... (4.41) (6.07)
</TABLE>
These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as additional amortization expense as a
result of goodwill and interest expense as a result of financing activities.
They do not purport to be indicative of the results of operations which actually
would have resulted had the combination been in effect at the beginning of the
respective periods or of future results of operations of the consolidated
entities.
VEW Telnet GmbH
The acquisition in December 1999 of VEW Telnet GmbH was accounted for as a
purchase. Accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair market values. The excess purchase
price over the estimated fair value of net assets acquired amounted to
approximately NLG 65 million, which has been accounted for as goodwill and is
being amortized over ten years using the straight line method. This allocation
was based on preliminary estimates and may be revised at a later date as the
purchase price is subject to an earn-out agreement based on revenue for the
years 2000 until 2002 and can vary between a refund of EUR 13.75 million (NLG
30.3 million) to an additional payment of EUR 20.0 million (NLG 44.1 million).
The amount subject to refund under the earn-out arrangement is included in other
non-current assets. The accompanying consolidated statements of operations
reflect the operating results of VEW Telnet GmbH since the acquisition. Pro
forma unaudited consolidated operating results of the Company and VEW Telnet for
the years ended December 31, 1999 and 1998, assuming the acquisition had been
made as of the beginning of the respective periods are summarized below (in
thousands of NLG except per share amounts):
<TABLE>
<CAPTION>
THE YEAR
DECEMBER 31
----------------------
1998 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... 61,577 170,106
Net loss.................................................... (147,966) (503,433)
Net loss per share.......................................... (4.54) (6.35)
</TABLE>
These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as additional amortization expense as a
result of goodwill and the depreciation on the IRU which is based on the present
value of the long term payables to the former parent company amounting to
NLG 81.1 million. They do not purport to be indicative of the results of
operations which actually would have resulted had the combination been in effect
at the beginning of the respective periods or of future results of operations of
the consolidated entities.
5. RECAPITALIZATION
To increase the equity of the Company by means of the conversion of
subordinated debt and cash contribution by its shareholders, the Company
completed a four part recapitalization in 1998.
F-12
<PAGE> 90
The Subordinated Convertible Shareholder Loans were converted into Ordinary
Shares of the Company in February and April 1998. Furthermore, additional cash
contributions in equity capital were received in April and May 1998 amounting to
NLG 43,100 in total.
6. RESTRICTED CASH
Restricted cash balances of NLG 211,556 and NLG 145,552 at December 31,
1998 and 1999, respectively, include mainly amounts restricted in connection
with the payment of interest to the holders of the Senior Notes.
The amounts restricted in connection with interest payments to the holders
of the Notes include the interest to be paid until May 15, 2001 over the first
tranche of Senior Notes and the interest to be paid until November 15, 2001 over
the second tranche of Senior Notes, which have restricted balances of NLG 85,563
and NLG 59,989, respectively. The (total) current portion is presented as
Current portion of restricted cash. The non-current portion is presented as
Restricted Cash, net of current portion.
7. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful accounts
of NLG 347 and NLG 1,620 at December 31, 1998 and 1999, respectively.
8. PREPAID EXPENSES AND OTHER
Prepaid Expenses and Other as of December 31, 1999 and December 31, 1998
include an amount of NLG 37,958 and NLG 5,897, respectively, which relates to
value added taxes.
9. 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, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
USEFUL LIFE 1999 1998 1997
----------- ------- ------- -------
NLG NLG NLG
<S> <C> <C> <C> <C>
Leasehold improvements............................. 5 11,755 3,555 911
Telecommunications equipment....................... 2-20 309,423 37,264 14,750
Telecommunications equipment under a 30 years right
to use agreement................................. 30 81,085 -- --
Other.............................................. 3-5 230,352 7,929 1,546
------- ------- -------
Property and equipment............................. 632,615 48,748 17,207
Less: Accumulated depreciation..................... 119,825 10,140 3,588
------- ------- -------
Property and equipment, net........................ 512,790 38,608 13,619
======= ======= =======
</TABLE>
10. CONSTRUCTION IN PROGRESS
The Company continues to build out its network in the Benelux region and
securing rights-of-way. The resulting assets as of December 31, 1999 have been
recorded at cost under the caption "Construction in progress."
During the time of the construction interest is capitalized at an average
rate of 13.1%, (1998 - 13.3%), the total capitalized interest at December 31,
1999 and December 31, 1998, respectively, amount NLG 14,694 and NLG 1,393.
F-13
<PAGE> 91
11. 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
1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ NLG 36,014
2001........................................................ 38,236
2002........................................................ 38,559
2003........................................................ 1,309
----------
Total minimum lease payments................................ 114,118
Less amount representing interest........................... 21,685
----------
Present value of net minimum lease payments, including
maturities of NLG 32,760.................................. NLG 92,433
==========
</TABLE>
Property, plant and equipment at year-end include the following amounts for
capitalized leases:
<TABLE>
<CAPTION>
1999 1998
---------- -------
<S> <C> <C>
Telecommunications equipment................................ NLG 93,698 NLG 820
Other....................................................... 28 28
---------- -------
93,726 848
Less allowances for depreciation............................ 1,293 740
---------- -------
NLG 92,433 NLG 108
========== =======
</TABLE>
12. SENIOR NOTES
On July 23, 1999, the Company issued two tranches of Senior Notes for, USD
180,000 and EUR 120,000, with an interest rate of 11 7/8% due 2009.
The discount on the tranches of Senior Notes (amounting to 0.727%) is
netted against the Notes and will be amortized over a period equal to the Senior
Note. The amortization charge is included in interest expenses using the
effective interest rate method as interest expense in the income statement.
On December 9, 1999, the Company issued one tranche of a 4% convertible
loan for EUR 300,000 due 2004. The loan can be converted into common shares of
the Company at a conversion price of EUR 43.40. Next to the normal interest, the
principal of the loan increases at 4.5% per year. However, if the conversion
right is exercised, the growth of the principal redeems. No loans were converted
at year-end.
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
required 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.
13. EMPLOYEE BENEFIT PLANS
The Company has established four stock option plans: the 1997 Stock Option
Plan (the "1997 Plan"), the 1998 Stock Option Plan (the "1998 Plan"), the 1999
Stock Option Plan (the "1999 Plan") and the 2000 Stock Option Plan (the "2000
Plan").
1997 STOCK OPTION PLAN
In December 1996, our shareholders approved the 1997 Stock Option Plan. The
1997 Plan provides for the grant of options to certain key employees of VersaTel
to purchase ordinary shares of VersaTel. Under the 1997
F-14
<PAGE> 92
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.
As of December 31, 1999 398,000 options to purchase 398,000 ordinary shares
had been granted under the 1997 Plan and VersaTel does not intend to grant any
more options under the 1997 Plan.
1998 STOCK OPTION PLAN
In March 1998, our shareholders approved the 1998 Stock Option Plan. The
1998 Plan allows VersaTel to grant options to employees to purchase ordinary
shares of VersaTel. The option period will commence at the date of the grant and
will last five years. The option exercise price is determined in the particular
grant of the option.
We have reserved 5,000,000 ordinary shares for issuance under the 1998
Stock Option Plan.
As of December 31, 1999, 5,000,000 options to purchase 5,000,000 ordinary
shares have been granted under the 1998 Plan and the Company does not intend to
grant any more options under the 1998 Plan. As of December 31, 1999, 1,940,000
options have been exercised for a total of 1,940,000 shares.
1999 STOCK OPTION PLAN
In January 1999, our shareholders approved the 1999 Stock Option Plan. The
1999 Plan allows VersaTel to grant options to employees to purchase ordinary
shares of VersaTel. The option period will commence at the date of the grant and
will last five years. The option exercise price determined in the particular
grant of the option. We have reserved 2,500,000 ordinary shares for issuance
under the 1999 stock option plan.
As of 31 December 1999, 1,908,500 options to purchase 1,908,500 ordinary
shares have been granted under the 1999 Plan. VersaTel expects to grant the
remaining 591,500 options under the 2000 Stock Option Plan.
2000 STOCK OPTION PLAN
In December 1999, our supervisory board approved the 2000 Stock Option
Plan. The 2000 Plan allows VersaTel to grant options to employees to purchase
ordinary shares of VersaTel. The option period will commence at the date of the
grant and will last five years. The option exercise price shall be determined by
VersaTel. We have reserved 3,000,000 ordinary shares for issuance under the 2000
Plan.
We granted 200,000 options to purchase ordinary shares under the 2000 Plan
in March 2000. We expect to grant the remaining 2,800,000 options to purchase
ordinary shares under the 2000 Plan along with 591,500 options remaining from
the 1999 Plan.
In October 1995, FASB Statement No. 123 "Accounting for Stock-Based
Compensation" was issued. The Company has adopted the disclosure provisions of
FASB Statement No. 123, but opted to remain under the expense recognition
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees" in accounting for options granted under the Stock
Option Plans. Accordingly, for the years ended December 31, 1997 through
December 31, 1999, no compensation expense was recognized for options granted
under these schemes. Had compensation expense for share options granted under
these schemes been determined based on fair value at the grant dates in
accordance with FASB Statement No. 123, the Company's net income and earnings
per share for 1997, 1998 and 1999 would have been reduced to the following pro
forma amounts shown below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
NLG NLG NLG
<S> <C> <C> <C>
Net income:
As reported............................................... (436,180) (67,137) (19,860)
Pro Forma................................................. (438,845) (69,405) (19,887)
Net loss per share (Basic and diluted):
As reported............................................... (8.56) (2.06) (1.10)
Pro Forma................................................. (8.56) (2.06) (1.10)
</TABLE>
F-15
<PAGE> 93
The movement in options outstanding during the two years ended December 31,
1997, December 31, 1998 and December 31, 1999 is summarised in the following
table:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES SUBJECT AVERAGE
TO OPTION EXERCISE PRICE
-------------- --------------
NLG
<S> <C> <C>
Outstanding at January 1, 1997.............................. -- --
Exercised during 1997....................................... -- --
Lapsed during 1997.......................................... -- --
Granted during 1997......................................... 398,000 .55
----------
Outstanding at December 31, 1997............................ 398,000 .55
Exercised during 1998....................................... -- --
Lapsed during 1998.......................................... -- --
Granted during 1998......................................... 5,000,000 2.27
----------
Outstanding at December 31, 1998............................ 5,398,000 2.14
Exercised during 1999....................................... (1,940,000) 2.23
Lapsed during 1999.......................................... (161,740) 4.40
Granted during 1999......................................... 1,908,500 7.50
----------
Outstanding at December 31, 1999............................ 5,204,760 3.86
</TABLE>
The weighted average fair value of options granted in the year ended
December 31, 1999 was estimated at NLG 5.01 as at the date of grant using the
Black-Scholes stock option pricing model. The following weighted average
assumptions were used: dividend yield of 0.00% per annum, annual standard
deviation (volatility) of 81.62%, risk free interest rate of 3.42% and expected
term of five years.
For options granted in the year ended December 31, 1999 with an exercise
price equal to market price at grant date, the weighted average exercise price
and fair value at grant date were estimated at NLG 7.50 and NLG 5.01,
respectively.
The exercise prices for options outstanding at the end of the year ranged
from NLG 0.295 to NLG 7.50, with a weighted average exercise price of NLG 3.86
and a remaining contractual life of 3.65 years.
All costs related to stock option plans are included in selling, general
and administrative expenses.
The following table summarises information about the stock options
outstanding December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS CURRENTLY EXERCISABLE
- ------------------------------------------------------------------ ------------------------------
WEIGHTED AVERAGE
RANGE OF EXERCISE REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- ----------------- --------- ---------------- ---------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
NLG 0 - 1.50 348,000 2.36 0.53 298,000 0.52
NLG 1.51 - 3.00 3,030,100 3.35 2.29 2,490,100 2.27
NLG 3.01 - 4.50 -- -- -- -- --
NLG 4.51 - 6.00 -- -- -- -- --
NLG 6.01 - 7.50 1,826,660 4.40 7.50 317,305 7.50
</TABLE>
14. TAXES
The Company had income tax carry forwards of approximately NLG 42,300 at
December 31, 1998 and NLG 180,000 at December 31, 1999, which may be utilized to
reduce future income taxes payable mainly in The Netherlands.
These 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-16
<PAGE> 94
There were no significant temporary differences which gave rise to deferred
tax assets and liabilities at December 31, 1997. At December 31, 1998 a
temporary difference has arisen due to the different treatment of finance costs
for fiscal purposes.
15. NET SALES
The geographical composition of net sales is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
The Netherlands............................. NLG 115,305 NLG 39,324 NLG 18,896
Belgium..................................... 9,733 237 --
Germany..................................... 3,962 -- --
----------- ----------- -----------
Total....................................... NLG 129,000 NLG 39,561 NLG 18,896
=========== =========== ===========
</TABLE>
16. RELATED PARTY TRANSACTIONS
In 1998 the Company used a consultancy firm in which one of the Company's
officers is a director. Accounts payable to this consultancy firm at December
31, 1998 amounted to NLG 806 and the 1998 expense to the Company in this respect
was approximately NLG 3,300. This consultancy was no longer used in 1999.
17. RENT AND OPERATING LEASE COMMITMENTS
Future minimum commitments in connection with rent and other operating
lease agreements are as follows at December 31, 1999:
<TABLE>
<S> <C>
2000........................................................ NLG 33,397
2001........................................................ 21,392
2002........................................................ 17,222
2003........................................................ 17,241
2004........................................................ 15,967
2005 and further............................................ 139,192
-----------
NLG 244,411
===========
</TABLE>
Rent and operating lease expenses amounted to approximately NLG 585 in
1997, NLG 1,937 in 1998 and NLG 4,735 in 1999. The main part of future
commitments relates to the renting of Points-of-Presence ("POP's") for a
ten-year period.
18. COMMITMENTS NOT REFLECTED IN THE BALANCE SHEET
Commitments in connection with the roll-out of the Company's network, not
yet recorded on the balance sheet amount to approximately NLG 35 million as of
December 31, 1999. Reference is made to Note 10.
Earn-out arrangements with the former shareholders of CS Net B.V., ITinera
Services N.V., Speedport N.V. and VEW Telnet GmbH have been agreed-upon any
payments resulting from this earn-out arrangement will be recorded as an
adjustment to the purchase price upon the time they become certain. No such
adjustments have yet been recorded.
The issued guarantees at December 31, 1999 on behalf of third parties
amount to NLG 6.7 million.
19. LEGAL PROCEEDING
Cromwilld, one of the shareholders of the Company, objected to the 1998
recapitalization as described in footnote 5 and to the issuance of the two
tranches of units consisting of warrants and senior notes as described in
footnote 12, and threatened to challenge in court certain of the Company's
actions in connection therewith. In January 1999, Cromwilld filed, pursuant to
article 2:345 of the Netherlands Civil Code, a petition with the Enterprise
Chamber of the Court of Appeals in Amsterdam requesting the appointment of one
or more experts to investigate the management and affairs of the Company. In May
1999, the Enterprise Chamber denied Cromwilld's request.
F-17
<PAGE> 95
On July 20, 1999, the Company entered into, along with its shareholders and
certain other parties, a Settlement Agreement with Cromwilld Limited, in order
to resolve disputes arising out of our shareholders' agreement and other
matters. The major terms of the Settlement Agreement provide for:
- the transfer of 146,988 of our ordinary shares held by Telecom Founders
B.V. to Cromwilld;
- the issuance of 200,000 shares of the Company on July 20, 1999 to
Cromwilld at a price of NLG 7.50 per ordinary share;
- the ability for Cromwilld to include 1,800,000 of its ordinary shares
in initial public offering of the Company;
- certain piggyback registration rights in favor of Cromwilld that will
take effect 180 days from the date of the initial public offering of
the Company;
- the payment by us of $300,000 from Cromwilld's fees and expenses
related to the Settlement Agreement and certain other matters;
- the acknowledgment by all parties to the shareholders' agreement of the
Company that the shareholders' agreement will be terminated
concurrently with the closing of the initial public offering of the
Company;
- the withdrawal by Cromwilld of its pending legal proceedings against
the Company and its shareholders;
- Cromwilld's full cooperation with the initial public offering of the
Company; and
- the obligation of the Company's shareholders, including Cromwilld, to
procure the resignation or dismissal of Cromwilld's nominee, Denis
O'Brien, from Supervisory Board of the Company, after the completion of
the initial public offering.
As of December 31, 1999, all of the terms of the Settlement Agreement,
except with respect to certain piggyback registration rights provided to
Cromwilld (which have not yet taken effect), have been completed.
The expense related to this legal proceeding is classified as "Other
expense, net" in the income statement for the year ended December 31, 1999.
20. SUBSEQUENT EVENTS
On March 3, 2000 VersaTel announced that it had bundled its Internet
activities into a separate business unit within the company Zon, Vuurwerk, CS
Net and ITinera will be grouped into the new Internet division.
On March 8, 2000 VersaTel and NorthPoint Communications announced plans to
create a new company to deliver digital subscriber line (DSL) services across
the EU Market. The new company, VersaPoint, will combine NorthPoint's DSL
network deployment and operations expertise with VersaTel's established
broadband local access network, DSL operations in the Benelux and Germany, and
local market/regulatory experience in Europe. NorthPoint and VersaTel will
equally fund VersaPoint's start-up costs and initial capital requirements
through a E100 million (in the aggregate) cash investment and the contribution
of certain assets.
On March 15, 2000 VersaTel announced that it has reached definitive
agreement to purchase a majority of KomTel, from the electric utility company,
Stadtwerke Flensburg GmbH, and other shareholders. VersaTel will acquire 80
percent of KomTel's outstanding stock for EUR 61.6 million to be paid in cash,
and will assume EUR 13.0 million of debt (EUR 7.0 million which is related to
shareholder loans and will be repaid at closing). Stadtweke Flensburg will
remain a 20% shareholder until 2002 as it intends to maintain a strong
relationship with VersaTel including a cooperation agreement for
telecommunication services and the establishment of an IRU for the additional
fiber network it owns. The purchase price of the remaining stake is EUR 15.4
million. Key unaudited figures for KomTel as of December 31, 1999 under German
GAAP are sales of DEM 60.7 million, shareholders equity of DEM 7.3 million,
total assets of DEM 69.6 million and loss for the year of DEM 18.7 million.
F-18
<PAGE> 96
APPENDIX 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.
ADSL (ASYMETRICAL DIGITAL SUBSCRIBER LINE) -- A member of the digital
subscriber line family of copper loop enhancing technologies (see "DSL"), ADSL
is asymmetric, meaning than it provides faster transmission rates downstream
than upstream.
ATM (ASYNCHRONOUS TRANSFER MODE) -- An international standard for
high-speed broadband packet-switched networks, operating at digital transmission
speeds above 1.544 Mbps.
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).
BITS -- The smallest unit of digital information utilized by electronic
information processing, storage or transmission systems.
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 -- A company authorized by a regulatory agency to provide
communications services.
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 first 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.
CIRCUIT SWITCHING -- A switching technique that establishes a dedicated
transmission path between originating and terminating points and holds that path
open for the duration of a call.
CO-LOCATION -- When an end-user or competing local telecommunications
service provider locates telephone network equipment at the building that houses
switches belonging to another telephone carrier, the user or competing provider
is said to be "co-located" with the other telephone carrier. The advantage for
the co-locating party is that it can make a direct connection to local and long
distance facilities and substantially reduce access costs.
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.
CONNECTIVITY -- The property of a network that allows dissimilar devices to
communicate with each other.
DARK FIBER -- Any installed fiber optic cable lacking a light transmission
or signal, as opposed to in-service or "lit" fiber.
DIAL AROUND -- Use of carrier access numbers and/or carrier identification
codes to place a call through a carrier other than the one presubscribed to the
originating phone.
DSL (DIGITAL SUBSCRIBER LINE) -- A family of technologies that provides
high-bandwidth transmission over standard twisted copper wires (regular
telephone lines).
DWDM (DENSE WAVELENGTH DIVISION MULTIPLEXING) -- A multiplexing technique
allowing multiple different signals to be carried simultaneously, with
transmission capacity as high as 160 Gbps, on a fiber by allocating resources
according to frequency on non-overlapping frequency bands.
A-1
<PAGE> 97
E1 -- The European counterpart to the North American T-1 transmission
speed. The T-1 is a type of digital carrier transmitting voice or data at 1.544
Mbps. A T-1 carrier can handle up to 24 multiplexed 64 Kbps digital voice/data
channels. A T-1 carrier system can use metallic cable, microwave radio or
optical fiber as a transmission media.
E3 -- The European counterpart to the North American T-3 transmission
speed. The T-3 is a type of digital carrier transmitting voice or data at 34
Mbps (see also "E1").
FACILITIES -- Transmission lines, switches and other physical components
used to provide telephone service.
FACILITIES-BASED -- When a carrier owns or leases a network and facilities
to run that network, services offered on it are said to be facilities-based.
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 -- A filament, usually of glass, through which light beams carrying
voice, data or video transmissions are guided.
FIBER OPTIC -- Technology based on thin filaments of glass or other
transparent materials used as the medium for transmitting coded light pulses
that represent data, image and sound. Fiber optic technology offers extremely
high transmission speeds. It is 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.
FIBER OPTIC RING NETWORK -- Where a network is configured in bi-directional
circular fashion. If a portion of the ring malfunctions, the signal can be
re-routed back the way it came, around the circle, to complete the connection.
FRAME RELAY -- A method of achieving high-speed, packet-switched data
transmissions within digital networks at transmission speeds between 56 Kbps and
1.544 Mbps.
GBPS (GIGA BITS PER SECOND) -- A measurement of speed for digital signal
transmission expressed in billions of bits per second.
INTERCONNECT -- Connection of a telecommunications device or service to the
PSTN.
INTRANET -- A corporate communications system that uses the global Internet
protocol for employee-to-employee communications and information transactions.
An intranet allows employees of a company to access company and customer
information not available to the public, receive company or customer information
and communicate with other employees.
IP (INTERNET PROTOCOL) -- The standard that defines the information unit
being passed among the host computers and packet-switched networks that make up
the Internet. The Internet protocol provides the basis for packet delivery on
the Internet.
IPX -- Novell NetWare connection protocol.
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.
KBPS (THOUSANDS OF BITS PER SECOND) -- A measurement of speed for digital
signal transmission expressed in thousands of bits per second.
LAN (LOCAL AREA NETWORK) -- A private data communications network linking a
variety of data devices, such as computer terminals, personal computer
terminals, personal computers and microcomputers, all housed in a defined
building, plant or geographic area.
A-2
<PAGE> 98
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 premises
interface which connects to the inside wiring and equipment at the customer
premises to a terminating point within the switching wire center.
MBPS (MILLIONS OF BITS PER SECOND) -- A measurement of speed for digital
signal transmission expressed in millions of bits per second.
MDF (MAIN DISTRIBUTION FRAME) -- patch panel for connecting customer
equipment.
MULTIPLEXING -- An electronic or optical process that combines a large
number of lower-speed transmission lines into one high-speed line by splitting
the total available bandwidth of the high-speed line into narrower bands, or by
allotting a common channel to several different transmitting devices, one at in
sequence. Multiplexing devices are widely used in networks to improve efficiency
by concentrating traffic.
NACD (NETWORK AUTOMATIC CALL DISTRIBUTION) -- provides call queuing and
distribution functions.
NUMBER PORTABILITY -- The ability of end users to keep their number when
changing operators.
OPERATING SUPPORT SYSTEMS -- A general term encompassing the electronic and
manual systems used to fill orders for retail and wholesale telephone services.
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.
PLATFORM -- A group of unbundled network elements assembled and sold
together as a package.
POP (POINTS OF PRESENCE) -- A location containing switches or other
networking equipment through which users connect to a network.
PROTOCOL -- A formal set of rules and conventions governing the formatting
and relative timing of message exchange between 2 communicating points in a
computer system or data communications network.
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.
REDUNDANCY -- Incorporation of duplicate components into a system so that a
duplicate component immediately takes over if the primary components fails.
REMOTE ACCESS -- A PBX feature that allows a user at an outside location to
access certain PBX features, such as call answering and advance calling, by
telephone. The user dials a direct distance dialing number to connect to the PBX
and then dials authorization and instruction codes to get the PBX services.
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.
ROUTER -- A device for interconnecting local area networks that have
dissimilar operating protocols but which share a common network interconnection
protocol.
ROUTING -- Process of selecting the correct circuit path for a message.
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
A-3
<PAGE> 99
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.
SONET (SYNCHRONOUS OPTICAL NETWORK STANDARD) -- An ultra-high-speed, fiber
optic transmission standard for large-scale, fiber-based digital transmission
networks that use equipment from many different manufacturers. It is the first
telecom industry agreement on standardized interfaces between fiber optic
transmission systems and is well on the way to becoming an international
standard.
STM-1 (SYNCHRONOUS TRANSPORT MODULE) -- SDH notation for data transport,
used for transport and connection providing capacity of 155 Mbps.
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.
T1 OR T3 -- see "E1" or "E3."
TELEPHONY -- A generic term describing voice telecommunications.
TRAFFIC -- A generic term that includes any and all calls, messages and
data sent and received by means of telecommunications.
WAN (WIDE AREA NETWORK) -- a large-scale, high speed communications network
used primarily for interconnecting local area and metro area networks located in
different cities, states or countries.
XDSL -- a digital subscriber line providing high speed customer connection
over copper pairs.
A-4
<PAGE> 100
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1 -- Deed of Incorporation and Articles of Association (as
amended) of the Company
2(1) -- Indenture, dated May 27, 1998, between VersaTel and
United States Trust Company of New York, as Trustee
3(2) -- Indenture, dated December 3, 1998, between VersaTel and
United States Trust Company of New York, as Trustee
4(1) -- Escrow Agreement, dated May 27, 1998, between VersaTel
and United States Trust Company of New York, as Trustee and
Escrow Agent
5(2) -- Escrow Agreement, dated December 3, 1998, between
VersaTel and United States Trust Company of New York, as
Trustee and Escrow Agent.
6 -- Principal Paying Agent, Conversion Agent, Conversion
Calculation Agent and Registrar Agreement, dated December
17, 1999 between VersaTel and ING Bank N.V.
7 -- Shareholders Agreement, dated March 8, 2000, among
VersaTel, Northpoint Communications Group, Inc., Northpoint
B.V.i.o. and VersaPoint N.V. i.o.
8 -- Commercial Services Agreement, dated March 8, 2000, among
Northpoint Communications Group, Inc., VersaTel and
VersaPoint N.V. i.o.
</TABLE>
- ---------------
(1) Previously filed as an exhibit to the VersaTel's Registration Statement on
Form F-4 (File Number 333-59979) initially filed with the Securities and
Exchange Commission on July 27, 1998 and incorporated herein by reference.
(2) Previously filed as an exhibit to the VersaTel's Registration Statement on
Form F-4 (File Number 333-70449) initially filed with the Securities and
Exchange Commission on January 12, 1999 and incorporated herein by
reference.
<PAGE> 1
EXHIBIT 1
informal translation of the
ARTICLES OF ASSOCIATION
of
VERSATEL TELECOM INTERNATIONAL N.V.
with seat in Amsterdam,
as they read following
the deed of amendment
executed on 22 December 1999,
before
Mr. J.H.M. Carlier,
civil law notary in Amsterdam,
in respect of which amendment
the Minister of Justice has advised
on 20 December 1999,
under number N.V. 538.638
that no objections have been raised.
E-1
<PAGE> 2
TRANSLATION
ARTICLE 1 -- DEFINITIONS
In the present articles of association the following shall be understood
to mean:
1.1. company:
the company to which the present articles of association will apply;
1.2. general meeting:
the body formed by shareholders holding voting rights and other persons
holding voting rights;
1.3. meeting of shareholders:
the meeting of the general meeting and other parties entitled to attend
meetings;
1.4. parties entitled to attend meetings:
-- shareholders with voting rights;
-- shareholders without voting rights;
-- usufructuaries and pledgees with voting rights;
-- other (holders of rights granted by law to) holders of depository
receipts of its shares issued with the co-operation of the company;
1.5. Official Price List:
the Official Price List of Amsterdam Exchanges N.V. or an official
publication taking its place;
1.6. accountant:
an accountant as referred to in article 393, Volume 2 of the Civil Code
or an organisation in which such accountants are associated;
1.7. annual meeting:
the meeting of shareholders destined for the consideration of the annual
account and annual report;
1.8. annual account:
the balance sheet and the profit and loss account with explanatory
memorandum;
1.9. annual report:
report of the position of the company as at the last day of the financial
year and the course of affairs during the financial year.
1.10. subsidiary:
-- a legal entity in which the company or one or several of its
subsidiaries, whether or not by virtue of an agreement with other
parties entitled to vote, alone or jointly may exercise more than
fifty per cent of the voting rights in the general meeting;
-- a legal entity of which the company or one or several of its
subsidiaries is/are a member/members or shareholder(s) and, whether or
not by virtue of an agreement with other parties entitled to vote,
alone or jointly may appoint or dismiss more than fifty per cent of
the managing directors or of the supervisory directors, also in case
all parties entitled to vote will be voting.
A subsidiary will be equated with a company acting under its own name in
which the company or one or several subsidiaries as a partner will be fully
liable for the debts towards creditors.
E-2
<PAGE> 3
The provisions laid down hereinbefore will apply without prejudice to the
provisions in article 24a paragraphs 3-4, Volume 2 of the Civil Code;
1.11. group company:
a legal entity or company with which the company is associated in a
group;
1.12. the priority:
the holder of the sole priority share;
1.13. Wge:
the Act on securities transfer by giro;
1.14. Necigef:
the central institute in the sense of the Wge;
1.15. associated institution:
an associated institution in the sense of the Wge.
ARTICLE 2 -- NAME, REGISTERED OFFICE
2.1. The company bears the name: Versatel Telecom International N.V.
2.2. It has its registered office in Amsterdam.
ARTICLE 3 -- OBJECT
The object of the company is:
a. to provide telecommunication services;
b. to incorporate, to participate in, to manage and to be financially
involved in any other way in other companies and enterprises;
c. to provide administrative, technical, financial, economic and
management services to other companies, persons and enterprises;
d. to acquire, to dispose of, to manage and to exploit movable and
immovable properties and other properties, including but not limited
to patents, trade marks, licenses, permits and other industrial
ownership rights;
e. to borrow or to lend money, to grant security-rights, to warrant
performances by third parties or to undertake joint and several
liability for third parties,
all such acts as mentioned above, whether or not performed in co-operation with
third parties and including the performance and promotion of all such acts
connected therewith, whether directly or indirectly, and all in the widest sense
of the word.
ARTICLE 4 -- CAPITAL
4.1. The authorized capital of the company amounts to eighteen million five
hundred thousand Dutch Guilders five Cents (NLG 18,500,000.05) and is
divided into:
-- one hundred seventy-five million (175,000,000) ordinary shares;
-- twenty million (20,000,000) preference-A shares;
-- one hundred seventy-five million (175,000,000) preference-B shares,
and
-- one (1) priority share,
each share having a nominal value of five Dutch Cents (NLG 0.05).
E-3
<PAGE> 4
4.2. Whenever in the present articles of association reference is made to
"shares" or "shareholders", these terms will be understood to mean shares
of whatever category respectively holders of shares of whatever category,
unless the contrary will have been explicitly stated or will clearly be
evident from the context.
ARTICLE 5 -- ISSUE OF SHARES
5.1. Shares may only be issued by virtue of a resolution of the general
meeting, which resolution will also include the price and the further
conditions of the issue.
The general meeting may transfer its competence as referred to in the
preceding sentence to an other company body for a specified period not
exceeding five years.
The number of shares that may be issued will be fixed in said designation.
The designation may each time be extended for a maximum period of five
years.
Unless laid down otherwise in said designation, it cannot be withdrawn.
The validity of the resolution of the general meeting for the issue of
shares or for designation will require a prior or simultaneous resolution
of approval of each group of holders of shares of a similar category whose
rights will be prejudiced by the issue.
Within eight days after a resolution of the general meeting for the issue
of shares or for designation, the company will deposit a full text of said
resolution at the office of the Trade Register with additional statement
of the number and category.
Within eight days after each issue of shares, the company will deposit a
relative statement at the office of the Trade Register with additional
statement of the number and category.
The present paragraph will be correspondingly applicable to the granting
of rights to take shares but will not be applicable to the issue of shares
to a party exercising an already previously acquired right to take shares.
5.2. If and insofar as the board of management has been designated as being
competent to resolve to issue shares, in case of preference shares B
being issued, which will be understood to include the granting of a
right to subscribe for preference shares B:
a. the board of management shall, within four weeks after such issue,
convene a general meeting in which the motives for the issue will be
elucidated, unless such an elucidation has previously been given in
a general meeting;
b. the previous approval of the general meeting is required for the
specific case if (i) in consequence of such issue (ii) and/or in
consequence of the earlier issue of preference shares B by the board
of management, without the approval referred to, so many preference
shares B can be taken and/or have been issued that the total nominal
amount of the preference shares, issued by the board of management
without the said approval of the general meeting, exceeds one
hundred per cent (100%) of the total nominal amount of the issued
ordinary shares and the preference shares A prior to said issue.
5.3. In case preference shares A have been issued by virtue of a resolution
to issue shares or a resolution to grant a right to subscribe for
shares, passed by the board of management without the previous approval
or other collaboration of the general meeting, the board of management
shall convene a meeting of shareholders within two years after such
issue and make a proposal in said meeting as regards purchase by the
company or (as the case may be) withdrawal of such preference shares
issued.
In case in said meeting no resolution will be passed to the effect that
the preference shares B will be purchased by the company or (as the case
may be) will be withdrawn, the board of management shall, every time
within two years after the proposal referred to above has been brought up
for considera- tion, convene a general meeting again in which such a
proposal will again be made, which obligation will no longer exist if the
shares referred to will no longer be held by a party other than the
company.
E-4
<PAGE> 5
5.4. In case of ordinary shares being issued, each holder of ordinary shares
will hold a pre-emptive right in proportion of the aggregate amount of
his shares, without prejudice to the provisions in the law.
In case of shares being issued, there will be a pre-emptive right neither
to the shares issued against contribution other than in money nor to the
shares issued to employees of the company or of a group company.
Holders of preference shares will not hold a pre-emptive right in case of
ordinary shares being issued.
Holders of ordinary shares will not hold a pre-emptive right in case of
preference shares and the priority shares being issued.
The company will announce the issue with a pre-emptive right and the period
within which said right may be exercised in the Dutch Gazette, in a
national newspaper and in the Official Price List.
The pre-emptive right may be restricted or excluded in a resolution of the
general meeting.
In the relative proposal the reasons for the proposal and the choice of the
intended price of issue shall be elucidated in writing.
The pre-emptive right may also be restricted or excluded by the company
body designated by virtue of paragraph 1, in case said body will have been
designated in a resolution of the general meeting as being competent to
restrict or exclude the pre-emptive right for a specific period not
exceeding five years.
The designation may each time be extended for a period not exceeding five
years; it will in any case cease to apply in case the designation of the
corporate body competent to issue shares as referred to in article 5,
paragraph 1 will no longer be effective.
Unless laid down otherwise in the designation -- without prejudice to the
provisions in the preceding sentence -- it cannot be withdrawn.
A resolution of the general meeting for restriction or exclusion of the
pre-emptive right or for designation will require a majority of at least
two/thirds of the votes cast, in case less than fifty per cent of the
issued capital will be represented at the meeting.
Within eight days after said resolution, the company will deposit a full
text thereof at the office of the Trade Register.
In case of rights to take ordinary shares being granted, the holders of
ordinary shares will hold a pre-emptive right; the provisions laid down
hereinbefore in the present paragraph will be correspondingly applicable.
Shareholders will not hold a pre-emptive right to shares issued to a party
exercising an already previously acquired right to take shares.
5.5. The price at which the shares will be issued may not be below par,
without prejudice to the provisions laid down in article 80, paragraph 2,
Volume 2 of the Civil Code.
5.6. Payment shall be made in money insofar as contribution other than in
money will not have been agreed upon.
Payment in foreign currency may only be made with the consent of the
company.
The payment liability will in said case be fulfilled for the amount at
which the amount paid may freely be exchanged in Dutch currency or in
Euros.
Decisive will be the rate of exchange on the date of payment.
In deviation from the provisions laid down in the preceding sentence, the
company may demand payment at the rate of exchange on a particular date
within two months prior to the last day on which payment shall be made,
provided the shares or the depository receipts for these shares will
forthwith after having been issued be included in the Price List of a Stock
Exchange outside the Netherlands.
E-5
<PAGE> 6
ARTICLE 6 -- COMPANY SHARES
6.1. In case of shares being issued, the company may not take company shares.
6.2. Acquisition by the company of company shares not paid up will be null and
void.
6.3. After the relative approval of the board of supervisory directors having
been obtained, the company may acquire paid-up company shares for a
consideration in case:
a. the common equity, reduced by the price of acquisition, will not be
smaller than the paid and claimed part of the capital, increased by
the reserves which shall be kept by virtue of the law;
b. the nominal amount of the shares in its capital acquired, held or
held in pledge by the company or those held by a subsidiary will not
exceed one/tenth part of the issued capital, and
c. authorization for the acquisition will have been granted by the
general meeting.
Acquisition of shares contrary to the provisions in the present paragraph
will be null and void.
6.4. Decisive for the requirement under a. of the preceding paragraph will be
the amount of the common equity in accordance with the balance sheet
lately confirmed, reduced by the price of acquisition for the shares in
the capital of the company and distributions to the charge of profit or
reserves to other parties which the company and its subsidiary owed after
the date of the balance sheet.
In case a financial year will have lapsed for more than six months,
without the annual account having been confirmed, acquisition in
accordance with paragraph 3 will not be permitted.
6.5. In the authorization the general meeting shall fix the number of shares
that may be acquired, the manner in which they may be acquired and
between what limits the price shall be.
The authorization will be valid for a maximum period of eighteen months.
6.6. The preceding paragraphs will not apply to shares acquired by the company
under a universal title.
6.7. The board of management will be competent to alienate company shares held
by the company.
6.8. The provisions laid down hereinbefore in the present article will be
correspondingly applicable to depository receipts of shares in the
capital of the company.
ARTICLE 7 -- CAPITAL REDUCTION
7.1. The general meeting of shareholders may pass a resolution for the
reduction of the issued capital by withdrawing shares or by reducing the
amount of the shares in an amendment of the articles of association.
The shares to which the resolution relates shall be designated in the
resolution and the implementation of the resolution shall have been
arranged.
The paid and claimed part of the capital may not become smaller than the
minimum capital prescribed by law at the time of the resolution.
7.2. A resolution for withdrawal of shares may only relate to:
-- shares held by the company itself or of which it holds the depository
receipts.
-- all preference shares of a particular category or of both categories
with repayment.
7.3. Reduction of the amount of shares without repayment and without exemption
from the payment liability shall be carried out proportionately on all
shares of a similar category.
The requirement of proportion may be deviated from with the consent of all
shareholders concerned.
7.4. Partial repayment on shares or exemption from the payment liability will
only be possible by way of implementation of a resolution for reduction
of the amount of the shares.
E-6
<PAGE> 7
Such repayment or exemption shall be made
-- either proportionately on all shares;
-- or proportionately with respect to the preference shares of a
particular category or of both categories.
The requirement of proportion may be deviated from with the consent of all
shareholders concerned.
7.5. A resolution for the reduction of the capital relating to preference
shares of a particular category or of both categories will require a
prior or simultaneous resolution of approval of the meeting of the
holders of said shares of that category or these categories.
7.6. The convening notice for a meeting in which a resolution referred to in
the present article will be passed will state the object of the capital
reduction and the manner of implementation.
A resolution for the reduction of the capital will require a majority of
at least two/thirds of the votes cast, in case less than fifty per cent of
the capital will be represented.
7.7. The company shall publish the resolutions referred to in the present
article in accordance with the provisions laid down in the law.
A resolution for the reduction of the issued capital will not take effect
for as long as creditors of the company may raise objections in accordance
with the provisions laid down in the law.
ARTICLE 8 -- SHARES
The ordinary shares shall be registered shares or bearer shares at the
discretion of the shareholder; the preference shares and the priority share may
only be registered shares.
ARTICLE 9 -- BEARER SHARES
9.1. All bearer shares will be embodied in one share certificate. In special
cases the board of management may resolve, subject to the approval of the
board of supervisory directors and Necigef, that bearer shares will be
embodied in an other manner than in the collective certificate referred
to in the preceding sentence.
9.2. This share certificate will be signed in the manner as determined in
these articles of association as regards representation of the company.
9.3. The company will cause Necigef to keep the share certificate referred to
in paragraph 1 for the party (parties) entitled.
9.4. The company will grant the party entitled a right in respect of an
ordinary bearer share by (a) Necigef enabling the company to write up a
share on the share certificate and (b) the party entitled designating an
associated institution which will credit him accordingly as joint owner
(hereinafter to be called a joint owner) in its collective deposit.
9.5. Without prejudice to the provisions in article 27, paragraph 3 of the
present articles of association, the administration of the share
certificate will irrevocably be entrusted to Necigef and Necigef will be
irrevocably authorized on behalf of the party/parties entitled to effect
everything necessary in respect of the relative ordinary shares,
including acceptance, delivery and cooperation to writing-up and
writing-off of the share certificate.
9.6. For the application of the present articles of association, the party
entitled as joint owner in a collective deposit of ordinary bearer shares
as referred to in the Act on securities transfer by giro/bank will
likewise be deemed to be holder of shares.
The company will be competent to lay down further rules with respect to the
share certificate.
E-7
<PAGE> 8
ARTICLE 10
10.1 In the event that a participant in a deposit in the name of the
associated institution wishes the delivery of one or several bearer
shares, the following actions shall occur constituting one and the same
event: (a) Necigef will deliver the share/shares to the party entitled by
means of a deed, (b) the company will acknowledge the delivery, (c)
Necigef will enable the company to delete the share/shares from the share
certificate, (d) the relevant associated institution will debit the party
entitled accordingly as participant in its collective deposit and (e) the
company will register the holder as holder of a registered share/shares
in the register of shareholders.
10.2. A holder of an ordinary registered share may at all times have said share
made out to bearer by and through the following actions (a) the party
entitled shall deliver said share to Necigef in a deed, (b) the company
shall acknowledge the delivery, (c) Necigef shall enable the company to
register a share on the share certificate, (d) an associated institution
designated by the party entitled accordingly shall credit the party
entitled as joint owner in its collective deposit and (e) the company
shall delete the name of the party entitled as holder of the relative
share from the register.
ARTICLE 11 -- REGISTERED SHARES
11.1. Share certificates will not be issued for registered shares.
11.2. The board of management will keep a register of shareholders which, with
respect to the holders of registered shares and usufructuaries and
pledgees of such shares, will include the names and addresses as well as
the other data prescribed by law.
11.3. Every holder of registered shares and every usufructuary or pledgee of
such shares shall notify the company of his address in writing.
11.4. The register will be kept up-to-date regularly.
All annotations in the register will be signed in the manner as laid down
in the present articles of association with respect to representation of
the company.
11.5. The register shall be deposited at the office of the company for
inspection by parties entitled to attend meetings.
The preceding sentence shall not apply to that part of the register which
is kept outside the Netherlands in compliance with legislation or Stock
Exchange rules and regulations applying outside the Netherlands.
11.6. The board of management will gratuitously provide a holder of registered
shares and a usufructuary and pledgee of such shares with an extract from
the register with respect to their rights to a share and the rights to
attend meetings attached thereto.
Said extract will be signed in the manner as laid down in the present
articles of association with respect to representation of the company.
ARTICLE 12 -- RIGHT OF USUFRUCT AND RIGHT OF LIEN
12.1. A right of usufruct may be created on shares.
12.2. The shareholder will hold the voting right on the shares on which a right
of usufruct will have been created.
In deviation from the provisions laid down in the preceding sentence, the
voting right attached to ordinary shares will accrue to the usufructuary in
case this will have been determined upon the creation of the right.
The voting rights attached to the preference shares can only be granted to
the usufructuary if so provided on the establishment of the usufruct and if
both such provisions and -- in case of a transfer of the usufruct, the
transmissions of the right to vote, are approved by the board of
supervisory directors.
The voting right attached to the priority share cannot be granted to the
usufructuary.
E-8
<PAGE> 9
12.3. The shareholder not holding voting rights and the usufructuary holding
voting rights, will hold the rights granted by law to holders of
depository receipts of shares issued with the co-operation of the
company.
The usufructuary not holding voting rights, will not hold the rights
referred to in the preceding sentence either.
ARTICLE 13
13.1. Shares, with the exception of the priority share, may be pledged.
13.2. The provisions in paragraphs 2 and 3 of article 12 will be
correspondingly applicable to the voting right on pledged shares and to
rights of the pledgees to attend meetings.
ARTICLE 14 -- BOARD OF MANAGEMENT
14.1. The company will have a board of management.
14.2. Without prejudice to the restrictions in accordance with the present
articles of association, the board of management will be charged with the
management of the company.
14.3. The board of management will be competent to enter into legal acts as
referred to in article 94, paragraph 1, Volume 2 of the Civil Code
subject to the prior approval of the supervisory board.
ARTICLE 15
15.1. The board of management will consist of two or more members.
The number of members of the board of management will be fixed by the board
of supervisory directors.
15.2. Members of the board of management will be appointed by the general
meeting. If the priority share is issued, the appointment shall take
place from a binding nomination, drawn up by the priority, of at least
two nominees for each vacancy to be filled.
The priority shall be invited to draw up the binding nomination by the
board of management.
The binding nomination shall be drawn up within two months, after the
sending of the above mentioned invitation.
If the priority fails to make use of its right to draw up a binding
nomination or fails to do so in a timely manner, the shareholders meeting
shall be free to make the appointment.
The shareholders meeting may at all times override the binding nature of
the nomination by adopting a resolution to this effect with at least
two-thirds of the votes cast at a meeting at which more than half of the
issued share capital is represented.
The provisions of article 120, paragraph 3 of Book 2 of the Dutch Civil
Code shall not apply.
15.3. Members of the board of management may at any time be suspended or
dismissed by the shareholders meeting.
The shareholders meeting may adopt a resolution to suspend or dismiss a
member of the board of management only by at least two-thirds of the votes
cast at the meeting at which more than half of the issued capital is
represented, unless the proposal concerned has been made by the
Supervisory Board.
A suspension as referred to in the preceding sentence may be removed by
the general meeting.
15.4. A suspension may be extended once or several times but it cannot continue
for longer than an aggregate period of three months.
15.5. The remuneration and the further conditions of employment will be fixed
separately for each member of the board of management by the board of
supervisory directors.
E-9
<PAGE> 10
ARTICLE 16 -- INTERNAL ORGANISATION OF THE BOARD OF MANAGEMENT
16.1. The board of management may lay down further rules and regulations with
respect to its procedure and internal organisation among which those with
respect to the holding of, the convening of and the passing of
resolutions in its meetings and outside a meeting as well as regards the
division of duties.
The laying-down of such rules and regulation will require the prior
approval of the board of supervisory directors.
16.2. Without prejudice to its own responsibility -- the board of management
will be competent to appoint officers with such powers and such title to
be determined by the board of managing directors.
16.3. Without prejudice to the provisions laid down elsewhere in the present
articles of association, all resolutions of the board of management with
respect to the following subjects will require the approval of the board
of supervisory directors such legal acts as will be clearly defined by
the board of supervisory directors and of which the board of management
will have been notified in writing.
For the application of the present paragraph, a resolution of the board of
management for the passing or approval of a resolution of any body of the
company in which the company participates will be equated with a
resolution as referred in the preceding sentence, provided the resolution
for entering into such a legal act will be subject to the approval of the
board of supervisory directors as referred to hereinbefore in the present
paragraph.
The lacking of the approval as referred to in the present paragraph will
not affect the power of representation of the board of management or the
members of the board of management.
ARTICLE 17 -- ABSENCE OR INABILITY TO ATTEND
17.1. In case of absence or inability to attend of one or several members of
the board of management, the management of the company will temporarily
be entrusted to the other members of the board of management, provided
there will be at least two of them.
17.2. In case of all members of the board of management being absent or unable
to attend, the management of the company will temporarily be entrusted to
one person to be designated for this purpose -- whether or not from its
number -- by the board of supervisory directors.
ARTICLE 18 -- REPRESENTATION
18.1. The board of management will represent the company insofar as not ensuing
otherwise from the law.
The power of representation will also accrue to two persons acting jointly
viz.
-- either two members of the board of management;
-- or a member of the board of management together with a holder of proxy;
-- or two holders of proxy acting jointly,
for as far as said holders of proxy are concerned, provided they will be
acting within the limits of the power granted.
18.2. In case of a confliction interest between the company and one or several
members of the board of management, the company will be represented in
the manner as provided for in paragraph 1.
In all cases in which the company will hold an interest confliction with
that of a member of the board of management in private, the resolution for
entering into the relative legal act will require the prior approval of
the board of supervisory directors.
The lacking of the approval as referred to in the preceding sentence will
not affect the power of representation of the board of management or the
members of the board of management.
E-10
<PAGE> 11
ARTICLE 19 -- BOARD OF SUPERVISORY DIRECTORS
19.1. The company will have a board of supervisory directors.
19.2. The board of supervisory directors will be charged with the supervision
of the policy of the board of management and of the general course of
affairs of the company and the enterprise associated with it.
The board of supervisory directors will assist the board of management by
the rendering of advice.
The Board will furthermore be charged with everything otherwise entrusted
to it by the law and the present articles of association.
In the performance of their duties the supervisory directors will be
guided by the interests of the company and the enterprise associated with
it.
19.3. The board of management will timely provide the board of supervisory
directors with the data necessary for the proper performance of its
duties.
19.4. The board of supervisory directors may seek advice at the expense of the
company for the proper performance of its duties.
ARTICLE 20
20.1. The board of supervisory directors will consist of three or more natural
persons.
The number of supervisory directors will be fixed by the general meeting
with due observance of the provisions laid down in the preceding sentence.
20.2. If at any time there will be less than three members of the board of
supervisory directors in the office, the remaining members of said Board
and/or the remaining member will constitute a competent Board, without
prejudice to the obligations of the Board to have the vacancies filled as
soon as possible.
20.3. The supervisory directors will receive a remuneration.
Said remuneration will be fixed by the general meeting.
ARTICLE 21
21.1. The supervisory directors will be appointed by the general meeting.
21.2. If preference shares B are issued the nomination shall take place from a
binding nomination, drawn up by the priority, of at least two nominees
for each vacancy to be filled.
The priority shall be invited to draw up the binding nomination by the
board of management.
The binding nomination shall be drawn up within two months, after the
sending of the above mentioned invitation.
If the priority fails to make use of its right to draw up a binding
nomination or fails to do so in a timely manner, the shareholders meeting
shall be free to make the appointment.
The shareholders meeting may at all times override the binding nature of
the nomination by adopting a resolution to this effect with at least
two-thirds of the votes cast at a meeting at which more than half of the
issued capital is represented.
The provisions of article 120, paragraph 3 of Book 2 of the Dutch Civil
Code shall not apply.
21.3. Supervisory directors may at any time be suspended or dismissed by the
shareholders meeting.
The shareholders meeting may adopt a resolution to suspend or dismiss a
Supervisory Director only by at least two-thirds of the votes cast at a
meeting at which more than half of the issued capital is represented
unless the proposal concerned has been made by the Supervisory Board.
The person who has reached the age of seventy-two cannot be appointed
supervisory director.
E-11
<PAGE> 12
ARTICLE 22
22.1. A supervisory director will resign from office at the latest after the
end of the general meeting of shareholders in which the annual account
will be considered in the financial year in which he will reach the age
of seventy-two.
22.2. Each supervisory director will furthermore resign from office by
rotation as established by the board of supervisory directors.
Resigning supervisory directors may be re-appointed forthwith, without
prejudice to the provisions with respect to the age-limit laid down in the
law.
ARTICLE 23 -- INTERNAL ORGANISATION OF THE BOARD OF SUPERVISORY DIRECTORS
23.1. The board of supervisory directors will appoint a chairman and a deputy
chairman from its number.
23.2. The board of supervisory directors may lay down further rules and
regulations with as regards its internal organisation among which those
with respect to the holding of, the convening of and the passing of
resolution at its meetings and outside a meeting as well as with respect
to the division of the duties.
23.3. The board of supervisory directors will at any time be allowed
admittance to all business premises of the company and it will be
competent to peruse all correspondence, accounting records, vouchers and
other data carriers and to check the cash resources and other capital
assets of the company.
23.4. In case a resolution of the board of supervisory directors shall be made
evident, a relative written notification of the (acting) chairman of
said Board will suffice.
ARTICLE 24 -- GENERAL MEETING AND MEETINGS OF SHAREHOLDERS
Within the limits set by the present articles of association and the law,
all powers not granted to others will accrue to the general meeting.
ARTICLE 25
25.1. The annual meeting will be held within six months after the end of each
financial year.
25.2. Unless the period as referred to in article 31, paragraph 2 of the
present articles of association will have been extended in accordance
with the provisions laid down there -- the following subjects will i.a.
be considered at said meeting
-- the annual report;
-- the annual account and the appropriation of profit, and
-- discharge from liability to the board of management and the board of
supervisory directors.
In case the period referred to in article 31, paragraph 2 will have been
extended, the subjects mentioned in the preceding sentence will be
considered in a meeting of shareholders to be held at the latest one month
after said period having lapsed.
25.3. Without prejudice to the provisions in article 108a, Volume 2 of the
Civil Code, extraordinary meetings of shareholders will be held whenever
deemed desirable by the board of management or the board of supervisory
directors.
Furthermore extraordinary meetings of shareholders will be held whenever
the persons entitled to attend meetings, representing at least one/tenth
part of the issued capital, will lodge the relative written request with
precise statement of the subjects to be considered with the board of
management and/or the board of supervisory directors.
E-12
<PAGE> 13
ARTICLE 26
26.1. The board of management or the board of supervisory directors will send
the convening notices for the meetings of shareholders and not later than
on the fifteenth day prior to the date of the meeting.
26.2. A notice convening a meeting shall be given by publication in a
nationally distributed daily newspaper as well as such foreign newspapers
as designated by the board of management.
26.3. The convening notice will state the subjects to be considered or it will
announce that the persons entitled to attend meetings may take cognizance
thereof and obtain gratuitous copies thereof at the office of the company
as well as at such locations including a bank in Amsterdam, registered by
virtue of the Act on the Supervision of the Credit System, and possibly
at another location as laid down in the convening notice.
26.4. The convening notice will also state the location(s) where and the date
on which those persons deriving their rights to attend meetings from
bearer shares shall at the latest deposit documentary evidence of their
rights against a receipt which may serve as admission ticket to the
meeting.
The date referred to in the preceding sentence may not be set earlier than
on the seventh day prior to the date of the meeting.
A statement of an associated institution, or of a foreign bank subject to
commercial supervision by the government, to be designated by the board of
management may also serve as admission ticket as referred to in the
penultimate sentence, to the effect that the number of shares stated in
said statement are kept in (its collective) deposit in the name of the
person mentioned in said statement and will be kept in deposit up and to
including the date of the meeting.
The convening notice will also state that with respect to registered
shares, rights may only be exercised at the meeting in case the relative
persons entitled to attend the meeting will have notified the board of
management in writing of their intentions to attend (have themselves
represented at) the meeting at the latest on the day prior to the day of
the meeting.
ARTICLE 27
27.1. The meetings of shareholders will be held in Amsterdam.
27.2. The chairman of the board of supervisory directors will act as chairman
of the meetings of shareholders and in case of his absence, the deputy
chairman of the board of supervisory directors and in case he will also
be absent, a supervisory director to be designated by the supervisory
directors present at the meeting. In case the chairmanship of the meeting
will not be provided for as stated hereinbefore, the meeting itself will
designate its chairman.
27.3. All persons entitled to attend the meeting provided with an admission
ticket or those who will have announced their intention to be present
will be allowed admission to the meetings of shareholders, everything as
laid down hereinbefore in article 26, paragraph 3, as well as the members
of the board of management and the supervisory directors.
The chairman will decide with respect to the admission of others.
27.4. Persons entitled to attend the meeting may have themselves represented at
the meeting by an attorney authorised in writing.
27.5. Minutes will be kept of the proceedings at meetings of shareholders by a
secretary to be designated by the chairman of the meeting, which minutes
will be signed by way of confirmation by the chairman and the secretary.
In deviation from the provisions laid down in the first sentence of the
present paragraph, the chairman of the meeting and/or the board of
management may decide to have a notarial record drawn up.
E-13
<PAGE> 14
The documents mentioned hereinbefore in the present paragraph will be
available at the office of the company for perusal by persons entitled to
attend the meeting.
At request, each of them will be provided with copies of or extracts from
said documents at a price not exceeding cost.
ARTICLE 28
28.1. Every share will carry the right to cast one vote.
No vote may be cast in the general meeting of shareholders for a share
owned by the company or a subsidiary thereof; nor may a vote be cast for a
share which one of them holds the depository receipts.
However, usufructuaries and pledges of shares owned by the company and its
subsidiaries will not be excluded from their voting rights, in case the
right of usufruct or the right of lien will have been created prior to the
share being owned by the company or a subsidiary thereof.
The company or a subsidiary thereof cannot cast a vote for a share on which
it holds a right of usufruct or a right of lien.
In the determination of the extent to which the shareholders vote, are
present or represented, or the extent to which the share capital is
provided or represented, shares of which it has been laid down in the law
that no votes may be cast for them will be disregarded.
Members of the board of management and supervisory directors as such will
hold an advisory vote.
28.2. All votes will be cast by word of mouth, unless the chairman of the
meeting will decide that votes will be cast in writing.
28.3. The chairman of the meeting may decide that votes will be cast by
acclamation, unless one of the persons entitled to vote will oppose this.
28.4. Abstentions and invalid votes will be regarded as votes not cast.
28.5. All resolutions will be passed by an absolute majority of the votes cast
insofar as the law or the present articles of association will not
prescribe a larger majority.
28.6. The opinion of the chairman expressed at the meeting as regards the
outcome of a ballot will be decisive.
The same will apply to the text of a resolution passed, insofar as votes
will have been cast on a proposal not laid down in writing.
28.7. However, if immediately after the opinion referred to in the preceding
paragraph having been expressed, its correctness will be challenged, a
new ballot will be held, in case the majority of the general meeting, or
if the original ballot was not held by roll call or in writing, one of
the parties entitled to vote will desire this.
As a result of said new ballot the legal consequences of the original
ballot will be cancelled.
ARTICLE 29 -- MEETING OF HOLDERS OF SHARES OF A PARTICULAR CATEGORY
29.1. The provisions laid down hereinbefore with respect to meetings of
shareholders will as much as possible be applicable to meetings of
holders of a particular category.
29.2. In deviation from the provisions laid down in the preceding paragraph,
the period for convening the meeting of the holders of preference shares
of a particular category will be at least seven working days and holders
of said shares need not announce their intention to attend the meeting.
Furthermore resolutions of holders of preference shares may also be passed
in another manner than at a meeting of shareholders, provided the
shareholders entitled to vote will unanimously have declared in writing
(including all forms of written communication) to favour the proposal.
E-14
<PAGE> 15
The provisions in the preceding paragraph will not be applicable in case,
in addition to holders of shares of the relative category, there will be
other persons deriving rights to attend meetings from said shares.
ARTICLE 30 -- CONVENING NOTICES AND NOTIFICATIONS
30.1. All convening notices and notifications by the company, destined for
persons entitled to attend meetings, as far as registered shares are
concerned, will be sent by letter to the addresses as included in the
register of shareholders and apart from this by means of an advertisement
in at least one national newspaper as well as in the Official Price List.
30.2. Documents for the perusal of persons entitled to attend the meeting will
be deposited at the office of the company as well as at such locations,
including a bank in Amsterdam, as will be stated in a convening notice or
notification.
30.3. Communications which shall be addressed to the general meeting by virtue
of the law or the present articles of association, may be sent either by
including them in the convening notice or in the document deposited for
perusal at the office of the company, provided this will be stated in the
convening notice.
ARTICLE 31 -- FINANCIAL YEAR; ANNUAL ACCOUNT, ANNUAL REPORT
31.1. The financial year will coincide with the calendar year.
31.2. Within five months after the end of the financial year, apart from
extension of said period not exceeding six months by the general meeting
on the ground of special circumstances, the board of management will
compile an annual account and an annual report.
The compiled annual account will be submitted to the board of supervisory
directors who will present a relative report to the general meeting.
The annual account will be signed by all members of the board of
management and all supervisory directors.
If the signature(s) of one or several of them will be lacking, the reason
thereof will be stated.
31.3. The board of supervisory directors issues a recommendation regarding the
annual account to the shareholders meeting.
31.4. The company will grant an accountant to be designated by the general
meeting the assignment to audit the annual account and the annual report
compiled by the board of management and to report his findings to the
board of management and the board of supervisory directors and to issue a
certificate, everything as referred to in article 393, paragraph 1 of
volume 2 of the Civil Code.
In case the general meeting will not proceed to the aforesaid appointment,
the board of supervisory directors will be competent or, in case said
Board will fail to do so, the board of management will be competent.
ARTICLE 32
32.1. The company will ensure that the annual account, the annual report and
the data to be added thereto by virtue of the law and the report of the
board of supervisory directors will be available for perusal by the
persons entitled to attend the meetings at the office of the company as
well as at a bank in Amsterdam to be stated in the convening notice as of
the date of the convening notice for the annual meeting until after the
end of said meeting.
The company will gratuitously make a copy of the documents referred to in
the preceding sentence available to the persons entitled to attend
meetings.
In case said documents will be amended, the provisions in the preceding
sentence will also apply with respect to the amended documents.
E-15
<PAGE> 16
32.2. The annual account will be confirmed by the general meeting.
32.3. In case discharge from liability will be granted to the board of
management for the management conducted by it in any financial year and
to the board of supervisory directors for the supervision exercised by
it, said discharge from liability will be limited to everything evident
from the annual account or announced to the general meeting, without
prejudice to the provisions laid down in the law.
ARTICLE 33 -- PUBLICATION
33.1. The annual account, the annual report and the data to be added thereto by
virtue of the law will be published within eight days after the
confirmation of the annual account.
Publication shall be made by depositing a copy prepared entirely in the
Dutch language or, if no Dutch language version was made, a copy in the
French, German or English language at the office of the commercial
register in Amsterdam. The date of adoption must be annotated on the copy.
If the annual accounts have not been adopted in conformity with the
statutory provisions within seven months from the end of the financial
year, the management shall publish the annual accounts as prepared in the
manner provided in paragraph 1 without delay; it shall be stated in the
annual accounts that they have not yet been adopted.
If the shareholders meeting has extended the period to compile the annual
account in accordance with article 31, paragraph 2, the provision of the
previous sentence shall enter into effect as from two months after the end
of such period. Simultaneously with and in the same manner as the annual
accounts, a copy of the annual report and of the other information
referred to in section 2:392 of the Dutch Civil Code shall be published in
the same language. The preceding sentence shall not apply, except for the
information referred to in subparagraphs a, c, f and g of section 2:392,
subsection 1 of the Dutch Civil Code, if the documents are kept for public
inspection at the office of the company and a complete or partial copy
thereof is obtainable on request at no more than cost. The company shall
file a notice of this fact for registration in the commercial register.
If, due to the volume of the company's enterprise the exemption of section
2:396 paragraphs 3 up to and including 8 of the Dutch Civil Code or of
section 2:397, paragraphs 3 up to and including 6 of the Dutch Civil Code
is applicable, the publication will take place with due observance of the
applicable exemptions.
33.2. A resolution for distribution on shares and resolutions for interim
distribution as well as (the manner of) making distributions payable and
the composition of the distributions will be published forthwith.
ARTICLE 34 -- RESERVES, ALLOCATION TO RESERVES AND DISTRIBUTIONS
34.1. Separate share premium reserves will be formed in the accounting records
of the company in behalf of both the ordinary shares and the preference
shares A.
34.2. Distributions may only be made to the charge of the reserves referred to
in the preceding paragraph on respectively deductions or depreciation
made to the charge of shares of the relative category.
A resolution for the withdrawal from the share premium reserve belonging to
the preference shares may be passed by the board of management under prior
approval of the meeting of shareholders of said shares.
ARTICLE 35
35.1. The company can only make distributions to shareholders insofar as the
common equity of the company will exceed the amount of the paid capital
of the company, increased by the reserves which shall be kept by virtue
of the law.
35.2. To the extent the profits allow this, a dividend to be deducted from the
positive amount of the profits as evidenced by the profit and loss
account shall in the first place be distributed on the preference shares
B according to a percentage which shall be the equivalent of the average
rate of the European Central Bank,
E-16
<PAGE> 17
increased with a surcharge or discount calculated against the number of
days to which the payment has to be made.
The surcharge and discount shall amount to a maximum of 3% and shall be
determined by the board of management upon the prior approval of the
supervisory board at the time of the initial issue of a preference share
B.
The dividend shall be calculated against the paid in amount on a share's
nominal amount.
If the distribution was not made or was not made in full on account of
insufficient profits, the deficit shall be paid to the holders of the
preference B shares from the profit of one or more of the succeeding
financial years.
The profits which remain shall be distributed to the holders of preference
shares A, the amount of such distributable dividend or the manner of
calculation to be determined by the corporate body authorised to initially
issue the preference shares A.
From the profits which remain, shall, as far as this may be possible, be
distributed to the priority share a dividend equal to 20% of the nominal
amount of such share.
Successively, the board of management shall, with the approval thereto of
the supervisory board, determine which part of the remaining profits after
application of the previous provisions shall be reserved.
35.3. The profit left after application of the provisions laid down
hereinbefore in the present paragraph will be available to the general
meeting, subject to the proviso that the profit then left will only be
for the benefit of holders of ordinary shares.
35.4. Amounts may be withdrawn from the distributable reserves by virtue of a
resolution of the general meeting.
The provisions laid down in the preceding paragraph will not be applicable
to the share premium reserve belonging to the preference shares.
35.5. The company may only make interim distributions in case the requirement
of paragraph 1 of the present article will have been fulfilled as will be
evident from an interim specification of equity as referred to in article
105, paragraph 4, Volume 2 of the Civil Code and provided this will be
done after prior approval of the board of supervisory directors.
Distributions on ordinary shares as referred to in the present paragraph
may be made payable in shares or negotiable rights thereon.
35.6. Without prejudice to the provisions laid down hereinbefore, the general
meeting may pass a resolution for making distributions on ordinary shares
(whether or not at the discretion of shareholders) full or partially
payable instead of in money (whether or not at the discretion of the
shareholders)
a. in ordinary shares (if so requested and if possible to the charge of
the share premium reserve) or negotiable rights thereon or
b. in capital assets of or negotiable claim rights on the company.
A resolution as referred to in the preceding sentence may only be passed on
proposal of the board of management which resolution will have been
approved by the board of supervisory directors.
35.7. No distribution in behalf of the company will be made on the shares in
its capital acquired by the company and on shares of which the company
holds the depositary receipts.
35.8. In the calculation of the appropriation of profit, the shares on which no
distribution will be made in behalf of the company by virtue of the
provisions in paragraph 7, will be disregarded.
35.9. Distributions for which resolutions have been passed will be made payable
at the latest after a fortnight.
E-17
<PAGE> 18
The claim for distribution will lapse as a result of expiry of a period of
five years to be counted as of the date of it becoming payable.
ARTICLE 36 -- AMENDMENT OF THE ARTICLES OF ASSOCIATION, DISSOLUTION, JURIDICAL
MERGER AND SPLITTING-UP
36.1. The general meeting may pass a resolution for amendment of the articles
of association, dissolution, juridical merger and splitting-up.
If the priority share is outstanding, a resolution as set forth in the
previous sentence may only be adopted upon proposal of the priority.
A resolution for amendment of a provision in the articles of association
whereby holders of the preference shares have been granted any right or for
an amendment whereby such right will be prejudiced, will only be valid
after prior approval of the holders of said shares.
36.2. In case a proposal as referred to in the preceding sentence will be made
to the general meeting, this shall invariably be stated in the convening
notice for the relative meeting.
36.3. Simultaneously with the convening notice for the meeting in which an
amendment of the articles of association will be considered, a copy of
the proposal, containing the verbatim text of the proposed amendment,
will be deposited for perusal by the persons entitled to attend the
meeting until the end of said meeting.
Persons entitled to attend the meeting may gratuitously obtain a copy of
aforesaid proposal.
ARTICLE 37
37.1. In case a resolution for dissolution will have been passed, the company
will be liquidated by the board of management, unless the general meeting
will appoint other liquidators, under the supervision of the board of
supervisory directors.
The general meeting will fix the remuneration for the liquidators.
37.2. During the liquidation the present articles of association will continue
being effective as much as possible.
37.3. From the balance remaining of the equity of the company after payment of
all debts, including those relating to the liquidation, -- in the order
to be stated hereinafter -- first the holders of the preference B-shares
and A-shares and the holder of the priority share will be paid the
amounts paid on said shares (including any share premium paid), increased
by the dividend as laid down in article 35, paragraph 2, on the basis of
time on the current financial year and, as far as the preference B-shares
are concerned, possibly on preceding financial years.
The balance then remaining will be distributed to the holders of ordinary
shares and other parties entitled to said shares in proportion to each of
their rights.
37.4. After the company will have ceased to exist, the accounting records,
vouchers and other data carriers will be kept by the person to be
designated for this purpose by the liquidators for the period prescribed
by law.
FINAL PROVISION
Until the day that since the present amendment to the articles of
association two years have passed, the board of management under prior approval
of the supervisory board is entitled to issue both the ordinary shares as well
as the preference shares A and B and to grant rights to subscribe for both
ordinary and preference shares A and B, to a maximum as defined in article 4
paragraph 1 of the articles, as well as to restrict or exclude with respect to
an issue of ordinary shares or the granting of rights to subscribe for ordinary
shares the pre-emptive right of holders of ordinary shares.
E-18
<PAGE> 1
EXHIBIT 6
PRINCIPAL PAYING AGENT, CONVERSION AGENT,
CONVERSION CALCULATION AGENT
AND REGISTRAR AGREEMENT
Dated 17 December 1999
between
VERSATEL TELECOM INTERNATIONAL N.V.
and
ING BANK N.V.
relating to
EUR 300,000,000
4.0% Convertible Senior Notes
due 2004
NAUTA DUTILH
Amsterdam
E-19
<PAGE> 2
This Agreement is made on 17 December 1999 between:
(1) VERSATEL TELECOM INTERNATIONAL N.V. as issuer of the Notes referred
to below (the "ISSUER"), and
(2) ING BANK N.V. (the "BANK") at its specified offices in Amsterdam, the
Netherlands as principal paying agent, conversion agent conversion
calculation agent and registrar;
Whereas:
(A) The Issuer will issue 4.0% Convertible Senior Notes due 2004 (the
"NOTES") in the aggregate initial principal amount of up to EUR
300,000,000 convertible into ordinary shares, nominal value NLG 0.05
per share of the Issuer in a form representing good delivery for the
purposes of settlement on the AEX (the "ORDINARY SHARES"), and
(B) The Issuer wishes to appoint a principal paying agent, a conversion
agent, a conversion calculation agent and a registrar to perform
certain duties in connection with the payment of interest on,
conversion of, and registration and transfer of, the Notes.
Now it is hereby agreed as follows:
SECTION 1 -- DEFINITIONS
Capitalized terms used herein and not otherwise defined shall, unless the
context otherwise provides, have the meanings specified in the Terms and
Conditions of the Notes (the "CONDITIONS") which are attached hereto as ANNEX 1.
For purposes of this Agreement:
"BUSINESS DAY" means a day on which Euroclear, Cedel (as defined below) and
banks in Amsterdam, are open for business.
Unless otherwise specified, all references herein to Sections, Exhibits and
Annexes are to sections, exhibits, annexes in or to this Agreement. The words
"HEREOF", "HEREIN" and "HEREUNDER" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
SECTIONS 2 -- APPOINTMENTS
The Issuer hereby appoints the Bank to act as registrar (the "REGISTRAR"),
the principal paying agent (the "PAYING AGENT"), conversion agent (the
"CONVERSION AGENT"), and conversion calculation agent (the "CONVERSION
CALCULATION AGENT") in respect of the Notes and in accordance with the
provisions of this Agreement and the Conditions. The Bank hereby accepts such
appointment. The Paying Agent, the Conversion Agent, the Conversion Calculation
Agent and the Registrar are collectively referred to herein as the "AGENTS" and
each an "AGENT". The Issuer reserves the right to vary or terminate the
appointment of any Agent, or to appoint additional or other registrars, paying
agents, conversion agents or conversion calculation agents, to approve any
change in the office through which the registrar or any such agent acts,
provided that there will at all times be a registrar, paying agent in Amsterdam,
conversion agent in Amsterdam and conversion calculation agent for the Notes.
SECTION 3 -- THE NOTES
SECTION 3.1 -- FORM OF THE NOTES
3.1.1 Notes issued in definitive, fully registered and certificated form
will be substantially in the form attached hereto as ANNEX 2A AND 2B.
The Notes may have notations, legends or endorsements as required by
law securities exchange rules or usage. Each Note shall be dated the
date of its authentication, as provided in Section 3.2. Except as set
forth in Condition 1(5) of the Conditions, individual definitive Note
certificates shall not be issued. The Conditions will be attached to
each Note in definitive form, if attached.
E-20
<PAGE> 3
3.1.2. The Notes shall on issue be represented by two permanent global
certificates (each a "GLOBAL NOTE" and collectively, the "GLOBAL
NOTES") in registered form, without interest coupons. Notes sold in
reliance on Rule 144A ("RULE 144A") under the United States
Securities Act of 1933, as amended (the "SECURITIES ACT") shall be
known as "RESTRICTED NOTES". Restricted Notes will initially be
represented by a single global Note in fully registered form without
interest coupons (the "U.S. GLOBAL NOTE"). The U.S. Global Note will
initially be registered in the name of, and be deposited with, a
common depository for Morgan Guaranty Trust Company of New York, as
operator of the Euroclear System ("EUROCLEAR") and Cedelbank
("CEDEL") or a nominee thereof. Certificates with respect to Notes
sold in reliance on Regulation S under the Securities Act will be
known as "UNRESTRICTED NOTES". The Unrestricted Notes will initially
be represented by a single global Note in fully registered form
without interest coupons (the "EUROPEAN GLOBAL NOTE" and together
with the U.S. Global Note, the "GLOBAL NOTES"). The European Global
Note will initially be registered in the name of, and deposited with
a common depository for Euroclear ad Cedel, or a nominee thereof. The
Global Notes shall be substantially in the form attached hereto as
ANNEX 3A and ANNEX 3B hereto. The Conditions will be attached to each
of the Global Notes.
3.1.3. Each Global Note shall represent the outstanding Notes as shall be
specified therein and shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed
thereon and that the aggregate amount of outstanding Notes
represented thereby may from time to time be increased or reduced to
reflect transfers or exchanges. Any endorsement of a Global Note to
reflect the amount of any increase or decrease in the amount of the
outstanding Notes represented thereby shall be made by the Registrar
or at the direction of the Registrar.
The Notes shall be issuable in minimum denominations of EUR 1,000 and any
amount in excess thereof that is a whole multiple of EUR 1,000.
SECTION 3.2 -- EXECUTION AND AUTHENTICATION
Each Global Note shall be signed manually by two duly authorized
signatories of the Issuer and dated the date of payment of the net subscription
;moneys for the Notes to the Issuer. Each Global Note shall be authenticated
manually by or on behalf of the Registrar as is required under the applicable
regulations and conventions of Euroclear and Cedel respectively, pursuant to an
order delivered by the Issuer to the Registrar, and signed by one of the
Issuer's authorized signatories.
SECTION 4 -- PAYMENT
SECTION 4.1 -- PAYMENT TO THE PAYING AGENT
4.1.1. The Bank shall act as Paying Agent with respect to the Notes until
such time as the Issuer varies such appointment. On the Record Date with
respect to any payment due in respect of the Notes, the Registrar shall
inform the Paying Agent of the principal amount of Notes represented by
the U.S. Global Note and the principal amount of Notes represented by
the European Global Note. The Paying Agent shall notify the Issuer as to
the amount of such payment to be made to the Paying Agent.
4.1.2. In order to provide for the payments due in respect of the Notes
outstanding on the Record Date, the Issuer shall unconditionally pay, or
cause to be paid, to the Paying Agent, for value on the second Business
Day prior to the date such amounts in euro in respect of the Notes are
due, an amount in immediate available funds sufficient (together with
any funds then held by the Paying Agent which are available for such
purpose) to pay the amount due in respect of, respectively the U.S.
Global Note and the European Global Note in accordance with this
Agreement and as provided in the preceding paragraph. Funds received by
the Paying Agent shall not be invested.
4.1.3. The Issuer hereby authorizes and directs the Paying Agent, from the
amounts so transferred to it, to make payment on the Notes, as specified
in Section 4.3 below, on the relevant Payment Date as set forth in the
Conditions, and the Paying Agent shall ensure that such payments are
credited to the respective recipients in a timely manner.
E-21
<PAGE> 4
4.1.4. Any funds paid by or on behalf of the Issuer to the Paying Agent
pursuant to the Section 4.1.2 shall be held for payment to the
Noteholders and the Issuer shall not be entitled to repayment of any
part of such funds, until any Notes become void. In that event the
Paying Agent shall forthwith transfer such funds to an account of the
Issuer with a credit institution in the Netherlands to be designated
by the Issuer up to a sum equivalent to the full amount which would
otherwise have been payable on the relevant Notes.
SECTION 4.2 -- NOTIFICATION OF PAYMENT
The Issuer shall on or before 10:00 a.m. (Amsterdam time) on the Business
Day prior to each Due Date for payment in respect of the Notes procure that the
bank through which such payment is to be made will send the Paying Agent
confirmation that it has received from the Issuer an irrevocable instruction to
make the relevant payment (by tested telex or authenticated SWIFT
MT-100-Message).
SECTION 4.3 -- PAYMENT BY PAYING AGENT
Out of the sums paid to the Paying Agent in respect of interest and
principal on the Notes, the Paying Agent will make payments in accordance with
the Conditions to the order of the registered holder of the Notes on the Record
Date Euroclear and Cedel in euro. The Paying Agent shall obtain from the
Registrar, and the Registrar shall supply, such details as are required for the
Paying Agent to make payment as stated above.
SECTION 4.4 -- STATUS OF NOTES
The Issuer agrees, and each holder of a Note by accepting a Note agrees,
that the indebtedness evidenced by the Notes is unsubordinated and unsecured
indebtedness of the Issuer ad will rank equal in right of payment with each
series of Existing Notes and all other unsubordinated unsecured indebtedness of
the Issuer and the Notes will be senior in right of payment to all other
subordinated indebtedness of the Issuer. The Paying Agent may continue to make
payments on the Notes and shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of such payment until it
receives notice reasonably satisfactory to it that payments are not be made
under this Section 4 and, prior to the receipt of such notice, the Paying Agent
shall be entitled to assume conclusively that no such facts exist.
SECTION 5 -- NOTICE IN THE EVENT OF NON-PAYMENT
The Paying Agent shall forthwith notify the Issuer if it has not received
payment unconditionally in the manner provided in section 4.1 or if it has not
received the confirmation required to be delivered in accordance with Section
4.2.
SECTION 6 -- ADVANCES
If the amounts required for the payment of Accreted Principal Amount,
interest or otherwise are not, or not fully, received by the Paying Agent at the
time and in the manner provided for in Section 4.1 and if the Paying Agent has
received the confirmation delivered in accordance with Section 4.2, the Paying
Agent shall be entitled, but not in any event be obliged, to advance the
necessary funds and to charge the Issuer interest on the amount of such advance
at the rate applied by it from time to time on overdraft facilities extended to
prime borrowers.
SECTION 7 -- EXCHANGE
SECTION 7.1 -- DUTIES OF THE CONVERSION AGENT
The Conversion Agent shall accept deposit on behalf of the Issuer of a
Conversion Notice in the form of Exhibit A hereto (in duplicate), duly completed
and signed, and any amount payable by he relevant holder under Condition 5;
provided that the foregoing procedures shall at all times be subject to the
rules and procedures governing the operations of Euroclear as the case may be
(if applicable).
E-22
<PAGE> 5
SECTION 7.2 -- NOTES HELD BY CONVERSION AGENT
On deposit of a Conversion Notice (in duplicate) (and transfer of the
corresponding principal amount of Notes and payment of any required amount), in
accordance with Section 7.1 hereof, the Conversion Notice shall (i) verify that
the person presenting the Conversion notice is a beneficial holder of the Note
referenced in the Notice; (ii) verify that the Conversion Notice (in duplicate)
has been duly completed and signed in accordance with its terms; (iii) verify
that the Conversion Notice is accompanied by all amounts payable, if any, by the
holder or a Holding Participant, as the case may be, under Condition 5; (iv) in
the case of Global Notes, verify that a corresponding principal amount of Notes
has been transferred to the account of the Conversion Agent with Euroclear
and/or Cedel; (v) endorse the Conversion Notice to that effect; (vi) indicate on
the Conversion Notice whether it relates to Notes represented by the European
Global Note or Notes represented by the U.S. Global Note and (vii) forthwith
notify the Issuer, the Registrar and the Issuer's Amsterdam dividend paying
agent in respect of the Ordinary Shares (the "DIVIDEND AGENT"), which on the
date of this Agreement is ING Bank N.V. Bijlmerplein 888, 1102 BD
Amsterdam-Zuidoost, The Netherlands (in the manner specified in EXHIBIT B hereto
or such other form as small for the time be the current form) by facsimile of
the information required by EXHIBIT B with respect to each such Conversion Note.
Each Conversion Notice will specify (i) the method by which the Noteholder
will acquire the Ordinary Shares, deliverable upon conversion of the Notes to
which it relates provided that the owners of beneficial interests in Global
Notes will be required to take delivery of Ordinary Shares in the form of a
beneficial interests held through a Euroclear Participant or Cedel Participant.
SECTION 7.3 -- NOTIFICATION TO THE CONVERSION AGENT
7.3.1 As soon as possible upon receipt of the nonfication referred to in
Section 7.2, but in any case no later than three Trading Days after
the Conversion Date, the Issuer shall cause the Dividend Agent to
notify the Conversion Agent by facsimile (in the manner specified in
EXHIBIT C hereto), in the case of a Note in respect of which the
Conversion Right has been exercised, confirming transfer in
accordance with such Conversion Notice of the relevant Ordinary
Shares.
7.3.2 Promptly upon receipt of the verification referred to in Section
7.3.1 hereof, but not before, the Registrar shall remove the name of
the relevant Noteholder from the Register or reduce the number of
Notes of which it is holder, as appropriate, and decrease the
aggregate principal amount of the Global Notes which represented the
Note(s) to which the Conversion Notice relates.
SECTION 7.4 -- ISSUER TO PROVIDE CONVERSION NOTICE
Promptly upon request from time to time, the Issuer will provide the
Conversion Agent with copies of the form of Conversion Notice for the time being
current. The Conversion Agent shall not be responsible for taking notice of
public announcements of changes to the Issuer's share capital or other events
which may affect the Conversion Price. If required by any Noteholder, the
Conversion Agent shall make Conversion Notices available to Noteholders.
SECTION 7.5 -- CONDITIONS
The Issuer undertakes to comply with the Conditions with respect to conversion
of the Notes and (where so required in accordance with the Conditions) to cause
Ordinary Shares to be transferred in satisfaction of the Conversion Right in
accordance with the provisions hereof and the Conditions.
SECTION 8 -- REPAYMENT AND EARLY REDEMPTION
SECTION 8.1 -- NOTICE OF REDEMPTION
If the Issuer intends to redeem the Notes in accordance with Condition
5(2), it shall give notice to the Registrar of its intention in writing at least
15 days before the giving of the notice of redemption required to be given to
Noteholders pursuant to such condition. Such notice shall state the date on
which such Notes are to be redeemed and the principal amount of Notes to be
redeemed.
E-23
<PAGE> 6
SECTION 8.2 -- REDEMPTION NOTICE
The Registrar shall publish the notice required in connection with such
redemption (after approval of such form of notice by the Issuer) as provided in
Condition 10 of the Conditions. Such notice shall specify that date fixed for
redemption, the redemption price and the manner in which redemption will be
effected.
SECTION 8.3 -- PARTIAL REDEMPTION
If fewer than all the outstanding Notes are to be redeemed the Paying Agent
shall select by lot, in accordance with the Rules and Regulations of the
Official Market of Amsterdam Exchanges N.V.'s stock market and in such manner as
the Paying Agent shall deem appropriate and fair, the Notes to be redeemed.
SECTION 9 -- CANCELLATION OF NOTES
SECTION 9.1 -- CANCELLATION BY PAYING AGENT
All Notes which are redeemed or converted shall be deemed to be cancelled
by the Registrar (if not already cancelled) and the aggregate principal amount
of the relevant Global Note shall be reduced accordingly.
SECTION 9.2 -- CANCELLATION BY ISSUER
The Issuer and any of its subsidiaries of affiliates may at any time
purchase Notes in the open market or otherwise, subject to the provisions of
Condition 5(20). All Notes which are so purchased will be deemed to be cancelled
by the Registrar and the aggregate principal amount of the relevant Global Note
shall be reduced accordingly.
SECTION 9.3 -- CANCELLED NOTES
Each of the Paying Agent and Conversion Agent, shall provide to the
Registrar all information required by the Registrar in order to give all the
relevant details for the purpose of Section 9.4 hereof to the Registrar.
SECTION 9.4 -- CERTIFICATION OF PAYMENT DETAILS
Subject to receipt of the relevant information, each of the Paying Agent
and the Conversion Agent, shall as soon as practicable, and in any event within
one month after the end of the calendar quarter during which any such
redemption, conversion or payment (as the case may be) takes place, furnish the
Issuer and the Registrar with a certificate stating (as applicable): (i) the
aggregate amounts paid in respect of Notes redeemed or purchased by the Issuer
and cancelled; and (ii) the aggregate principal amount of Notes converted and
cancelled.
SECTION 9.5 -- RECORDS
Subject to the receipt of the relevant information each of the Paying Agent
and the Conversion Agent shall keep a full and complete record of all Notes and
of their redemption, repurchase, conversion, payment, cancellation, despatch and
replacement (as appropriate) and shall make such record available at all
reasonable times to the Issuer and the Registrar.
The Registrar shall notify each of the Paying Agent and the Conversion
Agent of the aggregate principal amount of the Notes which are issued and the
same shall form the basis of the records to be kept by each of the Agents.
SECTION 10 -- DUTIES TO THE REGISTRAR
SECTION 10.1 -- THE REGISTRAR
10.1.1 The Registrar, shall maintain a register (the "REGISTER") in
Amsterdam in accordance with the Conditions and the Regulations
referred to in Section 11 hereof. The Register shall show the
aggregate amount of Notes represented by each Global Note at the date
of issue and all subsequent transfers and changes of ownership and
changes resulting from increases in Accreted Principal Amount in
E-24
<PAGE> 7
accordance with the definition thereof set forth in Condition 5(24) in
respect thereof and the names and addresses of the registered holders of
the Notes.
10.1.2 The Registrar shall at reasonable time make the Register available to
the Issuer, the Agents or any person authorized by any of them for
inspection and for the taking of copies thereof or extracts therefrom
and the Registrar shall deliver, at the expense of the Issuer, to
such persons all such lists of holders of Notes, their addresses,
registered accounts, holdings and other details as they may request.
SECTION 10.2 -- TRANSFERS
10.2.1 The Registrar will receive requests for the transfer of Notes and
effect the necessary entries. Transfers of Notes will be made in
accordance with the Conditions (including all applicable U.S. laws
and regulations), the procedures established for this purpose among,
Euroclear, Cedel and the Registrar, any applicable transfer
restrictions imposed by law and the regulations of Euroclear and
Cedel applicable to such transfers. Any such transfer which results
in a change to the aggregate principal amount of each of the Global
Notes held by the common depository for Euroclear and Cedel will be
notified by the common depository for Euroclear and Cedel to the
Registrar. The Registrar shall promptly enter details of the transfer
in the Register which shall cause the aggregate principal amounts
represented by each Global Notes to be amended accordingly and shall
notify the Conversion Agent.
10.2.2 During the period commencing on the Record Date (as defined in
Condition 6(4) of the Conditions) and ending on the related Payment
Date (both dates inclusive), the Registrar shall not effect any
transfer of Notes pursuant to Condition 2(4).
10.2.3 Every Restricted Note shall be subject to the restrictions on
transfer provided in the legend (the "SECURITIES ACT LEGEND") to be
set forth on the face of, if applicable, each Restricted Note.
Whenever a Restricted Note is presented for registration of transfer
or a replacement Certificate issued in respect of a Restricted Note,
the Registrar shall only deliver Certificates with respect to
Restricted Notes that bear the Securities Act Legend, unless there is
delivered to the Registrar satisfactory evidence, which may include
an opinion of counsel, as reasonably be required by the Issuer, that
neither the Securities Act Legend nor the restrictions on transfer
therein are required to ensure compliance with the provisions of the
provisions of the U.S. Securities Act of 1993, as amended.
SECTION 10.3 -- MISCELLANEOUS
The Registrar will carry out such other acts as may be necessary to give
effect to the Conditions and the other provisions of this Agreement.
SECTION 11 -- CONVERSION CALCULATION AGENT
SECTION 11.1 -- ISSUER TO PROVIDE NOTICE
The Issuer shall notify the Conversion Calculation Agent as soon as
practicable of any event giving rise to an adjustment of the Conversion Price
pursuant to Condition 5, the date on which such event takes effect and such
other particulars and information as the Conversion Calculation Agent may
reasonable require.
SECTION 11.2 -- DUTIES OF THE CONVERSION CALCULATION AGENT
Upon the occurrence of an event specified in Conditions (5(12), (5(13),
(5(14), (5(15), (5(16), or (5(17), the Conversion Calculation Agent shall
calculate the adjustment to the Conversion Price in accordance with the
Conditions. Upon the occurrence of an event specified in Condition (5(17), and
in accordance with the terms thereof, the Conversion Calculation Agent shall
calculate such adjustments as the Company, in consultation with the Conversion
Calculation Agent, shall consider appropriate to take account of such event.
E-25
<PAGE> 8
SECTION 11.3 -- PUBLICATION OF ADJUSTMENTS
The Conversion Calculation Agent shall publish any adjustment to the
Conversion Price in accordance with Condition 10.
SECTION 11.4 -- ADJUSTMENT BINDING
Adjustments calculated by the Conversion Calculation Agent in good faith
and in accordance with the terms of this Agreement, and published in accordance
with Section 11.3 shall be binding (in the absence of manifest error, negligence
or willful default) on all parties concerned.
SECTION 11.5 -- LIABILITY OF CONVERSION CALCULATION AGENT
The Conversion Calculation Agent shall only be liable for making or not
making adjustments, or taking or not taking, any other measures in connection
with the Notes, if and to the extent that it fails to show the due care of a
proper merchants. The Conversion Calculation Agent may, after prior consultation
with the Issuer, engage the advice or services of any lawyers or other experts
whose advice or services may to it seem necessary and may rely, after
consultation with the Issuer, upon any advice so obtained and the Conversion
Calculation Agent shall incur no liabilities as against the Issuer or the
Noteholders in respect of any action taken or suffered to be taken, in
accordance with such advice and good faith.
SECTION 12 -- REMUNERATION
SECTION 12.1 -- FEES
The Issuer shall, in respect of the services to be performed by each of the
Agents under this Agreement, pay to each of the Agents the commissions, fees and
expenses of each of the Agents as separately agreed in writing with each of the
Agents.
SECTION 12.2 -- COSTS
The Issuer shall pay to each of the Agents all reasonable out-of-pocket
expenses incurred by it in its agency capacities in connection with the services
performed under this Agreement, including attorneys fees and expenses, or in
connection with the investigation or defence of any claims arising out of any
action taken or omitted in connection with this Agreement (except where such
claims result from the misconduct, negligence, willful default, bad faith or
breach of terms of this Agreement by such Agent, its officers, agents or
employees) promptly upon receipt from such Agent of notification of the amount
of such expenses together with the relevant invoices and/or receipts.
SECTION 12.3 -- STAMP DUTIES
The Issuer shall pay or reimburse all stamp, transaction and other taxes,
fees or duties, if any, to which this Agreement may be subject.
SECTION 13 -- GENERAL BANKING CONDITIONS
The general conditions of the Agent, as amended from time to time (the
"General Conditions") shall be applicable to this Agreement. In the event of a
conflict between such General Conditions and the terms of this Agreement, the
latter shall prevail.
SECTION 14 -- MISCELLANEOUS
SECTION 14.1 -- PUBLICATION OF NOTICES
On behalf of and at the request and expense of the Issuer, the Registrar
will promptly cause to be published any notices required to be given by the
Issuer with respect to the Notes in accordance with any of the Conditions.
E-26
<PAGE> 9
SECTION 14.2 -- NO IMPLICIT DUTIES
Each Agent shall be obliged to perform such duties, and only such duties as
are herein and in the Conditions specifically set forth and no implied duties or
obligations shall be read into this Agreement or the Conditions against any of
them. Each Agent in any of its agency functions under this Agreement shall be
under no obligation to take any action hereunder which may involve any
expenditure of funds or liability, the payment of which within a reasonable time
is not, in its reasonable opinion, assured to it.
SECTION 14.3 -- NO AGENCY OR TRUST
In acting hereunder and in connection with the Notes, each Agent shall act
solely as agent of the Issuer and will not thereby assume any obligations
towards, or relationship of agency or trust for, any of the Noteholders. In
particular, without limitation, each Agent does not assume any independent
payment obligation to the Noteholders in respect of any funds held by it, at any
time, pursuant to this Agreement.
SECTION 14.4 -- LIABILITY
Each Agent shall be protected and shall incur no liability for or in
respect of any action properly taken, omitted or suffered in reliance, upon any
instruction, request or order from the Issuer or any Noteholder, Note, form of
transfer, Conversion Notice, resolution, direction, consent, certificate,
affidavit, statement, telex, facsimile transmission or other paper or document
believed by it in good faith to be genuine and to have been delivered, signed or
sent by the proper party or parties.
SECTION 14.5 -- INDEMNITY BY THE ISSUER
The Issuer will indemnify each Agent against any loss, liability,
reasonable cost, claim, action or demand which it may properly incur or which
may be made against it arising out of or in relation to or in connection with
its appointment or the exercise of its function under this Agreement, except
such as may result from a breach by it for this Agreement or its own misconduct,
willful default, negligence or bad faith or that of its officers, employees,
agents or any of them. The provisions of this Section 14.5 and of Sections 12.1
and 12.2 shall survive payment in full of all sums in respect of the Notes, the
resignation or removal of such Agent and termination of this Agreement.
SECTION 14.6 -- LIABILITY OF THE AGENT
No Agent shall be liable for any loss, liability, cost, claim, action or
demand arising under this Agreement except to the extent due to its misconduct,
negligence, willful default or bad faith or that of its officers, agents or
employees. The provisions of this Section 14.6 shall survive the payment in full
of all sums in respect of the Notes, the resignation or removal such Agent and
the termination of this Agreement.
SECTION 14.7 -- ADVICE OF COUNSEL
The Agent may consult with counsel satisfactory to it and the advice or
opinion of counsel shall be full and complete authorization and protection in
respect of any action taken or suffered by it hereunder in good faith and
without negligence.
SECTION 14.8 -- COPIES OF DOCUMENTS
So long as any of the Notes remains outstanding, the Issuer shall provide
the Payment Agent with a sufficient number of copies of each of the documents
which are required to be made available by stock exchange regulations or stated
as being available in the offering circular relating to the Notes and, subject
to being provided with such copies, each Payment Agent will procure that such
copies shall be available at its specified office for examination by Noteholders
and that copies thereof will be furnished to the Noteholders upon request.
E-27
<PAGE> 10
SECTION 14.9 -- ACQUISITION OF NOTES
Each of the Agent and its officers, directors and employees, in an
individual capacity or any other capacity, may become the owner of, or acquire
any interest in, any Notes, ordinary shares of the Issuer into which the Notes
may be converted, or other obligations or securities of the Issuer, or any other
person with the same rights that it or they would have if it were not appointed
hereunder, and may engage or be interested in any financial or other transaction
with the Issuer or any other person and may act on, or as depository, trustee or
agent for, any committee or body of holders of Notes or other obligations of the
Issuer or any other person as freely as if it were not appointed hereunder.
SECTION 14.10 -- MERGER
Any corporation into which any Agent may be merged or converted or any
corporation with which any Agent may be consolidated or any corporation
resulting from any merger, conversion or consolidation to which any Agent shall
be a party shall to the extent permitted by applicable law, be a successor Agent
under this Agreement without the execution or filing of any paper or any further
action on the part of any of the parties hereto. Notice of any such merger,
conversion or consolidation shall forthwith be given to the Issuer and the
Noteholders.
SECTION 14.11 -- SEVERABILITY
In the event that any one or more of the provisions contained in this
Agreement should be held invalid or unenforceable in any respect, the validity
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby. The parties to this Agreement shall endeavour in good faith
negotiations to replace the invalid or unenforceable provisions with valid
provisions the effect of which comes as close as possible to that of the invalid
or unenforceable provisions.
SECTION 14.12 -- UNRESTRICTED PLACEMENT CERTIFICATES
After the date which is the 40th day after the later of the commencement of
the offering of the Notes and the closing date for the Notes, the Issuer may,
and at the option of a Noteholder must, issue a replacement global certificate
("Unrestricted Replacement Certificates") in respect of Unrestricted Notes,
signed manually be two duly authorized signatories of the Issuer, and
authenticated manually or on behalf of the Registrar as is required under the
applicable regulations and conventions of Euroclear and Cedel, as applicable,
pursuant to an order delivered by the Issuer to the Registrar and signed by one
of the Issuer's authorized signatories. Such Unrestricted Replacement
Certificates shall be in the form of Annex 3B except that, in each case, the
legend set forth therein under the caption "Transfer" shall not appear.
SECTION 15 -- REPLACEMENT OF AGENTS
SECTION 15.1 -- AGENT REQUIRED
The Issuer agrees that as long as any of the Notes are outstanding or until
monies for the payment of principal and interest on, and any other amounts due
with respect to, all Notes have been made available at the offices of the Paying
Agent and shall have been transmitted to the Noteholders, to the extent required
by the terms of such Notes, there shall at all times be a registrar, a
conversion agent, a conversion calculation agent and a paying agent in
Amsterdam, The Netherlands.
SECTION 15.2 -- APPOINTMENT
The Issuer may appoint further or other agents. Subject to Section 15.1,
the Issuer may also terminate the appointment of any Agent at any time. Such
termination shall be effective by giving at least 90 days' written notice to
that effect to such Agent.
However, no such notice relating to the termination of the appointment of
any Agent shall take effect until a new Agent has been appointed. The Issuer
shall procure that there is at all times an Agent performing the functions set
forth in this Agreement as required by the Conditions. The termination of the
appointment of any
E-28
<PAGE> 11
Agent shall not take effect (i) until notice thereof shall have been given to
the Noteholders in accordance with Condition 9 of the Conditions; and (ii)
within the period commending 45 days immediately preceding any due date for a
payment in respect of the Notes and ending 15 days after such date.
SECTION 15.3 -- RESIGNATION
An Agent may resign its appointment hereunder at any time by giving to the
Issuer at least 90 days' written notice to that effect unless shorter notice is
agreed by the Issuer, provided that (i) such resignation shall not take effect
until a new Agent performing the functions set forth in this Agreement has been
appointed; (ii) no such resignation shall take effect unless upon the expiry of
the notice period there is an Agent as required by Section 15 and the
Conditions, (iii) no such resignation shall take effect until notice thereof
shall have been given to the Noteholders in accordance with Condition 9 of the
Conditions, and (iv) no such notice shall be given so as to expire within a
period commencing 45 days immediately preceding any due date for a payment in
respect of the Notes and ending 15 days after such date.
SECTION 16 -- NOTICES
Any communication shall be in English and shall be addressed to the
relevant party hereto as follows:
(a) If to the Issuer:
VERSATEL TELECOM INTERNATIONAL N V
Paalberg 36
1105 BV Amsterdam-Zuidoost
The Netherlands
(b) the Paying Agent, Conversion Agent, Conversion Calculation Agent and
Registrar:
ING BANK N.V.
Bijlmerplem 888
1102 BD Amsterdam
The Netherlands
Any communication shall be deemed to have been given when received by the
relevant party.
Any of the parties named above may change its address for the purpose of
this Section 16 by giving notice of such change to the other parties to this
Agreement.
SECTION 17 -- AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 17.1 -- WITHOUT CONSENT OF NOTEHOLDERS
The Issuer and the Agents may amend, supplement or modify this Agreement or
the Conditions without the consent of any Noteholder for the purpose of
(a) adding to the covenants of the Issuer for the benefit of the
Noteholder; or
(b) surrendering any right or power conferred on the Issuer; or
(c) securing the Notes; or
(d) evidencing the succession of another entity to the Issuer and the
assumption by any such successor of the covenants and obligations of
the Issuer herein and in the Notes of such series as permitted by
this Agreement and the Notes; or
(e) curing any ambiguity inconsistency, defect or omission herein or in
the Notes in a manner which does not adversely affect the interests
of any Noteholder.
SECTION 17.2 -- WITH CONSENT OF NOTEHOLDERS
The Issuer and the Agents may amend, supplement or modify this Agreement or
the Conditions and past defaults under this Agreement or under the notes may be
waived with the written consent of the Noteholders of
E-29
<PAGE> 12
not less than sixty-six and two thirds percent (66 2/3%) in aggregate principal
amount of the Notes outstanding. Any such written consent shall be arranged by
the Issuer or the Noteholders, and notified to the Registrar. Without the
written consent or affirmative vote of each Noteholder affected, no amendment,
supplement, modification or waiver under this Section may:
(a) waive a default in the payment of Accreted Principal Amount of or the
interest on any Note, or change the stated maturity date of the
principal of, or the dates for payment of interest on, any Note; or
(b) reduce the principal amount of, or interest rate on, any Note (other
than in accordance with this Agreement and the Conditions) or
(c) change of the place or currency of payment of Accreted Principal
Amount of, or interest on, any Note; or
(d) impair any right to institute suit for the enforcement of any payment
on or with respect to any Note; or
(f) reduce the percentage in principal amounts of Notes, the consent of
whose holders is required to amend, supplement or modify this
Agreement or the Notes or to make, take or give any request, demand,
authorization, direction, notice, consent, waiver (including waiver
of future compliance or past failure to perform) or other action
provided thereby to be made, taken or given. Prior to executing any
amendment the Agent shall be entitled to receive an opinion of
counsel stating that such amendment is permitted by this Agreement.
SECTION 18 -- GOVERNING LAW AND JURISDICTION
SECTION 18.1 -- GOVERNING LAW
This Agreement shall be governed by and shall be deemed to be construed in
accordance with the laws of The Netherlands.
SECTION 18.2 -- JURISDICTION
The competent court of Amsterdam, The Netherlands, shall have jurisdiction
to settle any disputes which may arise out of or in connection with this
Agreement. The Issuer for the benefit of the Agents and the Noteholders agrees
to submit to the exclusive jurisdiction of the competent courts of Amsterdam,
The Netherlands, for legal proceedings or legal actions arising out of or in
connection with this Agreement. This submission shall not affect the right of
the Agent to take legal action or bring legal proceedings against the Issuer in
any other court(s) of competent jurisdiction.
SECTION 19 -- COUNTERPARTS
This Agreement may be executed in counterparts which when taken together
shall constitute one and the same instrument.
This Agreement has been entered into on the date first written above.
VERSATEL TELECOM INTERNATIONAL N.V.
- ------------------------------------
Name:
Title:
ING BANK N.V.
- ------------------------------------
Name:
Title:
E-30
<PAGE> 13
APPENDIX 1
TERMS AND CONDITIONS OF THE NOTES
The following (subject to completion and amendment, and other than the
words in italics) is the text of the terms and conditions of the Notes (the
"Terms and Conditions") which will be attached to the Certificates representing
the Global Notes and endorsed on the definitive Certificates issued in respect
of Notes should definitive Certificates be issued.
The 4% Convertible Senior Notes due 2004 (the "Notes"), in the aggregate
principal amount of E225 million or up to E300 million including the
over-allotment option will be issued by VersaTel Telecom International N.V. (the
"Company") in amounts of E1,000 and integral multiples thereof without coupons.
The Notes are direct, unsecured obligations of the Company and will rank pari
passu with VersaTel's 13 1/4% Senior Notes due 2008, and with each series of
VersaTel's 11 7/8% Senior Dollar Notes due 2009 and VersaTel's 11 7/8% Senior
Euro Notes due 2009 (collectively, the "Existing Notes"). The Notes will mature
on December 17, 2004 and be payable at a price of 126.6642% of the initial
principal amount. The Notes will bear interest at 4% per annum from December 17,
1999, payable in arrears annually on December 17 of each year, commencing on
December 17, 2000.
At any time on or after January 26, 2000 up to and including December 3,
2004, unless previously redeemed or repurchased, the Notes will be convertible
into Ordinary Shares of the Company, nominal value NLG0.05 per share (the
"Ordinary Shares"), initially at the conversion rate (the "Conversion Rate") of
23.0415 Ordinary Shares per E1,000 initial principal amount (and not their
Accreted Principal Amount) (representing a conversion price of E43.4000 per
Ordinary Share), subject to adjustment upon the occurrence of certain events
described in Condition 6.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after December 24, 2002, upon not more than 60 days nor less
than 30 days prior notice, at their Accreted Principal Amount plus accrued
interest to but excluding the Redemption Date (as defined below), provided that
the official closing price of the Ordinary Shares as derived from the Official
Price List of Amsterdam Exchanges N.V. (the "AEX") on each of 30 consecutive
Trading Days ending no more than five Trading Days prior to the date on which
notice of redemption is given to Noteholders shall have been at least 130
percent of the Effective Conversion Price in effect on each of such Trading
Days, where "Effective Conversion Price" is equal to the Accreted Principal
Amount together with accrued interest divided by the Conversion Rate in effect
at that time.
The Company has entered into a paying agency, conversion agency, conversion
calculation agent and registrar agreement (the "Agency Agreement") dated
December 17, 1999 with ING Bank N.V. as Principal Paying Agent, Conversion Agent
and Registrar, and ING Barings as Conversion Calculation Agent. Copies of the
Agency Agreement are available for inspection by holders of the Notes at the
specified offices of ING Bank N.V. The holders of the Notes are bound by, and
are deemed to have notice of, all of the provisions of the Agency Agreement.
1. DENOMINATION AND FORM
(1) The Notes will be issued in registered form in denominations of E1,000
and integral multiples thereof without interest coupons. A certificate (each a
"Certificate") will be issued to each holder of Notes in respect of its
registered holding of Notes. Each Note and each Certificate will have an
identifying number which will be recorded on the relevant Certificate and in the
Register (as defined in Condition 1(2)). The Notes are not issuable in bearer
form.
(2) Notes sold in reliance on Rule 144A ("Rule 144A") under the United
States Securities Act of 1933, as amended (the "Securities Act"), shall be known
as "Restricted Notes". Restricted Notes will initially be represented by a
single permanent global Certificate in fully registered form without interest
coupons (the "U.S. Global Note"). The U.S. Global Note will initially be
registered in the name of, and deposited with a common depositary for Morgan
Guaranty Trust Company of New York, as operator of the Euroclear System
("Euroclear") and Cedelbank, or a nominee thereof. Notes sold in reliance on
Regulation S under the Securities Act will be
E-31
<PAGE> 14
known as "Unrestricted Notes". The Unrestricted Notes will initially be
represented by a single permanent global Certificate in fully registered form
without interest coupons (the "European Global Note" and together with the U.S.
Global Note, the "Global Notes"). The European Global Note will initially be
registered in the name of, and deposited with a common depositary for Euroclear
and Cedelbank, or a nominee thereof. Up to and including the fortieth day after
the later of the commencement of the initial offering of the Notes and the issue
date of the Notes, interests in the Notes represented by the European Global
Note may be held only through Euroclear or Cedelbank. Together, the Notes
represented by the European Global Note and the Notes represented by the U.S.
Global Note will have an aggregate Accreted Principal Amount and an aggregate
principal amount equal to the aggregate Accreted Principal Amount and the
aggregate principal amount, respectively, of the Notes outstanding at any one
time. Interests of participants in Euroclear and Cedelbank in the Notes will be
represented by book entries on the records of Euroclear and Cedelbank, as the
case may be. The amount of Notes represented by the European Global Note and the
U.S. Global Note will be evidenced by the register (the "Register") maintained
for that purpose by a registrar (the "Registrar"), which initially will be ING
Bank N.V.
Certificates with respect to Restricted Notes sold in reliance on Rule 144A
will bear a legend (the "Securities Act Legend") stating that neither the Notes
nor the Ordinary Shares issuable upon conversion thereof have been or will be
registered under the Securities Act and that any purchaser of Notes agrees that
the Notes and the Ordinary Shares issuable upon conversion thereof may be
offered, sold, pledged or otherwise transferred only (i) to Morgan Stanley & Co.
International Limited or Lehman International (Europe) Limited or an affiliate
of either thereof, (ii) in compliance with Rule 144A to a person that the owner
of the Note or Ordinary Shares issuable upon the conversion thereof reasonably
believes is a qualified institutional buyer within the meaning of Rule 144A
purchasing for its own account or for the account of another qualified
institutional buyer, (iii) in an offshore transaction complying with Rule 903 or
904 of Regulation S under the Securities Act or (iv) pursuant to an exemption
from registration under the Securities Act provided by Rule 144 thereunder (if
available), in each case in compliance with the applicable securities laws of
the United States. Certificates with respect to Unrestricted Notes sold in
reliance on Regulation S under the Securities Act will not bear the Securities
Act Legend.
(3) Each Certificate and the Global Notes will bear the manual signatures
of two duly authorized signatories of the Company as well as the manual
signature of an authentication officer of the Registrar. Title to the Notes
passes only by a written deed of transfer signed by the transferor and
transferee followed by registration in the Register (as described below in
Condition 2(2)). The registered holder of any Note will (except as otherwise
required by law) be treated as its absolute owner for all purposes whether or
not it is overdue and regardless of any notice of ownership, trust or any
interest in it or any writing on, or the theft or loss of, the Certificate
issued in respect of it and no person will be liable for so treating such
holder. In these Terms and Conditions, "Noteholder" and (in relation to a Note)
"holder" means the person in whose name a Note is registered in the Register.
(4) Upon the issuance of the Global Notes, each of Euroclear and Cedelbank
will credit, on its respective book-entry registration and transfer system, the
respective principal amounts of the Notes represented by the U.S. Global Note or
the European Global Note, as the case may be, to the accounts of institutions
that have accounts with it (as the case may be, "Euroclear Participants" or
"Cedelbank Participants"). The accounts to be credited will be designated by
Morgan Stanley & Co. International Limited and Lehman International (Europe)
Limited. Ownership of beneficial interests in the Global Notes will be limited
to Euroclear Participants and Cedelbank Participants or persons that may hold
interests through Euroclear Participants or Cedelbank Participants. Ownership of
interests in the Global Notes will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by
Euroclear and Cedelbank (with respect to Euroclear Participants' and Cedelbank
Participants' interest).
Rights of persons owning a beneficial interest in the Global Notes are
governed by the procedures of Euroclear or Cedelbank and, if such person is not
a Euroclear Participant or Cedelbank Participant, by the procedures of the
Euroclear Participant or Cedelbank Participant through which such person owns
its interest.
(5) So long as Euroclear, Cedelbank or a nominee thereof is the registered
holder and owner of a Global Note, Euroclear, Cedelbank or such nominee, as the
case may be, will be considered the sole owner and holder of
E-32
<PAGE> 15
the related Notes for all purposes of such Notes and for all purposes under the
Terms and Conditions. So long as the Notes are represented by the Global Notes,
registration in a name other than that of Euroclear, Cedelbank or a nominee
thereof will not be permitted unless either (i) Euroclear or Cedelbank notifies
the Company that it is unwilling or unable to continue as a clearing system in
connection with a Global Note and a successor clearing system is not appointed
by the Company within 90 days after its receipt of such notice or (ii) the
Company shall have determined in its sole discretion that the Notes shall no
longer be represented by Global Notes. In these circumstances, title to a Note
may be transferred into the names of the persons owning the beneficial interests
therein and such persons will receive a definitive Certificate in respect
thereof in registered form. In no event will definitive notes in bearer form be
issued.
In the absence of the circumstances set forth above, owners of beneficial
interests in a Global Note will not be entitled to have the Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Notes in definitive form and will not be considered
the owners or holders of any Notes under such Global Note. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer or pledge beneficial interests in a Global Note.
2. TRANSFER OF NOTES
(1) The Company will cause to be kept, at the office of the Registrar, the
Register on which shall be kept the names and addresses of the holders of the
Notes and the particulars of the Notes held by them and, subject to the
provisions of clauses (3) and (4) below, of all transfers and exchanges of
Notes.
(2) Subject to the Agency Agreement and clauses (3) and (4) below, a Note
may be transferred, in whole or in part (but only in authorized denominations),
by surrender of the Certificate issued in respect of that Note, with the form of
transfer duly completed and signed by the transferor and the transferee at the
specified office of the Registrar. No transfer of title to any Note will be
effective unless and until entered on the Register.
(3) Transfers of interests in Notes between and among Euroclear
Participants and Cedelbank Participants shall be effected in accordance with
procedures established by Euroclear and Cedelbank, as applicable.
(4) The exchange of an interest in a Note represented by the U.S. Global
Note for an interest in a Note represented by the European Global Note and vice
versa shall be recorded on the Register and shall be effected by an increase or
a reduction, as the case may be, in the aggregate amount of Notes represented by
the U.S. Global Note in the aggregate amount of transferred or converted Notes
and a corresponding reduction or increase, as the case may be, in the aggregate
amount of Notes represented by the European Global Note in the aggregate amount
of transferred or converted Notes.
(5) Exchanges pursuant to Condition 2(4) may not be effected during the
period commencing on the Record Date (as defined in Condition 6(4)) and ending
on the related Payment Date (as defined in Condition 6(5)) (both dates
inclusive).
(6) A conversion of Notes into Ordinary Shares will be recorded in the
Register and a corresponding reduction of the aggregate amount of the Notes
represented by the European Global Note or the U.S. Global Note, as the case may
be, shall be made.
Upon the transfer or exchange of Restricted Notes or the replacement of
Certificates issued in respect of Restricted Notes, the Registrar will only
deliver Certificates with respect to Restricted Notes that bear the Securities
Act Legend unless there is delivered to the Registrar and the Company such
satisfactory evidence, which may include an opinion of counsel, as may
reasonably be required by the Company, that neither the Securities Act Legend
nor the restrictions on transfer set forth therein are required to ensure
compliance with the provisions of the Securities Act.
Until and including the fortieth day after the later of the commencement of
the initial offering of the Notes and the latest original issue date of the
Notes (the "Restriction Date"), an interest in Notes represented by the European
Global Note may be transferred to a person who takes delivery in the form of an
interest in a Note represented by the U.S. Global Note only if the Registrar
receives a written certificate of the transferee (in the
E-33
<PAGE> 16
form provided in the Agency Agreement) to the effect that it is purchasing such
interest for its own account or for an account or accounts with respect to which
it exercises sole investment discretion and that it and, if applicable, each
such account, is a qualified institutional buyer within the meaning of Rule
144A, in each case in a transaction complying in all respects with the
requirements of Rule 144A and in accordance with any applicable securities laws
of any State of the United States or any other jurisdiction. After the
Restriction Date, such restrictions and certification requirements will no
longer apply to such transfers of Unrestricted Notes. Interests in Notes
represented by a U.S. Global Note may be transferred to a person who takes
delivery in the form of an interest in the European Global Note, whether before,
on or after the Restriction Date, only if the Registrar receives a written
certificate from the transferor (in the form provided in the Agency Agreement)
to the effect that such transfer is being made in accordance with Rule 903 or
904 of Regulation S and that, if such transfer occurs on or prior to the
Restriction Date, such interest in the European Global Note will be held
immediately thereafter through Euroclear or Cedelbank.
Transfers of Restricted Notes and interests therein shall also be subject
to compliance with the restrictions set forth in "Transfer Restrictions" found
elsewhere in this Offering Circular.
3. RANKING
The indebtedness evidenced by the Notes will be unsubordinated and
unsecured indebtedness of the Company and will rank equal in right of payment
with each series of Existing Notes and all other unsubordinated unsecured
indebtedness of the Company, and the Notes will be senior in right of payment to
all other subordinated indebtedness of the Company.
4. INTEREST
(1) The Notes bear interest from December 17, 1999 at the rate of 4% per
annum (the "Rate of Interest"), payable annually in arrears on December 17 of
each year subject as provided in Condition 6.
(2) Each Note will cease to bear interest at the end of the day preceding
the Due Date (as defined in Condition 6(5)) for principal unless, upon due
presentation, payment of principal is improperly withheld or refused, in which
case such Note will continue to bear interest at the same rate until the end of
the day in which all amounts due in respect of such Note are received at the
office of a Paying Agent named in Condition 9 (each, a "Paying Agent"). In the
event the right to convert a Note has been exercised pursuant to Condition 5(4),
such Note shall cease to bear interest at the end of the day immediately
preceding the last Due Date for interest which precedes such conversion.
(3) If interest is required to be calculated for a period of less than a
full year, such interest shall be calculated on the basis of a 365-day year and
the actual number of days elapsed.
5. REDEMPTION, PURCHASE AND CONVERSION
(1) Unless previously redeemed or converted as specified below, the
Company will redeem each Note at its Accreted Principal Amount on December 17,
2004 as provided in Condition 6. The Notes may not be redeemed at the option of
the Company other than in accordance with paragraphs (2) and (3) of this
Condition. Subject to Condition 5(3), the Notes may not be redeemed at the
option of the Noteholders.
(2) The Notes are not entitled to any sinking fund. At any time on or
after December 24, 2002, the Notes will be redeemable at the Company's option on
at least 30 and not more than 60 days' notice, as a whole or in part, at their
Accreted Principal Amount, together with accrued interest to, but excluding, the
date of redemption, provided that the official closing price of the Ordinary
Shares as derived from the Official Price List of the AEX on each of 30
consecutive Trading Days ending no more than five Trading Days prior to the date
on which the Redemption Notice is given to Noteholders is at least 130 percent
of the Effective Conversion Price in effect on each of such Trading Days, where
"Effective Conversion Price" is equal to the Accreted Principal Amount together
with accrued interest divided by the Conversion Rate in effect at such time. For
purposes of these Terms and Conditions, the term "Trading Day" shall mean a day
when the AEX is open for business. In the case of a partial redemption of Notes
pursuant to this Condition 5(2), the Notes to be redeemed will be selected
E-34
<PAGE> 17
individually by lot in accordance with the requirements of the Official Market
of the AEX's stock market in such place as the Principal Paying Agent named in
Condition 9 shall approve and in such manner as the Principal Paying Agent shall
deem to be appropriate and fair, not more than 60 and at least 30 days prior to
the date fixed for redemption. The Company will give notice to the Noteholders
specifying the redemption date, the identifying numbers of the Notes drawn for
redemption not less than 30 days prior to that date. All Notes which are
redeemed by the Company will be cancelled and, accordingly, may not be reissued
or resold.
(3) In the event of a Change of Control of the Company, each Noteholder
will have the right to require the Company to redeem all (but not less than all)
of such Noteholder's Notes on the date that is 30 days after the date on which
such Change of Control occurs at the Accreted Principal Amount together with
accrued and unpaid interest to, but excluding, the redemption date. The Company
shall give each Noteholder notice of such Change of Control in accordance with
the provisions of Condition 10 hereof not later than 10 days after the date on
which such Change of Control occurs.
"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.
"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 VersaTel on a fully diluted
basis ("Majority Voting Power") and such person or group has complied with the
Act on Notification of Major Shareholdings in Listed Companies 1996 ("Wet
melding zeggenschap in ter beurze genoteerde vennotschappen 1996") (the
"Notification Act") or, in the event of non-compliance with the Notification Act
by such person or group, such person or group exercises such Majority Voting
Power in a vote of the Company's shareholders; (ii) 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 VersaTel to any such "person" or "group" (other than to a Restricted
Subsidiary (as defined in the Existing Notes)); or (iii) the merger or
consolidation of VersaTel with or into another corporation or the merger of
another corporation with or into VersaTel 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.
"Permitted Holder" is defined to collectively mean Telecom Founders B.V.,
NeSBIC Venture Fund C.V., Cromwilld Limited, Paribas Deelnemingen N.V., NPM
Capital N.V. and any affiliate of the foregoing Persons.
"Person" is defined to mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
limited liability company, government or any agency or political subdivision
thereof or any other entity.
"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.
(4) Each Noteholder has the right (the "Conversion Right") to convert its
Notes into Ordinary Shares, in a form representing good delivery for the
purposes of settlement on the AEX, at any time during the Conversion Period
referred to below, subject to compliance with the provisions of this Condition
5. On the Conversion Date, the right of the converting Noteholder to payment of
the Note to be converted shall cease, and in consideration thereof the Company
shall deliver Ordinary Shares as provided in this Condition 5. The "Conversion
Period" shall be the period commencing 26 January, 2000 up to and including
December 3, 2004; provided, that the right to convert Notes called for
redemption will terminate at the close of business on the fourteenth day before
the date fixed for redemption pursuant to either Condition 5(2) or 5(3) above
(each, a "Redemption Date") with respect thereto unless the Company defaults in
making the payment due upon redemption.
E-35
<PAGE> 18
(5) The price at which Ordinary Shares will be delivered by the Company to
Noteholders upon conversion will be E43.4000 per Ordinary Share (the "Conversion
Price") subject to adjustments in the manner provided for in Conditions 5(12),
(13), (14), (15), (16), (17), (18) and (19). The number of Ordinary Shares to be
delivered on conversion of a Note will be determined by dividing the initial
principal amount of such Note (the "Original Issue Price") by the Conversion
Price. The result of such division shall be rounded to the fourth decimal place,
with 0.00005 being rounded upwards; so that 23.0415 Ordinary Shares will be
delivered upon conversion of each Note in the principal amount of E1,000,
subject to adjustment of the Conversion Price. If more than one Note is
converted at any one time by the same Noteholder the number of Ordinary Shares
to be delivered upon such conversion will be calculated on the basis of the
aggregate Original Issue Price of such Notes to be converted. A Conversion Right
may only be exercised in respect of an authorized denomination of a Note.
(6) No fractions of Ordinary Shares or scrip representing fractions of
Ordinary Shares will be issued on conversion, and no cash adjustment will be
payable in respect of fractions of Ordinary Shares or scrip representing
fractions of Ordinary Shares.
Notes surrendered for conversion during the period from the close of
business of any Record Date next preceding any Payment Date for interest to the
opening of business on such Payment Date for interest (except Notes called for
redemption within such period) must be accompanied by payment of an amount equal
to the interest thereon which the registered holder is to receive as well as any
other amounts payable to the Company in respect of amounts under Condition 5(10)
hereof for which the holder is liable. No interest on Notes submitted for
conversion will be payable by the Company on any interest Payment Date
subsequent to the Conversion Date, except in the situation described in the
immediately preceding sentence. No other payment or adjustment for premium,
interest or dividends is to be made upon conversion.
(7) A Conversion Right may not be exercised by a Noteholder following the
giving of a Termination Notice pursuant to Condition 8 with respect to its
Notes.
(8) To exercise the Conversion Right the Noteholder must (i) deliver at
its own expense during normal business hours to the office of the conversion
agent named in Condition 9 (the "Conversion Agent") a notice of conversion (the
"Conversion Notice") duly completed and in duplicate form obtainable from the
office of the Conversion Agent, and (ii) transfer a corresponding principal
amount of Notes to the account of the Conversion Agent with Euroclear or
Cedelbank, as the case may be, and all amounts to be paid by the Noteholder
pursuant to Condition 5(6), and (iii) declare either that it is domiciled or has
residence outside the United States (which term, as used herein, means the
United States of America (including the States and the District of Columbia, its
territories, its possessions and other areas subject to its jurisdictions)) or
is a Qualified Institutional Buyer as defined in Rule 144A under the Securities
Act (in which event such Qualified Institutional Buyer will be required to
execute a letter in favor of the Company in the form attached to the Agency
Agreement). A Conversion Notice once received shall be irrevocable and become
effective on the day on which the conditions of sentence 1 of this Condition
5(8) have been fulfilled. Where the Note in respect of which the Conversion
Right is being exercised, is represented by a Global Note, the Conversion Notice
and the documentation referred to in (iii) above may be duly completed and
delivered to the Conversion Agent by the Euroclear Participant or Cedelbank
Participant, as the case may be, who is shown in the records of Euroclear or
Cedelbank, as the case may be, as the holder of a book-entry interest in such
Note at the time of the delivery of such Conversion Notice; provided that the
foregoing procedures shall at all times be subject to the rules and procedures
governing the operations of Euroclear or Cedelbank, as the case may be.
(9) The "Conversion Date" will be deemed to be the day immediately
following the date on which the Conversion Notice shall have become effective in
accordance with Condition 5(8) or, if such day is not a Trading Day, the next
Trading Day.
(10) A Noteholder exercising its Conversion Right must pay any taxes and
other duties arising on conversion of its Notes except for Netherlands capital
issue tax, which shall be borne by the Company.
(11) If Notes are converted on exercise of the Conversion Right, the
Company shall, as soon as practicable, and in any event not later than three
Trading Days after the Conversion Date, effect delivery of the Ordinary Shares
(which shall be deemed to be issued as of the relevant Conversion Date) through
the Company's issuing
E-36
<PAGE> 19
agent with respect to the Company's bearer shares (currently ING Bank N.V.) to
Euroclear or Cedelbank; provided, however, that in relation to any Conversion
Right exercised during the twenty Trading Day period referred to in clause (ii)
of Condition 5(13), the Company shall not be required to make any delivery
pursuant to this Condition 5(11) until the later of (x) the third Trading Day
after the termination of such twenty Trading Day period, and (y) the time
otherwise required under this Condition 5(11).
Owners of beneficial interests in the Global Notes will be required to take
delivery of any Ordinary Shares in the form of a beneficial interest held
through a Euroclear Participant or Cedelbank Participant.
(12) If the Company (i)(a) by granting its shareholders a direct or
indirect subscription right increases its share capital through the issuance of
new Ordinary Shares against payment in cash or in kind ("Increase of Share
Capital Against Payment"), or (b) grants its shareholders, directly or
indirectly, a subscription right for Notes or other securities with options or
conversion rights into Ordinary Shares, in either case at an aggregate price per
share (taking into account the subscription price for such securities plus any
additional consideration payable upon exercise of such option or conversion
right) that is less than the Current Market Price per Ordinary Share ("Issuance
of Securities with Options or Conversion Rights") at the date on which such
Subscription Right (as defined below) is announced or (ii) increases its share
capital out of retained earnings or other reserves except as described in clause
(18) below ("Increase of Share Capital out of Retained Earnings"), and the
Qualifying Date referred to below is before or at the last day of the Conversion
Period, then, with effect from the Qualifying Date (inclusive), the Conversion
Price will be adjusted in accordance with Condition 5(13) and (14),
respectively. "Qualifying Date" shall be the first Trading Day on which the
Ordinary Shares are quoted "ex-subscription rights" or "ex-bonus shares".
(13) In the event of (a) an Increase of Share Capital Against Payment, (b)
an Issuance of Securities with Options or Conversion Rights or (c) a cash
dividend being announced with respect to any year which amounts to greater than
the higher of (1) 5% of the market capitalization of the Company at the time of
such announcement and (2) 120% of the aggregate of all dividends charged or
provided for by the Company in respect of its Ordinary Shares in its accounts
for the Accounting Period immediately preceeding the Accounting Period in
question, the Conversion Price shall be multiplied by the value determined by
applying the following formula:
S
------
S + V
where:
S (i) in the case of (a) and (b) is the average, weighted by
turnover, of the trading prices of the Ordinary Shares on the AEX, on all
Trading Days throughout the period during which the subscription rights
(the "Subscription Rights") may be exercised as determined by the
conversion calculation agent named in Condition 9 (the "Conversion
Calculation Agent"), and (ii) in the case of (c), is the average, weighted
by turnover, of the official closing prices of the Ordinary Shares as
derived from the Official Price List of the AEX on the twenty Trading Days
immediately following the Trading Day on which the Ordinary Shares are
traded ex-dividend; and
V is the average, weighted by turnover, of the official closing
prices as derived from the Official Price List of the AEX of the
Subscription Rights on the AEX on all Trading Days throughout the period
during which the Subscription Rights may be exercised as determined by the
Conversion Calculation Agent or, in the case of a cash dividend on Ordinary
Shares, the per share amount of such dividend to the extent by which it,
together with all such other dividends during the relevant Accounting
Period, exceeds the higher of the relevant threshold applicable pursuant to
Condition 13(c) above.
"Accounting Period" is defined to mean, in relation to any dividend or
distribution, the accounting period of the Company specified in the
accounts of the Company in which such dividend or distribution is provided
for, provided that, in any case where the Company changes its accounting
period, it shall mean the twelve month period preceding the date on which
such dividend or distribution is charged or provided for in the accounts of
the Company.
E-37
<PAGE> 20
(14) In the event of an Increase of Share Capital out of Retained
Earnings, the Conversion Price shall be multiplied by the value determined by
the following formula:
No
---
Nn
where:
No is the number of Ordinary Shares before the increase of share
capital; and
Nn is the number of Ordinary Shares after the increase of the share
capital.
(15) In the event of a decrease in the Company's share capital that is the
result of a reduction in the nominal value of the Ordinary Shares, the
Conversion Price shall remain unchanged. In the case of a decrease in the
Company's share capital resulting from a consolidation or a cancellation of
Ordinary Shares and in the case of an increase or decrease in the number of
Ordinary Shares involving no change in capital (Share split), Condition 5(14)
above shall apply correspondingly.
(16) In the event of a legal merger of the Company as transferor entity
("zerdwijnende vennootschap"), the Conversion Right shall relate to such number
of equity securities (the "Relevant Shares") to which the holders of Ordinary
Shares deliverable upon exercise of such Conversion Rights (immediately before
such merger) would have been entitled upon such legal merger, and thereafter the
provisions hereof shall apply to the Relevant Shares, subject to adjustment
pursuant to Condition 5(5) for other property received by holders of Ordinary
Shares.
(17) In the event of a legal split-up ("juridische splitsing") or a legal
spin-off ("juridische afsplitsing") or if any other event occurs which in the
opinion of the Conversion Calculation Agent has the same effect as a split-up or
a spin-off, such adjustment to the Conversion Right (which may include cash
payments) shall be made in accordance with sec.334P Book 2 of the Dutch Civil
Code to the terms of the Conversion Right as the Company in consultation with
the Conversion Calculation Agent shall consider appropriate to take account of
such event. If shares of capital stock in other legal entities are distributed
to the holders of Ordinary Shares in case of such split-up, spin-off or a
similar event, such adjustment may consist of a proportionate allocation of such
shares and/or a cash payment.
(18) In the event of (i) a regular dividend or other cash distribution
(not specifically covered by Condition 5(13)(c) above), (ii) an increase in
share capital out of retained earnings or other reserves pursuant to which
Ordinary Shares are issued in lieu of cash dividends (except, for the avoidance
of doubt, to the extent that the cash dividend gives rise to an adjustment in
accordance with Condition 13(c) hereof) not specifically covered by Condition
5(13)(c) above at a price that is equal to or greater than the then Current
Market Price (as defined below) of the Ordinary Shares, (iii) a legal merger
whereby the Company is the acquiring entity, (iv) a disposal of one or more
parts of its assets by the Company, (v) an issuance of Ordinary Shares pursuant
to the Company's management and employee share option plans in effect from time
to time, (vi) any issuance of Ordinary Shares pursuant to the terms of any
warrants of the Company issued prior to the date of issuance of the Notes or
(vii) analogous events, the Conversion Price shall remain unchanged.
(19) Adjustments in accordance with the foregoing clauses shall be
calculated by the Conversion Calculation Agent, published in accordance with
Condition 10, and shall be (in the absence of manifest error) binding on all
parties concerned. The Conversion Calculation Agent shall only be liable for
making or not making adjustments, or taking or not taking, any other measures in
connection with these Notes, if and to the extent that it fails to show the due
care of a proper merchant. The Conversion Calculation Agent may, after prior
consultation with the Company, engage the advice or services of any lawyers or
other experts whose advice or services may seem necessary to it and may rely,
after consultation with the Company, upon any advice so obtained (and such
Conversion Calculation Agent shall incur no liability as against the Company or
the Noteholders in respect of any action taken, or suffered to be taken, in
accordance with such advice and in good faith).
E-38
<PAGE> 21
(20) The Company and any of its subsidiaries or affiliates may at any time
purchase Notes at any price in the open market or otherwise, provided that such
purchases are in compliance with all relevant directives. For the purposes of
these Conditions, the term "directive" includes any Netherlands or foreign
present or future law, regulation, administrative directive, administrative act
and other act and rule of any relevant agency, authority, central bank,
department, government, legislature, minister, official, public or statutory
corporation, self-regulatory organization (as defined in the Securities
Transactions Supervision Act 1995, "Wet toezicht effectenverkeer 1995") or stock
exchange.
(21) All Notes which are paid will forthwith be cancelled by reduction in
the principal amount of the relevant Global Note. All Notes so cancelled and the
Notes purchased pursuant to Condition 5(20) and cancelled pursuant to this
Condition 5(21) cannot be reissued or resold.
(22) The Company shall procure that the authorized share capital of the
Company shall always be sufficient for the issuance of Ordinary Shares to a
Noteholder exercising its Conversion Right. Without limiting the foregoing or
limiting any Noteholder's right to convert its Notes under the terms hereof, the
Company undertakes that it will not issue more than 15,000,000 Ordinary Shares
upon conversion of the Notes without prior shareholder approval.
(23) As used in this Condition 5, "Current Market Price" means in respect
of an Ordinary Share at a particular date, the average weighted by turnover on
each day of the official closing prices of the Ordinary Shares of the Company as
derived from the Official Price List of the AEX for the five Trading Days
immediately preceding such date.
(24) "Accreted Principal Amount", with respect to each E1,000 principal
amount of Notes, shall be determined so that, together with accrued interest
from the immediately preceding interest Payment Date or, if none, the Closing
Date, and after taking into account any interest paid in respect of such Notes
in preceding periods, it represents for the Holder thereof a gross yield to
maturity identical to that applicable in the case of redemption at maturity,
being 8.50% per annum and shall be calculated in accordance with the following
formula, rounded (if necessary) to two decimal places with 0.005 being rounded
upwards (provided that if the date fixed for redemption is an interest Payment
Date, the Accreted Principal Amount shall be as set out in the table below in
respect of such interest Payment Date):
<TABLE>
<S> <C> <C>
Accreted Principal Amount = (Previous Accreted Principal Amount X(1 + ((r X d)/p))--AI
where
Previous Accreted Principal
Amount = the Accreted Principal Amount on the interest Payment Date
immediately preceding the Redemption Date (or, if the
Notes are to be redeemed prior to the first interest
Payment Date, E1,000), as set out below:
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAYMENT DATE ACCRETED PRINCIPAL AMOUNT (E)
--------------------- -----------------------------
<S> <C>
December 17, 2000 1,045.00
December 17, 2001 1,093.83
December 17, 2002 1,146.80
December 17, 2003 1,204.28
December 17, 2004 1,266.64
</TABLE>
- ------------
<TABLE>
<S> <C> <C>
r = 8.50% expressed as a fraction.
d = number of days from and including the immediately preceding
interest Payment Date (or, if the Notes are to be redeemed
on or before the first interest Payment Date, from and
including the Closing Date) to but excluding the date fixed
for redemption, calculated on the basis of a 365 day year
and, in the case of an incomplete year, the number of days
elapsed.
p = 365.
AI = accrued interest on the principal amount of the Notes from
and including the immediately preceding interest Payment
Date (or, if the Notes are to be redeemed on or before the
first interest Payment Date, from and including the Closing
Date) to but excluding the Redemption Date, calculated on
the basis of a 365 day year and, in the case of an
incomplete year, the number of days elapsed.
</TABLE>
E-39
<PAGE> 22
If the Accreted Principal Amount payable in respect of any Note upon its
redemption pursuant to Conditions 5(2) and 5(3) or upon it becoming due and
payable as provided Condition 8(a) is not paid when due, the Accreted Principal
Amount due and payable in respect of a Note shall be the Accreted Principal
Amount of such Note as described above, except that such conditions shall have
effect as though the reference therein to the Redemption Date or, as the case
may be, the date on which the Note becomes due and payable had been replaced by
a reference to the Relevant Date (as defined below), and interest shall accrue
on the principal amount of such Note to the Relevant Date. The calculation of
the Accreted Principal Amount will continue to be made (after as well as before
judgment) until the Relevant Date, unless the Relevant Date falls on or after
the maturity date, in which case the amount due and payable shall be the
Accreted Principal Amount of the Notes on the maturity date together with
interest on the Accreted Principal Amount at the rate of 8.50% per annum from
and including the maturity date to but excluding the Relevant Date. "Relevant
Date" in respect of any payment means the date on which the payment becomes due,
but if the full amount of the monies payable has not been received by the
Principal Paying Agent on or prior to such due date, the date on which the full
amount of such monies has been so received and notice to that effect given to
the Noteholders.
6. PAYMENTS
(1) The Company irrevocably undertakes to pay in euro, when due,
principal, interest, amounts which may be payable in accordance with Condition 6
and additional amounts which may be payable under Condition 5. The amounts due
in respect of the Notes shall be paid to the Noteholder with due observance of
any tax, foreign exchange or other laws and regulations of the country of the
relevant Paying Agent without it being permissible to require the execution of
an affidavit or compliance with any other formality whatsoever, unless such
affidavit or formality is prescribed by the laws of the country of the relevant
Paying Agent.
(2) Payments of Accreted Principal Amount and interest on the Notes shall
be made on the relevant Payment Date (as defined in Condition 6(5)) to Euroclear
and Cedelbank in euro. The amount of payments to Euroclear and Cedelbank shall
correspond to the aggregate principal amount of Notes represented by the
European Global Note and the U.S. Global Note, as established by the Registrar
at the close of business on the relevant Record Date (as defined in Condition
6(4)). Payment of Accreted Principal Amount shall be made upon surrender of the
European Global Note or the U.S. Global Note, as the case may be, to the Paying
Agents. The payment of other amounts payable pursuant to Conditions 5 and 7 will
be made in corresponding application of the provisions of this Condition 6(2).
(3) Payments made by the Company in euro in accordance with Condition 6(1)
to Euroclear and Cedelbank shall discharge the liability of the Company under
the Notes to the extent of the sums so paid.
(4) The record date for purposes of payments of principal and interest and
other amounts payable pursuant to Conditions 6 and 7 (the "Record Date") shall
be, in respect of each such payment, the date determined in accordance with the
rules of Euroclear and Cedelbank from time to time for the entitlement of their
participants to payments in respect of debt obligations denominated in euro and
represented by Global Notes.
(5) For the purposes of these Terms and Conditions, "Payment Date" means
the day on which the payment is actually to be made, where applicable, as
adjusted in accordance with Condition 6(6), and "Due Date" means the date for
making such payments as provided herein, without taking account of any such
adjustment.
(6) If any Due Date for payment of principal or interest in euro in
respect of any Note is not an Amsterdam Business Day, such payment will not be
made until the next following Amsterdam Business Day, and no further interest
shall be paid. An "Amsterdam Business Day" shall be any day on which banks are
open for business in Amsterdam.
7. TAXATION
In the event any withholding or deduction for, or on account of, any
present or future taxes, duties, assessments or governmental charges of whatever
nature is required by law, no additional amounts will be payable to Noteholders.
E-40
<PAGE> 23
8. EVENTS OF DEFAULT
If any of the following events occurs:
(a) Non payment: the Company fails to pay any amount of Accreted
Principal Amount of, or interest on, the Notes when payment thereof becomes
due and the default continues for a period of 15 days; or
(b) Breach of other obligations: the Company defaults in the
performance or observance of any of its other obligations under or in
connection with the Notes or the Agency Agreement and such default remains
unremedied for 30 days after written notice thereof, addressed to the
Company by any Noteholder, has been delivered to the Company or to the
specified office of a Paying Agent; or
(c) Winding up, etc: an order or judgment is made or an effective
resolution is passed for the liquidation or dissolution of the Company
(other than for the purposes of a merger, consolidation or other form of
combination with another legal entity where the continuing entity or the
entity formed as a result of such merger, consolidation or combination is
assuming the obligations of the Company under the Notes); or
(d) Bankruptcy, etc.: bankruptcy or insolvency proceedings are
commenced by a court of competent jurisdiction against the Company, which
shall not have been dismissed or stayed within 60 days after the
commencement thereof, or the Company institutes such proceedings or
suspends payments or offers a general arrangement for the benefit of all
its creditors; or
(e) Cross-Acceleration and Cross-Default: (i) an acceleration has
occurred pursuant to the indenture governing any series of Existing Notes
or (ii) if no such series of Existing Notes is then outstanding, a default
occurs on any other Indebtedness of VersaTel or any Restricted Subsidiary
if either (A) 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 U.S. $5.0 million or (B) 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 VersaTel and its Restricted Subsidiaries that is also in
default as to principal, or the maturity of which has been accelerated,
aggregates U.S. $5.0 million or more (capitalized terms used in this
Condition 8(e) and not otherwise defined in the Terms and Conditions shall
have the definitions ascribed thereto in the Existing Notes).
then any Note may, by written notice addressed by the holder (a "Termination
Notice") thereof to the Company and delivered to the Company or to the specified
office of a Paying Agent, be declared immediately due and payable, whereupon it
shall become immediately due and payable at its Accreted Principal Amount
together with accrued interest without further action or formality (unless it is
proven that the event that has led to the Note being declared immediately due
and payable has been cured at the time the notice of such declaration is
received by the Company or a Paying Agent). Notice of any such declaration shall
promptly be given to the Noteholders.
9. PAYING AGENT, CONVERSION AGENTS, CONVERSION CALCULATION AGENT AND REGISTRAR
(1) The Paying Agents, the Registrar, the Conversion Calculation Agent and
the Conversion Agents (together, the "Agents") and their respective specified
offices are as follows:
Principal Paying Agent, Conversion Agent and Registrar:
ING Bank N.V.
Bijmerplein 888
1102 MG Amsterdam
The Netherlands
Conversion Calculation Agent:
ING Barings
Foppingadreef 7
1102 BD Amsterdam
The Netherlands
E-41
<PAGE> 24
(2) In acting as Agents in connection with the Notes, the Agents act
solely as agents of the Company and do not assume any obligations towards or
relationship of agency or trust for or with any of the Noteholders.
(3) The Company reserves the right at any time to vary or terminate the
appointment of any of the Agents, and to appoint successor or additional paying
agents, successor or additional conversion agents, successor or additional
conversion calculation agents or successor or additional Registrars, provided
that so long as the Notes are listed on the AEX, the Company shall maintain a
Paying Agent in Amsterdam if the rules and regulations of the AEX so require.
Notice of any change in the Paying Agent, the Conversion Agent, the Conversion
Calculation Agent or the Registrar, or in the specified office of any Paying
Agent, the Conversion Agent, the Conversion Calculation Agent or the Registrar
shall promptly be given to the Noteholders in accordance with Condition 10.
10. NOTICES
Notices to the Noteholders will be valid if published in a leading
newspaper having general circulation in The Netherlands, in the Official Price
List of the AEX (so long as the Notes are listed on the AEX and the rules of the
AEX so require) and in an English language newspaper of general circulation in
Europe. Any such notice shall be deemed to have been given on the date of such
publication (or, if published more than once or on different dates, on the first
date on which publication is made), provided that notices to the Noteholders may
be given by delivery of the relevant notice to Cedelbank and Euroclear for
communication by them to their respective participants in substitution for
publication as required by this Condition, provided always that, so long as the
Notes are listed on the AEX, the requirements of the AEX have been complied with
and, where such requirements specify publication in a leading newspaper having
general circulation in The Netherlands, by such publication in such newspaper
have been complied with.
11. GOVERNING LAW AND JURISDICTION
(1) The form and contents of the Notes, as well as all the rights and
duties arising therefrom, are governed exclusively by the laws of The
Netherlands. Place of performance is The Netherlands.
(2) The Company submits to the non-exclusive jurisdiction of the District
Court in Amsterdam, The Netherlands to settle any disputes which may arise out
of or in connection with these Terms and Conditions. Any legal actions arising
out of or in connection with these Terms and Conditions may be brought in the
District Court of Amsterdam, The Netherlands.
(3) Any person owning a beneficial interest in a Note may in any
proceedings against the Company or to which such Noteholder and the Company are
parties protect and enforce in its own name its rights arising under its Notes
only on the basis of (i) a statement issued by its Custodian (a) stating the
full name and address of such person, (b) specifying an aggregate principal
amount of Notes credited on the date of such statement to such person's
securities account maintained with such Custodian and (c) confirming that the
Custodian has given a written notice to Euroclear or Cedelbank, as appropriate,
and the Registrar containing the information pursuant to (a) and (b) and (ii) a
copy of the relevant Global Note certified as being a true copy by a duly
authorized officer of the Registrar. For purposes of the foregoing, "Custodian"
means any bank or other financial institution of recognized standing authorized
to engage in securities custody business with which the owner of a beneficial
interest in a Note maintains a securities account in respect of any Notes and
includes Cedelbank and Euroclear.
12. AMENDMENT
(1) The terms and conditions of the Notes may be modified or amended by
the Company, without the consent of the Noteholders, for the purpose of (a)
adding to the covenants of the Company for the benefit of the Noteholders; (b)
surrendering any right or power conferred upon the Company; (c) securing the
Notes; (d) evidencing the assumption by another legal entity of all of the
obligations of the Company with respect to the Notes as the result of a merger,
consolidation, or other form of consolidation permitted by Condition 8(c); or
(e) curing any ambiguity, inconsistency, defect or omission in the Notes or
between the Terms and Conditions of the Notes, to all of which each Noteholder
shall, by acceptance hereof, consent.
E-42
<PAGE> 25
(2) The Terms and Conditions of the Notes may also be modified or amended
by the Company, and past defaults thereunder or under the Agency Agreement by
the Company may be waived, with the written consent of the Noteholders of not
less than sixty-six and two-thirds percent (66 2/3%) in aggregate principal
amount of the Notes outstanding. Any such written consent of holders may be
arranged by the Company or such holders. Notwithstanding the foregoing, no such
modification, amendment or waiver, without the consent of the holder of each
Note, may: (a) waive a default in the payment of the Accreted Principal Amount
of or interest on any Note, or change the stated maturity of the principal of or
the time for payment of any installment of interest on any Note, or change the
currency of payment of the Accreted Principal Amount of, or interest on, any
Note or reduce the principal amount of, or the rate of interest on, any Note, or
impair the right to institute suit for the enforcement of any such payment on or
with respect to any Note; (b) reduce the above-stated percentage in aggregate
principal amount of the outstanding Notes required for any modification of or
amendment to the terms and conditions of the Notes, or of any waiver of any past
default; or (c) modify any of the provisions of this paragraph except to provide
that certain other provisions of the Terms and Conditions of the Notes cannot be
modified, amended or waived without the consent of the holder of each
outstanding Note affected thereby.
13. MISCELLANEOUS
(1) No service charge shall be made for any registration of transfer or
exchange of the Notes, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith
which shall be for the account of the Noteholder.
(2) In case any Certificate shall at any time become mutilated or
destroyed or stolen or lost and such Certificate or evidence of the loss, theft
or destruction thereof (together with the indemnity hereinafter referred to and
such other documents or proof as may be required in the premises) shall be
delivered to the Company, a new security of like tenor will be issued by the
Company in exchange for the Certificate so mutilated, or in lieu of the security
so destroyed or stolen or lost, but, in the case of any destroyed or stolen or
lost security, only upon receipt of evidence satisfactory to the Company that
such Certificate was destroyed or stolen or lost, and, if required by the
Company, upon receipt also of indemnity satisfactory to the Company. All
expenses and reasonable charges associated with procuring such indemnity and
with the preparation, authentication and delivery of a new security shall be
borne by the holder of the Certificate that was mutilated, destroyed, stolen or
lost. Every new Certificate issued in lieu of any mutilated, destroyed, lost or
stolen Certificate shall constitute an original additional contractual
obligation of the Company, whether or not the mutilated, destroyed, lost or
stolen Note shall be at any time enforceable by anyone. Any new Certificate
delivered pursuant to this paragraph shall be so dated that neither gain nor
loss in interest shall result from such exchange.
(3) The Company undertakes to comply with the provisions set forth in
Article 2.1.20 of Schedule B of the Rules and Regulations ("Fondsenreglement")
of the AEX as in force on the date of this offering memorandum.
The Unrestricted Notes have been accepted for clearance through Euroclear
and Cedelbank under Common Code number 10546834 and have been assigned
Identification Number ("ISIN") XS0105468341. The Restricted Notes have been
accepted for clearance by Euroclear and Cedelbank under Common Code number
10546842 and have been assigned ISIN XS0105468424.
E-43
<PAGE> 26
ANNEX 2A
FORM OF DEFINITIVE NOTE (RULE 144A)
Amount ISINV Certificate No.
EUR
VERSATEL TELECOM INTERNATIONAL N.V.
EUR 300,000,000
4.0% Convertible Senior Notes
due 2004
The Notes in respect of which this Certificate is issued are in registered
from and form the series designated as specified in the title (the "Notes") of
VersaTel Telecom International N.V. (the "Issuer").
The Issuer hereby certifies that is, at the date hereof entered
in the register of Noteholders as the holder of Notes in the initial principal
amount of EUR ( euro) or such other amount as is shown from time to
time on the register of Noteholders as being represented by this Certificate and
is duly endorsed (for information purposes only). Notes may accrete in
accordance with the terms and conditions (the "Conditions") set out in EXHIBIT 1
hereto. The aggregate amount of Notes outstanding represented hereby may from
time to time be increased or decreased to reflect transfers or exchanges. For
value received, the issuer promises to pay the person who appears at the
relevant time on the register of Noteholders as holder of the Note in respect of
which this Certificate is issued such amount or amounts as shall become due in
respect of such Notes and otherwise to comply with the Conditions, as referred
below.
The Notes are constituted by, and have the benefit of the Conditions.
The Notes are convertible into fully-paid ordinary shares of the Issuer,
nominal value NLG 0.05 per ordinary share (the "Ordinary Shares") in bearer form
subject to and in accordance with the Conditions.
Terms defined in the Conditions shall have the same meaning in this
Certificate.
This Certificate is evidence of entitlement only. Title to the Notes passes
only by a written deed of transfer signed by the transferor and transferee in
the form attached as EXHIBIT 2 followed by due registration in the register of
Noteholders and only the duly registered holder is entitled to payments on Notes
in respect of which this Certificate is issued.
The Conditions, in so far as they apply to the Notes in respect of which
this Certificate is issued, are hereby modified to the extent set forth below.
TRANSFER
Transfers of interests in the Notes with respect to which this Certificate
is issued shall be made in accordance with the Conditions and the Agency
Agreement.
A person transferring the Notes in respect of which this Certificate is
issued must provide the Registrar with a written order containing instructions
and such other information as the Company and the Registrar may require to
complete, execute and deliver Certificates.
The provisions of Condition 2 will otherwise apply, except that new
Certificates to be issued upon transfer of Notes will, within 21 days of receipt
by Registrar or an Agent of the form of transfer attached to this Certificate,
be mailed by uninsured mail at the risk of the holders entitled to the relevant
Notes to the addresses specified in the form of transfer.
E-44
<PAGE> 27
NEITHER THE NOTES EVIDENCED HEREBY NOR THE ORDINARY SHARES ISSUABLE UPON
CONVERSION OF HE NOTES HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN
"OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S, (2) AGREES THAT IT
WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF
TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF
ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS
NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS
(THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE ISSUER
SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO
CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPTION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND (II) IN CERTAIN OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OR TRANSFER IN THE FORM
ATTACHED HERETO AS EXHIBIT 3 IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
ISSUER. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
The statements set out in the legend above are an integral part of the
Notes in respect of which this Certificate is issued and by acceptance hereof
the holder of the Notes evidenced by this Certificate or any owner of an
interest in such Notes agrees to be subject to and bound by the terms of such
legend. Upon the transfer or exchange of these Notes or the replacement of
Certificates issued in respect of these Notes, the Registrar will only deliver
Certificates with respect to these Notes that bear the legend above unless there
is delivered to the Registrar and the Issuer such satisfactory evidence, which
may include an opinion of counsel, as may reasonably be required by the Issuer,
that neither such legend nor the restrictions on transfer set forth herein are
required to ensure compliance with the provisions of the Securities Act.
If a holder of a beneficial interest in this Note wishes at any time to
exchange its interest in this Note for an interest in the Unrestricted Note, or
to transfer its interest in this Note to a Person who wishes to take delivery
thereof in the form of an interest in such Unrestricted Note, such holder may,
subject to the rules and procedures of Euroclear and Cedel, to the extent
applicable, and to the requirements set forth in the following sentence,
exchange or cause the exchange or transfer or cause the transfer of such
interest for an equivalent beneficial interest in such Unrestricted Note. Upon
receipt by the Registrar at its office in Amsterdam of (1) instructions
E-45
<PAGE> 28
given in accordance with the procedures of Euroclear and Cedel, to the extent
applicable, from or on behalf of a holder of a beneficial interest in this Note,
directing the Registrar to credit or cause to be credited a beneficial interest
in the Unrestricted Note in an amount equal to the beneficial interest in this
Note to be exchanged or transferred, (2) a written order given in accordance
with the procedures of Euroclear or Cedel, to the extent applicable, containing
information regarding the Euroclear or Cedel account to be credited with such
increase and the name of such account, and (3) a certificate in the form of
Exhibit 3 given by the holder of such beneficial interest staring that the
exchange or transfer of such interest has been made pursuant to an in accordance
with Rule 903 or 904 of Regulation S or Rule 144 under the Securities Act, the
Registrar shall promptly deliver appropriate instructions to Euroclear or Cedel,
as the case may be, or their nominee, to reduce or reflect on its records a
reduction of this Note by the aggregate principal amount of the beneficial
interest in this Note to be so exchanged or transferred from the relevant
participant, and the Registrar shall promptly deliver appropriate instructions
to Euroclear or Cedel, or their nominee, or the custodian for Euroclear or
Cedel, as the case may be (or the extent applicable), concurrently with such
reduction, to increase or reflect on its records an increase of the principal
amount of such Unrestricted Note by the aggregate principal amount of the
beneficial interest in this Note to be so exchanged or transferred, and to
credit or cause to be credited to the account of the person specified in such
instructions (which shall be the agent member of Euroclear or Cedel, or both, as
the case may be) a beneficial interest in such Unrestricted Note equal to the
reduction in the principal amount of this Note.
[In the case of a definitive note not held through Euroclear or Cedel, the
foregoing language may be appropriately modified.]
Any beneficial interest in this Note that is transferred to a person who
takes delivery in the form of an interest in the Unrestricted Note will, upon
transfer, cease to be an interest in this Note and become an interest in the
Unrestricted Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interest in such
Unrestricted Note for as long as it remains such an interest.
CONVERSION
The Conversion Right attaching to Notes in respect of which this
certificate is issued may be exercised by the presentation to or to the order of
any Conversion Agent of one or more Conversion Notices in the form attached as
EXHIBIT 4 duly completed by or on behalf of a holder of such Note. The exercise
of the Conversion Right shall be notified by the Conversion Agent to the Issuer
and the holder of this Certificate. The provisions of Condition 5 shall
otherwise apply.
PAYMENTS
Payments of Accreted Principal Amount in respect of Notes represented by
this Certificate will be made against presentation and, if no further payment
falls to be made in respect of the Notes, surrender of this Certificate to or to
the order of the Paying Agent.
NOTICES
So long as the Notes are represented by this Certificate, notices to
Noteholders shall be given by delivery as required by the Conditions except that
so long as the Notes are listed on the AEX, and the rules of that exchange so
require, notices shall also be published in a leading newspaper having general
circulation in the Netherlands.
This Certificate shall not be valid for any purpose until authenticated by
or on behalf of the Registrar.
This Certificate is governed by, and shall be construed in accordance with,
Netherlands law.
E-46
<PAGE> 29
IN WITNESS whereof the Issuer has caused this Certificate to be signed on its
behalf.
VERSATEL TELECOM INTERNATIONAL N.V.
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
By: By:
Name: Name:
Title: Title:
</TABLE>
CERTIFICATE OF AUTHENTICATION
Certified that the above-named holder is at the date hereof entered in the
register of Noteholders as holder of the above-mentioned principal amount of
Notes.
ING BANK N.V., AS REGISTRAR
- ------------------------------------------------------
By:
Authorised Signatory
Dated:
E-47
<PAGE> 30
EXHIBIT 2 TO THE DEFINITIVE NOTE (RULE 144A)
FORM OF TRANSFER
FOR VALUE RECEIVED the undersigned hereby transfers the following principal
amounts of Notes in respect of which Certificates are issued, and all rights in
respect thereof, to the transferee(s) listed below:
<TABLE>
<S> <C>
PRINCIPAL AMOUNT TRANSFERRED NAME ADDRESS AND ACCOUNT
FOR PAYMENTS OF TRANSFEREE
Dated: Certifying Signature:
Name:
OR*
- --------------------------------------------
Duly authorized officer
- --------------------------------------------
Duly authorized officer
Accepted by:
- --------------------------------------------
Duly authorized officer
</TABLE>
- ---------------
* Where the transfer is a corporation, this form of transfer must be endorsed
under its common seal or under the hand of two of its officers duly authorized
in writing.
Note:
(i) A representative of the Noteholder should state the capacity in which
he signs, e.g. executor.
(ii) The signature of the person effecting a transfer shall conform to
any list of duly authorized specimen signatures supplied by the
registered holder or be certified by a recognized bank, notary
public or in such other manner as the Registrar may require.
(iii) This form of transfer should be dated as of the date it is deposited
with the relevant Registrar.
E-48
<PAGE> 31
EXHIBIT 3 TO THE DEFINITIVE NOTE (RULE 144A)
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM RESTRICTED NOTE TO UNRESTRICTED
NOTE
VersaTel Telecom International N.V.
c/o ING Bank N.V.
Bijlmermeerplein 888
1102 BD Amsterdam-Zuidoost
RE: 4.0% SENIOR CONVERTIBLE NOTES DUE 2004
(THE "NOTES") OF VERSATEL TELECOM INTERNATIONAL N.V.
Reference is hereby made to the Agency Agreement dated as of December 17,
1999 (the "Agency Agreement") between VersaTel Telecom International N.V. and
ING Bank N.V., as Paying Agent, Conversion Agent, Conversion Calculation Agent
and Registrar. Capitalized terms used but not defined herein shall have the
meanings given them in the Agency Agreement.
This letter relates to ______________ (being any integral multiple of
1,000) principal amount of Notes beneficially held through interests in the
Restricted Note (Common Code Number 10546842) with Euroclear and/or Cedel in the
name of ______________ (the "Transferor") account number ______________ . The
transferor hereby requests that on [INSERT DATE] such beneficial interest in the
Restricted Note be [transferred] [exchanged] for an interest in the Unrestricted
Note (Common Code No. 10546834) in the same principal denomination [and be
transferred to ______________ ([Euroclear] [Cedel] account no.
______________ )]. If this is a partial transfer, a minimum amount of 1,000 and
any integral multiple of 1,000 in excess thereof of the Restricted Note will
remain outstanding.
In connection with such request and in respect of such Notes the Transferor
does hereby certify that such transfer has been effected in accordance with the
transfer restrictions set forth in the Notes and the Conditions and accordingly
the Transferor further certifies that:
(A) (1) the offer of the Notes was not made to a person in the United States;
such transfer is being made pursuant to an in accordance with Rule 903
or 904 or Regulation S under the Securities Act, and;
(2) either (a) at the time the buy order was originated, the transferee
was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither the
Transferor nor any person acting on our behalf knows that the
transaction was prearranged with a buyer in the United States,
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;
and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
OR
(B) such transfer is being made in accordance with Rule 144 under the Securities
Act
E-49
<PAGE> 32
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer. Terms used in this certificate and not
otherwise defined in the Agency Agreement have the meanings set forth in
Regulation S under the Securities Act.
<TABLE>
<S> <C>
Dated: [Name of Transferor]
- ---------------------------------------------
By:
---------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Telephone No:
-----------------------------------------
</TABLE>
Please print name and address (including zip code number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E-50
<PAGE> 33
EXHIBIT 4 TO THE RULE 144A DEFINITIVE NOTES
Any holder of Notes other than a foreign purchaser outside the United
States must include as an attachment to this Conversion Notice a letter
addressed to the Issuer if, at the time of such conversion, such Notes are
"restricted securities" within the meaning of Rule 144 under the Securities Act
stating that such holder agrees that if it should offer, resell or otherwise
transfer any ordinary shares issued upon conversion of its beneficial interests
in the Notes within the time period referred to in Rule 144(k) under the
Securities Act after the original issuance of the Notes, it will do so only (i)
to the Issuer or any subsidiary thereof, (ii) outside the United States in
compliance with Rule 903 or 904 under the Securities Act (and not in a
pre-arranged transaction resulting in the resale of such interests in the Notes
into the United States), or (iii) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), in each case in
accordance with any applicable securities laws of any state or the United States
or any other jurisdiction. Such attachment shall also include a statement by
such holder acknowledging that (i) it understands that the ordinary shares
issued upon conversion are "restricted securities" as defined in Rule 144(a)(3)
under the Securities Act and, as such, they are not fungible with any other
issued and outstanding ordinary shares or American Depositary Shares of the
Issuer and (ii) it agrees that so long as such ordinary shares issued upon
conversion are restricted securities, it will not deposit such ordinary shares
in an unrestricted American Depositary Receipt facility.
EUR 300,000,000
4.0% Convertible Senior Notes due 2004
VERSATEL TELECOM INTERNATIONAL N.V.
CONVERSION NOTICE
(Please read the notes overleaf before completing this Notice)
Name:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
Delivery of the Conversion Notice will constitute confirmation by the
holder of a beneficial interest in the Notes to be converted of VersaTel Telecom
International N.V. ("the Issuer") that the information and the representations
in the Conversion Notice are true and accurate on the date of delivery.
To: VersaTel Telecom International N.V.
I/We, being the holders of a beneficial interest in the Notes specified
below, hereby irrevocably elect to convert such Notes into ordinary shares
nominal value NLG 0.05 each of VersaTel Telecom International N.V. in bearer
form (the "Ordinary Shares") in accordance with Condition 5 of the Terms and
Conditions of the Notes (the "Terms and Conditions") and apply for the Ordinary
Shares to be delivered on conversion.
1. Total principal amount of Notes to be converted: ______________
2. I/we hereby request that the Ordinary Shares (together with any other
securities, property or cash) required to be delivered upon conversion be
delivered ______________ .
E-51
<PAGE> 34
3. I/We hereby declare that all approvals, consents and authorizations (if
any) required by the laws of The Netherlands to be obtained by me/us prior
to the said conversion have been obtained and are in full force and effect
and that any applicable condition thereto has been complied with by me/us.
4. At the time of signing and delivery of this Conversion Notice, I/we
represent and agree that I/we, or the person who has an interest in the
Notes to be converted, is
A) not a "U.S. person" and is obtaining such Ordinary Shares upon
conversion in an "offshore transaction" (as such terms are defined in
Regulation S under the United States Securities Act of 1933, as
amended (the "Securities Act")) and is domiciled or has residence
outside the United States (which term, as used herein means the United
States of America (including the States and the District of Columbia,
its territories, its possessions and other areas subject to its
jurisdictions));
E-52
<PAGE> 35
ANNEX 2B
FORM OF DEFINITIVE NOTE (REGULATION S)
Amount ISINV Certificate No.
EUR
VERSATEL TELECOM INTERNATIONAL N.V.
EUR 300,000,000
4.0% Convertible Senior Notes
due 2004
The Notes in respect of which this Certificate is issued are in registered
form and form the series designated as specified i n the title (the "Notes") of
VersaTel Telecom International N.V. (the "Issuer").
The Issuer hereby certifies that is, at the date hereof entered
in the register of Noteholders as the holder of Notes in the initial principal
amount of EUR ( euro) or such other amount as is shown from time to
time on the register of Noteholders as being represented by this Certificate and
is duly endorsed (for information purposes only). Notes may accrete in
accordance with the terms and conditions (the "Conditions") set out in EXHIBIT 1
hereto, as these Conditions are modified by the provisions of this Certificate.
The aggregate amount of Notes outstanding represented hereby may from time to
time be increased or decreased to reflect transfers or exchanges. For value
received, the Issuer promises to pay the person who appears at the relevant time
on the register of Noteholders as holder of the Note in respect of which this
Certificate is issued such amount or amounts as shall become due in respect of
such Notes and otherwise to comply with the Conditions, as referred below.
The Notes are constituted by, and have the benefit of the terms and
conditions (the "Conditions") set out in EXHIBIT 1 hereto.
The Notes are convertible into fully-paid ordinary shares of the Issuer,
nominal value NLG 0.05 per ordinary share (the "Ordinary Shares") in bearer form
subject to and in accordance with the Conditions.
Terms defined in the Conditions shall have the same meaning in this
Certificate.
This Certificate is evidence of entitlement only. Title to the Notes passes
only by a written deed of transfer signed by the transferor and transferee in
the form attached as EXHIBIT 2 followed by due registration in the register of
Noteholders and only the duly registered holder is entitled to payments on Notes
in respect of which this Certificate is issued.
The Conditions, in so far as they apply to the Notes in respect of which
this Certificate is issued, are hereby modified to the extent set forth below.
TRANSFER
Transfers of interests in the Notes with respect to which this Certificate
is issued shall be made in accordance with the Conditions and the Agency
Agreement.
A person transferring the Notes in respect of which this Certificate is
issued must provide the Registrar with a written order containing instructions
and such other information as the Company and the Registrar may require to
complete, execute and deliver Certificates.
The provisions of Condition 2 will otherwise apply, except that new
Certificates to be issued upon transfer of Notes will, within 21 days of receipt
by Registrar or an Agent of the form of transfer attached to this Certificate,
E-53
<PAGE> 36
be mailed by uninsured mail at the risk of the holders entitled to the relevant
Notes to the addresses specified in the form of transfer.
NEITHER THE NOTES EVIDENCED HEREBY NOR THE ORDINARY SHARES ISSUABLE UPON
CONVERSION OF THE NOTES HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN
"OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S (2) AGREES THAT IT
WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF
TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF
ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OR THIS
NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS
(THE "RESALE RESTRICTION TERMINATION DATE "), OFFER, SELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE ISSUER
SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO
CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND (II) IN CERTAIN
OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OR TRANSFER IN THE FORM
ATTACHED HERETO AS EXHIBIT 3 IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
ISSUER. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
The foregoing legend may be deleted from certificates in respect of these
Notes issued after the date which is the 40th day after the later of the
commencement of the offering of the Notes and the closing date for the Notes.
The statements set out in the legend above are an integral part of the
Notes in respect of which this Certificate is issued and by acceptance hereof
the holder of the Notes evidenced by this Certificate or any owner of an
interest in such Notes agrees to be subject to and bound by the terms of such
legend. Certificates issued in respect of Notes pursuant to Section 14.12 of the
Agency Agreement need not bear the legend above.
If a holder of a beneficial interest in this Note wishes at any time to
exchange its interest in this Note for an interest in the Restricted Note, or to
transfer its interest in this Note to a Person who wishes to take delivery
thereof in the form of an interest in such Restricted Note, such holder may,
subject to the rules and procedures of Euroclear or Cedel, to the extent
applicable, and to the requirements set forth in the following sentence,
exchange or cause the exchange or transfer or cause the transfer of such
interest for an equivalent beneficial interest in such
E-54
<PAGE> 37
Restricted Note. Upon receipt by the Registrar at its office in Amsterdam of (1)
instructions given in accordance with the procedures of Euroclear or Cedel, to
the extent applicable, from or on behalf of a beneficial owner of an interest in
this Note directing the Registrar to credit or cause to be credited a beneficial
interest in the Restricted Note in an amount equal to the beneficial interest in
this Note to be exchanged or transferred, (2) a written order given in
accordance with the procedures of Euroclear or Cedel, as the case may be,
containing information regarding the account with Eurooclear or Cedel to be
credited with such increase and the name of such account, and (3) prior to or on
the 40th day after the later of the commencement of the offering of the Notes
and the closing date for the Notes (the "Restricted Period"), a certificate in
the form of EXHIBIT 3 given by the holder of such beneficial interest and
stating that the person transferring such interest in this Note reasonably
believes that the person acquiring such interest in such Restricted Note if a
Qualified Institutional Buyer (as defined in Rule 144A) and is obtaining such
beneficial interest in a transaction meeting the requirements of Rule 144A and
any applicable securities laws of any state of the United States or any other
jurisdiction, the Registrar shall promptly deliver appropriate instructions to
Euroclear or Cedel, or their nominee, or the custodian for Euroclear or Cedel,
as the case may be, to reduce or reflect on its records a reduction of this Note
by the aggregate principal amount of the beneficial interest in this Note to be
exchanged or transferred, and the Registrar shall promptly deliver appropriate
instructions to Euroclear or Cedel, or their nominee, or the custodian for
Euroclear or Cedel, as the case may be (to the extent applicable), concurrently
with such reduction, to increase or reflect on its records an increase of the
principal amount of such Restricted Note by the aggregate principal amount of
the beneficial interest in this Note to be so exchanged or transferred, and to
credit or cause to be credited to the account of the person specified in such
instructions a beneficial interest in such Restricted Note equal to the
reduction in the principal amount of this Note. After the expiration of the
Restricted Period, the certification requirements set forth in clause (3) of the
second sentence of this paragraph no longer apply to such transfers.
[In case of a definitive note held through Euroclear or Cedel, the
foregoing language may be appropriately modified.]
Any beneficial interest in this Note that is transferred to a person who
takes delivery in the form of an interest in the Restricted Note will, upon
transfer, cease to be an interest in this Note and become an interest in the
Restricted Note and, accordingly will thereafter the subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
Restricted Note for as long as it remains such an interest.
CONVERSION
The Conversion Right attaching to Notes in respect of which this
certificate is issued may be exercised by the presentation to or to the order of
any Conversion Agent of one or more Conversion Notices in the form attached as
EXHIBIT 4 duly completed by or on behalf of a holder of such Note. The exercise
of the Conversion Right shall be notified by the Conversion Agent to the Issuer
and the holder of this Certificate. The provisions of Condition 5 shall
otherwise apply.
PAYMENTS
Payments of Accreted Principal Amount in respect of Notes represented by
this Certificate will be made against presentation and, if no further payment
falls to be made in respect of the Notes, surrender of this Certificate to or to
the order of the Paying Agent.
NOTICES
So long as the Notes are represented by this Certificate, notices to
Noteholder shall be given by delivery as required by the Conditions except that
so long as the Notes are listed on the AEX, and the rules of that exchange so
require, notices shall also be published in a leading newspaper having general
circulation in the Netherlands.
This Certificate shall not be valid for any purpose until authenticated by
or on behalf of the Registrar.
This Certificate is governed by, and shall be construed in accordance with,
Netherlands law.
E-55
<PAGE> 38
IN WITNESS whereof the Issuer has caused this Certificate to be signed on
its behalf.
VERSATEL TELECOM INTERNATIONAL N.V.
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
By: By:
Name: Name:
Title: Title:
</TABLE>
CERTIFICATE OF AUTHENTICATION
Certified that the above-named holder is at the date hereof entered in the
register of Noteholders as holder of the above-mentioned principal amount of
Notes.
ING BANK N.V., AS REGISTRAR
- ------------------------------------------------------
By:
Authorised Signatory
Dated:
E-56
<PAGE> 39
EXHIBIT 2 TO THE DEFINITIVE NOTE (REGULATION S)
FORMS OF TRANSFER
FOR VALUE RECEIVED the undersigned hereby transfers the following principal
amounts of Notes in respect of which the Certificates are issued, and all rights
in respect thereof, to the transferee(s) listed below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT TRANSFERRED NAME ADDRESS AND ACCOUNT
- ---------------------------- ------------------------
<S> <C>
For payments of transferee
Dated: Certifying Signature:
- -------------------------------------------- -------------------------------
Name:
- --------------------------------------------
OR*
- --------------------------------------------
Duly authorized officer
- --------------------------------------------
Duly authorized officer
Accepted by:
- --------------------------------------------
Duly authorized officer
</TABLE>
- ---------------
* Where the transfer is a corporation, this form of transfer must be endorsed
under its common seal or under the hand of two of its officers duly authorized
in writing.
Note:
(i) A representative of the Noteholder should state the capacity in which
he signs, e.g. executor.
(ii) The signature of the person effecting a transfer shall conform to
any list of duly authorized specimen signatures supplied by the
registered holder or be certified by a recognised bank, notary
public or in such other manner as the Registrar may require.
(iii) This form of transfer should be dated as of the date it is deposited
with the relevant Registrar.
E-57
<PAGE> 40
EXHIBIT 3 TO THE DEFINITIVE NOTE (REGULATION S)
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM UNRESTRICTED NOTE
TO RESTRICTED NOTE
VersaTelecom International N.V.
c/o ING Bank N.V.
Bijlmermeerplein 888
1102 BD Amsterdam-Zuidoost
RE: 4.0% SENIOR CONVERTIBLE NOTES DUE 2004
(THE "NOTES") OF VERSATEL TELECOM INTERNATIONAL N.V.
Reference is hereby made to the Agency Agreement dated as of December 17,
1999 (the "Agency Agreement") between VersaTel Telecom International N.V. and
ING Bank N.V., as Paying Agent, Conversion Agent, Conversion Calculation Agent
and registrar. Capitalized terms used but not defined herein shall have the
meanings given them in the Agency Agreement.
This letter relates to ______________ (being any integral multiple of
1,000) principal amount of the Notes beneficially held through interests in the
Unrestricted Note (Common Code No. 10546834) with [Euroclear] [Cedel] in the
name of ______________ (the "Transferor") [Euroclear] [Cedel] account number
______________ . The transferor hereby requests that on [INSERT DATE] such
beneficial interest in the Unrestricted Note be [transferred] [exchanged] for an
interest in the Restricted Note (Common Code Number 10546842) in the same
principal denomination [and be transferred to ______________ [Euroclear]
[Cedel] account no. ______________ ]. If this is a partial transfer, a minimum
of 1,000 and any integral multiple of 1,000 in excess thereof of the
Unrestricted Note will remain outstanding.
In connection with such request, and in respect of such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with Rule 144A under the Securities Act to a transferee that the
transferor reasonably believes is purchasing the Notes for its own account or an
account with respect to which the transferee exercises sole investment
discretion and the transferee and any such account is a "qualified institutional
buyer" within the meaning of Rule 144A, in each case in a transaction meeting
the requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer.
<TABLE>
<S> <C>
Dated: [Name of Transferor]
- --------------------------------------------
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
Telephone No:
-----------------------------------------
</TABLE>
Please print name and address (including zip code number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E-58
<PAGE> 41
EXHIBIT 4 TO DEFINITIVE NOTE (REGULATION S)
Any holder of Notes other than a foreign purchaser outside the United
States must include as an attachment to this Conversion Notice a letter
addressed to the Issuer if, at the time of such conversion, such Notes are
"restricted securities" within the meaning of Rule 144 under the Securities Act
stating that such holder agrees that if it should offer, resell or otherwise
transfer any ordinary shares issued upon conversion of its beneficial interests
in the Notes within the time period referred to in Rule 144(k) under the
Securities Act after the original issuance of the Notes, it will do so only (i)
to the Issuer or any subsidiary thereof, (ii) outside the United States in
compliance with Rule 903 or 904 under the Securities Act (and not in a
pre-arranged transaction resulting in the resale of such interests in the Notes
into the United States), or (iii) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), in each case in
accordance with any applicable securities laws of any state or the United States
or any other jurisdiction. Such attachment shall also include a statement by
such holder acknowledging that (i) it understands that the ordinary shares
issued upon conversion are "restricted securities" as defined in Rule 144(a)(3)
under the Securities Act and, as such, they are not fungible with any other
issued and outstanding ordinary shares or American Depositary Shares of the
Issuer and (ii) it agrees that so long as such ordinary shares issued upon
conversion are restricted securities, it will not deposit such ordinary shares
in an unrestricted American Depositary Receipt facility.
4.0% Convertible Senior Notes due 2004
VERSATEL TELECOM INTERNATIONAL N.V.
CONVERSION NOTICE
(Please read the notes overleaf before completing this Notice)
Name:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
Delivery of the Conversion Notice will constitute confirmation by the
holder of a beneficial interest in the Notes to be converted of VersaTel Telecom
International N.V. ("the Issuer") that the information and the representations
in the Conversion Notice are true and accurate on the date of delivery.
To: VersaTel Telecom International N.V.
I/We, being the holders of a beneficial interest in the Notes specified
below, hereby irrevocably elect to convert such Notes into ordinary shares
nominal value NLG 0.05 each of VersaTel Telecom International N.V. in bearer
form (the "Ordinary Shares") in accordance with Condition 5 of the Terms and
Conditions of the Notes (the "Terms and Conditions") and apply for the Ordinary
Shares to be delivered on conversion.
1. Total principal amount of Notes to be converted: ______________
2. I/we hereby request that the Ordinary Shares (together with any other
securities, property or cash) required to be delivered upon conversion be
delivered to ______________
E-59
<PAGE> 42
3. I/We hereby declare that all approvals, consents and authorizations (if
any) required by the laws of The Netherlands to be obtained by me/us prior
to the said conversion have been obtained and are in full force and effect
and that any applicable condition thereto has been complied with by me/us.
4. At the time of signing and delivery of this Conversion Notice, I/we
represent and agree that I/we, or the person who has an interest in the
Notes to be converted, is
A) not a "U.S. person" and is obtaining such Ordinary Shares upon
conversion in an "offshore transaction" (as such terms are defined in
Regulation S under the United States Securities Act of 1933, as amended
(the "Securities Act")) and is domiciled or has residence outside the
United States (which term, as used herein means the United States of
America (including the States and the District of Columbia, its
territories, its possessions and other areas subject to its
jurisdictions)); or
B) a Qualified Institutional Buyer as defined in Rule 144A under the
Securities Act (in favor of the Issuer in the form referred to above).
PLEASE NOTE:
(i) This Conversion Notice will be void unless the introductory details,
Sections 1,2,3 and 4 are completed.
(ii) Your attention is drawn to Condition 5 of the Terms and Conditions with
respect to the conditions precedent which must be fulfilled before the
Notes specified above will be treated as effectively eligible for
conversion.
(iii) Transfer of shares or other securities or property will be made at the
risk and expense of the converting Noteholder and the converting
Noteholder will be required to prepay the expenses of, and submit any
necessary documents required in order to effect, despatch in the manner
specified.
(iv) If as contemplated by the Terms and Conditions the converting Noteholder
becomes entitled to additional Ordinary Shares (together with any other
securities, property or cash), they will be delivered or dispatched in the
same manner as the Ordinary Shares or other securities, property and cash
previously issued or paid pursuant to the relevant Conversion Notice.
For Agent's use only:
1. Note conversion identification reference
2. Conversion Date: ______________
3. Aggregate principal amount of Notes in respect of which Notes have been
deposited for conversion: ______________
4. Conversion Price on Conversion Date: ______________
5. Number of Ordinary Shares deliverable: ______________
(disregard fractions)
NOTE: The Conversion Agent must complete items 1 to 5.
E-60
<PAGE> 43
ANNEX 3A
FORM OF RULE 144A GLOBAL NOTE
CERTIFICATE No.
VERSATEL TELECOM INTERNATIONAL N.V.
EUR 300,000,000
4.0% Convertible Senior Notes
due 2004
The Notes in respect of which this Global Certificate is issued are in
registered form and form the series designated as specified in the title (the
"NOTES") of VERSATEL TELECOM INTERNATIONAL N.V. (the "ISSUER").
The Issuer hereby certifies that The Bank of New York depository (nominees)
Limited is, at the date thereof, entered in the register of Noteholders as the
holder of Notes in the initial principal amount up to EUR 300,000,000 (three
hundred million euro) or such other amount as is shown from time to time on the
register of Noteholders as being represented by this Global Certificate and is
duly endorsed (for information purposes only) in the third column of SCHEDULE A
to this Global Certificate. Notes may accrete in accordance with the terms and
conditions (the "CONDITIONS") set out in EXHIBIT 1 hereto, as these Conditions
are modified by the provisions of this Global Certificate. The aggregate amount
of Notes outstanding represented hereby may from time to time be increased or
decreased to reflect transfers or exchanges; provided that the aggregate
principal amount of Notes outstanding and represented by this and any other
Global Certificate shall not exceed such amount. For value received, the Issuer
promises to pay the person who appears at the relevant time on the register of
Noteholders as holder of the Notes in respect of which this Certificate is
issued such amount or amounts as shall become due in respect of such Notes and
otherwise to comply with the Conditions, as referred to below.
The Notes are constituted by and have the benefit of the Conditions.
The Notes are convertible into fully-paid ordinary shares of the Company,
nominal value NLG 0.05 per ordinary share (the "ORDINARY SHARES"), in bearer
form subject to and in accordance with the Conditions.
Terms defined in the Conditions shall have the same meaning in this Global
Certificate. This Global Certificate is evidence of entitlement only. Title to
the Notes passes only by a written deed of transfer signed by the transferor and
transferee in the form attached as EXHIBIT 2 followed by due registration in the
register of Noteholders and only the duly registered holder is entitled to
payments on Notes in respect of which this Global Certificate is issued.
The Conditions, in so far as they apply to the Notes in respect of which
this Global Certificate is issued, are hereby modified to the extent set forth
below.
TRANSFER
Transfer of interests in the Notes with respect to which this Global
Certificate is issued shall be made in accordance with the Conditions and the
Agency Agreement.
The Agents will not accept the deposit of this Global Certificate for
transfer of any Notes save in the case of transfer into the name of a holder on
behalf of Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear system ("EUROCLEAR"), Cedelbank, societe anonyme
("CEDEL") or an alternative clearing system (as defined under "NOTICES" below)
unless either (1) Euroclear or Cedel notifies the Issuer that it is unwilling or
unable to continue as a clearing system in connection with a Global Note and a
successor clearing system is not appointed by the Issuer within 90 days after
its receipt of such notice or (2) the Issuer shall have determined in its sole
discretion that the Notes shall no longer be represented by Global Notes.
E-61
<PAGE> 44
In such circumstances, the Issuer will cause sufficient definite
Certificates to be executed and delivered to the Registrar for completion,
authentication and dispatch to the relevant Noteholders. A person with an
interest the Notes in respect of which this Global Certificate is issued must
provide the Registrar with a written order containing instructions and such
other information as the Issuer and the Registrar may require to complete,
execute and deliver such definitive Certificates.
The provisions of Condition 2 will otherwise apply, except that new
Certificates to be issued upon transfer of Notes will, within 21 days of receipt
by the Registrar or an Agent of the form of transfer attached to this Global
Certificate, be mailed by uninsured mail at the risk of the holders entitled to
the relevant Notes to be addressed specified in the form of transfer.
NEITHER THE NOTES EVIDENCED HEREBY NOR THE ORDINARY SHARES ISSUABLE UPON
CONVERSION OF THE NOTES HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT "), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN
"OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S, (2) AGREES THAT IT
WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF
TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF
ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS
NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS
(THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE ISSUER
SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO
CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND (II) IN CERTAIN
OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OR TRANSFER IN THE FORM
ATTACHED HERETO AS EXHIBIT 3 IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
ISSUER. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE, AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION".
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION
S UNDER THE SECURITIES ACT.
The statements set out in the legend above are an integral part of the
Notes in respect of which this Global Certificate is issued and by acceptance
hereof the holder of the Notes evidenced by this Global Certificate or any owner
of an interest in such Notes agrees to be subject to and bound by the terms of
such legend. Upon the
E-62
<PAGE> 45
transfer or exchange of these Notes or the replacement of Certificates issued in
respect of these Notes, the Registrar will only deliver Certificates with
respect to these Notes that bear the legend above unless there is delivered to
the Registrar and the Issuer such satisfactory evidence, which may include an
opinion of counsel, as may reasonably be required by the Issuer, that neither
such legend nor the restrictions on transfer set forth herein are required to
ensure compliance with the provisions of the Securities Act.
If a holder of a beneficial interest in this Note wishes at any time to
exchange its interest in this Note for an interest in the Unrestricted Note, or
to transfer its interest in this Note to a Person who wishes to take delivery
thereof in the form of an interest in such Unrestricted Note, such holder may,
subject to the rules and procedures of Euroclear and Cedel, to the extent
applicable, and to the requirements set forth in the following sentence,
exchange or cause the exchange or transfer or cause the transfer of such
interest for an equivalent beneficial interest in such Unrestricted Note. Upon
receipt by the Registrar at its office in Amsterdam of (1) instructions given in
accordance with the procedures of Euroclear and Cedel, to the extent applicable,
from or on behalf of a holder of a beneficial interest in this Note, directing
the Registrar to credit or cause to be credited a beneficial interest in the
Unrestricted Note in an amount equal to the beneficial interest in this Note to
be exchanged or transferred, (2) a written order given in accordance with the
procedures of Euroclear or Cedel, to the extent applicable, containing
information regarding the Euroclear or Cedel account to be credited with such
increase and the name of such account, and (3) a certificate in the form of
Exhibit 3 given by the holder of such beneficial interest stating that the
exchange or transfer of such interest has been made pursuant to and in
accordance with Rule 903 or Rule 904 of Regulation S or Rule 144 under the
Securities Act, the Registrar shall promptly deliver appropriate instructions to
Euroclear or Cedel, as the case may be, or their nominee, to reduce or reflect
on its records a reduction of this Note by the aggregate principal amount of the
beneficial interest in this Note to be so exchanged or transferred from the
relevant participant, and the Registrar shall promptly deliver appropriate
instructions to Euroclear or Cedel, or their nominee, or the custodian for
Euroclear or Cedel, as the case may be (to the extent applicable), concurrently
with such reduction, to increase or reflect on its records an increase of the
principal amount of such Unrestricted Note by the aggregate principal amount of
the beneficial interest in this Note to be so exchanged or transferred, and to
credit or cause to be credited to the account of the person specified in such
instructions (which shall be the agent member of Euroclear or Cedel, or both, as
the case may be) a beneficial interest in such Unrestricted Note equal to the
reduction in the principal amount of this Note.
Any beneficial interest in this Note that is transferred to a person who
takes delivery in the form of an interest in the Unrestricted Note will, upon
transfer, cease to be an interest in this Note and become an interest in the
Unrestricted Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
Unrestricted Note for as long as it remains such an interest.
CONVERSION
Subject to the requirements of Euroclear and Cedel, the Conversion Right
attaching to Notes in respect of which this Global Certificate is issued may be
exercised by the presentation to or to the order of any Conversion Agent of one
or more Conversion Notices in the form attached as EXHIBIT 4 duly completed by
or on behalf of a holder of a book-entry interest in such Note. Deposit of this
Global Certificate with the Conversion Agent together with the relevant
Conversion Notice shall not be required. The exercise of the Conversion Right
shall be notified by the Conversion Agent to the Issuer and the holder of this
Global Certificate. The provisions of Condition 5 shall otherwise apply.
Where the Notes represented by this Global Certificate are to be converted,
the Conversion Notice need not be signed except for the letter referred to in
Exhibit 4. In such case, delivery of the Conversion Notice will constitute
confirmation by the holder of a book-entry interest in the Notes to be converted
that the information and the representations in the Conversion Notice are true
and accurate on the date of delivery.
PAYMENTS
Payments of Accreted Principal Amount in respect of Notes represented by
this Global Certificate will be made against presentation and, if no further
payment falls to be made in respect of the Notes, surrender of this
E-63
<PAGE> 46
Global Certificate to or to the order of the Principal Paying Agent or such
other Paying Agent as shall have been notified to the Noteholder for such
purpose.
NOTICES
So long as the Notes are represented by this Global Certificate and this
Global Certificate is held on behalf of Euroclear or Cedel, notices to
Noteholders may be given by delivery of the relevant notice to the relevant
clearing system(s) for communication by it to entitled accountholders in
substitution for notification as required by the Conditions except that, so long
as the Notes are listed on the AEX and the rules of that exchange so require,
notices shall also be published in a leading newspaper having general
circulation in the Netherlands.
ENFORCEMENT
Unless this certificate is presented by an authorized representative of the
Issuer or its agent for registration of transfer, exchange, or payment, and any
Certificate issued is registered in the name of The Bank of New York depository
(nominees) Limited or in such other name is requested by an authorized
representative of The Bank of New York depository (nominees) Limited, ANY
TRANSFER, PLEDGE, OR OTHER USE THEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner thereof The Bank of New York
depository (nominees) Limited has an interest herein.
This Global Certificate shall not be valid for any purpose until
authenticated by or on behalf of the Registrar.
This Global Certificate is governed by, and shall be construed in
accordance with Netherlands law.
IN WITNESS whereof the Issuer has caused this Global Certificate to be
signed on its behalf.
17 December 1999
VERSATEL TELECOM INTERNATIONAL N.V.
<TABLE>
<S> <C>
By: By:
- -------------------------------------------- --------------------------------------------
Name: Name:
Title: Title:
</TABLE>
CERTIFICATE OF AUTHENTICATION
Certified that the above-named holder is at the date hereof entered in the
register of Noteholders as holder of the above-mentioned principal amount of
Note
ING BANK N.V., AS REGISTRAR
- ------------------------------------------------------
BY:
AUTHORIZED SIGNATORY
DATED:
E-64
<PAGE> 47
SCHEDULE A TO THE GLOBAL NOTE
SCHEDULE OF REDUCTIONS OR INCREASE IN PRINCIPAL AMOUNT OF NOTES IN RESPECT OF
WHICH THIS GLOBAL CERTIFICATE IS ISSUED
The following reductions/increases in the principal amount of Notes in
respect of which this Global Certificate is issued have been made as a result of
(i) exercise of the Conversion Right attaching to Notes, or (ii) repayment or
cancellation of Notes, or (iii) transfers of Notes (including transfers if
interests between Global Certificates), or (iv) exchanges of interests in the
Notes represented by this Global Certificate for definitive Certificates as set
out in the agency Agreement or (v) conversion on the Maturity Date pursuant to
the Conversion Right.
<TABLE>
<S> <C> <C> <C>
Date of Conversion/ Amount of decrease/ Principal amount of Notation made by or
Redemptions or Can- increase in and number of Notes on behalf of the
cellations/Transfer/ principal amount of evidenced by this Registrar following
Exchange (stating and number of Notes Global Certificate such
which) evidenced by this following such decrease/increase
Global Certificate decrease/increase
</TABLE>
E-65
<PAGE> 48
EXHIBIT 2 TO THE GLOBAL NOTE (RULE 144A)
FORM OF TRANSFER
FOR VALUE RECEIVED the undersigned hereby transfers the following principal
amounts of Notes in respect of which the Global Certificate is issued, and all
rights in respect thereof, to the transferee(s) listed below:
<TABLE>
<S> <C>
PRINCIPAL AMOUNT TRANSFERRED NAME, ADDRESS AND ACCOUNT
FOR PAYMENTS OF TRANSFEREE
Dated: Certifying Signature:
- -------------------------------------------- -------------------------------
Name:
- --------------------------------------------
OR*
- --------------------------------------------
Duly authorized officer
- --------------------------------------------
Duly authorized officer
Accepted by:
- --------------------------------------------
Duly authorized officer
</TABLE>
- ---------------
* Where the transfer is a corporation, this form of transfer must be endorsed
under its common seal or under the hand of two of its officers duly authorized
in writing.
Note:
(i) A representative of the Noteholder should state the capacity in which
he signs, e.g. executor.
(ii) The signature of the person effecting a transfer shall conform to
any list of duly authorized specimen signatures supplied by the
registered holder or be certified by a recognised bank, notary
public or in such other manner as the Registrar may require.
(iii) This form of transfer should be dated as of the date it is deposited
with the relevant Transfer Agent.
E-66
<PAGE> 49
EXHIBIT 3 TO THE GLOBAL NOTE (RULE 144A)
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM
RESTRICTED NOTE TO UNRESTRICTED NOTE
Versatel Telecom International N.V.
c/o ING Bank N.V.
Bijlmermeerplein 888
1102 BD Amsterdam-Zuidoost
RE: 4.0% SENIOR CONVERTIBLE NOTES DUE 2004
(THE "NOTES") OF VERSATEL TELECOM INTERNATIONAL N.V.
Reference is hereby made to the Agency Agreement dated as of December 17,
1999 (the "Agency Agreement") between VersaTel Telecom International N.V. and
ING Bank N.V., as Paying Agent, Conversion Agent, Conversion Calculation Agent
and Registrar. Capitalized terms used but not defined herein shall have the
meanings given them in the Agency Agreement.
This letter relates to ______________ (being any integral multiple of
1,000) principal amount of Notes beneficially held through interests in the
Restricted Note (Common Code Number 10546842) with Euroclear and/or Cedel in the
name of ______________ (the "Transferor") account number ______________ . The
transferor hereby requests that on [INSERT DATE] such beneficial interest in the
Restricted Note be [transferred] [exchanged] for an interest in the Unrestricted
Note (Common Code No. 10546834) in the same principal denomination [and be
transferred, to ______________ [Euroclear] [Cedel] (account
no. ______________ )]. If this is a partial transfer, a minimum amount of 1,000
and any integral multiple of 1,000 in excess thereof of the Restricted Note will
remain outstanding.
In connection with such request and in respect of such Notes the Transferor
does hereby certify that such transfer has been effected in accordance with the
transfer restrictions set forth in the Notes and the Conditions and accordingly
the Transferor further certifies that:
(A)(l) the offer of the Notes was not made to a person in the United States;
such transfer is being made pursuant to and in accordance Rule 903 or
904 or Regulation S under the Securities Act;
(2) either (a) at the time the buy order was originated, the transferee
was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither the
Transferor nor any person acting on our behalf knows that the
transaction was prearranged with a buyer in the United States,
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable;
and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
OR
(B) such transfer is being made in accordance with Rule 144 under the Securities
Act
E-67
<PAGE> 50
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer. Terms used in this certificate and not
otherwise defined in the Agency Agreement have the meanings set forth in
Regulation S under the Securities Act.
<TABLE>
<S> <C>
Dated: [Name of Transferor]
- ---------------------------------------------
By:
---------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Telephone No:
-----------------------------------------
</TABLE>
Please print name and address (including zip code number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E-68
<PAGE> 51
EXHIBIT 4 TO THE RULE 144A GLOBAL NOTE
Any holder of Notes other than a foreign purchaser outside the United
States must include as an attachment to this Conversion Notice a letter
addressed to the Issuer if, at the time of such conversion, such Notes are
"restricted securities" within the meaning of Rule 144 under the Securities Act
stating that such holder agrees that if it should offer, resell or otherwise
transfer any ordinary shares issued upon conversion of its beneficial interests
in the Notes within the time period referred to in Rule 144(k) under the
Securities Act after the original issuance of the Notes, it will do so only (i)
to the Issuer or any subsidiary thereof, (ii) outside the United States in
compliance with Rule 903 or 904 under the Securities Act (and not in a
pre-arranged transaction resulting in the resale of such interests in the Notes
into the United States), or (iii) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), in each case in
accordance with any applicable securities laws of any state or the United States
or any other jurisdiction. Such attachment shall also include a statement by
such holder acknowledging that (i) it understands that the ordinary shares
issued upon conversion are "restricted securities" as defined in Rule 144(a)(3)
under the Securities Act and, as such, they are not fungible with any other
issued and outstanding ordinary shares or American Depositary Shares of the
Issuer and (ii) it agrees that so long as such ordinary shares issued upon
conversion are restricted securities, it will not deposit such ordinary shares
in an unrestricted American Depositary Receipt facility.
EUR 300,000,000
4.0% Convertible Senior Notes due 2004
VERSATEL TELECOM INTERNATIONAL N.V.
CONVERSION NOTICE
(Please read the notes overleaf before completing this Notice)
Name:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
Delivery of the Conversion Notice will constitute confirmation by the
holder of a beneficial interest in the Notes to be converted of VersaTel Telecom
International N.V. ("the Issuer") that the information and the representations
in the Conversion Notice are true and accurate on the date of delivery.
As the Notes to be converted are represented by a Global Note and the Notes
are cleared through Morgan Guaranty Trust Company of New York, Brussels office,
as operator of the Euroclear system ("Euroclear") and/or Cedel Bank, ("Cedel"),
the Conversion Notice must be signed by or on behalf of the beneficial owner of
the Notes and sent to the Conversion Agent on behalf of the Issuer.
To: VersaTel Telecom International N.V.
I/We, being the holders of a beneficial interest in the Notes specified
below, hereby irrevocably elect to convert such Notes into ordinary shares
nominal value NLG 0.05 each of VersaTel Telecom International N.V. in
E-69
<PAGE> 52
bearer form (the "Ordinary Shares") in accordance with Condition 5 of the Terms
and Conditions of the Notes (the "Terms and Conditions") and apply for the
Ordinary Shares to be delivered on conversion.
1. Total principal amount of Notes to be converted: ______________
These Notes represent a co-ownership/beneficial interest in the Global Note
held by Euroclear or Cedel.
2. I/We hereby request that the Ordinary Shares (together with any other
securities, property or cash) required to be delivered upon conversion be
delivered via Euroclear/Cedel to ______________ (account no.) to the order
of ______________ (Euroclear/Cedel member).
3. I/We hereby declare that all approvals, consents and authorizations (if
any) required by the laws of The Netherlands to be obtained by me/us prior
to the said conversion have been obtained and are in full force and effect
and that any applicable condition thereto has been complied with by me/us.
4. At the time of signing and delivery of this Conversion Notice, I/we
represent and agree that I/we, or the person who has an interest in the
Notes to be converted, is
(A) not a "U.S. person" and is obtaining such Ordinary Shares upon
conversion in an "offshore transaction" (as such terms are defined in
Regulation S under the United States Securities Act of 1993, as amended
(the "Securities Act")) and is domiciled or has residence outside the
United States (which term, as used herein, means the United States of
America (including the States and the District of Columbia, its
territories, its possessions and other areas subject to its
jurisdiction));
(B) a Qualified Institutional Buyer as defined in Rule 144A under the
Securities Act (in which event such Qualified Institutional Buyer will
be required to execute a letter in favor of the Company in the form
referred to above.
PLEASE NOTE:
(i) This Conversion Notice will be void unless the introductory details,
Sections 1, 2, 3 and 4 are completed.
(ii) Your attention is drawn to Condition 5 of the Terms and Conditions with
respect to the conditions precedent which must be fulfilled before the
Notes specified above will be treated as effectively eligible for
conversion.
(iii) Transfer of shares or other securities or property will be made at the
risk and expense of the converting Noteholder and the converting
Noteholder will be required to prepay the expenses of, and submit any
necessary documents required in order to effect, despatch in the manner
specified.
(iv) If as contemplated by the Terms and Conditions the converting Noteholder
becomes entitled to additional Ordinary Shares (together with any other
securities, property or cash), they will be delivered or dispatched in the
same manner as the Ordinary Shares or other securities, property and cash
previously issued or paid pursuant to the relevant Conversion Notice.
For Agent's use only:
1. Note conversion identification reference:
2. Conversion Date: ______________
3. Aggregate principal amount of Notes in respect of which Notes have been
deposited for conversion: ______________
4. Conversion Price on Conversion Date: ______________
5. Number of Ordinary Shares deliverable: ______________
(disregard fractions)
NOTE: The Conversion Agent must complete items 1 to 5.
E-70
<PAGE> 53
ANNEX 3B
FORM OF REGULATION S GLOBAL NOTE
ISIN NO. CERTIFICATE NO.
VERSATEL TELECOM INTERNATIONAL N.V.
EUR 300,000,000
4.0% Convertible Senior Notes
due 2004
The Notes in respect of which this Global Certificate is issued are in
registered form and form the series designated as specified in the title (the
"NOTES") of VERSATEL TELECOM INTERNATIONAL N.V. (the "ISSUER").
The Issuer hereby certifies that The Bank of New York depository (nominees)
Limited is, at the date thereof, entered in the register of Noteholders as the
holder of Notes in the initial principal amount up to EUR 300,000,000 (three
hundred million euro) or such other amount as is shown from time to time on the
register of Noteholders as being represented by this Global Certificate and is
duly endorsed (for information purposes only) in the third column of SCHEDULE A
to this Global Certificate. Notes may accrete in accordance with the terms and
conditions (the "CONDITIONS") set out in EXHIBIT 1 hereto, as these Conditions
are modified by the provisions of this Global Certificate.
The aggregate amount of Notes outstanding represented hereby may from time
to time be increased or decreased to reflect transfers or exchanges; provided
that the aggregate principal amount of Notes outstanding and represented by this
and any other Global Certificate shall not exceed such amount. For value
received, the Issuer promises to pay the person who appears at the relevant time
on the register of Noteholders as holder of the Notes in respect of which this
Certificate is issued such amount or amounts as shall become due in respect of
such Notes and otherwise to comply with the Conditions, as referred to below.
The Notes are constituted by and have the benefit of the Conditions.
The Notes are convertible into fully-paid ordinary shares of the Company,
nominal value NLG 0.05 per ordinary share (the "ORDINARY SHARES"), in bearer
form subject to and in accordance with the Conditions.
Terms defined in the Conditions shall have the same meaning in this Global
Certificate. This Global Certificate is evidence of entitlement only. Title to
the Notes passes only by a written deed of transfer signed by the transferor and
transferee in the form attached as EXHIBIT 2 followed by due registration in the
register of Noteholders and only the duly registered holder is entitled to
payments on Notes in respect of which this Global Certificate is issued.
The Conditions, in so far as they apply to the Notes in respect of which
this Global Certificate is issued, are hereby modified to the extent set forth
below.
TRANSFER
Transfer of interests in the Notes with respect to which this Global
Certificate is issued shall be made in accordance with the Conditions and the
Agency Agreement.
The Agents will not accept the deposit of this Global Certificate for
transfer of any Notes save in the case of transfer into the name of a holder on
behalf of Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear system ("EUROCLEAR"), Cedelbank, societe anonyme
("CEDEL") or an alternative clearing system (as defined under "NOTICES" below)
unless either (1) Euroclear or Cedel notifies the Issuer that it is unwilling or
unable to continue as a clearing system in connection with a Global Note and a
successor clearing
E-71
<PAGE> 54
system is not appointed by the Issuer within 90 days after its receipt of such
notice or (2) the Issuer shall have determined in its sole discretion that the
Notes shall no longer be represented by Global Notes.
In such circumstances, the Issuer will cause sufficient definite
Certificates to be executed and delivered to the Registrar for completion,
authentication and dispatch to the relevant Noteholders. A person with an
interest the Notes in respect of which this Global Certificate is issued must
provide the Registrar with a written order containing instructions and such
other information as the Issuer and the Registrar may require to complete,
execute and deliver such definitive Certificates.
The provisions of Condition 2 will otherwise apply, except that new
Certificates to be issued upon transfer of Notes will, within 21 days of receipt
by the Registrar or an Agent of the form of transfer attached to this Global
Certificate, be mailed by uninsured mail at the risk of the holders entitled to
the relevant Notes to be addressed specified in the form of transfer.
NEITHER THE NOTES EVIDENCED HEREBY NOR THE ORDINARY SHARES ISSUABLE UPON
CONVERSION OF THE NOTES HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN
"OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S, (2) AGREES THAT IT
WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF
TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF
ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS
NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS
(THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE ISSUER
SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO
CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND (II) IN CERTAIN
OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OR TRANSFER IN THE FORM
ATTACHED HERETO AS EXHIBIT 3 IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
ISSUER. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
The foregoing legend may be deleted from certificates in respect of these
Notes issued after the date which is the 40th day after the later of the
commencement of the offering of the Notes and the closing date for the Notes.
E-72
<PAGE> 55
The statements set out in the legend above are an integral part of the
Notes in respect of which this Global Certificate is issued and by acceptance
hereof the holder of the Notes evidenced by this Global Certificate or any owner
of an interest in such Notes agrees to be subject to and bound by the terms of
such legend. Certificates issued in respect of Notes issued pursuant to Section
14.12 of the Agency Agreement need not bear the legend above.
If a holder of a beneficial interest in this Note wishes at any time to
exchange its interests in this Note for an interest in the Restricted Note, or
to transfer its interest in this Note to a Person who wishes to take delivery
thereof in the form of an interest in such Restricted Note, such holder may,
subject to the rules and procedures of Euroclear or Cedel, to the extent
applicable, and to the requirements set forth in the following sentence,
exchange or cause the exchange or transfer or cause the transfer of such
interest for an equivalent beneficial interest in such Restricted Note. Upon
receipt by the Registrar at its office in Amsterdam of (1) instructions given in
accordance with the procedures of Euroclear or Cedel, to the extent applicable,
from or on behalf of a beneficial owner of an interest in this Note directing
the Registrar to credit or cause to be credited a beneficial interest in the
Restricted Note in an amount equal to the beneficial interest in this Note to be
exchanged or transferred, (2) a written order given in accordance with the
procedures of Euroclear of Cedel, as the case may be, containing information
regarding the account with Euroclear or Cedel to be credited with such increase
and the name of such account, and (3) prior to or on the 40th day after the
later of the commencement of the offering of the Notes and the closing date for
the Notes (the "RESTRICTED PERIOD"), a certificate in the form of Exhibit 3
given by the holder of such beneficial interest and stating that the person
transferring such interest in this Note reasonably believes that the person
acquiring such interest in such Restricted Note is a Qualified Institutional
Buyer (as defined in Rule 144A) and is obtaining such beneficial interest in a
transaction meeting the requirements of Rule 144A and any applicable securities
laws of any state of the United States or any other jurisdiction, the Registrar
shall promptly deliver appropriate instructions to Euroclear or Cedel, their
nominee, or the custodian for Euroclear or Cedel, as the case may be, to reduce
or reflect on its records a reduction of this Note by the aggregate principal
amount of the beneficial interest in this Note to be exchanged or transferred,
and the Registrar shall promptly deliver appropriate instructions to Euroclear
or Cedel, their nominee, or the custodian for Euroclear or Cedel, as the case
may be (to the extent applicable), concurrently with such reduction, to increase
or reflect on its records an increase of the principal amount of such Restricted
Note by the aggregate principal amount to be beneficial interest in this Note to
be so exchanged or transferred, and to credit or cause to be credited to the
account of the person specified in such instructions a beneficial interest in
such Restricted Note equal to the reduction in the principal amount of this
Note. After the expiration of the Restricted Period, the certification
requirements set forth in clause (3) of the second sentence of this paragraph no
longer apply to such transfers.
Any beneficial interest in this Note that is transferred to a person who
takes delivery in the form of an interest in the Restricted Note will, upon
transfer, cease to be an interest in this Note and become an interest in the
Restricted Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
Restricted Note for as long as it remains such an interest.
CONVERSION
Subject to the requirements of Euroclear and Cedel, the Conversion Right
attaching to Notes in respect of which this Global Certificate is issued may be
exercised by the presentation to or to the order of any Conversion Agent of one
or more Conversion Notices in the form attached as EXHIBIT 4 duly completed by
or on behalf of a holder of a book-entry interest in such Note. Deposit of this
Global Certificate with the Conversion Agent together with the relevant
Conversion Notice shall not be required. The exercise of the Conversion Right
shall be notified by the Conversion Agent to the Issuer and the holder of this
Global Certificate. The provisions of Condition 5 shall otherwise apply.
Where the Notes represented by this Global Certificate are to be converted,
the Conversion Notice need not be signed. In such case, delivery of the
Conversion Notice will constitute confirmation by the holder of a book-entry
interest in the Notes to be converted that the information and the
representations in the Conversion Notice are true and accurate on the date of
delivery.
E-73
<PAGE> 56
PAYMENTS
Payments of Accreted Principal Amount in respect of Notes represented by
this Global Certificate will be made against presentation and, if no further
payment falls to be made in respect of the Notes, surrender of this Global
Certificate to or to the order of the Principal Paying Agent or such other
Paying Agent as shall have been notified to the Noteholder for such purpose.
NOTICES
So long as the Notes are represented by this Global Certificate and this
Global Certificate is held on behalf of Euroclear or Cedel, notices to
Noteholders may be given by delivery of the relevant notice to the relevant
clearing system(s) for communication by it to entitled accountholders in
substitution for notification as required by the Conditions except that, so long
as the Notes are listed on the AEX and the rules of that exchange so require,
notices shall also be published in a leading newspaper having general
circulation in the Netherlands.
ENFORCEMENT
Unless this certificate is presented by an authorized representative of the
Issuer or its agent for registration of transfer, exchange, or payment, and any
Certificate issued is registered in the name of The Bank of New York depository
(nominees) Limited or in such other name is requested by an authorized
representative of The Bank of New York depository (nominees) Limited, ANY
TRANSFER, PLEDGE, OR OTHER USE THEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner thereof The Bank of New York
depository (nominees) Limited has an interest herein.
This Global Certificate shall not be valid for any purpose until
authenticated by or on behalf of the Registrar.
This Global Certificate is governed by, and shall be construed in
accordance with Netherlands law.
IN WITNESS whereof the Issuer has caused this Global Certificate to be
signed on its behalf.
17 December 1999
VERSATEL TELECOM INTERNATIONAL N.V.
<TABLE>
<S> <C>
By: By:
- -------------------------------------------- --------------------------------------------
Name: Name:
Title: Title:
</TABLE>
CERTIFICATE OF AUTHENTICATION
Certified that the above-named holder is at the date hereof entered in the
register of Noteholders as holder of the above-mentioned principal amount of
Note.
ING BANK N.V., AS REGISTRAR
- ------------------------------------------------------
By:
Authorized Signatory
Dated:
E-74
<PAGE> 57
SCHEDULE A
SCHEDULE OF REDUCTIONS OR INCREASE IN PRINCIPAL AMOUNT OF NOTES IN RESPECT OF
WHICH THIS GLOBAL CERTIFICATE IS ISSUED
The following reductions/increases in the principal amount of Notes in
respect of which this Global Certificate is issued have been made as a result of
(i) exercise of the Conversion Right attaching to Notes, or (ii) repayment or
cancellation of Notes, or (iii) transfers of Notes (including transfers if
interests between Global Certificates), or (iv) exchanges of interests in the
Notes represented by this Global Certificate for definitive Certificates as set
out in the Agency Agreement or (v) conversion on the Maturity Date pursuant to
the Conversion Right.
<TABLE>
<S> <C> <C> <C>
Date of Conversion/ Amount of decrease/ Principal amount of Notation made by or
Redemptions or increase in and number of Notes on behalf of the
Cancellations/Transfer/ principal amount of evidenced by this Registrar following
Exchange (stating and number of Notes Global Certificate such
which) evidenced by this following such decrease/increase
Global Certificate decrease/increase
</TABLE>
E-75
<PAGE> 58
EXHIBIT 2 TO THE GLOBAL NOTE (REGULATION S)
FORM OF TRANSFER
FOR VALUE RECEIVED the undersigned hereby transfers the following principal
amounts of Notes in respect of which the Global Certificate is issued, and all
rights in respect thereof, to the transferee(s) listed below:
<TABLE>
<CAPTION>
NAME, ADDRESS AND ACCOUNT
PRINCIPAL AMOUNT TRANSFERRED FOR PAYMENTS OF TRANSFEREE
- ---------------------------- --------------------------
<S> <C>
Dated: Certifying Signature:
- -------------------------------------------- -------------------------------
Name:
- --------------------------------------------
OR*
- --------------------------------------------
Duly authorized officer
- --------------------------------------------
Duly authorized officer
Accepted by:
- --------------------------------------------
Duly authorized officer
</TABLE>
- ---------------
* Where the transfer is a corporation, this form of transfer must be endorsed
under its common seal or under the hand of two of its officers duly authorized
in writing.
Note:
(i) A representative of the Noteholder should state the capacity in which
he signs, e.g. executor.
(ii) The signature of the person effecting a transfer shall conform to
any list of duly authorized specimen signatures supplied by the
registered holder or be certified by a recognised bank, notary
public or in such other manner as the Registrar may require.
(iii) This form of transfer should be dated as of the date it is deposited
with the relevant Transfer Agent.
E-76
<PAGE> 59
EXHIBIT 3 TO THE GLOBAL NOTE (REGULATION S)
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM
UNRESTRICTED NOTE TO RESTRICTED NOTE
VersaTelecom International N.V.
c/o ING Bank N.V.
Bijlmermeerplein 888
1102 BD Amsterdam-Zuidoost
RE: 4.0% SENIOR CONVERTIBLE NOTES DUE 2004
(THE "NOTES") OF VERSATEL TELECOM INTERNATIONAL N.V.
Reference is hereby made to the Agency Agreement dated as of December 17,
1999 (the "Agency Agreement") between VersaTel Telecom International N.V. and
ING Bank N.V., as Paying Agent, Conversion Agent, Conversion Calculation Agent
and registrar. Capitalized terms used but not defined herein shall have the
meanings given them in the Agency Agreement.
This letter relates to ______________ (being any integral multiple of
1,000) principal amount of the Notes beneficially held through interests in the
Unrestricted Note (Common Code No. 10546834) with [Euroclear] [Cedel] in the
name of ______________ (the "Transferor") [Euroclear] [Cedel] account number
______________ . The transferor hereby requests that on [INSERT DATE] such
beneficial interest in the Unrestricted Note be [transferred] [exchanged] for an
interest in the Restricted Note (Common Code Number 10546842) in the same
principal denomination [and be transferred to ______________ [Euroclear]
[Cedel] (account no. ______________ )]. If this is a partial transfer, a
minimum of 1,000 and any integral multiple of 1,000 in excess thereof of the
Unrestricted Note will remain outstanding.
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with Rule 144A under the Securities Act to a transferee that the
transferor reasonably believes is purchasing the Notes for its own account or an
account with respect to which the transferee exercises sole investment
discretion and the transferee and any such account is a "qualified institutional
buyer" within the meaning of Rule 144A, in each case in a transaction meeting
the requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuer.
<TABLE>
<S> <C>
Dated: Name of Transferor:
- -------------------------------------------- -------------------------------
By:
--------------------------------------------
Name:
Title:
Telephone No.:
</TABLE>
Please print name and address (including zip code number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E-77
<PAGE> 60
EXHIBIT 4 TO GLOBAL NOTE (REGULATION S)
Any holder of Notes other than a foreign purchaser outside the United
States must include as an attachment to this Conversion Notice a letter
addressed to the Issuer if, at the time of such conversion, such Notes are
"restricted securities" within the meaning of Rule 144 under the Securities Act
stating that such holder agrees that if it should offer, resell or otherwise
transfer any ordinary shares issued upon conversion of its beneficial interests
in the Notes within the time period referred to in Rule 144(k) under the
Securities Act after the original issuance of the Notes, it will do so only (i)
to the Issuer or any subsidiary thereof, (ii) outside the United States in
compliance with Rule 903 or 904 under the Securities Act (and not in a
pre-arranged transaction resulting in the resale of such interests in the Notes
into the United States), or (iii) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available). In each case in
accordance with any applicable securities laws of any state or the United States
or any other jurisdiction. Such attachment shall also include a statement by
such holder acknowledging that (i) it understands that the ordinary shares
issued upon conversion are "restricted securities" as defined in Rule 144(a)(3)
under the Securities Act and, as such, they are not fungible with any other
issued and outstanding ordinary shares or American Depositary Shares of the
Issuer and (ii) it agrees that so long as such ordinary shares issued upon
conversion are restricted securities, it will not deposit such ordinary shares
in an unrestricted American Depositary Receipt facility].
EUR 300,000,000
4.0% Convertible Senior Notes due 2004
VERSATEL TELECOM INTERNATIONAL N.V.
CONVERSION NOTICE
(Please read the notes overleaf before competing this Notice)
Name:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
Delivery of the Conversion Notice will constitute confirmation by the
holder of a beneficial interest in the Notes to be converted of VersaTel Telecom
International N.V. ("the Issuer") that the information and the representations
in the Conversion Notice are true and accurate on the date of delivery.
As the Notes to be converted are represented by a Global Note and the Notes
are cleared through Morgan Guaranty Trust Company of New York, Brussels office,
as operator of the Euroclear system ("Euroclear") and/or Cedel Bank, societe
anonyme ("Cedel"), the Conversion Notice must be signed by or on behalf of the
beneficial owner of the Notes and sent to the Conversion Agent on behalf of the
Issuer.
E-78
<PAGE> 61
To: VersaTel Telecom International N.V.
I/We, being the holders of a beneficial interest in the Notes specified
below, hereby irrevocably elect to convert such Notes into ordinary shares
nominal value NLG 0.05 each of VersaTel Telecom International N.V. in bearer
form (the "Ordinary Shares") in accordance with Condition 5 of the Terms and
Conditions of the Notes (the "Terms and Conditions") and apply for the Ordinary
Shares to be delivered on conversion.
1. Total principal amount of Notes to be converted: ______________ .
These Notes represent a co-ownership/beneficial interest in the Global Note
held by Euroclear or Cedel.
2. I/We hereby request that the Ordinary Shares (together with any other
securities, property or cash) required to be delivered upon conversion be
delivered via Euroclear/Cedel to ______________ (account no.) to the order
of _____________________ (Euroclear/Cedel member).
3. I/We hereby declare that all approvals, consents and authorizations (if
any) required by the laws of The Netherlands to be obtained by me/us prior
to the said conversion have been obtained and are in full force and effect
and that any applicable condition thereto has been complied with by me/us.
4. At the time of signing and delivery of this Conversion Notice, I/we
represent and agree that I/we, or the person who has an interest in the
Notes to be converted, is
(A) not a "U.S. person" and is obtaining such Ordinary Shares upon
conversion in an "offshore transaction" (as such terms are defined in
Regulation S under the United States Securities Act of 1933, as
amended (the "Securities Act")) and is domiciled or has residence
outside the United States (which term, as used herein means the United
States of America (including the States and the District of Columbia,
its territories, its possessions and other areas subject to its
jurisdictions));
(B) a Qualified Institutional Buyer as defined in Rule 144A under the
Securities Act (in which event such Qualified Institutional Buyer will
be required to execute a letter in favor of the Issuer in the form
referred to above).
PLEASE NOTE:
(i) This Conversion Notice will be void unless the introductory details,
Sections 1, 2, 3 and 4 are completed.
(ii) Your attention is drawn to Condition 5 of the Terms and Conditions with
respect to the conditions precedent which must be fulfilled before the
Notes specified above will be treated as effectively eligible for
conversion.
(iii) Transfer of shares or other securities or property will be made at the
risk and expense of the converting Noteholder and the converting
Noteholder will be required to prepay the expenses of, and submit any
necessary documents required in order to effect, despatch in the manner
specified.
(iv) If as contemplated by the Terms and Conditions the converting Noteholder
becomes entitled to additional Ordinary Shares (together with any other
securities, property or cash), they will be delivered or dispatched in the
same manner as the Ordinary Shares or other securities, property and cash
previously issued or paid pursuant to the relevant Conversion Notice.
For Agent's use only:
1. Note conversion identification reference
2. Conversion Date: ______________
3. Aggregate principal amount of Notes in respect of which Notes have been
deposited for conversion: ______________
4. Conversion Price on Conversion Date: ______________
5. Number of Ordinary Shares deliverable: ______________
(disregard fractions)
NOTE: The Conversion Agent must complete items 1 to 5.
E-79
<PAGE> 62
EXHIBIT A TO THE AGENCY AGREEMENT
EUR 300,000,000
4.0% Convertible Senior Notes due 2004
VERSATEL TELECOM INTERNATIONAL N.V.
CONVERSION NOTICE
(Please read the notes overleaf before completing this Notice)
Name:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
Delivery of the Conversion Notice will constitute confirmation by the
holder of a beneficial interest in the Notes to be converted of VersaTel Telecom
International N.V. ("the Issuer") that the information and the representations
in the Conversion Notice are true and accurate on the date of delivery.
[The following paragraph only needs to be inserted if Conversion Notice
relates to a Global Note.] As the Notes to be converted are represented by a
Global Note and the Notes are cleared through Morgan Guaranty Trust Company of
New York, Brussels office, as operator of the Euroclear system ("Euroclear")
and/or Cedel bank, societe anonyme ("Cedel"), the Conversion Notice must be
signed by or on behalf of the benefical owner of the Notes and sent to the
Conversion Agent on behalf of the Issuer.
To: VersaTel Telecom International N.V.
I/We, being the holders of a beneficial interest in the Notes specified
below, hereby irrevocably elect to convert such Notes into ordinary shares
nominal value NLG 0.05 each of VersaTel Telecom International N.V. in bearer
form (the "Ordinary Shares") in accordance with Condition 5 of the Terms and
Conditions of the Notes (the "Terms and Conditions") and apply for the Ordinary
Shares to be delivered on conversion.
1. Total principal amount of Notes to be converted: ______________
These Notes represent a co-ownership/beneficial interest in the Global Note
held by Euroclear or Cedel.
2. I/we hereby request that the Ordinary Shares (together with any other
securities, property or cash) required to be delivered upon conversion be
delivered via Euroclear/Cedel to ______________ (account no.) to the order
of ______________ (Euroclear/Cedel member).
3. I/We hereby declare that all approvals, consents and authorizations (if
any) required by the laws of The Netherlands to be obtained by me/us prior
to the said conversion have been obtained and are in full force and effect
and that any applicable condition thereto has been complied with by me/us.
4. At the time of signing and delivery of this Conversion Notice, I/we
represent and agree that I/we, or the person who has an interest in the
Notes to be converted, is
E-80
<PAGE> 63
(A) not a "U.S. person" and is obtaining such Ordinary Shares upon
conversion in an "offshore transaction" (as such terms are defined in
Regulation S under the United States Securities Act of 1933, as
amended (the "Securities Act")) and is domiciled or has residence
outside the United States (which term, as used herein means the United
States of America (including the States and District of Columbia, its
territories, its possessions and other areas subject to its
jurisdictions));
(B) a Qualified Institutional Buyer as defined in Rule 144A under the
Securities Act (in which event such Qualified Institutional Buyer will
be required to execute a letter in favor of the Issuer in the form
referred to above).
PLEASE NOTE:
(i) This conversion Notice will be void unless the introductory details,
Sections 1, 2, 3 and 4 are completed.
(ii) Your attention is drawn to Condition 5 of the Terms and Conditions with
respect to the conditions precedent which must be fulfilled before the
Notes specified above will be treated as effectively eligible for
conversion.
(iii) Transfer of shares or other securities or property will be made at the
risk and expense of the converting Noteholder and the converting
Noteholder will be required to pre-pay the expenses of, and submit any
necessary documents required in order to effect, despatch in the manner
specified.
(iv) If as contemplated by the Terms and Conditions the converting Noteholder
becomes entitled to additional Ordinary Shares (together with any other
securities, property or cash), they will be delivered or dispatched in the
same manner as the Ordinary Shares or other securities, property and cash
previously issued or paid pursuant to the relevant Conversion Notice.
For Agent's use only:
1. Note conversion identification reference:
2. Conversion Date: ______________
3. Aggregate principal amount of Notes in respect of which Notes have been
deposited for conversion: ______________
4. Conversion Price on Conversion Date: ______________
5. Number of Ordinary Shares deliverable: ______________
(disregard fractions)
NOTE: The Conversion Agent must complete items 1 to 5.
E-81
<PAGE> 64
EXHIBIT B TO THE AGENCY AGREEMENT
Form of notification to be sent by facsimile transmission by
the Conversion Agent to the Issuer,
the Dividend Agent and the Registrar.
EUR 300,000,000
4.0% Convertible Senior Notes
VERSATEL TELECOM INTERNATIONAL N.V.
To: ________________________________________
To: VERSATEL TELECOM INTERNATIONAL N.V.
Note conversion identification reference:
(A)
(B)
(C)
(D)
(E)
Regards
Conversion Agent
Explanation
Against the letter (A) to (E) inclusive will be inserted the following
information with respect to the relevant Conversion Notice.
(A) = name and address of converting holders of a beneficial interest
in the Notes
(B) = total principal amount of Notes to be converted by the same
(C) = number of Ordinary Shares (excluding fractions) issuable
(D) = the Conversion Date and the Conversion Price in respect of the
conversion
(E) = name and address of person to who Ordinary Shares are to be
transferred or dispatched and the manner of transfer or
dispatch.
E-82
<PAGE> 65
EXHIBIT C TO THE AGENCY AGREEMENT
Form of notification to be sent by facsimile transmission
by the Dividend Agent to the Conversion Agent which has sent
the relevant Conversion Notice
EUR 360,000,000
4.0% Convertible Senior Notes due 2004 of
VERSATEL TELECOM INTERNATIONAL N.V.
To: ING Bank N.V.
As Conversion Agent
To: [ ] Attention: [ ])
[ ] Attention: [ ])
(A)
(B) (i)
(ii)
(iii)
(C)
(D)
Regards,
ING BANK N.V., AS DIVIDEND AGENT
- ---------------------------------
By:
Name:
Title:
Explanation
Against the letters (A) to (D) inclusive must be inserted the following
information with respect to the delivery of Ordinary Shares upon conversion:
(A) = the identification code and number of the Agent who forwarded the
copy of the Conversion Notice in respect of the Notes that have
been converted.
(B) = number of Ordinary Shares delivered upon conversion
(C) = the date of transfer or despatch of the Ordinary Shares or the
date the same were made available at the head office of the
Paying Agent
(D) = (if applicable) the name and address of the person to whom or to
whose order the Ordinary Shares were transferred or despatched
and, if applicable, the address to which and the manner in which
they were transferred or despatched.
E-83
<PAGE> 1
EXHIBIT 7
SHAREHOLDERS AGREEMENT
THE UNDERSIGNED:
1. The public company with limited liability organised and existing under the
laws of the Netherlands VERSATEL TELECOM INTERNATIONAL N.V., with its
registered office in Amsterdam, hereby duly represented by Raj Raithatha
hereinafter: "VersaTel" or "Shareholder A";
2. VersaPoint organised and existing under the laws of Delaware, United States
of America, NORTHPOINT COMMUNICATIONS GROUP, Inc, with its registered
office in Delaware, hereby duly represented by Herman Bluestein
hereinafter: "Guarantor";
3. The private company with limited liability in incorporation organised and
existing under the laws of the Netherlands NORTHPOINT B.V. i.o., with its
registered office in Amsterdam, hereby duly represented by Herman Bluestein
hereinafter: "NorthPoint" or "Shareholder B";
4. The public company with limited liability in incorporation organised and
existing under the laws of the Netherlands VERSAPOINT N.V. i.o., with its
registered office in Amsterdam, hereby duly represented by Raj Raithatha
hereinafter: "VersaPoint";
the parties under 1 and 3 hereinafter also jointly referred to as the
"Shareholders" and each individually as a "Shareholder";
the parties under 1, 2, 3 and 4 hereinafter also jointly referred to as the
"Parties" and each individually as a "Party"
WHEREAS:
- - VersaTel and Guarantor through its wholly owned Subsidiary NorthPoint have
agreed to establish a joint venture company for the purpose of offering
competitive local access services on a primarily wholesale basis, using
Digital Subscriber Line technologies, Internet Protocol and Content Hosting
in key markets throughout Europe, whereby VersaTel and Guarantor (partly
through its wholly owned Subsidiary NorthPoint) shall both contribute
capital, labour and know-how, all in accordance with the AOPB and Commercial
Services Agreement;
- - VersaTel and Guarantor signed a document called "Proposed DSL Services 50:50
Joint Venture Business & Operating Principles" on 1 and 2 February
respectively, which sets forth the principles for the business and operation
of the joint venture company and certain related matters such as ownership,
funding and governance;
- - VersaTel and NorthPoint now wish to establish the joint venture company and
wish to agree with respect to the operation of the joint venture company and
certain related matters such as (but not limited to) ownership, funding and
governance of the joint venture company, on the terms and conditions set
forth below;
HAVE AGREED THE FOLLOWING:
DEFINITIONS
<TABLE>
<CAPTION>
AGREEMENT THIS SHAREHOLDERS AGREEMENT
- --------- ---------------------------
<S> <C>
AOPB................................. The Annual Operation Plan and Budget, which includes the
3-year business plan for VersaPoint in effect from time to
time
Appraisers........................... Independent qualified appraisers or investment banks as
referred to in article 10.10
Articles of Association.............. The articles of association of VersaPoint in effect from
time to time
</TABLE>
E-84
<PAGE> 2
<TABLE>
<CAPTION>
AGREEMENT THIS SHAREHOLDERS AGREEMENT
- --------- ---------------------------
<S> <C>
Capital Market Funding............... The funding through the capital markets
Commercial Services Agreement........ The Commercial Services Agreement entered into by and
between the Parties, dated the date hereof and attached
hereto as Schedule 1
Committed Funding.................... The funding obligation of the Shareholders A and B as set
forth in article 3.1
Employee Stock Option Plan........... The employee stock option plan providing for the issuance of
depositary receipts for C-Shares to employees and management
(including Managing Directors and certain Supervisory
Directors) of VersaPoint as will be in force from time to
time
Fair Market Value.................... The fair market value of MDF sites and other DSL assets
referred to in article 12.3, shall be 3 times the gross
costs of property, plant and equipment
General Meeting of Shareholders...... The general meeting of holders of A-Shares, B-Shares and
C-Shares
Listing.............................. A listing of the Shares on a stock exchange
Management Board..................... The management board of VersaPoint
Managing Director.................... A member of the Management Board
Management Team...................... Key employees of VersaPoint that are part of the management
team (not being members of the Management Board)
Non-disclosure Agreement............. The Non-disclosure Agreement entered into by and between
VersaTel and Guarantor, dated 15 January 2000 and attached
hereto as Schedule 2
Permitted Business................... The business of (i) developing, deploying and operating a
DSL network in the Territory (as defined herein) and (ii)
the provision of Primarily Wholesale Services (as defined
herein), both as contemplated by the AOPB, and explicitly
excluding (a) the construction of local access with fiber
and/or radio, and (b)the construction of a backbone fiber
network
Person............................... Any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust
or any other entity or any government or political
subdivision or an agency, department or instrumentality
thereof, other than a Shareholder or a Subsidiary of a
Shareholder
Primarily Wholesale Basis............ In its Territory, VersaPoint will operate primarily on a
wholesale basis. For a period of 18 months after the signing
of this Agreement, however, VersaPoint shall in the VersaTel
Territory market operate exclusively on a wholesale basis,
provided however, that VersaPoint may market its services in
any manner it chooses (including, for example, on either a
wholesale or retail basis) in the whole or a part of the
VersaTel Territory within the aforementioned 18 months
period, in order to take advantage of an opportunity or
initiative that extends substantially outside of those areas
Proprietary Information.............. Patented inventions, data, methods, processes, drawings,
specifications, designs, computer programs, know how and all
other information not generally available to the public
Shareholder A........................ VersaTel and its Subsidiaries holding A-Shares jointly
</TABLE>
E-85
<PAGE> 3
<TABLE>
<CAPTION>
AGREEMENT THIS SHAREHOLDERS AGREEMENT
- --------- ---------------------------
<S> <C>
Shareholder B........................ NorthPoint and its Subsidiaries holding B-Shares jointly
Shareholders......................... The holders of Shares
Shares............................... Shares in the capital of VersaPoint, which includes
A-Shares, B-Shares and C-Shares, as defined in article 2.2
Subsidiary........................... A company or entity directly or indirectly controlled as
meant in article 24a Book 2 of the Dutch Civil Code
Supervisory Board.................... The supervisory board of VersaPoint
Supervisory Director................. A member of the Supervisory Board
Territory............................ The 15 current European Union Member States (i.e. The
Netherlands, Belgium, Luxembourg, Germany, Sweden, Finland,
Denmark, France, Spain, Portugal, Italy, Greece, Austria,
Great Britain, Ireland), plus Norway and Switzerland
VersaPoint........................... The joint venture company VersaPoint N.V.
VersaTel Territory................... Belgium, the Netherlands, and those areas of Germany where
VersaTel provides service from time to time
</TABLE>
ARTICLE 1 -- PURPOSE AND OBJECTIVES OF THE JOINT VENTURE COMPANY
1.1 VersaPoint will build and operate competitive broadband local access
network and offer a broad range of broadband access services on a
primarily wholesale basis, in key markets throughout Europe, using DSL
technologies, IP and Hosting, utilising VersaTel's market presence, local
knowledge and existing facilities and operations wherever possible and
Guarantor's and/or NorthPoint's technology, OSS system, proven processes
and general know-how in deploying large scale DSL-based networks and
services, all in accordance with the AOPB and Commercial Services
Agreement;.
1.2 The Parties shall contribute labour, know-how and other support to
VersaPoint as is further specified in the AOPB and Commercial Services
Agreement.
ARTICLE 2 -- INCORPORATION OF VERSAPOINT; ISSUANCE OF SHARES; STOCK OPTION PLAN
2.1 The Shareholders A and B shall incorporate VersaPoint as a public company
with limited liability organised and existing under the laws of the
Netherlands with the name of VersaPoint N.V. if possible on 31 March 2000.
The deed of incorporation, also containing the articles of association, is
attached hereto as Schedule 3.
2.2 VersaPoint shall have an authorised capital of Euro 250.000.000, divided
into 1.000.000.000 shares class A with a nominal value of Euro 0,10 each
(the "A-Shares") and 1.000.000.000 shares class B with a nominal value of
Euro 0,10 each (the "B-Shares") and 500.000.000 shares class C with a
nominal value of Euro 0,10 each (the "C-Shares" and together with the
A-Shares and the B-Shares, the "Shares").
2.3 The A-Shares may only be held by VersaTel and/or its Subsidiaries and the
B-Shares may only be held by NorthPoint and/or its Subsidiaries. Any
other Person may only hold C-Shares. In case of a transfer or issuance of
Shares, the Shares transferred or issued shall upon transfer or issue be
converted into the proper class of Shares that may be held by the
acquiror in accordance with this article 2.3, provided, however, that
C-Shares may not be converted into A-Shares or B-Shares unless article
10.3 has been complied with.
2.4 Each Share shall have one vote in the General Meeting of Shareholders and
each Share gives entitlement to a pro rata portion of the dividends
declared. The rights attached to the A-Shares and B-Shares are equal.
E-86
<PAGE> 4
2.5 It is the intention that an Employee Stock Option Plan shall be
incorporated, for which up to a maximum of 10% of the Shares outstanding
from time to time shall be made available.
ARTICLE 3 -- FUNDING
3.1 The Shareholders A and B agree to (initially) participate either directly
or through a Subsidiary in VersaPoint on an equal basis. Each Shareholder
A and B commits to fund an amount of 50.000.000 Euro (fifty million Euro)
in cash (the "Committed Funding") against the issuance of 500.000.000
Shares to each, always provided that (i) A-Shares will be issued to
VersaTel and/or its Subsidiaries and B-Shares will be issued to
NorthPoint and/or its Subsidiaries and (ii) the number of Shares issued
shall always be in proportion to the amount of funding provided by such
Shareholder relative to the amount of funding provided by the other
Shareholder A or B.
3.2 In the event a Shareholder A or B fails to pay such part of the Committed
Funding as is requested by VersaPoint in accordance with the AOBP and
provided such Shareholder received such a request 10 days in advance,
such Shareholder shall pay interest to VersaPoint on the unpaid portion
of the amount due at an annual interest rate of eighteen percent (18%),
compounded daily (which interest shall be treated as interest income of
VersaPoint and not as a reduction of the amount due from the defaulting
Shareholder), and, at the request of a Shareholder A or B who did not
default, VersaPoint shall bring and maintain an action against the
defaulting Shareholder for the entire amount due, including interest.
3.3 In addition to the Committed Funding Shareholders A and B may contribute
the assets described in Schedules 5A and 5B attached hereto, provided
that such contributions in kind shall only be allowed if Shareholders A
and B mutually agree upon the value of such contributed assets.
Shareholder A and B hereby agree that the value of the assets set forth
on Schedule 5A and 5B shall be equal and shall not exceed 15 million
Euro.
3.4 At the date of incorporation of VersaPoint the initial cash contribution
of each Shareholder A and B amounts to 25.000.000 Euro, sufficient to
fund the initial start-up costs and capital needs of VersaPoint. Each
Shareholder A and B is obliged to provide the remainder of the Committed
Funding within 10 business days after the CEO requests such in accordance
with the AOPB.
3.5 One or more recognised international investment bankers, mutually agreed
upon by both Shareholders A and B, will be appointed as soon as possible
after the date hereof, with the goal of raising 500.000.000 Euro (five
hundred million Euro) through Capital Market Funding in addition to the
Committed Funding.
3.6 VersaPoint may at any time, subject to the provisions of this Agreement
including but not limited to 7.3(c)(iii) and 7.4(a), raise funds in
addition to the Capital Market Funding referred to in article 3.5 and the
Committed Funding, in any form VersaPoint deems fit, provided (i) that
such additional funding shall as much as possible be in the form of debt
financing on the most favourable terms reasonably obtainable as to
interest, repayment and security and (ii) that equity financing (which
for the purposes of this article includes provisions that allow a lender
a (potential) right to acquire Shares) always requires the prior approval
of the Shareholders A and B. In case VersaPoint shall decide to undertake
a debt financing to raise funds contemplated by the AOPB, but such debt
is not reasonably obtainable without an equity increase, the Shareholders
A and B shall approve an issuance of Shares requested by VersaPoint
insofar as (a) such issuance is required in order to obtain sufficient
debt financing and (b) the amount of equity raised will not exceed 10% of
the total amount of funding (i.e. both debt and equity) raised.
3.7 Notwithstanding article 19.2, any disagreement between Shareholder A and
Shareholder B regarding the material terms of, or pricing of Shares or
warrants to be issued in relation to financing involving the issuance of
Shares or warrants as contemplated by the second sentence of article 3.6,
shall be settled in a final and binding manner by an independent
investment bank who is not involved in the equity financing itself,
appointed jointly by the Shareholders A and B and if they do not agree as
to such appointment within 10 business days after the first request by
either Shareholder A or B, each Shareholder A and B has the right to
request the chairman of the Chamber of Commerce (Kamer van Koophandel )
in Amsterdam
E-87
<PAGE> 5
to appoint such independent internationally recognized investment bank,
which appointment shall then be binding on the Shareholders A and B. The
fees of the investment bank shall be borne by VersaPoint.
3.8 In case VersaPoint decides to raise additional equity, the Shareholders A
and B are at all times entitled, but not obliged, to maintain the
percentage of Shares held by them at that time, always provided that in
case VersaPoint decides to issue Shares in the context of a Listing or of
a Capital Market Funding, such Shareholder's right to subscribe for those
Shares shall be excluded.
3.9 The Shareholders do not have any funding obligations other than the
Committed Funding.
ARTICLE 4 -- ACCESSION TO THE JOINT VENTURE BY A PERSON
4.1 Without prejudice to article 4.2 and subject to the approval of
Shareholders A and B pursuant to article 7.2(c)(i), a Person may acquire
a shareholding in VersaPoint. The issue price shall be agreed upon
between the Shareholders A and B, but shall at any rate take into account
the cash and non-cash contribution by both VersaTel and NorthPoint and
the goodwill created by VersaPoint prior to such issue.
4.2 The approval of either Shareholder A or B as referred to in article 4.1
shall not be required in case VersaPoint decides to raise additional
equity and (i) the amount of equity requested is not taken up in full by
the Shareholders and (ii) the equity is raised in accordance with article
3.6. In such case, VersaPoint and each Shareholder A and B may invite a
Person to take up the equity not taken up by the Shareholders, provided
that such Person shall be reasonably acceptable to the other Shareholder
A or B and always subject to and without prejudice to article 4.3. Each
Shareholder A and B shall fully co-operate with the issuance of C-shares
to a Person pursuant to this article 4.2.
4.3 It will always be a condition to an issuance of Shares to a Person that
(i) the Shares issued to a Person shall be C-Shares and (ii) such Person
accedes to this Agreement (including the Non-disclosure Agreement) by
informing the Shareholders in writing that such Person is bound to the
provisions of this Agreement (including the Non-disclosure Agreement)
just like the Shareholders, and shall comply with all obligations and be
entitled to all rights conferred upon a Shareholder holding C-Shares
pursuant to this Agreement (including the Non-disclosure Agreement).
ARTICLE 5 -- SUPERVISORY BOARD
5.1 VersaPoint will have a Supervisory Board which shall advise the
Management Board of VersaPoint. The Supervisory Board shall consist of
one or more Supervisory Directors who are appointed, suspended and
dismissed by the General Meeting of Shareholders, all in accordance with
article 5.3.
5.2 Each Shareholder A and B holding at least 10% of the outstanding share
capital of VersaPoint (any C-Shares not taken into account) shall have
the right to nominate one Supervisory Director and an additional
Supervisory Director for each additional full 20% of the outstanding
share capital of VersaPoint (any C-Shares not taken into account) held by
such Shareholder.
5.3 The right to nominate the chairman of the Supervisory Board will
alternate between Shareholder A and Shareholder B every year as from the
date hereof, provided that a Shareholder A or B who holds less than 50%
of the outstanding share capital of VersaPoint (any C-Shares not taken
into account) shall not be entitled to nominate the chairman. VersaTel
shall have the right to nominate the chairman during the 10,5 months
period starting 31st March 2000 up to and including 15 February 2001 and
NorthPoint shall have the right to nominate the chairman during the
following 10,5 months period starting 16th February 2001 up to and
including 31st December 2001. Thereafter the right to nominate the
chairman shall alternate each following calendar year, starting with
VersaTel having the right to nominate the chairman during 2002.
5.4 The Supervisory Board decides by simple majority vote in a meeting where
a majority of the Supervisory Directors in office are present or
represented. In case of a deadlock, the chairman of the Supervisory Board
will cast the deciding vote. However, if the Supervisory Board does not
resolve to adopt the AOPB proposed by the CEO pursuant to Article 9.2 by
simple majority, the chairman cannot cast a deciding vote
E-88
<PAGE> 6
if the AOPB is as a whole materially inconsistent with the previously
adopted AOPB with respect to matters such as (but not limited to) target
markets, the number of co-location sites, the number of lines, revenue,
EBITDA and products offered, and the AOPB will then be referred to the
Shareholders A and B for approval pursuant to article 7.2
5.5 The Shareholders undertake vis-a-vis each other to vote in the General
Meeting of Shareholders -- and the Shareholders A and B shall vote in the
combined meeting of holders of A-Shares and B-Shares -- for the
Supervisory Director nominated for appointment by the Shareholders A and
B in accordance with the provisions of this Agreement.
5.6 The above provisions apply mutatis mutandis to a proposal for the
dismissal and the suspension of the Supervisory Director nominated by a
Shareholder A or B.
5.7 The remuneration for the Supervisory Directors who are not employed by a
Shareholder A or B or any of their group companies shall be up to 20.000
Euro per annum plus cost compensation and such Supervisory Directors
shall be eligible to receive options under the Employee Stock Option
Plan. Supervisory Directors who are employed by a Shareholder A or B or
any of their group companies shall be compensated only for costs.
ARTICLE 6 -- MANAGEMENT BOARD AND MANAGEMENT TEAM
6.1 The Management Board of VersaPoint is in charge of the day to day
operations of VersaPoint and its business in accordance with the terms of
this Agreement, the Commercial Services Agreement and the AOPB.
6.2 The Management Board shall consist of such number of Managing Directors
as shall be determined by the General Meeting of Shareholders. The
Shareholders hereby resolve to set up a Management Board consisting of
one Managing Director with the title of Chief Executive Officer.
6.3 The Managing Directors shall be appointed, suspended and dismissed by the
General Meeting of Shareholders.
6.4 If the performance of VersaPoint does not meet in all material respects
the targets set in the then current AOPB by the Supervisory Board for the
purposes of this article 6.4, for at least 2 consecutive quarters, each
Shareholder A and B has the right to request the dismissal of the CEO
within a period of 3 months after the end of any two such consecutive
quarters, and the other Shareholders shall then vote in favour of such a
proposal.
6.5 The CEO has full authority to hire and fire members of the management
team (who shall not be members of the Management Board) and other
employees of VersaPoint, including employees seconded by VersaTel or
NorthPoint.
ARTICLE 7 -- DECISION MAKING
7.1 All resolutions of the General Meeting of Shareholders shall be taken
with a simple majority of the votes cast, provided that a resolution
shall only be validly taken if a simple majority of the votes cast on the
A-Shares and B-shares in a meeting in which at least the majority of the
A-Shares and B-Shares is present or represented also votes in favour of
the resolution.
7.2 The following resolutions require the approval of each of the
Shareholders A and B:
a) The appointment, suspension and dismissal of the Managing Directors
(to the extent allowed under applicable law and if not so allowed,
with a maximum qualified majority as shall be allowed);
b) The adoption of the AOPB proposed by the CEO pursuant to Article 9.2
insofar as it is, as a whole, inconsistent with the previously
adopted AOPB with respect to matters such as (but not limited to)
target markets, the number of co-location sites, the number of
lines, revenue, EBITDA and products offered;
E-89
<PAGE> 7
c) The following decisions insofar as not contemplated by the AOPB:
i. issuance of Shares;
ii. the amendment of the Articles of Association;
iii. the dissolution or liquidation of VersaPoint;
iv. the declaration or payment of any dividend or the repurchase by
VersaPoint of any of its outstanding Shares;
v. approval of decisions of the Management Board pursuant to
article 7.4;
vi. the appointment of auditors of VersaPoint.
7.3 The decisions of the Management Board (either with respect to the
management of VersaPoint or in its capacity as authorised corporate body
of VersaPoint as shareholder of its subsidiaries) that require the prior
approval of the Supervisory Board are the following:
a) Adoption of the Employee Stock Option Plan and the distribution of
options pursuant thereto other than to Managing Directors;
b) Decisions not contemplated by the AOPB but otherwise relating to
matters within the scope of the Permitted Business involving an
amount not exceeding 5 million Euro individually or 15 million Euro
in the aggregate;
c) The following decisions contemplated by the AOPB:
i. To make any investment or other expenditure that is contemplated
by the AOPB and exceeding the amount of 5 million Euro;
ii. To grant a loan other than granting credit facilities in the
ordinary course of business, to (i) customers, and (ii)
Subsidiaries of VersaPoint;
iii. Taking out any loan or the entering into any other financial
arrangement for an amount exceeding 5 million Euro, other than
the withdrawal of any amounts pursuant to a credit facility for
which approval has already been obtained in accordance with
this provision;
iv. Entering into a suretyship, guarantee agreement or otherwise
accepting liability for the debts of a Person by VersaPoint or a
Subsidiary of VersaPoint;
v. To purchase, transfer, rent, lease or encumber assets involving
an amount exceeding 1 million Euro individually or 3 million
Euro in the aggregate;
vi. The entering into or terminating agreements regarding the
granting of licenses and/or transfer of intellectual property
rights owned or licensed by VersaPoint or its Subsidiaries
involving an amount exceeding 1 million Euro individually or 3
million Euro in the aggregate;
d) Unless the urgency of the matter requires immediate action and prior
approval of the Supervisory Board cannot reasonably be obtained, the
entering into legal proceedings or settlements involving an amount
exceeding 1 million Euro individually or 3 million Euro in the
aggregate;
e) Appointed or dismissal of member of the management board of a
Subsidiary of VersaPoint and determining or amending the employment
conditions of the members of the Management Team or the management
board of a Subsidiary of VersaPoint (subject to approval of the
relevant member of the Management Team or the management board of a
Subsidiary of VersaPoint);
f) The entering into or terminating of any long term agreements (other
than a joint venture or partnership) with a Person;
g) Other items as notified to the Management Board by the combined
meeting of holders of A-Shares and B-Shares.
E-90
<PAGE> 8
7.4 The decisions of the Management Board (either with respect to the
management of VersaPoint or in its capacity as authorised corporate body
of VersaPoint as shareholder of its Subsidiaries) that require the prior
approval of the General Meeting of Shareholders are the following:
a) Decisions not contemplated by the AOPB involving an amount exceeding
5 million Euro individually or 15 million Euro in the aggregate or
otherwise relating to matters outside the scope of the Permitted
Business;
b) the issuance of shares, delegation of the power to issue shares,
granting rights to acquire shares by a Subsidiary of VersaPoint;
c) the acquisition of its own shares, reducing its share capital, the
issuance of debt instruments by a Subsidiary of VersaPoint;
d) to file a petition for involuntary liquidation or suspension of
payments or similar status in another jurisdiction for VersaPoint or
a Subsidiary of VersaPoint;
e) the amendment of the articles of association of a Subsidiary of
VersaPoint;
f) the dissolution of a Subsidiary or otherwise causing a Subsidiary of
VersaPoint to cease to exist;
g) the entering into or terminating a joint-venture or partnership with
a Person;
h) entering into or terminating arrangements whereby VersaPoint or a
Subsidiary of VersaPoint takes over the management control of other
companies (not being VersaPoint or a Subsidiary of VersaPoint);
i) to acquire any interest (in whole or in part) in any company
(whether a Subsidiary or another company), or to expand the business
either by establishing a new branch or otherwise insofar as not
contemplated by the AOPB, by VersaPoint or a Subsidiary of
VersaPoint;
j) to dispose of any interest (in whole or in part) in any company
(whether a Subsidiary of VersaPoint or another company), by
VersaPoint or a Subsidiary of VersaPoint;
k) a material change in the business or strategy of VersaPoint or a
Subsidiary of VersaPoint insofar as not contemplated by the AOPB;
l) ceasing or disposing all or a substantial part of the business of
VersaPoint or a Subsidiary of VersaPoint;
m) to determine or amend the principle underlying the preparation of the
annual accounts of VersaPoint and its Subsidiaries;
n) the entering into, amending or terminating agreements or other
transactions of any kind by VersaPoint or a Subsidiary of VersaPoint
with a group company, a Shareholder or its group companies, a
Managing Director, Supervisory Director, or a company in which a
Shareholder, Managing Director or Supervisory Director has an
interest in the management board, supervisory board or as a
shareholder;
o) the transfer or encumbrance of shares and exercising voting rights
on shares in the capital of a Subsidiary of VersaPoint;
p) a proposal for a legal merger or split-up (demerger) of VersaPoint
or a Subsidiary of VersaPoint;
q) the distribution of options to Managing Directors pursuant to the
Employee Stock Option Plan.
7.5 In case the urgency of the matter requires immediate action and the prior
approval of the General Meeting of Shareholders or the Supervisory Board
for a decision of the Management Board required pursuant to article 7.3
and 7.4 cannot reasonably be obtained, the Management Board shall take
such action as is in the best interest of VersaPoint or VersaPoint and
its Subsidiaries taken as a whole. The Management Board shall inform the
General Meeting of Shareholders or the Supervisory Board as soon as
reasonably possible, at any rate in writing not later than 1 week after
such action has been taken.
E-91
<PAGE> 9
7.6 The Parties hereby agree that the procedures required in the Articles of
Association or this Agreement regarding the approval of decisions of the
Management Board also apply if it pertains to such decisions of (bodies
of) Subsidiaries of VersaPoint, such that the Supervisory Board or the
General Meeting of Shareholders shall be able to decide on any such
matters affecting a Subsidiary of VersaPoint in the same manner it would
be when such matter would affect VersaPoint. The Parties agree to use
their best endeavours to accomplish this, either by providing management
instructions to the management board of the Subsidiaries of VersaPoint,
by amending the articles of association of such Subsidiaries, or by any
other means possible under the laws applicable to the relevant
Subsidiary.
ARTICLE 8 -- INFORMATION; ANNUAL ACCOUNTS
8.1 Within 15 business days after the end of each quarter and within 21
business days after the end of each financial year, VersaPoint will
provide the Shareholders A and B with a consolidated profit and loss
statement/consolidated balance sheet (accompanied by sufficient notes)
and cash flow reports pertaining to the previous period, all accompanied
with explanatory notes from the Management Board.
8.2 Each Shareholder A and B has the right at all times to gather all
information about VersaPoint, its Subsidiaries and the enterprise they
operate, through an audit or otherwise, which such Shareholder deems
appropriate. VersaPoint shall co-operate with such Shareholder (and the
advisors it has engaged) in so doing, as well as grant access to its
site(s) and grant access to its accounts, books and records and those of
its Subsidiaries during normal business hours. Such Shareholder A or B
shall consult with the other Shareholder A or B about its findings, if
such other Shareholder A or B indicate their desire to do so. The costs
of the advisors engaged in this respect by the relevant Shareholder and
any costs incurred by VersaPoint in this respect (such as personnel costs
and VersaPoint accountant engaged for the investigation) shall be borne
by the Shareholder who incurred such costs.
8.3 The CEO shall submit to the Shareholders VersaPoint's (consolidated)
annual accounts for adoption to the General Meeting of Shareholders
within five months after the close if the financial year, along with a
"management letter" drawn up by VersaPoint's auditors, and including an
unqualified opinion by VersaPoint's auditors.
8.4 The Shareholders A and B shall agree upon the appointment of auditors of
VersaPoint as soon as possible after the date hereof pursuant to article
7.2 (c)(iv). The annual accounts of VersaPoint shall be drawn up in
accordance with generally accepted accounting principles in the United
States. The financial year of VersaPoint shall be equal to the calendar
year. The first financial year shall end on 31 December 2000.
ARTICLE 9 -- ANNUAL OPERATING PLAN AND BUDGET, BUSINESS PLAN
9.1 The AOPB for the present calendar year and for the two subsequent years
which follows as agreed between the Parties is attached hereto as
Schedule 4.
9.2 No later than on 1 October of every year, the CEO shall submit a proposal
for the Annual Operating Plan and Budget for the coming year and a
Business Plan for the two subsequent financial years which follow, to the
Supervisory Board for approval pursuant to article 5.4 If the AOPB is
neither approved by the Supervisory Board in accordance with article 5.4
nor by the Shareholders A and B in accordance with article 7.2, then the
AOPB then in force shall remain in force until such time as a revised
AOPB shall be approved in accordance with articles 5.4 and 7.2.
9.3 The business of VersaPoint shall be conducted in the best interest of
VersaPoint on sound profit-making commercial principles. The AOPB in
force from time to time shall be the basis for the operations of
VersaPoint.
ARTICLE 10 -- ENCUMBRANCE AND TRANSFER OF SHARES
10.1 The Shareholders A and B undertake vis-a-vis one another -- without
prejudice to the provisions in the offer scheme as included in the
Articles of Association -- not to transfer the legal and/or economic
ownership of the Shares held by them, with the exception of the extent to
which:
E-92
<PAGE> 10
(i) the transfer and conveyance pertains to the full -- in other words,
legal and economic -- ownership of the Shares transferred by the
relevant Shareholder;
and
(ii) the transfer and conveyance is permitted pursuant to this
Agreement;
and
(iii) the party to whom the relevant Shares in VersaPoint are being
transferred has informed VersaPoint and the non-transferring
Shareholder(s) in writing that same is bound to the provisions of
this Agreement just like the transferring Shareholder, and shall
comply with all obligations of the transferring Shareholder, in
return for which he can claim all rights of the transferring
Shareholder under this Agreement, without prejudice to article 2.3.
10.2 If Shareholder A or B receives and wishes to accept a bona fide offer by
a Person to purchase all or part of his Shares (the "Accepting
Shareholder") the Accepting Shareholder must first offer in writing its
Shares to the other Shareholder A or B for the same price per Share as
offered to the Accepting Shareholder by the Person and moreover also
under the same conditions (the "Offer"). Any non-cash part of the Offer
by the Person shall be valued in accordance with article 10.10. The other
Shareholder A or B may accept the Offer in writing within 45 days after
the date of the Offer. Alternatively, the other Shareholder A or B may
request the Accepting Shareholder in writing within 45 days after the
date of the Offer that the Accepting Shareholder also offers all or a
proportionate part of the Shares of such other Shareholder A or B to the
Person, for the same price per Share as offered to the Accepting
Shareholder and moreover also under the same conditions. If a Shareholder
A or B makes such a request, the Accepting Shareholder can only transfer
his Shares to the Person if the Person accepts to also acquire the Shares
offered and held by the other Shareholder A or B who make(s) the
aforementioned request.
10.3 Neither Shareholder A or B shall acquire Shares from any Person unless
prior to such acquisition the acquiring Shareholder A or B shall have
offered the other Shareholder A or B the opportunity to acquire a
proportionate part of the Shares proposed to be acquired on the same
terms. The first 3 sentences of article 10.2 apply mutatis mutandis to
such offer by a Person to sell its Shares.
10.4 Insofar as article 10.2 is in conflict with the offer scheme contained in
the Articles of Association, article 10.2 shall have priority over the
Articles of Association. The price referred to in article 12.6 of the
Articles of Association shall be the price per Share as offered to the
Accepting Shareholder by the Person as meant in article 10.2 of this
Agreement. The Shareholders A and B herewith waive any of their rights
under the Articles of Association insofar as these rights would be in
conflict with the rights and obligations of the Shareholders A and B
under article 10.2 of this Agreement.
10.5 For the purposes of article 10.2 a transfer of the majority of the shares
in a Shareholder A or B or of the shares in a Person (which for the
purposes of this article includes group companies of a Shareholder)
directly or indirectly holding shares in a Shareholder A or B, not being
VersaTel or Guarantor, shall be considered to be a transfer of Shares in
the capital of VersaPoint and article 10.2 shall apply mutatis mutandis,
i.e. such Shareholder shall then be considered to offer a proportionate
part of its Shares to the other Shareholder A or B. The price of the
Shares offered pursuant to this article 10.5 shall be calculated in
accordance with article 10.10.
10.6 Without prejudice to the other provisions in this Article 10, each
Shareholder A and B is entitled to freely transfer its Shares to a
Subsidiary. Article 10.2 does not apply to such a transfer. The
Shareholders shall co-operate with such a transfer at all times and agree
to waive their rights arising on this transfer under the provisions of
the offer scheme contained in the Articles of Association.
10.7 If a Shareholder becomes insolvent or goes bankrupt, that Shareholder is
obliged to offer its Shares to the other Shareholders, all in accordance
with the offer scheme contained in the Articles of Association.
10.8 In addition to article 10.7 and any other rights a Party may have, if a
Shareholder fails to perform a material obligation pursuant to this
Shareholders Agreement or the Commercial Services Agreement or
E-93
<PAGE> 11
the AOPB, a Party may request that a Shareholder offers its Shares to the
other Shareholder(s) -- or in the case of a default by Guarantor, that
Shareholder B offers its Shares -- and if the default is capable of being
remedied, such failure continues for 30 days after such Shareholder has
received a written default notice. The period of 30 days shall be
prolonged with a period reasonably necessary to remedy the default,
provided that (i) the remedy was initiated within the 30 days period and
(ii) the defaulting Shareholder shall -- at its cost -- do all that is
reasonably required to effect the remedy within the shortest possible
period of time.
10.9 The Articles of Association of VersaPoint provide that the Shares can be
encumbered with a right of usufruct or a right of pledge subject to the
approval of the General Meeting of Shareholders. The conferral of voting
rights is excluded. The Shareholders A and B undertake vis-a-vis one
another not to encumber or otherwise grant rights with respect to the
Shares they hold with a right of usufruct or right of pledge or in any
other way without the prior, written approval of the General Meeting of
Shareholders.
10.10 In the event the purchase price offered to the Accepting Shareholder in
article 10.2 includes any property other than cash ("Non-cash
Consideration"), such purchase price shall be deemed to be the amount of
any cash included in such purchase price plus the fair market value of the
Non-cash Consideration. The fair market value of the Non-cash
Consideration (the "Property Value") shall be agreed upon between the
Accepting Shareholder and the other Shareholder A or B within 10 business
days after receipt of the Offer. Failing such agreement, the Property
Value shall be determined by Appraisers, selected by each Shareholder A
and B, provided, that if a Shareholder A or B fails to appoint an
Appraiser within 10 days following the expiration of such 10 business day
period, the Property Value shall be determined by the Appraiser who
submitted an appraisal. If two Appraisers are selected, each Appraiser
shall submit to the Shareholders A and B their respective appraisals
within 30 days after their selection. If the discrepancy between the
Appraisals is equal to or greater than 5% of the higher appraisal, then
within 10 business days after receipt of the appraisals, a third Appraiser
mutually selected by the Shareholders A and B who caused the appraisals to
be submitted (or if they cannot so select then selected by the first two
Appraisers), shall choose between the two appraisals, which selection
shall constitute a final determination of the Property Value and shall be
binding upon the Shareholders A and B. If the discrepancy between the
appraisals of the first two Appraisers is less than 5% of the higher
appraisal, then the Property Value shall be the average of the two
appraisals. The fees of each of the first two Appraisers shall be borne by
the Shareholder which selected it and the fees of the third Appraiser, if
any, shall be borne equally by the Shareholders A and B. This article
10.10 shall also apply to any determination of the fair market value of
Shares for purposes of article 10.5.
ARTICLE 11 -- LISTING
11.1 The Parties endeavour that the Shares shall be listed on a stock exchange
("Listing") as soon as possible, but in any case within a time frame
agreed by the Shareholders A and B, anticipated to be within 18 months
after the date of this Agreement.
11.2 A Listing may be decided upon by the General Meeting of Shareholders. If
the General Meeting of Shareholders resolves to a Listing, all
Shareholders will co-operate in all the actions necessary for such
Listing. In the event of a Listing, each Shareholder shall be entitled
(but not obliged) to offer its Shares or in case of a partial listing,
part of its Shares pro rata to their respective holdings, on equal terms
and conditions, subject to any lock-up and other requirements by the
investment banker and the relevant Stock Exchange(s). The Shareholders
undertake vis-a-vis one another that they shall not proceed with a
listing of the Shares without a resolution by the General Meeting of
Shareholders to that effect and before all Shareholders have been given
the opportunity to participate in the Listing as set forth in this
article.
11.3 In the event the Shares have not been the subject of a Listing within 36
months of the date hereof, and an independent investment banker
reasonably believes that no such Listing will occur during the succeeding
12 months, then, at the request of Shareholder B, VersaPoint and
Shareholder A take all action necessary to convert VersaPoint to a B.V.
E-94
<PAGE> 12
ARTICLE 12 -- NON-COMPETE
12.1 Except as otherwise provided in this article 12, neither Party shall
compete, directly or indirectly, with the Permitted Business of
VersaPoint, provided that each Party will be permitted to resell
VersaPoint's services.
12.2 Notwithstanding 12.1, VersaTel has the right to be engaged in the
Permitted Business of VersaPoint in order to build out and operate MDF
sites and other DSL assets where VersaTel's engagement in such Permitted
Business is incidental to its other telecommunications operations (to be)
conducted in that local area, at its own cost and for its own benefit,
either through building out itself or through an acquisition under the
terms set forth in article 12.3 and 12.5.
12.3 If VersaTel wishes to build out and operate MDF sites and other DSL
assets as meant in article 12.2, then (i) VersaTel shall first request
VersaPoint to build out and operate MDF sites and other DSL assets as
required by VersaTel and (ii) if VersaPoint declines to do so, VersaTel
gives an order to VersaPoint to build the MDF sites and other DSL assets
at the cost and for the benefit to VersaTel, and (iii) if VersaPoint
lacks the resources to do so, VersaTel will build out and operate the MDF
sites and other DSL assets in a manner conforming to the specifications
set by VersaPoint utilizing VersaPoint's OSS and compatible with
VersaPoint's network platforms, back office and infrastructure, at
VersalTel's cost.
12.4 VersaPoint has at any time (subject to regulatory and contractual
limitations) the right -- and if VersaTel wishes to transfer the MDF
sites and other DSL assets to a Person, VersaPoint has a first right --
to acquire the MDF sites and other DSL assets built out and operated by
VersaTel pursuant to article 12.2 and 12.3 at any time at a Fair Market
Value. If VersaPoint wishes to build out its business into an MDF site
where VersaTel has a MDF site and other DSL assets built out pursuant to
the procedures set forth in article 12.2 and 12.3, VersaPoint has the
obligation to buy the MDF site and other DSL assets from VersaTel. If
VersaPoint wishes to acquire 80% or more of the MDF sites and other DSL
assets built out by VersaTel pursuant to article 12.2 and 12.3 in a
certain metropolitan area, VersaPoint shall have the obligation to
acquire all of those MDF sites and other DSL assets built out by VersaTel
in such metropolitan area, at a Fair Market Value. If VersaPoint wishes
to acquire less than 80% of the MDF sites and other DSL assets in an area
where VersaTel has already built out MDF sites and other DSL assets
pursuant to article 12.2 and 12.3, VersaPoint shall have the right to
acquire those MDF sites and other DSL assets from VersaTel, at a Fair
Market Value. No obligation pursuant to this article 12.4 exists if and
to the extent VersaPoint has already initiated the acquisition of MDF
sites itself and incurred substantial costs in that respect.
12.5 If VersaTel acquires MDF sites and other DSL assets through an
acquisition as meant in article 12.2, VersaTel shall offer those to
VersaPoint within 10 business days after closing of the acquisition, and
VersaPoint shall then (subject to regulatory and contractual limitations)
have the right to acquire all (but not some) of those MDF sites and other
DSL assets at a value to be mutually agreed upon. If VersaTel and
VersaPoint do not agree on the value within 45 days after the acquired
assets were offered by VersaTel to VersaPoint, VersaTel shall be entitled
to retain those MDF sites and other DSL assets acquired by it and either
operate them itself or sell it to a Person.
ARTICLE 13 -- SECRECY; PROPRIETARY INFORMATION
13.1 Each of the Parties shall observe confidentiality regarding the contents
of this Agreement, as well as regarding the substance and the course of
the negotiations held between the parties in that respect, except insofar
as there is a legal requirement to make statements, in which case the
statements shall only be made after mutual consultation. The Parties
undertake vis-a-vis VersaPoint to also observe confidentiality regarding
corporate information of VersaPoint which is made available to them. The
Shareholders are, however, free -- in consultation with VersaPoint -- to
provide relevant information pertaining to VersaPoint and its
subsidiaries to a possible buyer (who is bound by a confidentiality
agreement) of its Shares as referred to in Article 10 of this Agreement.
E-95
<PAGE> 13
13.2 None of the Parties shall make any statement or provide information to
third parties regarding the contents of this Agreement without prior
consultation with and the approval of the other Parties. Such applies
particularly to any public announcements, for example in the form of a
press release.
13.3 Each of the Parties shall keep confidential the Proprietary Information
of the other Party/Parties and VersaPoint in accordance with the terms of
the Non-disclosure Agreement.
ARTICLE 14 -- INDEMNIFICATION; GUARANTEE
14.1 Each Party agrees to indemnity and hold VersaPoint harmless from and
against all damages, losses or expenses suffered or paid by VersaPoint as
a result of or arising out of such Party's failure to perform a material
obligation pursuant to this Shareholders Agreement, the AOPB, the
Non-disclosure Agreement or the Commercial Services Agreement.
14.2 Guarantor guarantees the proper performance of NorthPoint's obligations
under this Agreement (including the obligations pursuant to article
14.3), the AOPB and Commercial Services Agreement and other related
agreements, and shall be jointly and severally liable for such
obligations as if it were its own obligations.
14.3 Without prejudice to the obligations of Guarantor pursuant to article
14.2, VersaTel and NorthPoint shall guarantee the proper performance by
each of their Subsidiaries, to which they have transferred all or part of
their Shares pursuant to article 10.6, of any obligations under this
Agreement, the AOPB and Commercial Services Agreement and other related
agreements.
ARTICLE 15 -- MISCELLANEOUS
15.1 This Agreement, together with the AOPB, Commercial Services Agreement and
the Non-disclosure Agreement contain all agreements which have been made
between the Parties regarding the subject matter hereof and replaces all
previous agreements concluded between the parties regarding the subject
matter of this Agreement, including the Proposed DSL Services 50:50 Joint
Venture Business & Operating Principles referred to in the recitals.
Notwithstanding the above, the Non-disclosure Agreement shall remain in
force and effect.
15.2 In case of any inconsistencies between this Agreement, the Articles of
Association, the AOPB, the Commercial Services Agreement and the
Non-disclosure Agreement, (i) this Agreement (including the
Non-disclosure Agreement incorporated herein by reference) will have
priority over all other agreements including the Articles of Association
(insofar as permit ted under applicable law) and (ii) the Commercial
Services Agreement shall have priority over the AOPB.
15.3 None of the Parties to this Agreement shall transfer its rights under
this Agreement to a Person without the written approval of the other
Parties, subject to the extent to which the transfer is explicitly
permitted pursuant to this Agreement.
15.4 If a provision in this Agreement is invalid (due to a conflict with a
legal requirement), the other provisions shall remain in full force. In
that case, the Parties shall replace the invalid provision with a
provision in accordance with the object and purport of this Agreement, so
that the new provision differs from the invalid provisions as little as
possible.
15.5 The Schedules to this Agreement form an integral part of this Agreement
and any reference to this Agreement shall also entail a reference to the
aforementioned annexes and vice versa
15.6 The headings used are for convenience of reference only and shall not be
taken into consideration in interpreting this Agreement.
ARTICLE 16 -- TERM
16.1 This Agreement remains in force for an unlimited period of time, but at
any rate terminates (i) with respect to a Shareholder when such
Shareholder no longer holds any Shares except for the obligations
E-96
<PAGE> 14
pursuant to article 12, which shall remain in force for a period of 1 year
after termination, (ii) if VersaPoint is dissolved, all without prejudice
to rights and obligations arisen prior to termination and articles 13 up
to and including 19 shall survive any termination of this Agreement, for
whatever reason.
16.2 In case of a Listing, this Agreement shall remain in force and the
Parties shall consult each other in good faith with a view to amending
such arti cles which are incompatible or inconsistent with a Listing and
the relevant Stock Exchange Rules and insofar as such articles cannot be
so amended to retain their essence, such articles shall cease to apply.
16.3 In case the Shareholders Agreement terminates vis-a-vis a Shareholder,
any commercial agreements among (amongst others) such Shareholder and
VersaPoint, will continue to be in force on the same terms and conditions
for a period of at least 3 years after such termination or as may be
provided in the relevant individual agreements.
ARTICLE 17 -- NOTIFICATIONS
All notifications to be given to a Party pursuant to this Agreement must
be effected by fax or e-mail and confirmed by registered letter and sent to the
fax numbers of e-mail addresses set forth below and the postal addresses shown
above or to such other fax number, e-mail or postal address as one of them has
informed the others of in writing (by registered letter) and if to VersaPoint,
with a copy to the other Shareholder(s).
ARTICLE 18 -- COSTS
All costs in connection with this Agreement and related agreements,
including the incorporation of VersaPoint will be borne by VersaPoint.
ARTICLE 19 -- APPLICABLE LAW AND DISPUTES
19.1 This Agreement is governed by Dutch law.
19.2 All disputes which may arise pursuant to the present Agreement or
pursuant to further agreements ensuing from this Agreement other than
disputes referred to in article 3.7, 10.10 and 12.2 shall be finally
settled by the competent Courts of the Netherlands.
Thus signed in Amsterdam on 8 March 2000
<TABLE>
<S> <C>
Bloestein
Raimatha
NorthPoint Communications Group, Inc.
- ----------------------------------- -------------------------------------
VersaTel Telecom International N.V.
Bloestein Raimatha
- ---------------------------------- -------------------------------------
NorthPoint B.V. i.o. VersaPoint N.V. i.o.
</TABLE>
E-97
<PAGE> 1
EXHIBIT 8
COMMERCIAL SERVICES AGREEMENT
This COMMERCIAL SERVICES AGREEMENT is entered into on this 8th day of
March, 2000, by and among NORTHPOINT COMMUNICATIONS GROUP, INC., a Delaware
corporation ("NorthPoint"), VERSATEL TELECOM INTERNATIONAL N.V., a Netherlands
company ("Versatel"), and VERSAPOINT N.V. I.O., a Netherlands company in
incorporation (each, a "Party" and collectively, the "Parties").
RECITALS
WHEREAS, NorthPoint and Versatel entered into that certain Shareholders
Agreement dated March 8, 2000, which provides, among other things, for
investment by NorthPoint and Versatel in VersaPoint, a Netherlands public
company with limited liability;
WHEREAS, Versatel, through its status as a competitive local exchange
carrier ("CLEC"), has entered into agreements with incumbent local exchange
carriers ("PTTs") in the Netherlands and Germany for the acquisition of
collocation space in PTT facilities and the ordering and provisioning of
unbundled PTT loops;
WHEREAS, Versatel provides telecommunications services, including
transport services and has expertise in interfacing with European
telecommunications regulatory authorities;
WHEREAS, NorthPoint has expertise in engineering digital subscriber line
("DSL") infrastructure and operational processes and in marketing and selling
DSL services; and
WHEREAS, Versatel and NorthPoint have agreed to provide VersaPoint with
the necessary telecommunications infrastructure and management assistance and
expertise described herein to deploy facilities-based DSL services throughout
Europe.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the Parties hereby agree as follows:
1. DIGITAL LOOPS, COLLOCATION AND TRANSPORT
1.1. UNBUNDLED LOOP ORDERING. Versatel will provide to VersaPoint, through a
license, sublicense, transfer or assignment or other means as appropriate
under the circumstances, the proprietary PTT order entry systems,
Technology (as defined below in 2.1), user ID and login passwords, as
well as any other technology and information that is necessary for
VersaPoint to order unbundled digital loops from the applicable PTT as a
representative of Versatel.
1.2. LOOPS. In cases where Versatel wants to offer non-DSL-services over
unbundled loops, and subject to regulatory and contractual restrictions,
VersaPoint will order these loops on behalf of Versatel. Versatel and
VersaPoint will agree on a process to hand over these loops to Versatel
in order to ensure a smooth service delivery by Versatel.
1.3. MDF'S. Schedule A hereto sets forth (i) all of the PTT central offices
("COs") in which Versatel or its subsidiaries is currently leasing space
from an PTT, and the number and size of cages available in each listed CO
available for VersaPoint's use, and (ii) the number of racks in such
cages available for VersaPoint's use (or the amount of space for racks,
if VersaPoint needs to build the racks itself). Such racks (or space)
shall be dedicated to the use of VersaPoint for the duration of the term
of this Agreement.
1.4. TRANSPORT AND TRANSMISSION SERVICES. VersaTel shall make transport and
transmission services over its network available to VersaPoint on terms
at least as favorable as the most favorable terms offered to any
third-party customers. VersaPoint will have the obligation to use
VersaTel's transport and transmission services wherever possible,
provided such transport and transmission services are competitive in
price, quality, and delivery time.
E-98
<PAGE> 2
1.5. COLOCATION AND DATA CENTERS. VersaTel shall make colocation and/or data
centers available to VersaPoint on terms at least as favorable as the
most favorable terms offered to any third-party customers.VersaPoint will
have the obligation to use VersaTel's colocation and/or data centers
wherever possible, provided such colocation and/or data centers are
competitive in price, quality, and delivery time.
2. DSL EQUIPMENT AND TECHNOLOGY.
2.1. TECHNOLOGY. NorthPoint shall provide VersaPoint with the technology
listed on Schedule B. For purposes of this Agreement, "Technology" means
any hardware, software, middleware, trade secrets, know-how and other
intellectual property, including application software and source code,
used to plan, engineer, implement and provide DSL services including
either Party's own systems (including any upgrades) relating to: order or
geographical pre-qualification, order placement, entry/order management,
network management, alarm surveillance, traffic management, testing,
service activation, IP address administration, supplier/buyer order
interfaces, security, facility management, trouble ticketing and billing.
3. VENDOR CONTRACTS
3.1. VERSATEL. Versatel shall make commercially reasonable efforts to make
the benefit of its agreements with third party vendors, contractors and
PTTs available to VersaPoint on an affiliate basis, subject to
VersaPoint's agreement to the terms of such contracts.
3.2. NORTHPOINT. NorthPoint shall make commercially reasonable efforts to
make the benefit of its agreements with third party vendors and
contractors available to VersaPoint on an affiliate basis, subject to
VersaPoint's agreement to the terms of such contracts.
4. PERSONNEL SERVICES; SECONDMENT. The Parties agree that each of Versatel
and NorthPoint shall assist VersaPoint as set forth herein primarily
utilizing consulting services provided through their respective
companies. Organization of personnel shall primarily be done in
accordance with the AOPB (paragraph 10). Secondment of Versatel Employees
and NorthPoint Employees shall be provided only as agreed to hereunder.
4.1. SECONDMENT OF EMPLOYEES BY VERSATEL.
4.1.1 Versatel shall second to VersaPoint -- and shall make best efforts to do
so by March 31, 2000 -- an interim Chief Operating Officer, interim Chief
Financial Officer, interim Human Resources Director, interim Regulatory
Director, as well as a minimum of fifteen other employees, such
obligation to extend for a maximum period of 12 months. All Versatel
Employees seconded to VersaPoint shall remain employees of Versatel and
render services exclusively to VersaPoint during the term of their
secondment.
4.1.2 VersaPoint shall offer each Versatel Employee an initial assignment with
duties and responsibilities substantially comparable to such employee's
assignment with Versatel, or as otherwise acceptable to such employee.
4.1.3 Each Versatel Employee's secondment to VersaPoint shall be terminable at
will by VersaPoint, without prejudice to Versatel's obligations pursuant
to 4.1.1. Termination of such employee's secondment to VersaPoint only
serves to end the secondment, and does not terminate such employee's
employment with Versatel.
4.1.4 VersaPoint may require Versatel Employees to sign and comply with
appropriate agreements assigning inventions and other Proprietary
Information (as defined in the Shareholders Agreement) to VersaPoint and
otherwise protecting the Proprietary Information of VersaPoint, without
altering in any way the obligations such employee has to protect the
Proprietary Information of Versatel.
4.1.5 VersaPoint shall reimburse Versatel for the Versatel Employees at the
same base salary paid to such employee as of his or her assignment date
to VersaPoint. Versatel Employees will continue to be paid their
E-99
<PAGE> 3
salaries through the regular Versatel payroll, and Versatel will bill VersaPoint
for such salaries and other costs referred to in 4.5 on a monthly basis, to be
paid in Dutch funds.
4.1.6 Versatel Employees may remain at VersaPoint (subject to termination at
will).
4.2. SECONDMENT OF EMPLOYEES BY NORTHPOINT.
4.2.1 NorthPoint shall second to VersaPoint -- and shall make best efforts to
do so by March 31, 2000 -- an interim Chief Executive Officer, interim
Chief Information Officer, as well as an interim Technical Director and
an interim Commercial Director as well as a minimum of fifteen other
employees, such obligation to extend for a maximum period of 12 months.
All NorthPoint Employees seconded to VersaPoint shall remain employees of
NorthPoint and render services exclusively to VersaPoint during the term
of their secondment.
4.2.2 VersaPoint shall offer each NorthPoint Employee an initial assignment
with duties and responsibilities substantially comparable to such
employee's assignment with NorthPoint, or as otherwise acceptable to such
employee.
4.2.3 Each NorthPoint Employee's secondment to VersaPoint shall be terminable
at will by VersaPoint without prejudice to NorthPoint's obligations
pursuant to 4.2.1. Termination of such employee's secondment to
VersaPoint only serves to end the secondment, and does not terminate such
employee's employment with NorthPoint.
4.2.4 VersaPoint may require NorthPoint Employees to sign and comply with
appropriate agreements assigning inventions and other Proprietary
Information (as defined in the Shareholders Agreement) to VersaPoint and
otherwise protecting the Proprietary Information of VersaPoint, without
altering in any way the obligations such employee has to protect the
Proprietary Information of NorthPoint.
4.2.5 VersaPoint shall reimburse NorthPoint for the NorthPoint Employees at the
same base salary paid to such employee as of his or her assignment date
to VersaPoint. NorthPoint Employees will continue to be paid their
salaries through the regular NorthPoint payroll, and NorthPoint will bill
VersaPoint for such salaries and other costs referred to in 4.5 on a
monthly basis, to be paid in Dutch funds.
4.2.6 NorthPoint Employees may remain at VersaPoint (subject to termination at
will).
4.3. APPLICABLE EMPLOYMENT POLICIES AND PROCEDURES. During secondment to
VersaPoint, each Versatel Employee and NorthPoint Employee (collectively,
"Employees") shall be bound by, and treated in accordance with, the
applicable rules, policies, procedures, regulations and reporting
structure established by VersaPoint, unless otherwise agreed in writing
by VersaPoint and Versatel or NorthPoint, as applicable. If VersaPoint
determines that an Employee seconded to VersaPoint is not performing
satisfactorily or has materially violated any such rules, policies,
procedures or regulations, VersaPoint may take appropriate measures,
including the termination and replacement, subject to the period of the
secondment obligations as set forth in 4.1.1 and 4.2.1, of such Employee.
4.4. CONTINUATION OF EMPLOYEE BENEFITS. Employees seconded to VersaPoint
shall continue to remain eligible for and participate in all Versatel or
NorthPoint (as applicable) employee benefit plans, retirement plans,
incentive plans and arrangements, fringe benefits and all other benefits
provided by Versatel or NorthPoint US, as applicable. Accordingly,
Employees shall not be eligible for or participate in any employee
benefit plans, retirement plans, incentive plans or arrangements, fringe
benefits or any other benefits provided by VersaPoint to its employees.
4.5. FEES FOR SERVICES BY EMPLOYEES. VersaPoint shall pay each of Versatel
and NorthPoint for services rendered by Employees to VersaPoint in
amounts sufficient to reimburse Versatel and NorthPoint, as applicable,
for: gross salaries, employer-paid taxes and assessments, benefit plans,
retirement plans, incentive plans and arrangements, fringe benefits and
all other benefits previously disclosed to VersaPoint or generally
applicable to Employees of Versatel or NorthPoint as the case may be, to
the extent that Employees are participants or otherwise entitled thereto
under their employment contract with Versatel or NorthPoint as the case
may be, foreign service allowances, if any, additional travel expenses,
relocation
E-100
<PAGE> 4
costs and housing allowances to the extent that Employees are offered such
compensation by VersaPoint in view of their secondment, except for
benefits under equity-based compensation plans including the Versatel
Employee Stock Option Plan, the NorthPoint US 1999 Employee Stock Purchase
Plan, the NorthPoint US 1999 Stock Plan and the NorthPoint US 1997 Stock
Option Plan. Each of Versatel and NorthPoint shall invoice VersaPoint
monthly for the fees set forth in this Section 4.5.
4.6. BENEFITS AND PAYMENTS REQUIRED BY LAW.
4.6.1 VersaPoint shall obtain and maintain at its expense and for the benefit of
Employees all employment-related insurance required by law, including
without limitation workers' compensation and unemployment compensation
coverage, and shall timely pay all employment-related taxes, social
premiums and assessments to the extent required by law.
4.6.2 VersaPoint shall comply with all national, provincial and local employment
laws with regard to its employment of Employees.
4.7. DISAVOWAL OF REPRESENTATION. Unless specifically so empowered in
writing, no Employee while seconded shall serve in any manner as, or be
deemed to be, the agent or legal representative of NorthPoint in the case
of a NorthPoint Employee, or of Versatel in the case of a Versatel
Employee, or any affiliate of NorthPoint or Versatel other than
VersaPoint.
4.8. DISCLAIMER OF WARRANTY; INDEMNIFICATION. No guarantee or warranty of any
nature is extended by Versatel or NorthPoint with respect to the
management, technical or other services to be furnished to VersaPoint by
any Employee hereunder. VersaPoint shall hold each of Versatel, its
affiliates and Employees and NorthPoint, its affiliates and Employees
harmless from and against any and all third party claims and liabilities
of any kind whatsoever arising out of or allegedly resulting from the
furnishing of any services hereunder.
5. PROPRIETARY INFORMATION.
5.1. Proprietary Information developed by (employees of) VersaPoint will be
owned by VersaPoint, even it the underlying Proprietary Information was
contributed by one of the Parties Each of the Shareholders shall have the
right to use the Proprietary Information developed by VersaPoint, subject
to a licence agreement and payment of a licence on market terms to
VersaPoint and, if the underlying Proprietary Information was contributed
by another Party, to such Party.
5.2. Each of the Parties herewith grants VersaPoint a perpetual licence to the
use of the Proprietary Information provided by it to VersaPoint pursuant
to the Commercial Services Agreement. As soon as a Party no longer holds
any Shares, VersaPoint shall enter into a licence agreement on market
terms, pursuant to which VersaPoint shall pay a royalty for the use of the
Proprietary Information contributed by such Party.
5.3. VersaTel herewith grants VersaPoint a royalty free licence to the use of
"Versa" as part of its corporate name. The licence shall automatically
terminate as soon as VersaTel no longer holds any Shares. Upon termination
of the licence, VersaPoint shall immediately cease the use of "Versa" as a
trade name or otherwise and shall immediately take all action necessary to
amend its corporate name so that it no longer includes "Versa" or a
similar term.
6. BILLING.
6.1. Except as otherwise set forth herein or as otherwise mutually agreed by
the Parties, each of NorthPoint and Versatel will bill VersaPoint for all
fees for services, equipment and other charges contemplated by this
Agreement and the agreements referenced herein according to the terms of
this Section 5. Each of NorthPoint and Versatel will mail one or more
statements of accounts to VersaPoint on or about the first day of each
month for services, equipment and other charges incurred by VersaPoint in
the previous month. Any and all such statements of accounts shall be
payable by VersaPoint within thirty (30) days of receipt. If such
statements of accounts are not paid by VersaPoint on or prior to the due
date, late fees
E-101
<PAGE> 5
shall accrue and become immediately due and payable on the outstanding
unpaid balance at the rate of 1.5 percent per month.
6.2. In the event that a billing dispute occurs concerning any charges billed
to VersaPoint, VersaPoint must pay the undisputed portion of the invoice
in full and submit a documented claim for the disputed amount. VersaPoint
shall submit all documentation to NorthPoint or Versatel as may reasonably
be required to support the claim. All claims must be submitted to
NorthPoint or Versatel within sixty (60) days of receipt of an invoice for
the disputed charges. If VersaPoint does not submit a claim as stated
above, VersaPoint waives all rights to filing a claim thereafter. Unless
disputed, the invoice shall be deemed to be correct and payable in full by
VersaPoint. No interest or penalties will be due with respect to the
amount withheld by VersaPoint only if and to the extent the dispute is
resolved in favour of VersaPoint.
7. TERM AND TERMINATION.
7.1. TERM. The initial term of this Agreement (the "Term") shall be for ten
(10) years from the date hereof. Thereafter, this Agreement shall
automatically renew for successive one-year periods unless a Party
notifies the other Parties in writing at least sixty (60) days prior to
the end of the Term, or any subsequent year in which this Agreement
remains in effect, that it intends to terminate this Agreement.
Termination of this Agreement by one Party shall not act to terminate
this Agreement as it relates to the remaining Parties.
7.2. TERMINATION. This Agreement may be terminated:
7.2.1 By a non-breaching Party if another Party commits a material breach of
this Agreement that materially adversely affects VersaPoint's business,
financial condition or operations, and such breach is not cured within
ninety (90) days of notice of breach;
7.2.2 By mutual written agreement of all Parties hereto;
7.2.3 By a Party upon such Party ceasing to be a Shareholder (as defined in the
Shareholders Agreement)
7.3. COOPERATION. If any Party terminates this Agreement, then such
terminating Party shall continue to provide all commercially reasonable
assistance required to maintain VersaPoint's DSL services without
disruption, and such cooperation shall continue under the terms of this
Agreement for a minimum of three (3) years after the date of termination.
7.4. EFFECT OF TERMINATION. If this Agreement is terminated as permitted by
Section 6.2, such termination shall be without liability for any Party
(or any partner, stockholder, director, officer, employee, agent,
consultant or representative of such Party) to any other Party to this
Agreement, provided that if such termination results from a material
breach of this Agreement, such breaching Party shall be fully liable for
any and all Losses incurred or suffered by the other Party(ies) as a
result of such breach. "Losses" means any losses, damages, liabilities,
costs and expenses, including, without limitation, reasonable attorneys'
fees and expenses, arising out of a material breach of this Agreement.
7.5. SURVIVAL. The terms and provisions contained in this Agreement that by
their sense and context are intended to survive the performance thereof
by the parties hereto shall survive the completion of performance and
termination of this Agreement, including, without limitation, the making
of any and all payments due hereunder.
8. MISCELLANEOUS.
SUBSIDIARIES. The obligations of each of the Parties hereto may be
satisfied by a subsidiary of such Party, provided that such Party shall ensure
that (i) its subsidiary is bound by and performs the obligations pursuant hereto
and (ii) such Party guarantees the proper performance by such Subsidiary of its
obligations pursuant hereto.
FORCE MAJEURE. No Party shall be responsible for any failure to perform
any obligation or provide service hereunder to the extent such failure is caused
by any (i) act of God, (ii) war, riot or civil commotion,
E-102
<PAGE> 6
(iii) governmental acts or directives, strikes, work stoppage, or equipment or
facilities shortages experienced by providers of telecommunications services
generally and not targeted or directed at a Party specifically, or (iv) other
similar force beyond such Party's reasonable control.
AUDIT RIGHT. Each Party shall accurately keep all usual and proper books
of account and records and all usual and proper entries and other documentation
relating to the charges by one Party to any other Party. No more frequently than
once annually during the Term, including as extended or renegotiated, and during
the twelve (12)-month period immediately following the end of the Term, whether
by natural expiration or termination, each Party shall have the right to cause
an audit and inspection to be made of such books and records, entries and
documentation of another Party as they relate to such Party's invoicing of the
auditing Party for services provided pursuant to this Agreement, and any
supporting documentation thereof, to determine whether such Party has accurately
complied with its obligations under this Agreement. Such audit shall be
conducted by an independent, third party auditor from a reputable,
nationally-recognized accounting firm, selected by mutual agreement of the
auditing and audited Parties. All information disclosed and/or provided to such
auditor in connection with such audit will be subject to an appropriate prior
written confidentiality agreement. The auditor shall keep confidential the
identity and the specific terms of any agreements of all other VersaPoint
customers. Any such audit shall be conducted, to the extent possible, in a
manner that does not interfere with the ordinary business operations of the
audited Party. Any such audit shall be paid for by the auditing Party un less
material discrepancies are disclosed in the auditor's report. "Material" shall
mean a five percent (5%) or greater discrepancy in the reported charges. If
material discrepancies are disclosed, the audited Party shall pay for the costs
associated with the audit, in addition to the amount of the discrepancy paid by
the audited Party.
APPLICABILITY OF CERTAIN ARTICLES SHAREHOLDERS AGREEMENT. Articles 14,
15, 17, 18 and 19 of the Shareholders Agreement shall be equally applicable to
this Commercial Services Agreement and such articles shall be considered to be
incorporated herein by reference.
E-103
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Commercial
Services Agreement as of the date set forth in the first paragraph hereof.
NORTHPOINT COMMUNICATIONS GROUP, INC.
By: Bloestein
----------------------------------------------------
Name: Herman Bloestein
Title: Chief Development Officer
VERSATEL TELECOM INTERNATIONAL, N.V.
By: Raimatha
----------------------------------------------------
Name: Raj Raimatha
Title: CFO
VERSAPOINT N.V. I.O.
By: Raimatha
----------------------------------------------------
Name: Raj Raimatha
Title: CFO
E-104
<PAGE> 8
SCHEDULE A: COLO'S TO BE TRANSFERRED TO JV.
<TABLE>
<CAPTION>
NETHERLANDS:
- ------------
<S> <C>
Rotterdam: Middelwatering
Centre
Terbregge
Utrecht: Centre
Amsterdam: Centre
East
West
Amstelveen
Bijlmermeer
Diemen
Slotervaart
Sloterdijk
Buitenveldert
Zuid (ordered and
agreed but issuing
delayed by KPN)
Zaandam: Centre
</TABLE>
<TABLE>
<CAPTION>
GERMANY:
- --------
<S> <C>
Neuheim
Husten
Sundern
Arnsberg
Bo: Dorstener Strasse
Hustadring
Marderweg
Wallburgstrasse
Marktstrasse
Stiepeler Strasse
Hermanweg
Willi-Brandt-Platz
Bruchspitze
Schwerte: Kantstrasse
Garbepfad
Holzenerweg
Recklinghausen: Am Steiter
Grulibadstrasse
Dortmund: West
Sud
Ost
Hafen
Korne
Horde
Brakel
Eichlinghofen
Dortsfeld
Nord
Gelsenkirchen: Mitte
B1:
Herne: Mitte
Holsterhausen
Wanne Eickel
Wanne
Broken:
</TABLE>
Fair market value agreed by partners to be 15 million Euro for total Netherlands
and German Colo's.
E-105
<PAGE> 9
AMENDMENT TO THE ARTICLES OF ASSOCIATION
EB/EL/687657/5432.STE 22-12-99 2
On this day, the twenty-second of December nineteen hundred and ninety-nine,
appeared before me, Johannes Henderikus Maria Carlier, civil law notary in
Amsterdam:
Eveline Katrien Elisabeth Labohm, care of Stibbe Simont Monahan Duhot, 1077 ZZ
Amsterdam, Strawinskylaan 2001, born in Eindhoven on the eighth day of April
nineteen hundred and seventy.
The appearing person declared:
- that of the listed public company: VersaTel Telecom International N.V.,
with official seat in Amsterdam, having its office at Paalbergweg 36,
1105 BV Amsterdam, and registered with the Trade Register under number
33.272606, the articles of association were last amended by deed
executed on the twenty-third day of July nineteen hundred and
ninety-nine before J.H.M. Carlier, civil law notary in Amsterdam, in
respect of which amendment the Minister of Justice on the twenty-second
day of July nineteen hundred and ninety-nine under number N.V. 538.638
has advised that no objections have been apparent;
- that the general meeting of shareholders of the company resolved to
amend the articles of association of the company partially;
- that furthermore a decision was made to authorize the appearing person
to execute the deed of amendment to the articles of association;
- that the resolutions mentioned above are evidenced by a copy of the
minutes of the meeting mentioned above which copy has been annexed to
this deed.
Consequently the appearing person declared that the articles of association of
the company are hereby amended as follows:
Article 4 paragraph 1 will read as follows:
4. 1. The authorized capital of the company amounts to eighteen million five
hundred thousand Dutch Guilders five Cents (NLG 18,500,000.05) and is
divided into:
- one hundred seventy-five million (175,000,000) ordinary shares;
- twenty million (20,000,000) preference-A shares;
- one hundred seventy-five million (175,000,000) preference-B shares, and
- one (1) priority share,
each share having a nominal value of five Dutch Cents (NLG 0.05).
The final provision will be replaced by a new final provisions, which will read
as follows:
Until the day that since the present amendment to the articles of
association two years have passed, the board of management under prior approval
of the supervisory board is entitled to issue both the ordinary shares as well
as the preference shares A and B and to grant rights to subscribe for both
ordinary and preference shares A and B, to a maximum as defined in article 4
paragraph 1 of the articles, as well as to restrict or exclude with respect to
an issue of ordinary shares or the granting of rights to subscribe for ordinary
shares the pre-emptive right of holders of ordinary shares.
Finally the appearing person declared:
- that the current issued capital amounts to three million eight hundred
eight thousand seven hundred forty-nine Dutch Guilders thirty Dutch
Cents (NLG 3,808,749.30);
- that on the twentieth day of December nineteen hundred and ninety-nine
under number N.V. 538.638 the Minister of Justice has -- according to
the certificate attached to this deed -- advised that no objections to
the present amendment to the articles of association have been
apparent.
E-106
<PAGE> 10
This deed was executed today in Amsterdam.
The substance of this deed was stated and explained to the appearing
person. The appearing person declared not to require a full reading of the deed,
to have taken note of the contents of this deed and to consent to it.
Subsequently, this deed was read out in a limited form, and immediately
thereafter signed by the appearing person and myself, civil-law notary, at ten
hours fifty minutes ante meridiem.
E-107
