Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-43938
[LOGO]
OFFER TO EXCHANGE
any and all outstanding
11 1/4% Senior Notes due 2010
(Euro 300,000,000 aggregate principal amount outstanding)
for
11 1/4% Senior Notes due 2010
of
VersaTel Telecom International N.V.
TERMS OF THE EXCHANGE OFFER
We are offering to exchange your original 11 1/4% Senior Notes due
2010 for new 11 1/4% Senior Notes due 2010.
o If you decide to participate in the exchange offer, the
exchange notes will be issued to you in the same principal
amount as your original notes. The exchange notes will have
substantially the same terms as your original notes, except
that the exchange notes will be registered and will be able to
be resold without complying with the registration requirements
of the Securities Act of 1933. Any original notes not
exchanged will continue to have restrictions on their
transfer.
o The new notes will be listed of the Official Market of
Amsterdam Exchanges N.V.'s stock market.
o We will exchange all of your original notes that you validly
tender and do not withdraw.
o You may withdraw tenders of your original notes at any time
before the expiration of the exchange offer.
o The exchange offer expires at 5.00 p.m., London time, on
September 20, 2000, unless we extend the exchange offer.
o We will not receive any proceeds form the exchange offer.
o The exchange of your original notes into exchange notes will
not be a taxable exchange for U.S. federal income tax
purposes.
Neither the Securities and Exchange Commission nor any state
securities commission has approved the exchange notes or determined that this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
This investment involves risks. We urge you to read the "Risk
Factors" section of this prospectus beginning on page 20 which describes
specific risks associated with the exchange offer.
----------------------------
The date of this prospectus is August 21, 2000.
<PAGE>
TABLE OF CONTENTS
Page
Incorporation of Certain Documents by Reference...............................3
Service of Process and Enforceability of Civil Liabilities....................4
Presentation of Information...................................................4
Prospectus Summary............................................................6
Risk Factors.................................................................20
Use of Proceeds..............................................................35
The Exchange Offer...........................................................36
Capitalization...............................................................46
Description of The Exchange Notes............................................47
Book-Entry...................................................................88
Taxation.....................................................................94
Plan of Distribution........................................................103
Legal Matters...............................................................104
Experts.....................................................................104
Where you can Find More Information.........................................105
General Listing Information.................................................105
Appendix A - Financial Statements of Svianed................................A-1
Appendix B - Financial Statements of VEW Telnet.............................B-1
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by us with the Securities and
Exchange Commission are incorporated by reference into this prospectus:
o VersaTel's Annual Report on Form 20-F/A for the year ended
December 31, 1999 filed on March 28, 2000; and
o 6-K Filing - Quarterly Report on Form 6-K for the quarterly
period ended June 30, 2000 filed on August 14, 2000.
All documents that we file under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of this prospectus and
before the termination of the exchange offer will be automatically incorporated
by reference into this prospectus and be a part of this prospectus. Later
statements in this prospectus or in documents incorporated by reference modify
or replace earlier statements on the same subject.
This prospectus incorporates by reference documents that are not
presented in this prospectus or delivered with this prospectus. We will provide
these documents without charge to each person to whom this prospectus is
delivered upon the request of such person to: Investor Relations, VersaTel
Telecom International N.V., Hullenbergweg 101, 1101 CL Amsterdam- Zuidoost, The
Netherlands, telephone: +31-20-750 1051, facsimile: +31-20-750 1018. In order to
ensure timely delivery of documents, any request should be made no less than
five days prior to the expiration of the exchange offer.
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SERVICE OF PROCESS AND ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of The Netherlands and
substantially all of our assets are located outside the United States. In
addition, most of our management board, supervisory board and executive officers
are not residents of the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon such
persons or to enforce against such persons or VersaTel judgments of U.S. courts
predicated upon civil liabilities under the U.S. federal securities laws. The
United States and The Netherlands do not have a treaty providing for the
reciprocal recognition and enforcement of judgments, so U.S. judgments are not
directly enforceable in The Netherlands. However, a final judgment for the
payment of money obtained in a U.S. court, which is not subject to appeal or any
other means of contestation and is enforceable in the United States, would in
principle be upheld by a Netherlands court of competent jurisdiction when asked
to render a judgment in accordance with such final judgment by a U.S. court,
without substantive re-examination or relitigation on the merits of the subject
matter thereof; provided that such judgment has been rendered by a court of
competent jurisdiction, in accordance with rules of proper procedure, that it
has not been rendered in proceedings of a penal or revenue nature and that its
content and possible enforcement are not contrary to public policy or public
order of The Netherlands, and that such judgment does not concern the
recognition of punitive damages, which have no bearing on the amount of damages
incurred. Notwithstanding the foregoing, there can be no assurance that U.S.
investors will be able to enforce against VersaTel, or executive officers or
members of the management or supervisory boards, or certain experts named herein
who are residents of The Netherlands or other countries outside the United
States, any judgments in civil and commercial matters, including judgments under
the federal securities laws. VersaTel has been advised by its Netherlands
counsel, Stibbe Simont Monahan Duhot, that, there is doubt as to whether a
Netherlands court would impose civil liability on VersaTel, or on its executive
officers or on the members of the management or supervisory boards in an
original action predicated solely upon the federal securities laws of the United
States brought in a court of competent jurisdiction in The Netherlands against
VersaTel or such members.
We are organized under the laws of The Netherlands and its
executive offices are currently located at Hullenbergweg 101, 1101 CL
Amsterdam-Zuidoost, The Netherlands, and our telephone number is
+31-20-430-4300.
PRESENTATION OF INFORMATION
We publish our historical financial statements in Dutch guilders.
As of January 1, 2000, we prepare our financial statements in euros. Our
financial statements for 2000 contain a column converting euro amounts to U.S.
Dollars for comparison purposes. Our share capital has been redenominated in
euros in 2000.
In this prospectus,
o references to "U.S. dollars" or "$" are references to the
currency of the United States,
o references to "Dutch guilders" or "NLG" are references to the
currency of The Netherlands,
o references to "Deutsche marks" or "DEM" are references to the
currency of Germany, and
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o references to euros are references to the currency introduced
at the start of the third stage of Economic and Monetary Union
pursuant to the Treaty establishing the European Economic
Community, as amended by the Treaty on European Union.
o Solely for the convenience of the reader, this prospectus
contains translations of certain Dutch guilder amounts into
U.S. dollars at specified rates. These translations should not
be construed as representations that the Dutch guilder amounts
actually represent such U.S. dollar amounts or could be
converted into U.S. dollars at the rate indicated or at any
other rate.
o To obtain a current formulation of the value of Dutch guilders
in U.S. dollars, investors are required first to convert the
currency into euro at the fixed conversion rate of NLG 2.20371
per Euro 1.00 adopted by the Netherlands as of January 1, 1999
in connection with the implementation of the third stage of
Economic and Monetary Union. Investors should then convert the
resulting euro amount into U.S. dollars at the Noon Buying
Rate for euro. On August 14, 2000, the Noon Buying Rate for
euro was $0.90 per Euro 1.00.
o Unless otherwise indicated, the translations of Dutch guilders
into U.S. dollars have been made at NLG 2.44 per $1.00, based
on the noon buying rate in the City of New York for cable
transfers in euro as certified for customs purposes by the
Federal Reserve Bank of New York on June 30, 2000.
o Solely for the convenience of the reader, this prospectus
contains translations of certain Deutsche marks amounts into
Dutch guilders at specified rates. These translations should
not be construed as representations that the Deutsche marks
amounts actually represent such Dutch guilders amounts or
could be converted into Dutch guilders at the rate indicated
or at any other rate. Unless otherwise indicated, the
translations of German marks into Dutch guilders have been
made at the fixed conversion based on the euro rate for both
currencies of NLG 1.12674 per DEM 1.00.
o For a discussion of the effects of exchange rate fluctuations
of VersaTel, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Form
20-F/A Annual Report for the fiscal year ended December 31,
1999, and our Form 6-K for the period ended June 30, 2000
incorporated by reference into this prospectus.
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<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the "Risk
Factors" section beginning on page 20 and the financial statements and the notes
to those statements which (for the purposes of the United States Securities and
Exchange Commission) we have incorporated by reference. Unless we state
otherwise in this prospectus or unless the context otherwise requires,
references herein to "VersaTel", "we", "our" and "us" are to VersaTel Telecom
International N.V. and its subsidiaries.
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:
o Business Services -- small- and medium-sized businesses
located throughout our target market.
o Local Access Services -- high bandwidth users within our
target market located near to and who may be directly
connected with our network.
o Data Services -- high bandwidth data customers with multiple
sites throughout our target market.
o Carrier Services -- other telecommunications, data and
Internet service providers.
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 and 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:
o Backbone Infrastructure -- multiple, integrated fiber optic
rings connecting major population and business centers in our
target market.
o Local Access Infrastructure -- high bandwidth fiber optic and
radio connectivity to customers along our network route.
o International Infrastructure -- fiber optic rings connecting
our network with points of presence in London, Dusseldorf,
Frankfurt and Paris.
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. On December 1, 1999 we acquired VEW
Telnet, a competitive network operator in the Northwest Rhine region of
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<PAGE>
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.
We recently reorganized certain of our Internet activities into a
separate business unit and appointed a new senior management team recruited
primarily from MCI Worldcom's Internet subsidiary, 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:
o Zon -- one of the largest residential ISP/portals in The
Netherlands with over 400,000 subscribers.
o 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.
o CS Net -- a business-to-business e-commerce facilitator.
o ITinera -- a Belgian web-hosting company and ISP.
o 24hours-- a business ISP/portal and Application Service
Provider ("ASP").
o Area 44 -- an ISP targeting small- and medium-sized businesses
and residential customers.
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.
Recent Developments
In May 2000, we purchased 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 for Euro 61.6 million in cash
and assumed approximately Euro 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 Euro 15.4 million.
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<PAGE>
Summary of the Terms of the Exchange Offer
The exchange offer relates to the exchange of up to Euro
300,000,000 aggregate principal amount of original notes for an equal aggregate
principal amount exchange notes. The exchange notes have substantially the same
terms as the original notes you hold, except that the exchange notes have been
registered under the Securities Act of 1933 and will be freely tradeable.
Securities Offered................... We are offering Euro 300,000,000 in
principal amount of our 11 1/4% Senior
Notes due 2010 in exchange for an equal
aggregate principal amount of our
original 11 1/4% Senior Notes due 2010 on
a one for one basis.
Registration Rights Agreement........ At the time we sold investors the
original notes, we entered into a
registration rights agreement which
requires us to make this exchange offer.
After the exchange offer is complete, you
will no longer be entitled to exchange
your original notes for registered notes.
We may, in limited circumstances, be
required to file a shelf registration
statement under the Securities Act of
1933 with respect to your original notes
if you do not accept our exchange offer.
We do not currently expect to have to
file a shelf registration statement.
If either this exchange offer is not
completed or a shelf registration
statement, if required, is not declared
effective within certain time periods, we
will be required to pay penalty interest
on the original notes.
The Exchange Offer................... We are offering to exchange Euro 1,000
principal amount of exchange notes for
each Euro 1,000 principal amount of your
original notes. In order to be exchanged,
your notes must be properly tendered and
accepted. All original notes that are
validly tendered and not withdrawn will
be exchanged.
Ability to Resell Exchange Notes..... We believe that exchange notes issued in
the exchange offer may be offered for
resale, resold and otherwise transferred
by you without compliance with the
registration and prospectus delivery
provisions of the Securities Act of 1933
if:
o the exchange notes issued in the
exchange offer are being acquired in
the ordinary course of your business;
o you are not participating, do not
intend to participate and have no
arrangement or understanding with any
person to participate in the
distribution of exchange notes issued
to you in the exchange offer; and
o you are not our affiliate (as defined
under the Securities Act of 1933).
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<PAGE>
If this belief is inaccurate and you
transfer any exchange notes issued to you
in the exchange offer without delivering
a prospectus which meets the requirements
of the Securities Act of 1933 or without
an exemption from these requirements, you
may incur liability under the Securities
Act of 1933. We do not assume any
liability if you do and we will not
indemnify you.
If you are a broker-dealer and wish to
exchange original notes that you received
as a result of market-making or other
trading activities, you must agree to
deliver this prospectus in connection
with the sale of exchange notes you
receive in this exchange offer.
People Excluded from the
Exchange Offer....................... You may not participate in the exchange
offer if you are:
o a holder of original notes in any
jurisdiction in which the exchange
offer is not, or your acceptance will
not be, legal under the applicable
securities or blue sky laws of that
jurisdiction; or
o a holder of original notes who is an
affiliate of VersaTel.
Consequences of Failure to Exchange
Your Notes........................... You may suffer adverse consequences if
you fail to exchange your original notes.
Following the completion of the exchange
offer, except as set forth above and in
the registration rights agreement we
refer to, you will not have any further
registration rights and your original
notes will continue to be subject to
restrictions on transfer. Accordingly, if
you do not participate in the exchange
offer, your ability to sell your original
notes could be aversely affected.
Expiration Date...................... The exchange offer expires at 5.00 p.m.
London time, on September 20, 2000, the
expiration date, unless we extend the
exchange offer.
Conditions to the Exchange Offer..... The exchange offer has certain customary
conditions that may be waived by us.
There is no minimum amount of original
notes that must be tendered to complete
the exchange offer.
Procedures for Tendering Your
Notes................................ If you wish to tender your original notes
for exchange in the exchange offer you or
the custodial entity through which you
hold your exchange notes must send to The
Bank of New York, the exchange agent, on
or before the expiration date of the
exchange offer:
o a duly completed letter of transmittal
to the exchange agent at its address
specified in the letter of
transmittal; and
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o if you do not hold your position
through DTC, Euroclear or Clearstream,
certificates for your original notes
must be received by The Bank of New
York along with the letter of
transmittal; or
o for holder who hold their positions
through the Depository Trust Company,
a computer-generated message
transmitted by means of the Depository
Trust Company's Automated Tender Offer
Program ("ATOP") system and received
by the exchange agent as a part of a
confirmation of book entry transfer in
which you acknowledge and agree to be
bound by the terms of the letter of
transmittal"; or
o holders who hold their position
through Euroclear and Clearstream must
adhere to the procedures described in
"The Exchange Offer - Procedures for
tendering your original notes.
Withdrawal Rights.................... You may withdraw the tender of your
original notes at any time prior to 5.00
p.m. London time, on the expiration date.
U.S. Tax Considerations.............. The exchange of notes will not be a
taxable event for U.S. federal income tax
purposes. You will not recognize any
taxable gain or loss or any interest
income as a result of the exchange. For
additional information regarding the U.S.
federal income tax consequences of the
exchange, you should read the discussion
under the heading "Taxation - United
States Federal Income Taxation".
Use of Proceeds...................... We will not receive any proceeds from the
issuance of the exchange notes in the
exchange offer. We will pay all expenses
incidental to the exchange offer.
Exchange Agent....................... The Bank of New York is serving as the
exchange agent. Its address, telephone
numbers and facsimile numbers are:
In the U.S.A.:
The Bank of New York
Attention: Gertrude Jeanpierre
Reference: VersaTel Exchange Offer
101 Barclay Street
New York, New York 10286
Tel: (212) 815-5920
Fax: (212) 815-6339
In the United Kingdom:
The Bank of New York
Attention: Emma Wilkes
Reference: VersaTel Exchange Offer
30 Cannon Street
London EC4M 6XH
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Tel: (44-20) 7964-7235
Fax: (44-20) 7964-7294
Please review the information contained under the heading "The Exchange
Offer" for more detailed information concerning the exchange offer.
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Summary Description of the Exchange Notes
The exchange notes to be issued to you in the exchange offer will
evidence the same obligations as the notes you currently hold. The indenture
that currently governs your original notes is the same indenture that will
govern the exchange notes. The terms of the exchange notes will be substantially
the same as the original notes, except that there will be no legends on the
exchange notes restricting their transfer and the exchange notes will be
registered under the Securities Act of 1933 instead of having registration
rights. You can find more detailed description of the indenture under the
section headed "Description of Exchange Notes".
Notes Offered........................ Euro 300,000,000 principal amount of
11 1/4% Senior Notes due 2010.
Maturity Date........................ March 30, 2010.
Interest Payment Dates............... March 30 and September 30 of each year,
commencing September 30, 2000.
Ranking.............................. The exchange notes will be our general
unsecured obligations and will rank
senior in right of payment to any of our
future indebtedness that is, by its terms
or by the terms of the agreement or
instrument governing such indebtedness,
expressly subordinated in right of
payment to the Notes and equal in right
of payment to all of our existing and
future senior indebtedness, including our
existing notes. At June 30, 2000, we had
approximately Euro 1.7 billion of
consolidated indebtedness.
Substantially all of our assets and
liabilities (other than the existing
notes) are owned by our restricted
subsidiaries. We are a holding company
with limited assets and operate our
business through our restricted
subsidiaries. Any right of VersaTel and
its creditors, including holders of the
Notes, to participate in the assets of
any of our subsidiaries upon any
liquidation or administration of such
subsidiary will be subject to the prior
claims of the creditors of such
subsidiary. The claims of our creditors
are subordinated to all existing and
future third-party indebtedness and
liabilities, including trade payables, of
our subsidiaries. At June 30, 2000, our
subsidiaries would have had total
liabilities of Euro 227.6 million
reflected on our consolidated balance
sheet.
Optional Redemption.................. VersaTel may redeem the exchange notes,
in whole or in part, at any time on or
after March 30, 2005, at the redemption
prices set forth in this prospectus, plus
accrued and unpaid interest, liquidated
damages, and additional amounts, if any,
to the date of redemption.
Before March 30, 2003, VersaTel may
redeem up to 35% of the exchange notes
with the net proceeds of one or
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more equity offerings received by, or
invested in, VersaTel at a redemption
price of 111 1/4% of the principal amount
thereof, plus accrued and unpaid
interest, and additional amounts, if any,
to the redemption date; provided that at
least 65% of the aggregate original
principal amount of the exchange notes
remains outstanding thereafter. You
should read "Description of the Exchange
Notes -- Optional Redemption" for further
information on VersaTel's right to redeem
the exchange notes.
The exchange notes may also be redeemed
at the option of VersaTel, in whole but
not in part, at any time at a redemption
price equal to the aggregate principal
amount thereof, together with accrued and
unpaid interest, and additional amounts,
if any, to the redemption date and all
additional amounts then due and which
would become due as a result of the
redemption or otherwise, in the event of
changes affecting Netherlands withholding
taxes. You should read "Description of
the Exchange Notes -- Redemption for
Taxation Reasons" for further discussion
of VersaTel's options in this regard.
Withholding Taxes;
Additional Amounts................... Unless required by law, all payments by
VersaTel in respect of the exchange notes
will be made without withholding or
deduction for or on account of any taxes
imposed by or within any relevant taxing
jurisdiction. Subject to certain
exceptions and limitations, VersaTel will
be required to pay any additional amounts
as may be necessary in order that the net
amounts received by the holders after any
withholding or deduction in respect of
any such taxes required by law shall
equal the respective amounts of principal
and interest that would have been
received in respect of the exchange notes
in the absence of such withholding or
deduction. See "Description of the
Exchange Notes -- Withholding Taxes."
Change of Control.................... Upon a change of control, holders of the
exchange notes will have the rights to
require VersaTel to purchase their
exchange notes in whole or in part at a
price in cash equal to 101% of the
aggregate principal amount thereof plus
accrued and unpaid interest, thereon to
the date of repurchase, plus additional
amounts, if any, and liquidated damages,
if any, to the date of repurchase. See
"Description of the Exchange Notes -
Repurchase of Notes upon a Change of
Control."
Certain Covenants.................... The indenture will contain covenants
that, among other things limit our
ability to:
o incur additional indebtedness,
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o pay dividends on, redeem or repurchase
our capital stock,
o make investments,
o issue or sell capital stock of
restricted subsidiaries,
o create certain liens,
o sell assets,
o in the case of restricted subsidiaries,
guarantee indebtedness,
o engage in transactions with affiliates,
and
o consolidate, merge or transfer all our
assets on a consolidated basis.
These covenants are subject to a number
of important exceptions and
qualifications. See "Description of the
Exchange Notes-- Certain Covenants".
Clearance and Settlement............. The exchange notes will clear in
book-entry form through DTC, Euroclear
and Clearstream.
Trustee and Paying Agent............. The Bank of New York.
Listing.............................. The exchange notes will be listed on the
Official Market of Amsterdam Exchanges
N.V.'s stock market.
Risk Factors......................... See "Risk Factors" beginning on page 20
for a discussion of certain factors which
should be considered carefully by
prospective investors in evaluating an
investment in the exchange notes.
For additional information concerning the exchange notes, see
"Description of the Exchange Notes."
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SUMMARY FINANCIAL DATA OF VERSATEL
The following summary financial data of VersaTel as of and for the
years ended December 31, 1997, 1998 and 1999, has been prepared in accordance
with U.S. GAAP and derived from our historical financial statements that have
been audited by Arthur Andersen, independent public accountants. The following
table also presents summary consolidated financial date for the interim periods
ended June 30, 1999 and June 30, 2000, which has been derived from our unaudited
interim financial statements. Our consolidated financial statements have been
prepared in accordance with U.S. GAAP. You should read the following information
together with our historical financial statements (including the notes) that are
included in the information we are incorporating by reference.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Six months ended June 30,
-------------------------------------------- --------------------------------
1997 1998 1999 1999 1999 2000 2000
-------- -------- -------- -------- -------- -------- --------
NLG NLG NLG $(1) NLG Euro $(1)
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ........................................ 18,896 39,561 129,000 55,844 39,125 75,679 71,895
Operating expenses:
Cost of revenue, excluding
depreciation and amortization .............. 17,405 31,821 100,615 43,556 30,637 55,284 52,520
Selling, general and
administrative ............................. 17,527 47,733 182,483 78,997 75,319 89,728 85,242
Depreciation and amortization ................ 3,237 6,473 58,206 25,197 11,153 36,653 34,820
-------- -------- -------- -------- -------- -------- --------
Total operating expenses ................... 38,169 86,027 341,304 147,750 117,109 181,665 172,582
-------- -------- -------- -------- -------- -------- --------
Loss from operations ........................... (19,273) (46,466) (212,304) (91,906) (77,984) (105,986) (100,687)
Interest expense, net .......................... 534 25,810 128,943 55,819 42,917 49,648 47,165
Currency loss (gain), net ...................... 53 (5,146) 96,267 41,673 66,786 25,325 24,059
Result from investments ........................ -- -- -- -- -- 2,267 2,154
-------- -------- -------- -------- -------- -------- --------
Net loss before income taxes ................... (19,860) (67,130) (437,514) (189,398) (187,687) (178,692) (169,757)
Credit from (Provision for)
income taxes .................................. -- (7) 962 416 454 41 39
-------- -------- -------- -------- -------- -------- --------
Loss before minority share ................... (19,860) (67,137) (436,552) (188,982) (188,141) (178,651) (169,718)
Minority share ............................... -- -- 372 (161) -- 792 753
-------- -------- -------- -------- -------- -------- --------
Net loss ..................................... (19,860) (67,137) (436,180) (188,821) (188,141) (177,859) (168,965)
======== ======== ======== ======== ======== ======== ========
Net loss per share basic and
diluted(2) ................................... (1.10) (2.06) (8.56) (3.71) (4.81) (2.14) (2.04)
Weighted average number of
shares outstanding(2) .......................... 18,084 32,622 50,929 50,929 39,105 83,016 83,016
Financial Data:
EBITDA(3) ...................................... (16,036) (39,993) (154,098) (66,709) (66,831) (69,333) (65,867)
Capital expenditures ........................... 14,516 77,255 383,014 165,807 132,462 177,152 168,294
Loss plus fixed charges (4) .................... (19,828) (84,133) (369,589) (159,915) (127,814) (179,158) (170,200)
Ratio of earnings to fixed
Charges (4) .................................. (35.7) (2.23) (2.35) (2.35) (2.56) (2.45) (2.45)
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, As of June 30,
------------------------------------------ --------------------
1997 1998 1999 1999 2000 2000
-------- -------- ----------- -------- --------- ---------
NLG NLG NLG $(1) Euro $(1)
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and restricted cash....................... 1,495 583,570 2,315,724 1,002,478 1,580,907 1,501,861
Working capital (excluding cash and
restricted cash)............................... (24,774) (46,851) (227,904) (98,660) (132,431) (125,810)
Capitalized finance cost....................... -- 28,750 62,265 26,955 44,920 42,674
Property, plant and equipment, net............. 13,619 38,608 512,790 221,987 373,714 355,028
Construction in progress....................... -- 46,019 180,271 78,039 115,831 110,039
Goodwill....................................... -- 4,556 434,072 187,910 252,499 239,874
Total assets................................... 19,331 723,397 3,665,035 1,586,595 2,519,869 2,393,875
Total long-term obligations (including
current portion)............................... 8,492 688,796 2,222,832 962,265 1,702,569 1,617,441
Total shareholders' equity (deficit)........... (18,214) (34,073) 1,118,757 484,310 574,020 545,318
</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 June 30,
2000 of NLG 2.31 per $1.00 and euro amounts have been translated into
U.S. dollars at $0.95 per Euro 1.00 the noon buying rate in The City of
New York for cable transfers in euros as certified for customs purposes
by The Federal Reserve Bank of New York on June 30, 2000.
(2) As adjusted to give effect to a 2-to-1 stock split on April 13, 1999.
15
<PAGE>
(3) EBITDA consists of earnings (loss) before interest expense, income taxes,
depreciation, amortization, foreign exchange gain (loss) and results from
investments. 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 our 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 our 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.
(4) The ratio of earnings to fixed charges is calculated by dividing (i)
income (loss) from continuing operations before income taxes
("Earnings") plus fixed charges by (ii) fixed charges. Fixed charges
consist of interest expense. Earnings plus fixed charges were
insufficient to cover fixed charges by NLG 19.8 million in 1997, NLG
84.1 million in 1998, NLG 369.6 million in 1999, NLG 127.8 million for
the six months ended June 30, 1999 and Euro 175.5 million for the six
months ended June 30, 2000.
16
<PAGE>
Unaudited Pro Forma Consolidated Financial Information
The following unaudited pro forma financial information of VersaTel has
been prepared by VersaTel in accordance with U.S. GAAP and is derived from,
and should be read in conjunction with, the historical financial statements
of VersaTel, Svianed and VEW Telnet. The unaudited pro forma statement of
operations data for the year ended December 31, 1999 give effect to the
Svianed acquisition and Telnet acquisition (together, the "Transactions") as
if they had occurred on January 1, 1999.
The unaudited pro forma financial information set forth below reflects
pro forma adjustments that are based upon available information and certain
assumptions that VersaTel believes are reasonable. The acquisitions of
Svianed and VEW Telnet will be accounted for under the acquisition method of
accounting and, accordingly, this method of accounting has been applied in
the unaudited pro forma financial information. Under the acquisition method
of accounting, the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the time of the
acquisition of Svianed and VEW Telnet, respectively. Estimates of the fair
values of the Svianed and VEW Telnet assets and liabilities have been
combined with the recorded values of the assets and liabilities of VersaTel
in the unaudited pro forma financial information. The estimates of fair value
of assets and liabilities are based on a number of assumptions which
management believe to be reasonable but which are subject to change. Such
changes could include, among other things, changes in the classification and
useful lives of intangible assets and the related amortization expense from
amounts presented in the pro forma financial information.
The unaudited pro forma financial information is presented for
illustrative purposes only and is not necessarily an indication of the
results that would have been achieved had such transactions been consummated
as of the dates indicated or that may be achieved in the future. The
unaudited pro forma financial information and accompanying notes should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operation" in our Form 20/F/A and Form 6-K
incorporated by reference into this prospectus.
17
<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.
Unaudited Pro Forma Consolidated Statements of Operations
For the Year ended December 31, 1999
(In thousands, except for per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
---------- ------------
Jan--Dec Jan--May Jan--Nov Jan--Nov 1999 Year ended December 31, 1999
--------- --------- -------- ------------- ----------------------------
1999 1999 1999
---- ---- ----
VersaTel Svianed VEW Telnet VEW Telnet adjustments COMBINED
--------- ---------------------- ------------- -------------- -----------------------
NLG NLG DEM NLG(2) NLG NLG US$(3)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue....................... 129,000 27,182 36,482 41,106 197,288 85,406
Operating expenses:
Cost of revenue,
excluding depreciation
and amortization............ 100,615 12,458 33,332 37,556 150,629 65,207
Selling, general and
administrative.............. 182,483 6,336 40,265 45,368 234,187 101,380
Depreciation and
amortization................ 58,206 4,169 12,250 13,803 22,922 (4) 99,100 42,900
--------- -------- -------- -------- --------- ---------
Total operating
expenses.................... 341,304 22,963 85,847 96,727 483,916 209,487
--------- -------- -------- -------- --------- ---------
Loss from operations.......... (212,304) 4,219 (49,365) (55,621) (286,628) (124,081)
Other Income (expenses):
Income (loss) from
investments................. -- -- (2,602) (2,932) (2,932) (1,269)
Currency gain (loss)........ (96,267) (82) -- -- (96,349) (41,710)
Interest income............. 28,342 56 3,439 3,875 32,273 13,971
Interest expense............ (157,285) (244) (1,325) (1,493) (105,588)(5) (264,610) (114,550)
Other expense, net.......... -- -- (924) (1,041) (1,041) (451)
--------- -------- -------- -------- --------- ---------
Total other expenses, net (225,210) (270) (1,412) (1,591) (332,659) (144,009)
--------- -------- -------- -------- --------- ---------
Net income (loss) before
income taxes................ (437,514) 3,949 (50,777) (57,212) (619,287) (268,090)
Provision for income
taxes(7).................... 962 (1,294) (1,398) (1,575) 1,294 (6) (613) (265)
--------- -------- -------- -------- --------- ---------
Income (loss) before
minority interest........... (436,552) 2,655 (52,175) (58,787) (619,900) (268,355)
Minority loss................. 372 -- -- -- 372 161
--------- -------- -------- -------- --------- ---------
Net income (loss)............. (436,180) 2,655 (52,175) (58,787) (619,528) (268,194)
========= ======== ======== ======== ========= =========
Net loss per share
outstanding (basic and
diluted)..................... (8.56) (12.16) (5.27)
Weighted average
number of shares
outstanding(8).............. 50,929 50,929 50,929
EBITDA(9)..................... (154,098) 8,388 (38,039) (42,859) (188,569) (81,632)
Capital expenditures.......... 383,014 4,956 25,621 28,875 416,845 180,456
</TABLE>
----------
(1) Pro forma for the Svianed and Telnet acquisitions, assuming the
acquisitions had taken place effective January 1, 1999.
(2) Solely for the convenience of the reader, Deutsche mark amounts have
been translated into Dutch guilders at the fixed conversion based on
the euro rate for both currencies of NLG 1.12674 per DEM 1.00.
(3) Solely for the convenience of the reader, Dutch guilder amounts have
been translated into U.S. Dollars at the Noon Buying Rate on June 30,
2000 of NLG 2.31 per $1.00.
(footnotes continued on following page)
18
<PAGE>
(4) Reflects the amortization of goodwill and the depreciation of the long
term network agreement over the period prior to the VEW Telnet
acquisition.
NLG
-------------
(in
thousands)
Amortization of goodwill.......................... 20,445
Depreciation of long term network agreement....... 2,477
------
Total adjustment.................................. 22,922
======
Goodwill reflects the excess of the acquisition price of Svianed and
VEW Telnet over the fair value of the assets and liabilities of Svianed
and VEW Telnet. The book value of tangible assets acquired and
liabilities assumed are assumed to approximate fair value. The excess
of purchase price over the fair value of tangible assets acquired and
liabilities assumed was allocated to assets acquired based on
management's best estimate, based on discussion with VersaTel's
advisors and preliminary analysis of available financial and
non-financial data of the fair value of such assets.
NLG
---------------
(in thousands)
Total purchase price for Svianed and VEW Telnet
(including NLG 9,593 of acquisition costs)........ 479,556
Fair value of tangible assets acquired and
liabilities assumed............................... (67,260)
--------
Goodwill recorded................................. 412,296
=========
In order to reflect a full year of goodwill amortization, the above
mentioned goodwill recorded has been amortized over twelve months.
Goodwill is amortized over a period of 10 years.
Certain telecommunications equipment was acquired in the VEW Telnet
acquisition under the long term network agreement for NLG 81,085 to be
depreciated over 30 years. The above depreciation has been calculated
as if the telecommunications equipment had been acquired at January 1,
1999.
(5) Interest expense reflects (i) NLG 74.4 million of interest expense
relating to our offering of the original notes, NLG 26.4 million of
interest expense relating to the offering of 4% Senior Convertible
notes due 2005, (ii) amortization expenses relating to deferred
financing costs incurred in connection with our offering of the
original notes and the offering of 4% Senior Convertible notes due
2005, amounting to NLG 3.8 million, and (iii) amortization expenses
relating to discount incurred in connection with our offering of the
original notes amounting to NLG 1.0 million.
(6) Pro forma for Svianed assuming the acquisition had taken place
effective January 1, 1999. The Svianed provision for income taxes is
therefore eliminated.
(7) The provision for income taxes charge in VEW Telnet relates to the
write-down of a deferred tax asset.
(8) As adjusted to give effect to a 2-for-1 stock split on April 13, 1999.
(9) 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 management's discretionary use (due
to covenant restrictions, debt service payments, the expansion of our
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.
19
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and the
other information in this prospectus.
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 pro forma loss from
operating activities of NLG 286.6 million and an actual historical loss
from operating activities of NLG 212.3 million. For the year ended
December 31, 1998, we had a loss from operating activities of NLG 46.5
million and for the year ended December 31, 1997, we had a loss from
operating activities of NLG 19.3 million. In addition, we had an
accumulated deficit of Euro 417.7 million and Euro 239.8 million as of
June 30, 2000 and December 31, 1999, 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, the expansion of our marketing and sales force and the
introduction of new communications services and products, including our
Internet and DSL services. For the six months ended June 30, 2000, we
had a loss from operating activities of Euro 106.0 million, as compared
to a net loss from operating activities of Euro 35.4 million for the
comparable 1999 period. As a result of this expansion and acceleration
of our business activities, our consolidated net current assets and
shareholders' equity have decreased and our total and per share losses
before extraordinary items and our net loss have increased since the
end of our last financial year compared to the corresponding period in
the prior year. In addition, the acquisitions of Svianed, VEW Telnet
and KomTel have caused 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) of our ordinary shares
(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 the
Company (the "Second High Yield Offering"). In July 1999, we issued and
sold $180,000,000 11 7/8% Senior Dollar Notes due 2009 and
Euro 120,000,000 11 7/8% Senior Euro Notes due 2009 (the "Third High
Yield Offering" and, together with the First High Yield Offering and
the Second High Yield Offering, the "High Yield Offerings"), 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
Euro 300,000,000 4% Senior Convertible Notes due 2004 (the "First
Convertible Note 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 to finance our initial investment in
VersaPoint, for working capital and other general corporate purposes.
In March 2000, simultaneously with the closing of the offering of the
original notes (the "Fourth High Yield Offering"), we issued and sold
Euro 300,000,000 in aggregate principal amount of 4% Senior Convertible
Notes due 2005 (the "Second Convertible Note Offering") and 10,200,000
(of which 5,100,000 was sold by certain selling shareholders) of our
ordinary shares (the "Share Offering"). As of June 30, 2000, our total
long-term obligations (including current portion) were approximately
Euro 1,702.6 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
20
<PAGE>
Third High Yield Offering (the "Third Notes"; and together with the
First Notes and the Second Notes, the "Existing High Yield Notes") and
the original notes (together with the Existing High Yield Notes, the
"High Yield Notes"), as well as the convertible notes issued in the
First Convertible Note Offering (the "First Convertible Notes") and the
Second Convertible Note Offering (the "Second Convertible Notes" and,
together with the First Convertible Notes, 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 our High Yield Notes, including the
indenture that will govern the exchange 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. A failure to comply with these
restrictions would constitute a default under the indentures governing
the High Yield Notes, as well as under the First Convertible Notes, and
as a consequence the High Yield Notes, the Convertible Notes and the
exchange notes could become immediately due and payable, which would
seriously adversely affect our business and our shareholders' equity.
Our high level of indebtedness and the limits imposed by our
indebtedness could have the following effects, among others:
o we may have difficulty in paying the interest on our
outstanding debt and any newly incurred debt,
o we may have difficulty finding sources of financing for
working capital, our capital expenditure requirements and the
interest payments on our outstanding debt,
o 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
o 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
our Existing 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.
21
<PAGE>
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 our indebtedness 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. Much of
that indebtedness will likely be secured. Consequently, in the event of
a bankruptcy, liquidation, dissolution, reorganization or similar
proceedings, the holders of any secured indebtedness will be entitled
to proceed against the collateral that secures such indebtedness and
such collateral will not be available for satisfaction of any amounts
owed under the exchange notes. 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.
Our holding company structure will effectively subordinate the exchange
notes to the obligations of our subsidiaries.
In December 1998, we transferred substantially all of our assets
and liabilities (except for our then-existing public indebtedness) to
our subsidiaries. Since that transfer, we have been a holding company
with no material assets, other than the stock of our subsidiaries. Our
subsidiaries now conduct substantially all of our operations and
directly own substantially all of our assets. You should be aware that
our subsidiaries have no obligation, contingent or otherwise, to pay
any amounts due on our existing indebtedness or to make any funds
available for such payment. Therefore, our operating cash flow and
ability to meet our debt obligations, including the exchange notes,
will depend on the cash flow provided by our subsidiaries in the form
of loans, dividends or other payments to us as a shareholder. The
ability of our subsidiaries to make such payments to us will depend on
their earnings, tax considerations and legal restrictions. In the event
of insolvency, liquidation, dissolution or reorganization of any of our
subsidiaries, the creditors of each subsidiary would be entitled to
payment in full from such subsidiary's assets. After paying their own
creditors, our subsidiaries may not have any remaining assets for
distribution to us as a shareholder and, consequently, there may not be
any assets available for payment to holders of our indebtedness,
including the exchange notes. The exchange notes, therefore, are
effectively subordinated to the obligations of our subsidiaries. At
June 30, 2000, our subsidiaries would have had total liabilities of
Euro 227.6 million reflected on our consolidated balance sheet.
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, after giving pro forma effect to the offering of the original
notes and the Second Convertible Notes Offering would have been
approximately NLG 234.5 million. Unlike the holders of the First Notes
and the Second Notes, the holders of the Third Notes, the exchange
notes and the Convertible Notes do not have the benefit of any
securities placed in escrow to fund any interest payments. 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 our existing and future indebtedness. 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 exchange notes, sell
our assets or obtain new financing. We cannot assure you that any such
refinancing would be possible or
22
<PAGE>
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 our existing and future indebtedness becoming
immediately due and payable.
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 our current cash balances 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.
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:
o experienced and qualified management and staff,
o additional switch, MDF and co-location sites,
o interconnection with the networks of PTTs and other carriers,
o necessary licenses,
o additional transmission facilities and
o the necessary easements and rights-of-way from property
owners, competitors and various levels of government.
We are not certain that our current cost estimates are correct or
that we will meet our current development schedule relating to
construction of the network. 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
23
<PAGE>
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 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:
o operating and technical problems,
o regulatory uncertainties,
o delays in the full implementation of the European Commission
directives regarding telecommunications liberalization,
o competition,
o the availability of capital, and
o 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
KomTel, VEW Telnet, Svianed, SpeedPort, VuurWerk and ITinera, 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
24
<PAGE>
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, these problems may occur again
and 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.
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, these problems may occur
again. Any such problems could 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 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
also have 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.
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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
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:
o 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;
o our ability to identify, access and initiate service in our
target regions;
o 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;
o 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
o 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.
o 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.
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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.
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:
o traditional providers of Internet access in the Benelux which
currently charge for Internet access, such as Planet Internet,
World Online, World Access, Sky Net and Online Internet;
o online service providers which charge for Internet access,
consisting primarily of U.S. providers such as AOL and
Compuserve;
o other free online services in the Benelux such as Freeler,
Wanadoo, Wish, Freebel and NOK NOK;
o some Benelux retailers who offer free Internet access, such
as My Web;
o 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;
o Internet communities, such as Geocities and FortuneCity; and
o high speed and broadband Internet access providers in the
Benelux, such as Chello.
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
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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
current 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.
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. VersaTel Internet's business may be
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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 also have 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
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
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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 chief executive officer, Raj Raithatha, our chief financial
officer, Greg Mesch, our vice president for corporate development,
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.
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.
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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:
o cost advantages as a result of economies of scale,
o greater financial resources, market presence and network
coverage,
o greater brand name recognition, customer loyalty and goodwill,
o control over domestic transmission lines and control over the
access to these lines by other participants, and
o close ties to national regulatory authorities 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 exchange notes will be affected by changes in the
exchange rates between the U.S. dollar and the euro.
As of January 1, 2000, we prepare our financial reports in euros.
We also maintain significant U.S. dollar denominated assets and
liabilities. Accordingly, our reported results of operations may be
significantly affected by exchange rate 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.
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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 also may not 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 in the
constitution of our network and the provision of services to our
customers.
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.
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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 high yield
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.
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.
We are controlled by a few principal shareholders; the interests of
these shareholders may conflict with those of the holders of the Notes
You should be aware that five shareholders own approximately 38%
of our outstanding ordinary shares. Together, these shareholders can
exercise significant influence over our operations, business strategy
and matters requiring approval by our shareholders, including the
approval of mergers or other business combinations.
Some decisions concerning the operations or financial structure of
VersaTel may present conflicts of interest between these shareholders
and the holders of the exchange notes. For example, if VersaTel
encounters financial difficulties or is unable to pay its debts as they
mature, the interests of these shareholders may conflict with those of
the holders of the exchange notes. In addition, these investors may
have an interest in pursuing acquisitions, divestitures, financings or
other transactions that, in their judgment, could enhance their equity
investment in VersaTel, even though such transactions might involve
increased risk to the holders of the exchange notes.
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Dutch insolvency laws may adversely affect a recovery by the holders of
the exchange notes.
We are organized under the laws of The Netherlands. Dutch
insolvency laws differ significantly from insolvency proceedings in the
United States and may make it more difficult for holders of the
exchange notes to effect a restructuring of VersaTel or to recover the
amount they would have recovered in a liquidation or bankruptcy
proceeding in the United States. There are two primary insolvency
regimes under Dutch law: the first, moratorium of payment (surseance
van betaling), is intended to facilitate the reorganization of a
debtor's debts and enable the debtor to continue as a going concern.
The second, bankruptcy (faillissement), is primarily designed to
liquidate and distribute the assets of a debtor to its creditors.
Upon commencement of moratorium of payment proceedings, the court
will grant a provisional moratorium. The definitive moratorium will
generally be granted upon the approval of a qualified majority of the
unsecured creditors. In both cases, certain creditors will be precluded
from attempting to recover their claims from the assets of the debtor.
This moratorium is subject to exceptions, the most important of which
excludes certain secured and certain preferential creditors (such as
tax and social security authorities) from the protection of the
moratorium. Unlike Chapter 11 proceedings under U.S. bankruptcy law,
during which both secured and unsecured creditors are generally barred
from seeking to recover on their claims, during Dutch moratorium of
payment proceedings, certain secured creditors may proceed against the
assets that secure their claims to satisfy their claims. A recovery
under Dutch law, therefore, could involve a sale of the assets of the
debtor in a manner that does not reflect the going concern value of the
debtor. Consequently, Dutch insolvency laws could preclude or inhibit
the ability of the holders of the exchange notes to effect a
restructuring of VersaTel and could reduce the recovery in a Dutch
insolvency proceeding.
In connection with Dutch bankruptcy proceedings, the assets of a
debtor are generally liquidated and the proceeds distributed to the
debtor's creditors on the basis of the relative claims of those
creditors, and certain parties (such as secured creditors) will have
special rights that may adversely affect the interests of holders of
the exchange notes. The claim of a creditor may be limited depending on
the date the claim becomes due and payable in accordance with its
terms. Generally, claims of holders of exchange notes which were not
due and payable by their terms on the date of a bankruptcy of VersaTel
will be accelerated and become due and payable as of that date. Each of
these claims will have to be submitted to the receiver of VersaTel to
be verified by the receiver. "Verification" under Dutch law means that
the receiver determines the value of the claim and whether and to what
extent it will be admitted in the bankruptcy proceedings. The valuation
of claims that otherwise would not have been payable at the time of the
bankruptcy proceedings may be based on a net present value analysis.
Creditors that wish to dispute the valuation of their claims by the
receiver will need to commence a court proceeding. These verification
procedures could cause holders of exchange notes to recover less than
the principal amount of their exchange notes or less than they could
recover in a U.S. liquidation. Such verification procedures could also
cause payments to the holders of exchange notes to be delayed compared
with holders of undisputed claims.
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the
exchange notes offered hereby. We will pay all expenses in connection
with the exchange offer.
The net proceeds to us from the sale of the original notes were
approximately Euro 286.6 million, after deducting underwriting
discounts and commissions and estimated fees and expenses. We intend to
use the proceeds from the sale of the original notes to finance:
o the expansion of our network infrastructure, particularly in
Germany;
o the continued build-out of our DSL network;
o the further expansion of our Internet capabilities and
opportunities in our targeted market and throughout Europe;
and
o the acquisition of licenses to provide wireless and UMTS
services and capital expenditures associated with such
services.
The proceeds from the offering of original notes will also be used
for acquisitions and the expansion of our network in a manner
consistent with the terms of the indentures governing our outstanding
series of high yield notes.
In addition, although we have no commitments or agreements with
respect to any specific future acquisition, we expect to use a portion
of the net proceeds from the offering of original notes for the
acquisition of additional businesses complementary to our own and for
working capital and general corporate purposes. Pending the foregoing
uses, we have invested the net proceeds from the offering of original
notes in cash, government securities or short-term, investment grade,
interest-bearing instruments, permitted under the terms of the
indentures governing our existing indebtedness so as not to be an
investment company under the U.S. Investment Company Act of 1940.
Notwithstanding the above, we cannot specify with certainty the
particular uses for the net proceeds from the sale of the original
notes. Accordingly, our management will have broad discretion in the
application of such net proceeds.
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THE EXCHANGE OFFER
Purpose and effect of the exchange offer
On March 30, 2000, we sold the original notes to Lehman Brothers
International (Europe), Morgan Stanley Dean Witter and ING Barings as
initial purchasers. In connection with the sale of the original notes,
we entered into a registration rights agreement with the initial
purchasers. This agreement requires us to file a registration statement
under the Securities Act of 1933 for an offering to exchange your
original notes for exchange notes. Accordingly, we are offering you the
opportunity to exchange your original notes for the same principal
amount of exchange notes. The exchange notes will be registered and
issued without a restrictive legend. This means that, unlike your
original notes that contain restrictions on their transfer, the
exchange notes may be reoffered and resold freely by you to any
potential buyer without further registration under the Securities Act
of 1933. This is beneficial to you since in order to sell your original
notes you must find an available exemption from the registration
requirements of the Securities Act of 1933.
The registration rights agreement further provides that we must
use our best efforts to cause the registration statement to be declared
effective on or before August 25, 2000, or we will owe liquidated
damages, in the form of a higher rate of interest, to the original note
holders. Except as discussed below, upon the completion of the exchange
offer we will have no further obligations to register your original
notes.
A copy of the registration rights agreement has been filed as an
exhibit to the registration statement to which this prospectus is a
part and you are strongly encouraged to read the entire text of the
agreement. We expressly qualify all of our discussions of the
registration rights agreement by the terms of the agreement itself.
Representations we need from you before you participate in the exchange
offer
We need representations from you before you can participate in the
exchange offer. These representations are:
o the exchange notes you acquire in the exchange offer are being
obtained in the ordinary course of your business;
o neither you nor any person you are acting for is engaging in
or intends to engage in a distribution of the exchange notes;
o neither you nor any person you are acting for has an
arrangement or understanding with any person to participate in
the distribution of the exchange notes;
o neither you nor any person you are acting for is our
"affiliate", as defined under Rule 405 of the Securities Act
of 1933; and
o if you or any other person you are acting for is a broker-
dealer, and you receive exchange notes for your own account in
exchange for your original notes which were acquired as a
result of market-making activities or other trading
activities, then you will deliver a prospectus in connection
with any resale of such exchange notes.
In accordance with the registration rights agreement, we are also
required to file a "shelf" registration statement for a continuous
offering in accordance with Rule 415 of the Securities Act of 1933 to
register your exchange notes if:
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o we are not permitted to effect an exchange offer because of
any change in law or applicable interpretations of the staff
of the Securities and Exchange Commission;
o an exchange offer is not completed by September 26, 2000;
o you request, for any of the reasons included in the
registration rights agreement, for us to do so following the
exchange offer;
o any applicable laws or interpretations do not permit you to
receive freely transferable securities;
o you do not receive freely transferable securities in exchange
for your original notes; or
o we so elect.
In the event that we are obligated to file a shelf registration
statement, we will be required to keep such shelf registration
statement effective for up to two years from the date of effectiveness.
Other than as described above, no holders will have the right to
participate in the shelf registration or require that we register their
original notes in accordance with the Securities Act of 1933.
If you participate in an exchange offer, you will be able to
freely sell or transfer your exchange notes if:
o the exchange notes issued in the exchange offer are being
acquired in the ordinary course of your business;
o you are not participating, do not intend to participate and
have no arrangement or understanding with any person to
participate in the distribution of the exchange notes issued
to you in the exchange offer; and
o you are not an affiliate of ours.
We believe that the exchange notes issued to you in this exchange
offer may be offered for resale, sold and otherwise transferred by you,
without compliance with the registration and prospectus delivery
provisions of the Securities Act of 1933, only if you make the
representations that we discuss above.
Our belief is based upon existing interpretations by the
Securities and Exchange Commission's staff contained in several
"no-action" letters to third-parties unrelated to us. If you tender
your original notes in an exchange offer for the purpose of
participating in a distribution of exchange notes, you cannot rely on
these interpretations by the Securities and Exchange Commission's staff
and you must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 in connection with a
secondary resale transaction. Each broker-dealer that receives exchange
notes for its own account in exchange for its original notes, whether
the original notes were acquired by that broker-dealer as a result of
market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such
exchange notes.
You may suffer adverse consequences if you fail to exchange your
original notes. Following the completion of the exchange offer, except
as set forth above and in the registration rights agreement we refer
to, you will not have any further registration rights and your original
notes will continue to be subject to restrictions on transfer.
Accordingly, if you do not participate in the exchange offer, your
ability to sell your original notes could be aversely affected.
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Terms of the exchange offer
We will accept any validly tendered original notes which are not
withdrawn prior to 5:00 p.m., London time, on the expiration date. We
will issue Euro 1,000 principal amount of exchange notes in exchange
for each Euro 1,000 principal amount of your original notes tendered.
Holders may tender all or some of their original notes in the exchange
offer.
The form and terms of the exchange notes will be substantially the
same as the form and terms of your original notes except that:
o interest on the exchange notes will accrue from the last
interest payment date on which interest was paid on your
original notes, or, if no interest was paid, from the date of
the original issuance of your original notes, and
o the exchange notes have been registered under the Securities
Act of 1933 and will not bear a legend restricting their
transfer.
The exchange notes will be issued under, and entitled to the
benefits of, the same indenture governing your original notes.
This prospectus, together with the letter of transmittal you
received with this prospectus, is being sent to you and to others who
have beneficial interests in the original notes. There is no fixed
record date for determining the registered holders of original notes
entitled to participate in the exchange offer. We intend to conduct the
exchange offer in accordance with the applicable requirements of the
Securities Exchange Act of 1934 and the rules and regulations of the
Securities and Exchange Commission. The exchange offer is not
conditioned under any minimum amount of original notes being tendered
for exchange. As a holder of the original notes, you do not have any
appraisal or dissenters' rights in connection with the exchange offer.
We shall be deemed to have accepted for exchange properly tendered
original notes when we have given oral or written notice thereof to the
exchange agent and complied with the applicable provisions of the
registration rights agreement. We expressly reserve the right to delay,
extend, amend or terminate the exchange offer, and the right not to
accept for exchange any original notes upon the occurrence of any of
the conditions specified below under "-Conditions to the Exchange
Offer."
You will not be required to pay brokerage commissions, fees or
transfer taxes in the exchange of your original notes. As discussed
below, we will pay all charges and expenses in connection with the
exchange offer except for any taxes you may incur in effecting the
transfer of your original notes or exchange notes to some other plan.
Expiration date, extensions, or amendment of the exchange offer
The exchange offer will expire at 5:00 p.m., London time, on
September 20, 2000, the "expiration date", unless we extend the
exchange offer. In the event we extend the exchange offer, it shall
terminate at 5:00 p.m., London time, on the last day of the extension.
In any event, the exchange offer will be held open for at least 20
business days. In order to extend the exchange offer, we will inform
the exchange agent by oral or written notice and will mail an
announcement to the registered holders of the original notes.
Notification to both the exchange agent and the registered holders of
the original notes will be made before 9:00 a.m., London time, on the
next business day after the then expiration date.
We reserve the right, in our sole discretion:
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o to delay accepting your original notes;
o to extend the exchange offer;
o to terminate the exchange offer if any of the conditions shall
not have been satisfied; or
o to amend the terms of the exchange offer in any manner.
If we delay, extend, terminate or amend the exchange offer, we
will give an oral or written notice to the exchange agent. We will also
promptly notify the registered holders of the original notes. In
addition, any material amendment or change to the exchange offer will
be disclosed in a prospectus supplement and distributed to the
registered holders of the outstanding original notes. Such change would
also be disclosed by a filing of a post-effective amendment to the
registration statement of which this prospectus is a part.
Procedures for tendering your original notes
Only you may tender your original notes in the exchange offer.
Except as stated below under "-Book-Entry Transfer", to tender in the
exchange offer you must, on or before the expiration date:
o deliver a duly completed letter of transmittal to the exchange
agent at its address specified in the letter of transmittal;
and
o if you do not hold your position through DTC, Euroclear or
Clearstream, certificates for your original notes must be
received by The Bank of New York along with the letter of
transmittal; or
o if you hold your position through DTC, you must deliver a
timely confirmation of a book-entry transfer of your original
notes, if that procedure is available, into the account of The
Bank of New York at DTC under the procedure for book-entry
transfer described below; or you must contact the exchange
agent concerning other acceptable procedures for tendering and
delivering your original notes.
o If you are a participant in Euroclear and/or Clearstream you
must send an electronic instruction to Euroclear and/or
Clearstream, as applicable, in accordance with their
procedures established to tender Old Notes, in place of
sending a signed, hard copy of the letter of transmittal. The
electronic instruction transmitted by Euroclear and/or
Clearstream to The Bank of New York must contain a computer
generated message, by which you acknowledge receipt of the
letter of transmittal and agree to be bound by it.
In the case of original notes not held through an account with
Euroclear or Clearstream, a holder wishing to submit a tender for
exchange must either:
o first arrange to have the original notes held through this
type of account, either in the name of the holder or in the
name of a bank or financial institution acting on behalf of
the holder, or
o contact the exchange agent concerning other acceptable
procedures for tendering and delivering original notes.
Alternatively (in the case of notes held through Euroclear or
Clearstream), the direct accountholder in Euroclear or Clearstream may
submit a letter of transmittal to the exchange agent and simultaneously
to Euroclear or Clearstream, as the case may be, according to their
normal procedures irrevocable instructions to:
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o block any attempt to transfer the original notes tendered on
or prior to the settlement date, and
o debit its account on the settlement date in respect of all the
original notes (or in respect of such lesser portion of the
original notes as shall be accepted for exchange by us), upon
receipt of an instruction by the exchange agent to have such
original notes delivered to the exchange agent for
cancellation (but subject to the automatic withdrawal of the
relevant portion of such irrevocable instruction in the event
that the exchange offer is terminated by us or the letter of
transmittal is withdrawn or revised by the direct
accountholder prior to the expiration date, in each case as
notified to Euroclear or Clearstream, as the case may be, by
the exchange agent on or before the settlement date),
o an irrevocable authorization to disclose the name of the
direct accountholder and information about the foregoing
instructions, and
o a confirmation that the direct accountholder is concurrently
delivering a letter of transmittal submitting a tender for
exchange with respect to such original notes to the exchange
agent (all of the foregoing being collectively referred to
herein as instructions).
Any holder submitting a tender for exchange must ensure that the
instructions transmitted through the Euroclear or Clearstream
accountholder can be allocated to its tender for exchange. Holders
should transmit a separate set of instructions for each letter of
transmittal submitted, and the instructions so transmitted must cover
the entire aggregate principal amount tendered pursuant to such letter
of transmittal, notwithstanding any reduction in the aggregate
principal amount of original notes accepted as a result of proration.
To the extent that instructions cannot be reconciled with the tender
for exchange, the tender for exchange may, at our discretion, be deemed
to have been properly submitted.
If you intend to use the guaranteed delivery procedure, you must
comply with the guaranteed delivery procedures described below.
Neither we nor the exchange agent will be responsible for the
communication of tenders by holders to the accountholders in Euroclear
or Clearstream through which they hold original notes or by such
accountholders to the exchange agent, Euroclear or Clearstream.
Holders will not be responsible for the payment of any fees or
commissions to the exchange agent for the original notes. In no event
should a holder submitting a tender for exchange send a letter of
transmittal or original notes to any other agent of ours other than the
exchange agent, Euroclear or Clearstream. Holders may contact the
exchange agent for assistance in filing out and delivering letters of
transmittal and for additional copies of the exchange offer materials.
To be tendered effectively, a letter of transmittal and other
required documents must be received by The Bank of New York at its
address set forth under "--Exchange Agent" prior to the expiration
date. If you do not withdraw your tender before the expiration date, it
will constitute an agreement between you and us in accordance with the
terms and conditions in this prospectus and in the letter of
transmittal.
Instead of delivery by mail, it is recommended that you use an
overnight or hand delivery service. In all cases, you should allow
sufficient time to ensure delivery to The Bank of New York before the
expiration date. No letter of transmittal or original notes should be
sent to us. You may request your brokers, dealers, commercial banks,
trust companies, or nominees to effect these transactions on your
behalf. The method of delivery of your original notes, a letter of
transmittal, and all other required documents to be delivered to The
Bank of New York is at your election and risk.
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Procedure if the original notes are not registered in your name
If your original notes are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee and you wish
to tender your original notes, then you should contact the registered
holder promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on behalf of a registered owner, you
must, prior to completing and executing a letter of transmittal and
delivering the registered owner's original notes, either make
appropriate arrangements to register ownership of the original notes in
your name or obtain a properly completed bond power or other proper
endorsement from the registered holder. We strongly urge you to act
immediately since the transfer of registered ownership may take
considerable time.
Signature requirements and signature guarantees
Signatures on a letter of transmittal or a notice of withdrawal
must be guaranteed by any eligible guarantor institution that is a
member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial
bank or trustee having an office or correspondent in the U.S., or an
"Eligible Guarantor Institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934 (each, an "Eligible
Institution") unless the original notes are tendered (1) by a
registered holder (including any participant in DTC whose name appears
on a security position listing as the owner of Outstanding Notes) or
(2) for the account of an Eligible Institution. If signatures on a
letter of transmittal or a notice of withdrawal are required to be
guaranteed, the guarantee must be by an Eligible Institution.
If a letter of transmittal or any note or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary of
representative capacity, such persons should so indicate when signing,
and evidence satisfactory to us of their authority to so act must be
submitted with such letter of transmittal unless waived by us.
Conditions to the exchange offer
o All questions as to the validity, form, eligibility,
acceptance and withdrawal of tendered original notes will be
determined by us in our sole discretion, and our determination
will be final and binding. We reserve the absolute right to
reject any and all original notes not properly tendered or any
original notes the acceptance of which would be unlawful in
the opinion of our counsel.
o We also reserve the right to waive any defects, irregularities
or conditions of tender as to particular original notes.
o Our interpretation of the terms and conditions of the exchange
offer, including the instructions in a letter of transmittal,
will be final and binding on all parties.
o Any defects or irregularities in connection with tenders of
original notes must be cured within such time as we shall
determine, unless waived by us.
Although we intend to notify you of defects or irregularities with
respect to tenders of original notes, we, or the exchange agent or any
other person, shall not incur any liability for failure to give such
notification. Tenders of original notes will not be deemed to have been
made until such defects or irregularities have been cured or waived.
Any original notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the exchange agent, as soon as
practicable following the expiration date to you, unless you request in
the letter of transmittal that the original notes be sent to someone
else.
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We reserve the right in our sole discretion to purchase or make
offers for any original notes that remain outstanding after the
expiration date, or to terminate the exchange offer, and to the extent
permitted by applicable law, purchase original notes in the open market
in privately negotiated transactions, or otherwise. The terms of any
such purchases or offers could differ from the terms of this exchange
offer.
In addition, we will not accept for exchange any original notes
tendered, and no exchange notes will be issued in exchange for any
original notes if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement or the qualification
of the indenture relating to the exchange notes under the Trust
Indenture Act of 1939. We are required to use reasonable efforts to
obtain the withdrawal of any stop order at the earliest possible time.
In all cases acceptance and issuance of exchange notes for
tendered original notes will be made only after timely receipt by the
exchange agent of certificates for original notes or a timely
confirmation from DTC of such original notes into the exchange agent's
account at DTC, a properly completed and duly executed letter of
transmittal (or, with respect to DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of
and agreement to be bound by the letter of transmittal for such
exchange offer), and all other required documents.
If we do not accept your tendered original notes or if you
submitted original notes for a greater aggregate principal amount than
you desire to exchange, then the unaccepted or unexchanged original
notes will be returned without expense to you. In the case of original
notes tendered by book-entry transfer into the exchange agent's account
at DTC pursuant to the book-entry transfer procedures described below,
such non-exchanged original notes will be credited to an account
maintained with DTC, as promptly as practicable after the expiration or
termination of the exchange offer.
The conditions stated above are for our sole benefit and may be
asserted by us at any time or for any reason or may be waived by us in
whole or in part at any time in our sole discretion. You should be
aware that should the exercise of our rights constitute a material
change, then the exchange offer will be extended for an additional five
business days. The failure by us to exercise any of our rights shall
not constitute a waiver.
Book-entry transfer
The exchange agent will make requests to establish accounts with
respect to the original notes at DTC for the purposes of the exchange
offer within two business days after the date of this prospectus. Any
financial institution that is a participant in DTC's system, such as
Euroclear or Clearstream, may make book-entry delivery of the original
notes being tendered by causing DTC to transfer the original notes into
that exchange agent's account at DTC in accordance with the appropriate
procedures for transfer. However, although delivery of original notes
may be effected through book-entry transfer at DTC, a letter of
transmittal or copy thereof, with any required signature guarantees and
any other required documents, must, except as set forth in the
following paragraph, be transmitted to and received by the exchange
agent at its address set forth under "--Exchange Agent" on or before
the expiration date or the guaranteed delivery procedures described
below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method
of processing exchange offers through DTC. To accept the exchange offer
through DTC's Automated Tender Offer Program, participants in DTC must
send electronic instructions to DTC through DTC's communication system
instead of sending a signed, hard copy letter of transmittal. DTC is
obligated to communicate those electronic instructions to the exchange
agent. To tender original notes through DTC's Automated Tender Offer
Program, the electronic instructions sent to DTC and transmitted by DTC
to the exchange agent
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must contain the participant's acknowledgment of its receipt of and
agreement to be bound by the letter of transmittal for such original
notes.
Guaranteed delivery procedures
If you wish to tender your original notes and the original notes
are not immediately available, or time will not permit your original
notes or other required documents to reach the exchange agent before
the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
o the tender is made through an Eligible Institution;
o before the expiration date, the exchange agent received from
such Eligible Institution a properly completed and duly
executed letter of transmittal or a facsimile thereof and
notice of guaranteed delivery, substantially in the form
provided by us by telegram, telex, facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery shall
state your name and address and the amount of original notes
tendered, that the tender is being made, and guarantee that
within five New York Stock Exchange trading days after the
date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered original notes in
proper form for transfer, or a confirmation from DTC and any
other documents required by the applicable letter of
transmittal, will be deposited by the Eligible Institution
with the exchange agent; and the certificates for all
physically tendered original notes, in proper form for
transfer, or a confirmation from DTC and all other documents
required by the applicable letter of transmittal, are received
by the exchange agent within three NYSE trading days after the
date of execution of the notice of guaranteed delivery.
Withdrawal rights
You may withdraw your tender of original notes at any time prior
to 5:00 p.m., London time, on the expiration date.
For a withdrawal of tendered original notes to be effective, a
written or, for a DTC participant, electronic ATOP transmission notice
of withdrawal must be received by the exchange agent at its address set
forth in the next section of this prospectus entitled "Exchange Agent",
prior to 5:00 p.m., London time, on the expiration date.
Any such notice of withdrawal must:
o specify your name;
o identify the original notes to be withdrawn, including the
certificate number or numbers and principal amount of such
original notes.
o where certificates for original notes have been transmitted,
specify the name in which such certificates were registered if
different from you as withdrawing holder;
o be signed by you in the same manner as the original signature
on the letter of transmittal by which your original notes were
tendered, including any required signature guarantees, or be
accompanied by documents of transfer sufficient to have the
trustee of your original notes register the transfer of those
notes into the name of the person withdrawing the tender; and
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o specify the name in which you want the withdrawn original
notes to be registered, if different from your name.
All questions as to the validity, form, and eligibility (including
questions regarding time of receipt) of such notices will be determined
by us and our determination shall be final and binding on all parties.
Any original notes withdrawn will be considered not to have been
validly tendered for the purposes of the exchange offer. Any original
notes which have been tendered for exchange but which are not exchanged
for any reason will be returned to you without cost as soon as
practicable after withdrawal, rejection of tender, or termination of
the exchange offer relating to such original notes. Properly withdrawn
original notes may be retendered by following one of the procedures
described in "--Procedures for Tendering Your Original Notes" at any
time on or prior to the expiration date.
Exchange agent
All executed letters of transmittal should be directed to the
exchange agent. We have appointed The Bank of New York as the exchange
agent for the exchange offer. Questions, requests for assistance and
requests for additional copies of the prospectus or a letter of
transmittal should be directed to the exchange agent addressed as
follows:
In the U.S.A.: In the United Kingdom:
The Bank of New York The Bank of New York
101 Barclay Street 30 Cannon Street
New York, New York 10286 London EC4M 6XH
Attention: Gertrude Jeanpierre Attention: Emma Wilkes
Telephone: (212) 815-5920 Telephone: (44-20) 7964-7235
Fax: (212) 815-6339 Fax: (44-20) 7964-7294
Fees and expenses
We will not make any payments to brokers, dealers, or others
soliciting acceptances of the exchange offer. We will pay all expenses
incurred in soliciting tenders in connection with this exchange offer.
The principal solicitation is being made by mail. However, additional
solicitations may be made in person or by telephone by our officers and
employees.
Transfer taxes
If you tender original notes for exchange you will not be
obligated to pay any transfer taxes. If, however, you request that your
original notes not tendered or not accepted in the exchange offer be
returned to a different person, you will be responsible for the payment
of any applicable transfer tax. If a transfer tax is imposed for any
reason other than for the exchange of the original notes pursuant to
this exchange offer, then as the registrant holder of the original
notes you will be responsible for any transfer taxes. You will be
responsible for such transfer tax whether it is imposed on you or any
other persons. Furthermore, you should be aware that you will be billed
directly if satisfactory evidence of payment of such taxes or exemption
is not submitted with the letter of transmittal.
Consequences of failure to exchange
Your participation in the exchange offer is voluntary. You are
urged to consult your financial and tax advisors in making your own
decisions on what actions to take and should read the "Taxation"
section.
If you do not exchange your original notes, your notes may be
resold only:
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o to a person whom you reasonably believe is a qualified
institutional buyer in a transaction meeting the requirements
of Rule 144A of the Securities Act of 1933;
o in a transaction meeting the requirements of Rule 144 under
the Securities Act of 1933;
o in accordance with another exemption from the registration
requirements of the Securities Act of 1933 and based upon an
opinion of your counsel if we so request;
o in an offshore transaction in accordance with Regulation S
under the Securities Act of 1933;
o to us; or
o under an effective registration statement.
In each case, you must comply with any applicable securities laws
of the U.S. or any other applicable jurisdiction.
Under certain circumstances, we are required to file a shelf
registration statement. We do not currently expect to file a shelf
registration statement.
Payment of additional interest upon registration default
We will be required to pay penalty interest on the original notes
in the event that:
o the exchange offer registration statement is not declared
effective on or before August 25, 2000;
o the exchange offer is not completed on or before September 26,
2000, or a shelf registration statement, if it has been
required to be filed, is not declared effective within 120
days after it has been filed; or
o the exchange offer registration statement or the shelf
registration statement is declared effective but then is
withdrawn or ceases to be effective or usable.
Each of these events is a registration default. In the case of a
registration default, we will be required to pay additional interest in
cash on each interest payment date in an amount equal to one-quarter of
one percent (0.25%) per year of the applicable principal amount of the
original notes with respect to the first 90-day period following the
registration default. The amount of this additional interest will
increase to one-half of one percent (0.5%) per year for the second
90-day period following the registration default. This will increase to
three-quarters of one per cent (0.75%) per year for the third 90-day
period following the registration default, and will increase to one
percent (1.0%) per year thereafter until the registration default has
been cured. Once the registration default is cured, the additional
interest will cease to accrue.
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CAPITALIZATION
The following table sets forth our cash and restricted cash and
our capitalization as of June 30, 2000. The information set forth in
the following table should be read in conjunction with the financial
statements incorporated in this prospectus by reference. Since the
exchange offer will involve an exchange of outstanding securities, it
will have no effect on our capitalization.
<TABLE>
<CAPTION>
As of June 30, 2000
-----------------------------
Euro $(1)
<S> <C> <C>
Cash and restricted cash............................................... 1,580,907 1,501,861
========= =========
Current maturities of capital lease obligations........................ 1,401 1,332
Long-term debt (less current portion).................................. 35,558 33,780
Long-term debt (Senior Notes and Senior Convertible Notes)............. 1,659,399 1,576,429
Capital lease obligations, net of current portion...................... 6,211 5,900
--------- ---------
Total debt.......................................................... 1,702,569 1,617,441
Shareholders' equity:
Shares, par value NLG 0.05 per share -- 370,000,000
shares authorized and 87,771,691shares issued....................... 1,992 1,892
Additional paid-in capital............................................ 988,711 939,275
Warrants.............................................................. 1,011 960
Accumulated deficit................................................... (417,694) (396,809)
--------- ---------
Total shareholders' equity.......................................... 574,020 545,318
--------- ---------
Total capitalization................................................ 2,276,589 2,162,759
========= =========
</TABLE>
----------
(1) Solely for the convenience of the reader, euro amounts have been
translated into U.S. Dollars at the Noon Buying Rate on June 30,
2000 of $0.95 per Euro 1.00.
There has been no material change in the capitalization of the
Company since June 30, 2000.
46
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
We issued the original notes under an indenture dated as of March
30, 2000 between us and The Bank of New York, as trustee. We will issue
the exchange notes under the same indenture, which will be qualified
under the United States Trust Indenture Act of 1939, as amended, upon
the effectiveness of the registration statement of which this
prospectus is a part. The form and terms of the exchange notes are the
same in all material respects as the form and terms of the original
notes, except that the exchange notes will have been registered under
the Securities Act and, therefore, will not bear legends restricting
their transfer (other than those relating to the offer and sale of
exchange notes in The Netherlands and the United Kingdom). Upon the
consummation of the exchange offer, if you hold the original notes, you
will not be entitled to registration rights under, or the contingent
increase in interest rate provided pursuant to, the registration rights
agreement that we entered into at the same time as the indenture. The
exchange notes will evidence the same debt as the original notes and
will be treated as a single class under the indenture with any original
notes that remain outstanding. We refer to the original notes and
exchange notes collectively as the "notes."
The following description is a summary of the material provisions
of the indenture. It does not restate the indenture in its entirety. We
urge you to read the indenture because it, and not this description,
defines your rights as holders of the notes. We have filed a copy of
the indenture with the Commission as an exhibit to the registration
statement of which this prospectus is a part. For purposes of this
section, references to "we", "our" or "VersaTel" includes only VersaTel
Telecom International N.V. and not its subsidiaries. The definitions of
certain terms used in the following summary are set forth under "--
Certain Definitions."
Terms of the notes
The notes will:
o be unsecured senior obligations of VersaTel;
o be limited to Euro 400,000,000 aggregate principal amount, of
which Euro 300,000,000 aggregate principal amount has been
issued;
o mature on March 30, 2000.
Ranking
The notes are our general unsecured obligations and rank senior in
right of payment to all our future debt that is, by its terms or by the
terms of the agreement or instrument governing such debt, expressly
subordinated in right of payment to the notes and equal in right of
payment with all our existing and future senior debt, including the
original notes.
We are a holding company with limited assets and we operate our
business through our Restricted Subsidiaries and our Affiliates. Any
right of ours or our creditors, including holders of the notes, to
participate in the assets of any of our Subsidiaries upon any
liquidation or administration of any such Subsidiary will be subject to
the prior claims of the creditors of such Subsidiary. The claims of our
creditors, including holders of the notes, will be effectively
subordinated to all existing and future third-party indebtedness and
liabilities, including trade payables, of our Subsidiaries. At June 30,
2000, our Subsidiaries would have had total liabilities of Euro 227.6
million reflected on our consolidated balance sheet. We and our
Subsidiaries may incur other debt in the future, including secured
debt.
47
<PAGE>
The notes will not be entitled to any security and will not be
entitled to the benefit of any guarantees, except under the
circumstances described under "-- Certain Covenants -- Limitation on
Issuances of Guarantees of Indebtedness by Restricted Subsidiaries."
Principal, Maturity and Interest
The notes are limited in aggregate principal amount to
Euro 400,000,000. In this exchange offer we are offering to exchange
the entire Euro 300,000,000 in original notes that we issued. The notes
mature on March 30, 2010. The redemption price at maturity is 100%. The
notes bear interest at the rate of 11 1/4% per annum, payable
semi-annually in arrears on each interest payment date, which are March
30 and September 30, and which begin on September 30, 2000. We will pay
interest to the person in whose name the note (or any predecessor note)
is registered at the close of business on the preceding March 15 or
September 15, as the case may be. Interest on the notes began to accrue
from the issuance date. Interest will be computed on the basis of a
360-day year of twelve 30-day months. We may issue additional notes,
which we will refer to as additional notes, from time to time after the
initial issuance of the notes up to an aggregate principal amount of
Euro 100.0 million, subject to the provisions of the indenture
described below under "-- Certain Covenants" and applicable law. The
original notes, any exchange notes and any additional notes
subsequently issued under the indenture would be treated as a single
class for all purposes under the indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase.
Except where reference is specifically made to the additional notes,
references to the "notes" in this description include references to the
original notes, any exchange notes and any additional notes that may be
issued.
We will pay the principal of, premium, if any, interest,
additional amounts, if any, and liquidated damages, if any, on the
notes at the office or agency that we maintain for that purpose within
the City and State of New York. Alternatively, at our option, we may
make such payments by check mailed to the holders of the notes at their
respective addresses set forth in the register of holders of notes.
Until we otherwise designate, our office or agency in New York will be
the office of the trustee maintained for such purpose. The notes will
be issued in minimum denominations of Euro 1,000 (in principal amount)
and integral multiples of Euro 1,000.
Mandatory Redemption
We will not be required to make mandatory redemptions or sinking
fund payments prior to maturity of the notes.
Optional Redemption
Except as described below and in the following paragraph or under
"Redemption for Taxation Reasons", we may not choose to redeem the
notes before March 30, 2005. From and after March 30, 2005, we may
choose to redeem the notes, in whole or in part, upon not less than 30
nor more than 60 days' prior notice, which we will publish in a leading
newspaper having a general circulation in New York (which we expect to
be The Wall Street Journal) and in Amsterdam (which we expect to be Het
Financieele Dagblad). In the case of definitive notes, we will mail
notice by first-class mail to each holder's registered address, at the
redemption prices (expressed as a percentage of principal amount) set
forth below, plus accrued and unpaid interest, additional amounts, if
any, and liquidated damages, if any, to the applicable redemption date
(and, in the case of definitive notes, subject to the right of holders
of record on the relevant record date to receive interest and
additional amounts, if any, and liquidated damages, if any, due on the
relevant interest payment date in respect thereof), if redeemed during
the twelve-month period beginning on March 30 of each of the years
indicated below:
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<PAGE>
Redemption
Year Price
---- ----------
2005.................................................. 105.625%
2006.................................................. 103.750%
2007.................................................. 101.875%
2008 and thereafter................................... 100.000%
In addition, at any time on or prior to March 30, 2003, we may
choose to redeem up to 35% of the aggregate principal amount of the
original notes and exchange notes at a redemption price equal to 111
1/4% of the aggregate principal amount thereof plus accrued and unpaid
interest, additional amounts, if any, and liquidated damages, if any,
to the date of redemption, with the Net Cash Proceeds received by or
invested in us from one or more Equity Offerings. We may only do this,
however, if:
o at least 65% of the aggregate original principal amount of the
notes would remain outstanding immediately after the
redemption; and
o we give notice of the redemption to holders within 60 days of
the date of the closing of any such Equity Offering.
In the event of any redemption of the notes, payments will be made
as described under "-- Principal, Maturity and Interest."
In the case of any partial redemption, selection of the notes for
redemption will be made by the trustee in compliance with the
requirements of the principal securities exchange, if any, on which
such notes are listed or, if such notes are not so listed or such
exchange prescribes no method of selection, on a pro rata basis, by lot
or by such other method as the trustee in its sole discretion shall
deem to be fair and appropriate, although no note of Euro 1,000 in
original principal amount or less shall be redeemed in part. On and
after the redemption date, interest ceases to accrue on the notes or
portions thereof called for redemption.
Redemption for Taxation Reasons
We may also choose to redeem the notes in whole but not in part,
at a redemption price equal to the aggregate principal amount thereof,
together with accrued and unpaid interest plus liquidated damages, if
any, to the redemption date we choose, and all additional amounts, if
any, then due and which will become due on the tax redemption date as a
result of the redemption or otherwise.
We may also choose to redeem if we, as a result of
o any change in, or amendment to, the laws or treaties (or any
regulations or rulings promulgated thereunder) of The
Netherlands (or any political subdivision or taxing authority
thereof) or any other Relevant Taxing Jurisdiction (as defined
in "-- Withholding Taxes") affecting taxation which becomes
effective on or after the Issue Date, or
o any change in or new or different position regarding the
application, administration or interpretation of such laws,
treaties, regulations or rulings (including a holding,
judgment or order by a court of competent jurisdiction), which
change, amendment, application or interpretation becomes
effective on or after the Issue Date,
we are, or on the next interest payment date we would be, required
to pay additional amounts, and we determine that such payment
obligation cannot be avoided by taking reasonable measures.
49
<PAGE>
If we choose to redeem the notes for these reasons, we must give
not less than 30 nor more than 60 days' notice to the holders (which
notice will be irrevocable), and we must give such notice no earlier
than 90 days prior to the earliest date on which we would be obligated
to make such payment or withholding if a payment in respect of the
notes were then due. Prior to the publication or, where relevant,
mailing of any notice of redemption of the notes pursuant to the
foregoing, we will deliver to the trustee an opinion of an independent
tax counsel of recognized international standing to the effect that the
circumstances referred to above exist. The trustee shall accept such
opinion as sufficient evidence of the satisfaction of the conditions
precedent described above, in which event it shall be conclusive and
binding on the holders.
Certain Covenants
Limitation on Indebtedness
(a) We will not, and will not permit any of our Restricted
Subsidiaries to, Incur any Indebtedness; provided, however,
that if no Default or Event of Default shall have occurred and
be continuing at the time, or would occur as a consequence, of
the Incurrence of any such Indebtedness, we may Incur
Indebtedness and our Restricted Subsidiaries may Incur
Indebtedness under one or more Credit Facilities if
immediately thereafter the Indebtedness to Consolidated Cash
Flow Ratio for the preceding two full fiscal quarters
multiplied by two, determined on a pro forma basis as if any
such Indebtedness had been Incurred and the proceeds thereof
had been applied at the beginning of such two fiscal quarters,
would be greater than zero and less than or equal to 6.0 to 1.
The Indebtedness to Consolidated Cash Flow Ratio is defined as
the ratio of
o the aggregate principal amount of Indebtedness of us and
our Restricted Subsidiaries on a consolidated basis
outstanding as of the Transaction Date to
o the pro forma Consolidated Cash Flow.
(b) Notwithstanding the foregoing, (except for Indebtedness under
subsection (viii) below) we and (except for Indebtedness under
subsections (vi), (vii) and (x) below) any Restricted
Subsidiary may Incur each and all of the following:
(i) Indebtedness under one or more Credit Facilities, in an
aggregate principal amount at any one time outstanding
not to exceed the greater of (x) Euro 200.0 million and
(y) 80.0% of Eligible Accounts Receivable at any one
time outstanding, subject to any permanent reductions
required by any other terms of the indenture;
(ii) Indebtedness Incurred to finance the cost (including
the cost of design, development, acquisition,
construction, installation, improvement,
transportation or integration) of network assets
(including licenses), equipment, inventory or other
tangible assets used or useful in the Permitted
Business acquired by us or a Restricted Subsidiary
(including acquisitions by way of real property,
leasehold improvements, Capitalized Leases and
acquisitions of the Capital Stock of a Person that
becomes a Restricted Subsidiary to the extent of the
fair market value of the network assets, equipment,
inventory or other tangible assets acquired) after
the closing date or to finance or support working
capital or capital expenditures for the Permitted
Business;
(iii) Indebtedness of any Restricted Subsidiary owing to and
held by us, Indebtedness of us owing to and held by any
Restricted Subsidiary or Indebtedness of any Restricted
Subsidiary owing to and held by any other Restricted
Subsidiary; provided that any subsequent issuance or
transfer of any Capital Stock which results in any such
Restricted
50
<PAGE>
Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other
than to us or another Restricted Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of
such Indebtedness not permitted by this clause (iii);
and provided, further, that Indebtedness of us owing
to and held by a Restricted Subsidiary must be
unsecured and subordinated in right of payment to the
notes;
(iv) Indebtedness is sued in exchange for, or the net
proceeds of which are used to refinance or refund, then
outstanding Indebtedness of us or a Restricted
Subsidiary, other than Indebtedness Incurred under
clauses (i), (iii), (v), (viii) and (xii) of this
paragraph, and any refinancings thereof in an amount
not to exceed the amount so refinanced or refunded
(plus premiums, accrued interest, and reasonable fees
and expenses); provided that such new Indebtedness
shall only be permitted under this clause (iv) if
o in case the notes are refinanced in part or the
Indebtedness to be refinanced or refunded is pari
passu with the notes, such new Indebtedness, by its
terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness
is issued or remains outstanding, is expressly made
pari passu with, or subordinate in right of payment
to, the remaining notes,
o in case the Indebtedness to be refinanced is
subordinated in right of payment to the notes, such
new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such
new Indebtedness is issued or remains outstanding,
is expressly made subordinate in right of payment
to the notes at least to the extent that the
Indebtedness to be refinanced or refunded is
subordinated to the notes,
o the Stated Maturity of such new Indebtedness,
determined as of the date of Incurrence of such new
Indebtedness, is no earlier than the Stated
Maturity of the Indebtedness being refinanced or
refunded and
o such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, has a Weighted
Average Life to Maturity which is not less than the
remaining Weighted Average Life to Maturity of the
Indebtedness to be refinanced or refunded;
and provided, further, that in no event may our Indebtedness
be refinanced or refunded by means of any Indebtedness of any
Restricted Subsidiary pursuant to this clause (iv);
(v) Indebtedness
o in respect of performance, surety or appeal bonds
or letters of credit supporting Trade Payables, in
each case provided in the ordinary course of
business,
o under Currency Agreements and Interest Rate
Agreements; provided that such agreements do not
increase the Indebtedness of the obligor
outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities
and compensation payable thereunder, and
o arising from agreements providing for
indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters
of credit, surety bonds or performance bonds
securing any of our or any of our Restricted
Subsidiaries' obligations or any of its Restricted
Subsidiaries pursuant to such agreements, in any
case Incurred in
51
<PAGE>
connection with the disposition of any business,
assets or Restricted Subsidiary of us (other than
Guarantees of Indebtedness Incurred for the purpose
of financing such acquisition by the Person
acquiring all or any portion of such business,
assets or Restricted Subsidiary), in a principal
amount not to exceed the gross proceeds actually
received by us or any Restricted Subsidiary in
connection with such disposition;
(vi) Indebtedness, to the extent that the net proceeds
thereof are promptly
o used to repurchase notes tendered in a Change of
Control Offer or
o deposited to defease all of the notes as described
below under "Legal Defeasance and Covenant
Defeasance";
(vii) Indebtedness of us represented by the notes (other than
the additional notes);
(viii) Indebtedness represented by a Guarantee of the notes
and Guarantees of other Indebtedness of us by a
Restricted Subsidiary, in each case permitted by and
made in accordance with the "Limitation on Issuances of
Guarantees of Indebtedness by Restricted Subsidiaries"
covenant;
(ix) Acquired Indebtedness;
(x) Indebtedness of us not to exceed, at any one time
outstanding,
o 2.00 times the Net Cash Proceeds from (1) the
issuance and sale after May 20, 1998, other than
to a Subsidiary, of our Equity Interests (other
than Redeemable Stock) and (2) capital
contributions made in us after May 20, 1998 (other
than by a Subsidiary) less, in each case, the
amount of such proceeds used to make Restricted
Payments as provided in clause (C)(2) of the first
paragraph of clause (iii), (iv) or (vii) of the
second paragraph of the "Limitation on Restricted
Payments" covenant and
o the fair market value of any Telecommunications
Assets acquired by us or such Restricted Subsidiary
in exchange for our Equity Interests issued after
May 20, 1998; provided, however, that in
determining the fair market value of any such
Telecommunications Assets so acquired, the fair
market value of such Telecommunications Assets will
be determined by a majority of our Board of
Directors, which determination will be evidenced
by a resolution thereof; and provided further that
such Indebtedness does not mature prior to the
Stated Maturity of the notes and the Weighted
Average Life to Maturity of such Indebtedness is
longer than that of the notes;
(xi) Indebtedness outstanding as of the Issue Date;
(xii) Indebtedness (in addition to Indebtedness permitted
under clauses (i) through (xi) above) in an aggregate
principal amount outstanding at any one time not to
exceed an amount equal to 5% of our consolidated net
tangible assets as of such date; and
(xiii) Strategic Subordinated Indebtedness.
(c) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness
that we or any Restricted Subsidiary may Incur pursuant to
52
<PAGE>
this "Limitation on Indebtedness" covenant shall not be deemed
to be exceeded with respect to any outstanding Indebtedness
solely as a result of fluctuations in the exchange rate of
currencies.
(d) For purposes of determining any particular amount of
Indebtedness under this "Limitation on Indebtedness" covenant,
Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included;
provided, however, that the foregoing shall not in any way be
deemed to limit the provisions of "-- Limitation on Issuances
of Guarantees of Indebtedness by Restricted Subsidiaries". For
purposes of determining compliance with this "Limitation on
Indebtedness" covenant,
o in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness
described in the above clauses, we, in our sole
discretion, shall classify (and from time to time may
reclassify) such item of Indebtedness and only be
required to include the amount and type of such
Indebtedness in one of such clauses and
o the principal amount of Indebtedness issued at a price
that is less than the principal amount thereof shall
be equal to the amount of the liability in respect
thereof determined in conformity with U.S. GAAP.
Limitation on Restricted Payments
We will not, and will not permit any Restricted Subsidiary to,
directly or indirectly,
(i) declare or pay any dividend or make any distribution on
account of any Equity Interest in us or any Restricted
Subsidiary to the holders thereof, including any dividend or
distribution payable in connection with any merger or
consolidation (other than (A) dividends or distributions
payable solely in our Equity Interests (other than
Redeemable Stock), (B) dividends or distributions made only
to us or a Restricted Subsidiary and (C) pro rata dividends
or distributions on Capital Stock of a Restricted
Subsidiary held by Persons other than us or a Restricted
Subsidiary),
(ii) purchase, redeem, retire or otherwise acquire for value any
of our Equity Interests or any Equity Interests of any
Restricted Subsidiary (other than any such Equity Interests
owned by us or any Restricted Subsidiary),
(iii) make any principal payment or redeem, repurchase, defease,
or otherwise acquire or retire for value, in each case,
prior to any scheduled repayment, or maturity, any
Indebtedness of us that is subordinated in right of payment
to the notes, or
(iv) make any Investment, other than a Permitted Investment, in
any Person
(all such payments or any other actions described in clauses (i)
through (iv) above being collectively referred to as "Restricted
Payments").
We may, however, make any such Restricted Payment if:
(A) no Default or Event of Default shall have occurred and be
continuing;
(B) we could Incur at least Euro 1.00 of additional Indebtedness
under the first paragraph of the "Limitation on
Indebtedness" covenant; and
53
<PAGE>
(C) the aggregate amount expended for all Restricted Payments
(the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board
Resolution) after May 20, 1998 is less than the sum of
(i) Cumulative Consolidated Cash Flow minus 150% of
Cumulative Consolidated Fixed Charges plus
(ii) 100% of the aggregate Net Cash Proceeds received by
us after May 20, 1998 as a capital contribution or
from the issuance and sale of its Equity Interests
(other than Redeemable Stock, and except to the
extent such proceeds are used to Incur new
Indebtedness pursuant to clause (x) of paragraph (b)
of the "Limitation on Indebtedness" covenant) to a
Person (other than a Restricted Subsidiary), plus
(iii) the aggregate amount by which Indebtedness (other
than any Indebtedness subordinated in right of
payment to the notes) of us or any Restricted
Subsidiary is reduced on our balance sheet upon the
conversion or exchange (other than by a Restricted
Subsidiary) subsequent to May 20, 1998 into Equity
Interests (other than Redeemable Stock and less the
amount of any cash, or the fair value of property,
distributed by us or any Restricted Subsidiary upon
such conversion or exchange) and plus
(iv) without duplication of any amount included in the
calculation of Consolidated Net Income, in the case
of repayment of, or return of capital in respect of,
any Investment constituting a Restricted Payment made
after May 20, 1998, an amount equal to the lesser of
the repayment of, the return of capital with respect
to, such Investment and the cost of such Investment,
in either case less the cost of the disposition of
such Investment and net of taxes.
The foregoing provisions shall not prohibit:
(i) the payment of any dividend within 60 days after the
date of declaration thereof if, at said date of
declaration, such payment would comply with the
provisions of the indenture;
(ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness
that is subordinated in right of payment to the notes
including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iv) of paragraph
(b) of the "Limitation on Indebtedness" covenant;
(iii) the repurchase, redemption or other acquisition of
our Equity Interests in exchange for, or out of the
Net Cash Proceeds of, a substantially concurrent
capital contribution or offering of our Equity
Interests (other than Redeemable Stock) to any Person
(other than a Restricted Subsidiary);
(iv) the repurchase, redemption or other acquisition of
Indebtedness of us which is subordinated in right of
payment to the notes in exchange for, or out of the
Net Cash Proceeds of, a substantially concurrent
capital contribution or offering of Equity Interests
(other than Redeemable Stock) to any Person (other
than a Restricted Subsidiary);
(v) the purchase of any subordinated Indebtedness at a
purchase price not greater than 101% of the principal
amount thereof following a Change of Control pursuant
to an obligation in the instruments governing such
subordinated Indebtedness to purchase or redeem such
subordinated Indebtedness as a result of such Change
of Control; provided, however, that no
54
<PAGE>
such purchase or redemption shall be permitted until
we have completely discharged our obligations
described under "--Repurchase of Notes upon a Change
of Control" (including the purchase of all notes
tendered for purchase by holders) arising as a result
of such Change of Control;
(vi) repurchases of warrants issued in connection with the
First High Yield Offering and the Second High Yield
Offering;
(vii) Investments in Permitted Businesses acquired in
exchange for Equity Interests (other than Redeemable
Stock) or made with the Net Cash Proceeds from the
issuance and sale subsequent to May 20, 1998 of
Equity Interests to any Person (other than a
Restricted Subsidiary) (except to the extent such
proceeds are used to incur new Indebtedness pursuant
to clause (x) of paragraph (b) of the "Limitation on
Indebtedness" covenant);
(viii) repurchases of our Equity Interests from our
directors, officers and employees or those of any of
our Restricted Subsidiaries deemed to occur upon
exercise of stock options if such Equity Interests
represent a portion of the exercise price of such
options;
(ix) payments or distributions, to dissenting stockholders
pursuant to applicable law, pursuant to or in
connection with a consolidation, merger or transfer
of assets that complies with the provisions of the
indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property
and assets of us and our Restricted Subsidiaries and
(x) other Restricted Payments, not to exceed Euro 2.5
million;
provided that, in the case of clauses (ii) through (x), no Default
or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the immediately
preceding paragraph (other than the Restricted Payments referred to in
clauses (ii), (iii) and (iv) thereof), shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect
to any subsequent Restricted Payments. In the event the proceeds of an
issuance of our Equity Interests (other than Redeemable Stock) are used
for the redemption, repurchase or other acquisition of the notes, then
the Net Cash Proceeds of such issuance shall be included in clause (C)
of the first paragraph of this "Limitation on Restricted Payments"
covenant only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of the notes.
Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries
We will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to
(i) pay dividends or make any other distributions permitted by
applicable law on any Equity Interests of such Restricted
Subsidiary owned by us or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to us or any other Restricted
Subsidiary,
(iii) make loans or advances to us or any other Restricted
Subsidiary, or
(iv) transfer any of its property or assets to us or any other
Restricted Subsidiary.
55
<PAGE>
The foregoing provisions shall not prohibit any encumbrances or
restrictions:
(i) existing under or by reason of any agreement in effect on
the Issue Date, and any amendments, supplements, extensions,
refinancings, renewals or replacements of such agreements;
provided that the encumbrances and restrictions in any such
amendments, supplements, extensions, refinancings, renewals
or replacements are no more restrictive than those
encumbrances or restrictions that are then in effect and
that are being amended, supplemented, extended, refinanced,
renewed or replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Restricted Subsidiary acquired
by us or any Restricted Subsidiary after the Issue Date, or
the property or assets of such Restricted Subsidiary, and
existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions
are not applicable to any Person or the property or assets
of any Person other than such Person or the property or
assets of such Person so acquired, and any amendments,
supplements, extensions, refinancings, renewals or
replacements of agreements containing such encumbrances or
restrictions; provided that the encumbrances and
restrictions in any such amendments, supplements,
extensions, refinancings, renewals or replacements are no
more restrictive than those encumbrances or restrictions
that are then in effect and that are being amended,
supplemented, extended, refinanced, renewed or replaced;
(iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant,
o that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that
is, or is subject to, a lease, purchase mortgage
obligation, license, conveyance or contract or similar
property or asset,
o existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on,
any property or assets of us or any Restricted
Subsidiary not otherwise prohibited by the indenture or
o arising or agreed to in the ordinary course of
business, not relating to any Indebtedness, and that do
not, individually or in the aggregate, materially
detract from the value of property or assets of us or
any Restricted Subsidiary to us or any Restricted
Subsidiary;
(v) with respect to a Restricted Subsidiary and imposed pursuant
to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock
in, or property and assets of, such Restricted Subsidiary;
(vi) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if
o the encumbrance or restriction is not materially more
disadvantageous to the holders of the notes than is
customary in comparable financings (as determined by
the Board of Directors in good faith) and
o the Board of Directors determines in good faith that
any such encumbrance or restriction will not materially
affect our ability to make principal or interest
payments on the notes; or
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(vii) customary limitations on the distribution or disposition of
assets or property in joint venture agreements entered into
in the ordinary course of business with respect to a
Restricted Subsidiary that we jointly control with a
strategic commercial partner who has an equity market
capitalization, a net asset value or annual revenues of at
least Euro 500 million and who is not our Affiliate;
provided, however, that such encumbrance or restriction is
applicable only to such Restricted Subsidiary.
Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall
prevent us or any Restricted Subsidiary from creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the
"Limitation on Liens" covenant that limit the right of the debtor to
dispose of the assets securing such Indebtedness.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
We will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue, transfer, convey, sell, lease or
otherwise dispose of any shares of Capital Stock (including options,
warrants or other rights to purchase shares of such Capital Stock) of
such Restricted Subsidiary or any other Restricted Subsidiary to any
Person (other than (i) to us or a Wholly Owned Restricted Subsidiary,
(ii) issuances of director's qualifying shares and (iii) as required by
applicable law, issuances or sales to foreign nationals of the
jurisdiction in which a Restricted Subsidiary is organized), unless
(A) the Net Cash Proceeds from such issuance, transfer,
conveyance, sale, lease or other disposition are applied in
accordance with the provisions of the "Limitation on Asset
Sales" covenant and
(B) immediately after giving effect to such issuance, transfer,
conveyance, sale, lease or other disposition, such
Restricted Subsidiary either continues to be a Restricted
Subsidiary or if such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary, then any Investment in
such Person remaining after giving effect to such issuance,
transfer, conveyance, sale, lease or other disposition would
have been permitted to be made under the "Limitation on
Restricted Payments" covenant if made on the date of such
issuance, transfer, conveyance, sale, lease or other
disposition (valued as provided in the definition of
"Investment").
Notwithstanding the foregoing, we may sell all of the Capital
Stock of a Restricted Subsidiary in compliance with the provisions of
the "Limitation on Asset Sales" covenant.
Limitation on Transactions with Shareholders and Affiliates
We will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction or
series of transactions (including, without limitation, the purchase,
sale, lease or exchange of property or assets, or the rendering of any
service) with any direct or indirect holder (or any Affiliate of such
holder) of 5% or more of any class of our Capital Stock or with any of
our Affiliates or any Restricted Subsidiary, unless
(i) such transaction or series of transactions is on terms that
are no less favorable to us or such Restricted Subsidiary
than could reasonably be obtained in a comparable
arm's-length transaction with a Person that is not such a
holder or Affiliate,
(ii) if such transaction or series of transactions involves
aggregate consideration in excess of Euro 5.0 million, then
we shall deliver to the trustee a resolution set forth in an
Officers' Certificate adopted by a majority of the Board of
Directors, including a majority of the independent,
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disinterested directors, approving such transaction or
series of transactions and certifying that such transaction
or series of transactions comply with clause (i) above, and
(iii) if such transaction or series of transactions involves
aggregate consideration in excess of Euro 15.0 million, then
we will deliver to the trustee a written opinion as to the
fairness to us or such Restricted Subsidiary of such
transaction or series of transactions from a financial point
of view from an internationally recognized investment
banking firm (or, if an investment banking firm is generally
not qualified to give such an opinion, by an internationally
recognized appraisal firm or accounting firm).
The foregoing limitation does not limit and will not apply to
(i) any transaction between us and any of our Restricted
Subsidiaries or between Restricted Subsidiaries;
(ii) the payment of reasonable and customary regular fees to our
directors of or the directors of any Restricted Subsidiary
who are not our employees or employees of any Restricted
Subsidiary;
(iii) transactions permitted by the "Limitation on Restricted
Payments" covenant;
(iv) any transaction between us or any Restricted Subsidiary, on
the one hand, and any of our Affiliates, engaged primarily
in the Permitted Business, on the other hand (x) in the
ordinary course of business and consistent with commercially
reasonable practices or (y) approved by a majority of our
independent, disinterested directors;
(v) transactions pursuant to agreements or arrangements in
effect on March 24, 2000, as such agreements or arrangements
are in effect on March 24, 2000, or as thereafter amended or
supplemented in a manner not adverse to the Holders;
(vi) any payment pursuant to any tax sharing agreement between us
and any other Person with which we file a consolidated tax
return or with which we are part of a consolidated group for
tax purposes, provided, however, that such payment is not
greater than that which we would be required to pay as a
stand-alone taxpayer; and
(vii) customary directors' fees, indemnification and similar
arrangements, employee salaries, bonuses or employment
agreements, compensation or employee benefit arrangements
and incentive arrangements with any officer, director or
employee of us or any Restricted Subsidiary entered into in
the ordinary course of business (including customary
benefits thereunder).
Limitation on Liens
We will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any
Lien (other than Permitted Liens) on any asset or property of us or any
Restricted Subsidiary without making effective provisions for all of
the notes and all other amounts due under the indenture to be directly
secured equally and ratably with (or, if the obligation or liability to
be secured by such Lien is subordinated in right of payment to the
notes, prior to) the obligation or liability secured by such Lien.
Limitation on Asset Sales
We will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless
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(i) we or the Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the assets sold or
disposed of and
(ii) at least 75% of the consideration received for such Asset
Sale consists of cash or other Qualified Consideration.
We shall, or shall cause the relevant Restricted Subsidiary to,
apply the Net Cash Proceeds from an Asset Sale within 360 days of the
receipt thereof to
(A) permanently repay our unsubordinated Indebtedness or
Indebtedness of any Restricted Subsidiary, in each case
owing to a Person other than us or any of our Restricted
Subsidiaries,
(B) invest in Replacement Assets, or
(C) in any combination of repayment, prepayment, and
reinvestment permitted by the foregoing clauses (A) and (B);
provided, however, that the limitation set forth in this paragraph
shall not apply to the issuance or sale of capital stock of VersaTel
Internet or a newly-formed parent or subsidiary thereof organized under
the laws of The Netherlands so long as immediately after giving effect
to such issuances and sales, VersaTel Internet is a Restricted
Subsidiary and the Net Cash Proceeds from such issuances and sales are
not used to make a Restricted Payment.
The indenture provides that any Net Cash Proceeds from the Asset
Sale that are not invested as provided and within the time period set
forth in the second paragraph of this "Limitation on Asset Sales"
covenant will be deemed to constitute "Excess Proceeds." If at any time
the aggregate amount of Excess Proceeds exceeds Euro 10.0 million, we
shall, within 30 business days thereafter, make an Asset Sale Offer to
all holders of notes to purchase on a pro rata basis the maximum
principal amount of notes, that is an integral multiple of Euro 1,000,
equal to the Proportionate Share of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the outstanding principal
amount thereof, plus accrued and unpaid interest thereon, plus
additional amounts, if any, and liquidated damages, if any, to the date
fixed for the closing of such offer (and, in the case of definitive
notes, subject to the right of a Holder of record on the relevant
record date to receive such amounts on the relevant interest), in
accordance with the procedures set forth in the indenture. We will
commence an Asset Sale Offer with respect to Excess Proceeds within 30
business days after the date that Excess Proceeds exceeds Euro 10.0
million by publishing or, where relevant, mailing the notice required
pursuant to the terms of the indenture, with a copy to the trustee. To
the extent that the aggregate amount of notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, subject to
applicable law, we may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of notes
surrendered by holders thereof exceeds the amount of Excess Proceeds,
the selection of such notes for purchase will be made by the trustee in
the same manner as the notes are redeemed, as described under "--
Optional Redemption." Upon completion of any such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
We will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder
and will comply with the applicable laws of any non-U.S. jurisdiction
in which an Asset Sale Offer is made, in each case, to the extent such
laws or regulations are applicable in connection with the repurchase of
the notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the
provisions of the indenture, we will comply with the applicable
securities laws and regulations and shall not be deemed to have
breached its obligations described in the indenture by virtue thereof.
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Limitation on Issuances of Guarantees of Indebtedness by
Restricted Subsidiaries
We will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable
with respect to any of our Indebtedness unless
o such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the indenture providing
for a Guarantee of all of our obligations under the notes and
the indenture on terms substantially similar to the guarantee
of such Indebtedness, except that if such Indebtedness is by
its express terms subordinated in right of payment to the
notes, any such assumption, Guarantee or other liability of
such Restricted Subsidiary with respect to such Indebtedness
shall be subordinated in right of payment to such Restricted
Subsidiary's assumption, Guarantee or other liability with
respect to the notes substantially to the same extent as such
Indebtedness is subordinated to the notes and
o such Restricted Subsidiary waives, and will not in any manner
whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other
rights against us or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its
Guarantee;
provided any Restricted Subsidiary may guarantee our Indebtedness
under a Credit Facility if such Indebtedness is Incurred in accordance
with the "-- Limitation on Indebtedness" covenant.
Notwithstanding the foregoing, any Guarantee of all of our
obligations under the notes and the indenture by a Restricted
Subsidiary may provide by its terms that it will be automatically and
unconditionally released and discharged upon
o any sale, exchange or transfer, to any Person not our
Affiliate, of all of our and each Restricted Subsidiary's
Equity Interests in, or all or substantially all of the assets
of, such Restricted Subsidiary (which sale, exchange or
transfer is not prohibited by the indenture) or
o the release or discharge of the guarantee which resulted in
the creation of such Guarantee, except a discharge or release
by or as a result of payment under such guarantee.
Provision of Financial Statements and Reports
We will file on a timely basis with the Commission, to the extent
such filings are accepted by the Commission and whether or not we have
a class of securities registered under the Exchange Act,
o all annual and quarterly financial statements and other
financial information that would be required to be contained
in a filing with the Commission on Forms 20-F and 10-Q if we
were required to file such Forms (which financial statements
shall be prepared in accordance with U.S. GAAP), including a
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual
financial information, a report thereon by our certified
independent accountants and
o all current reports that would be required to be filed with
the Commission on Form 8-K if we were required to file such
reports.
Such quarterly financial information shall be filed with the
Commission within 45 days following the end of each of our fiscal
quarters, and such annual financial information shall be furnished
within 90 days following the end of each of our fiscal years. Such
annual financial information shall include the
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geographic segment financial information required to be disclosed by us
under Item 101(d) of Regulation S-K under the Securities Act. We will
also be required
o to file with the trustee, and provide to each holder, without
cost to such holder, copies of such reports and documents
within 15 days after the date on which we file such reports
and documents with the Commission or the date on which we
would be required to file such reports and documents if we
were so required, and
o if filing such reports and documents with the Commission is
not accepted by the Commission or is prohibited under the
Exchange Act, to supply at our cost copies of such reports and
documents to any prospective holder promptly upon request.
In addition, for so long as the notes remain outstanding and we
are not subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act nor exempt from reporting under Rule 12g3-2(b) of the
Exchange Act, we shall furnish to the holders and to securities
analysts and prospective investors, upon their request, any information
required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act and, to any beneficial holder of notes, information of
the type that would be filed with the Commission pursuant to the
foregoing provisions, upon the request of any such holder.
Repurchase of Notes upon a Change of Control
Upon the occurrence of a Change of Control, we will make a Change
of Control Offer to purchase all or any part (equal to Euro 1,000
aggregate principal amount and integral multiples thereof) of the notes
for a price in cash, which is the Change of Control Payment, equal to
101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of repurchase, plus additional amounts, if
any, and liquidated damages, if any, to the date of repurchase (and in
the case of definitive notes, subject to the right of holders of record
on the relevant record date to receive amounts due on the relevant
interest payment date). The indenture provides that within 30 days
following any Change of Control, we will publish notice of such in a
leading newspaper having a general circulation in New York (which we
expect to be The Wall Street Journal) and in Amsterdam (which we expect
to be Het Financieele Dagblad) or, in the case of definitive notes,
mail a notice to each holder, with a copy to the trustee, with the
following information:
o a Change of Control Offer is being made pursuant to the
covenant entitled "Repurchase of Notes upon a Change of
Control" and all notes properly tendered pursuant to such
Change of Control Offer will be accepted for payment;
o the purchase price and the purchase date, which will be
referred to as the Change of Control Payment Date, which will
be no earlier than 30 days nor later than 60 days from the
date such notice is published, or where relevant, mailed,
except as may be otherwise required by applicable law;
o any note not properly tendered will remain outstanding and
continue to accrue interest and liquidated damages, if any;
o unless we default in the payment of the Change of Control
Payment, all notes accepted for payment pursuant to the Change
of Control Offer will cease to accrue interest, as the case
may be, and to accrue liquidated damages, if any, on the
Change of Control Payment Date;
o holders electing to have any notes purchased pursuant to a
Change of Control Offer will be required to surrender the
notes, with the form entitled "Option of Holder to Elect
Purchase" on
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the reverse of the notes completed, to the paying agent and at
the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of
Control Payment Date;
o holders will be entitled to withdraw their tendered notes and
their election to require us to purchase such notes; provided,
however, that the paying agent receives, not later than the
close of business on the last day of the offer period, a
facsimile transmission or letter setting forth the name of the
holder, the principal amount of notes tendered for purchase,
and a statement that such holder is withdrawing tendered notes
and his election to have such notes purchased; and
o that holders whose notes are being purchased only in part will
be issued new notes equal in principal amount to the
unpurchased portion of the principal amount of the notes
surrendered, which unpurchased portion must be equal to Euro
1,000 in principal amount or an integral multiple thereof.
We will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder
and will comply with the applicable laws of any non-U.S. jurisdiction
in which a Change of Control Offer is made, in each case, to the extent
such laws or regulations are applicable in connection with the
repurchase of the notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations
conflict with the provisions of the indenture, we will comply with the
applicable securities laws and regulations and shall not be deemed to
have breached our obligations contained in the indenture by virtue
thereof. The provisions relating to our obligation to make an offer to
repurchase the notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in
principal amount of the notes.
The indenture will provide that on the Change of Control Payment
Date, we will, to the extent permitted by law,
o accept for payment all notes or portions thereof properly
tendered pursuant to the Change of Control Offer,
o deposit with the paying agent an amount equal to the aggregate
Change of Control Payment in respect of all notes or portions
thereof so tendered and
o deliver, or cause to be delivered, to the trustee for
cancellation the notes so accepted together with an Officers'
Certificate stating that such notes or portions thereof have
been tendered to and purchased by us.
The indenture will provide that the paying agent will promptly
either (x) pay to the holder against presentation and surrender (or, in
the case of partial payment, endorsement) of the global notes or (y) in
the case of definitive notes, mail to each holder of notes the Change
of Control Payment for such notes, and the trustee will promptly
authenticate and deliver to the holder of the global notes a new global
note or notes or, in the case of definitive notes, mail to each holder
a new definitive note, as applicable, equal in principal amount to any
unpurchased portion of the notes surrendered, if any; provided,
however, that each new definitive note will be in a principal amount of
Euro 1,000 or an integral multiple thereof. We will publicly announce
the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
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If we are unable to repay all of our Indebtedness that would
prohibit repurchase of the notes or are unable to obtain the consents
of the holders of Indebtedness, if any, of VersaTel outstanding at the
time of a Change of Control whose consent would be so required to
permit the repurchase of notes, then we will have breached such
covenant. This breach will constitute an Event of Default under the
indenture if it continues for a period of 30 consecutive days after
written notice is given to us by the trustee or the holders of at least
25% in aggregate principal amount of the notes outstanding. In
addition, the failure by us to repurchase notes at the conclusion of
the Change of Control Offer will constitute an Event of Default without
any waiting period or notice requirements.
There can be no assurances that we will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of notes) required by the foregoing covenant (as
well as any covenant that may be contained in other securities of us
which might be outstanding at the time). The above covenant requiring
us to repurchase the notes will, unless the consents referred to above
are obtained, require us to repay all Indebtedness then outstanding
which by its terms would prohibit such note repurchase, either prior to
or concurrently with such note repurchase.
The existence of a holder's right to require us to repurchase such
holder's notes upon the occurrence of a Change of Control may deter a
third party from seeking to acquire us in a transaction that would
constitute a Change of Control.
Consolidation, Merger and Sale of Assets
We will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of our
property and assets (as an entirety or substantially an entirety in one
transaction or in a series of related transactions) to, any Person or
permit any Person to merge with or into us and we will not permit any
of our Restricted Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions,
in the aggregate, would result in the sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of our
properties and assets or the properties and assets of us and our
Restricted Subsidiaries, taken as a whole, to any other Person or
Persons, unless:
(i) we will be the continuing Person, or the Person (if other than
us, which we will refer to as the "surviving entity") formed
by such consolidation or into which we are merged or that
acquired or leased such of our property and assets will be a
corporation organized and validly existing under the laws of
The Netherlands, Germany, France, Belgium, the United Kingdom
or the United States of America, any state thereof or the
District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the trustee,
all of our obligations with respect to the notes and under the
indenture and the registration rights agreement;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be
continuing;
(iii) immediately after giving effect to such transaction on a pro
forma basis we, or any Person becoming the successor obligor
of the notes, as the case may be, would have an Indebtedness
to Consolidated Cash Flow Ratio no greater than such ratio
immediately prior to such transaction if the ratio immediately
prior to the transaction is positive or greater than or equal
to such ratio if such ratio is negative;
(iv) we deliver to the trustee an Officers' Certificate (attaching
the arithmetic computations to demonstrate compliance with
clause (iii)) and an Opinion of Counsel, in each case stating
that
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such consolidation, merger or transfer and such supplemental
indenture complies with the indenture.
Events of Default
The following constitute "Events of Default" under the indenture:
(a) default for 30 days or more in the payment when due of
interest on the notes or additional amounts, if any, or
liquidated damages, if any, with respect to the notes;
(b) default in the payment of principal of (or premium, if any,
on) any note when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise;
(c) default in the payment of principal or interest on notes
required to be purchased pursuant to an Asset Sale Offer as
described under "Limitation on Asset Sales" or pursuant to a
Change of Control Offer as described under "Repurchase of
Notes upon a Change of Control";
(d) failure to perform or comply with the provisions described
under "Consolidation, Merger and Sale of Assets";
(e) default in the performance of or breach of any of our other
covenants or agreements in the indenture or under the notes
and such default or breach continues for a period of 30
consecutive days after written notice by the trustee or the
holders of 25% or more in aggregate principal amount of the
notes;
(f) a default occurs on any other of our Indebtedness or
Indebtedness of any Restricted Subsidiary if either
o 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 Euro 10.0 million or
o 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 us and our Restricted
Subsidiaries that is in default as to principal, or
the maturity of which has been accelerated,
aggregates Euro 10.0 million or more;
(g) failure to pay final judgments and orders against us or any
Restricted Subsidiary (not covered by insurance) aggregating
in excess of Euro 10.0 million (treating any deductibles,
self-insurance or retention as not so covered), which final
judgments remain unpaid, undischarged and unstayed for a
period in excess of 30 consecutive days following entry of the
final judgment or order that causes the aggregate amount for
all such final judgments or orders outstanding and not paid,
discharged or stayed to exceed Euro 10.0 million;
(h) a court having jurisdiction in the premises enters a decree or
order for
o relief in respect of us or any of our Significant
Subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency or other similar
law now or hereafter in effect,
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o appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official
of us or any of our Significant Subsidiaries or for
all or substantially all of the property and assets
of us or any of our Significant Subsidiaries or
o the winding up or liquidation of the affairs of us or
any of our Significant Subsidiaries and, in each
case, such decree or order shall remain unstayed and
in effect for a period of 30 consecutive days; or
(i) we or any of our Significant Subsidiaries
o commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an
order for relief in an involuntary case under any
such law,
o consent to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of us or any of our
Significant Subsidiaries or for all or substantially
all of the property and assets of us or any of our
Significant Subsidiaries or
o effect any general assignment for the benefit of
creditors.
If an Event of Default (other than an Event of Default specified
in clauses (h) or (i) above) occurs and is continuing under the
indenture, the trustee or the holders of at least 25% in aggregate
principal amount of the notes, then outstanding, by written notice to
us, may declare the principal of, premium, if any, interest and other
monetary obligations (including additional amounts, if any, and
liquidated damages, if any) on all the then outstanding notes to be
immediately due and payable. Upon such a declaration, such principal
of, premium, if any, accrued and unpaid interest and other monetary
obligations on the notes shall be immediately due and payable. In the
event of a declaration of acceleration because an Event of Default set
forth in clause (f) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and
annulled if the event of default triggering such Event of Default
pursuant to clause (f) shall be remedied or cured by us and/or the
relevant Restricted Subsidiaries or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in
clauses (h) or (i) above occurs, the principal of, premium, if any,
accrued interest and other monetary obligations on the notes then
outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the trustee or any
holder. Holders of at least a majority in principal amount of the
outstanding notes by written notice to us and to the trustee, may waive
all past defaults and rescind and annul a declaration of acceleration
and its consequences if
o all existing Events of Default, other than the
nonpayment of the principal of, premium, if any,
interest and other monetary obligations on the notes
that have become due solely by such declaration of
acceleration, have been cured or waived and
o the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "--
Amendment, Supplement and Waiver".
Holders of notes may not enforce the indenture or the notes except
as provided in the indenture. Subject to certain limitations, holders
of a majority in principal amount of the then outstanding notes may
direct the trustee in its exercise of any trust or power. The indenture
will provide that the trustee may withhold from holders of notes notice
of any continuing Default (except a Default relating to the payment
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of principal, premium, if any, interest, additional amounts, if any, or
liquidated damages, if any) if it determines that withholding notice is
in their interest. The indenture will further provide that the trustee
shall have no obligation to accelerate the notes if in the best
judgment of the trustee acceleration is not in the best interest of the
holders.
The indenture will require that we will deliver annually an
Officers' Certificate to the trustee certifying that a review has been
conducted of our activities and our performance under the indenture and
that we have fulfilled all obligations thereunder or, if there has been
a default in the fulfillment of any such obligation, specifying each
such default and the nature and status thereof. We will also be
obligated to notify the trustee of any default or defaults in the
performance of any covenants or agreements under the indenture within
five business days of becoming aware of any such default.
Legal Defeasance and Covenant Defeasance
Our obligations under the indenture will terminate (other than
certain obligations) and will be released upon payment in full of all
of the notes. We may, at our option and at any time, elect to have all
of our obligations discharged with respect to the outstanding notes,
which we refer to as legal defeasance, and cure all then existing
Events of Default except for
o the rights of holders of outstanding notes to receive
payments in respect of the principal of, premium, if
any, interest, additional amounts, if any, and
liquidated damages, if any, on such notes when such
payments are due or on the redemption date solely out
of the trust created pursuant to the indenture,
o our obligations with respect to notes concerning
issuing temporary notes, or, where relevant,
registration of such notes, mutilated, destroyed,
lost or stolen notes and the maintenance of an office
or agency for payment and money for security payments
held in trust,
o the rights, powers, trusts, duties and immunities of
the trustee, and our obligations in connection
therewith and
o the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have
our obligations released with respect to certain covenants that are
described in the indenture, which we refer to as covenant defeasance,
and thereafter any omission to comply with such obligations shall not
constitute a Default with respect to the notes. In the event covenant
defeasance occurs, certain events (not including non-payment on other
indebtedness, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance with respect to the notes,
(i) we must irrevocably deposit, or cause to be irrevocably
deposited, with the trustee, in trust, for the benefit of
the holders of the notes, cash in dollars, euros, Government
Securities or a combination thereof and, in such amounts as
will be sufficient, in the opinion of an internationally
recognized firm of independent public accountants, to pay
the principal of, premium, if any, interest, additional
amounts, if any, and liquidated damages, if any, due on the
outstanding notes on the stated maturity date or on the
applicable redemption date, as the case may be, of such
amounts due on the outstanding notes;
(ii) in the case of legal defeasance, we shall have delivered to
the trustee
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o an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that, subject to
customary assumptions and exclusions, (1) we have
received from, or there has been published by, the
U.S. Internal Revenue Service a ruling or (2) since
the Issue Date, there has been a change in the
applicable U.S. federal income tax law such that a
ruling is no longer required, in either case to the
effect that, and based thereon such opinion of
counsel in the United States shall confirm that,
subject to customary assumptions and exclusions, the
holders of the outstanding notes will not recognize
income, gain or loss for U.S. federal income tax
purposes as a result of such legal defeasance and
will be subject to U.S. federal income tax on the
same amounts, in the same manner and at the same
times as would have been the case if such Legal
Defeasance had not occurred and
o an opinion of counsel in the Relevant Taxing
Jurisdiction reasonably acceptable to the trustee to
the effect that (1) holders will not recognize
income, gain or loss for income tax purposes of the
Relevant Taxing Jurisdiction as a result of such
legal defeasance and will be subject to income tax of
the Relevant Taxing Jurisdiction on the same amounts,
in the same manner and at the same times as would
have been the case if such legal defeasance had not
occurred and (2) payments from the defeasance trust
will be free and exempt from any and all withholding
and other income taxes of whatever nature imposed or
levied by or on behalf of the Relevant Taxing
Jurisdiction or any political subdivision thereof or
therein having the power to tax;
(iii) in the case of covenant defeasance, we shall have delivered
to the trustee
o an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that, subject to
customary assumptions and exclusions, the holders of
the outstanding notes will not recognize income, gain
or loss for U.S. federal income tax purposes as a
result of such covenant defeasance and will be
subject to such tax on the same amounts, in the same
manner and at the same times as would have been the
case if such covenant defeasance had not occurred and
o an opinion of counsel in the Relevant Taxing
Jurisdiction reasonably acceptable to the trustee to
the effect that (1) holders will not recognize
income, gain or loss for income tax purposes of the
Relevant Taxing Jurisdiction as a result of such
covenant defeasance and will be subject to income tax
of the Relevant Taxing Jurisdiction on the same
amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance
had not occurred and (2) payments from the defeasance
trust will be free and exempt from any and all
withholding and other income taxes of whatever nature
imposed or levied by or on behalf of the Relevant
Taxing Jurisdiction or any political subdivision
thereof or therein having the power to tax;
(iv) no Default or Event of Default shall have occurred and be
continuing with respect to certain Events of Default on the
date of such deposit;
(v) such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default
under any material agreement or instrument to which we are a
party or by which we are bound;
(vi) we shall have delivered to the trustee an opinion of counsel
to the effect that, as of the date of such opinion and
subject to customary assumptions and exclusions following
the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights
generally under any applicable
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Netherlands and U.S. federal or state law, and that the
trustee has a perfected security interest in such trust
funds for the ratable benefit of the holders;
(vii) we shall have delivered to the trustee an Officers'
Certificate stating that the deposit was not made by us with
the intent of defeating, hindering, delaying or defrauding
any of our creditors or others; and
(viii)we shall have delivered to the trustee an Officers'
Certificate and an opinion of counsel in the United States
(which opinion of counsel may be subject to customary
assumptions and exclusions) each stating that all conditions
precedent provided for or relating to the legal defeasance
or the covenant defeasance, as the case may be, have been
complied with.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further
effect as to all notes issued thereunder when either
(i) all such notes theretofore authenticated and delivered
(except lost, stolen or destroyed notes which have been
replaced or paid and notes for whose payment money has
theretofore been deposited in trust and thereafter repaid to
us) have been delivered to the trustee for cancellation; or
(ii) o all such notes not theretofore delivered to such
trustee for cancellation have become due and payable
by reason of the making of a notice of redemption or
otherwise or will become due and payable within one
year and we have irrevocably deposited or caused to
be deposited with such trustee as trust funds in
trust an amount of money sufficient to pay and
discharge the entire indebtedness on such notes not
theretofore delivered to the trustee for cancellation
for principal, premium, if any, and accrued and
unpaid interest and additional amounts, if any, and
liquidated damages, if any, to the date of maturity
or redemption;
o no Default with respect to the indenture or the notes
shall have occurred and be continuing on the date of
such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach
or violation of, or constitute a default under, any
other instrument to which we are a party or by which
we are bound;
o we have paid, or caused to be paid, all sums payable
by it under such indenture; and
o we have delivered irrevocable instructions to the
trustee under such indenture to apply the deposited
money toward the payment of such notes at maturity or
the redemption date, as the case may be.
In addition, we must deliver an Officers' Certificate and an
opinion of counsel to the trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
Withholding Taxes
All payments made by us on the notes (whether or not in the form
of definitive notes) will be made without withholding or deduction for,
or on account of, any present or future taxes, duties, assessments or
governmental charges of whatever nature, which we collectively refer to
as Taxes, imposed or levied by or on behalf of The Netherlands or any
jurisdiction in which we or any surviving entity is organized or is
otherwise resident for tax purposes or any political subdivision
thereof or any authority having power to tax therein or any
jurisdiction from or through which payment is made. For purposes of
this description,
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we refer to each such jurisdiction as a Relevant Taxing Jurisdiction,
unless the withholding or deduction of such Taxes is then required by
law or the interpretation or administration thereof. If any deduction
or withholding for, or on account of, any Taxes of any Relevant Taxing
Jurisdiction, shall at any time be required on any payments made by us
with respect to the notes, including payments of principal, redemption
price, interest or premium, we will pay such additional amounts, which
we refer to as additional amounts, as may be necessary in order that
the net amounts received in respect of such payments by the holders of
the notes or the trustee, as the case may be, after such withholding or
deduction, equal the respective amounts which would have been received
in respect of such payments in the absence of such withholding or
deduction; except that no such additional amounts will be payable with
respect to:
(i) any payments on a note held by or on behalf of a holder or
beneficial owner who is liable for such Taxes in respect of
such note by reason of the holder or beneficial owner having
some connection with the Relevant Taxing Jurisdiction
(including being a citizen or resident or national of, or
carrying on a business or maintaining a permanent
establishment in, or being physically present in, the
Relevant Taxing Jurisdiction) other than by the mere holding
of such note or enforcement of rights thereunder or the
receipt of payments in respect thereof;
(ii) any Taxes that are imposed or withheld as a result of a
change in law after the Issue Date where such withholding or
imposition is by reason of the failure of the Holder or
beneficial owner of the note to comply with any request by
us to provide information concerning the nationality,
residence or identity of such holder or beneficial owner or
to make any declaration or similar claim or satisfy any
information or reporting requirement, which is required or
imposed by a statute, treaty, regulation or administrative
practice of the Relevant Taxing Jurisdiction as a
precondition to exemption from all or part of such Taxes;
(iii) except in the case of our winding up, any note presented
for payment (where presentation is required) in the Relevant
Taxing Jurisdiction; or
(iv) any note presented for payment (where presentation is
required) more than 30 days after the relevant payment is
first made available for payment to the holder.
Such additional amounts will also not be payable where, had the
beneficial owner of the note been the holder of the note, he would not
have been entitled to payment of additional amounts by reason of
clauses (i) to (iv) inclusive above.
Upon request, we will provide the trustee with documentation
satisfactory to the trustee evidencing the payment of additional
amounts. Copies of such documentation will be made available to the
holders upon request.
We will pay any present or future stamp, court or documentary
taxes, or any other excise or property taxes, charges or similar levies
which arise in any jurisdiction from the execution, delivery or
registration of the notes or any other document or instrument referred
to therein, or the receipt of any payments with respect to the notes,
excluding any such taxes, charges or similar levies imposed by any
jurisdiction outside of The Netherlands, the United States of America
or any jurisdiction in which a paying agent is located, other than
those resulting from, or required to be paid in connection with, the
enforcement of the notes or any other such document or instrument
following the occurrence of any Event of Default with respect to the
notes.
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Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
indenture and the notes issued thereunder may be amended or
supplemented with the consent of the holders of at least a majority in
principal amount of notes then outstanding (including consents obtained
in connection with a tender offer or exchange offer for the notes), and
any existing Default or Event of Default and its consequences or
compliance with any provision of the indenture or the notes may be
waived with the consent of the holders of a majority in principal
amount of the outstanding notes (including consents obtained in
connection with a tender offer or exchange offer for the notes).
The indenture will provide that without the consent of each holder
affected, an amendment or waiver may not (with respect to any notes
held by a nonconsenting holder of the notes):
o reduce the principal amount of the notes whose holders must
consent to an amendment, supplement or waiver,
o reduce the principal of or change the fixed maturity of any
such note or alter or waive the provisions with respect to
the redemption of the notes,
o reduce the rate of or change the time for payment of
interest on any note,
o waive a Default in the payment of principal of, premium, if
any, interest, additional amounts, if any, or liquidated
damages, if any, on the notes (except a rescission of
acceleration of the notes by the holders of at least a
majority in aggregate principal amount of either series of
such notes and a waiver of the payment default that resulted
from such acceleration with respect to such series of
notes), or in respect of a covenant or provision contained
in the indenture which cannot be amended or modified without
the consent of all holders,
o make any note payable in money other than that stated in
such notes,
o make any change in the provisions of the indenture relating
to waivers of past Defaults or the rights of holders of such
notes to receive payments of principal, premium, if any,
interest, additional amounts, if any, or liquidated damages,
if any, on such notes,
o make any change in the amendment and waiver provisions in
the indenture,
o make any change in the provisions of the indenture described
under "-- Withholding Taxes" that adversely affects the
rights of any holder of the notes,
o amend the terms of the notes or the indenture in a way that
would result in the loss of an exemption from any of the
Taxes described thereunder or an exemption from any
obligation to withhold or deduct Taxes as described
thereunder unless we agrees to pay additional amounts, if
any, in respect thereof or
o impair the right of any holder of the notes to receive
payment of principal of, interest, liquidated damages, if
any, on such holder's notes on or after the due dates
therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's notes.
The indenture will provide that, notwithstanding the foregoing,
without the consent of any holder of notes, we and the trustee together
may amend or supplement the indenture or the notes
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o to cure any ambiguity, omission, defect or inconsistency,
o to provide for uncertificated notes in addition to or in
place of certificated notes,
o to provide for the assumption of our obligations to holders
of such notes in order to comply with the covenant relating
to mergers, consolidations and sales of assets,
o to make any change that would provide any additional rights
or benefits to the holders of the notes or that does not
adversely affect the legal rights under the indenture of any
such holder in the good faith judgment of the Board of
Directors,
o to add covenants for the benefit of the holders or to
surrender any right or power conferred upon us,
o to comply with requirements of the Commission in order to
effect or maintain the qualification of the indenture under
the Trust indenture Act or
o to provide for the issuance of the exchange notes.
The consent of the holders is not necessary under the indenture to
approve the particular form of any proposed amendment. It is sufficient
if such consent approves the substance of the proposed amendment.
Notices
Notices regarding the notes will be
o published in a leading newspaper having a general
circulation in New York (which we expect to be The Wall
Street Journal) and in Amsterdam (which we expect to be Het
Financieele Dagblad and in the Official Price List of the
AEX for so long as the notes are listed on the AEX and the
rules of the AEX so require) or
o in the case of definitive notes, mailed to holders by first-
class mail at their respective addresses as they appear on
the registration books of the registrar. Notices given by
publication will be deemed given on the first date on which
publication is made and notices given by first-class mail,
postage prepaid, will be deemed given five calendar days
after mailing. In addition, we have undertaken 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 March 24, 2000.
Concerning the Trustee
The indenture contains certain limitations on the rights of the
trustee, should it become our creditor, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of
any such claim as security or otherwise. The trustee will be permitted
to engage in other transactions; provided, however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days,
apply to the Commission for permission to continue or resign.
The indenture provides that the Holders of a majority in principal
amount of the outstanding notes issued thereunder will have the right
to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the trustee, subject to certain
exceptions. The indenture provides that in case an Event of Default
shall occur (which shall not be cured), the trustee will be required,
in the exercise of its power, to use the degree of care of a prudent
person in the conduct of his own affairs.
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Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request
of any holder of such notes, unless such holder shall have offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense.
Governing Law
The indenture and the notes will be, subject to certain
exceptions, governed by, and construed and interpreted in accordance
with, the law of the State of New York.
Certain Definitions
We have set forth below a summary of some of the defined terms
used in the indenture. You should refer to the indenture for the full
definition of all terms as well as any other capitalized term we use in
this description for which no definition is provided. For purposes of
the indenture, unless we otherwise specifically indicate, the term
"consolidated" with respect to any Person refers to such Person
consolidated with its Restricted Subsidiaries, and excludes from such
consolidation any Unrestricted Subsidiary as if such Unrestricted
Subsidiary were not an Affiliate of such Person. For purposes of the
following definitions and the indenture generally, all calculations and
determinations shall be made in accordance with U.S. GAAP and shall be
based upon the consolidated financial statements of us and our
subsidiaries prepared in accordance with U.S. GAAP.
"Acquired Indebtedness" is defined to mean Indebtedness of a
Person existing at the time such Person becomes a Restricted Subsidiary
or is merged or consolidated with or into us or any Restricted
Subsidiary or assumed in connection with an Asset Acquisition by us or
a Restricted Subsidiary and not incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary, such
merger or consolidation or such Asset Acquisition; provided that
Indebtedness of such Person which is redeemed, defeased, retired or
otherwise repaid at the time of or immediately upon the consummation of
the transactions by which such Person becomes a Restricted Subsidiary
or is merged or consolidated with or into us or any Restricted
Subsidiary or such Asset Acquisition shall not be Indebtedness.
"Affiliate" is defined to mean, as applied to any Person, any
other Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person. For purposes
of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control
with"), as applied to any Person, is defined to mean the possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" is defined to mean:
o any capital contribution (by means of transfers of cash or
other property to others or payments for property or services
for the account or use of others, or otherwise) by us or any
Restricted Subsidiary to any other Person, or any acquisition
or purchase of Equity Interests of any other Person by us or
any Restricted Subsidiary, in either case pursuant to which
such Person shall become a Restricted Subsidiary or shall be
consolidated, merged with or into us or any Restricted
Subsidiary or
o an acquisition by us or any of our Restricted Subsidiaries of
the property and assets of any Person (other than us or any of
our Restricted Subsidiaries) that constitute substantially all
of an operating unit or line of business of such Person or
which is otherwise outside the ordinary course of business.
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"Asset Sale" is defined to mean any sale, transfer or other
disposition (including by way of merger, consolidation or
sale-leaseback transactions) in one transaction or a series of related
transactions by us or any of our Restricted Subsidiaries to any Person
(other than us or any of our Restricted Subsidiaries) of
(i) all or any of the Equity Interests in any Subsidiary (other
than a sale, transfer or other disposition of shares in an
Unrestricted Subsidiary by such Unrestricted Subsidiary),
(ii) all or substantially all of the property and assets of an
operating unit or line of business of us or any of our
Restricted Subsidiaries or
(iii) any other property and assets of us or any of our Restricted
Subsidiaries outside the ordinary course of business
(including the receipt of proceeds paid on account of the
loss of or damage to any property or asset and awards of
compensation for any asset taken by condemnation, eminent
domain or similar proceedings).
For the purposes of this definition, the term "Asset Sale" shall
not include
(a) any transaction consummated in compliance with "--
Consolidation, Merger and Sale of Assets" and the creation
of any Lien not prohibited by "-- Certain Covenants --
Limitation on Liens"; provided, however, that any
transaction consummated in compliance with such
"-- Consolidation, Merger and Sale of Assets" description
involving a sale, conveyance, assignment, transfer, lease or
other disposal of less than all of the properties or assets
of us and our Restricted Subsidiaries shall be deemed to be
an Asset Sale with respect to the properties or assets of us
and our Restricted Subsidiaries that are not so sold,
conveyed, assigned, transferred, leased or otherwise
disposed of in such transaction;
(b) sales of property or equipment that has become worn out,
obsolete or damaged or otherwise unsuitable for use in
connection with the business of us or our Restricted
Subsidiary, as the case may be; and (c) any transaction
consummated in compliance with "-- Certain Covenants --
Limitation on Restricted Payments".
In addition, solely for purposes of "-- Certain Covenants --
Limitation on Asset Sales", any sale, conveyance, transfer, lease or
other disposition of any property or asset, whether in one transaction
or a series of related transactions, involving assets with a Fair
Market Value not in excess of Euro 2.5 million in any fiscal year shall
be deemed not to be an "Asset Sale."
"Board of Directors" is defined to mean our Supervisory Board.
"Board Resolution" is defined to mean a duly authorized resolution
of the Board of Directors.
"Capital Stock" is defined to mean, with respect to any Person,
any and all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) in equity of such
Person, including, without limitation, if such Person is a partnership,
partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive
a share of the profits and losses of, or distributions of assets of,
such partnership.
"Capitalized Lease" is defined to mean, as applied to any Person,
any lease of any property (whether real, personal or mixed) of which
the discounted present value of the rental obligations of such Person
as lessee, in conformity with U.S. GAAP, is required to be capitalized
and reflected as a liability on the balance sheet of such Person; and
"Capitalized Lease Obligation" is defined to mean, at the time any
determination thereof is to be made, the discounted present value of
the rental obligations under such lease.
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"Cash Equivalents" is defined to mean,
(a) securities issued or directly and fully guaranteed or
insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than
360 days from the date of acquisition;
(b) certificates of deposit and eurodollar time deposits with
maturities of 360 days or less from the date of acquisition,
bankers' acceptances with maturities not exceeding 360 days
and overnight bank deposits, in each case with any
commercial bank having capital and surplus in excess of $500
million;
(c) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in
clauses (a) and (b) entered into with any financial
institution meeting the qualifications specified in clause
(b) above;
(d) commercial paper rated P-1, A-1 or the equivalent thereof by
Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group, respectively, and in each case maturing within six
months after the date of acquisition;
(e) marketable direct obligations of the United Kingdom, The
Netherlands, Belgium, Germany or France or obligations fully
and unconditionally guaranteed by such sovereign nation (or
any agency thereof), of the type and maturity described in
clauses (a) through (d) above of foreign obligors, which
have ratings described in such clauses or equivalent ratings
from comparable foreign rating agencies; and
(f) investments in money market funds which invest substantially
all their assets in securities of the types described in
clauses (a) through (e) above.
"Change of Control" is defined to mean such time as
(i) a "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Exchange Act) (other than a Permitted
Holder) becomes the ultimate "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of more than 50% of
the total voting power of our then outstanding Voting Stock
on a fully diluted basis;
(ii) individuals who at the beginning of any period of two
consecutive calendar years constituted the Board of
Directors (together with any directors who are members of
the Board of Directors on the date hereof and any new
directors whose election by the Board of Directors or whose
nomination for election by our stockholders was approved by
a vote of at least a majority of the members of the Board of
Directors then still in office who either were members of
the Board of Directors at the beginning of such period or
whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of
the members of such Board of Directors then in office;
(iii) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all
of our assets to any such "person" or "group" (other than to
a Restricted Subsidiary); or
(iv) our merger or consolidation with or into another corporation
or the merger of another corporation with or into us 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
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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.
"Commission" is defined to mean the United States Securities and
Exchange Commission, as from time to time constituted, or, if at any
time after the execution of the indenture such commission is not
existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Consolidated Cash Flow" is defined to mean with respect to any
Person for any period, the
(i) Consolidated Net Income of such Person for such period plus,
to the extent deducted in computing such Consolidated Net
Income (and without duplication), Consolidated Fixed
Charges,
(ii) any provision for taxes (other than taxes (either positive
or negative) attributable to extraordinary and non recurring
gains or losses or sales of assets),
(iii) any amount attributable to depreciation and amortization
expense and
(iv) all other non-cash items reducing Consolidated Net Income
(excluding any non-cash charge to the extent that it
requires or represents an accrual of, or reserve for, cash
charges in any future period), less all non-cash items
increasing Consolidated Net Income (excluding any items
which represent the reversal of an accrual of, or reserve
for, anticipated cash charges at any prior period), all as
determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with U.S. GAAP;
provided, however, that there shall be excluded therefrom the
Consolidated Cash Flow of (if positive) of any Restricted Subsidiary
(calculated separately for such Restricted Subsidiary in the same
manner as provided above) that is subject to a restriction which
prevents the payment of dividends or the making of distributions to us
or another Restricted Subsidiary to the extent of such restriction.
"Consolidated Fixed Charges" is defined to mean, with respect to
any Person for any period, Consolidated Interest Expense plus dividends
declared and payable on Preferred Stock.
"Consolidated Interest Expense" is defined to mean with respect to
any Person for any period, the aggregate amount of interest in respect
of Indebtedness (including capitalized interest, amortization of
original issue discount on any Indebtedness and the interest portion of
any deferred payment obligation) calculated in accordance with U.S.
GAAP; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing; the net
costs associated with Interest Rate Agreements; and interest on
Indebtedness that is Guaranteed or secured by such Person or any of its
Restricted Subsidiaries), less the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to
be paid or to be accrued by such Person and its Restricted Subsidiaries
during such period; excluding, however, any amount of such interest of
any Restricted Subsidiary to the extent the net income of such
Restricted Subsidiary is excluded in the calculation of Consolidated
Net Income pursuant to the last proviso of such definition.
"Consolidated Net Income" is defined to mean with respect to any
Person for any period, the aggregate net income (or loss) of such
Person and its Restricted Subsidiaries for such period determined on a
consolidated basis and in conformity with U.S. GAAP; provided that the
following items shall be excluded in computing Consolidated Net Income
(without duplication):
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(i) the net income (or loss) of any Restricted Subsidiary
accrued prior to the date it becomes a Restricted Subsidiary
or is merged into or consolidated with such Person or any of
its Restricted Subsidiaries or all or substantially all of
the property and assets of such Restricted Subsidiary are
acquired by such Person or any of its Restricted
Subsidiaries;
(ii) any extraordinary gains or losses (on an after-tax basis)
but not losses attributable to Asset Sales;
(iii) all extraordinary gains and gains from Currency Agreements
or Interest Rate Agreements and gains from the
extinguishment of debt;
(iv) the net income (or loss) of any other Person (other than net
income (or loss) attributable to a Restricted Subsidiary) in
which such other Person (other than such Person or any of
its Restricted Subsidiaries) has a joint interest, except to
the extent of the amount of dividends or other distributions
actually paid to such Person or any of its Restricted
Subsidiaries by such other Person during such period;
(v) net gains attributable to write-ups of assets or write-downs
of liabilities (determined after taking into account losses
attributable to write-downs of assets or write-ups of
liabilities up to but not in excess of such gains); and
(vi) the cumulative effect of a change in accounting principles
after the Issue Date; and provided, further, that there
shall be further excluded therefrom the net income (but not
the net loss) of any Restricted Subsidiary (calculated
separately for such Restricted Subsidiary in the same manner
as provided above) that is subject to a restriction which
prevents the payment of dividends or the making of
distributions to us or another Restricted Subsidiary to the
extent of such restriction.
"Consolidated Net Worth" is defined to mean, at any date of
determination, stockholders' equity as set forth on the most recently
available quarterly or annual consolidated balance sheet of such Person
and its Restricted Subsidiaries (which shall be as of a date not more
than 90 days prior to the date of determination), less any amounts
attributable to Redeemable Stock or any equity security convertible
into or exchangeable for Indebtedness, the cost of treasury stock and
the principal amount of any promissory notes receivable from the sale
of our Equity Interests or Equity Interests of any of our Restricted
Subsidiaries, each item to be determined in conformity with U.S. GAAP
(excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 52).
"Convertible Notes" means the 4% Senior Convertible Notes due 2004
and the 4% Senior Convertible Notes due 2005.
"Credit Facilities" is defined to mean one or more senior credit
agreements, senior loan agreements or similar senior facilities with
banks or other institutional lenders providing for revolving credit
loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of
credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
"Cumulative Consolidated Cash Flow" is defined to mean, for the
period beginning on the Issue Date through and including the end of the
last fiscal quarter (taken as one accounting period) preceding the date
of any proposed Restricted Payment, Consolidated Cash Flow of us and
our Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with U.S. GAAP.
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"Cumulative Consolidated Fixed Charges" is defined to mean, for
the period beginning on the Issue Date through and including the end of
the last fiscal quarter (taken as one accounting period) preceding the
date of any proposed Restricted Payment, Consolidated Fixed Charges of
us and our Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with U.S. GAAP.
"Currency Agreement" is defined to mean any foreign exchange
contract, currency swap agreement and any other arrangement or
agreement designed to provide protection against fluctuations in
currency values.
"Default" is defined to mean any event that is, or after notice or
passage of time or both would be, an Event of Default.
"Eligible Accounts Receivable" is defined to mean the accounts
receivables (net of any reserves and allowances for doubtful accounts
in accordance with U.S. GAAP) of any Person and its Restricted
Subsidiaries (determined on a consolidated basis) that are not more
than 60 days past their due date and that were entered into in the
ordinary course of business on normal payment terms as shown on the
most recent consolidated balance sheet of such Person filed with the
Commission, all in accordance with U.S. GAAP.
"Equity Interests" is defined to mean Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but
excluding any debt security that is convertible into, or exchangeable
for, Capital Stock prior to the time such debt security is converted
into, or exchanged for, Capital Stock).
"Equity Offering" is defined to mean a primary offering of our
Ordinary Shares with aggregate gross proceeds of at least Euro 50.0
million.
"Fair Market Value" is defined to mean, with respect to any asset
or property, the price (after taking into account any liabilities
relating to such assets) which could be negotiated in an arm's-length
free market transaction, for cash, between a willing seller and a
willing and able buyer, neither of which is under any compulsion to
complete the transaction; provided, however, that the Fair Market Value
of any such asset or assets shall be determined conclusively by the
Board of Directors acting in good faith, which determination shall be
evidenced by a resolution of such Board delivered to the trustee.
"Government Securities" is defined to mean direct obligations of,
or obligations guaranteed by, the United States, the United Kingdom,
Belgium, France, Germany, The Netherlands or Switzerland, for the
payment of which obligations or guarantee the full faith and credit of
the United States, the United Kingdom, Belgium, France, Germany, The
Netherlands or Switzerland, as the case may be, is pledged, which are
not callable or redeemable at the option of the issuer thereof and
which are payable in euros.
"Guarantee" is defined to mean any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any
Indebtedness or other obligation in any manner (including, without
limitation, letters of credit and reimbursement agreements in respect
thereof) of any other Person; provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Incur" is defined to mean, with respect to any Indebtedness, to
incur, create, issue, assume, Guarantee or otherwise become liable for
or with respect to, or become responsible for, the payment of,
contingently or otherwise, such Indebtedness, including an Incurrence
of Indebtedness by reason of the acquisition of more than 50% of the
Equity Interests in any Person; provided that neither the accrual of
interest nor the accretion of original issuance discount shall be
considered an Incurrence of Indebtedness.
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"Indebtedness" is defined to mean, with respect to any Person at
any date of determination (without duplication),
(i) all indebtedness of such Person, whether or not contingent
o in respect of borrowed money, excluding accrued current
liabilities arising in the ordinary course of business,
o evidenced by bonds, debentures, notes or other similar
instruments or letters of credit or other similar
instruments (including reimbursement obligations with
respect thereto),
o representing the balance deferred and unpaid of the
purchase price of property or services, which purchase
price is due more than six months after the date of
placing such property in service or taking delivery and
title thereto or the completion of such services, except
Trade Payables,
o representing Capitalized Lease Obligations,
(ii) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by
such Person; provided that the amount of such Indebtedness
shall be the lesser of (A) the fair market value of such asset
at such date of determination and (B) the amount of such
Indebtedness,
(iii) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person,
(iv) the maximum fixed redemption or repurchase price of Redeemable
Stock of such Person at the time of determination and
(v) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation;
provided (x) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at
such time as determined in conformity with U.S. GAAP and (y)
that Indebtedness shall not include any liability for federal,
state, local or other taxes.
"Interest Rate Agreement" is defined to mean any interest rate
swap agreement, interest rate cap agreement, interest rate insurance,
and any other arrangement or agreement designed to provide protection
against fluctuations in interest rates.
"Investment" in any Person is defined to mean any direct or
indirect advance, loan or other extension of credit (including, without
limitation, by way of Guarantee or similar arrangement; but excluding
advances to customers in the ordinary course of business that are, in
conformity with U.S. GAAP, recorded as accounts receivable on the
balance sheet of such Person or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other tangible or
intangible property to others or any payment for any property or
services for the account or use of others), or any purchase or
acquisition of Equity Interests, bonds, notes, debentures, or other
similar instruments issued by, any other Person. For purposes of the
definition of "Unrestricted Subsidiary," the "Limitation on Restricted
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Payments" covenant and the "Limitation on Issuance and Sale of Capital
Stock of Restricted Subsidiaries" covenant described above,
(i) "Investment" shall include
o the Fair Market Value of the assets (net of liabilities) of
any of our Restricted Subsidiaries at the time that such
Restricted Subsidiary is designated an Unrestricted
Subsidiary and shall exclude the Fair Market Value of the
assets (net of liabilities) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated
a Restricted Subsidiary of us and
o the Fair Market Value, in the case of a sale of Equity
Interests in accordance with the "Limitation on the
Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant such that a Person no longer
constitutes a Restricted Subsidiary, of the remaining
assets (net of liabilities) of such Person after such
sale, and shall exclude the fair market value of the
assets (net of liabilities) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary
is designated a Restricted Subsidiary and
(ii) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its Fair Market Value at the time of such
transfer.
"Issue Date" is defined to mean the date on which the original
notes were issued under the indenture.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind in respect of an asset, whether
or not filed, recorded or otherwise perfected under applicable law
(including, without limitation, any conditional sale or other title
retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any
option or other agreement to sell or give any security interest).
"Most Recent Balance Sheet" is defined to mean, with respect to
any Person, the most recent consolidated balance sheet of such Person
reported on by a recognized firm of independent accountants without
qualification as to scope.
"Net Cash Proceeds" is defined to mean:
(a) with respect to any Asset Sale, the proceeds of such Asset
Sale in the form of cash or Cash Equivalents, including
payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or Cash
Equivalents (except to the extent such obligations are
financed or sold with recourse to us or any of our
Restricted Subsidiaries) and proceeds from the conversion of
other property received when converted to cash or Cash
Equivalents, net of
o brokerage commissions and other fees and expenses
(including fees and expenses of counsel and
investment bankers) related to such Asset Sale,
o taxes paid or payable as a result thereof (after
taking into account any available tax credits or
deductions and any tax sharing agreements),
o payments made to repay Indebtedness or any other
obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a
result of such sale and
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o appropriate amounts to be provided by us or any of
our Restricted Subsidiaries as a reserve against any
liabilities associated with such Asset Sale,
including, without limitation, pension and other
post-employment benefit liabilities, liabilities
related to environmental matters and liabilities
under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with
U.S. GAAP; provided that such amounts which cease to
be held as reserves shall be deemed Net Cash
Proceeds; and
(b) with respect to any capital contribution or any issuance or
sale of Equity Interests (other than Redeemable Stock), the
proceeds of such capital contribution, issuance or sale in
the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component
thereof) when received in the form of cash or Cash
Equivalents (except to the extent (1) such obligations are
financed, directly or indirectly, with money borrowed from
us or any Restricted Subsidiary or otherwise financed or
sold with recourse to us or any Restricted Subsidiary or (2)
the capital contribution or purchase of the Equity Interests
is otherwise financed, directly or indirectly, by us or any
Restricted Subsidiary, including through funds contributed,
extended, guaranteed or otherwise advanced by us or any
Affiliate) and proceeds from the conversion of other
property received when converted to cash or Cash
Equivalents, net of attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees
incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"Officers' Certificate" is defined to mean a certificate signed on
behalf of us by two of our officers, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or
our principal accounting officer that meets the requirements set forth
in the indenture.
"Permitted Business" is defined to mean the business of:
(i) transmitting, or providing services relating to the
transmission of, voice, video or data,
(ii) constructing, creating, developing or marketing
communications related network equipment, software
and other devices for use in a telecommunications business
or
(iii) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in
clause (i) or (ii) above (including, without limitation,
with respect to Internet services).
"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.
"Permitted Investment" is defined to mean:
(i) an Investment in (a) the form of loans or advances to us or
(b) our Restricted Subsidiary or a Person which will, upon
the making of such Investment, become our Restricted
Subsidiary or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to,
us or our Restricted Subsidiary;
(ii) payroll, travel and similar advances to cover matters that
are expected at the time of such advance ultimately to be
treated as expenses in accordance with U.S. GAAP;
(iii) stock, obligations or securities received in satisfaction of
judgments in connection with any bankruptcy proceeding or
otherwise;
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(iv) loans and advances to officers or our employees or our
Restricted Subsidiary that do not in the aggregate exceed
Euro 5.0 million at any one time outstanding;
(v) Interest Rate Agreements and Currency Agreements designed
solely to protect us or our Restricted Subsidiaries against
fluctuations in interest rates or foreign currency exchange
rates;
(vi) Investments in any Person (the primary business of which is
related, ancillary or complementary to the our business on
the date of such Investment) at any one time outstanding
(measured on the date each such Investment was made without
giving effect to subsequent changes in value) in an
aggregate amount not to exceed 10.0% of our total
consolidated assets as of the end of the most recently
completed fiscal quarter;
(vii) Investments in Cash Equivalents;
(viii) Investments made as a result of the receipt of noncash
consideration from any Asset Sale made in compliance with
the "Limitation on Asset Sales" covenant; and
(ix) Investments made in:
o the ordinary course of the telecommunications business
in the Permitted Business and on ordinary business
terms in the Permitted Business in consortia formed to
construct transmission infrastructure for use primarily
in the Permitted Business, provided such Investment
entitles us to rights of way or rights of use on such
transmission infrastructure,
o the ordinary course of the telecommunications business
and on ordinary business terms as partial payment for
constructing a network relating principally to the
Permitted Business or
o in any Person (other than an Unrestricted Subsidiary)
primarily engaged in the wireless communications
business so long as (1) the Board of Directors
determines on the date of the Investment that such
Investment will promote or significantly benefit us or
our Restricted Subsidiaries' businesses and (2) we
maintain the ability to participate in the management
of such Person either by virtue of representation on
such Person's board of directors or by contractual
arrangement with such Person or the holders of its
Capital Stock.
"Permitted Liens" is defined to mean
(i) Liens for taxes, assessments, governmental charges or claims
that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any,
as shall be required in conformity with U.S. GAAP shall have
been made;
(ii) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being
contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be
required in conformity with U.S. GAAP shall have been made;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation,
unemployment insurance and other types of social security;
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(iv) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the
ordinary course of our business or any of our Restricted
Subsidiaries;
(v) Liens (including extensions and renewals thereof) upon real
or personal property purchased or leased after the Issue
Date; provided that
o such Lien is created solely for the purpose of
securing Indebtedness Incurred in compliance with the
"Limitation on Indebtedness" covenant (1) to finance
the cost of the item of property or assets subject
thereto and such Lien is created prior to, at the
time of or within six months after the later of the
acquisition and the Incurrence of such Indebtedness
or (2) to refinance any Indebtedness previously so
secured,
o the principal amount of the Indebtedness secured by
such Lien does not exceed 100% of such cost and
o any such Lien shall not extend to or cover any
property or assets other than such item of property
or assets;
(vi) any interest or title of a lessor in the property subject to
any Capitalized Lease or operating lease of one of our
Restricted Subsidiaries which, in each case, is permitted
under the indenture;
(vii) Liens on property of, or on Equity Interests in or
Indebtedness of, any Person existing at the time such Person
becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens were not created, incurred or
assumed in contemplation of such transaction and do not
extend to or cover any property or assets of us or any of
our Restricted Subsidiaries other than the property or
assets so acquired;
(viii) Liens arising from the rendering of a final judgment or
order against us or any of our Restricted Subsidiaries that
does not give rise to an Event of Default;
(ix) Liens encumbering customary initial deposits and margin
deposits and other Liens that are either within the general
parameters customary in the industry or incurred in the
ordinary course of business, in each case, securing
Indebtedness under Interest Rate Agreements and Currency
Agreements;
(x) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods
entered into by us or any of our Restricted Subsidiaries in
the ordinary course of business in accordance with the past
practices of us and our Restricted Subsidiaries prior to the
Issue Date;
(xi) Liens existing on the Issue Date or securing the notes or
any Guarantee of the notes;
(xii) Liens granted after the Issue Date on any assets or Equity
Interests in us or our Restricted Subsidiaries created in
favor of the holders;
(xiii) Liens created in connection with the incurrence of any
Indebtedness permitted to be Incurred under clause (iv) of
paragraph (b) of the "Limitation on Indebtedness" covenant;
provided that the Indebtedness which it refinances is
secured by similar Liens;
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(xiv) Liens securing Indebtedness under Credit Facilities incurred
in compliance with clause (i) of paragraph (b) of the
"Limitation on Indebtedness" covenant;
(xv) Liens on the property or assets of a Restricted Subsidiary
securing Indebtedness of such Subsidiary which Indebtedness
is permitted under the indenture; and
(xvi) any Liens arising in respect of any escrow or similar
account established in connection with the issuance of any
notes (including additional notes) which are pari passu with
the notes and arising under any escrow or similar agreement
executed in connection with the issuance of any such notes.
"Preferred Stock" is defined to mean, with respect to any Person,
any and all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) which is preferred
as to the payment of dividends or distributions, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over Equity Interests of any other class in
such Person.
"Pro Forma Consolidated Cash Flow" is defined to mean with respect
to any Person for any period, the Consolidated Cash Flow of such Person
for such period calculated on a pro forma basis to give effect to any
Asset Sale or Asset Acquisition (including acquisitions of other
Persons by merger, consolidation or purchase of Equity Interests)
during such period as if such Asset Sale or Asset Acquisition had taken
place on the first day of such period and income (or losses) ceased to
accrue or accrued, as the case may be, therefrom from such date.
"Proportionate Share" is defined to mean, as of any date of
calculation, an amount equal to:
o the outstanding principal amount of notes as of such date,
divided by
o the sum of the outstanding principal amount of notes as of
such date plus the outstanding principal amount as of such
date of all other Indebtedness (other than subordinated
Indebtedness) of us the terms of which obligate us to make a
purchase offer in connection with the relevant Excess
Proceeds or the Asset Sale giving rise thereto.
"Qualified Consideration" is defined to mean:
(1) cash,
(2) Cash Equivalents,
(3) Replacement Assets,
(4) any securities or other obligations that are converted into
or exchanged for cash or Cash Equivalents within 60 days
after an Asset Sale or
(5) any Indebtedness which ranks equal in right of payment to
the notes or any Indebtedness of a Restricted Subsidiary
assumed by the transferee or its designee, such that we or
the Restricted Subsidiary has no further liability therefor,
the amount of the liability to be determined in accordance
with U.S. GAAP.
"Redeemable Stock" is defined to mean, with respect to any Person,
any Capital Stock which by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable) or upon
the happening of any event
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(i) matures or is mandatorily redeemable pursuant to a sinking
fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or
Redeemable Stock or
(iii) is redeemable or must be purchased, upon the occurrence of
certain events or otherwise, by such Person at the option of
the holder thereof, in whole or in part, in each case on or
prior to the first anniversary of the Stated Maturity of the
notes;
provided, however, that any Capital Stock that would not
constitute Redeemable Stock but for provisions thereof giving holders
thereof the right to require such Person to purchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated
Maturity of the notes shall not constitute Redeemable Stock if (x) the
"asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital
Stock than the terms applicable to the notes and described under "--
Certain Covenants -- Limitation on Asset Sales" and "-- Repurchase of
Notes upon a Change of Control" and (y) any such requirement only
becomes operative after compliance with such terms applicable to the
notes including the purchase of any notes tendered pursuant thereto.
"Replacement Assets" is defined to mean any property, plant or
equipment of a nature or type that are used or usable in Permitted
Businesses.
"Restricted Subsidiary" is defined to mean, at any time, any
direct or indirect Subsidiary of us that is then not an Unrestricted
Subsidiary.
"Share Capital" is defined to mean, at any time of determination,
the stated capital of the Equity Interests (other than Redeemable
Stock) and additional paid-in capital of us as set forth on our Most
Recent Balance Sheet at such time.
"Significant Subsidiary" is defined to mean, at any date of
determination,
(i) any of our Subsidiaries that, together with its
Subsidiaries, (A) for our most recent fiscal year, accounted
for more than 10% of our consolidated revenues or (B) as of
the end of such fiscal year, was the owner of more than 10%
of our consolidated assets, all as set forth on our most
recently available consolidated financial statements for
such fiscal year prepared in conformity with U.S. GAAP and
(ii) any Subsidiary which, when aggregated with all other
Subsidiaries that are not otherwise Significant Subsidiaries
and as to which any event described in clauses (h) or (i) of
"-- Events of Default" has occurred and is continuing, would
constitute a Significant Subsidiary under clause (i) of this
definition.
"Stated Maturity" is defined to mean,
o with respect to any debt security, the date specified in
such debt security as the fixed date on which the final
installment of principal of such debt security is due and
payable and
o with respect to any scheduled installment of principal of or
interest on any debt security, the date specified in such
debt security as the fixed date on which such installment is
due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of us or
a Restricted Subsidiary Incurred to finance the acquisition of a Person
engaged in a business that is related, ancillary or complementary to
the Permitted Business; which Indebtedness by its terms or by the terms
of any agreement or instrument pursuant to which such Indebtedness is
Incurred (x) is expressly made subordinate in right of payment to
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the notes and (y) provides that no payment of principal, premium or
interest on, or any other payment with respect to, such Indebtedness
may be made prior to the payment in full of all of our obligations
under the notes; provided that such Indebtedness may provide for and be
repaid at any time from the proceeds of a capital contribution, the
sale of our Capital Stock (other than Disqualified Stock), or other
Strategic Subordinated Indebtedness Incurred, after the Incurrence of
such Indebtedness.
"Subsidiary" is defined to mean, with respect to any Person
o any corporation, association or other business entity of
which more than 50% of the outstanding Voting Stock is at
the time of determination owned, directly or indirectly, by
such Person or one or more other Subsidiaries of such Person
or
o any partnership, joint venture, limited liability company or
similar entity of which (A) more than 50% of the capital
accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as
applicable, are owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of
that Person or a combination thereof whether in the form of
membership, general, special or limited partnership or
otherwise and (B) such Person or any Restricted Subsidiary
of such Person is a controlling general partner, co-
venturer, manager or similar position or otherwise controls
such entity.
"Telecommunications Assets" is defined to mean, with respect to
any Person, assets used in the Permitted Business (or Equity Interests
of a Person that becomes a Restricted Subsidiary, the assets of which
consist principally of such Telecommunications Assets) that are
purchased or acquired by us or a Restricted Subsidiary after the Issue
Date.
"Trade Payables" is defined to mean any accounts payable or any
other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by us or any of our Restricted Subsidiaries
arising in the ordinary course of business in connection with the
acquisition of goods and services.
"Transaction Date" is defined to mean, with respect to the
Incurrence of any Indebtedness by us or any of our Restricted
Subsidiaries, the date such Indebtedness is to be Incurred and, with
respect to any Restricted Payment, the date such Restricted Payment is
to be made.
"Unrestricted Subsidiary" is defined to mean
o any of our Subsidiaries which at the time of determination
is an Unrestricted Subsidiary (as designated by the Board of
Directors in the manner provided below) and
o any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any of our Subsidiaries
(including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary, or any of its
Subsidiaries, owns any Equity Interests or Indebtedness of, or owns or
holds any Lien on any property of, us or any Restricted Subsidiary;
provided that
o we certify in an Officers' Certificate that such designation
complies with the covenants described under "Limitation on
Restricted Payments",
o such Subsidiary is not party to any agreement, contract,
arrangement or understanding with us or any Restricted
Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to us or
such Restricted Subsidiary than those that might
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reasonably be obtained in a comparable arm's-length
transaction at the time from Persons who are not our
Affiliates,
o neither we nor any of our Restricted Subsidiaries has any
direct or indirect obligation (1) to subscribe for
additional Equity Interests in such Subsidiary or any
Subsidiary of such Subsidiary or (2) to maintain or preserve
such Subsidiary's financial condition or to cause such
Subsidiary to achieve any specified levels of operating
results and
o such Subsidiary and its Subsidiaries has not at the time of
designation, and does not thereafter, Incur any Indebtedness
other than Unrestricted Subsidiary Indebtedness.
The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that immediately after giving
effect to such designation:
o we could Incur Euro 1.00 of additional Indebtedness under
the first paragraph of the "Limitation on Indebtedness"
covenant described above on a pro forma basis taking into
account such designation and
o no Default or Event of Default shall have occurred and be
continuing.
Any such designation by the Board of Directors shall be evidenced
to the trustee by promptly filing with the trustee a copy of the
resolution of the Board of Directors giving effect to such designation
and an Officers' Certificate certifying that such designation complied
with the foregoing provisions.
"Unrestricted Subsidiary Indebtedness" is defined to mean
Indebtedness of any Unrestricted Subsidiary
o as to which neither we nor any Restricted Subsidiary is
directly or indirectly liable (by virtue of our or any such
Restricted Subsidiary being the primary obligor on,
guarantor of, or otherwise liable in any respect to, such
Indebtedness), and
o which, upon the occurrence of a default with respect
thereto, does not result in, or permit any holder of any of
our Indebtedness or any Indebtedness of any of our
Restricted Subsidiary to declare, a default on such
Indebtedness or cause the payment thereof to be accelerated
or payable prior to its Stated Maturity.
"U.S. GAAP" is defined to mean, at any date of determination,
generally accepted accounting principles as in effect in the United
States of America which are applicable at the date of determination and
which are consistently applied for all applicable periods.
"VersaTel Internet" is defined to mean VersaTel Internet Holding
N.V.
"Weighted Average Life to Maturity" is defined to mean, at any
date of determination with respect to any Indebtedness,
o the quotient obtained by dividing
(a) the sum of the products of the number of years from
such date of determination to the dates of each
successive scheduled principal payment of, or
redemption or similar payment with respect to, such
Indebtedness multiplied by
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(b) the amount of such principal payment, by
o the sum of all such principal payments.
"Wholly Owned Restricted Subsidiary" is defined to mean any
Restricted Subsidiary all of the outstanding voting Equity Interests
(other than directors' qualifying shares) of which are owned, directly
or indirectly, by us.
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BOOK-ENTRY
General
The exchange notes will be represented by two global notes in
registered form without interest coupons attached, which we refer to as
the global notes. One global note, the DTC global note, will be
registered in the name of Cede & Co., as nominee of DTC. The other
global note, the Euroclear/Clearstream global note, will be deposited
with a common depositary and registered in the name of the nominee of
the common depositary for the accounts of Euroclear and Clearstream.
Ownership of interests in the global notes, which we refer to as
book-entry interests, will be limited to persons that have accounts
with DTC, Euroclear and/or Clearstream, or persons that hold interests
through such participants. Clearstream and Euroclear will hold
interests in the Euroclear/Clearstream global note on behalf of their
participants through customers' securities accounts in their respective
names on the books of their respective depositaries. Except under the
limited circumstances described below, book-entry interests will not be
held in definitive form.
Book-entry interests will be shown on, and transfers thereof will
be effected only through, records maintained in book-entry form by DTC,
Euroclear and Clearstream and their participants. The laws of some
jurisdictions, including certain states of the United States, may
require that certain purchasers of securities take physical delivery of
such securities in definitive form. The foregoing limitations may
impair your ability to own, transfer or pledge book-entry interests. In
addition, while the exchange notes are in global form, holders of
book-entry interests will not be considered the owners or "holders" of
exchange notes for any purpose.
So long as the exchange notes are held in global form, DTC,
Euroclear and/or Clearstream, as applicable (or their respective
nominees), will be considered the sole holders of global notes for all
purposes under the indenture. In addition, participants must rely on
the procedures of DTC, Euroclear and Clearstream and indirect
participants must rely on the procedures of DTC, Euroclear, Clearstream
and the participants through which they own book-entry interests to
transfer their interests or to exercise any rights of holders under the
indenture.
Neither we nor the trustee will have any responsibility or be
liable for any aspect of the records relating to the book-entry
interests.
Redemption of the global notes
In the event any global note (or any portion thereof) is redeemed,
DTC, Euroclear and/or Clearstream, as applicable, will redeem an equal
amount of the book-entry interests in such global note from the amount
received by it in respect of the redemption of such global note. The
redemption price payable in connection with the redemption of such
book-entry interests will be equal to the amount received by DTC,
Euroclear and Clearstream, as applicable, in connection with the
redemption of such global note (or any portion thereof). We understand
that, under existing practices of DTC, Euroclear and Clearstream, if
fewer than all of the exchange notes are to be redeemed at any time,
DTC, Euroclear and Clearstream will credit their respective
participants' accounts on a proportionate basis (with adjustments to
prevent fractions) or by lot or on such other basis as they deem fair
and appropriate; provided however, that no book-entry interest of
Euro 1,000 principal amount or less may be redeemed in part.
Payments on global notes
Payments of any amounts owing in respect of the global notes
(including principal, premium, if any, and interest) will be made by us
to DTC or its nominee (in the case of the DTC global note) and to the
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common depositary or its nominee for Euroclear and Clearstream (in the
case of the Euroclear/Clearstream global note) which will distribute
such payments to participants in accordance with their procedures.
Payments of all such amounts will be made without deduction or
withholding for or on account of any present or future taxes, duties,
assessments or governmental charges of whatever nature except as may be
required by law, and if any such deduction or withholding is required
to be made by any law or regulation of The Netherlands, then, to the
extent described under "Description of the Exchange Notes --
Withholding Taxes" above, additional amounts will be paid as may be
necessary in order that the net amounts received by any holder of the
global notes or owner of book-entry interests after such deduction or
withholding will equal the net amounts that such holder or owner would
have otherwise received in respect of such global note or book-entry
interest, as the case may be, absent such withholding or deduction. We
expect that payments by participants to owners of book-entry interests
held through such participants will be governed by standing customer
instructions and customary practices.
Under the terms of the indenture, we and the trustee will treat
the registered holder of the global notes (e.g., DTC, Euroclear or
Clearstream (or their respective nominees)) as the owner thereof for
the purpose of receiving payments and for all other purposes.
Consequently, neither we, the trustee nor any agent of ours or the
trustee has or will have any responsibility or liability for:
o any aspect of the records of DTC, Euroclear, Clearstream or
any participant or indirect participant relating to or
payments made on account of a book-entry interest or for
maintaining, supervising or reviewing the records of DTC,
Euroclear, Clearstream or any participant or indirect
participant relating to or payments made on account of a
book-entry interest, or
o DTC, Euroclear, Clearstream or any participant or indirect
participant.
Currency of payment for the global notes
The principal of, premium, if any, and interest on, and all other
amounts payable in respect of, the DTC global note will be paid in
dollars to holders of interests in such global note, who we refer to as
the DTC holders. The principal of, premium, if any, and interest on,
and all other amounts payable in respect of, the Euroclear/Clearstream
global note will be paid in euros to holders of interests in such
global note, who we refer to as the Euroclear/Clearstream holders.
At present, DTC can only accept payment in dollars. As a result,
DTC holders will receive payments in dollars as described above, unless
they elect to receive payments in euros as described below.
Notwithstanding the payment provisions described above,
Euroclear/Clearstream holders may elect to receive payments in respect
of the Euroclear/Clearstream global note in dollars, and DTC holders
may elect to receive payments in respect of the DTC global note in
euros.
A Euroclear/Clearstream holder may receive payments of amounts
payable in respect of its interest in the Euroclear/Clearstream global
note in dollars in accordance with Euroclear's and Clearstream's
customary procedures, which include, among other things, giving to
Euroclear or Clearstream, as appropriate, a notice of such holder's
election to receive such payments in dollars. All costs of conversion
resulting from any such election will be borne by such holder.
A DTC holder may receive payments of amounts payable in respect of
its interest in the DTC global note in euros in accordance with DTC's
customary procedures, which include, among other things, giving to DTC
a notice of such holder's election to receive such payments in euros.
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Action by owners of book-entry interests
DTC, Euroclear and Clearstream have advised us that they will take
any action permitted to be taken by a holder of exchange notes only at
the direction of one or more participants to whose account the
book-entry interests in the global notes are credited and only in
respect of such portion of the aggregate principal amount of exchange
notes as to which such participant or participants has or have given
such direction. DTC, Euroclear and Clearstream will not exercise any
discretion in the granting of consents, waivers or the taking of any
other action in respect of the global notes. However, if there is an
event of default under the exchange notes, each of DTC, Euroclear and
Clearstream reserve the right to exchange the global notes for
definitive registered notes in certificated form, and to distribute
such definitive registered notes to its participants.
Transfers
Transfers between participants in DTC will be effected in
accordance with DTC rules and will be settled in immediately available
funds. If a holder requires physical delivery of definitive registered
notes for any reason, including to sell exchange notes to persons in
states which require physical delivery of such securities or to pledge
such securities, such holder must transfer its interest in the global
notes in accordance with the normal procedures of DTC and in accordance
with the procedures set forth in the indenture.
Transfers involving an exchange of a book-entry interest in the
DTC global note for a book-entry interest in the Euroclear/Clearstream
global note will be effected in DTC by means of an instruction
originated by the trustee through the DTC Deposit/Withdrawal at
Custodian system. Accordingly, in connection with any such transfer,
appropriate adjustments will be made to reflect a decrease in the
principal amount of the DTC global note and a corresponding increase in
the principal amount of the Euroclear/Clearstream global note. Any
book-entry interest in one of the global notes that is transferred to a
person who takes delivery in the form of a book-entry interest in the
other global note will, upon transfer, cease to be a book-entry
interest in the first-mentioned global note and become a book-entry
interest in such other global note, and accordingly will thereafter be
subject to all transfer restrictions, if any, and other procedures
applicable to book-entry interests in such other global note for as
long as it remains a book-entry interest.
Definitive registered notes
Under the terms of the indenture, owners of the book-entry
interests will receive definitive registered notes:
o if DTC, Euroclear or Clearstream notifies us that it is
unwilling or unable to continue to act as depositary and a
successor depositary is not appointed by us within 120 days;
o if DTC, Euroclear or Clearstream so requests following an
event of default under the indenture; or
o if the owner of a book-entry interest requests such exchange
in writing delivered through either DTC, Euroclear or us
following an event of default under the indenture.
In the case of the issuance of definitive registered notes, the
holder of a definitive registered note may transfer such definitive
note by surrendering it to the registrar or a transfer agent. In the
event of a partial transfer or a partial redemption of a holding of
definitive registered notes represented by one definitive registered
note, a definitive registered note shall be issued to the transferee in
respect of the part transferred and a new definitive registered note in
respect of the balance of the holding not transferred or
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redeemed shall be issued to the transferor or the holder, as
applicable; provided, that no definitive registered note in a
denomination less than Euro 1,000 shall be issued. The cost of
preparing, printing, packaging and delivery the definitive registered
notes will be borne by us.
We will not be required to register the transfer or exchange of
definitive registered notes for a period of 15 calendar days preceding
o the record date for any payment of interest on the exchange
notes,
o any date fixed for redemption of the exchange notes or
o the date fixed for selection of the exchange notes to be
redeemed in part.
Also, we are not required to register the transfer or exchange of
any exchange notes selected for redemption. In the event of the
transfer of any definitive registered note, the trustee may require a
holder, among other things, to furnish appropriate endorsements and
transfer documents as described in the indenture. We may require a
holder to pay any taxes and fees required by law and permitted by the
indenture and the exchange notes.
If definitive registered notes are issued and a holder thereof
claims that such definitive registered notes have been lost, destroyed
or wrongfully taken or if such definitive registered note is mutilated
and is surrendered to the registrar or at the office of a transfer
agent, we will issue and the trustee shall authenticate a replacement
definitive registered note if the trustee's and our requirements are
met. The trustee or we may require a holder requesting replacement of a
definitive registered note to furnish an indemnity bond sufficient in
the judgment of both to protect us, the trustee or the paying agent
appointed pursuant to the indenture from any loss which we or any of
them may suffer if a definitive registered note is replaced. We may
charge for its expenses in replacing a definitive registered note.
In case any such mutilated, destroyed, lost or stolen definitive
registered note has become or is about to become due and payable, or is
about to be redeemed or purchased by us pursuant to the provisions of
the indenture, we in our discretion may, instead of issuing a new
definitive registered note, pay, redeem or purchase such definitive
registered note, as the case may be.
Definitive registered notes may be transferred and exchanged for
book-entry interests in a global note only in accordance with the
indenture.
Information concerning DTC, Euroclear and Clearstream
We understand as follows with respect to DTC, Euroclear and
Clearstream:
DTC. DTC is
o a limited purpose trust company organised under the New York
Banking Law;
o a "banking organisation" under New York Banking Law;
o a member of the Federal Reserve System;
o a "clearing corporation" within the meaning of the New York
Uniform Commercial Code; and
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o a "clearing agency" registered under Section 17A of the
Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of transactions among its
participants. It does this through electronic book-entry changes in the
accounts of securities participants, eliminating the need for physical
movement of securities certificates. DTC participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organisations. DTC is owned by a number
of its direct participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship
with a direct participant also have access to the DTC system and are
known as indirect participants.
Because DTC can only act on behalf of participants, who in turn
act on behalf of indirect participants and certain banks, the ability
of an owner of a beneficial interest to pledge such interest to persons
or entities that do not participate in the DTC system or otherwise take
actions in respect of such interest, may be limited by the lack of a
definitive certificate for that interest. The laws of some states
require that certain persons take physical delivery of securities in
definitive form. Consequently, the ability to transfer beneficial
interests to such persons may be limited. In addition, owners of
beneficial interests through the DTC system will receive distributions
attributable to the DTC global note only through DTC participants.
Euroclear and Clearstream. Like DTC, Euroclear and Clearstream
hold securities for participating organisations. They also facilitate
the clearance and settlement of securities transactions between their
respective participants through electronic book-entry changes in
accounts of such participants. Euroclear and Clearstream provide
various services to their participants, including the safekeeping,
administration, clearance, settlement, lending and borrowing of
internationally traded securities. Euroclear and Clearstream interface
with domestic securities markets. Euroclear and Clearstream
participants are financial institutions such as underwriters,
securities brokers and dealers, banks, trust companies and certain
other organisations. Indirect access to Euroclear or Clearstream is
also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodian relationship with
a Euroclear or Clearstream participant, either directly or indirectly.
Global clearance and settlement under the book-entry system
The exchange notes represented by the global notes will be listed
on the Amsterdam Stock Exchange and to trade in DTC's same-day funds
settlement system, and any permitted secondary market trading activity
in such exchange notes will, therefore, be required by DTC to be
settled in immediately available funds. Cross-market transfers between
the participants in DTC, on the one hand, and Euroclear or Clearstream
participants, on the other hand will be effected through DTC in
accordance with DTC's rules on behalf of each of Euroclear or
Clearstream by its common depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or
Clearstream by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels
time) of such system. Euroclear or Clearstream will, if the transaction
meets its settlement requirements, deliver instructions to the common
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the global notes in DTC, and
making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
common depositary.
Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in a global
note from a participant in DTC will be credited, and any such crediting
will be reported to the relevant Euroclear or Clearstream participant,
during the securities settlement processing day (which must be a
business day for Euroclear and Clearstream) immediately following the
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settlement date of DTC. Cash received in Euroclear and Clearstream as a
result of sales of interest in a global note by or through a Euroclear
or Clearstream participant to a participant in DTC will be received
with value on the settlement date of DTC but will be available in the
relevant Euroclear or Clearstream cash account only as of the business
day for Euroclear or Clearstream following DTC's settlement date.
Although DTC, Euroclear and Clearstream are expected to follow the
foregoing procedures in order to facilitate transfers of interests in
the global notes among participants of DTC, Euroclear or Clearstream,
as the case may be, they are under no obligation to perform or continue
to perform such procedures, and such procedures may be discontinued at
any time. Neither we nor the trustee or the paying agent will have any
responsibility for the performance by DTC, Euroclear or Clearstream or
their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
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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 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 particular 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.
The laws upon which this opinion is based are subject to change,
sometimes with retroactive effect. 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 NOTES.
Substantial Interest
A shareholder that owns shares representing directly or indirectly
5% or more of any class of shares, or 5% or more of the total issued
share capital or options including conversion rights over such shares
of a company resident in The Netherlands (a "Substantial Interest"), is
subject to special rules. Profit participation rights which give the
holder rights to 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. With respect to
individuals, attribution rules exist in determining the presence of a
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.
In the situation that a shareholder has or is deemed to have a
Substantial Interest in VersaTel, then, inter alia, all the notes such
shareholder holds will form a part of this Substantial Interest.
Tax Consequences for Residents or Deemed Residents of The Netherlands
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 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
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 holder if the notes are:
1. attributable to a trade or business carried on by the holder,
or
2. form part of a Substantial Interest.
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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 generally 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.
Capital Gains realized from the Sale 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.
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 generally if the notes are (deemed) attributable to a trade
or business carried on (or deemed to be carried on) by the holder.
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%. Notes will generally be included in the taxable basis.
Gift Tax and Inheritance Tax
Netherlands gift tax or inheritance tax will be due with respect
to a gift or inheritance of notes 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 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 Netherlands 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).
Interest Withholding Tax
The Netherlands will not levy withholding taxes from non-resident
holders on payments under the notes.
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Individual Income Tax and Corporation Income Tax
A non-resident holder of notes will not be subject to Netherlands
income tax on interest received from VersaTel, provided such holder:
1. does not carry on and has not carried on a business in The
Netherlands through a permanent establishment or a permanent
representative to which the notes are attributable,
2. does not hold and has not held a Substantial Interest in
VersaTel's share capital or, in the event the non-resident
holder holds or has held a Substantial Interest in VersaTel,
such interest is or was a business asset in the hands of the
holder,
3. does not share and has not 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 owns or owned or is deemed to own or was
deemed to have owned the notes, and
4. does not carry out and has not carried out employment
activities in The Netherlands, or serves or served as a
director or board member of any entity resident in The
Netherlands, or serves or served as a civil servant of a
Netherlands public entity with which the holding of the notes
is or was connected.
Capital Gains Realized from the Sale of Notes
A non-resident holder of notes will not be subject to Netherlands
income tax on capital gains derived from the sale, or disposition of
notes, provided such holder:
1. does not carry on or has not carried on a business in The
Netherlands through a permanent establishment or a permanent
representative to which the notes are attributable,
2. does not hold and has not held a Substantial Interest in
VersaTel's share capital or, in the event the non-resident
holder holds or has held a Substantial Interest in VersaTel,
such interest was a business asset in the hands of the holder,
3. does not share and has not 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 owns or owned or is deemed to own or was
deemed to have owned notes, and
4. does not carry and has not carried out employment activities
in The Netherlands, or serves or served as a director or board
member of any entity resident in The Netherlands, or serves or
served as a civil servant of a Netherlands public entity, with
which the holding of the notes is or was connected.
Net Wealth Tax
A non-resident individual holder will not be subject to
Netherlands net wealth tax in respect of the notes provided such
holder:
1. does not carry on and has not carried on a business in The
Netherlands through a permanent establishment or a permanent
representative that includes or included in its assets the
notes, and
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2. does not share and has not 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 owns or owned or is deemed to own or was
deemed to have owned notes.
Gift Tax and Inheritance Tax
A gift or inheritance of notes 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 Netherlands 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 Netherlands 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, 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; 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.
Tax reform 2001
In The Netherlands a major tax reform is pending which will become
effective as of January 1, 2001. It will in inter alia particular
change the taxation in relation to notes held by individual holders
resident or deemed resident of The Netherlands which are neither
business assets or not part of a so-called substantial interest.
According to the proposed legislation Netherlands individual resident
holders or deemed Netherlands resident holders of notes will be taxed
annually on a deemed income of 4% of the average annual value of the
notes at a rate of 30%, regardless whether any interest is received,
capital gains are realized or capital losses are suffered. On the other
hand the net wealth tax will be abolished.
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 such an individual 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.
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United States Federal Income Taxation
The following is a summary of certain of the U.S. federal income
tax consequences with respect to an exchange of original notes
("Original Notes") for exchange notes ("Exchange Notes") pursuant to
the exchange offer and the ownership and disposition of Exchange Notes.
This summary addresses only the U.S. federal income tax consequences to
"U.S. Holders" (as defined below) that hold their Original Notes and
will hold Exchange Notes as capital assets within the meaning of
Section 1221(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). This summary does not address tax consequences to holders that
may be subject to special tax rules, such as:
o financial institutions,
o insurance companies,
o dealers or traders in securities or currencies,
o tax-exempt entities,
o persons that hold Original Notes, or that will hold Exchange
Notes as part of a "hedging" or "conversion" or other
integrated transaction or as a position in a "straddle" for
U.S. federal income tax purposes,
o persons that have a "functional currency" other than the U.S.
dollar, and
o holders that own (or are deemed to own) 10% or more (by voting
power or value) of the shares of VersaTel.
This summary is based on the Code, existing and proposed United
States Treasury Regulations promulgated thereunder and judicial and
administrative interpretations thereof, all as of the date of this
prospectus. All of the foregoing are subject to change, which change
could apply retroactively and could affect the tax consequences
described below.
For purposes of this summary a "U.S. Holder" is a beneficial owner
of Original Notes and Exchange Notes that is, for federal income tax
purposes:
o a citizen or individual resident of the United States,
o corporation or partnership organized in or under the laws of
the United States or any state thereof (including the District
of Columbia), or
o an estate or trust the income of which is subject to U.S.
federal income taxation regardless of its source.
Each holder should consult its own tax advisor with respect to the U.S.
federal, state, local and foreign tax consequences of participating in
the exchange offer and of the ownership and disposition of Exchange
Notes.
Exchange Offer
An exchange of Original Notes for Exchange Notes pursuant to the
Exchange Offer, will not be a taxable event for U.S. federal income tax
purposes and a U.S. Holder will have the same tax basis and holding
period in an Exchange Note as in the Original Note exchanged therefor.
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A U.S. Holder of an Original Note may have acquired it at a
"market discount". For this purpose, "market discount" is the excess
(if any) of the euro principal amount over the holder's euro
acquisition price, subject to a statutory de minimis exception. While
accrued market discount generally must be recognized to the extent of
gain realized on the disposition of a market discount debt instrument,
an exchange pursuant to the exchange offer will not cause any
exchanging holder of an Original Note that acquired it at a market
discount to recognize any accrued market discount as income. Instead,
any accrued market discount on an Original Note that is exchanged for
an Exchange Note will attach to the Exchange Note. In addition,
unaccrued market discount on such Original Note will carry over to the
Exchange Note and will accrue over the term of the Exchange Note.
If a U.S. Holder's euro acquisition price of an Original Note
exceeded the euro principal amount of such Original Note, such excess
constituted amortizable bond premium which the U.S. Holder may have
elected to amortize under a constant yield method under Section 171 of
the Code. If such an electing holder exchanges an Original Note for an
Exchange Note, the remaining bond premium on the Original Note will
carry over to and become bond premium on the Exchange Note and would be
amortizable over the term of the Exchange Note.
United Stated Federal Income Taxation of Exchange Notes
Payments of Interest
A U.S. Holder will be required to include interest on an Exchange
Note in income as ordinary interest income at the time it is received
or accrued, in accordance with the U.S. Holder's method of accounting
for U.S. federal income tax purposes.
In the case of 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 the interest received, 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 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 an Exchange 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 a partial accrual
period, the exchange rate in effect on the last day of 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 an Exchange 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
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<PAGE>
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).
Euro received as interest on the Exchange 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 on the Exchange 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 limitation. 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 Exchange Notes generally
should constitute "passive income" or, in the case of certain U.S.
Holders, "financial services income".
A beneficial owner of Exchange Notes that is not a U.S. Holder (a
"Non-U.S. Holder") generally will not be subject to U.S. federal income
tax on interest received on the Exchange 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.
Amortizable Bond Premium
If an Exchange Note has carry-over bond premium (as described in
"-- Exchange Offer" above), a U.S. Holder generally may elect to
amortize the premium over the remaining term of the note on a constant
yield method. However, if the Original Note was purchased at a time
when the note may be optionally redeemed for an amount that is in
excess of its principal amount, special rules would apply that could
result in a deferral of the amortization of bond premium until later in
the term of the note. The amount amortized in any year will be treated
as a reduction of the U.S. Holder's interest income from the note. Bond
premium on a note held by a U.S. Holder that does not make such an
election will decrease the gain or increase the loss otherwise
recognized on disposition of the note. The election to amortize premium
on a constant yield method, once made, applies to all debt obligations
held or subsequently acquired by the electing U.S. Holder 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 ("IRS").
Market Discount
If an Exchange Note has carry-over market discount (as described
in "-- Exchange Offer" above), a U.S. Holder will be required to treat
any partial principal payment on, or any gain on the sale, exchange,
retirement or other disposition of such note as ordinary income to the
extent of the lessor of (i) the amount of such payment or realized gain
and (ii) 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 U.S. Holder makes a gift of an
Exchange Note, accrued market discount, if any, will be recognized as
if such U.S. Holder has sold such Exchange 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 its earlier disposition in a
taxable transaction, the deduction of all or a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry
such note.
Any market discount will be considered to accrue ratably 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 may elect to include market
discount in income currently as it accrues (on either a ratable or
constant interest method), in which case the rules described above
regarding the treatment of gain as ordinary income upon the disposition
of, and the receipt of certain cash payments on, a note and the
deferral of interest deductions will not apply. This election to
include market
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<PAGE>
discount in income currently, once made, applies to all market discount
obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the IRS.
Sale, Exchange or Retirement of the Exchange Notes
A U.S. Holder's tax basis in an Exchange Note generally will equal
the adjusted tax basis of the Original Note exchanged therefor (as
described in "-- Exchange Offer" above), decreased by the amount of any
payments received by the U.S. Holder with respect to the Exchange Note
that are not interest payments and increased or decreased, as the case
may be, for any foreign exchange gain or loss, respectively, realized
in respect of such payments.
A U.S. Holder generally will recognize gain or loss on the sale,
exchange or retirement of an Exchange 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 and unpaid
interest, or market discount not previously taken into income, which
will be taxable as ordinary income) and the adjusted tax basis of such
note subject to the special rule in the next paragraph regarding
disposition on an established securities market, the amount realized on
the sale, exchange or retirement of an Exchange Note for an amount of
foreign currency will be the U.S. dollar value of that amount on the
date of such sale, exchange or retirement.
If the Exchange Notes are traded on an established securities
market, there is a special rule for the Exchange Notes are traded on an
established securities market, there is a special rule for purchases
and sales of such notes by a cash basis taxpayer under which the U.S.
dollar value of foreign currency paid or received are determined based
on the exchange rate in effect on the settlement date of the purchase
or sale. In that case, no exchange gain or loss will result from
currency fluctuations between the trade date and the settlement of such
purchase or sale. An accrual basis taxpayer may elect the same
treatment required of cash basis taxpayers with respect to purchases
and sale of publicly traded notes, provided the election is applied
consistently. Such election cannot be changed without the consent of
the IRS.
Gain or loss recognized by a U.S. Holder on the sale, exchange or
retirement of an Exchange 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 such 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 such
note, and generally will 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
an Exchange Note generally would 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 an Exchange 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 income or loss and generally will be income from sources
within the United States for foreign tax credit limitation purposes.
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A Non-U.S. Holder will generally not be subject to U.S. federal
income tax on any gain realized on the sale, exchange, or retirement of
Exchange 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 interest on,
and to proceeds from the sale or redemption of Exchange Notes by a
payor within the United States to a holder of Exchange Notes (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 interest on, and of the proceeds from
the sale or redemption of Exchange Notes 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 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.
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PLAN OF DISTRIBUTION
Based on an interpretation by the staff of the Securities and
Exchange Commission set forth in no-action letters issued to third
parties in similar transactions, we believe that the exchange notes
issued in the exchange offer in exchange for the original notes may be
offered for resale, resold and otherwise transferred by you (other than
if you are our "affiliate" within the meaning of Rule 405 under the
Securities Act of 1933) without compliance with the registration and
prospectus delivery provisions of the Securities Act of 1933.
However, this applies only if exchange notes are acquired in the
ordinary course of your business and you have not arranged with any
person to participate in the distribution of these exchanges notes. We
refer you to the "Morgan Stanley & Co. Inc." SEC No-Action Letter
(available June 5, 1991), "Exxon Capital Holdings Corporation" SEC
No-Action Letter (available May 13, 1998) and "Shearman & Sterling" SEC
NO-Action Letter (available July 2, 1993) for support of this belief.
Each holder of the original notes who wishes to exchange his
original notes for exchange notes in the exchange offer will be
required to make to us the representations to us as set out in "Terms
of the Exchange Offer". Furthermore, each broker-dealer that receives
exchange notes for its own account must acknowledge that it will
deliver a prospectus in connection with any resale of such exchange
notes. This prospectus, including any amendments or supplements to the
prospectus which may be issued from time to time, may be used by a
broker-dealer in connection with resales of exchange notes which were
received in exchange for original notes where the original notes were
acquired as a result of market-making activities or other trading
activities. We have agreed that for a period of 180 days after the
exchange offer expires, we will make available a prospectus which meets
the requirements of the Securities Act of 1933 to any broker-dealer for
use in this type of resale.
We will not receive any proceeds from any sale of exchange notes
by any broker-dealer. Exchange notes received by broker-dealers for
their own account in the exchange offer may be sold from time to time
in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange
securities or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any type of resale of exchange
notes may be made directly to purchasers or through brokers or dealers
who may receive compensation in the form of commissions or concessions
from any such broker-dealer or from the purchasers of the exchange
notes. Any broker-dealer that resells exchange notes that were received
by it for its own account in the exchange offer and any broker or
dealer that participates in a distribution of these exchange notes may
be deemed to be an "underwriter" within the meaning of the Securities
Act of 1933 and any profit on any such resale of exchange notes and any
commissions or concessions received by these persons may be deemed to
be underwriting compensation under the Securities Act of 1933. The
letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities
Act of 1933.
We have agreed to pay all expenses incidental to our performance
of, or compliance with, our registration rights agreement. In addition,
we will indemnify holders of the original notes (including any
broker-dealers) against certain liabilities, including certain
liabilities, including certain liabilities under the Securities Act of
1933.
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LEGAL MATTERS
Certain legal matters regarding the validity of the exchange notes
offered hereby and the United States federal income tax consequences of
the exchange offer will be passed upon for VersaTel by Shearman &
Sterling. Certain matters of Netherlands corporate law will be passed
upon for VersaTel by Stibbe Simont Monahan Duhot, Amsterdam, The
Netherlands.
EXPERTS
The financial statements of VersaTel as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31,
1999 incorporated by reference into this prospectus, have been audited
by Arthur Andersen, independent public accountants, as indicated in
their reports thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Svianed B.V. as of December 31, 1998
and 1997 and for each of the years in the two-year period ended
December 31, 1998 have been included in this prospectus in reliance
upon the report of KPMG Accountants N.V., independent public
accountants, as noted in their report appearing herein.
The financial statements of VEW Telnet as of December 31, 1998 and
1997 and for the years then ended, have been included in this
prospectus in reliance upon the report of BDO Deutsche Warentreuhand
Aktiengesellschaft Wirtschaftsprufungsgesellschaft, independent public
accountants, as noted in their report appearing herein.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the Securities and
Exchange Commission, or the "Commission" under the Securities Act of
1933. This registration statement covers the notes that we will issue
to you if you exchange your original notes for exchange notes in this
exchange offer. The rules and regulations of the Commission allow us to
omit some of the information in the registration statement from this
prospectus. This prospectus is a summary of information and any
statements made in this prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. If we have
filed such contract, agreement or other document as an exhibit to the
registration statement, we urge you to read the exhibit carefully for a
more complete understanding of the document or the matter involved. We
qualify all of our statements by reference to the complete documents.
The registration statement and its exhibits and schedules may be read
at no cost to you and copied at the public reference section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and the Commission's regional offices at 7 World Trade Centre, Suite
1300, New York, New York 10048, and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. You may call
the Commission at 1-800-SEC-0330 for further information on its public
reference rooms. Also, the Commission maintains a World Wide Web site
on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the Commission. We are also subject to the
information and period reporting requirements of the Exchange Act of
1934 and, in accordance therewith, we file periodic reports and other
information with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system. Such periodic reports and
other information will be available for inspection and copying at the
public reference facilities, regional offices and Web site of the
Commission referred to above.
GENERAL LISTING INFORMATION
This offering has been authorized and approved at a meeting of our
supervisory board held on March 10, 2000. All other consents,
approvals, authorizations or other formalities required under
Netherlands law to be obtained or satisfied in connection with this
offering have been obtained or satisfied.
The latest audited financial information for VersaTel incorporated
by reference in this prospectus is as of and for the year ended
December 31, 1999. To the best of our knowledge, since that date, there
has been no material adverse change to our financial condition that has
not been disclosed in this prospectus.
VersaTel Telecom International N.V.'s outstanding ordinary share
capital has been listed on the Official Market of Amsterdam Exchanges
N.V.'s stock market.
We have taken appropriate measures to comply with the regulations
on insider trading pursuant to the Dutch Securities Transactions
Supervision Act 1995 (Wet Toezicht Effectenverkeer 1995).
Our audited consolidated financial statements as of and for the
years ended December 31, 1999, 1998 and 1997 are available in English
and our articles of association will be available in Dutch and in
English at our head office, located at Hullenbergweg 101, 1101 CL,
Amsterdam-Zuidoost, The Netherlands, and at ING Barings, located at
Foppingadreef 7, 1102 BD Amsterdam.
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PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY
VersaTel Telecom International N.V.
Hullenbergweg 101
1101 CL Amsterdam-Zuidoost
The Netherlands
INDEPENDENT AUDITORS
Arthur Andersen
Prof. W.H. Keesomlaan 8
1183 DJ Amstelveen
The Netherlands
LEGAL ADVISERS
As to U.S. Law As to Dutch Law
Shearman & Sterling Stibbe Simont Monahan Duhot
Broadgate West Strawinskylaan 2001
9 Appold Street 1077 ZZ Amsterdam
London EC2A 2AP The Netherlands
England
TRUSTEE, REGISTRAR, PRINCIPAL PAYING AND TRANSFER AGENT
The Bank of New York
One Canada Square
London E14 5AL
England
LISTING AGENT, PAYING AND TRANSFER AGENT
Amsterdam Listing Agent
ING Barings
Foppingadreef 7
1102 BD Amsterdam
The Netherlands
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APPENDIX ASVIANED B.V.FINANCIAL STATEMENTS
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report................................................................................ A-2
Balance Sheets as of December 31, 1998 and 1997............................................................. A-3
Statements of Operations for the Years Ended December 31, 1998 and 1997.................................... A-4
Statements of Shareholders' Equity for the Years Ended December 31, 1998 and 1997........................... A-5
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997..................................... A-6
Notes to Financial Statements............................................................................... A-7
Condensed Balance Sheets as of September 30, 1999 and 1998.................................................. A-11
Condensed Statements of Operations For the Three Months Ended March 31, 1999 and 1998....................... A-12
Condensed Statements of Shareholder's Equity as of March 31, 1999 and 1998.................................. A-13
Condensed Statements of Cash Flows For the Three Months Ended March 31, 1999 and 1998....................... A-14
Condensed Notes to Financial Statements..................................................................... A-15
</TABLE>
A-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and the Shareholder of Svianed B.V.
We have audited the accompanying balance sheets of Svianed B.V. as of
December 31, 1998 and 1997, and the related statements of operations,
shareholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in The Netherlands which do not differ in any significant respect from
generally accepted auditing standards in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Svianed B.V. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles in
the United States of America.
KPMG Accountants N.V.
Amsterdam, The Netherlands
March 15, 1999
A-2
<PAGE>
Svianed B.V.
Balance Sheets
As of December 31, 1998 and 1997
(Amounts in thousands of Dutch guilders
except for share and per share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------- -----------------
NLG NLG
ASSETS
<S> <C> <C>
Cash and cash equivalents................................................ 1,468 2,578
Trade accounts receivable, less allowance for doubtful
accounts of NLG 250 in 1998 and NLG nil in 1997.......................... 4,618 5,536
Due from group companies................................................. 5,476 4,254
Inventory................................................................ 129 215
Prepaid expenses......................................................... 190 298
Discounts to be received from KPN........................................ 1,454 590
Other current assets..................................................... 1,062 681
-------- -------
Total current assets................................................. 14,397 14,152
Property and equipment, less accumulated depreciation...................... 19,153 14,648
Deferred tax assets........................................................ 105 70
-------- -------
Total assets................................................... 33,655 28,870
-------- -------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable......................................................... 2,306 4,107
Due to group companies................................................... 8,713 2,706
Short term portion of long term debt..................................... 2,500 2,500
Deferred income.......................................................... 3,132 1,943
Accrued liabilities...................................................... 679 876
Other liabilities........................................................ 1,508 250
-------- -------
Total current liabilities............................................ 18,838 12,382
Long term debt............................................................. 2,500 5,000
Pension obligation......................................................... 300 200
-------- -------
Total liabilities.................................................... 21,638 17,582
-------- -------
Shareholder's equity
Common shares, NLG 1,000 par value, authorized 25,000 shares; issued
and outstanding 5,000 in 1998 and
1997.................................................................. 5,000 5,000
Retained earnings........................................................ 7,017 6,288
-------- -------
Total shareholder's equity........................................... 12,017 11,288
-------- -------
Total liabilities and shareholder's equity..................... 33,655 28,870
======== =======
</TABLE>
The accompanying notes form an integral part of
these Financial Statements.
A-3
<PAGE>
Svianed B.V.
Statements of Operations
For the Years Ended December 31, 1998 and 1997
(Amounts in thousands of Dutch guilders)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------------- -----------------
NLG NLG
<S> <C> <C>
OPERATING REVENUES:
Related party revenues................................................... 34,460 32,037
Other revenues........................................................... 22,223 13,074
-------- ------
Total operating revenues.............................................. 56,683 45,111
OPERATING EXPENSES:
Cost of Revenues, excluding depreciation................................. 26,878 23,550
Selling, general and administrative expenses............................. 11,890 8,331
Depreciation expense..................................................... 8,751 6,754
-------- ------
Total operating expenses.............................................. 47,519 38,635
-------- ------
Operating Income......................................................... 9,164 6,476
OTHER INCOME (EXPENSE):
Interest income.......................................................... 85 111
Interest expense......................................................... (435) (542)
-------- ------
Net income before income taxes............................................. 8,814 6,045
PROVISION FOR INCOME TAXES............................................... (3,085) (2,120)
-------- -------
Net income................................................................. 5,729 3,925
======== ======
</TABLE>
The accompanying notes form an integral part of
these Financial Statements.
A-4
<PAGE>
Svianed B.V.
Statements of Shareholder's Equity
For the Years Ended December 31, 1998 and 1997
(Amounts in thousands of Dutch guilders)
<TABLE>
<CAPTION>
Total
Common Retained shareholder's
shares earnings equity
---------------- -------------- -----------------
<S> <C> <C> <C>
Balance as at 31 December, 1996.............................. 5,000 2,363 7,363
Net income................................................... -- 3,925 3,925
--------- --------- --------
Balance as at 31 December, 1997.............................. 5,000 6,288 11,288
Net income................................................... -- 5,729 5,729
Dividends.................................................... -- (5,000) (5,000)
--------- --------- --------
Balance as at 31 December, 1998.............................. 5,000 7,017 12,017
========= ========= ========
</TABLE>
The accompanying notes form an integral part of
these Financial Statements.
A-5
<PAGE>
Svianed B.V.
Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
(Amounts in thousands of Dutch guilders)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------------- -----------------
NLG NLG
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income................................................................. 5,729 3,925
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................................. 8,751 6,754
Deferred tax............................................................. (35) --
Deferred income.......................................................... 1,189 1,943
Provision for doubtful accounts.......................................... 250 --
Change in other operating assets and liabilities:
Decrease (increase) in accounts receivable............................... 668 (3,796)
Increase in due from group companies..................................... (1,222) (152)
Increase in accrued receivables and other receivables.................... (1,137) (33)
Decrease (increase) in inventory......................................... 86 (215)
Decrease (increase) in accounts payable.................................. (1,801) 473
Increase (decrease) in due to group companies............................ 6,007 (817)
Increase (decrease) in accrued and other liabilities..................... 1,061 (1,460)
Increase in pension obligation........................................... 100 --
-------- -------
Net cash provided by Operating Activities............................. 19,646 6,622
======== =======
Cash flows from Investing Activities:
Capital expenditures..................................................... (13,256) (8,454)
-------- -------
Net cash used in Investing Activities.................................... (13,256) (8,454)
======== =======
Cash flows from Financing Activities:
Dividends paid........................................................... (5,000) --
Repayment of borrowings.................................................. (2,500) (2,500)
-------- -------
Net cash used by Financing Activities................................. (7,500) (2,500)
======== =======
Net decrease in cash and cash equivalents.................................. (1,110) (4,332)
Cash and cash equivalents at beginning of period........................... 2,578 6,910
-------- -------
Cash and cash equivalents at end of period................................. 1,468 2,578
======== =======
Supplemental Disclosures of Cash Flow Information:
Income tax paid............................................................ 2,120 1,656
Interest paid.............................................................. 408 540
</TABLE>
The accompanying notes form an integral part of
these Financial Statements.
A-6
<PAGE>
Svianed B.V.
Notes to Financial Statements
1. Description of Business and basis of presentation
Svianed B.V. (the "Company") is a wholly owned entity of Gak Holding B.V.,
which is wholly owned by Gak Group. The Company is a provider of integrated data
and telecommunications network services in The Netherlands. 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.
Although the Company is a stand alone entity, an allocation was determined
for the pension costs associated with the Gak Holding B.V. defined benefit
pension plan based upon the employees future service costs in compliance with
statements of Financial Accounting Standards (SFAS) No. 87 Employers' Accounting
for Pensions. The fair value of the plan assets were allocated at the group
transfer value, which is a prescribed amount stipulated in the defined benefit
pension plan. Therefore these costs are not necessarily representative of the
pension costs of the company under a separate plan.
Included in the company results are group charges relating to costs in
connection with legal, internal audit and other administrative services provided
by Gak Holding B.V. on behalf of the Company. The Company's management believes
such costs are reflective of actual benefits received by the Company.
The Company is part of a fiscal unity with Gak Group. For purposes of these
financial statements the income taxes are calculated as if the company was a
stand alone corporation and therefore tax expense is calculated at 35% of pre
tax income, which represents the statutory income tax rate in The Netherlands.
2. Summary of Significant Accounting Policies
(a) Cash and cash equivalents
Cash and cash equivalents consist mainly of cash at banks on demand. For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
(b) Inventory
Finished goods are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out method. Cost of work in progress
consists of the direct salary costs and a charge for indirect costs.
(c) Discounts to be received from KPN
Discounts represent volume discounts on the KPN network rental agreements
and are accrued based on volume utilized by the company on a monthly basis.
(d) Revenue recognition
Revenues are recorded in the period in which the service is rendered. Cash
received in advance of services rendered is recorded as deferred income.
A-7
<PAGE>
(e) Property and equipment
Property and equipment is stated at cost. The Company depreciates its
property and equipment using the straight-line method over the estimated useful
lives less the residual value. The useful life of property and equipment is 5
years or less.
(f) Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
(g) Pensions
The Company employees are covered under the Gak Group defined benefit
pension plan. The benefits are based on years of service and the employee's
compensation. The cost of this program is being funded currently. The Company
has included an allocation of the Gak Group defined benefit pension plan
obligation for its employees in compliance with SFAS No. 87 in the Company's
financial statements.
(h) Advertising expense
Advertising costs are expensed as incurred, and amounted to NLG 415,000 in
1998 (1997: NLG 506,000).
(i) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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. Significant estimates and assumptions are used in the amounts
reflected as allowance for doubtful accounts and recovery of deferred tax
assets. Actual results could differ from those estimates.
(j) Fair value of financial instruments
For all financial instruments, the carrying value is considered to
approximate the fair value due to the relatively short maturity of the
respective instruments.
3. Related party transactions
Of the 1998 revenues realized from group companies, NLG 5.7 million relate
to subscriptions recharges relating to telephone access (1997: NLG 6.5 million)
for all Gak Group companies. The rest of the group revenues relate mainly to
capacity leases.
1998 costs charged by group companies to the company includes lease on
premises of NLG 850,000 (1997: NLG 697,000) and charges for various
administrative services and support of NLG 538,000 (1997: 585,000).
The accounts due to the group companies for 1998 as of December 31, 1998
includes income tax payable of NLG 3,120,000 (1997: NLG 2,120,000) and dividends
payable of NLG 5,000,000.
A-8
<PAGE>
4. Inventory
Inventory is comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------- -----------------
NLG NLG
(in thousands)
<S> <C> <C>
Finished goods............................................................. 24 16
Work in progress........................................................... 105 199
-------- -------
129 215
======== =======
</TABLE>
5. Property and equipment
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------- -----------------
NLG NLG
(in thousands)
<S> <C> <C>
Telecommunications and computer equipment.................................. 44,907 32,101
Furniture.................................................................. 29 --
-------- -------
44,936 32,101
Accumulated depreciation................................................... (25,783) (17,453)
-------- -------
Property and equipment, net................................................ 19,153 14,648
======== =======
</TABLE>
6. Long-term debt
Svianed has a loan, maturing 1 December 2000, with ING Bank of originally
NLG 10,000,000. The fixed interest rate is 5.42% per year. Principal payments of
NLG 2,500,000 will be made in 1999 and 2000. Gak Holding B.V. is a joint
guarantor of the loan.
7. Income taxes
Income tax expenses attributable to income consist of:
<TABLE>
<CAPTION>
1998 1997
--------- --------
NLG NLG
(in thousands)
<S> <C> <C>
Current.................................................................... 3,120 2,120
Deferred................................................................... (35) --
-------- -------
Total...................................................................... 3,085 2,120
======== =======
</TABLE>
Since there are no material permanent differences between the book basis
and the tax basis, income tax expense approximates 35% (the Dutch statutory
rate) of net income before taxes.
A-9
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred taxes at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
NLG NLG
(in thousands)
<S> <C> <C>
Deferred tax assets:
Pension obligation......................................................... 105 70
</TABLE>
In assessing the ability to realize deferred tax assets, management
considers whether it is more likely than not that some portions or all of the
portions of all the deferred tax assets will not be realized. Based upon the
level of historical taxable income and projections for future taxable income and
the periods for which the deferred tax assets are deductible. Management
believes it is more likely than not that it will realize the benefits of these
deductible differences.
8. Commitments
As per 31 December 1998, Svianed has the following off balance sheet
commitments:
o Rental agreement for the building of NLG 951,000 per year. The
agreement has an expiration date of 1 January 2000. After this
date, the agreement is terminable every six months.
o Rental agreement KPN network of NLG 3,000,000 per year. After
one year, this agreement is converted into a month-to-month
lease.
o Service agreement for the KPN network of NLG 744,000 per year.
This is a 3-year agreement and can be terminated with sale of
the network.
o Service agreements of NLG 200,000 per year.
o Subscription agreements with KPN for NLG 330,000 per year.
After one year this agreement is converted into a
month-to-month lease.
o Subscription agreements with WorldCom and UUnet of NLG
2,900,000 per year. The expiration date is 31 December 1999.
o Lease agreements for company cars for NLG 421,000 per year.
The agreements have a term of 3 years.
Leases
Future minimum rental commitments under non-cancelable operating leases as
of 31 December 1998 are as follows:
NLG
(in thousands)
------------------
1999................................................ 7,602
2000................................................ 421
2001................................................ 421
-------
8,444
=======
A-10
<PAGE>
The Company is part of Gak Holding Group and therefore all companies within
the Gak Holding Group are jointly and severally liable.
9. Pensions
Pension costs incurred for the year ended December 31, 1998 was NLG 600,000
(1997: NLG 400,000). Contributions to the Gak Group plan were NLG 400,000 for
the year ended December 31, 1998 (1997: NLG 440,000).
The assumptions used in calculating the SFAS 87 pension obligation of the
Gak Group and allocated to Svianed B.V. were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
NLG NLG
(in thousands)
<S> <C> <C>
Weighed -- average assumptions as of 31 December:
Discount rate.............................................................. 5% 6%
Expected rate of return on plan assets..................................... 6% 6%
Rate of compensation increase.............................................. 5% 5%
</TABLE>
10. Subsequent events (unaudited)
On June 11, 1999, VersaTel Telecom International N.V. acquired 100% of the
capital of the Company.
Due to the change of the Company's shareholder, the Company will not
receive certain value added tax (VAT) benefits since it will not be part of the
Gak Holding B.V. fiscal tax unity, effective from the date of change of the
shareholder. As such, an estimated liability relating to VAT of approximately
NLG 1,2 million will be realized in 1999. The company expects to recover a total
amount of approximately NLG 1,1 million in the period 1999 through 2002.
A-11
<PAGE>
Svianed B.V.
Condensed Balance Sheets
As of March 31, 1999 and 1998
(Amounts in thousands of Dutch guilders except for share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---------------- ----------------
NLG NLG
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents..................................................... 5,318 1,009
Trade accounts receivable, less allowance for doubtful
accounts of NLG 125 on March 31, 1999 and NLG nil on
March 31, 1998............................................................. 7,008 5,572
Due from group companies...................................................... 5,210 1,972
Inventory..................................................................... 397 187
Prepaid expenses.............................................................. -- 793
Discounts to be received from KPN............................................. 1,470 346
Other current assets.......................................................... 1,506 1,426
--------- ---------
Total current assets....................................................... 20,909 11,305
Property and equipment, less accumulated depreciation........................... 20,427 17,442
Deferred tax assets............................................................. 158 79
--------- ---------
Total assets.......................................................... 41,494 28,826
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY 4,390 1,917
Current Liabilities
Accounts payable..............................................................
Due to group companies........................................................ 4,759 2,555
Short term portion of long term debt.......................................... 2,500 2,500
Deferred income............................................................... 1,536 3,132
Accrued expenses.............................................................. 6,529 1,259
Other liabilities............................................................. 101 247
--------- ---------
Total current liabilities.................................................. 19,815 11,610
Long term debt.................................................................. 7,500 5,000
Pension obligation.............................................................. 450 225
--------- ---------
Total liabilities.......................................................... 27,765 16,835
Shareholder's equity
Common shares, NLG 1,000 par value, authorized 25,000 shares; issued and
outstanding 5,000 in 1999 and
1998....................................................................... 5,000 5,000
Retained earnings............................................................. 8,729 6,991
--------- ---------
Total shareholder's equity................................................. 13,729 11,991
--------- ---------
Total liabilities and shareholder's equity............................ 41,494 28,826
========= =========
</TABLE>
The accompanying notes form an integral part of these Unaudited Condensed
Financial Statements.
A-12
<PAGE>
Svianed B.V.
Condensed Statements of Operations
For the Three Months Ended March 31, 1999 and 1998
(Amounts in thousands of Dutch guilders)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
---------------- ----------------
NLG NLG
<S> <C> <C>
OPERATING REVENUES:
Related party revenues...................................................... 9,429 8,467
Other revenues.............................................................. 6,150 3,375
--------- ---------
Total operating revenues................................................. 15,579 11,842
OPERATING EXPENSES:
Cost of revenues, excluding depreciation.................................... 6,628 6,342
Selling, general and administrative expenses................................ 3,734 2,448
Depreciation expenses....................................................... 2,472 1,882
--------- ---------
Total operating expenses................................................. 12,834 10,672
--------- ---------
Operating Income............................................................ 2,745 1,170
OTHER INCOME (EXPENSE):
Interest income............................................................. 26 16
Interest expense-- third parties............................................ (70) (104)
Interest expense-- related parties.......................................... (68) --
--------- ---------
Net income before income taxes.............................................. 2,633 1,082
PROVISION FOR INCOME TAXES.................................................... (921) (379)
--------- ---------
Net income.................................................................. 1,712 703
========= =========
</TABLE>
The accompanying notes form an integral part of these Unaudited Condensed
Financial Statements.
A-13
<PAGE>
Svianed B.V.
Condensed Statements of Shareholder's Equity
As of March 31, 1999 and 1998
(Amounts in thousands of Dutch guilders)
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Retained shareholder's
shares earnings equity
---------------- -------------- -----------------
<S> <C> <C> <C>
Balance as at 31 December, 1997.................................. 5,000 6,288 11,288
Net income....................................................... -- 703 11,288
--------- ---------
Balance as at 31 March, 1998..................................... 5,000 6,991 703
========= --------
11,991
========
Balance as at 31 December, 1998.................................. 5,000 7,017
Net income....................................................... -- 1,712 12,017
--------- ---------
Balance as at 31 March, 1999..................................... 5,000 8,729 1,712
========= ========= ========
</TABLE>
The accompanying notes form an integral part of these Unaudited Condensed
Financial Statements.
A-14
<PAGE>
Svianed B.V.
Condensed Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(Amounts in thousands of Dutch guilders)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
---------------- ----------------
NLG NLG
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income....................................................................... 1,712 703
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................................................... 2,472 1,882
Deferred tax................................................................... (53) (9)
Deferred income................................................................ (1,596) 1,189
Provision for doubtful accounts................................................ 125 --
Change in other operating assets and liabilities:
Increase in accounts receivable................................................ (2,515) (36)
Decrease in due from group companies........................................... 266 2,282
Increase in accrued receivables and other
receivables................................................................. (270) (996)
Increase (decrease) in inventory............................................... (268) 28
Increase (decrease) in accounts payable........................................ 2,084 (2,190)
Decrease in due to group companies............................................. (3,954) (151)
Increase in accrued and other liabilities...................................... 4,443 380
Increase in pension obligation................................................. 150 25
------ ------
Net cash provided by Operating Activities................................... 2,596 3,107
===== ======
Cash flows from Investing Activities:
Capital expenditures........................................................... (3,746) (4,676)
------- ------
Net cash used in Investing Activities....................................... (3,746) (4,676)
======= ======
Cash flows from Financing Activities:
Proceeds from new loan......................................................... 5,000 --
------- ------
Net cash provided by Financing Activities................................... 5,000 --
======= ======
Net increase (decrease) in cash and cash
equivalents.................................................................... 3,850 (1,569)
Cash and cash equivalents at beginning of
period......................................................................... 1,468 2,578
------- =-----
Cash and cash equivalents at end of period....................................... 5,318 1,009
======= ======
Supplemental disclosure of Cash Flow Information:
Income tax paid.................................................................. -- --
Interest paid.................................................................... 137 101
</TABLE>
The accompanying notes form an integral part of these Unaudited Condensed
Financial Statements.
A-15
<PAGE>
Svianed B.V.
Condensed Notes to Financial Statements
(Unaudited)
1. Description of Business
Svianed B.V. (the "Company") is a wholly owned entity of Gak Holding B.V.,
which is wholly owned by Gak Group. The Company is a provider of integrated data
and telecommunications network services in The Netherlands. 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.
Although the Company is a stand alone entity, an allocation was determined
for the pension costs associated with the Gak Holding B.V. defined benefit
pension plan based upon the employees future service costs in compliance with
Statements of Financial Accounting Standards (SFAS) No. 87 Employers' Accounting
for Pensions. The fair value of the plan assets were allocated at the group
transfer value, which is a prescribed amount stipulated in the defined benefit
pension plan. Therefore these costs are not necessarily representative of the
pension costs of the company under a separate plan.
Included in the Company results are group charges relating to costs in
connection with legal, internal audit and other administrative services provided
by Gak Holding B.V. on behalf of the Company. The Company's management believes
such costs are reflective of actual benefits received by the Company.
The Company is part of a fiscal unity with Gak Group. For purposes of these
financial statements the income taxes are calculated as if the company was a
stand alone corporation and therefore tax expense is calculated at 35% of pre
tax income, which represents the statutory income tax rate in The Netherlands.
2. Summary of Significant Accounting Policies
The financial statements and related notes at March 31, 1999 and for the
three months ended March 31, 1998 are unaudited and prepared in conformity with
the accounting principles applied in the Company's 1998 financial statements for
the year ended December 31, 1998. In the opinion of management, such interim
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the results for such periods.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year or any
other interim period.
3. Intercompany Loan
The Company acquired a loan of Gak Holding B.V. of NLG 5 million as of
January 1, 1999. The fixed interest rate is 5.42% per year. Principal payments
of NLG 2,500,000 will be made as of December 31, 2001 and December 31, 2002.
4. Subsequent Events
On June 11, 1999, VersaTel Telecom International N.V. acquired 100% of the
capital of the Company.
Due to the change of the Company's shareholder, the Company will not
receive certain value added tax (VAT) benefits since it will not be part of the
Gak Holding B.V. fiscal tax unity, effective from the
A-16
<PAGE>
date of change of the shareholder. As such, an estimated liability relating to
VAT of approximately NLG 1.2 million will be realized in 1999. The company
expects to recover a total amount of approximately NLG 1.1 million in the period
1999 through 2002.
Due to the change of the Company's shareholder, the loan of Gak Holding
B.V. has been fully repaid as of June 2, 1999, prior to its maturity.
A-17
<PAGE>
APPENDIX B
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
FINANCIAL STATEMENTS
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report...................................................................................... B-2
Balance Sheets as of December 31, 1998 and 1997................................................................... B-3
Statements of Operations for the Years Ended December 31,
1998 and 1997................................................................................................... B-5
Statements of Shareholders' Equity for the Years Ended
December 31, 1998 and 1997...................................................................................... B-6
Statement of Cash Flows for the Years Ended December 31,
1998 and 1997................................................................................................... B-7
Notes to Financial Statements..................................................................................... B-8
Condensed Balance Sheets as of September 30, 1999 and 1998........................................................ B-13
Condensed Statements of Operations for the Nine Months
ended September 30, 1999 and 1998.............................................................................. B-15
Condensed Statement of Shareholders' Equity as of September 30, 1999 and 1998..................................... B-16
Condensed Statement of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998.............................................................................. B-17
Condensed Notes to Financial Statements........................................................................... B-18
</TABLE>
B-1
<PAGE>
Independent Auditors' Report
We have audited the balance sheets of VEW Telnet Gesellschaft fur
Telekommunikation und Netzdienste mbH, Dortmund, Germany, as of December 31,
1998 and 1997 and the related statements of operations, shareholder's equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in 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 audits provide a
reasonable basis for our opinion.
VEW Telnet Gesellschaft fur Telekommunikation and Netzdienste mbH, was
acquired by VersaTel Deutschland Holding GmbH, and VersaTel Deutschland
Verwaltungs GmbH, as per December 1, 1999 and is now a wholly owned entity of
the VersaTel Group.
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, Germany, as of December 31,
1998 and 1997, and the result of its operations and cash flows for the years
then ended, in conformity with generally accepted accounting principles in the
United States.
BDO Deutsche Warentreuhand
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Dusseldorf, Germany
February 11, 2000
B-2
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Balance Sheets
As of December 31, 1998 and 1997
(in thousands of German Marks)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------- -----------------
DEM DEM
ASSETS
<S> <C> <C>
Current Assets
Cash and bank deposits......................................................... 752 315
Receivables trade.............................................................. 3,005 1,189
Less allowance for doubtful accounts........................................ (33) 0
Receivables related parties.................................................... 3,266 1,710
Inventories.................................................................... 2,135 252
Other current assets and prepaid expenses...................................... 15 80
--------- ---------
Total current assets........................................................ 9,140 3,546
--------- ---------
Long-term investments
Treasury bills (held to maturity).............................................. 5 5
Shares in subsidiaries......................................................... 758 481
--------- ---------
Total long-term investments................................................. 763 486
--------- ---------
Fixed Assets
Intangible assets (net)........................................................ 9,720 1,546
Property, plant and equipment
Buildings on third party's land............................................. 4,528 3,603
Telecommunication equipment................................................. 51,021 13,350
Other equipment, furniture and fixtures..................................... 5,655 2,839
Construction in progress.................................................... 15,449 21,468
Less: Accumulated depreciation and amortization............................. (7,256) (1,002)
--------- ---------
Total fixed assets.......................................................... 79,117 41,804
--------- ---------
Deferred Taxes................................................................... 1,398 (563)
Goodwill......................................................................... 9,878 --
--------- ---------
Total assets................................................................ 100,296 45,273
========= =========
</TABLE>
B-3
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Balance Sheets
As of December 31, 1998 and 1997
(in thousands of German Marks)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------ -----------------
DEM DEM
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable trade........................................................ 6,810 7,638
Accounts payable to related parties, current portion.......................... 46,521 3,840
Salaries, Wages and Commissions............................................... 1,905 365
Taxes withheld from employees................................................. 625 477
Other accrued liabilities..................................................... 18,539 6,898
Other liabilities and deferred credits........................................ 102 112
--------- ---------
Total current liabilities.................................................. 74,502 19,330
--------- ---------
Noncurrent liabilities
Long-term debt due to banks................................................... 2,756 2,756
Long-term debt intercompany................................................... 10,000 10,000
Accrued pension cost.......................................................... 752 625
--------- ---------
Total noncurrent liabilities............................................... 13,508 13,381
--------- ---------
Shareholder's equity
Capital stock................................................................... 54,825 24,148
Additional paid-in capital.................................................... 29,175 12,852
Loss current year............................................................. (47,276) (18,254)
Accumulated deficit previous years............................................ (24,438) (6,184)
--------- ---------
Total shareholder's equity................................................. 12,286 12,562
--------- ---------
Total liabilities and shareholder's equity................................. 100,296 45,273
========= =========
</TABLE>
B-4
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Statements of Operations
For the Fiscal Years Ended December 31, 1998 and 1997
(in thousands of German Marks)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------------ -----------------
DEM DEM
<S> <C> <C>
Sales......................................................................... 19,540 5,749
Cost of Sales................................................................. (15,139) (5,607)
Selling, General and Administrative costs..................................... (39,608) (16,534)
Depreciation and amortization................................................. (8,318) (1,012)
Other income.................................................................. 731 77
Loss from subsidiaries valuated at equity..................................... (5,201) (14)
Other expenses................................................................ (156) (4)
Interest income............................................................... 11 21
Interest expense third parties................................................ (93) (98)
Interest expense related parties.............................................. (1,004) (269)
Tax benefit (expense)......................................................... 1,961 (563)
-------- ---------
Net loss/Comprehensive loss................................................... (47,276) (18,254)
========= =========
</TABLE>
B-5
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Statement of Shareholders' Equity
For the Fiscal Year Ended December 31, 1998 and 1997
(in thousands of German Marks)
<TABLE>
<CAPTION>
Capital Additional Retained Total
Stock paid-in Earnings
capital
------------- ------------- -------------- -------------
DEM DEM DEM DEM
<S> <C> <C> <C> <C>
Balance at December 31, 1996.......................... 2,000 7,000 (6,184) 2,816
Capital increase...................................... 22,148 5,852 -- 28,000
Net loss.............................................. -- -- (18,254) (18,254)
------- ------- ------- -------
Balance at December 31, 1997.......................... 24,148 12,852 (24,438) 12,562
Capital increase...................................... 30,677 16,323 -- 47,000
Net loss.............................................. -- -- (47,276) (47,276)
------- ------- ------- -------
Balance at December 31, 1998.......................... 54,825 29,175 (71,714) 12,286
====== ======= ======= =======
</TABLE>
B-6
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Statement of Cash Flows
For the Fiscal Years Ended December 31, 1998 and 1997
(in thousands of German Marks)
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
------------------ -----------------
DEM DEM
<S> <C> <C>
Net result for the year......................................................... (47,276) (18,254)
Depreciation of fixed asset items............................................... 13,519 1,026
Net change in accruals for pensions............................................. 127 (13)
Cash flow-- according to DFVA/SG................................................ (33,630) (17,241)
Profit/loss on disposal of fixed assets......................................... (208) (2)
Increase/decrease in inventories, trade receivables and
other assets.................................................................. (7,118) 36
Increase in trade payables and other liabilities................................ 55,172 11,656
Cash outflow from current operating activities.................................. 14,216 (5,551)
Receipts from disposals of fixed assets......................................... 718 --
Payments for capital expenditures............................................... (61,497) (34,897)
Cash outflow from investing activities.......................................... (60,779) (34,897)
Amounts paid in by shareholders
Capital increase and transfer to capital reserves............................. 47,000 28,000
Proceeds from loans........................................................... -- 12,756
Payments for loans............................................................ -- --
Cash inflow from financing activities........................................... 47,000 40,756
Movement in cash and cash equivalents........................................... 437 308
Cash and cash equivalents at the beginning of the period........................ 315 7
Cash and cash equivalents at the end of the period.............................. 752 315
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net amount capitalized).......................................... 34 3
Income taxes............................................................... -- --
</TABLE>
B-7
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Notes to Financial Statements as of December 31, 1998 and December 31, 1997
1. Description of Business and Basis of Presentation
VEW Telnet Gesellschaft fur Telekommunikation und Netzdienste mbH (the
"company") is a wholly owned entity of VEW Energie AG, Dortmund, Germany, which
belongs to the VEW Group. The company is a provider of integrated data and
telecommunications network services in Germany. 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.
Included in the company results are group charges relating to costs in
connection with various administrative services provided by VEW Energie AG on
behalf of the company. The company's management believes such costs are
reflective of actual benefits received by the company.
The company is part of a fiscal unity regarding value added tax with other
VEW Group companies.
2. Summary of Significant Accounting Policies
(a) Cash and bank deposits
Cash and bank deposits consist mainly of cash at banks on demand. For
purposes of the statement of cash flows, the company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
(b) Inventory
Work in progress is stated at the lower of cost or market value. Cost is
determined using the average method. Cost of work in progress consists of the
direct salary costs and a charge for indirect costs.
(c) Treasury bills
There are no restrictions concerning the sale of the treasury bills. They
are not pledged as collateral.
(d) Shares in subsidiaries
Shares in subsidiaries consist of four participations of which two were
valued at equity. The other two are stated at purchase cost. All subsidiaries
are making losses.
(e) Intangible assets
Intangible assets are stated at cost minus depreciation. The company
depreciates the intangible assets using the straight-line method over the
estimated useful lives. The intangible assets have useful lives between 1 and 15
years. The main addition to this balance sheet item was a DEM 6 million net
license with a useful life of 15 years in 1998.
(f) Property and equipment
Property and equipment is stated at cost. The company depreciates its
property and equipment using the following methods:
B-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Buildings on third-party property................................................ mainly straight-line method
Telecommunication equipment...................................................... straight-line method
Other............................................................................ declining-balance method
</TABLE>
Goods purchased for less than DEM 800 net are being written off in the year
of purchase according to ss. 6II EStG (German income tax code). They are
included in the accumulated cost and the accumulated depreciation as an addition
and as a disposal.
Interest is capitalized on construction in progress during construction if
the amount is material. As per December 31, 1998 DEM 34 thousand were
capitalized (DEM 3 thousand as per December 31, 1997).
(g) Goodwill
The goodwill results from VEW Energie AG's purchase of 13.5% of the
company's shares which made VEW Energie AG the sole shareholder in December
1998. Depreciation is calculated on an estimated useful life of 10 years.
(h) Revenue recognition
Revenues are recorded in the period in which the service is rendered. Cash
received in advance of services rendered is recorded as deferred income. All
revenues originated in Germany. As it is impracticable to disclose information
for revenues of each product and service, this information is not provided.
(i) Cost of sales
Cost of sales consists of direct connection costs only. Personnel costs and
depreciation are included in selling, general and administrative costs.
(j) Advertising expense
Advertising costs are expensed as incurred and amounted to DEM 2,594
thousand from January 1, 1998 to December 31, 1998. The costs from January 1,
1997 to December 31, 1997 amounted to DEM 1,062 thousand.
(k) Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases.
No deferred tax asset was recognized for loss carry forwards as the
possible use of loss carry forwards is restricted by law. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
The rate used in the financial statements is 60% which includes federal and
local income tax.
B-9
<PAGE>
(l) Pensions
Three company employees have individually defined benefit pension
agreements. The company recognizes interest and pension costs for the full
amount of the pension obligation. There are no plan assets.
(m) Accounts payable to related parties
The company has a maximum credit line of DEM 29.3 million with VEW Energie
AG which amounted to DEM 29.3 million on December 31, 1998 and DEM 3.8 million
on December 31, 1997.
(n) Accruals
There is a DEM 15,929 thousand (DEM 6,719 thousand as per December 31,
1997) accrual for a possible liability to a supplier from a risk-sharing
contract. The other accruals mainly relate to outstanding liabilities for
services and goods received.
(o) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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. Significant estimates and assumptions are used in the amounts
reflected as allowance for doubtful accounts and recovery of deferred tax
assets. Actual results could differ from those estimates.
(p) Segmental reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure
about Segments of an Enterprise and Related Information" has been issued and is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires certain disclosures about business segments of an enterprise, if
applicable. The adoption of SFAS No. 131 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.
(q) Recently issued accounting standards
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", which the company adopted beginning on
January 1, 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that results from transactions and other
economic events of the period other than transactions with stockholders
("comprehensive income"). Comprehensive income is the total of net income (loss)
and all other non-owner changes in stockholders' equity. For each of the two
years ended December 31, 1998 and December 31, 1997 the company's comprehensive
income (loss) was equal to net loss.
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 costs of
computer software developed or obtained for internal use. SOP 98-1 requires
computer software costs that are incurred in the preliminary project stage to be
expensed as incurred. Once the capitalization
B-10
<PAGE>
criteria of SOP 98-1 have been met, directly attributed 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 SOP 98-1,
whether capitalized or not, should not be adjusted to the amounts that would
have been capitalized had SOP 98-1 been in effect when those costs were
incurred. The company has adopted SOP 98-1 in its 1998 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 is effective for fiscal years beginning after June 15, 1999
and cannot be applied retroactively. The company has not yet qualified the
impacts of adopting SFAS No. 133 on the financial statements and has not
determined the timing or method of adoption of SFAS No. 133.
3. Related party transactions
Of the 1998 revenues DEM 1.6 million relate to subscriptions recharges
relating to telephone access (1997: DEM 0.2 million) for all VEW Group
companies.
1998 costs charged by group companies to the company include lease on
premises of DEM 1,681 thousand (1997: DEM 943 thousand), interest expenses of
DEM 1,004 thousand (1997: DEM 269 thousand), telephone connection charges of DEM
2,930 thousand (1997: DEM 1,133 thousand) and charges for various administrative
services and support of DEM 1,271 thousand (1997: DEM 298 thousand).
All related party transactions were performed at arm's length.
The accounts due to the group companies as of December 31, 1998 include a
value added tax asset of DEM 2,096 thousand (December 31, 1997: DEM 1,212
thousand).
4. Inventory
Inventory is comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------ -----------------
DEM DEM
(in thousands)
<S> <C> <C>
Materials.............................................................. 1,568 141
Work in progress....................................................... 567 111
------ ------
Total................................................................ 2,135 252
====== ======
</TABLE>
B-11
<PAGE>
5. Shares in subsidiaries
<TABLE>
<CAPTION>
Net book value Equity
December 31, December 31, Net income
Name and registry of subsidiary Share 1998 (1997) 1998 1998
--------------------------------- -------- ------------------- ---------------- -----------------
% DEM DEM DEM
(in thousands)
<S> <C> <C> <C> <C>
TeleBeL Gesellschaft fur
Telekommunikation Bergisches Land
mbH, Wuppertal (valued at
equity)............................... 40.0 316(0) 719* (10,385)
RuhrNet Gesellschaft fur
Telekommunikation mbH Schwerte,
Schwerte (valued at equity)........... 24.0 61(106) 254 (187)
DOKOM Gesellschaft fur
Telekommunikation mbH, Dortmund....... 10.0 375(375) 1,029 (2,594)
BORnet GmbH, Stadtiohn.................. 5.0 6(0) 93 (27)
</TABLE>
----------
* Including a loan of DEM 7 million with a subordination clause.
6. Long-term debt
The long-term debt of DEM 2.756 million matures on May 6, 2002 with the
Westdeutsche Landesbank Girozentrale, Dortmund, Germany. The interest rate is
5.83%, interest is charged annually.
The company has a loan of DEM 10 million, maturing December 30, 2002 with
VEW Energie AG. Interest is charged every quarter, the rate depends on the prime
rate.
7. Income taxes
Income tax expenses and income consist of deferred taxes only, since the
company does not pay income taxes at this time due to its losses. Since there
are no material differences between the book basis and the tax basis, income tax
expense approximates 60% of net differences between book values according to
German GAAP and US GAAP. The differences result mainly from using the equity
method for two financial investments.
In assessing the ability to realize deferred tax assets, management does
not consider loss carry-forwards as likely to be realized. Therefore, no
deferred tax asset was capitalized for loss carry-forwards.
8. Commitments
As per December 31, 1998, the company has the following material off
balance sheet commitments:
-- Financial promise in favor of TeleBel in the amount of DEM 4,000
thousand; payable in the first half of the year 1999.
-- Lease commitment with VEW Energie AG; monthly payment in the amount
of DEM 212 thousand.
B-12
<PAGE>
-- Lease commitment with Olympia Consulting GmbH; monthly payment in
the amount of DEM 35 thousand.
Leases
Rental commitments under operating leases are for cars only and not
material.
Rent and Operating Lease Commitments
Future minimum commitments in connection with rent and other operating
lease agreements are as follows at December 31, 1998:
DEM
------
1999............................................................... 2,976
2000............................................................... 432
2001............................................................... 396
------
3,804
======
9. Pensions
Pension costs incurred for the period ended December 31, 1998 was DEM 67
thousand. Interest costs incurred for the period ended December 31, 1998 was DEM
60 thousand.
The assumptions used in calculating the SFAS 87 pension obligation were as
follows:
Discount rate...................................................... 6.5%
Salary increase rate............................................... 3.0%
COLA rate.......................................................... 1.5%
10. Subsequent events
As per December 1, 1999, VersaTel Deutschland Holding GmbH, Frankfurt,
Germany and VersaTel Deutschland Verwaltungs GmbH, Frankfurt, Germany acquired
100% (99.09% resp. 0.91%) of the company's capital.
Due to the change of the company's shareholder, the company will have to
refinance with a bank or the new shareholder. According to the purchase
agreement, the company does not have to repay the outstanding credit line to VEW
Energie AG and only DEM 8.571 million of the DEM 10 million loan. An additional
loan of DEM 10 million was granted in November 1999.
As per November 24, 1999, the company has bought a license for the net
communication systems of VEW Energie AG for a duration of 30 years. The purchase
price and the repayable loans as above are due in three installments which are
DEM 35.857 million due on December 31, 2000, DEM 35.857 million due on December
31, 2001 and DEM 35.857 million due on December 31, 2002.
B-13
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Balance Sheets
As of September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------------ -------------------
DEM DEM
ASSETS
<S> <C> <C>
Current Assets
Cash and bank deposits.............................................. 528 162
Receivables trade................................................... 4,818 2,673
Less allowance for doubtful accounts............................. (224) (20)
Receivables related parties......................................... 1,512 1,248
Inventories......................................................... 2,073 545
Other current assets and prepaid expenses........................... 35 14
-------- --------
Total current assets............................................. 8,742 4,622
-------- --------
Long-term investments
Treasury bills (held to maturity)................................... 5 5
Shares in subsidiaries.............................................. 533 447
Long-term loans to subsidiaries..................................... -- --
-------- --------
Total long-term investments........................................... 538 452
-------- --------
Fixed Assets
Intangible Assets (net)............................................. 10,387 9,102
Property, Plant and Equipment
Buildings on third party's land.................................. 5,168 4,528
Telecommunication equipment...................................... 73,714 51,010
Other equipment, furniture and fixtures.......................... 7,045 4,839
Construction in progress......................................... 3,214 4,337
Less accumulated depreciation and amortization................... (14,653) (5,477)
-------- --------
Total fixed assets............................................... 84,875 68,339
-------- --------
Deferred Taxes........................................................ 1,958 1,409
Goodwill.............................................................. 9,135 --
-------- --------
Total assets..................................................... 105,248 74,822
======= ========
</TABLE>
B-14
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Balance Sheets
As of September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------------ -------------------
DEM DEM
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable trade...................................................... 5,494 2,924
Accounts payable to related parties, current portion........................ 69,703 12,332
Salaries, Wages and Commissions............................................. 2,822 10,873
Taxes withheld from employees............................................... 788 580
Other accrued liabilities................................................... 18,621 12,348
Other liabilities and deferred credits...................................... 64 111
-------- --------
Total current liabilities................................................ 97,492 39,168
-------- --------
Noncurrent liabilities
Long-term debt due to banks................................................. 2,756 2,756
Long-term debt intercompany................................................. 8,571 10,000
Accrued pension cost........................................................ 859 723
-------- --------
Total noncurrent liabilities............................................. 12,186 13,479
-------- --------
Shareholder's equity
Capital stock............................................................... 54,825 54,825
Additional paid-in capital.................................................. 53,175 29,175
Loss current year........................................................... (40,716) (37,387)
Accumulated deficit previous years.......................................... (71,714) (24,438)
-------- --------
Total shareholder's equity............................................... (4,430) 22,175
-------- --------
Total liabilities and shareholder's equity............................... 105,248 74,822
======== ========
</TABLE>
B-15
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Statements of Operations
For the Nine Months Ended September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
Ended Ended
September 30, September 30,
1999 1998
------------------ -------------------
DEM DEM
<S> <C> <C>
Sales........................................................................... 28,999 12,314
Cost of Sales................................................................... (22,489) (11,315)
Selling, general and administrative costs....................................... (34,811) (29,514)
Depreciation and amortization................................................... (9,986) (6,002)
Other income.................................................................... 3,589 29
Loss from subsidiaries valuated at equity....................................... (4,642) (3,996)
Other expenses.................................................................. (583) (143)
Interest income................................................................. 8 10
Interest expense third parties.................................................. (62) (34)
Interest expense related parties................................................ (1,299) (708)
Tax benefit (expense)........................................................... 560 1,972
-------- --------
Net loss/Comprehensive loss..................................................... (40,716) (37,387)
======== ========
</TABLE>
B-16
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Statement of Shareholders' Equity
As of September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
Capital Additional Retained Total
Stock paid-in Earnings
capital
------------- ------------- -------------- -------------
DEM DEM DEM DEM
<S> <C> <C> <C> <C>
Balance at December 31, 1997.......................... 24,148 12,852 (24,438) 12,562
Capital increase...................................... 30,677 16,323 -- 47,000
Net loss.............................................. -- -- (37,387) (37,387)
------- ------- --------- --------
Balance at September 30, 1998....................... 54,825 29,175 (61,825) 22,175
======= ======= ========= ========
Balance at December 31, 1998.......................... 54,825 29,175 (71,714) 12,286
Capital increase...................................... -- 24,000 -- 24,000
Net loss.............................................. -- -- (40,716) (40,716)
------- ------- --------- --------
Balance at September 30, 1999......................... 54,825 53,175 (112,430) (4,430)
======= ======= ========= =========
</TABLE>
B-17
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Statement of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(in thousands of German Marks)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
---------------------- ----------------------
DEM DEM
<S> <C> <C>
Net result for the year............................................... (40,716) (37,387)
Depreciation of fixed asset items..................................... 14,628 9,998
Net change in accruals for pensions................................... 107 98
Cash flow-- according to DFVA/SG...................................... (25,981) (27,291)
Profit/loss on disposal of fixed assets............................... (144) --
Increase/decrease in inventories, trade receivables and
other assets........................................................ (386) (3,201)
Increase in trade payables and other liabilities...................... 22,990 19,838
Cash outflow from current operating activities........................ (3,521) (10,654)
Receipts from disposals of fixed assets............................... -- 143
Payments for capital expenditures..................................... (19,274) (36,642)
Cash outflow from investing activities................................ (19,274) (36,499)
Amounts paid in by shareholders
Capital increase and transfer to capital reserves................... 24,000 47,000
Proceeds from loans................................................. -- --
Payments for loans.................................................. (1,429) --
Cash inflow from financing activities................................. 22,571 47,000
Movement in cash and cash equivalents................................. (224) (153)
Cash and cash equivalents at the beginning of the period.............. 752 315
Cash and cash equivalents at the end of the period.................... 528 162
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net amount capitalized)................................ 161 34
Income taxes..................................................... -- --
</TABLE>
B-18
<PAGE>
VEW TELNET Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund
Condensed Notes to Financial Statements as of September 30, 1999 and
September 30, 1998 (unaudited)
1. Description of Business and basis of presentation
VEW Telnet Gesellschaft fur Telekommunikation und Netzdienste mbH (the
"company") is a wholly owned entity of VEW Energie AG, Dortmund, Germany, which
belongs to the VEW Group. The company is a provider of integrated data and
telecommunications network services in Germany. 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.
Included in the company results are group charges relating to costs in
connection with various administrative services provided by VEW Energie AG on
behalf of the company. The company's management believes such costs are
reflective of actual benefits received by the company.
The company is part of a fiscal unity regarding value added tax with other
VEW Group companies.
2. Summary of Significant Accounting Policies
(a) Cash and bank deposits
Cash and bank deposits consist mainly of cash at banks on demand. For
purposes of the statement of cash flows, the company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
(b) Inventory
Work in progress is stated at the lower of cost or market value. Cost is
determined using the average method. Cost of work in progress consists of the
direct salary costs and a charge for indirect costs.
(c) Treasury bills
There are no restrictions concerning the sale of the treasury bills. They
are not pledged as collateral.
(d) Shares in subsidiaries
Shares in subsidiaries consist of four participations of which two were
valued at equity. The other two are stated at purchase cost. All subsidiaries
are making losses.
(e) Intangible Assets
Intangible assets are stated at cost minus depreciation. The company
depreciates the intangible assets using the straight-line method over the
estimated useful lives. The intangible assets, mostly licenses, have useful
lives between 1 and 15 years. The main addition of this balance sheet item was a
DEM 6 million net license with a useful life of 15 years in 1998.
B-19
<PAGE>
(f) Property and equipment
Property and equipment is stated at cost. The company depreciates its
property and equipment using the following methods:
<TABLE>
<CAPTION>
<S> <C>
Buildings on third-party property.............................................. Mainly straight-line method
Telecommunication equipment.................................................... straight-line method
Other.......................................................................... declining-balance method
</TABLE>
Goods purchased for less than DEM 800 net are being written off in the year
of purchase according to ss. 6 II EstG (German income tax code). They are
included in the accumulated cost and the accumulated depreciation as an addition
and as a disposal.
Interest is capitalized on construction in progress during construction if
the amount is material. As per September 30, 1999, DEM 161 thousand were
capitalized (DEM 34 thousand as per September 30, 1998).
(g) Goodwill
The goodwill results from VEW Energie AG's purchase of 13.5% of the
company's shares which made VEW Energie AG the sole shareholder in December
1998. Depreciation is calculated on an estimated useful life of 10 years.
(h) Revenue recognition
Revenues are recorded in the period in which the service is rendered. Cash
received in advance of services rendered is recorded as deferred income. All
revenues originated in Germany. As it is impracticable to disclose information
for revenues of each product and service, we do not provide that information.
(i) Cost of sales
Cost of sales consists of direct connection costs only. Personnel costs and
depreciation are included in selling, general and administrative costs.
(j) Advertising expense
Advertising costs are expensed as incurred and amounted to DEM 1,793
thousand from January 1, 1999 to September 30, 1999. The costs from January 1,
1998 to September 30, 1998 amounted to DEM 1,981 thousand.
(k) Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases.
No deferred tax asset was recognized for loss carry forwards as the
possible use of loss carry forwards is restricted by law. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
B-20
<PAGE>
The rate used in the financial statements is 60% which includes federal and
local income tax.
(l) Pensions
Three company employees have individually defined benefit pension
agreements. The company recognizes interest and pension costs for the full
amount of the pension obligation.
(m) Accounts payable to related parties
The company has a unlimited credit line with VEW Energie AG which amounted
to DEM 42.6 million on September 30, 1999 and DEM 3.8 million on September 30,
1998. Additionally, there is a loan of DEM 12 million which is not long-term by
definition but has a subordination clause (on September 30, 1999 only).
(n) Accruals
There is a DEM 15,442 thousand (DEM 13,579 thousand as per September 30,
1999) accrual for a possible liability to a supplier from a risk-sharing
contract. The other accruals mainly relate to outstanding liabilities for
services and goods received.
(o) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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. Significant estimates and assumptions are used in the amounts
reflected as allowance for doubtful accounts and recovery of deferred tax
assets. Actual results could differ from those estimates.
(p) Segmental reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure
about Segments of an Enterprise and Related Information" has been issued and is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires certain disclosures about business segments of an enterprise, if
applicable. The adoption of SFAS No. 131 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.
(q) Recently issued accounting standards
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which the company adopted beginning on
January 1, 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that results from transactions and other
economic events of the period other than transactions with stockholders
("comprehensive income"). Comprehensive income is the total of net income (loss)
and all other non-owner changes in stockholders' equity. For each of the two
nine month periods ended September 30, 1999 and September 30, 1998 the company's
comprehensive income (loss) was equal to net loss.
B-21
<PAGE>
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 costs of
computer software developed or obtained for internal use. SOP 98-1 requires
computer software costs that are incurred in the preliminary project stage to be
expensed as incurred. Once the capitalization criteria of SOP 98-1 have been
met, directly attributed 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 SOP 98-1, whether capitalized or not,
should not be adjusted to the amounts that would have been capitalized had SOP
98-1 been in effect when those costs were incurred. The company has adopted this
SOP in its financial statements as of September 30, 1999.
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 is effective for fiscal years beginning after June 15, 1999
and cannot be applied retroactively. The company has not yet quantified the
impacts of adopting SFAS No. 133 on the financial statements and has not
determined the timing or method of adoption of SFAS No. 133.
3. Related party transactions
Of the 1999 revenues, DEM 2.2 million relate to subscriptions recharges
relating to telephone access (1998: DEM 1.2 million) for all VEW Group
companies.
1999 costs charged by group companies to the company include lease on
premises of DEM 1,908 thousand (1998: DEM 880 thousand), interest expenses of
DEM 1,666 thousand (1998: DEM 707 thousand), telephone connection charges of DEM
3,184 thousand (1998: DEM 1,885 thousand) and charges for various administrative
services and support of DEM 834 thousand (1998: DEM 650 thousand).
All related party transactions were performed at arms' length.
The accounts due to the group companies for 1999 as of September 30, 1999
include a value added tax asset of DEM 160 thousand (September 30, 1998: DEM 406
thousand).
B-22
<PAGE>
4. Inventory
Inventory is comprised of the following:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------------ -------------------
DEM DEM
<S> <C> <C>
Materials.............................................................. 1,919 235
Work in progress....................................................... 154 310
------ ------
2,073 545
====== ======
</TABLE>
5. Shares in subsidiaries
<TABLE>
<CAPTION>
Net book value Equity
September 30, December 31, Net income
Name and registry of subsidiary Share 1999 (1998) 1998 1998
--------------------------------- -------- ------------------- ---------------- -------------------
% DEM DEM DEM
(in thousands)
<S> <C> <C> <C> <C>
TeleBeL Gesellschaft fur
Telekommunikation Bergisches Land
mbH, Wuppertal (valued at
equity)............................ 40.0 0(0) 719* (10,385)
RuhrNet Gesellschaft fur
Telekommunikation mbH Schwerte,
Schwerte (valued at equity)........ 24.0 172(72) 254 (187)
DOKOM Gesellschaft fur
Telekommunikation mbH, Dortmund.... 10.0 375(375) 1,029 (2,594)
BORnet GmbH, Stadtiohn............... 5.0 34(0) 93 (27)
</TABLE>
----------
* Includes a loan of DEM 7 million with a subordination clause.
6. Long-term debt
The long-term debt of DEM 2.756 million matures on May 6, 2002 with the
Westdeutsche Landesbank Girozentrale, Dortmund, Germany. The interest rate is
5.83%, interest is charged annually.
The company has a loan (DEM 10 million) maturing December 30, 2002 with VEW
Energie AG. Interest is charged every quarter, the rate depends on the prime
rate.
7. Income taxes
Income tax expenses and income consist of deferred taxes only, since the
company does not pay income taxes at this time due to its loss. Since there are
no material differences between the book basis and the tax basis, income tax
expense approximates 60% of net differences between book values according to
German GAAP and US GAAP. The differences result mainly from using the equity
method for two financial investments.
B-23
<PAGE>
In assessing the ability to realize deferred tax assets, management does
not consider loss carry-forwards as likely to be realized. Therefore, no
deferred tax asset was capitalized for loss carry-forwards.
8. Commitments
As per September 30, 1999, the company has the following material off
balance sheet commitments:
o Financial promise in favor of TeleBel in the amount of DM
2,510 thousand; Payable in the first half of the year 2000.
o Lease commitment with VEW Energie AG; monthly payment in the
amount of DM 212 thousand.
o Lease commitment with Olympia Consulting GmbH; monthly payment
in the amount of DM 36 thousand.
Leases
Rental commitments under operating leases are for cars only and not
material.
Rent and Operating Lease Commitments
Future minimum commitments in connection with rent and other operating
lease agreements are as follows at September 30, 1999:
DEM
------
1999................................................................. 744
2000................................................................. 2,976
2001................................................................. 396
------
4,116
======
9. Pensions
Pension costs incurred for the period ended September 30, 1999 was DEM 47
thousand (January 1 till September 30, 1998: DEM 53 thousand). Interest costs
incurred for the period ended September 30, 1999 was DEM 60 thousand (January 1,
1998 to September 30, 1998: DEM 45 thousand).
The assumptions used in calculating the SFAS 87 pension obligation were as
follows (1999 and 1998):
Discount rate....................................................... 6.5%
Salary increase rate................................................ 3.0%
COLA rate........................................................... 1.5%
10. Subsequent events
As per December 1, 1999, VersaTel Deutschland Holding GmbH, Frankfurt,
Germany and VersaTel Deutschland Verwaltungs GmbH, Frankfurt, Germany acquired
100% (99.09% resp. 0.91%) of the company's capital.
Due to the change of the company's shareholder, the company will have to
refinance with a bank or the new shareholder. According to the purchase
agreement, the company does not have to repay the
B-24
<PAGE>
outstanding credit line to VEW Energie AG and only DEM 8.571 million of the DEM
10 million loan. An additional loan of DEM 10 million was granted in November
1999.
As per November 24, 1999, the company has bought a license for the net
communication systems of VEW ENERGIE AG for a duration of 30 years. The purchase
price and the repayable loans as above are due in three installments of DEM
35.857 million due on December 31, 2000, DEM 35.857 million due on December 31,
2001 and DEM 35.857 million due on December 31, 2002.
B-25
