<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1999
REGISTRATION NO. 333-75195
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CARRIER1 INTERNATIONAL S.A.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
LUXEMBOURG 4813 98-0199626
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
ROUTE D'ARLON 3
L-8009 STRASSEN, LUXEMBOURG
(011) (41-1) 297-2600
(Address, including ZIP code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------------
KEES VAN OPHEM
VICE PRESIDENT, PURCHASE AND GENERAL COUNSEL
CARRIER1 INTERNATIONAL GMBH
MILITARSTRASSE 36
CH-8004 ZURICH, SWITZERLAND
(011) (41-1) 297-2600
(Name, address, including ZIP code, and telephone number,
including area code, of Registrant's agent for service)
------------------------------
WITH COPY TO:
DAVID A. BRITTENHAM, ESQ.
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 909-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities of an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
OFFERING PROPOSED AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED SECURITY(1) OFFERING PRICE(1) FEE(3)
<S> <C> <C> <C> <C>
13 1/4% Senior Dollar Notes Due 2009.............. $160,000,000 100% $160,000,000 $44,480.00
[Euro]85,000,000
13 1/4% Senior Euro Notes Due 2009................ ($92,803,000)(2) 100% $92,803,000 $25,800.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 promulgated under the Securities Act of 1933, as
amended.
(2) Euro amounts have been translated into U.S. Dollars at [Euro]1=$1.0918,
which was the noon buying rate in New York City for cable transfers in Euro
as certified for customs purposes by the Federal Reserve Bank of New York on
March 23, 1999.
(3) Paid with the initial filing of the Registration Statement.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 15, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
13 1/4% SENIOR DOLLAR NOTES DUE 2009 AND
13 1/4% SENIOR EURO NOTES DUE 2009
FOR REGISTERED
13 1/4% SENIOR DOLLAR NOTES DUE 2009 AND
13 1/4% SENIOR EURO NOTES DUE 2009
CARRIER1 INTERNATIONAL S.A.
THE NEW NOTES:
- The terms of the new notes are identical to the terms of the relevant old
notes except that the new notes are registered under the Securities Act of
1933 and will not contain restrictions on transfer or provisions relating
to additional interest and will contain different administrative terms.
INVESTING IN THE NEW NOTES INVOLVES RISKS. YOU SHOULD CAREFULLY REVIEW THE
RISK FACTORS BEGINNING ON PAGE 12 OF THIS PROSPECTUS.
THE EXCHANGE OFFER:
- Our offer to exchange old notes for new notes will be open until 5:00
p.m., New York City time, on , 1999, unless we extend the offer
with respect to one or both series.
- No public market currently exists for the notes.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Certain Regulatory Issues.................................................................................. 3
Presentation of Financial Information...................................................................... 4
Summary.................................................................................................... 5
Risk Factors............................................................................................... 12
Where You Can Find More Information........................................................................ 23
The Exchange Offer......................................................................................... 24
Use of Proceeds............................................................................................ 32
Dividend Policy............................................................................................ 33
Capitalization............................................................................................. 34
Unaudited Pro Forma Consolidated Financial Information..................................................... 35
Selected Consolidated Financial Data....................................................................... 38
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 40
Business................................................................................................... 49
Management................................................................................................. 76
Certain Relationships and Related Transactions............................................................. 84
Principal Security Holders................................................................................. 87
Description of the Notes................................................................................... 90
Taxation................................................................................................... 136
Plan of Distribution....................................................................................... 140
Legal Matters.............................................................................................. 140
Experts.................................................................................................... 140
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
------------------------
The indentures pursuant to which the notes are issued require us to
distribute to the holders of the notes annual reports containing our financial
statements audited by our independent auditors and quarterly reports containing
unaudited condensed consolidated financial statements for the first three
quarters of each fiscal year. When we refer to "Carrier1 International," we are
referring to the holding company Carrier1 International S.A., the issuer of the
notes. When we refer to ourselves generally or to "Carrier1," we are referring
to Carrier1 International and its subsidiaries and their predecessors, except
where the context otherwise requires.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN
THOSE CONTAINED HEREIN. IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS
ABOUT THESE MATTERS THAT IS NOT DISCUSSED, YOU MUST NOT RELY ON THAT
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT
PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE DELIVERY OF THIS
PROSPECTUS OR THE NOTES OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN
THAT THERE HAS NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. IT ALSO
DOES NOT MEAN THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AFTER THIS
DATE.
CERTAIN REGULATORY ISSUES
Persons in the United Kingdom will be eligible to receive new notes to be
issued in this exchange offer only if the ordinary activities of such persons
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which do not constitute an offer to the public in the United
Kingdom for purposes of the U.K. Public Offers of Securities Regulation 1995.
This prospectus is being distributed on the basis that each person in the
United Kingdom to whom this prospectus is issued is reasonably believed to be a
person falling within an exemption to section 57 of the
3
<PAGE>
Financial Services Act 1986, as amended, as set out in the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 (as amended by the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997)
and, accordingly, by accepting delivery of this prospectus the recipient
warrants and acknowledges that it is a person falling within any such exemption.
PRESENTATION OF FINANCIAL INFORMATION
We report our financial statements in U.S. dollars and prepare our financial
statements in accordance with generally accepted accounting principles in the
United States. Carrier1 has adopted a fiscal year end of December 31.
In this prospectus, except where otherwise indicated, references to
(1) "$" or "U.S. dollars" are to the lawful currency of the United
States,
(2) "[Euro]" or "Euro" are to the single currency at the start of the
third stage of European economic and monetary union on January 1, 1999,
pursuant to the treaty establishing the European Economic Community, as
amended by the treaty on European Union, signed at Maastricht on February
7, 1992, and
(3) "DM" are to the lawful currency of Germany.
Given its recent introduction, there is insufficient historical exchange
rate data concerning the Euro for inclusion in this prospectus. The ECU,
predecessor to the Euro, is a composite currency, consisting of specified
amounts of currencies of certain European Union member states. The ECU basket is
composed of specified amounts of the German mark, the British pound sterling,
the French franc, the Italian lira, the Dutch guilder, the Belgian franc, the
Luxembourg franc, the Danish kroner, the Irish punt, the Greek drachma, the
Spanish peseta and the Portuguese escudo. Changes in exchange rates of the
currencies of the member states of these European Communities, including
revaluations and devaluations, do not affect the fixed composition of the ECU
but may change the exchange rate of the ECU in subsequent trading.
Stage III of the European Economic and Monetary Union began on January 1,
1999, and on that date the value of the ECU as against the currencies of the
member states participating in Stage III was irrevocably fixed and the ECU
became a currency in its own right. On June 17, 1997, the Council of the
European Union adopted Council Regulation (European Communities) No. 1103/97,
establishing the Euro and providing for the substitution of the Euro for the ECU
at the rate of one Euro for one ECU. On January 1, 1999, 11 of the 15 member
countries of the European Union established fixed conversion rates between their
then existing sovereign currencies and the Euro and adopted the Euro as their
common legal currency on that date. These legacy currencies are scheduled to
remain legal tender in the participating countries as denominations of the Euro
until January 1, 2002. During the transition period, public and private parties
may pay for goods and services using either the Euro or the participating
countries' legacy currency.
4
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY, THE SECURITIES BEING SOLD AND OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
CARRIER1
Carrier1 is a rapidly expanding European facilities-based provider of long
distance voice and Internet Protocol data telecommunications services. We offer
these services on a wholesale basis primarily to competitive fixed-line
operators, other carriers, wireless operators, ISPs, resellers and
multi-national corporations. In March 1998, our experienced management team and
Providence Equity Partners formed Carrier1 to capitalize on the significant
voice and data opportunities that are emerging for facilities-based carriers in
Europe's rapidly liberalizing telecommunications markets. By September 1998, we
had deployed our initial network and commenced selling wholesale services. As of
December 31, 1998, we had executed 48 contracts with voice customers and 17
contracts with data customers. As of March 31, 1999, we had executed an
additional 31 contracts with voice customers and an additional 18 contracts with
data customers.
We are developing an extensive city-to-city European network linking key
population centers. We intend to continue rapidly expanding this network in a
cost-effective manner to serve the needs of our existing and potential
customers.
To rapidly deploy our network and offer services we are initially leasing
our European transmission capacity. However, we have entered into a development
agreement to build a 2,300 kilometer fiber network in Germany with Viatel Inc.
and Metromedia Fiber Network, Inc. This network will connect 14 principal cities
and pass a number of other major cities. It will also provide fiber capacity in
regions we believe are not covered or are underserved by existing and announced
fiber networks. The important advantages of the German Network are direct
ownership, cost reduction, and flexibility.
EQUITY SPONSORS
Funds managed by Providence Equity Partners Inc. and Primus Venture
Partners, Inc. have invested $60 million to finance the deployment of our
network and to fund start-up operations. The final installment of this
investment was made at the time of the offering of the old notes. After giving
effect to this investment, the Providence funds indirectly hold approximately
71%, and the Primus funds indirectly hold approximately 14%, of the common stock
of Carrier1 International, on a fully diluted basis. Providence is a private
investment firm that specializes in equity investments in telecommunications and
media companies in the United States and abroad. Primus is a private investment
firm that focuses on equity investments in telecommunications and other
high-technology industries.
* * *
Carrier1 International is a holding company and renders its services
indirectly through subsidiaries primarily located in various Western European
countries. Its registered office is located at L-8009, Strassen, Route d'Arlon
3, Luxembourg. Executive offices of Carrier1 International GmbH, its principal
management services subsidiary, are located at Militarstrasse 36, CH-8004
Zurich, Switzerland. Its phone number is 011-41-1-297-2600.
5
<PAGE>
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
On February 19, 1999, we completed a private offering of (a) 160,000 Dollar
Units, each consisting of one 13 1/4% Senior Dollar Note due 2009 and one
warrant to purchase shares of common stock and (b) 85,000 Euro Units, each
consisting of one 13 1/4% Senior Euro Note due 2009 and one warrant to purchase
shares of common stock.
In this prospectus, we refer to (1) the dollar notes and the Euro notes sold
in the original offering as the old notes, (2) the dollar notes and the Euro
notes offered hereby in exchange for old notes as the new notes, and (3) the old
notes and the new notes together as notes.
<TABLE>
<S> <C>
The Exchange Offer........... You may exchange old dollar notes for new dollar notes and
old Euro notes for new Euro notes.
Resale of New Notes.......... We believe the new notes that will be issued in this
exchange offer may be resold by most investors without
compliance with the registration and prospectus delivery
provisions of the Securities Act, subject to certain
conditions. You should read the discussion under the heading
"The Exchange Offer" for further information regarding the
exchange offer and resale of the new notes.
Registration Rights
Agreement.................. We entered into a registration rights agreement with the
initial purchasers of the old notes requiring us to use our
best efforts to make this exchange offer. See "Description
of the Notes-- Registration Rights."
Consequence of Failure to
Exchange Old Notes......... You will continue to hold old notes that remain subject to
their existing transfer restrictions if
- you do not tender your old notes or
- you tender your old notes and they are not accepted for
exchange.
Subject to certain limited exceptions, we will have no
obligation to register the old notes after we consummate the
exchange offer. See "The Exchange Offer--Terms of the
Exchange Offer" and "--Consequences of Failure to Exchange."
Expiration Date.............. The exchange offer will expire at 5:00 p.m., New York City
time, on , 1999, unless we extend it, in which
case "expiration date" means the latest date and time to
which the exchange offer is extended.
Interest on the New Notes.... The new notes will accrue interest at a rate of 13 1/4% per
annum from February 19, 1999, the issue date of the old
notes, or from the most recent date to which interest has
been paid or provided for on the old notes. No additional
interest will be paid on old notes tendered and accepted for
exchange.
Condition to the Exchange
Offer...................... The exchange offer is subject to certain customary
conditions, which we may waive. See "The Exchange
Offer--Conditions."
Procedures for Tendering Old
Notes...................... If you wish to accept the exchange offer, you must submit
required documentation and effect a tender of old notes
pursuant to the procedures for book-entry transfer (or other
applicable procedures), all in accordance with the
instructions described in this prospectus and in the
relevant letter of transmittal. See "The Exchange Offer--
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering," "--Book-Entry Transfer," and
"--Guaranteed Delivery Procedures." Other procedures may
apply with respect to book-entry transfers. See "The
Exchange Offer--Exchanging Book-Entry Notes."
Guaranteed Delivery
Procedures................. If you wish to tender your old notes, but cannot properly do
so prior to the expiration date, you may tender your old
notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer-- Guaranteed Delivery
Procedures."
Withdrawal Rights............ Tenders of old notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the expiration date. To
withdraw a tender of old notes, a written or facsimile
transmission notice of withdrawal must be received by the
exchange agent at its address set forth herein under "The
Exchange Offer--Exchange Agent" prior to 5:00 p.m., New York
City time, on the expiration date.
Acceptance of Old Notes and
Delivery of New Notes...... Subject to certain conditions, any and all old notes that
are validly tendered in the exchange offer prior to 5:00
p.m., New York City time, on the expiration date will be
accepted for exchange. The new notes issued pursuant to the
exchange offer will be delivered as soon as practicable
following the expiration date. See "The Exchange Offer--
Terms of the Exchange Offer."
Certain U.S. Tax
Consequences............... We believe that the exchange of old notes for new notes will
not constitute a taxable exchange for U.S. federal income
tax purposes. See "Taxation."
Exchange Agent............... The Chase Manhattan Bank is serving as exchange agent.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
SUMMARY OF THE TERMS OF THE NEW NOTES
</TABLE>
The terms of the new notes are identical to the terms of the relevant series
of old notes EXCEPT that the new notes:
- are registered under the Securities Act, and therefore will not contain
restrictions on transfer,
- will not contain provisions relating to additional interest, and
- will contain terms of an administrative nature that differ from those of
the old notes.
<TABLE>
<S> <C>
Maturity..................... February 15, 2009.
Interest..................... Interest will be payable in cash on February 15 and August
15 of each year, beginning August 15, 1999.
Optional Redemption.......... We may redeem any of the notes beginning on February 15,
2004 at the declining redemption prices described in
"Description of the Notes--Optional Redemption."
In addition, before February 15, 2002, we may redeem up to
35% of the aggregate amount of either series of notes with
the proceeds of sales of certain kinds of our capital stock
at 113.25% of their principal amount.
Additional Amounts........... All payments on the notes will be made without withholding
or deduction for taxes unless required by law. If required
by law, we will pay, subject to certain exceptions, the
additional amounts necessary so that the net amount received
by holders will not be less than the amount that they would
have received in the absence of any withholding or
deduction.
Tax Redemption............... In the event that we are obligated to pay any additional
amounts as a result of certain changes affecting withholding
tax laws and cannot reasonably arrange, without other
material adverse consequences to us, for another obligor to
make such payment to avoid paying such additional amounts,
then we may redeem all the notes at 100% of their principal
amount, plus accrued interest.
Security..................... We have purchased portfolios of government securities and
pledged them for the benefit of the holders of the relevant
series of notes to secure and fund the first five interest
payments on such notes.
Change of Control............ Upon a change of control we will be required to make an
offer to purchase the notes. The definition of "change of
control" appears under "Description of the Notes". The
purchase price will equal 101% of their principal amount
plus accrued interest. We may not have sufficient funds
available at the time of any change of control to make any
required debt payment, including repurchases of the notes.
Ranking...................... The notes will rank equally with all Carrier1
International's other unsubordinated unsecured indebtedness
and will be junior to all Carrier1 International's secured
indebtedness except as described above under "--Security".
The notes also will be junior to all liabilities of Carrier1
International's subsidiaries. As of March 31, 1999, Carrier1
International had no indebtedness outstanding other than the
notes and had current liabilities of $4.2 million. As of
March 31, 1999 Carrier1 International's subsidiaries had
$47.1 million of current liabilities. See our consolidated
balance sheet included elsewhere in this prospectus.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Certain Covenants............ The terms of the notes will restrict our ability to:
- incur additional indebtedness,
- create liens,
- engage in sale-leaseback transactions,
- pay dividends or make distributions in respect of
capital stock,
- redeem capital stock,
- make investments or certain other restricted payments,
- sell assets,
- issue or sell stock of restricted subsidiaries,
- enter into transactions with stockholders or
affiliates, or
- effect a consolidation or merger.
These limitations are subject to a number of important
qualifications and exceptions. These limitations,
qualifications and exceptions are described in detail under
"Description of the Notes."
</TABLE>
RISK FACTORS
See "Risk Factors," immediately following this Summary, for a discussion of
certain factors relating to us, our business and an investment in the notes.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data of
Carrier1 as of and for the period from February 20, 1998 ("Inception") to
December 31, 1998 and as of and for the three months ended March 31, 1999. The
summary consolidated financial data as of and for the period from Inception to
December 31, 1998, were derived from the consolidated financial statements of
Carrier1 which were audited by Deloitte & Touche Experta AG, independent
auditors. The summary consolidated financial data as of and for the three months
ended March 31, 1999, were derived from the unaudited consolidated financial
statements of Carrier1 and include, in the opinion of Carrier1's management, all
adjustments, consisting solely of normal recurring adjustments, necessary to
present fairly the data for such period. The information set forth below is not
necessarily indicative of the results of future operations and should be read in
conjunction with the consolidated financial statements and the related notes
thereto included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Amounts are presented in thousands, except per share data.
<TABLE>
<CAPTION>
THREE MONTHS INCEPTION TO
ENDED DECEMBER 31,
MARCH 31, 1999 1998
---------------- ------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues......................................................................... $ 12,293 $ 2,792
Cost of services (exclusive of amounts shown separately below)................... 17,015 11,669
Selling, general and administrative expenses..................................... 3,318 8,977
Depreciation and amortization.................................................... 1,336 1,409
-------- ------------
Loss from operations............................................................. (9,376) (19,263)
Other income (expense):
Interest income.................................................................. 979 92
Interest expense................................................................. (4,205) (11)
Currency exchange loss, net...................................................... (2,428) (53)
-------- ------------
Loss before income tax benefit................................................... (15,030) (19,235)
Income tax benefit, net of valuation allowance................................... -- --
-------- ------------
Net loss......................................................................... $ (15,030) $ (19,235)
-------- ------------
-------- ------------
Net loss per share (basic)....................................................... $ (0.53) $ (2.61)
Net loss per share (diluted)(1).................................................. (0.53) (2.61)
OTHER FINANCIAL DATA:
EBITDA (as defined)(2)........................................................... $ (8,040) $ (17,854)
Capital expenditures(3).......................................................... 11,609 37,168
Ratio of earnings to fixed charges(4)............................................ -- --
Net cash used in operating activities............................................ (18,910) (14,441)
Net cash used in investing activities............................................ (152,722) (19,866)
Net cash provided by financing activities........................................ 274,141 37,770
</TABLE>
10
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<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1999 1998
------------------- ----------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 107,960(5) $ 4,184
Restricted cash.................................................. 1,446 1,518
Restricted investments (6)....................................... 143,034(5) --
Total assets (7)................................................. 329,777 51,434
Total debt....................................................... 249,608(5) --
Shareholders' equity............................................. 28,875 19,189
</TABLE>
- ------------------------
(1) Potential dilutive securities have been excluded from the computation for
the period from Inception to December 31, 1998 and for the three months
ended March 31, 1999, as their effect is antidilutive.
(2) EBITDA stands for earnings before interest, taxes, depreciation,
amortization and foreign currency exchange gains or losses.
EBITDA is used by management and certain investors as an indicator of a
company's historical ability to service debt. Management believes that an
increase in EBITDA is an indicator of our improved ability to service
existing debt, to sustain potential future increases in debt and to satisfy
capital requirements. However, EBITDA is not a measure of financial
performance under generally accepted accounting principles and should not be
considered as an alternative to cash flows from operating, investing or
financing activities as a measure of liquidity or an alternative to net
income as indications of Carrier1's operating performance or any other
measure of performance derived under generally accepted accounting
principles. EBITDA as presented may not be comparable to other similarly
titled measures of other companies or to Consolidated EBITDA as calculated
under the indentures pursuant to which the notes are issued.
(3) Consists of purchases of property and equipment and investment in joint
venture.
(4) The ratio of earnings to fixed charges is calculated as the sum of income
before taxes plus interest expense divided by fixed charges. Fixed charges
consist of the total of (i) interest, whether expensed or capitalized, (ii)
amortization of debt expense and discount or premium relating to any
indebtedness, whether expensed or capitalized and (iii) that portion of
rental expense considered to represent interest costs. Earnings were
insufficient to cover fixed charges by $15.2 million in the three-month
period ended March 31, 1999, and by $19.5 million in the period from
Inception to December 31, 1998.
(5) Assuming the March 31, 1999 conversion rate of Euro into U.S. dollars of
[Euro]0.92515 per $1.00.
(6) Reflects:
(a) the portion of the net proceeds for the original offering used to
purchase government securities to secure and fund the first five
scheduled interest payments on the notes, see "Description of the
Notes--Security," and
(b) approximately $64.8 million used to collateralize a 109.5 million
Deutsche Mark letter of credit. See the Notes to Unaudited Consolidated
Financial Statements, Note 5, presented elsewhere in this prospectus.
(7) Includes capitalized financing costs of approximately $7.9 million as of
March 31, 1999.
11
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE RISKS DESCRIBED BELOW AND OTHER
INFORMATION IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS OR ABILITY TO PAY PRINCIPAL OR INTEREST ON THE
NOTES COULD BE MATERIALLY ADVERSELY AFFECTED. IN THAT EVENT, YOU MAY LOSE ALL OR
PART OF YOUR INVESTMENT.
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER OLD NOTES WILL BE
ADVERSELY AFFECTED.
We will only issue new notes in exchange for old notes that are timely and
properly tendered. Therefore, you should allow sufficient time to ensure timely
delivery of the old notes and you should carefully follow the instructions on
how to tender your old notes. Neither we nor the exchange agent are required to
tell you of any defects or irregularities with respect to your tender of the old
notes. If you do not exchange your old notes for new notes pursuant to the
exchange offer, the old notes you hold will continue to be subject to the
existing transfer restrictions. In general, the old notes may not be offered or
sold, unless registered under the Securities Act, or exempt from registration
under the Securities Act and applicable state securities laws. We do not
anticipate that we will register old notes under the Securities Act.
After the exchange offer is consummated, if you continue to hold any old
notes of either series, you may have trouble selling them because there will be
fewer old notes of such series outstanding. In addition, if a large number of
old notes of either series are not tendered or are tendered improperly, the
limited amount of new notes of such series that would be issued and outstanding
after we consummate the exchange offer could lower the market price of such new
notes.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
PERFORMANCE.
We formed our business in March 1998, and we commenced commercial operations
on September 1, 1998. Accordingly, you have limited historical operating and
financial information on which to base your evaluation of our performance.
WE EXPECT TO EXPERIENCE NET LOSSES AND NEGATIVE CASH FLOW.
Our continued business development and network deployment will require that
we incur substantial capital expenditures. In general, we expect to incur net
losses and negative cash flow from operating activities through 2000. Whether or
when we will generate positive cash flow from operating activities will depend
on a number of financial, competitive, regulatory, technical and other factors,
many of which are beyond our control. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." We cannot assure you that we will achieve profitability or positive
cash flow.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
At least initially, our revenues are dependent upon a relatively small
number of customers and contracts. The loss or addition of one or more customers
or contracts could cause significant fluctuations in our financial performance.
In addition, the significant expenses resulting from the expansion of our
network and services are likely to lead to operating results that vary
significantly from quarter to quarter.
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OUR ABILITY TO GENERATE CASH TO SERVICE OUR SUBSTANTIAL CAPITAL NEEDS DEPENDS ON
MANY FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL.
We will require significant capital to fund our capital expenditures and
working capital needs, as well as our debt service requirements and cash flow
deficits.
We expect to incur significant capital expenditures in connection with the
expansion of our network. The actual amounts and timing of our future capital
requirements may vary significantly from our estimates. The demand for our
services, regulatory developments and the competitive environment of the
telecommunications industry could cause our capital needs to exceed our current
expectations. In that case, we may need to seek additional capital sooner than
we expect, and such additional financing may not be available on acceptable
terms or at all. Moreover, our substantial indebtedness as a result of the
original offering and other possible future debt financings may adversely affect
our ability to raise additional funds. A lack of financing may require us to
delay or abandon plans for deploying parts of our network.
OUR SUBSTANTIAL INDEBTEDNESS AND OUR ABILITY TO INCUR MORE INDEBTEDNESS COULD
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have significant indebtedness. The following table shows certain
important credit statistics.
<TABLE>
<CAPTION>
MARCH 31,
1999
-------------
<S> <C>
(IN MILLIONS)
Total debt.......................................................................................... $ 249.6
Shareholders' equity................................................................................ 28.9
Total debt as a percentage of total capitalization.................................................. 90%
</TABLE>
Our deficiency of earnings to fixed charges for the three-month period ended
March 31, 1999 was $15.2 million.
The indentures pursuant to which the notes are issued limit, but do not
prohibit, our incurrence of additional indebtedness. Moreover, the indentures
permit us to incur an unlimited amount of indebtedness to finance the
acquisition of equipment, inventory and network assets. A substantial level of
debt may make it more difficult for us to repay you.
If we cannot generate sufficient cash flow from operations to meet our debt
service requirements, we may be required to refinance our indebtedness,
including the notes. Our ability to obtain such financing will depend on our
financial condition at the time, the restrictions in the agreements governing
our indebtedness and other factors, including general market and economic
conditions. If such refinancing were not possible, we could be forced to dispose
of assets at unfavorable prices. In addition, we could default on our debt
obligations, including our obligation to make payments on the notes.
OUR DEBT AGREEMENTS IMPOSE OPERATING AND FINANCIAL RESTRICTIONS, WHICH MAY
PREVENT US FROM CAPITALIZING ON BUSINESS OPPORTUNITIES.
The indentures pursuant to which the notes are issued impose significant
operating and financial restrictions on us. The terms of any other financings we
may obtain may do so as well. These restrictions may substantially limit or
prohibit us from taking various actions including incurring additional debt,
making investments, paying dividends to our shareholders, creating liens,
selling assets, engaging in mergers and consolidations, repurchasing or
redeeming capital stock and capitalizing on business opportunities.
Failure to comply with the covenants and restrictions in the indentures or
other financing agreements could trigger defaults under such agreements even if
we are able to pay our debt. Such defaults could result in a default on the
notes and could delay or preclude payment of principal of or interest on the
notes.
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IF WE ARE UNABLE TO EXTEND OUR NETWORK IN THE MANNER WE HAVE PLANNED, OUR
OPERATING REVENUES OR GROSS MARGINS COULD BE ADVERSELY AFFECTED.
Our success will depend on our ability to continue to deploy our network on
a timely basis. We have contracted with Nortel Plc for the installation of our
switch system and with Cisco Systems International, B.V. for the installation of
our router system. A failure by either of these parties to continue to comply
with its contractual obligations could cause delays in the continued deployment
of our network.
A number of other factors could hinder the deployment of our network. These
factors include cost overruns, the unavailability of additional capital,
strikes, shortages, delays in obtaining governmental or other third-party
approvals, natural disasters and other casualties, and other events that we
cannot foresee.
Delays in the continued deployment of our network could:
- limit the geographic scope of our services,
- prevent us from providing services on a cost-effective basis,
- reduce the number of customers we can attract and the volume of traffic we
carry,
- force us to rely more heavily on refiling or reselling for terminating our
traffic, increasing termination costs and making our quality control more
difficult, and
- affect our ability to obtain lower cost capacity on other networks by
swapping excess capacity.
Any one of these results could lower our operating revenues or adversely
impact gross margins.
WE HAVE NO CONTROL OVER THIRD PARTIES ON WHOM WE RELY FOR THE OPERATION OR
MAINTENANCE OF PORTIONS OF OUR NETWORK, AND IF THEY OR THEIR FACILITIES DO NOT
PERFORM OR FUNCTION ADEQUATELY, OUR NETWORK MAY BE IMPAIRED.
Our success is dependent on the technical operation of our network and on
the management of traffic volumes and route selections over the network. We have
outsourced the technical operation and management of our voice network to
Nortel. If Nortel fails to perform these functions adequately or in a timely
manner, our network and our operations could be materially adversely affected.
Furthermore, we are dependent on parties from whom we have leased or acquired a
right to use transmission capacity for maintenance of certain of the network's
circuits. Shortfalls in maintenance by any of these parties could lead to
transmission failure. Our network is also subject to other risks outside our
control, such as the risk of damage from fire, power loss, natural disasters and
general transmission failures caused by these or other factors.
We intend to take over the full operation of our network by mid-1999. We may
not be able to operate and manage our network adequately once the turnkey
contracts have been terminated.
WE ARE DEPENDENT ON OUR HIGHLY TRAINED EXECUTIVE OFFICERS AND EMPLOYEES. ANY
DIFFICULTY IN MAINTAINING OUR CURRENT EMPLOYEES OR IN HIRING SIMILAR EMPLOYEES
WOULD ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS.
Our operations are managed by a small number of key executive officers,
including our Chief Executive Officer, Stig Johansson. The loss of any of these
individuals could have a material adverse effect on us. In addition, our success
depends on our ability to continue to attract, recruit and retain sufficient
qualified personnel as we grow. Competition for qualified personnel in Europe is
intense, and there is generally a limited number of persons with the requisite
experience in the sectors in which we operate. We cannot assure you that we will
be able to retain senior management, integrate new managers or recruit qualified
personnel in the future.
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A FAILURE TO ENTER INTO OR MAINTAIN ADEQUATE INTERCONNECTION AND PEERING
ARRANGEMENTS COULD CAUSE US TO INCUR HIGHER TERMINATION COSTS THAN COMPETITORS
WHO HAVE SUCH ARRANGEMENTS.
The most cost-effective way for a wholesale carrier to achieve termination
in a country in which it has a point of presence is to negotiate an
interconnection agreement with the national incumbent telephone operator.
Failure to implement adequate interconnection arrangements would cause us to
incur high termination costs, which could have a material adverse effect on our
ability to compete with carriers that do have interconnection agreements.
Our ability to obtain arrangements for the free exchange of data with
European and United States ISPs that have traffic volumes roughly equivalent to
ours will also affect our costs. To the extent we do not have these peering
arrangements, we are required to pay a transit fee in order to exchange data
traffic. Our inability to obtain sufficient peering arrangements would keep our
data termination costs high and could limit our ability to compete effectively
with other European Internet backbone providers that have more peering
arrangements than we do.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Factors Affecting Future Operations--Cost of Services--Voice
Termination Costs"; "--Data Termination Costs."
IF WE LOST ONE OR MORE OF OUR GOVERNMENT LICENSES OR BECAME SUBJECT TO MORE
ONEROUS GOVERNMENT REGULATIONS, WE COULD BE ADVERSELY AFFECTED.
We are subject to varying degrees of regulation in each of the jurisdictions
in which we provide services. Local laws and regulations, and their
interpretation differ significantly among those jurisdictions. Future
regulatory, judicial and legislative changes may have a material adverse effect
on the operation of our business.
National regulatory frameworks that are fully consistent with the policies
and requirements of the European Commission and the World Trade Organization
have only recently been, or are still being, put in place in many European Union
member states. These nations are in the early stages of providing for and
adapting to a liberalized telecommunications market. As a result, in these
markets, we and other new entrants may encounter more protracted and difficult
procedures to obtain licenses and negotiate interconnection agreements.
Our operations are dependent on licenses that we acquire from governmental
authorities in each jurisdiction in which we operate. These licenses and
authorizations generally contain clauses pursuant to which we may be fined or
our license may be revoked in certain circumstances. Such revocation may be on
short notice, at times as short as 30 days' written notice to us. The revocation
of any of our licenses would force us to stop operating in the relevant country.
IF WE DO NOT SUCCESSFULLY COMPETE WITHIN THE HIGHLY COMPETITIVE
TELECOMMUNICATIONS INDUSTRY, WE MAY BE UNABLE TO REPAY THE NOTES.
The European telecommunications market is highly competitive, and
liberalization is rendering it increasingly more so. The opening of the market
to new service providers, combined with technological advances, has resulted in
significant reductions in retail and wholesale prices for voice services. We
expect prices to continue to decline. Decreasing prices are also narrowing gross
profit margins on long distance voice traffic. Our ability to compete
successfully in this environment will significantly depend on our ability to
generate high traffic volumes from our customers while keeping our costs of
services low. We cannot assure you that we will be able to do so.
We expect price decreases in the European data market over the next few
years as competition increases. We cannot assure you that data service prices
will not decline more quickly than our data
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transmission or termination costs, which could have a material adverse effect on
our gross profit margins and our ability to repay the notes.
Other competitive factors include the following:
- Certain voice customers may redirect their traffic to another carrier on
the basis of even small differences in price.
- Wholesale carriers that have built their network may lower prices so as to
increase volume and maximize utilization rates.
- Excess capacity being built could create further downward pressure on
prices.
See "Business--Competition."
OUR COMPETITORS MAY HAVE MORE EXPERIENCE, SUPERIOR OPERATIONAL ECONOMIES OR
GREATER RESOURCES, PLACING US AT A COST AND PRICE DISADVANTAGE.
We compete with a number of incumbent telephone operators, who generally
control access to local networks and have significant operational economies,
including large national networks, and existing operating agreements with other
incumbents. Moreover, national regulatory authorities have, in some instances,
shown reluctance to adopt policies that would result in increased competition
for the local incumbent. In addition, incumbents may be more likely to provide
transmission capacity on favorable terms and direct excess traffic to their
related carriers than to us.
In data services, our main competitors have an established customer base and
either a significant infrastructure or strong connectivity to the United States
through various peering arrangements. We believe that, if the quality of the
service is consistently high, data customers will typically renew their
contracts because it is costly and technically burdensome to switch carriers,
which could impede our ability to attract new customers.
We also compete with companies that have announced that they are building
European networks to the extent these companies offer wholesale services. Some
of these companies have more experience operating a network than Carrier1 does.
We may not be able to deploy a European network as quickly or run it as
efficiently as some or all of these competitors, which could impair our ability
to compete with them.
Many of our competitors have greater financial resources and would be in a
better position than we would be to withstand the adverse effect on gross profit
margins caused by price decreases, particularly those competitors that already
own infrastructure and have interconnection or peering arrangements and thus
enjoy a lower cost base than we do. Unless and until we are able to reduce our
cost base, we may not be able to compete on the basis of price if market prices
are reduced below a certain level. Inability to price services competitively may
in turn cause us to lose customers.
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT COST-EFFECTIVE TRANSMISSION CAPACITY,
WHICH COULD DELAY OUR ABILITY TO PENETRATE CERTAIN MARKETS OR CARRY A HIGHER
VOLUME OF TRAFFIC IN MARKETS IN WHICH WE ALREADY OPERATE.
We lease or have purchased rights to use our current transmission capacity
from others, and we therefore depend on them for much of our transmission
capacity. We believe that there is a shortage in the supply of cost-effective
transmission capacity. We cannot assure you that we will always be able to
obtain capacity where and when we need it at an acceptable price or at all. Any
failure to obtain such capacity could delay our ability to penetrate certain
markets or to carry a higher volume of traffic in the markets in which we
already operate. Furthermore, to the extent some of our capacity suppliers begin
to compete with
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<PAGE>
us in the provision of wholesale telecommunications services, those suppliers
may no longer be willing to provide us with capacity.
Until the German Network is operational, we will need to lease or purchase
additional capacity as we extend our network. It is unlikely that we will be
able to obtain such capacity at our target cost levels. We will therefore, in
the short term, continue to have transmission costs that are higher than our
target cost levels and higher than the costs of our competitors who own
transmission infrastructure. We cannot assure you that the cost of obtaining
capacity will decrease. In addition, if the German Network is not completed on a
timely basis, we will need to rely to a greater extent than currently
anticipated on leased lines. If we cannot obtain rights to use the existing
capacity at our target cost levels for the future capacity we will require
beyond that capacity we own, we will need to build or purchase that additional
capacity. To build additional capacity, we would need to incur additional
capital expenditures. It is also possible that additional capacity would not be
available for purchase at the time that we need it.
IF ESTIMATES WE HAVE MADE ARE NOT CORRECT, WE MAY HAVE TOO MUCH OR TOO LITTLE
CAPACITY.
We rely on other carriers to provide certain termination services.
Negotiation of refile or resale agreements with such carriers involves making
estimates of the future calling patterns and traffic levels of our customers.
Underestimation of traffic levels or failure to estimate calling patterns
correctly could lead to:
- a shortage of capacity, requiring us to either lease more capacity or
reroute calls to other carriers at a higher termination cost,
- higher termination costs, as we may have to use additional, higher priced,
refilers or resellers, and
- a possibly lower quality of service, as we may not be carrying the traffic
over our own network.
Our leased capacity costs are fixed monthly payments based on the capacity
made available to us. If our traffic volumes decrease, or do not grow as
expected, the resulting idle capacity will increase our per unit costs.
WE MAY HAVE DIFFICULTY INTEGRATING OR ENHANCING OUR SOPHISTICATED BILLING,
CUSTOMER AND INFORMATION SYSTEMS. ANY SUCH DIFFICULTIES COULD DELAY OR DISRUPT
OUR ABILITY TO SERVICE OR BILL OUR CUSTOMERS.
Sophisticated information systems are vital to our growth and our ability
to:
- manage and monitor traffic along our network,
- track service provisioning, traffic faults and repairs,
- effect least cost routing,
- achieve operating efficiencies,
- monitor costs,
- bill and receive payments from customers, and
- reduce credit exposure.
We have outsourced to International Computers Limited the running of our
billing system program. Errors or problems with International Computers
Limited's computer systems could delay our ability to send bills to our
customers or to provide billing information on-line. We may take over the
operation of our billing system in mid-1999. We cannot assure you that this
transition will not cause delays or interruptions in our monitoring and billing
activities.
The billing and information systems we have acquired will require
enhancements and ongoing investments, particularly as traffic volume increases.
We may encounter difficulties in enhancing our systems or integrating new
technology into our systems in a timely and cost-effective manner. Such
difficulties could have a material adverse effect on our ability to operate
efficiently and to provide adequate customer service.
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RAPID CHANGE IN OUR INDUSTRY COULD REQUIRE US TO EXPEND SUBSTANTIAL COSTS TO
IMPLEMENT NEW TECHNOLOGIES. WE COULD LOSE CUSTOMERS IF OUR COMPETITORS
IMPLEMENT NEW TECHNOLOGIES BEFORE WE DO.
The European telecommunications industry is changing rapidly due to, among
other things:
- market liberalization,
- significant technological advancements,
- introductions of new products and services utilizing new technologies,
- increased availability of transmission capacity,
- expansion of telecommunications infrastructure, and
- increased use of the Internet for voice and data transmission.
If the growth we anticipate in the demand for voice and data services were
not to occur or we were precluded from servicing this demand, we might not be
able to generate sufficient revenues in the next few years to fund our working
capital requirements.
To compete effectively, we must anticipate and adapt to rapid technological
changes and offer, on a timely basis, competitively priced services that meet
evolving industry standards and customer preferences. We may choose new
technologies that prove to be inadequate or incompatible with technologies of
our customers, providers of transmission capacity or other carriers. As new
technologies develop, we may be forced to implement such new technologies at
substantial cost to remain competitive. In addition, competitors may implement
new technologies before we do, allowing such competitors to provide lower priced
or enhanced services and superior quality compared to those we provide. Such a
development could have a material adverse effect on our ability to compete,
particularly because we seek to distinguish ourselves on the basis of the
quality of our services.
WHOLESALE CUSTOMERS THAT ARE PRICE SENSITIVE MAY DIVERT THEIR TRAFFIC TO ANOTHER
CARRIER BASED ON SMALL PRICE CHANGES, RESULTING IN FLUCTUATIONS OR LOSS IN OUR
REVENUE.
Voice customers often maintain relationships with a number of
telecommunications providers, and our contracts with our wholesale voice
customers generally do not impose on customers minimum or maximum usage
requirements. Furthermore, basic voice services are not highly differentiated.
As a result, most customers are price sensitive and certain customers may divert
their traffic to another carrier based solely on small price changes. These
diversions can result in large and abrupt fluctuations in revenues. The majority
of our data contracts to date have been usage-based, with no minimum volume
commitment by the customer. There can be no assurance that small variations
between our prices and those of other carriers will not cause our voice
customers to divert their traffic.
Our contracts with our wholesale customers require us to carry their voice
traffic at a contractually fixed price per minute that can only be changed upon
seven or thirty days' notice. Similarly, we have contracted with some data
customers to carry their data traffic at a fixed monthly rate that can only be
changed upon six or twelve months' notice. If we were forced to carry voice or
data traffic over a higher-cost route due to capacity and quality constraints,
our gross profit margins would be reduced.
WE RELY ON A SMALL NUMBER OF SIGNIFICANT CUSTOMERS, AND THE LOSS OF ANY SINGLE
CUSTOMER COULD THEREFORE HAVE A MATERIAL ADVERSE EFFECT ON OUR REVENUES.
We currently depend on a small number of significant customers for our
revenues. The loss of any single customer could therefore have a material
adverse effect on us. In addition, certain wholesale customers may be
unprofitable or only marginally profitable, resulting in a higher risk of
delinquency or nonpayment. Recently, the Internet services industry has
experienced increased merger and consolidation
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<PAGE>
activity among ISPs and Internet backbone providers. The consolidation of ISPs
may reduce the customer base for our data services.
IF WE ARE UNABLE TO IMPROVE AND ADAPT OUR OPERATIONS AND SYSTEMS AS WE GROW, WE
COULD LOSE CUSTOMERS AND REVENUES.
We expect our business to continue to grow rapidly, which may significantly
strain our customer support, sales and marketing and administrative resources
and network operation and management and billing systems. Such a strain on our
operational and administrative capabilities could adversely affect the quality
of our services and our ability to collect revenues. To manage our growth
effectively, we will have to further enhance the efficiency of our operational
support and other back office systems, and of our financial systems and
controls. We will also have to expand and train our employee base to handle the
increased volume and complexities of our business. We cannot assure you that we
will maintain adequate internal operating, administrative and financial systems,
procedures and controls, or obtain, train and adequately manage sufficient
personnel to keep pace with our growth.
In addition, if we fail to project traffic volume and routing preferences
correctly, or to determine the optimal means of expanding the network, we could
lose customers, make inefficient use of the network, and have higher costs and
lower profit margins.
OUR OPERATING COMPANIES HAVE NO OBLIGATION TO MAKE PAYMENTS ON THE NOTES. THEY
MAY FACE LEGAL OR OTHER LIMITATIONS ON THEIR ABILITY TO MAKE CASH AVAILABLE
FOR PAYMENT ON THE NOTES.
Carrier1 International is the company obligated to pay amounts due under the
notes. Carrier1 International is a holding company with few assets of
significance other than the stock of its subsidiaries. Carrier1 International
intends to loan or contribute all or a portion of the proceeds of the original
offering to its subsidiaries. The cash flow and consequent ability of Carrier1
International to service its debt obligations, including the notes, are
dependent upon the ability of Carrier1 International to receive cash from its
subsidiaries. These subsidiaries are separate legal entities and have no
obligations to pay amounts due under the notes or to make funds available for
such payment. In addition, applicable law of the jurisdictions in which these
subsidiaries are organized or contractual or other obligations to which they are
subject may limit their ability to pay dividends or make payments on
intercompany loans, including those made with the proceeds of the original
offering. Furthermore, the payment of interest and principal on intercompany
loans and advances as well as the payment of dividends by these subsidiaries may
be subject to taxes. Claims of creditors of these subsidiaries will generally
have priority as to the assets of such subsidiaries over the claims of the
holders of Carrier1 International's debt, including the notes, except under
certain circumstances to the extent that Carrier1 International is also a
creditor of any subsidiary. Accordingly, the notes will be effectively
subordinated to the liabilities of these subsidiaries.
THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO OUR SECURED DEBT.
The notes will not be secured by any of our assets except the pledged
securities as described under "Description of the Notes--Security." We expect to
incur future indebtedness which may be secured, particularly through equipment,
network or working capital financings. If we default on our other secured
indebtedness, or in the event of our bankruptcy, liquidation or reorganization,
our assets would be available to pay our obligations on the notes only after we
had made all payments on such secured debt. To the extent that the value of such
assets was insufficient to repay our secured debt, holders of such secured debt
would be entitled to share in any of our remaining assets on parity with you and
other unsecured creditors.
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WE WILL ENGAGE IN JOINT VENTURES, WHICH ARE ACCOMPANIED BY INHERENT RISKS.
We plan to construct the German Network with Viatel and Metromedia. We may
enter into future joint ventures with other companies. All joint ventures are
accompanied by risks. These risks include:
- the lack of complete control over the relevant project,
- diversion of our resources and management time,
- inconsistent economic, business or legal interests or objectives among
joint venture partners,
- the possibility that a joint venture partner will default in connection
with a capital contribution or other obligation, thereby forcing us to
fulfill such obligation, and
- difficulty maintaining uniform standards, controls, procedures and
policies.
WE ARE CONTROLLED BY PARTIES WHOSE INTERESTS MAY NOT BE ALIGNED WITH YOURS.
Funds managed by Providence and Primus together indirectly hold
approximately 85%, and the Providence funds alone indirectly hold approximately
71%, of the equity of Carrier1 International. Therefore, the Providence funds
alone, and the Providence and Primus funds together, indirectly control us. Such
ownership may present conflicts of interest between the Providence or Primus
funds and you if we encounter financial difficulties or the Providence and
Primus funds cause us to pursue transactions that could enhance their equity
investment while involving risks to your interests.
Providence and Primus, or their affiliates, currently have significant
investments in other telecommunications companies, including investments by
Providence affiliates in Epoch Networks and Tele1 Europe AB, and may in the
future invest in other entities engaged in the telecommunications business, some
of which may compete with us. Providence and Primus are under no obligation to
bring us any investment or business opportunities of which they are aware, even
if opportunities are within our scope and objectives. Conflicts may also arise
in the negotiation or enforcement of arrangements we may enter into with
entities in which Providence or Primus, or their affiliates, have an interest.
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES.
Computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations or a major system failure. We cannot assure you that all our
systems will then function adequately. A failure of our computer systems or
other systems could have a material adverse effect on us. We are still
evaluating whether the systems of our vendors, suppliers or customers are or
will be Year 2000 compliant. Any failure of their computer systems could
materially and adversely affect our ability to operate our network and retain
customers and could impose significant costs on us. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Impact of Year
2000."
CONVERSION TO THE EURO MAY RESULT IN INCREASED COSTS AND POSSIBLE ACCOUNTING,
BILLING AND LOGISTICAL DIFFICULTIES IN OPERATING OUR BUSINESS.
From January 1, 1999, until January 1, 2002, the Euro will exist in
electronic form only and the participating countries' individual currencies will
persist in tangible form as legal tender. During the transition period, everyone
must manage transactions in both the Euro and the participating countries'
respective individual currencies. This may cause significant logistical
problems. We may incur increased operational costs and may have to modify or
upgrade our information systems in order to respond to possible accounting,
billing and other logistical problems resulting from the conversion to the Euro.
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THE INTERNATIONAL SCOPE OF OUR OPERATIONS MAY ADVERSELY AFFECT OUR BUSINESS.
We may face certain risks because we conduct an international business
including:
- regulatory restrictions or prohibitions on the provision of our services,
- tariffs and other trade barriers,
- longer payment cycles,
- problems in collecting accounts receivable,
- political risks, and
- potentially adverse tax consequences of operating in multiple
jurisdictions.
In addition, an adverse change in laws or administrative practices in
countries within which we operate could have a material adverse effect on us.
We are exposed to fluctuations in foreign currencies, as our revenues,
costs, assets and liabilities are denominated in multiple local currencies. Our
payment obligations with respect to the notes are denominated in U.S. dollars,
but our revenues are denominated in other currencies as well. Any appreciation
in the value of the U.S. dollar relative to such other currencies could have a
material adverse effect on us.
ENFORCING JUDGMENTS AGAINST US MAY REQUIRE COMPLIANCE WITH NON-U.S. LAW.
Most assets of Carrier1 International and its subsidiaries are located
outside the United States. You will need to comply with foreign laws to enforce
judgments obtained in a U.S. court against our assets, including to foreclose
upon such assets. In addition, it may not be possible for you to effect service
of process within the United States upon us, or to enforce against us U.S. court
judgments predicated upon U.S. federal securities laws.
THERE WILL BE NO PUBLIC TRADING MARKET FOR THE NEW NOTES.
The new notes are a new issue of securities with no established trading
market. The liquidity of the trading market in the new notes, and the market
price quoted for the new notes, may be adversely affected by changes in the
overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure that an active trading market will
develop for the new notes.
EVENTS DESCRIBED BY OUR FORWARD-LOOKING STATEMENTS MAY NOT OCCUR.
This prospectus includes or incorporates forward-looking statements. We have
based these forward-looking statements on our current expectations and
projections about future events and on industry publications. We have not
independently verified the data derived from industry publications.
Our forward-looking statements are subject to risks, uncertainties and
assumptions including, among other things, those discussed above as well as
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Examples of forward-looking statements include all statements
that are not historical in nature, including statements regarding:
- operations and prospects,
- technical capabilities,
- funding needs and financing sources,
- network deployment plans,
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- scheduled and future regulatory approvals,
- expected financial position,
- business and financial plans,
- markets, including the future growth in the European telecommunications
market,
- expected characteristics of competing systems, and
- expected actions of third parties such as equipment suppliers and joint
venture partners.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur. Additional risks, and
uncertainties and assumptions that we may currently deem immaterial or that are
not presently known to us could also cause the forward-looking events discussed
in this prospectus not to occur. We do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
THESE RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES FACING US.
Additional risks and uncertainties not presently known to us or that we may
currently deem immaterial may also impair our business operations.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Upon effectiveness of the registration statement of which this prospectus is
a part, we will file annual and quarterly and other information with the
Securities and Exchange Commission (the "Commission"). You may read and copy any
reports, statements and other information we file at the Commission's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call 1-800-SEC-0330 for further information on the public reference
rooms. Our filings will also be available to the public from commercial document
retrieval services and at the web site maintained by the Commission at
http://www.sec.gov.
We have filed a registration statement on Form S-4 to register with the
Commission the new notes to be issued in exchange for the old notes. This
prospectus is part of that registration statement. As allowed by the
Commission's rules, this prospectus does not contain all of the information you
can find in the registration statement or the exhibits to the registration
statement.
23
<PAGE>
THE EXCHANGE OFFER
The following contains a summary of the material provisions of the
registration rights agreement. It does not contain all of the information that
may be important to an investor in the notes. Reference is made to the
provisions of the registration rights agreement, which has been filed as an
exhibit to the registration statement. Copies are available as set forth under
the heading "Where You Can Find More Information."
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the issuance of the old notes pursuant to a placement
agreement, dated as of February 12, 1999, between Carrier1 International and the
placement agents, the placement agents and their respective assignees became
entitled to the benefits of the registration rights agreement.
Under the registration rights agreement, Carrier1 has agreed (1) to use its
best efforts to cause to be filed with the Commission the registration statement
of which this prospectus is a part with respect to a registered offer to
exchange the old notes for the new notes and (2) to use its reasonable best
efforts to consummate the exchange offer within 60 calendar days after the date
on which the registration statement is declared effective. Carrier1 will keep
the exchange offer open for not less than 20 business days after the date notice
of the exchange offer is mailed to holders of the old notes. The exchange offer
being made hereby, if consummated within six months after the initial issuance
of the old notes, will satisfy those requirements under the registration rights
agreement.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letters of transmittal, all old notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the expiration date will be
accepted for exchange. New notes of the relevant series will be issued in
exchange for an equal principal amount of outstanding old notes of such series
accepted in the exchange offer. Old notes may be tendered only in integral
multiples of $1,000 or [Euro]1,000, as applicable. This prospectus, together
with the letters of transmittal, is being sent to all registered holders as of
, 1999. The exchange offer is not conditioned upon any minimum
principal amount of old notes being tendered for exchange. However, the
obligation to accept old notes for exchange pursuant to the exchange offer is
subject to certain customary conditions as set forth herein under
"--Conditions."
Old notes shall be deemed to have been accepted as validly tendered when, as
and if Carrier1 has given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders of old notes for
the purposes of receiving the new notes and delivering new notes to such
holders.
Based on interpretations by the Staff of the Commission as set forth in
no-action letters issued to third parties (including Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), K-III Communications Corporation (available May 14,
1993) and Shearman & Sterling (available July 2, 1993)), Carrier1 believes that
the new notes issued pursuant to the exchange offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is a broker-dealer or an "affiliate" of Carrier1 within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that:
- such new notes are acquired in the ordinary course of business,
- at the time of the commencement of the exchange offer such holder has no
arrangement or understanding with any person to participate in a
distribution of such new notes, and
- such holder is not engaged in, and does not intend to engage in, a
distribution of such new notes.
24
<PAGE>
Carrier1 has not sought, and does not intend to seek, a no-action letter from
the Commission with respect to the effects of the exchange offer, and there can
be no assurance that the Staff would make a similar determination with respect
to the new notes as it has in such no-action letters.
By tendering old notes in exchange for new notes and executing the
applicable letter of transmittal, each holder will represent to Carrier1 that:
- any new notes to be received by it will be acquired in the ordinary course
of business,
- it has no arrangements or understandings with any person to participate in
the distribution of the old notes or new notes within the meaning of the
Securities Act, and
- it is not an "affiliate," as defined in Rule 405 under the Securities Act,
of Carrier1 International.
If such holder is a broker-dealer, it will also be required to represent that
the old notes were acquired as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of new notes. See "Plan of Distribution." Each holder, whether or not it
is a broker-dealer, shall also represent that it is not acting on behalf of any
person that could not truthfully make any of the foregoing representations
contained in this paragraph. If a holder of old notes is unable to make the
foregoing representations, such holder may not rely on the applicable
interpretations of the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Upon consummation of the exchange offer, subject to certain limited
exceptions, holders of old notes who do not exchange their old notes for new
notes in the exchange offer will no longer be entitled to registration rights
and will not be able to offer or sell their old notes, unless such old notes are
subsequently registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Subject to limited exceptions, Carrier1 will
have no obligation to effect a subsequent registration of the old notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The expiration date shall be , 1999, unless Carrier1 International,
in its sole discretion, extends the exchange offer with respect to one or both
series of old notes, in which case the expiration date shall be the latest date
to which the exchange offer is extended with respect to the relevant series.
To extend the expiration date, Carrier1 International will notify the
exchange agent of any extension by oral or written notice and will notify the
holders of the relevant series of old notes by means of a press release or other
public announcement prior to 9:00 A.M., New York City time, on the next business
day after the previously scheduled expiration date. Such announcement may state
that Carrier1 International is extending the exchange offer for a specified
period of time.
Carrier1 International reserves the right (1) to delay acceptance of any old
notes, to extend the exchange offer or to terminate the exchange offer and not
permit acceptance of old notes not previously accepted if any of the conditions
set forth herein under "--Conditions" shall have occurred and shall not have
been waived by Carrier1 International prior to the expiration date, by giving
oral or written notice of such delay, extension or termination to the exchange
agent, or (2) to amend the terms of the exchange offer in any manner deemed by
it to be advantageous to the holders of the old notes. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the exchange agent. If the
exchange offer is amended in a manner determined by Carrier1 to constitute a
material change, Carrier1 will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of the old notes of such amendment.
Without limiting the manner in which Carrier1 may choose to make public
announcement of any delay, extension, amendment or termination of the exchange
offer, Carrier1 shall have no obligations to
25
<PAGE>
publish, advertise, or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.
INTEREST ON THE NEW NOTES
The new notes will accrue interest at the rate of 13 1/4% per annum from the
last interest payment date on which interest was paid on the old note
surrendered in exchange therefor, or, if no interest has been paid on such old
note, from the issue date of such old note, PROVIDED, that if an old note is
surrendered for exchange on or after a record date for an interest payment date
that will occur on or after the date of such exchange and as to which interest
will be paid, interest on the new note received in exchange therefor will accrue
from the date of such interest payment date. Interest on the new notes is
payable on February 15 and August 15 of each year, commencing August 15, 1999.
No additional interest will be paid on old notes tendered and accepted for
exchange.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
applicable letter of transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the letter of transmittal, and mail or
otherwise deliver such letter of transmittal or such facsimile, together with
any other required documents, to the exchange agent prior to 5:00 p.m., New York
City time, on the expiration date. In addition, either
- certificates of such old notes must be received by the exchange agent
along with the applicable letter of transmittal, or
- a timely confirmation of a book-entry transfer of such old notes, if such
procedure is available, into the exchange agent's account at the
appropriate book-entry transfer facility, that is (1) at The Depository
Trust Company, in the case of old dollar notes, or (2) at Euroclear and
Cedel, in the case of old Euro notes, pursuant to the procedure for
book-entry transfer described below, must be received by the exchange
agent prior to the expiration date with the applicable letter of
transmittal, or
- the holder must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE NOTE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO OLD NOTES, LETTERS OF TRANSMITTAL OR OTHER
REQUIRED DOCUMENTS SHOULD BE SENT TO CARRIER1. Delivery of all old notes (if
applicable), letters of transmittal and other documents must be made to the
exchange agent at its address set forth below. Holders may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by a holder of old notes will constitute an agreement between
such holder and Carrier1 in accordance with the terms and subject to the
conditions set forth herein and in the applicable letter of transmittal. Any
beneficial owner whose old notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender should
contact such registered holder promptly and instruct such registered holder to
tender on his behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the old
notes tendered pursuant thereto are tendered (i) by a registered holder of old
notes who has not completed the box entitled "Special Issuance
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<PAGE>
Instructions" or "Special Delivery Instructions" on the applicable letter of
transmittal or (ii) for the account of an Eligible Institution.
If a letter of transmittal is signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and unless waived by Carrier1, evidence satisfactory to Carrier1 of
their authority to so act must be submitted with such letter of transmittal.
All questions as to the validity, form, eligibility, time of receipt and
withdrawal of the tendered old notes will be determined by Carrier1 in its sole
discretion, which determination will be final and binding. Carrier1 reserves the
absolute right to reject any and all old notes not properly tendered or any old
notes which, if accepted, would, in the opinion of counsel for Carrier1, be
unlawful. Carrier1 also reserves the absolute right to waive any irregularities
or conditions of tender as to particular old notes. Carrier1's interpretation of
the terms and conditions of the exchange offer, including the instructions in
the letters of transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of old notes
must be cured within such time as Carrier1 shall determine. Neither Carrier1,
the exchange agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of old notes,
nor shall any of them incur any liability for failure to give such notification.
Tenders of old notes will not be deemed to have been made until such
irregularities have been cured or waived. Any old note received by the exchange
agent that is not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such holder by the exchange agent, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
In addition, Carrier1 reserves the right in its sole discretion, subject to
the provisions of the indentures pursuant to which the notes are issued,
- to purchase or make offers for any old notes that remain outstanding
subsequent to the expiration date or, as set forth under "--Conditions,"
to terminate the exchange offer,
- to redeem old notes as a whole or in part at any time and from time to
time, as set forth under "Description of the Notes--Optional Redemption,"
and
- to the extent permitted under applicable law, to purchase old 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 the
exchange offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
all old notes properly tendered will be accepted promptly after the expiration
date, and the new notes will be issued promptly after acceptance of the old
notes. See "--Conditions." For purposes of the exchange offer, old notes shall
be deemed to have been accepted as validly tendered for exchange when, as and if
Carrier1 has given oral or written notice thereof to the exchange agent. For
each old note of a series accepted for exchange, the holder of such old note
will receive a new note of the relevant series having a principal amount equal
to that of the surrendered old note.
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of
- certificates for such old notes or a timely book-entry confirmation of
such old notes into the exchange agent's account at the applicable
book-entry transfer facility,
- a properly completed and duly executed letter of transmittal, and
- all other required documents.
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<PAGE>
If any tendered old notes are not accepted for any reason set forth in the terms
and conditions of the exchange offer, such unaccepted or such nonexchanged old
notes will be returned without expense to the tendering holder thereof (if in
certificated form) or credited to an account maintained with such book-entry
transfer facility as promptly as practicable after the expiration or termination
of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at the applicable book-entry transfer facility for purposes of
the exchange offer within two business days after the date of this prospectus.
Any financial institution that is a participant in such book-entry transfer
facility's systems may make book-entry delivery of old notes by causing such
book-entry transfer facility to transfer such old notes into the exchange
agent's account at the book-entry transfer facility in accordance with such
book-entry transfer facility's procedures for transfer. However, although
delivery of old notes may be effected through book-entry transfer at the
applicable book-entry transfer facility, the applicable letter of transmittal or
facsimile thereof with any required signature guarantees and any other required
documents must, in any case, be transmitted to and received by the exchange
agent at one of the addresses set forth below under "--Exchange Agent" on or
prior to the expiration date or the guaranteed delivery procedures described
below must be complied with.
EXCHANGING BOOK-ENTRY NOTES
The exchange agent and the book-entry transfer facility have confirmed that
any financial institution that is a participant in the book-entry transfer
facility may utilize the book-entry transfer facility Automated Tender Offer
Program ("ATOP") procedures to tender old notes.
Any participant in the applicable book-entry transfer facility may make
book-entry delivery of old notes by causing such book-entry transfer facility to
transfer such old notes into the exchange agent's account in accordance with
such book-entry transfer facility's ATOP procedures for transfer. However, the
exchange for the old notes so tendered will only be made after a book-entry
confirmation of such book-entry transfer of old notes into the exchange agent's
account, and timely receipt by the exchange agent of an agent's message and any
other documents required by the applicable letter of transmittal. The term
"agent's message" means a message, transmitted by the book-entry transfer
facility and received by the Exchange Agent and forming part of a book-entry
confirmation, which states that the book-entry transfer facility has received an
express acknowledgment from a participant tendering old notes that are the
subject of such book-entry confirmation that such participant has received and
agrees to be bound by the terms of the letter of transmittal, and that Carrier1
may enforce such agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if
- the tender is made through an Eligible Institution,
- prior to the expiration date, the exchange agent receives by facsimile
transmission, mail or hand delivery from such Eligible Institution a
properly completed and duly executed letter of transmittal and notice of
guaranteed delivery, substantially in the form provided by Carrier1, which
(1) sets forth the name and address of the holder of old notes and the
amount of old notes tendered,
(2) states that the tender is being made thereby, and
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(3) guarantees that within three New York Stock Exchange ("NYSE") trading
days after the date of execution of the notice of guaranteed
delivery, the certificates for all physically tendered old notes, in
proper form for transfer, or a book-entry confirmation, as the case
may be, and any other documents required by the letter of transmittal
will be deposited by the Eligible Institution with the exchange
agent, and
- the certificates for all physically tendered old notes, in proper form for
transfer, or a book-entry confirmation, as the case may be, and all other
documents required by the 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 OF TENDERS
Tenders of old notes of a series may be withdrawn at any time prior to 5:00
p.m., New York City time, on the expiration date with respect to such series.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent prior to 5:00 p.m., New York City time on the
expiration date with respect to such series at one of the addresses set forth
below under "--Exchange Agent." Any such notice of withdrawal must
- specify the name of the person having tendered the old notes to be
withdrawn,
- identify the old notes to be withdrawn, including the principal amount of
such old notes,
- in the case of old notes tendered by book-entry transfer, specify the
number of the account at the book-entry transfer facility from which the
old notes were tendered and specify the name and number of the account at
the book-entry transfer facility to be credited with the withdrawn old
notes and otherwise comply with the procedures of such facility,
- contain a statement that such holder is withdrawing its election to have
such old notes exchanged,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer to have the trustee with respect to the old notes register the
transfer of such old notes in the name of the person withdrawing the
tender, and
- specify the name in which such old notes are registered, if different from
the person who tendered such old notes.
All questions as to the validity, form, eligibility and time of receipt of such
notice will be determined by Carrier1, whose determination shall be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the exchange offer. Any old
notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the tendering holder therof without cost to such
holder, in the case of physically tendered old notes, or credited to an account
maintained with the applicable book-entry transfer facility for the old notes as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn old notes may be retendered by following one
of the procedures described under "--Procedures for Tendering" and "--Book-Entry
Transfer" above at any time on or prior to 5:00 p.m., New York City time, on the
Expiration Date.
CONDITIONS
Notwithstanding any other provision of the exchange offer, Carrier1 shall
not be required to accept for exchange, or to issue new notes in exchange for,
any old notes and may terminate or amend the exchange offer if at any time prior
to 5:00 p.m., New York City time, on the expiration date, Carrier1 determines in
its reasonable judgment that the exchange offer violates applicable law, any
applicable
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<PAGE>
interpretation of the staff of the Commission or any order of any governmental
agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of Carrier1 International
and may be asserted by Carrier1 International regardless of the circumstances
giving rise to any such condition or may be waived by Carrier1 International in
whole or in part at any time and from time to time in its reasonable discretion.
The failure by Carrier1 International at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, Carrier1 International will not accept for exchange any old
notes tendered, and no new notes will be issued in exchange for any such old
notes, if at such time any stop order shall be threatened or in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of either indenture under the Trust Indenture Act of
1939, as amended. Carrier1 International is required to use every reasonable
effort to obtain the withdrawal of any order suspending the effectiveness of the
registration statement at the earliest possible moment.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letters of transmittal should be
directed to the exchange agent addressed as follows:
If tendering a dollar note or requesting information with respect to the
exchange of a dollar note:
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (212) 638-0828
Global Trust Services FACSIMILE TRANSMISSION NUMBER:
55 Water Street (212) 638-7380/81
Room 234, North Building CONFIRM BY TELEPHONE:
New York, New York 10041 (212) 638-0828
Attention: Carlos Esteves
</TABLE>
If tendering a Euro note that has been deposited with a custodian for, and
registered in the name of, The Depository Trust Company or requesting
information with respect to the exchange of a Euro note deposited with The
Depository Trust Company:
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (212) 638-0828
Global Trust Services FACSIMILE TRANSMISSION NUMBER:
55 Water Street (212) 638-7380/81
Room 234, North Building CONFIRM BY TELEPHONE:
New York, New York 10041 (212) 638-0828
Attention: Carlos Esteves
</TABLE>
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If tendering a Euro note (except a Euro note deposited with The Depository
Trust Company) or requesting information with respect to the exchange of a Euro
note (except a Euro note deposited with The Depository Trust Company):
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (44-171) 777-5414
The Chase Manhattan Bank FACSIMILE TRANSMISSION NUMBER:
Capital Markets Fiduciary Services (44-171) 777-5410
9 Thomas Moore Street
London E1 9YT CONFIRM BY TELEPHONE:
United Kingdom (44-171) 777-5414
Attention: Chris Greene
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the exchange offer will be
borne by Carrier1. The principal solicitation for tenders pursuant to the
exchange offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of Carrier1.
Carrier1 will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. Carrier1, however, will pay the
exchange agent reasonable and customary fees for its services and will reimburse
the exchange agent for its reasonable out-of-pocket expenses in connection
therewith. Carrier1 may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the prospectus and related documents to the beneficial
owners of the old notes, and in handling or forwarding tenders for exchange.
The expenses to be incurred by Carrier1 in connection with the exchange
offer will be paid by Carrier1, including fees and expenses of the exchange
agent and trustee and accounting, legal, printing and related fees and expenses.
Carrier1 will pay all transfer taxes, if any, applicable to the exchange of
old notes pursuant to the exchange offer. If, however, new notes or old notes
for principal amounts not tendered or accepted for exchange are to be registered
or issued in the name of any person other than the registered holder of the old
notes tendered, or if tendered old notes are registered in the name of any
person other than the person signing the letter of transmittal, or if a transfer
tax is imposed for any reason other than the exchange of old notes pursuant to
the exchange offer, then the amount of any such transfer taxes imposed on the
registered holder or any other persons will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for new notes
pursuant to the exchange offer will continue to be subject to the restrictions
on transfer of such old notes as set forth in the legend thereon as a
consequence of the issuance of the old notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the old notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Carrier1 International does not currently
anticipate that it will register the old notes under the Securities Act. To the
extent that old notes are tendered and accepted in the exchange offer, the
trading market for untendered and tendered but unaccepted old notes could be
adversely affected.
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<PAGE>
USE OF PROCEEDS
There will be no proceeds from the issuance of new notes pursuant to the
exchange offer.
The net proceeds from the original offering were $242 million (based on the
February 19, 1999, conversion rate of Euro into U.S. dollars of [Euro]0.90316
per $1.00), after deducting discounts and commissions and expenses of the
original offering payable by Carrier1 International. Carrier1 intends to use the
net proceeds from the original offering primarily to finance the construction
and start-up costs of the German Network and the acquisition of transmission
capacity, switches, multiplexers, routers and other equipment. In addition, at
the closing of the original offering, Carrier1 used approximately $49.2 million
of the net proceeds to purchase a portfolio of U.S. government securities and
approximately [Euro]26.9 million ($29.8 million) of the net proceeds to purchase
a portfolio of European government securities, and pledged these portfolios for
the benefit of the holders of the respective series of notes to secure and fund
the first five interest payments. The relevant trustee will hold the pledged
securities pursuant to a pledge agreement pending disbursement. Pending
utilization of the net proceeds of the original offering, Carrier1 has invested
such proceeds in short-term investment grade securities and other financial
instruments for the purpose of capital preservation and liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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DIVIDEND POLICY
Carrier1 International has never declared or paid any cash dividends on its
shares of common stock and does not expect to do so in the foreseeable future.
Carrier1 International does not expect to generate any net income in the
foreseeable future, but anticipates that future earnings generated from
operations, if any, will be retained to finance the expansion and continued
development of its business. Subject to the declaration of interim dividends by
the Board of Directors, decisions to pay dividends may only be taken by the
shareholders acting at a shareholders' meeting. Any future determination with
respect to the payment of dividends on Carrier1 International's shares will
depend upon, among other things, Carrier1 International's earnings, capital
requirements, the terms of the existing indebtedness, applicable requirements of
Luxembourg corporate law, general economic conditions and such other factors
considered relevant by Carrier1 International's Board of Directors. In addition,
Carrier1 International's ability to pay cash dividends will be restricted under
the terms of the indentures pursuant to which the notes are issued.
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CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents
and total capitalization of Carrier1 at March 31, 1999.
Amounts are presented in thousands, except per share data.
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
Cash and cash equivalents.............................................................. $ 107,960(1)
--------------
--------------
Restricted cash........................................................................ 1,446
--------------
--------------
Restricted investments(2).............................................................. 143,034(1)
--------------
--------------
Total long term debt................................................................... 249,608
Shareholders' equity:
Common Stock, $2 par value, 30,000,000 shares issued and outstanding................. 60,000
Additional paid-in capital (Warrants)................................................ 2,304
Accumulated deficit.................................................................. (34,265)
Accumulated other comprehensive income............................................... 836
--------------
Total shareholders' equity....................................................... 28,875
--------------
Total capitalization........................................................... $ 278,483
--------------
--------------
</TABLE>
- ------------------------
(1) Assumes the March 31, 1999 conversion rate of Euro into U.S. dollars of
[Euro]0.92515 per $1.00.
(2) Reflects:
(a) the portion of the net proceeds from the original offering used to
purchase government securities to secure and fund the first five
scheduled interest payments on the notes, see "Description of the
Notes--Security," and
(b) approximately $64.8 million used to collateralize a 109.5 million
Deutsche Mark letter of credit. See the Notes to Unaudited Consolidated
Financial Statements, Note 5, presented elsewhere in this prospectus.
34
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information of
Carrier1 has been derived by the application of pro forma adjustments to
Carrier1's historical consolidated financial statements for the periods from
January 1, 1999 to March 31, 1999 and from Inception to December 31, 1998. The
pro forma consolidated statements of operations give effect to the issuance of
the notes and related transactions as if such transactions had been consummated
on February 20, 1998 (Inception). The adjustments necessary to fairly present
this pro forma consolidated financial information have been made based on
available information and in the opinion of management are reasonable and are
described in the accompanying notes. The pro forma consolidated financial
information should not be considered indicative of actual results that would
have been achieved had the issuance of the notes and related transactions been
consummated on the respective dates indicated and do not purport to indicate
balance sheet data or results of operations as of any future date or for any
future period. You should read the pro forma consolidated financial statements
together with the information set forth in "Use of Proceeds" and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Historical Financial Statements and the notes
thereto, and other financial information included elsewhere in this prospectus.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the issuance of the
notes. As a result, such adjustments will have no impact on the historical basis
of either Carrier1's assets and liabilities. Accordingly, the issuance of the
notes has not impacted the historical basis of Carrier1's assets and
liabilities.
The unaudited consolidated pro forma financial statements do not include pro
forma adjustments relating to the effects of foreign currency exchange gains or
losses resulting from the translation of Euro-denominated amounts into U.S.
dollars. Euro-denominated amounts have been translated into U.S. dollars using
an assumed conversion rate of (1) for the period ended December 31, 1998,
[Euro]0.90316 to $1.00, which was the exchange rate on February 19, 1999, the
closing date of the original issuance of the notes and (2) for the period ended
March 31, 1999, [Euro]0.892522 to $1.00, which was the weighted average exchange
rate for such period. Potential dilutive securities have been excluded from the
computation of diluted earnings (loss) per share as their effect is
antidilutive.
The pro forma ratio of earnings to fixed charges is calculated as the sum of
income before taxes plus interest expense divided by fixed charges. Fixed
charges is the sum of pro forma interest expense and the portion of rental
expense deemed representative of interest. Pro forma earnings were insufficient
to cover fixed charges in the three-month period ended March 31, 1999 by $19.5
million. Pro forma earnings were insufficient to cover fixed charges in the
period from Inception to December 31, 1998 by $49.3 million.
35
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPANY PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ----------- -------------
<S> <C> <C> <C>
Revenues.............................................................. $ 12,293 $ 12,293
Operating expenses:
Cost of services (exclusive of amounts shown separately below)...... 17,015 17,015
Selling, general and administrative................................. 3,318 3,318
Depreciation and amortization....................................... 1,336 1,336
Total operating expenses.......................................... 21,669 21,669
------------- -------------
Loss from operations.................................................. (9,376) (9,376)
Other income (expense):
Interest expense.................................................... (4,205) (4,331)(a) (8,536)
Interest income..................................................... 979 979
Other, net.......................................................... (2,428) (2,428)
------------- ----------- -------------
Total other income (expense)...................................... (5,654) (4,331) (9,985)
------------- ----------- -------------
Loss before income tax benefit........................................ (15,030) (4,331) (19,361)
Income tax benefit--net of valuation allowance........................ -- -- --
------------- ----------- -------------
Net loss.............................................................. $ (15,030) $ (4,331) $ (19,361)
------------- ----------- -------------
------------- ----------- -------------
Earnings (loss) per share:
Net loss:
Basic............................................................. $ (0.53) $ (0.69)
------------- -------------
------------- -------------
Diluted........................................................... $ (0.53) $ (0.69)
------------- -------------
------------- -------------
Total number of shares used to compute basic earnings
(loss) per share.................................................... 28,145,000 28,145,000
------------- -------------
------------- -------------
</TABLE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(a) This adjustment represents the recording of interest expense for the
period from January 1, 1999 to February 19, 1999 and reflects the
following:
<TABLE>
<CAPTION>
AMOUNTS IN
THOUSANDS
-----------
<S> <C>
Interest expense on the notes.................................................... $ 4,227
Amortization of debt issuance costs.............................................. 88
Amortization of debt discount.................................................... 16
-----------
$ 4,331
-----------
-----------
</TABLE>
36
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPANY PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Revenues................................................................... $ 2,792 $ 2,792
Operating expenses:
Cost of services (exclusive of amounts shown separately below)........... 11,669 11,669
Selling, general and administrative...................................... 8,977 8,977
Depreciation and amortization............................................ 1,409 1,409
---------- ----------- ----------
Total operating expenses............................................... 22,055 -- 22,055
---------- ----------- ----------
Loss from operations....................................................... (19,263) -- (19,263)
Other income (expense):
Interest income.......................................................... 92 92
Interest expense......................................................... (11) (29,882)(a) (29,893)
Other, net............................................................... (53) (53)
---------- ----------- ----------
Total other income (expense)........................................... 28 (29,882) (29,854)
---------- ----------- ----------
Loss before income tax benefit............................................. (19,235) (29,882) (49,117)
Income tax benefit--net of valuation allowance............................. -- -- --
---------- ----------- ----------
Net loss................................................................... $ (19,235) $ (29,882) $ (49,117)
---------- ----------- ----------
---------- ----------- ----------
Earnings (loss) per share
Net loss:
Basic.................................................................. $ (2.61) $ (6.67)
---------- ----------
---------- ----------
Diluted................................................................ $ (2.61) $ (6.67)
---------- ----------
---------- ----------
Total number of shares used to compute basic earnings
(loss) per share......................................................... 7,367,000 7,367,000
---------- ----------
---------- ----------
</TABLE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(a) This adjustment represents the recording of interest expense for the
period from Inception to December 31, 1998 and reflects the following:
<TABLE>
<CAPTION>
AMOUNTS IN
THOUSANDS
-----------
<S> <C>
Interest expense on the notes.................................................... $ 28,994
Amortization of debt issuance costs.............................................. 786
Amortization of debt discount.................................................... 102
-----------
$ 29,882
-----------
-----------
</TABLE>
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
Carrier1 as of and for the period from Inception to December 31, 1998 and as of
and for the three months ended March 31, 1999. The selected consolidated
financial data as of and for the period from Inception to December 31, 1998,
were derived from the consolidated financial statements of Carrier1 which were
audited by Deloitte & Touche Experta AG, independent auditors. The selected
consolidated financial data as of and for the three months ended March 31, 1999,
were derived from the unaudited consolidated financial statements of Carrier1
and include, in the opinion of Carrier1's management, all adjustments,
consisting solely of normal recurring adjustments, necessary to present fairly
the data for such period. The information set forth below is not necessarily
indicative of the results of future operations and should be read in conjunction
with the consolidated financial statements and the related notes thereto
included elsewhere in this prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Amounts are presented in thousands, except per share data.
<TABLE>
<CAPTION>
THREE MONTHS INCEPTION TO
ENDED MARCH DECEMBER 31,
31, 1999 1998
------------- ------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues............................................................................ $ 12,293 $ 2,792
Cost of services (exclusive of amounts shown separately below)...................... 17,015 11,669
Selling, general and administrative expenses........................................ 3,318 8,977
Depreciation and amortization....................................................... 1,336 1,409
------------- ------------
Loss from operations................................................................ (9,376) (19,263)
Other income (expense):
Interest income..................................................................... 979 92
Interest expense.................................................................... (4,205) (11)
Currency exchange loss, net......................................................... (2,428) (53)
------------- ------------
Loss before income tax benefit...................................................... (15,030) (19,235)
Income tax benefit, net of valuation allowance...................................... -- --
------------- ------------
Net loss............................................................................ $ (15,030) $ (19,235)
------------- ------------
------------- ------------
Net loss per share (basic).......................................................... $ (0.53) $ (2.61)
Net loss per share (diluted)(1)..................................................... (0.53) (2.61)
OTHER FINANCIAL DATA:
EBITDA (as defined)(2).............................................................. $ (8,040) $ (17,854)
Capital expenditures(3)............................................................. 11,609 37,168
Ratio of earnings to fixed charges(4)............................................... -- --
Net cash used in operating activities............................................... (18,910) (14,441)
Net cash used in investing activities............................................... (152,722) (19,866)
Net cash provided by financing activities........................................... 274,141 37,770
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, AS OF
1999 DECEMBER 31, 1998
----------- -----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 107,960(7) $ 4,184
Restricted cash................................................................ 1,446 1,518
Restricted investments(5)...................................................... 143,034(7) --
Total assets(6)................................................................ 329,777 51,434
Total debt..................................................................... 249,608(7) --
Shareholders' equity........................................................... 28,875 19,189
</TABLE>
- ------------------------
(1) Potential dilutive securities have been excluded from the computation for
the period from Inception to December 31, 1998 and for the three months
ended March 31, 1999 as their effect is antidilutive.
(2) EBITDA stands for earnings before interest, taxes, depreciation,
amortization and foreign currency exchange gains or losses.
EBITDA is used by management and certain investors as an indicator of a
company's historical ability to service debt. Management believes that an
increase in EBITDA is an indicator of our improved ability to service
existing debt, to sustain potential future increases in debt and to satisfy
capital requirements. However, EBITDA is not a measure of financial
performance under generally accepted accounting principles and should not be
considered as an alternative to cash flows from operating, investing or
financing activities as a measure of liquidity or an alternative to net
income as indications of Carrier1's operating performance or any other
measure of performance derived under generally accepted accounting
principles. EBITDA as presented may not be comparable to other similarly
titled measures of other companies or to Consolidated EBITDA as calculated
under the indenture pursuant to which the notes are issued.
(3) Consists of purchases of property and equipment and investment in joint
venture.
(4) The ratio of earnings to fixed charges is calculated as the sum of income
before taxes plus interest expense divided by fixed charges. Fixed charges
consist of the total of (1) interest, whether expensed or capitalized, (ii)
amortization of debt expense and discount or premium relating to any
indebtedness, whether expensed or capitalized and (iii) that portion of
rental expense considered to represent interest cost. Earnings were
insufficient to cover fixed charges by $15.2 million in the three-month
period ended March 31, 1999, and by $19.5 million in the period from
Inception to December 31, 1998.
(5) Reflects:
(a) the portion of net proceeds for the original offering used to purchase
government securities to secure and fund the first five scheduled
interest payments on the notes, see "Description of the Notes--Security,"
and
(b) approximately $64.8 million used to collateralize a 109.5 million
Deutsche Mark letter of credit. See the Notes to Unaudited Consolidated
Financial Statements, Note 5, presented elsewhere in this prospectus.
(6) Includes capitalized financing costs of approximately $8.0 million as of
March 31, 1999.
(7) Assuming the March 31, 1999 conversion rate of Euro into U.S. dollars of
[Euro]0.92515 per $1.00.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF CARRIER1'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO CONTAINED ELSEWHERE IN THIS
PROSPECTUS. CERTAIN INFORMATION CONTAINED IN THE DISCUSSION AND ANALYSIS OR SET
FORTH ELSEWHERE IN THIS PROSPECTUS, INCLUDING INFORMATION WITH RESPECT TO
CARRIER1'S PLANS AND STRATEGY FOR ITS BUSINESS AND RELATED FINANCING, INCLUDES
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND UNCERTAINTIES. SEE "RISK
FACTORS" FOR A DISCUSSION OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THE RESULTS DESCRIBED IN OR IMPLIED BY THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
OVERVIEW
Carrier1 is a rapidly expanding European facilities-based provider of long
distance voice and Internet Protocol data telecommunications services. Carrier1
offers these services on a wholesale basis primarily to competitive fixed-line
operators, other carriers, wireless operators, ISPs, resellers and
multi-national corporations. In March 1998, Carrier1's experienced management
team and Providence Equity Partners formed Carrier1 to capitalize on the
significant voice and data opportunities that are emerging for facilities-based
carriers in Europe's rapidly liberalizing telecommunications markets. By
September 1998, Carrier1 had deployed its initial network and commenced selling
wholesale services. As of December 31, 1998, Carrier1 had executed 48 contracts
with voice customers and 17 contracts with data customers. Also in December
1998, Carrier1 signed a contract with one of the largest telecommunications
companies in Germany, and it expects to carry a substantial portion of this
operator's international traffic. This contract has had a significant impact on
Carrier1's traffic volumes since its recent implementation. As of March 31,
1999, Carrier1 had executed an additional 31 contracts with voice customers and
an additional 18 contracts with data customers.
Carrier1 is developing an extensive city-to-city European network linking
key population centers. Carrier1 intends to continue rapidly expanding this
network in a cost-effective manner to serve the needs of its existing and
potential customers. Carrier1 believes that its network will allow it to provide
and price its services in Europe on a city-to-city basis without regard to
national borders. This provisioning and pricing structure will put Carrier1 at
the forefront of a shift beginning to occur in the European telecommunications
market away from services and pricing that distinguish between international and
national long distance.
To date, Carrier1 has experienced net losses and negative cash flow from
operating activities. From Inception to September 1998, Carrier1's principal
activities included developing its business plans, obtaining governmental
authorizations and licenses, acquiring equipment and facilities, designing and
implementing its voice and data networks, hiring management and other key
personnel, developing, acquiring and integrating information and operational
support systems and operational procedures, negotiating interconnection
agreements and negotiating and executing customer service agreements. In
September 1998, Carrier1 commenced the roll-out of its services. Carrier1
expects to continue to generate net losses and negative cash flow as it expands
its operations and does not expect to generate positive cash flow from operating
activities through 2000. Whether or when Carrier1 will generate positive
cashflow from operating activities will depend on a number of financial,
competitive, regulatory, technical and other factors. See "--Liquidity and
Capital Resources."
Although Carrier1's management is highly experienced in the wholesale
telecommunications business, Carrier1 itself has a limited operating history.
Prospective investors therefore have limited operating and financial information
about Carrier1 upon which to base an evaluation of Carrier1's performance and an
investment in the Carrier1's Securities.
Carrier1's consolidated financial statements are prepared in accordance with
U.S. generally accepted accounting principles. Carrier1 will be reporting on a
calendar quarterly basis in the future.
40
<PAGE>
FACTORS AFFECTING FUTURE OPERATIONS
REVENUES
Carrier1 expects to generate most of its revenues through the sale of
wholesale long distance voice and data services to competitive fixed-line
operators, other carriers, wireless operators, ISPs, resellers and
multi-national corporations. Carrier1 expects to expand the scope of its
wholesale market by adding value-added services for customers such as switchless
resellers. Carrier1 records revenues from the sale of voice and data services at
the time of customer usage. Carrier1's agreements with its voice customers are
typically for an initial term of twelve months and will be renewed automatically
unless cancelled. They employ usage-based pricing and do not provide for minimum
volume commitments by the customer. Carrier1 expects to generate a steady stream
of voice traffic by providing high-quality service and superior customer
support. Carrier1's data services are charged, depending on service type, either
at a flat monthly rate, regardless of usage, based on the line speed and level
of performance made available to the customer, or on a usage basis, with no
minimum volume commitment by the customer. Initially, the majority of Carrier1's
data contracts were usage-based. Since March 31, 1999, Carrier1 has migrated to
offering usage based data pricing only in combination with data contracts that
have a fee-based component that guarantees minimum revenue, in order to
encourage usage of its network services by its data customers. Carrier1's
agreements with its data customers are generally for a minimum term of twelve
months, although Carrier1 may seek minimum terms of two years or more for
agreements providing for higher line speeds. Carrier1 believes that, if the
quality of the service is consistently high, data customers will typically renew
their contracts because it is costly and technically burdensome to switch
carriers.
Currently, voice and data services are both priced competitively and
Carrier1 emphasizes quality and customer support, rather than offering the
lowest prices in the market. The rates charged to voice and data customers are
subject to change from time to time. Carrier1 will also vary pricing on its
routes as a traffic management tool. Carrier1 initially priced its data services
at an introductory discount to its competitors to build rapidly its customer
base. Carrier1 expects to experience declining revenue per billable minute for
voice traffic and declining revenue per Mb for data traffic, in part as a result
of increasing competition. Carrier1 believes, however, that the impact on its
results of operations from such price decreases will be at least partially
offset by decreases in its cost of providing services and increases in its voice
and data traffic volumes.
Carrier1's focus on the wholesale international and national long distance
markets will result in its having substantially fewer customers than a carrier
in the mass retail sector. As a result, a shift in the traffic pattern of any
one customer, especially in the near term and on one of Carrier1's high volume
routes, could have a material impact, positive or negative, on Carrier1's
revenues. One customer, whose contract was recently implemented, may account for
up to 30% of Carrier1's revenues in the near term. Furthermore, most wholesale
customers of voice services tend to be price sensitive and, assuming the quality
of service is equivalent, certain customers may switch suppliers for certain
routes on the basis of small price differentials. In contrast, data customers
tend to use fewer suppliers than voice customers, cannot switch suppliers as
easily and, Carrier1 believes, are more sensitive to service quality than to
price.
COST OF SERVICES, EXCLUSIVE OF ITEMS DISCUSSED SEPARATELY BELOW
Cost of services, exclusive of depreciation and amortization, which is
discussed separately below, are classified into three general categories: access
costs, transmission costs and termination costs. Carrier1 has minimal access
costs as its wholesale customers are typically responsible for the cost of
accessing its network. Carrier1 intends to target switchless resellers and, for
those services, Carrier1 will have access costs payable to the originating local
provider, usually the incumbent telephone operator. These costs will vary based
on calling volume and the distance between the caller and Carrier1's point of
presence.
TRANSMISSION COSTS. Initially, Carrier1's transmission costs for voice and
data traffic will consist primarily of leased capacity charges and switch and
router facilities costs. As a result of Carrier1's objective
41
<PAGE>
to enter the market early, its initial European transmission platform consists
of leased capacity. Leased capacity charges are fixed monthly payments based on
capacity provided and are typically higher than a "dark fiber cost level," which
is Carrier1's target cost level and represents the lowest possible per unit
cost. Dark fiber cost level is the per unit cost of high-capacity fiber that has
been laid and readied for use. Dark fiber cost levels can be achieved not only
through owned facilities, but also may be possible through other rights of use
such as multiple investment units, known as "MIUs."
As part of Carrier1's strategy to lower its cost base over time, it will
seek dark fiber cost levels for its entire transmission platform, either through
building, acquiring or swapping capacity. Carrier1 will seek to further minimize
its transmission costs by optimizing the routing of its voice traffic and
increasing volumes on its fixed-cost leased and owned lines, thereby spreading
the allocation of fixed costs over a larger number of voice minutes or larger
volume of data traffic, as applicable. To the extent Carrier1 overestimates
anticipated traffic volume, however, per unit costs will increase. As Carrier1
continues to develop its owned network and relies less on leased capacity, per
unit voice transmission costs will decrease substantially, offset partially by
an increase in depreciation and amortization expense. Carrier1 also expects to
experience declining transmission costs per billable minute or per Mb, as
applicable, as a result of decreasing cost of leased transmission capacity,
increasing availability of more competitively priced indefeasible rights of use
and MIUs and increasing traffic volumes.
VOICE TERMINATION COSTS. Termination costs represent the costs Carrier1 is
required to pay to other carriers from the point of exit from Carrier1's network
to the final point of destination. Generally, at least one-half of the total
costs associated with a call, from receipt to completion, are
termination-related costs. Voice termination costs per unit are generally
variable based on distance, quality, geographical location of the termination
point and the degree of competition in the country in which the call is being
terminated.
If a call is terminated in a city in which Carrier1 has a point of presence
and an interconnection agreement with the national incumbent telephone operator,
the call will be transferred to the public switched telephone network for local
termination. This is the least costly mode of terminating a call. To the extent
incumbent telephone operators deny or delay granting Carrier1 interconnection or
grant it interconnection for insufficient capacity or in undesirable locations,
Carrier1 may incur high termination costs, which could have a material adverse
effect on its ability to compete with carriers that do have interconnection
agreements. If a call is to a location in which Carrier1 does not have a point
of presence, or has a point of presence but does not have an interconnection
agreement giving it access to the public switched telephone network, then the
call must be transferred to, and refiled with, another carrier that has access
to the relevant public network for local termination. Carrier1 pays this carrier
a refile fee for terminating its traffic. Most refilers currently operate out of
London or New York, so that the refiled traffic is rerouted to London or New
York and from there is carried to its termination point. Refile agreements
provide for fluctuating rates with rate change notice periods typically of one
or four weeks. To the extent Carrier1 has to rely heavily on refiling to
terminate certain traffic, Carrier1's margins on such voice traffic will be
materially adversely affected. Carrier1 will seek to reduce its refile costs by
utilizing least cost routing. In those countries where Carrier1 has a point of
presence but does not have an interconnection agreement implemented yet, it has
implemented one or more "resale" agreements whereby a local carrier that has an
interconnection agreement with the incumbent telephone operator "resells" or
shares this interconnection right with Carrier1 for a fee. Termination through
resale agreements is significantly less expensive than through refile agreements
because the traffic does not need to be rerouted to another country, as is done
with refiling. Termination through resale agreements is, however, more expensive
than through interconnection agreements. In countries where it has not been
directly authorized to provide services, Carrier1 will negotiate to obtain
direct operating agreements with correspondent telecommunications operators
where such agreements will result in lower termination costs than might be
possible through refile arrangements. Carrier1 believes its refile and resale
agreements are competitively priced. If Carrier1's traffic volumes are higher
than expected, it may have to divert excess traffic onto another carrier's
network, which would also increase its termination costs. Carrier1 believes,
however, that
42
<PAGE>
it has sufficient capacity and could, if necessary, lease more. In addition, its
technologically advanced daily traffic monitoring capabilities allow Carrier1 to
identify changes in volume and termination cost patterns as they begin to
develop, thereby permitting it to respond in a cost-efficient manner.
Carrier1 believes that its termination costs per unit should decrease as it
extends its network and increases transmission capacity, adds additional
switches and interconnects with more incumbent telephone operators. Carrier1
also believes that continuing liberalization in Europe will lead to decreases in
termination costs as new telecommunications service providers emerge, offering
alternatives to the incumbent telephone operators for local termination, and as
European Union member states implement and enforce regulations requiring
incumbent telephone operators to establish rates which are set on the basis of
forward-looking, long run economic costs that would be incurred by an efficient
provider using advanced technology. There can be no assurance, however,
regarding the extent or timing of such decreases in termination costs.
DATA TERMINATION COSTS. Termination costs represent costs Carrier1 is
required to pay to other Internet backbone providers from the point of exit of
Carrier1's network. Data termination is effected through peering and transit
arrangements. Peering arrangements provide for the exchange of data traffic
free-of-charge. Carrier1 has entered into peering arrangements with several ISPs
in the United States and Europe. There can be no assurance that Carrier1 will be
able to negotiate additional peering arrangements or that it will be able to
terminate traffic on their networks at favorable prices. Under transit
arrangements Carrier1 is required to pay a fee to exchange traffic. That fee has
a variable and a fixed component. The variable component is based on monthly
traffic volumes. The fixed component is based on the minimum Mb amount charged
to Carrier1 by its transit partners. The major United States ISPs require almost
all European ISPs and Internet backbone providers, including Carrier1, to pay a
transit fee to exchange traffic. See "Business--Services--Wholesale Data
Service."
Recently, the Internet services industry has experienced increased merger
and consolidation activity among ISPs and Internet backbone providers. This
activity is likely to increase the concentration of market power of Internet
backbone providers, and may adversely affect Carrier1's ability to obtain
peering arrangements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Carrier1's wholesale strategy allows it to maintain lower selling, general
and administrative expenses than companies providing services to the mass retail
market. Carrier1's selling, general and administrative expenses consist
primarily of personnel costs, information technology costs, office costs,
travel, commissions, billing, professional fees and advertising and promotion
expenses. Carrier1 employs a direct sales force located in the major markets in
which it offers services. To attract and retain a highly qualified sales force,
Carrier1 offers its sales personnel a compensation package emphasizing
performance based commissions and stock options. Carrier1 expects to incur
significant selling and marketing costs in advance of anticipated related
revenue as it continues to expand its operations. Carrier1's selling, general
and administrative expenses are expected to decrease as a percentage of
revenues, however, once it has established its operations in targeted markets
and expanded its customer base.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense includes charges relating to
depreciation of property and equipment, which will consist principally of
equipment (such as switches, multiplexers and routers), investments in
indefeasible rights of use and in multiple investment units, furniture and
equipment. Depreciation and amortization will also include the amortization of
interest capitalized during the construction of the German Network. Carrier1
depreciates its network over periods ranging from 5 to 15 years and amortizes
its intangible assets over a period of 5 years. Carrier1 depreciates its
investments in indefeasible rights of use and in multiple investment units over
their estimated useful lives of not more
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than 15 years. Carrier1 expects depreciation and amortization expense to
increase significantly as Carrier1 expands its owned network, including the
development of the German Network.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
Because Carrier1 commercially introduced its services in September 1998,
Carrier1's management believes that a comparison of results for the three-month
period ended March 31, 1999 to the period from Inception to March 31, 1998 is
not meaningful.
Revenues for the three-month period ended March 31, 1999 were approximately
$12.3 million, primarily relating to voice services. Cost of services for the
three-month period ended March 31, 1999 was approximately $17.0 million. These
costs consisted of operation of the network, leases for transmission capacity,
and termination expenses including refiling.
Depreciation and amortization for the three-month period ended March 31,
1999 was approximately $1.3 million and consisted primarily of depreciation
costs for network equipment, indefeasible rights of use, and other furniture and
equipment. Selling, general and administrative expenses were approximately $3.3
million for the three-month period ended March 31, 1999 and consisted primarily
of personnel costs, information technology costs, office costs, professional
fees and expenses.
Net interest expense for the three-month period ended March 31, 1999 was
approximately $3.2 million. It consisted during this period of approximately
$4.2 million of interest accrued on the notes, less interest income of
approximately $1.0 million. Interest income consists of interest earned from
investing the proceeds of the $60 million dollars invested by funds managed by
Providence and Primus to finance the deployment of Carrier1's network and to
fund start-up operations (the "Equity Investment") and the original offering.
Interest expense increased significantly in this period as compared to the
period from Inception to December 31, 1998 as a result of the issuance of the
notes.
The strengthening of the U.S. dollar to most European currencies in the
first quarter of 1999 resulted in a currency exchange loss of $2.4 million.
PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1998
Carrier1 commercially introduced its services in September 1998. Revenues
for the period from Inception to December 31, 1998 were approximately $2.8
million, primarily relating to voice services. Cost of services for the period
from Inception to December 31, 1998 was approximately $11.7 million. These costs
consisted of operation of the network, leases for transmission capacity, and
termination expenses including refiling.
Depreciation and amortization for the period from Inception to December 31,
1998 was approximately $1.4 million and consisted primarily of depreciation
costs for network equipment, indefeasible rights of use, and other furniture and
equipment. Selling, general and administrative expenses were approximately $9.0
million for the period from Inception to December 31, 1998 and consisted
primarily of start-up expenses, personnel costs, information technology costs,
office costs, professional fees and promotion expenses.
Interest income during the period from Inception to December 31, 1998
consisted of interest earned from investing the proceeds of the issuance of
equity. Interest income totaled approximately $81,000 for the period from
Inception to December 31, 1998. No interest expense was incurred for the period
from Inception to December 31, 1998.
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LIQUIDITY AND CAPITAL RESOURCES
From Inception through December 31, 1998, Carrier1 financed its operations
through equity contributions. During the three-month period ended March 31,
1999, Carrier1 financed its operations through additional equity contributions
and with the proceeds of the original offering. The further development of
Carrier1's business and deployment of its network will require significant
capital to fund capital expenditures, working capital, cash flow deficits and
any debt service. Carrier1's principal capital expenditure requirements include
the expansion of its network, including construction of the German Network and
the acquisition of switches, multiplexers, routers and transmission equipment.
Additional capital will be required for office space, switch site buildout and
corporate overhead and personnel.
Carrier1 estimates it will incur capital expenditures of approximately
$200.0 million from Inception through 1999. By the end of 1999, Carrier1 plans
to complete construction of the German Network and to purchase additional
switches, multiplexers and routers. As of December 31, 1998, Carrier1 had
incurred capital expenditures of approximately $37.2 million since Inception,
including amounts related to the German Network. As of March 31, 1999 Carrier1
had incurred capital expenditures of approximately $11.6 million since December
31, 1998, including amounts related to the German Network. Carrier1's aggregate
funding requirements include requirements to fund capital expenditures, working
capital, debt service and cash flow deficits. Carrier1 estimates, based on its
current business plan, that its aggregate funding requirements for the
deployment and operation of its network will total approximately $280.0 million
through 1999.
As of December 31, 1998 funds managed by Providence and Primus had invested
a total of approximately $37.8 million to fund start-up operations. As of
February 19, 1999, such funds had completed their aggregate equity investment
totaling $60 million in equity contributions to Carrier1. On February 19, 1999
Carrier1 completed the original offering. Net proceeds from the original
offering were $242 million (based on the February 19, 1999, conversion rate of
[Euro] 0.90316 per $1.00), after deducting discounts and commissions and
expenses of the original offering. Approximately $49.2 million of the net
proceeds and [Euro]26.9 million ($29.8 million) of the net proceeds were used to
purchase a portfolio of government securities for the benefit of the holders of
the respective series of notes.
Carrier1 also has negotiated a financing facility with Nortel Networks Inc.,
a major equipment supplier. The Nortel facility will allow Carrier1 to borrow
money to purchase network equipment from Nortel and, in limited amounts, other
suppliers. Under this facility, Carrier1 may borrow up to $75,000,000 or the
actual amount paid or payable by Carrier1 for network equipment supplied prior
to December 31, 1999, whichever is less. Advances under the facility will bear
interest at a floating rate tied to LIBOR, and interest payments will be payable
periodically from the date of the relevant advance. At Carrier1's option, it may
pledge assets to secure the Nortel facility and receive a lower interest rate.
Carrier1 may not borrow additional funds under the Nortel facility after
December 31, 2000. Advances are to be repaid in sixteen equal quarterly
installments beginning March 31, 2001. As of June 25, 1999, Carrier1 had not
drawn any amounts under the Nortel facility.
Carrier1 believes, based on its current business plan, that the net proceeds
from the original offering and the Equity Investment, together with either (1)
proceeds of possible sales of dark fiber on the German Network, (2) proceeds
from an accounts receivable facility, if completed, or (3) proceeds from one or
more equipment financing facilities, or a combination of these sources, will be
sufficient to fund the expansion of Carrier1's business as planned, and to fund
operations until Carrier1 achieves positive cash flow from operations. Carrier1
expects to continue to generate net losses and negative cash flow as it expands
its operations and does not expect to generate positive cash flow from operating
activities through 2000. Whether or when Carrier1 will generate positive cash
flow from operating activities will depend on a number of financial,
competitive, regulatory, technical and other factors. For example, Carrier1's
net losses and negative cash flow from operating activities are likely to
continue beyond that time if:
- Carrier1 decides to build extensions to its network because it cannot
otherwise reduce its transmission costs;
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- Carrier1 does not establish a customer base that generates sufficient
revenue;
- Carrier1 does not reduce its termination costs by negotiating competitive
interconnection rates and peering arrangements as it expands its network;
- prices decline faster than Carrier1 has anticipated;
- Carrier1 does not attract and retain qualified personnel; or
- Carrier1 does not obtain necessary governmental approvals and operator
licenses.
Carrier1's ability to achieve these objectives is subject to financial,
competitive, regulatory, technical and other factors, many of which are beyond
Carrier1's control. There can be no assurance that Carrier1 will achieve
profitability or positive cash flow.
The actual amount and timing of Carrier1's future capital requirements may
differ materially from Carrier1's estimates as a result of, among other things,
the demand for Carrier1's services and regulatory, technological and competitive
developments. Sources of additional financing, if available on acceptable terms
or at all, may include commercial bank borrowings, equipment financing or
accounts receivable financing, or the private or public sale of equity or debt
securities.
On February 18, 1999, Carrier1 entered into an agreement to purchase fiber
optic cable for the German Network during 1999 for $20.3 million plus
value-added tax. The seller will either provide financing for the entire amount
of the purchase with the contract value to be repaid over three years in equal
annual installments beginning on December 31, 2001 together with interest, or
will allow Carrier1 to make payment in full by December 31, 2000 without
interest. The loan, if provided, will bear interest at the U.S. dollar Libor
rate plus 4% per annum. If a loan is not provided, the seller is obligated to
provide certain additional equipment to Carrier1 without charge.
FOREIGN CURRENCY
Carrier1's reporting currency is the U.S. dollar, and interest and principal
payments on the notes will be in U.S. dollars and Euro. However, the majority of
Carrier1's revenues and operating costs will be derived from sales and
operations outside the United States and will be incurred in a number of
different currencies. Accordingly, fluctuations in currency exchange rates may
have a significant effect on Carrier1's results of operations and balance sheet
data. The Euro has eliminated exchange rate fluctuations among the 11
participating European Union member states. Adoption of the Euro has therefore
reduced the degree of intra-Western European currency fluctuations to which
Carrier1 is subject. Carrier1 will, however, continue to incur revenues and
operating costs in non-Euro denominated currencies, such as pounds sterling.
Although Carrier1 does not currently engage in exchange rate hedging strategies,
it may attempt to limit foreign exchange exposure by purchasing forward foreign
exchange contracts or engaging in other similar hedging strategies. Any
reversion from the Euro currency system to a system of individual country
floating currencies could subject us to increased currency exchange risk. We
have selected our computer and operational systems in an attempt to ensure that
our ability to transact business will not be impaired by complications resulting
from the introduction of the Euro. While we believe that our systems have not
been adversely impacted by the Euro conversion, there can be no assurance that
we will be able to avoid the accounting, billing and logistical difficulties
that might result from the introduction of the Euro. In addition, there can be
no assurance that our third-party suppliers and customers will be able to
successfully implement the necessary protocols.
INFLATION
Carrier1 does not believe that inflation will have a material effect on its
results of operations.
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NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. This standard is effective
for Carrier1's fiscal year ending December 31, 2000. Management has not yet
completed its analysis of this new accounting standard and, therefore, has not
determined whether this standard will have a material effect on Carrier1's
financial statements.
IMPACT OF YEAR 2000
"Year 2000" generally refers to the various problems that may result from
the improper processing of dates and date-sensitive calculations by computers
and other equipment as a result of computer hardware and software using two
digits, rather than four digits, to define the applicable year. If a computer
program or other piece of equipment fails to properly process dates including
and after the Year 2000, date-sensitive calculations may be inaccurate or a
major system failure may occur. Any such miscalculations or system failures may
cause disruptions in operations including, among other things, a temporary
inability to process transactions, send invoices or engage in other routine
business activities. A failure of Carrier1's computer systems could have a
material adverse effect on its operations, including its ability to make
payments on the notes.
STATE OF READINESS
As Carrier1 has developed and implemented its network, operational support
systems, and computer systems, it has conducted an evaluation for Year 2000
compliance. Based on such evaluation, Carrier1 believes that its information
technology ("IT") systems and its non-IT systems, such as its network
transmission equipment and the Nortel and Cisco network operating systems, are
Year 2000 compliant. In addition, Carrier1 has received written assurances from
Cisco, Nortel, and International Computers Limited that the systems they have
provided Carrier1 are Year 2000 compliant. Carrier1, therefore, does not expect
to have to remedy any of its IT or non-IT systems to be Year 2000 compliant.
Carrier1 does not know whether the systems of its vendors, service or capacity
suppliers or customers are or will be Year 2000 compliant. Carrier1 is in the
process of contacting its principal vendors, service or capacity suppliers and
customers and evaluating these parties' efforts to prepare for the Year 2000 and
the degree of its corresponding exposure if such efforts are inadequate.
Carrier1 expects to complete such evaluation by September, 1999.
RISKS OF YEAR 2000 ISSUES
Any failure of the computer systems of Carrier1's vendors, service or
capacity suppliers or customers as a result of not being Year 2000 compliant
could materially and adversely affect Carrier1's ability to operate its network
and retain customers. As noted above, Carrier1 is in the process of contacting
its principal vendors, service or capacity suppliers and customers and
evaluating Carrier1's risks associated with their noncompliance.
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CONTINGENCY PLANS AND COSTS TO ADDRESS YEAR 2000 ISSUES
Carrier1 is still in the process of developing plans, including a
contingency plan to assess the likelihood of and address worst-case scenarios,
to deal with potential Year 2000 problems caused by a failure of its vendors,
service or capacity suppliers or customers to be Year 2000 compliant. Soon after
it completes its on-going evaluation of the likelihood of such a failure,
Carrier1 expects to substantially complete such plans.
Carrier1 has not incurred any significant costs associated with Year 2000
compliance and does not anticipate incurring significant costs in the future.
Carrier1 may, however, have to bear costs and expenses in connection with the
failure of its vendors, suppliers or customers to be Year 2000 compliant on a
timely basis. Because no material Year 2000 issues have yet been identified in
connection with external sources, Carrier1 cannot reasonably estimate costs
which may be required for remediation or for implementation of contingency
plans.
RECENT DEVELOPMENTS
In the second quarter of 1999, Carrier1 began and completed negotiating
definitive documentation for a vendor financing with Nortel and paid Nortel
$27.9 million for equipment delivered prior to April 16, 1999. Also in the
second quarter, Carrier1 entered into several agreements for the exchange of
fiber on various routes. See Note 10 to the Unaudited Consolidated Financial
Statements presented elsewhere in this prospectus.
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BUSINESS
OVERVIEW
Carrier1 is a rapidly expanding European facilities-based provider of long
distance voice and Internet Protocol data telecommunications services. Carrier1
offers these services on a wholesale basis primarily to competitive fixed-line
operators, other carriers, wireless operators, ISPs, resellers and
multi-national corporations. In March 1998, Carrier1's experienced management
team and Providence Equity Partners formed Carrier1 to capitalize on the
significant voice and data opportunities that are emerging for facilities-based
carriers in Europe's rapidly liberalizing telecommunications markets. By
September 1998, Carrier1 had deployed its initial network and commenced selling
wholesale services. As of December 31, 1998, Carrier1 had executed 48 contracts
with voice customers and 17 contracts with data customers. Also in December
1998, Carrier1 signed a contract with one of the largest telecommunications
companies in Germany, and it expects to carry a substantial portion of this
operator's international traffic. This contract has had a significant impact on
Carrier1's traffic volumes since its recent implementation. As of March 31,
1999, we had executed an additional 31 contracts with voice customers and an
additional 18 contracts with data customers.
Carrier1 is developing an extensive city-to-city European network linking
key population centers. Carrier1 intends to continue rapidly expanding this
network in a cost-effective manner to serve the needs of its existing and
potential customers. Carrier1 believes that its network will allow it to provide
and price its services in Europe on a city-to-city basis without regard to
national borders. This provisioning and pricing structure will put Carrier1 at
the forefront of a shift beginning to occur in the European telecommunications
market away from services and pricing that distinguish between international and
national long distance. As of May 12, 1999, Carrier1 has installed carrier-grade
voice switches and data routers in Amsterdam, Dusseldorf, Frankfurt, London, New
York, Paris, Vienna and Zurich. Carrier1 has a data router in Geneva. By the end
of 1999, Carrier1 expects to have installed voice switches or multiplexers and
data routers and to be providing long distance voice and data services in 21
cities in the following countries: Austria, Belgium, Denmark, Germany, Finland,
France, Ireland, Italy, The Netherlands, Norway, Sweden, Switzerland, the United
Kingdom and the United States.
To rapidly deploy its network and offer services Carrier1 is initially
leasing its European transmission capacity. However, Carrier1 has entered into a
development agreement to build a 2,300 kilometer fiber network in Germany with
Viatel and Metromedia. This network will connect 14 principal cities and pass a
number of other major cities. It will also provide fiber capacity in regions
Carrier1 believes, based on its management's experience in the European
telecommunications markets, are not covered or are underserved by existing and
announced fiber networks. The important advantages of the German Network are:
- DIRECT OWNERSHIP. Carrier1 will own its own cable subduct and access
points. Carrier1's subduct will contain 72 fiber strands.
- COST. By building with Viatel and Metromedia, Carrier1 shares the fixed
costs of construction and therefore acquires fiber capacity at a
significantly lower cost than if it constructed the network itself.
- FLEXIBILITY. Carrier1 expects that the demand for fiber capacity in the
regions covered by the German Network will be sufficient to permit it to
swap excess capacity for fiber capacity on other networks in its target
markets. Carrier1 would thereby be able to increase the amount of owned
and controlled capacity at a lower cost.
Carrier1 expects that construction of the German Network will be completed
by the end of 1999 and that some segments will be operational in the third
quarter of 1999. Carrier1's share of the development costs will be up to
approximately $82 million, including the fiber deployed.
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Stig Johansson, Chief Executive Officer, and Carrier1's management team have
extensive experience in European telecommunications markets and longstanding
relationships with European wholesale customers and suppliers. Mr. Johansson was
formerly the President of Unisource Carrier Services AG, a large European
wholesale carrier of international traffic. Unisource Carrier Services carried
over 400 million minutes of voice traffic in 1997, the large majority of which
was carried for wholesale customers in the same markets that Carrier1 is
addressing. Carrier1's senior management comes from Unisource Carrier Services,
ACC Corp., AT&T-Unisource Communications Services, Telia Norge AS, British
Telecom and AT&T. Mr. Johansson and others in management have also had
significant experience with start-up ventures. See "Management." Carrier1
believes that management's experience and long-standing customer relationships
have been key to its launch of operations approximately six months after its
founding and contracting with a total of 65 customers through December 31, 1998.
Carrier1 International is a holding company and renders its services
indirectly through subsidiaries primarily located in various Western European
countries. Its registered office is located at L-8009, Strassen, Route d'Arlon
3, Luxembourg. Executive offices of Carrier1 International GmbH, its principal
management services subsidiary, are located at Militarstrasse 36, CH-8004
Zurich, Switzerland. Its phone number is 011-41-1-297-2600.
EUROPEAN VOICE AND DATA MARKET
OVERVIEW
In 1997, according to TeleGeography 1999, the European international long
distance market for voice services was the largest in the world, with
approximately 35 billion minutes of use. According to TeleGeography 1999,
Europe's volume of international minutes grew approximately 12% from 1996 to
1997. TeleGeography 1999 projects that global international telecommunications
traffic volume will grow at a compound annual growth rate of 12% to 18% from
1997 to 2001.
International Data Corporation, as reported by IDCNet, estimates the
European wholesale and retail market for all Internet services was $1.9 billion
in revenue for 1997 and projects that as demand for these services grows,
industry revenues will grow at a compound annual growth rate of approximately
40% to $7.3 billion in 2001, driven primarily by rapid growth in the number of
European Internet users and corresponding demand for bandwidth.
Carrier1 believes that key factors fueling the ongoing growth in the
European long distance telecommunications market include
- significant recent regulatory changes in the international and national
long distance market, resulting in the entry of new telecommunications
service providers,
- increasing demand for data services and
- technological advances, which have substantially increased the
transmission capacity and reduced the cost of fiber optic capacity.
LIBERALIZATION AND NEEDS OF NEW ENTRANTS
The European telecommunications market has historically been dominated by
incumbent telephone operators that have owned and controlled circuits
exclusively within their national boundaries. Cross-border traffic is passed
from one incumbent telephone operator to another at national borders. Tariffs
for this cross-border traffic are determined by a series of bilateral settlement
agreements between incumbent telephone operators known as the accounting rate
mechanism. This system has historically kept the price of cross-border calls in
Europe at levels significantly higher than the underlying cost of transporting
and terminating the calls.
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Liberalization of the European market began in the United Kingdom in 1993.
In March 1996, the European Commission adopted the "Full Competition Directive,"
requiring the complete liberalization of all telecommunications services in most
European Union member states by January 1, 1998. In effect, incumbent telephone
operators are now required to provide interconnection to their network, for both
transmission and termination, to all carriers at certain benchmark prices, and
may not discriminate among carriers. Carrier1 expects that the actual
implementation of the Full Competition Directive in the various European Union
member states will be a gradual process. However, the market liberalization that
has taken place thus far (both within the European Union and in Switzerland and
Norway) has permitted the entry of new competitors seeking to provide a wide
array of international and national telecommunications services. According to
TeleGeography 1999, the number of authorized international carriers in the
United Kingdom was 144 in July 1998, compared to 35 in July 1995, and the number
of authorized international carriers in Germany was 32 in July 1998, compared to
1 in July 1995. Based on its management's understanding of events that occurred
in the United States after liberalization of the U.S. telecommunications
industry, Carrier1 believes that the increased competition triggered by European
market liberalization will lead to further decreases in prices, increases in
international and national long distance traffic, a growing number of new
entrants in the market, a significant decrease in the market share of incumbent
telephone operators over time, and increasing demand for the provision of a
greater number of services at a higher level of quality.
Another effect of liberalization has been the deployment of European
networks by certain new entrants such as Carrier1, second and third operators,
and infrastructure providers. Cross-border transmission capacity allows new
entrants to offer European telecommunications services priced on a city-to-city
basis without regard to national borders and more closely based on actual costs.
New entrants' prices are lower than the accounting rate mechanism tariffs to
which the incumbent telephone operators adhere. Although an incumbent telephone
operator has low transmission costs within its own country's borders, it cannot
compete with the lower international prices charged by new entrants without
straining the accounting rate mechanism system which has traditionally been an
important source of revenues for the incumbent telephone operators. Furthermore,
as long as an incumbent telephone operator's counterparts adhere to the
accounting rate mechanism, a reduction by one incumbent telephone operator of
its long distance prices may not be matched by a reduction in its termination
costs with other incumbent telephone operators and would therefore have a
negative impact on its margins. The incumbent telephone operators are also
burdened by high overhead costs which are difficult to reduce as quickly as
prices are declining in competitive markets.
Based on its management's experience in European telecommunications markets,
Carrier1 believes there is an insufficient supply of cost-effective,
cross-border voice services to meet the increasing demand of new entrants, many
of whom do not have network facilities or only have a locally based network.
Carrier1 believes the incumbent telephone operators are not meeting this demand
for a number of reasons:
- they lack cross-border capabilities and charge high access costs, based on
the accounting rate mechanism system,
- their focus has traditionally been on the retail sector,
- they do not consider it in their short term interest to provide
cost-effective wholesale services to competitors, and
- the billing, support and back-office systems of the incumbent telephone
operators are not designed to address adequately the particular needs of
new entrants.
As a result, there is an increasing demand by new entrants for alternative
providers of lower cost, high-quality, European and transatlantic voice
services. Carrier1 believes the deficiencies in the supply of cross-border data
services are even more pronounced than those in the supply of voice services.
The
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incumbent telephone operators' networks are oriented towards voice traffic and
are not designed to have the flexibility to provide the amounts of capacity that
an ISP is likely to require given the current and projected growth in the volume
of European Internet-related traffic. Therefore, ISPs and other data service
providers operating in the European market are seeking alternative providers of
European and transatlantic data services.
INCREASING DEMAND FOR DATA SERVICES
The Internet is a complex, interconnected collection of telecommunications
networks. These networks all use a common suite of protocols, known as TCP/IP,
that facilitate communication with each other. End users connect to the Internet
through dial-up or permanent connections to a network owned by an ISP. ISP
networks are connected to the Internet at network access points or by dedicated
connections to other ISP networks. Each network access point is connected to
other network access points via high capacity telecommunications lines or
backbone facilities. Telecommunications carriers provide the dedicated lines
connecting the ISPs' networks to each other and to the network access points, as
well as the backbone between the network access points. The provision of these
services by these carriers comprises wholesale data services.
The European Internet market is, according to International Data
Corporation, as reported by IDCNet, several years behind the market in the
United States in terms of overall penetration of data services. Although there
can be no assurance that trends in Europe will follow those in the United
States, Carrier1's management believes that the historical trends in Internet
growth in the United States market with respect to web-users, the number of
Internet host computers through which data services are provided ("hosts") and
backbone capabilities are broadly indicative of what can be expected to occur in
Europe.
International Data Corporation, as reported by IDCNet, estimates that the
penetration rate of web users in the United States was approximately 12% of the
U.S. population in 1997 and is expected to increase to 38% of the population by
2001. The penetration rate of web users in Western Europe varies across the
region but was estimated on average to be 4% of the population of Western Europe
in 1997. International Data Corporation, as reported by IDCNet, forecasts that
this will more than triple to 15% by 2001. From June 1992 to June 1998,
according to RIPE NCC (the Official Europe Internet Registry), the number of
hosts in Europe increased from approximately 200,000 to 6.8 million,
representing a compound annual growth rate of 80%.
As the number of Internet web users and hosts increases, demand for backbone
capacity to support growing Internet use is expected to increase
correspondingly. Carrier1 expects European capacity will need to be expanded
significantly over the next few years as European data traffic continues to
grow. As the supply of backbone capacity in Europe increases, the prices of
transmission capacity are expected to decrease significantly. Carrier1 expects
such price decreases will in turn fuel further increases in data service demand.
TECHNOLOGICAL ADVANCES
Advances in technology are greatly increasing the transmission carrying
capacity, or bandwidth, of fiber optic cables, while significantly reducing the
incremental cost of this increased capacity. Although building infrastructure
still requires substantial capital expenditures, this increased capacity at
reduced cost made possible by new technology, together with the market
opportunities created by liberalization and growth in data demand, are
encouraging non-incumbent telecommunications companies to build high-quality
European networks. Carrier1 expects that completion of these alternative
cross-border networks will result in increased amounts of high-quality, lower
cost network capacity becoming available through indefeasible rights of use or
long-term leases.
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COMPETITIVE STRENGTHS
Carrier1 believes that a number of factors give it a competitive advantage
in the European long distance voice and data telecommunications markets:
- EXPERIENCED EUROPEAN MANAGEMENT with many years' experience in the largest
European telecommunications markets and with strong wholesale customer
relationships. Carrier1 has a European perspective and, it believes, a
strong understanding of the European telecommunications markets.
- A FOCUSED WHOLESALE MARKETING STRATEGY, which allows Carrier1 to service
new entrants without competing for their retail customers and to operate
with less overhead than carriers with retail operations.
- PRICING that disregards the existence of national borders and gives
Carrier1 more flexibility than the incumbent telephone operators to
compete on the basis of price.
- ADVANCED INFORMATION AND CONTROL SYSTEMS that allow Carrier1 to optimize
pricing and network use on a real-time basis.
- PROVISION OF HIGH-QUALITY VOICE AND DATA SERVICES expected by European
customers. Carrier1 believes that its guarantees of high performance
levels distinguish it from its competitors.
- DELIVERY OF SUPERIOR CUSTOMER SUPPORT exceeding that provided in Europe
today. Carrier1 offers rapid implementation and response times and locally
based customer-oriented sales and support personnel.
- LACK OF AFFILIATION WITH AN INCUMBENT TELEPHONE OPERATOR, which allows
Carrier1 complete flexibility to market its services broadly to its target
customers, including carriers who compete with incumbent telephone
operators.
BUSINESS STRATEGY
Carrier1's objective is to become a leading European wholesale provider of
high quality long distance voice and data services, by capitalizing on the
rapidly increasing demand for city-to-city European voice and data services. The
key elements of Carrier1's strategy are:
- TARGET WHOLESALE MARKETS. Carrier1 offers wholesale services primarily to
competitive fixed-line operators, other carriers, wireless operators,
ISPs, resellers and multi-national corporations. In particular, Carrier1
focuses its marketing efforts on competitive retail operators who lack
international infrastructure. Based on its management's experience in
European telecommunications markets, Carrier1 believes these new entrants
prefer an independent supplier of wholesale services to an incumbent
telephone operator or other supplier with which they compete directly.
Concentrating on the wholesale market allows Carrier1 to operate with less
overhead than other carriers with mass retail operations and to implement
operational support systems tailored to meet the needs of wholesale
customers. By focusing on the wholesale sector and making its main
business the selling of voice and data services, Carrier1 will take
advantage of its management's strong market-oriented skills, first-hand
understanding of the European telecommunications markets and long-standing
wholesale customer relationships.
- FOCUS ON CUSTOMER NEEDS. Carrier1 believes that both high quality of
service and strong customer support are essential to capitalize
successfully on market opportunities.
QUALITY OF SERVICE: Carrier1 believes that quality of service is critical
to obtaining and retaining customers. Carrier1's technologically advanced
voice and data network and network management and information systems
allow it to offer its services at guaranteed minimum levels of order
implementation, response and repair time, and at a 99.9% network
availability level. Based on its
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management's experience in telecommunications markets, Carrier1 believes
no other carrier in Europe offers a better minimum service level for
voice or data services. Because it owns its switches, multiplexers and
routers, which are key components of its network, Carrier1 can control
the quality and breadth of its service offerings.
SUPERIOR CUSTOMER SUPPORT: Based on its management's experience in
telecommunications markets, Carrier1 believes that customer support
levels in the wholesale telecommunications market in Europe are generally
lower than those in the United States. Carrier1 has designed its systems
to provide a level of customer support significantly higher than that
generally offered in the wholesale market in Europe. Key features of
these systems include: (1) decentralized sales, installation and basic
support, facilitating quick response to customer needs, (2) a help desk
operating 24 hours a day, 365 days a year, (3) on-line order management
and provisioning, traffic reports, fault reports and repair information
and (4) on-line customized billing.
- RAPID, COST-EFFECTIVE CITY-TO-CITY NETWORK DEPLOYMENT. Carrier1 has
developed a cross-border network linking principal cities of Western
Europe and will continue to broaden the range of countries covered by the
network and deepen the extent of the network within particular countries.
To capitalize on its early entry into the market and to rapidly expand its
presence, Carrier1 is pursuing an aggressive timetable for extending the
scope of its network, in part by leasing capacity and outsourcing certain
functions. Carrier1's longer term goal is to own or control key elements
of its network and to assume control of key outsourced functions. To
establish points of presence rapidly and cost-effectively in selected new
markets, Carrier1 is initially using multiplexers. Multiplexers are less
costly and easier to install than switches, enhance Carrier1's flexibility
and service quality and help to reduce its termination costs. As traffic
increases, Carrier1 may replace multiplexers with switches and redeploy
these multiplexers in new markets. Carrier1's city-to-city network will
(1) allow it to price its services within Western Europe without regard to
national borders, (2) bring it closer to a greater number of customers and
(3) reduce its termination costs.
- REDUCE TRANSMISSION COSTS. A key part of Carrier1's strategy is to reduce
the costs of its transmission platform. Carrier1 intends to reduce its
transmission costs by continually evaluating whether to build, buy or
lease capacity or swap excess capacity. While Carrier1 currently holds two
transatlantic indefeasible rights of use, Carrier1 is currently leasing
the rest of its transmission capacity because doing so enabled Carrier1 to
commence offering services in its target markets rapidly. In addition,
construction of new capacity has been announced in many of Carrier1's
target markets and, based on its management's knowledge of the European
telecommunications markets, Carrier1 believes the cost of acquiring
capacity in those regions is decreasing and will continue to decrease. The
German Network illustrates an opportunity where Carrier1's management
believes it is more cost effective to build capacity. As demand for voice
and data services in Europe increases and new networks are constructed,
Carrier1 believes there will be significant opportunities to add new and
replace existing transmission capacity at lower unit cost. Carrier1 also
intends, as soon as proven technology is commercially available, to
migrate to a single, data-based transmission platform for both voice and
data services. This platform would permit Carrier1 to increase the cost
effectiveness of its operations through more efficient use of its
transmission capacity.
- INTRODUCE NEW VALUE-ADDED SERVICES. Carrier1 intends to expand its
addressable market to include additional wholesale customers, such as
switchless resellers, by offering the value-added services they require.
These services include capabilities for switched access, toll-free
services and prepaid phone cards. Carrier1 has begun to offer these
wholesale capabilities in selected countries.
- REDUCE COSTS THROUGH INTERCONNECTION AGREEMENTS AND PEERING. By
establishing interconnection arrangements with incumbent telephone
operators in liberalized markets and direct operating agreements with
incumbent telephone operators in emerging markets, Carrier1 can keep its
costs of terminating calls lower and exercise greater control over quality
and transmission capacity than it
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can using refile or resale agreements. Similarly, entering into additional
peering agreements will minimize the cost of terminating Carrier1's data
traffic.
SERVICES
Carrier1 is focusing on providing long distance voice and data services on a
wholesale basis at the high level of quality expected by European customers. It
provides these services primarily to competitive fixed-line operators, other
carriers, wireless network operators, ISPs, resellers and multi-national
corporations. In September 1998, Carrier1 launched its European and
transatlantic international long distance voice and data services. It began
providing national long distance services in the first half of 1999 inside the
United Kingdom and Germany. Carrier1 intends, by the end of 1999, to be a
broadly based European provider of voice and data services, able to provide and
price its services on a city-to-city basis without regard to national borders.
Carrier1 intends to provide in the future other wholesale telecommunications
services, such as managed bandwidth and voice-over-IP (voice traffic transmitted
over a data-based network) services.
WHOLESALE VOICE SERVICE
Carrier1's wholesale voice service involves city-to-city transport from
Carrier1's network points of presence located in strategic European cities and
New York for termination anywhere in the world. Carrier1 terminates calls either
through interconnection or direct operating agreements with the relevant
national incumbent telephone operator or through refile or resale agreements
with other carriers that have interconnection agreements in place with that
incumbent. When Carrier1 does use refile or resale agreements to terminate
traffic it seeks to do so with carriers who provide voice service comparable in
quality to Carrier1's. Carrier1's customers generally will arrange for
transmission of their traffic to one of Carrier1's points of presence at their
own cost, although Carrier1 may provide service from the customer's site if
traffic volume is sufficient. Carrier1's voice service contracts guarantee 99.9%
availability on the network and certain minimum connection response and repair
times.
WHOLESALE DATA SERVICE
Carrier1 seeks to be a major European Internet backbone provider. It offers
two types of wholesale data transport service, "Global Transit Services" and
"Internet Exchange Connect Services."
GLOBAL TRANSIT SERVICE. Carrier1's Global Transit Service provides
customers with high-speed, high-quality connectivity to Internet domain
addresses world-wide. This backbone service interconnects Carrier1's customers
with selected Internet exchanges and other international Internet backbone
providers. Customers connected to the Global Transit Service backbone have
any-to-any connectivity geared to providing the best Internet reach and
connectivity. Although Carrier1 anticipates that most of its data customers will
bring their traffic to Carrier1's routers, Carrier1 will consider, on a case by
case basis, alternative arrangements.
Carrier1 offers two levels of Global Transit Service: "Premium" and "Basic."
Both packages guarantee certain minimum connection, response and repair times.
The Premium Transit package guarantees certain additional performance parameters
and will be given priority within the network. A Premium Transit user's
guaranteed service levels include round trip packet delay of less than 100
milliseconds, packet loss of less than 0.2%, 99.9% availability on Carrier1's
network and the highest level of traffic prioritization. At peak traffic hours,
the Premium user's traffic has priority over the Basic user's traffic. Carrier1
has designed its network, however, to minimize the likelihood of congestion
requiring such prioritization of traffic. Both the Basic and Premium packages
offer customers newsfeed services and a backup to the customer's primary
Internet address.
Carrier1's Global Transit Service is interconnected in Europe to Ebone, a
subsidiary of Hermes Europe RailTel B.V. ("Hermes"), that has what Carrier1's
management believes is a large European
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customer base. Carrier1 initially will pay a transit fee for access to the Ebone
Internet backbone. Carrier1 will also actively seek to enter into peering
arrangements with smaller European backbone providers. As its volume of data
traffic increases, Carrier1 expects it will be in a position to negotiate
peering with Ebone and other major European backbone providers. In the United
States, where almost all European backbone providers must pay to access the
backbones of the major United States Internet backbone providers, Carrier1 has
transit agreements with UUNet Technologies, Inc., an MCI WorldCom subsidiary
("UUNet"), and GTE Internetworking, a unit of GTE Corporation. In the United
States, Carrier1 has peering arrangements with Epoch Networks and PSINet. In
Europe, Carrier1 has peering arrangements with a number of ISPs. Based on its
management's knowledge of the European Internet market, Carrier1 believes its
Global Transit Service offers connectivity to a greater number of United States
Internet backbone providers than other European data services. Carrier1 will
also interconnect Global Transit Service customers to each other, which, as the
customer base of its backbone grows, will increase the attractiveness to
customers of Carrier1's Internet backbone.
INTERNET EXCHANGE CONNECT SERVICE. Carrier1's Internet Exchange Connect
Service (the "IX Connect") is a point-to-point option for customers who want to
transit solely to a specific Internet exchange or to a specific partner. It
offers one-to-one connectivity to a select number of destinations through main
Internet exchanges in Europe and the United States. Carrier1 currently offers IX
Connect connectivity to LINX in London, AMS-IX in Amsterdam, DE-CIX in
Frankfurt, CIPX in Geneva, PARIX in Paris and several Internet backbone
providers in New York. As its network expands, Carrier1 expects to offer
connectivity to additional network access points. Based on its management's
knowledge of the European Internet market, Carrier1 believes it is the only
European data service provider currently offering this type of service. The
service is targeted to large ISPs who prefer to organize their own presence and
peerings in the key Internet exchanges for technical or commercial reasons. The
principal guaranteed parameters of IX Connect are dedicated reserved capacity,
access speed ranging from 2 Mb to 155 Mb and the announcement of the customer's
Internet domain at the remote location. Carrier1 will also guarantee certain
minimum connection, response and repair times.
A large number of customers are significant to Carrier1's Internet backbone
because (1) it increases the cost-efficient use of the network by lowering per
unit costs, (2) it facilitates obtaining lower per unit transit fees or peering
with other ISPs and (3) it augments the value of the backbone which, in turn,
draws more customers.
Both types of data services include a centralized help desk and network
management on a 24-hours-a-day, 365-days-a-year basis, Web site reporting and
service information, on-line statistics per customer on a secure basis and Web
site diagnostic tools.
OTHER SERVICES
Carrier1 has started to introduce managed bandwidth and data services.
Carrier1 intends to introduce other new value-added services, as described above
under "--Business Strategy."
Carrier1 also intends to offer Voice-over-IP ("VoIP"), or voice traffic
transmitted over a data-based network. Carrier1 plans, after a trial phase
expected to be completed by mid-1999, to offer VoIP to data customers that, for
example, wish to offer personal computer-to-phone connectivity to their end
users. Carrier1 also plans to offer other value-added data services, such as
server co-location facilities for its current and future customers.
As Carrier1 extends its network and adds transmission capacity, it expects
that it will be able to sell excess bandwidth.
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NETWORK
Carrier1 believes it is critical to own or control key elements of its
network in order to become a high-quality, low-cost provider. Carrier1 is
following a flexible, phased approach to deploying its network that will permit
it to optimize the use of its network and take advantage of low-cost
opportunities for expanding the network. Carrier1 has commenced operations
primarily on a leased fiber optic transmission platform to enable its early
entry into the market. Over time, Carrier1 will expand its network in a phased
approach, adding capacity to meet expected increases in demand. To reduce its
cost base, however, Carrier1 will seek to obtain additional transmission
capacity at dark fiber cost levels, either through building new capacity,
acquiring capacity through purchases or swaps of excess capacity or leasing
capacity. In all cases, Carrier1 intends to own its switches and routers.
The table below sets forth as of May 12, 1999, the location of each switch,
multiplexer and router owned by Carrier1 and in service, and the location and
currently expected in-service dates of switches, multiplexers and routers
planned to be installed through the end of 1999. However, the timing, location
and number of switches, multiplexers and routers may change depending on changes
in customer demand or regulatory conditions in any particular jurisdiction, or
the availability of a single data-based transmission platform.
<TABLE>
<CAPTION>
INSTALLED NETWORK COMPONENTS (AS OF MAY 12, 1999)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VOICE DATA
- ------------------------------------------------------- ---------------------------
<CAPTION>
SWITCHES MULTIPLEXERS ROUTERS
- -------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Amsterdam Geneva Amsterdam
Dusseldorf Dusseldorf
Frankfurt Frankfurt
London Geneva
New York London
Paris New York
Vienna Paris
Zurich Vienna
Zurich
<CAPTION>
PLANNED NETWORK INSTALLATIONS BY YEAR END 1999 (AS OF MAY 12, 1999)
- ------------------------------------------------------------------------------------
VOICE DATA
- ------------------------------------------------------- ---------------------------
SWITCHES MULTIPLEXERS ROUTERS
- -------------------------- --------------------------- ---------------------------
EXPECTED EXPECTED EXPECTED
IN-SERVICE IN-SERVICE IN-SERVICE
LOCATION DATE LOCATION DATE LOCATION DATE
- ------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Berlin 2Q '99 Cologne 3Q '99 Berlin 2Q '99
Hamburg 2Q '99 Copenhagen 3Q '99 Brussels 2Q '99
Brussels 3Q '99 Dublin 3Q '99 Hamburg 2Q '99
Manchester 3Q '99 Stuttgart 3Q '99 Milan 3Q '99
Milan 3Q '99 Helsinki 4Q '99 Cologne 3Q '99
Stockholm 3Q '99 Leipzig 4Q '99 Copenhagen 3Q '99
Munich 4Q '99 Dublin 3Q '99
Oslo 4Q '99 Manchester 3Q '99
Stockholm 3Q '99
Stuttgart 3Q '99
Helsinki 4Q '99
Leipzig 4Q '99
Munich 4Q '99
Oslo 4Q '99
</TABLE>
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EXISTING NETWORK
Carrier1's management believes that entering the liberalizing European
international and national long distance markets early and establishing its
position quickly with a technologically advanced voice and data network will
give Carrier1 a competitive advantage in such markets. To begin operations in
September 1998, approximately six months after being founded, and to keep its
overhead costs as low as possible, Carrier1 outsourced to Nortel and Cisco, on a
turnkey basis, the design, installation, technical operation and maintenance of
its initial network. Carrier1 has assumed operation of the functions that were
outsourced to Cisco. Carrier1 expects to assume control from Nortel of technical
operations of the network by mid-1999. By applying its operational knowledge and
expertise to the deployment process, management believes it has succeeded in
putting in place one of the most advanced voice and data networks in Europe.
TRANSMISSION CAPACITY. Carrier1's traffic is transmitted over: (1) an STM 1
(155Mb) circuit on the Gemini fiber optic cable, acquired from Telemonde under
an indefeasible right of use, linking London and New York, (2) an STM-1 (155Mb
equivalent) circuit leased from Hermes (the "Hermes Ring") connecting Amsterdam,
Frankfurt, Geneva, London and Paris, (3) a 155Mb leased circuit linking
Frankfurt to Vienna, (4) a 155Mb leased circuit linking Frankfurt to Dusseldorf,
(5) a 155Mb leased circuit linking Frankfurt and Zurich, and (6) an STM-1
circuit on the AC-1 fiber optic cable, acquired under an indefeasible right of
use, linking Frankfurt and New York.
NETWORK MANAGEMENT CAPABILITIES. Carrier1 has installed Synchronous Digital
Hierarchy ("SDH") equipment at each network point of presence that will provide
it with information relating to the status and performance of all elements of
its network, including the transmission capacity provided to it by various third
parties. This SDH layer will also provide Carrier1 with flexibility to connect
new providers of transmission capacity and to configure this capacity in a
flexible manner.
VOICE TRAFFIC. Carrier1 had, as of March 31, 1999, five Nortel
international gateway GSP switches in Frankfurt, London, New York, Vienna and
Zurich. Carrier1 selected these cities because the United States, Germany and
the United Kingdom represented either the source or termination points for 20 of
the top 25 traffic routes in the world in 1996. Carrier1's switches and
switching system are the most advanced Nortel currently supplies and its main
transmission lines are redundant. In addition, as of March 31, 1999, Carrier1
had installed multiplexers in Amsterdam, Geneva and Paris. Carrier1 has, as of
May 12, 1999, added switches in Amsterdam, Dusseldorf and Paris.
DATA TRAFFIC. Carrier1 had, as of May 12, 1999, high-capacity Cisco routers
in Amsterdam, Dusseldorf, Frankfurt, Geneva, London, New York, Paris, Vienna and
Zurich. Carrier1 selected these cities because they represent important sites of
European data traffic origination or termination.
Carrier1 has configured its routers and leased circuits into a ring and
believes, based on its management's knowledge of data services markets, it is
one of the first carriers in Europe to provide data services on a ring
structure. This technologically advanced ring architecture, enhanced by SDH
equipment, provides inherent redundancy. Upon any single failure on the ring,
traffic will automatically be re-routed to another part of the ring, avoiding
transmission failure. Based on its management's knowledge of the European
Internet market, Carrier1 believes it has one of the most advanced data networks
in Europe.
PLANNED NETWORK DEPLOYMENT
Carrier1 is continuing to pursue an aggressive timetable for extending the
scope of its network, thereby rapidly expanding its presence in its target
markets. Carrier1 is installing a cross-border network linking the principal
cities of several Western European countries and will continue to broaden the
range of countries covered by the network and deepen the extent of the network
within particular countries. With a city-to-city cross-border network in place,
Carrier1 will be able to provide and price its services without regard to
national boundaries.
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VOICE TRAFFIC. Carrier1's deployment schedule through the end of 1999
contemplates the acquisition and installation of multiplexers or Nortel GSP
switches in Berlin, Brussels, Cologne, Copenhagen, Dublin, Hamburg, Helsinki,
Leipzig, Manchester, Milan, Munich, Oslo, Stockholm and Stuttgart. Between March
31, 1999 and June 30, 1999, Carrier1 replaced multiplexers in Amsterdam,
Dusseldorf and Paris with Nortel GSP switches. These sites, together with
Carrier1's existing sites, serve large population centers and points of traffic
concentration in France, Germany and the United Kingdom. By expanding the range
of its network within these countries Carrier1 will gain closer access to a
larger number of customers and will reduce its interconnection and other
termination-related costs. In considering similar network penetration levels in
other European countries, Carrier1 will weigh the benefits of increased access
to customers and lower termination costs against the increased transmission
costs incurred.
The timing of installation and location of each of the switches above may
change in response to changes in customer demand, the availability of a single
data-based transmission platform, or changes in regulatory conditions in any
particular jurisdiction.
DATA TRAFFIC. Carrier1's deployment schedule through the end of 1999
contemplates the installation of routers in Berlin, Brussels, Cologne,
Copenhagen, Dublin, Hamburg, Helsinki, Leipzig, Manchester, Milan, Munich, Oslo,
Stockholm and Stuttgart.
The timing of installation and location of each of the routers listed above
may change in response to changes in customer demand or the availability of a
single data-based transmission platform.
THE GERMAN NETWORK. Carrier1 has entered into a Development Agreement to
build the German Network with affiliates of Viatel and Metromedia, targeting
routes it believes are currently underserved by existing and announced fiber
networks. The German Network will be an advanced, high-capacity, bi-directional
self-healing 2,300 kilometer fiber optic ring utilizing advanced SDH and dense
wave division multiplexing technologies. The German Network will initially
connect Berlin, Bremen, Cologne, Dortmund, Dresden, Dusseldorf, Essen,
Frankfurt, Hamburg, Leipzig, Mannheim, Munich, Nuremberg, and Stuttgart. The
German Network will also pass a number of other major cities. When the German
Network is completed, Carrier1 will own its own cable subduct and access points.
Carrier1's cable subduct will contain 72 strands of fiber. Carrier1 expects that
construction of the German Network will be completed by the end of 1999 and that
some segments will be operational in the third quarter of 1999. Carrier1's share
of the development costs will be up to approximately $82 million, including the
fiber deployed.
Carrier1 has decided to commence building an extension of its network in
Germany because
- Germany is the largest telecommunications market in Europe and a major
center for traffic within Europe,
- there is limited availability of cost-effective transmission capacity in
Germany,
- leased transmission costs are currently very high in Germany and Carrier1
desires to lower its cost base in such a large market,
- Germany's population is widely and relatively evenly dispersed among many
cities, requiring the installation of a number of switches and routers
throughout the country to effectively access the full range of potential
customers,
- installing multiple points of presence in Germany will reduce Carrier1's
termination costs, and
- Germany's central location within Europe provides a good base from which
to connect the German Network to other parts of Europe.
The German Network will also provide fiber capacity in regions Carrier1 believes
are not covered or are underserved by existing and announced fiber networks.
Carrier1 also believes that excess capacity on the German Network will be useful
as a valuable "currency" to swap for capacity on other networks.
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Carrier1 and its joint venture partners have not yet received all of the
rights-of-way, wayleaves or government approvals for the construction in the
German Network, but are currently in the process of obtaining them.
Pursuant to the Development Agreement, Carrier1 and Metromedia each have a
24.995% interest and Viatel has a 50.01% interest in the development company.
Viatel, as a result of its majority interest, will control all but certain major
decisions relating to the development of the German Network which will require
unanimous consent. Costs of construction will be borne pro rata by Viatel,
Carrier1 and Metromedia, and the development company will be indemnified for
certain liabilities, costs and expenses by each of the parties. In addition,
Viatel will receive a developer's fee of 3% of certain construction costs, 25%
of which will be paid by Carrier1.
Viatel and Metromedia are each required to provide the development company
with a letter of credit. The development company may draw on the letter of
credit of a party that does not meet its funding obligations. Carrier1 has
provided a letter of credit in the amount of approximately DM 110 million (or
approximately $64.8 million).
OTHER PLANNED TRANSMISSION CAPACITY. During the year 2000 Carrier1 also
expects TAT-14, a transatlantic cable connecting Amsterdam, London and New York
in which it has arranged to purchase a multiple investment unit, to become
operational. By that time, Carrier1 also expects to have replaced some leased
capacity with owned capacity and to have leased or purchased additional capacity
for geographic and volume expansions. Carrier1 intends to continually add
transmission capacity, depending on need and availability. For example, for
operation in the third quarter of 1999, Carrier1 acquired additional
transmission capacity on rings connecting (1) Frankfurt, Amsterdam, London and
Paris (dark fiber), (2) Hamburg, Copenhagen, and Malmo (wavelength) and (3)
Frankfurt, Amsterdam, London, Paris and Brussels (wavelength).
FURTHER NETWORK EXTENSIONS AND DEVELOPMENTS
Carrier1 will consider extending its network within Europe beyond its
current deployment plans through 1999. Due to the rapidly evolving dynamics of
the European telecommunications market, Carrier1 will continually reassess the
most cost-effective means of network expansion. Future increases in the supply
of fiber optic cable may make variable or fixed-rate lease arrangements, the
purchase of transmission rights or the swapping of transmission capacity more
favorable options, in economic terms, than building new capacity.
Carrier1 has worked closely with Nortel and Cisco to create a
technologically advanced network system that is flexible and will facilitate
Carrier1's migration to a single integrated data-based transmission platform for
both voice and data traffic when proven technology becomes commercially
available.
EXISTING AND PLANNED TRAFFIC TERMINATION ARRANGEMENTS
VOICE TRAFFIC. Carrier1 carries voice traffic to any destination in the
world, either directly or through "refile" or "resale" agreements with other
carriers who have a local point of presence and an interconnection agreement
with the relevant incumbent telephone operator.
As of March 31, 1999, Carrier1 had entered into interconnection arrangements
to provide for the local termination of its voice traffic with carriers in
Austria, Denmark, Germany, The Netherlands, Sweden, Switzerland, the United
Kingdom, and the United States. As of March 31, 1999, Carrier1 has implemented
interconnection arrangements in Austria, Germany, Switzerland, the United
Kingdom and the United States and is in the process of implementing these
arrangements in these other countries. Since March 31, 1999, Carrier1 has signed
interconnection agreements with Tele Danmark in Denmark, Telecom Italia in Italy
and Telia in Sweden and has implemented its interconnection agreements in The
Netherlands. Carrier1 initiated interconnection negotiations with Belgacom in
Belgium, France Telecom in France and Telecom Eireann in Ireland in early 1999.
By December 1999, Carrier1 intends to have
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implemented direct operating agreements with local carriers for termination of
voice traffic in a number of emerging markets.
Most refilers currently operate out of London or New York, so that
Carrier1's refiled traffic is rerouted to London or New York and from there is
carried to its termination point. As of March 31, 1999, Carrier1 had resale
agreements in Austria, France, Germany, The Netherlands and Switzerland.
DATA TERMINATION. Data termination is effected free-of-charge through
peering and for a fee through transit arrangements. As of March 31, 1999, in the
United States, Carrier1 has peering arrangements with Epoch Networks and PSINet,
and has transit agreements with UUNet and GTE Internetworking. In Europe,
Carrier1 has, peering arrangements with a number of ISPs and a transit agreement
with Ebone. Carrier1 will continue to seek additional peering arrangements.
OPERATIONS
NETWORK IMPLEMENTATION AND OPERATION
Network engineering, technical operation and maintenance and repair have
been handled exclusively by Nortel in connection with the voice overlay of the
network, and were handled exclusively by Cisco in connection with the data
overlay of the network. Carrier1 will continue to work closely with Nortel and
Cisco to ensure future implementation milestones are met, and that the quality
and performance of the network meet certain Carrier1-established benchmarks. The
initial outsourcing of the design, installation and technical operation of its
network allowed Carrier1 to maintain low overhead costs during its initial
operations period.
The voice and data network operating systems allow Carrier1 to use advanced
software to maximize the efficient operation of the network, including managing
the flow of voice and data traffic on a daily basis and identifying the precise
location of faults. These systems are also sufficiently flexible to allow
Carrier1 to migrate to more advanced technological applications as they become
commercially feasible.
Carrier1 has assumed the technical operation of the network (other than
basic equipment servicing) from Cisco, and intends to do so from Nortel by
mid-1999, so that Carrier1 can control all the customer-related functions of the
business. Until then, Carrier1's personnel will work side by side with Nortel
personnel to receive on-site training. Carrier1 expects that this training will
permit a smooth transition from outsourcing to insourcing of the network's
operational functions and reduce the risks of disruption due to the shift in
responsibilities. Carrier1 expects to continue to contract with Nortel and Cisco
for the design and installation of switches and routers. A small team of
operations staff will manage the future planning and architecture of the
network.
Carrier1 has a network operations center in London from which it operates
the voice and data network. Carrier1 believes that a centralized network
operations center enables it to identify overloaded or malfunctioning circuits
and reroute traffic much more quickly than if the network were controlled by
separate network operations centers from different countries.
Recently, Carrier1 has bought the "Qualiview" system from ECI, which is
designed to allow it to measure call answer rate, post dial delay and echo on a
per destination basis for each party that terminates traffic for Carrier1.
THIRD-PARTY TURNKEY CONTRACTS
THE NORTEL CONTRACT. Carrier1 entered into a turnkey agreement with Nortel
in May 1998, under which Nortel has responsibility for the design, installation,
technical operation, maintenance and repair of its voice network switches,
including the provisioning of equipment, software and services. Nortel has
committed to a 12-month warranty of any defective equipment or software it may
provide. Nortel has also agreed to supply replacement parts for equipment and
software support (including upgrades) for a period
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of ten years following the date of delivery of such equipment or software.
Carrier1, in turn, has agreed to purchase a certain volume of services and
equipment from Nortel, and is subject to surcharges if it fails to meet such
volume thresholds for reasons other than Nortel's material breach. Carrier1 has
agreed to continue to use Nortel's network operation and management services up
to July 1999, by which time Carrier1 will assume full operational control of
these functions. The turnkey contract contains limitations on Nortel's total
liability.
THE CISCO CONTRACT. Carrier1 entered into a turnkey agreement with Cisco
(the "Cisco Agreement") in June 1998, for the design, installation, operation,
maintenance and repair of its data network routers. Cisco has provided a 90-day
warranty on the software and hardware it provides to Carrier1. Cisco will
provide technical support for its standard software for a period of three years
following the latest revision of that software. Cisco's liability under the
agreement (other than for personal injury) is limited to the amounts paid under
the agreement to Cisco in the six-month period prior to the event giving rise to
the liability.
CUSTOMER SUPPORT
An essential component of Carrier1's business strategy is to provide a level
of customer support above that which is currently available in the wholesale
telecommunications markets of Europe.
All customer service orders received by the local sales forces are reported
to the central order desk at Carrier1's network operations center which then
logs the order into Carrier1's computer system and directs the order to the
voice or data team, as applicable. The central order desk also tracks the status
of an order during implementation. Carrier1 has automated its operational
workflows so that the status of customer order implementation, traffic faults,
repair histories and other customer-related information is accessible, on-line,
by any employee of Carrier1 at any time. Carrier1 believes that the internal
visibility created by the on-line availability to any Carrier1 employee of all
customer-related information enhances the general monitoring and management of
the customer relationship and facilitates informed and timely responses to
customers' service needs or problems. Furthermore, by tracking on-line all
aspects of a customer's history from the customer's first call through the term
of the relationship, Carrier1 optimizes its ability to provide follow-up and
proactive advice to its customers.
The voice and data operations teams at Carrier1's network operations center
and the in-country operations support team manage the local point of presence
locations, local installation and local support, and work together to implement
a customer's order. The in-country operations and sales teams provide a customer
with local language support and quick access and response to customer orders and
other service needs. A help desk in London serves as the first place to which
customer inquiries are directed. The help desk is open 24 hours a day, 365 days
a year. It not only manages customer inquiries but is the first place to which
customer problems are reported and, from there, internally directed for
resolution. Customers may call the help desk at any time to receive a status
report regarding their request or problem.
In addition to the minimum service level guarantees contained in Carrier1's
voice and data service contracts, Carrier1 also guarantees response times to
customer requests within hours, and repair times within one day of the fault
being reported.
INFORMATION AND BILLING SYSTEMS
Unburdened by legacy systems, Carrier1 has obtained and installed advanced
IT systems tailored to providing wholesale voice and data services. Carrier1 has
developed its own system to enable it to determine least cost routing on a
real-time basis, allowing it to maximize margins within the constraints of the
network. In order to identify the least cost route for voice traffic at any
given time, the system takes into account all costs on a given route, refile or
resale possibilities and their constraints, transmission costs and constraints
per route, as well as other cost elements. Routing information is updated daily
and takes
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into account the prior day's actual costs rather than hypothetical forward
costs. Among other things Carrier1's systems are designed to facilitate on a
real-time basis
- swift and efficient order management,
- service provisioning,
- customer-responsive traffic fault management,
- billing,
- general management of the customer service process and
- compliance with Carrier1's performance level guarantees.
Carrier1 currently uses software programs developed by third parties as its
primary office and information management systems. These programs have been
tailored, however, to Carrier1's particular specifications.
As part of its strategy of focusing on the specific needs of new entrants
into the European telecommunications market, Carrier1's billing system
emphasizes flexibility and customization. Customers may be billed in the
currency of their choice, and may have their bills broken down by country, site,
or other call detail records. Carrier1 uses International Computers Limited's
("ICL") SIMS and Prospero billing systems software. Carrier1 initially
outsourced the running of such billing programs to ICL, but may bring the
running of such programs in-house by mid-1999. Carrier1's billing system
analyzes Carrier1's traffic, revenues and margins by customer and by route,
which is an important cost management tool for Carrier1. Carrier1 expects that
in the future its customers will be able to obtain call detail records and other
information through an on-line billing information inquiry function. Carrier1
plans to maintain separate billing modules for voice and data services, although
customers utilizing both services may be billed on one invoice if desired.
CUSTOMERS
Focusing primarily on European customers and North American customers with
European connectivity needs, Carrier1 targets the following categories of
customers:
- COMPETITIVE FIXED-LINE OPERATORS. This category includes fixed-line
operators that compete with the incumbent telephone operators. These
operators typically desire to outsource their international and, from time
to time, their national long distance traffic.
- OTHER NON-INCUMBENT CARRIERS. This category includes operators with
international infrastructure, who select Carrier1 to carry overflow excess
traffic and to carry traffic to select, low-price destinations.
- WIRELESS OPERATORS. Wireless operators frequently outsource much of their
international and national long distance traffic.
- ISPS AND REGIONAL AND SPECIALIST PROVIDERS. As demand for Internet
services grows in Europe, ISPs are increasingly requiring low-cost
transmission and interconnection capabilities from wholesale carriers.
Many ISPs do not own or operate their own transmission capacity. Cable
television companies, satellite resellers and metropolitan area network
providers are also demanding increasing amounts of low-cost data services.
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- RESELLERS. This category includes switchless resellers, a group that has
been rapidly growing in the United Kingdom and Germany in recent years.
Resellers generally outsource their international and, from time to time,
national long distance traffic.
- CONSORTIA. A number of groups have formed buying consortia to pool traffic
volume in order to obtain higher discounts from carriers. For example, a
group of European multinational entities have combined to form the
European VPN Users Association's Ventures Group to acquire voice services
and currently split their traffic among incumbent telephone operators and
incumbents' alliances. Carrier1 will target buying consortia and will also
seek to provide its services to research consortia. The research consortia
represent an important part of the data market.
- MULTI-NATIONAL CORPORATIONS. Increasingly, multi-national corporations are
seeking wholesale telecommunications services to reduce their costs or as
a component of their own value-added services such as frame relay.
Although multi-national corporations are not a primary customer group for
Carrier1 due to their relatively high customer service demands, Carrier1
offers capacity to multi-national corporations on a wholesale basis.
- INCUMBENTS AND THEIR ALLIANCES. A number of incumbent telephone operators
and their affiliated alliances use wholesale carriers to carry excess
traffic generated by bottlenecks in their network or to terminate traffic
to certain locations at lower rates than their negotiated settlement
rates.
Carrier1 uses a credit screening process to evaluate potential new
customers. In performing its credit analysis, Carrier1 relies primarily on
internal assessments of its exposure, based on the costs of terminating
international traffic in certain countries and the capacity requested by the
proposed carrier or service provider, as well as references provided by the
potential customer. Carrier1 currently depends on a small number of significant
customers for its revenues. During the period from Inception to December 31,
1998, Carrier1 earned 69% of its revenues from three major customers. These
three customers, Interoute Telecommunications (UK) Limited, WorldCom
Telecommunications Services GmbH and STAR Telecommunications Deutschland GmbH,
accounted for 46%, 13% and 10%, respectively, of Carrier1's total revenues
during that period. One new customer, Mobilcom AG, may account for up to 30% of
Carrier1's revenues in the near term. Carrier1's agreement with MobilCom is for
an initial term of twelve months, ending December 2, 1999, and will be renewed
automatically unless cancelled. The agreement employs usage-based pricing and
does not provide for minimum volume commitments by MobilCom.
SALES
Carrier1 has an internal sales force focused on marketing services to
wholesale customers. Carrier1 currently has sales representatives in Amsterdam,
Frankfurt, London, New York, Milan, Paris, Stockholm and Zurich. The heads of
these sales offices have extensive telecommunications-related marketing and
sales experience, as well as strong customer relationships, in the geographic
markets in which they are located. Carrier1 intends to hire additional sales
executives as it increases the number of its offices and expands its existing
sales efforts. Carrier1 will continue to seek personnel with a high degree of
experience in and knowledge of the local telecommunications markets in which
they will be working.
Currently, the Frankfurt sales office functions as the regional head office
covering German-speaking Europe and Eastern Europe; the Paris sales office
functions as the regional head office for France; New York functions as the
regional sales center for North America; Stockholm functions as the regional
sales center for Denmark, Finland, Norway and Sweden; Milan functions as the
regional sales center for Italy; the London sales office functions as the
regional head office for all English-speaking countries in Europe; and the
Amsterdam sales office functions as the regional head office for the Benelux
countries. Customers who do not, for one reason or another, fit within a
particular region are covered by the Zurich sales office.
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Carrier1 expects its regional strategy will permit it to keep operating costs
down until traffic volumes in various other locations in Europe are large enough
to justify establishing sales offices in such locations.
Carrier1 also has sales people specializing in data who work out of the
London, Frankfurt, Paris and Amsterdam sales offices. These data specialists
focus on marketing to ISPs and other customers whose needs are primarily or
exclusively data-oriented. They also work with other members of the sales force
in marketing a package of voice and data services as required by customer
demand.
Carrier1 currently has a limited number of customers, enabling it to provide
each prospective or actual customer with personalized account management.
Furthermore, in comparison to the mass retail market, the wholesale
telecommunications market has a relatively small number of customers. Carrier1
expects that this market characteristic will permit it to continue to provide
personalized account management even as the number of its customers continues to
grow.
PRICING
Carrier1's agreements with its voice customers are typically for an initial
term of twelve months and will be renewed automatically unless cancelled. They
employ usage-based pricing and do not provide for minimum volume commitments by
the customer. Carrier1 expects to generate a steady stream of voice traffic by
providing high-quality service and superior customer support. Carrier1's data
services are charged, depending on service type, either at a flat monthly rate,
regardless of usage, based on the line speed and level of performance made
available to the customer, or on a usage basis, with no minimum volume
commitment by the customer. Initially, the majority of Carrier1's data contracts
were usage-based. Since March 31, 1999, Carrier1 has migrated to offering
usage-based data pricing only in combination with data contracts that have a
fee-based component that guarantees minimum revenue, in order to encourage usage
of its network services by its data customers. Carrier1's agreements with its
data customers are generally for a minimum term of twelve months, although
Carrier1 may seek minimum terms of two years or more for agreements providing
for higher line speeds.
Currently, voice and data services are both priced competitively and
Carrier1 emphasizes quality and customer support, rather than offering the
lowest prices in the market. The rates charged to voice and data customers are
subject to change from time to time. Carrier1 will also vary pricing on its
routes as a traffic management tool. Carrier1 initially priced its data services
at a discount to its competitors to build rapidly its customer base. Carrier1
expects to experience declining revenue per billable minute for voice traffic
and declining revenue per Mb for data traffic, in part as a result of increasing
competition. Carrier1 believes, however, that the impact on its results of
operations from such price decreases will be at least partially offset by
decreases in its cost of providing services and increases in its voice and data
traffic volumes.
COMPETITION
The European telecommunications industry is highly competitive, and the
liberalization it is currently undergoing is rendering it increasingly more so.
The opening of the market to new telecommunications service providers, combined
with technological advances that greatly augment the transmission capacity of
circuits at a relatively small incremental cost, has resulted in significant
reductions in retail and wholesale prices for voice services. Prices declined
significantly during 1998, and Carrier1 expects prices to continue to decline.
While decreasing prices are fueling growing demand for bandwidth, they are also
narrowing gross profit margins on long distance voice traffic. Carrier1's
ability to compete successfully in this environment will be highly dependent on
its ability to generate high traffic volumes from its customers while keeping
its costs of services low. Prices for data services remain relatively high in
Europe. However, the United States market for data services has been
experiencing downward pressure on prices, and Carrier1 expects comparable price
decreases in the European data market over the next few years as competition
increases. As prices for data services decline, Carrier1's ability to compete
successfully in the
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data market will be highly dependent on its ability to attract and retain enough
customers and keep its cost base low.
In voice services, Carrier1 has two main categories of competitors. The
first is the group of large established carriers, consisting of incumbent
telephone operators and affiliated companies, that offer a wide range of
wholesale services in addition to their retail services. This group includes
AT&T, British Telecom, the KPN Telecom/Qwest Communications International Inc.
alliance, Cable & Wireless, Global One (a joint venture of Deutsche Telekom,
France Telecom and Sprint Corp.), MCI WorldCom, Inc., Tele Danmark A/S,
Teleglobe Inc., Unisource N.V. and Telecom Italia S.P.A. The second category
comprises new entrants to the telecommunications market that provide wholesale
services. This group includes Pacific Gateway Exchange Inc., FaciliCom
International, Inc., Hermes, STAR Telecommunications, Inc., Viatel, Telegroup
Inc., and RSL Communications Ltd. Hermes owns 75% of Ebone, a large European
backbone provider.
In data services, Carrier1's main competitors are Ebone, UUNet and Qwest
Communications International Inc., all of which have an established customer
base and either a significant European infrastructure or strong connectivity to
the United States through various peering arrangements. Carrier1 believes that,
if the quality of the service is consistently high, data customers will
typically renew their contracts because it is costly and technically burdensome
to switch carriers.
Carrier1 is a wholesale carrier and, while it does not compete directly with
the incumbent telephone operators or other carriers for end-users, it is
entering a rapidly developing market in which companies traditionally focused on
the retail sector are beginning to sell to the wholesale market and owners of
infrastructure are beginning to provide services as well as capacity at both the
retail and wholesale level. In addition, many of Carrier1's competitors are
larger enterprises with greater financial resources than Carrier1, and
accordingly may be able to deploy more extensive networks or may be better able
to withstand pricing and other market pressures.
A number of Carrier1's competitors are devoting significant resources to the
provision of European telecommunications services to carriers and other service
providers, including through the construction of their own networks. Those
wholesale providers that own a European infrastructure will benefit from a lower
cost base than Carrier1, at least initially, and it will be essential for
Carrier1 to lower its cost base as quickly as possible to compete effectively
with them. Furthermore, those wholesale carriers that have successfully
negotiated interconnection agreements with the relevant incumbent telephone
operators or peering arrangements with other Internet backbone providers, as
applicable, will also have a lower cost structure than Carrier1 and will,
therefore, be in a better position to compete on the basis of price than
Carrier1, until Carrier1 enters into such agreements.
Carrier1 competes with a number of incumbent telephone operators. In many
European countries, the incumbent telephone operator controls access to local
networks and has significant operational economies, including a large national
network, and existing operating agreements with other incumbent telephone
operators. Moreover, incumbent telephone operators generally have close ties
with national regulatory authorities, which have, in some instances, shown
reluctance to adopt policies and grant regulatory approvals that would result in
increased competition for the local incumbent telephone operator. In addition,
many of Carrier1's non-incumbent competitors are associated with incumbent
telephone operators and such incumbents may be more likely to provide
transmission capacity on favorable terms and direct excess traffic to their
related carriers than to Carrier1. However, Carrier1 believes that such
affiliations may be more of a hindrance than a benefit. The incumbent telephone
operators are more focused and dependent on traditionally structured retail
services, and are less responsive to the dynamics of the wholesale market and
the growth of the data market. Furthermore, the incumbent telephone operators
are resisting the new pricing and services rationales created by low cost
alternative infrastructure and European Commission mandated changes in
interconnection tariffs as these threaten to accelerate the collapse of
traditional ARM based services which have historically been a major
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source of profitability for the incumbent telephone operators. Therefore, while
the incumbent telephone operators cannot afford to completely ignore the
development of new service markets, they may perceive a short term interest in
slowing the pace of their growth, with the result of incumbent telephone
operators treating their affiliates more as competitors than as partners.
Other factors contributing to the competitiveness of the wholesale carrier
market are:
- Basic voice carrier services are not highly differentiated, and switching
carriers is not costly. Voice customers can easily redirect their traffic
to another carrier, and certain customers may do so on the basis of even
small differences in price.
- Network buildout costs are high, creating an incentive for wholesale
carriers that have built their network to lower prices so as to increase
volume and maximize utilization rates.
- New networks are being built to provide significant additional capacity,
creating further downward pressure on prices.
Many of Carrier1's competitors, however, are also potential customers. For
example, carriers with their own infrastructure may have excess traffic that
wholesale carriers such as Carrier1 can carry. Furthermore, Carrier1 may, in
certain instances, be able to provide less expensive routing for certain
destinations and may therefore carry traffic over those particular routes. It is
customary industry practice for carriers and other telecommunications service
providers to use a number of wholesale voice service providers. Accordingly,
Carrier1 need not be a customer's sole wholesale voice carrier but may be one of
three or four selected.
GOVERNMENT REGULATION
The following discussion summarizes the material aspects of the regulatory
frameworks in certain regions in which Carrier1 currently operates or plans to
operate in the near future. This discussion is intended to provide a general
overview of the more relevant regulations and Carrier1's current regulatory
posture in the most significant jurisdictions in which Carrier1 operates and
expects to operate. It is not intended as a detailed description of the entire
regulatory framework applicable to Carrier1.
OVERVIEW
Increasing regulatory liberalization in many countries' telecommunications
markets now permits more flexibility in the way Carrier1 can provide
infrastructure and services to its customers. The recent steps of the European
Union to implement full liberalization, as well as the World Trade Organization
(the "WTO") Basic Telecom Agreement (the "WTO Agreement"), have significantly
reduced most if not all regulatory barriers to entry in the markets in which
Carrier1 intends to operate. However, national regulatory frameworks within the
European Union that are fully consistent with the policies and requirements of
the European Union and the WTO have only recently been, or are still being, put
in place in many member states.
Various directorates of the European Commission, including Directorate
General ("DG") XIII (telecommunications and information services) and DG IV
(competition), have had an active role in overseeing the implementation of
recently adopted European Union directives. These directorates have, on their
own initiative or upon formal or informal complaint by interested parties,
sought to ensure consistent implementation and interpretation of various key
European Union directives, including in particular those relating to licensing
and interconnection.
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The principal telecommunications operators in many European Union member
states, including in particular the United Kingdom and most Scandinavian
countries, have generally accepted market liberalization and have acted
accordingly in their dealings with new entrants. In other markets, Carrier1 and
other new entrants face less open and independent regulatory environments and
hence more protracted and difficult procedures to obtain licenses and negotiate
interconnection agreements. Carrier1 believes that the current overall
regulatory climate in the European Union is favorable to development of new
infrastructure and services by new entrants, and that potential restrictions on
its operations will become less onerous as national regulatory frameworks within
the European Union become more uniform and begin to converge with those in the
countries with fully liberalized regulatory policies such as the United States.
However, Carrier1 is unable to predict with certainty the precise impact of
regulatory requirements and restrictions on its implementation of its business
strategy or on its financial performance.
WTO AGREEMENT
The regulation of the European Union telecommunications industry is subject
to certain multilateral trade rules and regulations. Under the WTO Agreement,
concluded on February 15, 1997, 69 countries comprising more than 90% of the
global market for basic telecommunications services agreed to permit competition
from foreign carriers and adopt regulatory measures designed to protect
telecommunications providers against anticompetitive behavior by incumbent
telephone operators. In addition, 59 of these countries have subscribed to
specific pro-competitive regulatory principles.
The WTO Agreement became effective on February 5, 1997 and for most
signatory countries (including ten European Union member states) the commitments
took effect on January 1, 1998. Although there may be substantial implementation
delays, Carrier1 believes that the WTO Agreement will increase opportunities for
Carrier1 and its competitors. However, the precise scope and timing of the
implementations of the WTO Agreement remain uncertain and there can be no
assurance that the WTO Agreement will result in beneficial regulatory
liberalization.
EUROPEAN UNION
In an effort to promote competition and efficiency in the European Union
telecommunications market, the European Commission and the European Council have
in recent years issued a series of directives establishing basic principles for
the liberalization of such market. The general framework for this liberalized
environment has been set out in the European Commission's Services Directive,
adopted in 1990, and its subsequent amendments, including the Full Competition
Directive, adopted in March 1996. These directives require most European Union
member states to permit competition in all telecommunications services, and had
set January 1, 1998 as the date by which all restrictions on the provision of
telecommunications services and telecommunications infrastructure were to be
removed. These directives have been supplemented by various harmonizing
directives, including primarily the Licensing Directive and the Interconnection
Directive, adopted in 1997.
The Licensing Directive established a common framework for the granting of
authorizations and licenses related to telecommunications services. It permits
European Union member states to establish different categories of licenses for
providers of infrastructure and services, but requires the overall scheme to be
transparent and non-discriminatory. The Interconnection Directive requires
European Union member states to remove restrictions preventing negotiation of
interconnection agreements, ensure that interconnection requirements are
non-discriminatory and transparent, and ensure adequate and efficient
interconnection for public telecommunications networks and publicly available
telecommunications services. It also requires that interconnection be cost-based
and supported by a cost accounting system that telecommunications operators with
significant market power are expected to put in place under the supervision of
national regulatory agencies.
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In October 1997, the European Commission issued a consultative document
supporting the imple-
mentation of long run incremental cost ("LRIC") principles as a basis for
interconnection pricing. This document also sets forth interconnection pricing
benchmarks reflecting current interconnection agreements in European Union
member states. The European Commission believes such benchmarks should be relied
upon pending the adoption of accounting systems and interconnection rates based
on LRIC principles. These guidelines have become an important reference point in
commercial negotiations between new entrants and incumbent telephone operators.
The European Commission's consultative paper also proposes that European
Union member states permit cross-border interconnection between a national
telecommunications operator and an operator that does not have a local point of
presence and that is established and licensed in another member state on the
basis of interconnection arrangements that do not discriminate between
cross-border and national operators. Carrier1 believes that the European
Commission's stance with respect to cross-border interconnection may not be
sufficiently supported by some national regulatory agencies as it is not yet set
forth in a binding directive. Nevertheless, Carrier1 may seek cross-border
interconnection in those countries in which it does not have a point of
presence. However, there can be no assurance as to when or if Carrier1 will be
successful as no operational arrangements have been made or other steps taken to
implement cross-border interconnection.
Several European Union member states have chosen to apply the provisions of
the Interconnection Directive within their jurisdictions in such ways as to give
more favorable treatment to infrastructure providers and network operators than
to carriers and resellers that have made no infrastructure investment. Such
distinctions must be objectively justified on the grounds of the type of
interconnection provided or because of relevant licensing conditions. The
Licensing Directive does not provide a clear definition of an infrastructure
investment, and many European Union member states have adopted inconsistent
approaches with respect to the level and type of infrastructure investment
required to justify differences in interconnection charges. While Carrier1
believes that the European Commission will seek to minimize these disparities in
national interconnection policies, there can be no assurance that these
disparities can be eliminated or significantly reduced or that any such
differences in regulatory treatment will not have a material adverse effect on
Carrier1. To the extent incumbent telephone operators deny or delay granting
Carrier1 interconnection, even if only for a limited period of time, in any of
the countries in which Carrier1 has or will have points of presence, Carrier1
will be forced to terminate traffic through refile or resale agreements with
other carriers, resulting in higher costs. Furthermore, if interconnection is
not granted at the most competitive rate (i.e., the rate for operators and
infrastructure providers), Carrier1's termination costs will be higher than
those of competitors which have implemented such interconnect agreements.
REGULATORY STATUS
The following discussion summarizes Carrier1's assessment of the regulatory
situation in the major markets in which it expects to operate in the next
several years.
UNITED KINGDOM. The Telecommunications Act 1984 provides a licensing and
regulatory framework for telecommunications activities in the United Kingdom.
The United Kingdom has already liberalized its market to meet or even exceed the
requirements of the Full Competition Directive, and most restrictions on
competition have been removed in practice as well as in law.
Carrier1 currently has been granted an international simple voice services
resale license and an international facilities license that allows it to own
indefeasible rights of use and to lay cable for international services. Carrier1
will not need any additional licenses as long as it does not connect end-users
systems directly to its network. Carrier1 has obtained a switched access number
which has been implemented with British Telecom. This access number enables
Carrier1 to allow switchless resellers to offer switched access services
directly to their customers in the United Kingdom.
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In the United Kingdom, entities with "relevant connectable systems" status
are entitled to request and receive interconnection from those operators that
have been determined to be "well established operators." British Telecom and
Kingston Communications International Ltd. have been so determined for all
services and Cable & Wireless has been so determined in respect of international
services on virtually all routes. Carrier1 currently has implemented
interconnection agreements with Cable & Wireless and British Telecom. In
addition, Carrier1 has entered into interconnection agreements with other
telecommunications operators in the United Kingdom to route traffic to locations
not directly served by Carrier1.
The current liberal regulatory climate in the United Kingdom has encouraged
the rapid development of new operators that are available to interconnect with
Carrier1 or to be served by Carrier1 as customers for its wholesale service
offerings. London, along with New York, has become one of the major
international centers for refiling of traffic among international
telecommunications service providers. Overall, Carrier1 has not encountered
significant interconnection barriers in the United Kingdom.
UNITED STATES. In June 1998, Carrier1 obtained a Section 214 authorization
to provide international telecommunications services to all locations around the
world. Carrier1 will be subject only to various reporting obligations with
respect to its current operations in the United States.
Under the terms of recent Federal Communications Commission (the "FCC")
orders relating to international settlement rates, the terms of its Section 214
authorization and the WTO Agreement, Carrier1 will be expected to settle its
international switched traffic at or below the level of the international rate
benchmarks prescribed by the FCC. It would also have to obtain prior FCC
approval to resell leased lines in any country in which it might operate with an
affiliated carrier with market power. However, Carrier1 does not expect that any
current or currently anticipated FCC regulatory requirement would materially
limit its commercial or operational flexibility.
The FCC has taken an active role in opening competition on an international
basis and has been involved in a longstanding effort to lower international
accounting rates on a world-wide basis. Although the FCC has implemented the WTO
Agreement and no longer bases its international licensing determinations
specifically on whether international markets are open on a fully reciprocal and
comparable basis to U.S. telecommunications operators, it continues to monitor
competitive developments in international markets in order to assess whether any
restrictive practices with respect to international service arrangements or
rates might have an adverse or distorting impact on competition in the U.S.
domestic telecommunications market. In addition, the FCC as well as various
executive branch agencies of the U.S. government have taken an active posture
with respect to the full implementation of market-opening commitments made in
connection with the WTO Agreement, and have from time to time taken positions
against potential restrictive regulatory practices by national regulators or
operators in the European countries in which Carrier1 intends to operate.
Carrier1 has experienced no difficulties in negotiating interconnection
agreements with U.S.-based telecommunications operators. These arrangements
permit Carrier1 to extend its services into the U.S. domestic market as well as
to terminate traffic worldwide. In addition, refiling arrangements available in
the United States can often be a very cost-effective basis for terminating
traffic in European Union markets that are not directly served by Carrier1's own
infrastructure. Depending on market conditions, such arrangements represent a
viable alternative to refiling through the United Kingdom.
GERMANY. The German Telecommunications Act of July 25, 1996 provided for
the liberalization of all telecommunications activities by January 1, 1998. The
German Telecommunications Act has been complemented by several ordinances
concerning, among other things, license fees, rate regulation, interconnection,
universal service, frequencies and customer protection. The German
telecommunications sector is currently overseen by a new Regulatory Authority
for Telecommunications and Post that operates under the aegis of the Ministry of
Economics and has taken over the regulatory responsibilities of the now
disbanded Ministry of Post and Telecommunications.
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Under the German Telecommunications Act, licenses can be issued for
different types of infrastructure as well as for the provision of services based
on transmission lines provided by other service providers. Carrier1 has been
issued a nationwide Class 4 license for the provision of voice telephony
services and a Class 3 infrastructure license to construct fiber optic cables.
Carrier1 has obtained amendments to its infrastructure licenses to authorize the
geographic extension of its network. Carrier1 does not anticipate any difficulty
in obtaining any further required amendments. On October 30, 1998, the German
regulator ruled, in a case filed by Carrier1 against Deutsche Telekom, that
Deutsche Telekom had to interconnect with Carrier1 at the two points of
interconnect requested by Carrier1 within three months after the ruling. This
ruling is currently being implemented by both parties and is based on a
condition that Carrier1 will be installing an additional 11 points of
interconnection with Deutsche Telekom when it deploys its German Network by the
end of 1999. Carrier1 recently signed an interconnection agreement with Deutsche
Telekom that adds ten points of interconnection to the 13 points that Carrier1
has already arranged. Both parties are working to implement this interconnection
agreement by the first quarter of 2000. See "--Network--Planned Network
Deployment--The German Network." In the event that Carrier1 does not install
such additional points of interconnection anticipated by the ruling and
Carrier1's business plans, the pricing of its interconnection arrangements with
Deutsche Telekom may have to be renegotiated. There can be no assurance that any
new pricing terms would be as favorable to Carrier1 as those provided by the
ruling. Furthermore, the German regulator recently concluded a public
consultation indicating that Deutsche Telekom may charge a higher interconnect
rate to those operators who only interconnect at one point of interconnect. This
conclusion, however, still needs to be implemented into law.
Carrier1 has initiated discussions with Deutsche Telekom relating to the
installments of its points of interconnection. Though Carrier1 believes that
these discussions are generally proceeding in a satisfactory fashion, there have
been a number of disputes over the availability, and timing of delivery, of
interconnection capabilities requested by Carrier1. Though Carrier1 intends to
pursue such disputes with Deutsche Telekom and the German regulator, it does not
currently anticipate that there is likely to be any significant adverse impact
on its plans to provide service in Germany in accordance with its business
plans. Carrier1 has obtained a switched access number and has implemented it
with Deutsche Telekom. This access number enables Carrier1 to allow switchless
resellers to offer switched access services directly to their customers in
Germany.
FRANCE. In July 1996, legislation was enacted providing for the
liberalization of all telecommunications activities in France by January 1,
1998. The establishment and operation of public telecommunications networks and
the provision of voice telephony services are subject to individual licenses
granted by the Minister in charge of telecommunications upon recommendation of
the Autorite de Regulation des Telecommunications ("ART"), France's new
independent regulatory agency.
Carrier1 has received an L-33.1 license (governing public telecommunications
network operators) and an L-34.1 license (governing voice telephony providers).
The interconnection tariffs of France Telecom, which have been officially
approved by the ART, provide substantially more favorable interconnection rates
for public telecommunications network operators than for voice telephony
providers. Telephony providers are charged interconnection rates that can be as
much as 30% higher than rates charged to public telecommunications network
operators. An L-34.1 license allows an operator to terminate traffic nationwide
via interconnect only if it connects in all 18 interconnect regions, whereas an
L-33.1 license allows an operator to terminate traffic nationwide via
interconnect at only one point.
Carrier1 believes that the dual pricing system engaged in by France Telecom
is discriminatory and not founded on a cost-based differentiation and thus
violates the terms of the WTO Agreement as well as provisions of various
relevant European Union directives. Nevertheless, any process initiated by
Carrier1 against France Telecom's practices with the European Union or the WTO,
even if successful, might well be costly and time consuming, and Carrier1 is not
able to predict with certainty the timing and eventual resolution of any legal
challenge over interconnection rates.
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Carrier1 is currently implementing an interconnection agreement with France
Telecom. Carrier1 expects to complete this implementation by October 1999.
In France, the ART implements an extra charge (cost per minute) to finance
the cost of a universal service fund. The total amount of this universal service
fund was $1 billion for 1998 and has been challenged by new entrants in the
French market, who have filed a complaint with DG IV, the European Union's
competition directorate. Carrier1 is unable to estimate at this time the impact
of the proposed universal service program if implemented on its operating
margins. Carrier1 intends to apply to the French regulator to obtain a switched
access number in order to enable Carrier1 to allow switchless resellers to offer
switched access services directly to their customers in France.
BELGIUM. In December 1997, the Belgian parliament provided for full
liberalization of the provision of telecommunications services. The
Telecommunications Act and secondary legislation are not yet complete.
Under the current licensing scheme, applicants for a telecommunications
network operator license such as Carrier1 must agree to make a minimum amount of
infrastructure investment or install a minimum amount of fiber optic capacity
within three years, as well as make a contribution to the advancement of
technological processes by investing an amount equal to 1% of net revenue to
fund research and development activities. Carrier1 has filed an application to
become a network operator with respect to which regulatory action by the Belgian
national regulator, the Belgian Institute for Postal Services and
Telecommunications ("BIPT"), is expected by July 1999. As Carrier1 plans to
acquire dark fiber in Belgium, it expects to be granted an infrastructure
license.
Carrier1 is currently implementing an interconnection agreement with
Belgacom S.A., Belgium's incumbent telephone operator. Carrier1 expects to
complete this implementation by December 1999. The interconnection tariffs of
Belgacom provide more favorable rates for infrastructure providers and network
operators than for switch-based carriers and resellers. Carrier1 expects to
qualify for these more favorable rates. However, the outcome of Carrier1's
efforts with respect to its interconnection arrangements may depend in part upon
deliberations concerning the requirements for a network operator license as well
as ongoing Belgian regulatory determinations.
The Belgian telecommunications law also provided for the establishment of a
universal service fund, to be managed by BIPT, to which operators would be
required to contribute in proportion to their revenues from the Belgian market.
However, the fund is not to be activated before the year 2000, by which time the
BIPT is required to determine the aggregate payment to support universal
service. Carrier1 is unable to estimate at this time the impact of any potential
universal service payments on the overall cost of terminating its customers'
calls in Belgium.
ITALY. In 1997, Italian authorities enacted a legislative framework for the
full liberalization of telecommunications services by January 1, 1998. This
framework has yet to be implemented by a number of necessary decrees. Major
uncertainties remain with regard to the rules applicable to interconnection. No
assurance can be provided as to the timing or manner in which Carrier1 will be
able to benefit from full liberalization in Italy. Carrier1 has obtained both
infrastructure and service licenses.
In August 1998, Telecom Italia published its Reference Interconnect Offer
(the "RIO"), which has been amended recently due to decisions by the Italian
regulator. The RIO now allows interconnection at one point of interconnect and
brought interconnection rates down to a level much closer to the European Union
benchmarks. Carrier1 has signed an interconnection agreement with Telecom
Italia.
In Italy, providers of network infrastructure and switched voice services as
well as national mobile operators must contribute to a universal service fund.
Such a requirement is to take effect in 1999 provided that Telecom Italia can
demonstrate on the basis of audited reports that its universal service
obligations impose on it net losses. Even in these circumstances, the Italian
regulator can exempt new entrants from an obligation to contribute to such a
universal service fund. Both the Italian competition agency and the
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European Commission are likely to recommend such an exemption scheme to the
Italian regulator. However, Carrier1 cannot assess at this time any possible
impact of any such universal service obligations on its operating margins.
THE NETHERLANDS. The Netherlands liberalized voice telephony in July 1997.
Legislation to implement the requirements of the Full Competition Directive has
been enacted.
Carrier1 has obtained the necessary authorization to provide in The
Netherlands the services included in its business plans. Though Carrier1 is
entitled under its authorization to acquire existing dark fiber transmission
capacity, it would be required to obtain additional authorization to obtain
rights of way and construct its own infrastructure. In addition, it may also be
required to obtain additional approvals in the event that it were to decide to
market services to end users directly connected to Carrier1's network rather
than provide services on a wholesale basis as currently anticipated. However,
Carrier1 does not expect that there would be any significant difficulty in
obtaining such approvals.
Carrier1 has implemented an interconnection agreement with KPN Telecom and
it has obtained a switched access number from the Dutch regulator.
SWITZERLAND. A new Telecommunications Act went into effect on January 1,
1998, together with ordinances containing more detailed regulations covering
telecommunications services, frequency management, numbering, terminal equipment
and license fees. The new Telecommunications Act provides for liberalization of
the Swiss telecommunication market as of January 1, 1998.
Carrier1 has obtained the necessary authorization to provide services in
Switzerland. Although Switzerland is not a member of the European Union and
accordingly European Union directives do not apply, the Swiss regulatory agency,
Bakom, generally follows European Union policies and directives. Switzerland is
a party to the WTO Agreement as well, and Carrier1 expects that the national
regulatory body will follow the general principles and policies embedded in the
WTO Agreement.
Carrier1 signed an interconnection agreement with Swisscom which has been
implemented, and it has obtained a switched access number.
AUSTRIA. A new Telecommunications Act came into effect on January, 1, 1998,
together with ordinances providing more detailed regulations on
telecommunications services, interconnection and numbering. Carrier1 obtained
the necessary licenses in Austria.
The interconnection rules provide for cost-based interconnection rates for
every licenseholder, without distinction between infrastructure owners and
resellers. Carrier1 signed an interconnection agreement with PTA (the Austrian
incumbent telephone operator) which has been implemented. It has also obtained a
switched access number from the Austrian regulator.
SPAIN. The Spanish government implemented the full liberalization of public
switched telephone services on December 1, 1998. Prior to full liberalization, a
second telecommunications operator was authorized to compete with Telefonica de
Espana, S.A., and a third national voice telephony license was granted in May
1998. Cable television operators are expected to apply for licenses to provide
voice telephony services. In addition, a third license for a mobile
telecommunications operator was granted in June 1998. Carrier1 expects to be
able to provide services on a wholesale basis to these newly authorized
operators.
Carrier1 expects to file an application to provide infrastructure and
services in Spain in the first half of 1999. It will need a license and an
interconnection agreement by early 2000 when it plans to install a point of
presence in Spain.
SWEDEN, DENMARK, FINLAND, NORWAY, AND IRELAND. Carrier1 is or may be
planning to provide services in a number of countries including Sweden, Denmark,
Finland, Norway, and Ireland which have adopted a liberal approach to
authorizing new service providers.
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In Norway, new service providers must register with the national regulator,
and in Finland and Sweden, a similar notification procedure is required to
authorize new service providers. In Denmark, services and infrastructure can be
provided by new entrants on the basis of a class license requiring no
registration, notification, or prior approval procedures involving the national
regulator. Carrier1 has complied with the applicable procedures in each of these
countries.
Carrier1 has entered into interconnection agreements with Tele Danmark in
Denmark and Telia in Sweden, but has not yet opened discussions with the main
national operators in Finland and Norway. In all of the above-mentioned
countries, it expects that interconnection arrangements will be implemented when
its points of presence become operational in these countries. Carrier1 has
obtained a switched access number in Finland, and it has applied for such
numbers in Sweden, Denmark and Norway.
Any new service provider must obtain a license to provide services in
Ireland. Carrier1 has received such a license. Carrier1 expects that an
interconnection agreement with Telecom Eireann will be implemented when its
point of presence in Dublin is operational.
OTHER COUNTRIES. Carrier1 will also be able to provide service through
direct operating agreements with correspondent telecommunications operators in
countries where it has not been directly authorized to provide services. As a
consequence of its having obtained the status of a recognized operator agency
under the rules of the International Telecommunications Union, Carrier1 will
negotiate such correspondent agreements with foreign telecommunications
operators in circumstances where such agreements will result in lower
termination costs than might be possible through refile arrangements. See
"--Network--Existing and Planned Traffic Termination Agreements."
EMPLOYEES
As of December 31, 1998, and March 31, 1999, Carrier1 employed 53 and 73
people, respectively. None of Carrier1's employees is represented by a labor
union or covered by a collective bargaining agreement. Carrier1 believes that
relations with its employees are good.
PROPERTIES
Carrier1 leases certain office and other space under operating leases and
subleases that expire at various dates, including a lease of Carrier1
International GmbH's 762 square meter headquarters in Zurich, Switzerland, which
expires in 2003.
Carrier1's aggregate rent expense was $1,097,000 for the period from
Inception to December 31, 1998.
LEGAL PROCEEDINGS
Carrier1 may, from time to time, be a party to litigation that arises in the
normal course of its business operations. Carrier1 is not presently a party to
any such litigation that Carrier1 believes would reasonably be expected to have
a material adverse effect on its business or results of operations.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
Carrier1 International is a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg. Carrier1 International is a holding company that
conducts its operations primarily through other European companies. In addition,
certain members of Carrier1's board, all of its executive officers and certain
of the experts named herein are residents of countries other than the United
States. A substantial portion of Carrier1's assets and the assets of such
non-resident persons are located outside the United States. As a result, it may
not be possible for investors to:
- effect service of process within the United States upon Carrier1 or such
persons; or
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- enforce against Carrier1 or such persons in U.S. courts judgments obtained
in such courts predicated upon civil liability provisions of the federal
securities laws of the United States.
There is doubt as to whether the courts of Luxembourg would recognize
jurisdiction of the U.S. courts in respect of judgments obtained in those courts
in actions against Carrier1 or such directors and officers, as well as certain
of the experts named herein, and as to whether Luxembourg courts would enforce
judgments of U.S. courts predicated upon the civil liability provisions of the
U.S. federal or state securities laws. There is also doubt as to whether
Luxembourg courts would admit original actions brought under the U.S. securities
laws. In addition, certain remedies available under the U.S. federal or state
laws may not be admitted or enforced by Luxembourg courts on the basis of being
contrary to Luxembourg's public policy. Carrier1 cannot assure investors that
they will be able to enforce any judgment against it, certain members of its
board, its executive officers or certain of the experts named herein, including
judgments under the U.S. securities laws.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth certain information with respect to the
directors, executive officers and other key employees of Carrier1 as of December
31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH CARRIER1
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Stig Johansson....................................... 56 Chief Executive Officer, President of Carrier1 and
Director of Carrier1 International
Eugene A. Rizzo...................................... 47 Vice President, Sales and Marketing
Terje Nordahl........................................ 51 Chief Operating Officer
Joachim W. Bauer..................................... 54 Chief Financial Officer
Kees van Ophem....................................... 36 Vice President, Purchase and General Counsel
Neil E. Craven....................................... 30 Vice President, Business Development
Phil Poulter......................................... 48 Managing Director of Sales, United Kingdom and
Ireland
Edward A. Gross...................................... 40 Managing Director of Sales, Germany, Austria and
Switzerland
Isabelle Russier..................................... 34 Managing Director of Sales, France
Marcus J. Gauw....................................... 38 Managing Director of Sales, Internet
Gustav Schaefer...................................... 43 Managing Director of Sales, Benelux
Carlos Colina........................................ 46 Manager, Carrier Sales--North America
Rick Mikolajczuk..................................... 49 Project Director, Network Build
Glenn M. Creamer..................................... 36 Director of Carrier1 International
Jonathan E. Dick..................................... 40 Director of Carrier1 International
Mark A. Pelson....................................... 36 Director of Carrier1 International
Victor A. Pelson..................................... 61 Director of Carrier1 International
Thomas J. Wynne...................................... 58 Director of Carrier1 International
</TABLE>
STIG JOHANSSON has served as a director of Carrier1 International since
August 1998 and as Carrier1's Chief Executive Officer and President since March
1998 and has more than 30 years of experience in the telecommunications
industry. Prior to founding Carrier1, Mr. Johansson was President of Unisource
Carrier Services AG ("Unisource Carrier Services") from September 1996 until
February 1998, where he was responsible for transforming Unisource Carrier
Services from a network development and planning company into a fully
commercial, wholesale carrier of international traffic. Mr. Johansson was a
member of Unisource N.V.'s supervisory board from 1992 until 1996. Prior to
joining Unisource Carrier Services, Mr. Johansson worked for Telia AB ("Telia"),
the Swedish incumbent telephone operator, where he was most recently Executive
Vice President. During his 26 years at Telia, Mr. Johansson held a variety of
positions. He began in 1970 working in engineering operations and rose to head
of strategic network planning (1977), general manager of the Norrkoping Telecom
region (1978), head of CPE-business division (1980), executive vice president
and marketing director of Televerkit/Telia AB (1984) and Executive Vice
President responsible for Telia's start-up operations in the Nordic countries
and the United Kingdom (1995). He was a member of Telia's corporate management
board from 1985 to 1996. Mr. Johansson holds a Master's degree in Business
Economics from Hermods Institut, Sweden and a degree of Engineer of
Telecommunications from Lulea College, and he completed a senior executive
business course at IMD in Lausanne, Switzerland. He is a citizen of Sweden.
EUGENE A. RIZZO has served as Carrier1's Vice President, Sales and Marketing
since March 1998 and has over 21 years of experience in international sales and
marketing and 10 years of experience in the telecommunications industry. From
1993 to 1998, Mr. Rizzo managed sales and marketing groups for several
affiliates of Unisource NV, including Unisource Carrier Services and
AT&T-Unisource
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Communications Services ("AT&T-Unisource"), an international joint venture
between AT&T Corp. ("AT&T") and Unisource NV. Prior to joining Unisource, Mr.
Rizzo held various marketing and management positions with International
Business Machines Corporation ("IBM"), Wang Laboratories, Inc. and Tandem
Computers Inc. ("Tandem"). While at Tandem, Mr. Rizzo assisted in the start-up
of Tandem's European Telco Group. Mr. Rizzo holds a Master of Business
Administration degree from the University of Massachusetts. He is a citizen of
the United States.
TERJE NORDAHL has served as Carrier1's Chief Operating Officer since March
1998 and has 25 years of experience in telecommunications operations. Mr.
Nordahl also has extensive experience in the computer and data industry. As a
Managing Director at Unisource Business Networks BV ("Unisource Business
Networks") from 1997 to 1998, he established and built the Unisource Business
Data Network in Norway. From 1995 to 1997, Mr. Nordahl was President of Telia AS
(Norway), Telia's subsidiary in Norway, where he supervised the building of an
ATM backbone network with integrated voice and data services. Mr. Nordahl worked
closely with Nortel on this project. From 1993 to 1995, Mr. Nordahl established
and operated Creative Technology Management AS ("CTM"), which provided business
development services for government and industrial organizations. Prior to
establishing CTM, Mr. Nordahl held engineering, development and marketing
positions with various companies, including IBM and telecommunications companies
affiliated with Ericsson (L.M.) Telephone Co. and ITT Corp. Mr. Nordahl holds a
Bachelor of Science degree from Heriot-Watt University, Edinburgh and has
completed the INSEAD Advanced Management Program. He is a citizen of Norway.
JOACHIM W. BAUER has served as Carrier1's Chief Financial Officer since
March 1998 and has five years of experience in the telecommunications industry.
From 1994 to 1998, Mr. Bauer served as Chief Financial Officer of Unisource
Carrier Services. Before joining Unisource Carrier Services, Mr. Bauer held
various management positions with IBM and its affiliates, including Controller
of IBM (Switzerland). Mr. Bauer graduated from a commercial school in Zurich,
was educated at IMEDE business school, Lausanne, Switzerland, and completed the
senior executive program of the Swiss Executive School (SKU). Mr. Bauer holds a
Certified Diploma in Accounting and Finance (CPA). He is a citizen of Germany.
KEES VAN OPHEM has served as Carrier1's Vice President, Purchase and General
Counsel since March 1998, with responsibility for interconnection, licensing and
legal affairs. Mr. van Ophem has seven years of experience in the
telecommunications industry. Prior to joining Carrier1, he was Vice President
Purchase and General Counsel for Unisource Carrier Services from 1994 to 1998
and was on its management board from its inception in early 1994. From 1992 to
1994 Mr. van Ophem served as legal counsel to Royal PTT Nederland NV (KPN)
("KPN"), with responsibility for the legal aspects of its start-up ventures in
Hungary, Bulgaria, Czech Republic and Ukraine and the formation of Unisource
Carrier Services. Prior to joining KPN, Mr. van Ophem worked at law firms in
Europe and the United States. Mr. van Ophem holds a Juris Doctorate degree from
the University of Amsterdam and, as a Fulbright scholar, a Master of Laws degree
in International Legal Studies from New York University. He is a citizen of The
Netherlands.
NEIL E. CRAVEN has served as Carrier1's Vice President, Business Development
since March 1998 and has five years of experience in the telecommunications
industry. From 1995 to 1998, Mr. Craven was a member of the management team at
Unisource Carrier Services, initially responsible for Corporate Strategy and
Planning and later serving as Vice President of Business Development. Prior to
joining Unisource Carrier Services, Mr. Craven was employed by Siemens AG in
Germany, where he worked on various international infrastructure projects. Mr.
Craven has an Honors degree in Computer Engineering from Trinity College, Dublin
and a Master of Business Administration degree from the Rotterdam School of
Management. He is a citizen of Ireland.
PHILIP POULTER has served as Carrier1's Managing Director of Sales, United
Kingdom and Ireland since June 1998 and has over 30 years of experience in the
telecommunications industry. Prior to joining Carrier1, Mr. Poulter was
Operations Director of ACC Long Distance UK Ltd. ("ACC"), a switch-based
provider of telecommunications services, from December 1997 to June 1998. From
March 1997 to
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December 1997, Mr. Poulter served as Network & Carrier Services Director of ACC.
From August 1996 to March 1997, Mr. Poulter was Managing Director of Nelcraft
Services Ltd., a provider of installation and maintenance services relating to
the cable television and telecommunications industries. From March 1995 to
August 1996, Mr. Poulter served as Carrier Manager of ACC. From 1993 to 1995,
Mr. Poulter was employed as Sales Director for Business Communication for
Videotron Corporation Ltd. ("Videotron"), a U.K. provider of cable television
and telephony services. Prior to joining Videotron, Mr. Poulter held various
management, sales and engineering positions, including more than fifteen years
of experience in designing and implementing telecommunications switching and
transmission systems for British Telecom. Mr. Poulter is a director of Carrier1
UK Ltd., a subsidiary of Carrier1 International. Mr. Poulter has a Final
Certificate in Electronics and Communications from the London C & G Institute.
He is a citizen of the United Kingdom.
EDWARD A. GROSS has served as Carrier1's Managing Director of Sales,
Germany, Austria and Switzerland since May 1998 and has over 20 years of
experience in the telecommunications and networking industries. Prior to joining
Carrier1, Mr. Gross served as Sales Director, Germany for Unisource Carrier
Services from December 1996 to May 1998. From March 1996 to December 1996, Mr.
Gross served as Director of Customer Services Engineering--Central Europe for
AT&T-Unisource. From 1992 to 1996, Mr. Gross was a member of the management team
at Unisource Business Networks, where he was responsible for the start-up of
operations in Germany and Austria and subsequently served as Director of
Customer Services. Prior to joining Unisource Business Networks, Mr. Gross was
employed by Unisys Corporation for more than 12 years, during which time he held
various positions in network support and software development, primarily in
Germany as well as South Korea and the United States. Mr. Gross holds a Bachelor
of Science degree in Management Studies from the University of Maryland and has
completed the Accelerated Development Program at London Business School. He is a
citizen of the United States.
ISABELLE RUSSIER has served as Carrier1's Managing Director of Sales, France
since August 1998 and has three years of experience in the telecommunications
industry. From November 1997 to July 1998, Ms. Russier was employed in London by
ACC, where she handled various projects in its Business Development Europe
Division. From December 1995 to October 1997, Ms. Russier was employed in France
as General Manager of sales for UNIFI Communications, Inc., a U.S.-based
telecommunications value-added service provider. From 1992 to 1995, she worked
for Apple Computer, Inc., most recently as a Regional Sales Director, and from
1987 to 1992, she was employed by Intel Corp. in a variety of sales positions.
Ms. Russier holds an Engineering degree in Microelectronics and a European
Master of Business Administration degree (ISA) from the HEC School of
Management. She is a citizen of France.
MARCUS J. GAUW has served as Carrier1's Managing Director of Sales, Internet
since May 1998 and has 13 years of experience in the telecommunications
industry. From 1996 to 1998, Mr. Gauw served as Sales Manager for Internet
Transit Services at AT&T-Unisource, and from 1994 to 1996, he served as Sales
Manager, Voice Services at AT&T-Unisource. From 1992 to 1994, Mr. Gauw was a
Senior Sales Consultant for Unisource Business Networks. Prior to joining
Unisource Business Networks, Mr. Gauw was employed by KPN for approximately
seven years, during which time he held various positions in sales and marketing.
Mr. Gauw holds a Bachelor's degree in Telecommunications and Electronics from
Hogere Technische School, Alkmaar, The Netherlands. He is a citizen of The
Netherlands.
GUSTAV SCHAEFER has served as Carrier1's Managing Director of Sales, Benelux
since September 1998 and has over nine years of experience in the
telecommunications industry. From 1995 to 1998, Mr. Schaefer was employed by
Unisource Carrier Services, where he contributed to the development of the
service provider market. Prior to joining Unisource Carrier Services, Mr.
Schaefer was employed by KPN, where he served as a sales consultant and later
developed and implemented KPN's Call Center business solutions. Mr. Schaefer
received a Master's degree in Physics from Delft Technical University. He is a
citizen of The Netherlands.
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CARLOS COLINA has served as Carrier1's Manager, Carrier Sales--North America
since September 1998 and has over 23 years of experience in the
telecommunications industry. Prior to joining Carrier1, Mr. Colina handled
various sales and marketing assignments with AT&T, including responsibility for
directing AT&T's efforts in the assessment and analysis of the international
business switched services marketplace from 1993 to 1998. Mr. Colina has
extensive training in voice and data communications and holds a Bachelor's
degree in Information Sciences from Fordham University. He also has completed
the Wharton School of Business/AT&T business education program. He is a citizen
of the United States.
RICK MIKOLAJCZUK has served as Project Director, Network Build for Carrier1
since November 1998 and has over 28 years of experience in the
telecommunications industry. Prior to joining Carrier1, Mr. Mikolajczuk was an
Engineering Manager for Telewest Communications PLC ("Telewest"), a provider of
cable television and telephony services to businesses and residences in the
United Kingdom, where he was responsible for engineering Telewest's National
Network from its design stage in early 1997 through to completion in October
1998. From 1971 to 1996, Mr. Mikolajczuk was employed by British Telecom, where
he gained extensive experience in duct, cable and transmission planning,
external operations and quality management. Mr. Mikolajczuk holds an Engineering
degree in Electronics from the University of Liverpool. He is a citizen of the
United Kingdom.
GLENN M. CREAMER has served as a director of Carrier1 International since
August 1998. Mr. Creamer has been a Managing Director of Providence Equity
Partners Inc. since its inception in 1996 and is also a General Partner of
Providence Ventures L.P., which was formed in 1991. Mr. Creamer is also a Vice
President of Narragansett Capital Inc., which he joined in 1988. Mr. Creamer is
a director of American Cellular Corporation, Celpage, Inc., Epoch Networks, Inc.
and Wireless One Network L.P. Mr. Creamer received a Bachelor of Arts degree
from Brown University and a Master of Business Administration degree from the
Harvard Graduate School of Business Administration. He is a citizen of the
United States.
JONATHAN E. DICK has served as a director of Carrier1 International since
August 1998. Mr. Dick has been a Managing Director of Primus Venture Partners,
Inc. since December 1993. Prior to joining Primus in June 1991, Mr. Dick held
various positions in sales management at Lotus Development Corporation. Mr. Dick
is also a director of PlanSoft Inc. Mr. Dick received a Bachelor of Science
degree in Applied Mathematics and Economics from Brown University and a Master
of Business Administration degree from the Harvard Graduate School of Business
Administration. He is a citizen of the United States.
MARK A. PELSON has served as a director of Carrier1 International since
August 1998. Mr. Pelson is a Principal of Providence Equity Partners Inc., which
he joined in August 1996. Prior to 1996, Mr. Pelson was a co-founder and
director, from 1995 to 1996, of TeleCorp., Inc., a wireless telecommunications
company, and from 1989 to 1995 served in various management positions with AT&T,
including most recently as a general manager of strategic planning and mergers
and acquisitions. Mr. Pelson is a director of American Cellular Corporation,
Madison River Telephone Company, L.L.C. and Wired Ventures Inc. Mr. Pelson
received a Bachelor of Arts degree from Cornell University and a Juris Doctorate
from Boston University. Mr. Pelson is the son of Victor A. Pelson. He is a
citizen of the United States.
VICTOR A. PELSON has served as a director of Carrier1 International since
January 1999. Mr. Pelson is a Senior Advisor to Warburg Dillon Read LLC., an
investment banking firm. He was a Director and Senior Advisor of Dillon, Read &
Co. Inc. at the time of its merger in 1997 with SBC Warburg. Before joining
Dillon, Read in April 1996, Mr. Pelson was associated with AT&T from 1959 to
March 1996, where he held a number of executive positions, including Group
Executive and President responsible for the Communications Services Group,
Executive Vice President and member of the Management Executive Committee. At
his retirement from AT&T, Mr. Pelson was Chairman of Global Operations (for what
is now AT&T, Lucent Technologies and NCR) and a member of the Board of
Directors. Mr. Pelson is also chairman of the board of trustees of New Jersey
Institute of Technology and a director of Eaton Corporation, Dun & Bradstreet
Corporation and United Parcel Service of America, Inc. Mr. Pelson received a
Bachelor of Science degree in Mechanical Engineering from New Jersey Institute
of Technology
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and a Master of Business Administration degree from New York University. Mr.
Pelson is the father of Mark A. Pelson. He is a citizen of the United States.
THOMAS J. WYNNE has served as a director of Carrier1 International since
January 1999. Mr. Wynne is currently a partner with Sycamore Creek Development
Co. He was President and Chief Operating Officer of LCI International Inc. and
its subsidiaries from July 1991 to October 1997. From 1977 to 1991, Mr. Wynne
held several executive positions with MCI Communications Corp., including
President of the West Division, Vice President of Sales and Marketing for the
Mid-Atlantic Division, and Vice President in the Midwest Division. Mr. Wynne is
also a director of Advanced Radio Telecom Corp. Mr. Wynne holds a Bachelor of
Science degree in Political Science from St. Joseph's University. He is a
citizen of the United States.
BOARD OF DIRECTORS
The general affairs and business of Carrier1 International are managed by
the Board of Directors (the "Board"). Carrier1 International's Articles of
Incorporation (the "Articles") provide for at least three directors appointed by
a general meeting of shareholders for terms no greater than six years. Under the
Articles, the number and terms of directors are to be determined, and each
director may be reelected or removed at any time, by a general meeting of
shareholders. Directors are not required to hold any shares in Carrier1
International by way of qualification. Carrier1 International is bound by the
joint signature of two directors or the sole signature of a managing director
for ordinary course management decisions, if one has been appointed by the
Board. Carrier1 International currently has six directors and has no persons
appointed as corporate officers.
COMMITTEES OF THE BOARD OF DIRECTORS
Carrier1 International currently does not have any Board committees.
COMPENSATION OF DIRECTORS
Carrier1 International will reimburse the members of the Board for their
reasonable out-of-pocket expenses incurred in connection with attending Board
meetings. Additionally Carrier1 International expects to maintain directors' and
officers' liability insurance. Members of the Board receive no other
compensation for services provided as a Director.
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<PAGE>
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to, the Chief Executive
Officer and the other four most highly compensated executive officers of
Carrier1 during the period from March 4, 1998 through December 31, 1998. During
this period, these individuals held options in Carrier1 LLC, which in turn held
substantially all of the equity of Carrier1. Purchase of interests in the LLC by
employees of Carrier1 were contractually limited to the lower of (a) the amount
listed under the "Long Term Compensation" column or (b) the employee's portion
of a total of 11.1% of the outstanding LLC interests. Pursuant to a
restructuring of Carrier1's management equity, these options for LLC interests
have been cancelled and equivalent options for shares of Carrier1 International
common stock have been issued in their place. The economic terms of these new
options are substantially the same as the terms of the LLC options. The table
assumes that the maximum number of Class A Units would be purchased by such
purchasers.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
SHORT TERM ---------------------
COMPENSATION MAXIMUM NUMBER OF ALL OTHER
---------------------- SECURITIES COMPENSATION
NAME AND PRINCIPAL POSITION PERIOD SALARY(A) BONUS UNDERLYING OPTIONS (A)(B)
- ----------------------------------------- --------- ----------- ----------- --------------------- -------------
<S> <C> <C> <C> <C> <C>
Stig Johansson........................... March-
President and Chief Executive Officer December
1998 $ 245,569 $ 46,044 711,111 $ 61,738
Gene Rizzo............................... March-
Vice President, Sales and Marketing December
1998 173,343 32,502 711,111 49,436
Terje Nordahl............................ April-
Chief Operating Officer December
1998 135,207 25,352 355,555 44,217
March-
Joachim W. Bauer.........................
Chief Financial Officer December
1998 150,230 28,168 711,111 56,980
Kees van Ophem........................... March-
Vice-President, Purchase and General
Counsel December
1998 150,230 28,168 711,111 36,944
</TABLE>
- ------------------------
(a) Carrier1 records this compensation expense in Swiss Francs. The U.S. dollar
amounts shown were calculated using an average exchange rate for the period
of March 4, 1998 through December 31, 1998 of $0.69337 to SFr1.
(b) Consists of business expenses and contributions under a pension plan for its
executive officers paid by Carrier1 International GmbH, a wholly owned
subsidiary of Carrier1 International. Business expenses consist of car and
travel expenses in the following amounts (in thousands):
<TABLE>
<S> <C>
Stig Johansson....................................................... $ 22.2
Gene Rizzo........................................................... 22.2
Terje Nordahl........................................................ 20.0
Joachim Bauer........................................................ 22.2
Kees van Ophem....................................................... 22.2
</TABLE>
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<PAGE>
STOCK OPTION GRANTS AND FISCAL YEAR-END VALUES
The following tables set forth information regarding grants of options to
purchase Class A Units in Carrier One, LLC (the "LLC") and the fiscal year-end
value of such options, which were granted to the executive officers listed in
the Summary Compensation Table above pursuant to the 1998 Option Plan. During
the period from March 4, 1998 through December 31, 1998, the LLC held
substantially all of the equity of Carrier1 International. Purchase of interests
in the LLC by employees of Carrier1 were contractually limited to the lower of
(a) the amount listed under the "Long Term Compensation" column in the Summary
Compensation Table above or (b) the employee's portion of a total of 11.1% of
the outstanding LLC interests. Pursuant to a restructuring of Carrier1's
management equity, these options for LLC interests have been cancelled and
equivalent options for shares of Carrier1 International common stock have been
issued in their place. The economic terms of these new options are substantially
the same as the terms of the LLC options.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
MAXIMUM PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE PRESENT VALUE
OPTIONS EMPLOYEES PRICE AT DATE OF
NAME GRANTED IN 1998 ($/SHARE) EXPIRATION DATE GRANT(A)
- -------------------------------------------- ----------- ----------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Stig Johansson.............................. 711,111 17.6% $ 1.00 March 4, 2008 $ 106,666.65
Gene Rizzo.................................. 711,111 17.6 1.00 March 4, 2008 106,666.65
Terje Nordahl............................... 355,555 8.8 1.00 March 4, 2008 53,333.25
Joachim W. Bauer............................ 711,111 17.6 1.00 March 4, 2008 106,666.65
Kees van Ophem.............................. 711,111 17.6 1.00 March 4, 2008 106,666.65
</TABLE>
- ------------------------
(a) The fair value of option grants is estimated on the date of grant using the
minimum value option-pricing model, as allowed under SFAS 123 for nonpublic
companies, for pro-forma footnote purposes with the following assumptions
used: dividend yield of 0%, risk-free interest rate of 5.53%, and expected
option life of 5 years.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(A)
LLC UNITS ----------------- --------------------
ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------- ----------------- ------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Stig Johansson.............................. 0 $ 0 --/711,111 $ --/--
Gene Rizzo.................................. 0 0 --/711,111 --/--
Terge Nordahl............................... 0 0 --/355,555 --/--
Joachim W. Bauer............................ 0 0 --/711,111 --/--
Kees van Ophem.............................. 0 0 --/711,111 --/--
</TABLE>
- ------------------------
(a) No options were in-the-money on December 31, 1998.
Under the 1998 Option Plan, the LLC authorized the issuance of options for
up to 4,444,444 Class A Units, of which options for 4,044,442 underlying Class A
Units were granted. These options have been cancelled in exchange for the grant
of new options to acquire shares of Carrier1 International's common
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<PAGE>
stock. See "Certain Relationships and Related Transactions--Equity Investor
Agreements--Securities Purchase and Cancellation Agreement."
Carrier1 authorized the issuance of options for up to 2,222,222 shares of
Carrier1 International's common stock pursuant to its 1999 Share Option Plan
dated as of December 30, 1998, of which Carrier1 has granted 2,110,968 options
to its employees and anticipates granting further options to its employees in
the near term, including through an increase in the shares authorized under the
1999 Share Option Plan. Carrier1 has also issued options to acquire 20,000
shares to each of Messrs. Wynne and Pelson outside the scope of the 1999 Option
Plan. See "Certain Relationships and Related Transactions--Equity Investor
Agreements--1999 Share Option Plan."
EMPLOYMENT AGREEMENTS
Each of Stig Johansson, Eugene A. Rizzo, Terje Nordahl, Joachim Bauer and
Kees van Ophem (the "Executives") has entered into an employment agreement with
a wholly owned subsidiary of Carrier1 International. Such agreements include,
among others, the following terms:
TERM. The employment agreements may be terminated by either party after
August 31, 1999, upon six months' notice.
NONDISCLOSURE, NONCOMPETITION AND NONSOLICITATION COVENANTS. Each Executive
has agreed that during his period of employment and the eighteen months
thereafter (the "Non-Compete Period") he or she will refrain from disclosing
confidential information and will not participate in any business that is
engaged in the provision of international long distance telecommunications
services or that is otherwise in competition with any business conducted by the
LLC or its subsidiaries. Additionally, each Executive has agreed that during the
Non-Compete Period, he or she will not induce or attempt to induce any employee
of Carrier1 to leave the employ of Carrier1, nor will he attempt to induce any
supplier, distributor or customer of Carrier1 or its affiliates to cease doing
business with Carrier1. In addition, each Executive is subject to nondisclosure,
noncompetition and nonsolicitation covenants pursuant to Deeds of Covenant
entered into among the LLC, Carrier One Limited, Providence and the Executives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Carrier1 International currently does not have a compensation committee and
the compensation of executive officers and other key employees of Carrier1 are
determined by the Board. Stig Johansson, Carrier1's President and Chief
Executive Officer, is currently a member of the Board and participates in such
determination.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EQUITY INVESTMENTS
As of May 1, 1999, shares of Carrier1 International's common stock have been
subscribed and paid for by Carrier1's management and employees, Providence
Equity Partners L.P. (which holds one share) and the LLC. Messrs. Johansson,
Bauer, Rizzo, van Ophem, Craven, Nordahl, Gross and Poulter are among the
management that have subscribed and paid for outstanding shares.
The LLC is the vehicle through which Providence and Primus participate in
the equity investment in Carrier1 International. In addition, Thomas J. Wynne
and Victor A. Pelson, who are directors of Carrier1 International, hold
interests in the LLC through arrangements arrived at separately with Providence
and Primus. Messrs. Wynne and Pelson each own (directly or through trusts
organized for the benefit of family members) 400,000 Class A Units in the LLC,
acquired at a purchase price of $1.00 per Class A Unit. Messrs. Wynne and Pelson
each disclaims beneficial ownership of any Class A Units in any such trusts. Mr.
Wynne's and Mr. Pelson's Class A Units relate to a total of 400,000 shares of
Carrier1 International's common stock to be held by the LLC or approximately
1.13% of Carrier1 International's common stock on a fully diluted basis. Messrs.
Wynne and Pelson, however, do not directly hold any outstanding shares of
Carrier1 International's common stock.
As of May 1, Carrier1 had substantially completed a restructuring of its
management equity arrangements. Pursuant to this restructuring, each of Messrs.
Johansson, Bauer, Rizzo, van Ophem, Craven, Nordahl, Gross and Poulter in effect
has exchanged his equity interests and options that he had held in the LLC to
acquire an equivalent dollar amount of shares and options of Carrier1
International common stock. Each effected this exchange through a series of
transactions with the LLC, Providence and Primus and Carrier1 International.
These individuals' portions of the total equity investment in Carrier1
International did not change significantly as a result of this restructuring,
but each of these individuals will hold common stock and options to acquire
common stock of Carrier1 International directly. In addition, Carrier1
International has granted Thomas J. Wynne and Victor A. Pelson options to
purchase a total of 40,000 shares of Carrier1 International's common stock
(20,000 shares of common stock for each), at $2.00 per share.
1999 SHARE OPTION PLAN
The Board of Carrier1 International has adopted the 1999 Share Option Plan,
dated as of December 30, 1998 (the "1999 Share Option Plan"), under which
Carrier1 and related companies of the consolidated Carrier1 group may grant to
any employee or director options (the "Options") for shares of Carrier1
International's common stock ("Shares") or other equity securities issued by
Carrier1 International. The Option Plan is administered by the Board or a
committee appointed by the Board, and authorizes the Board or such committee to
issue Options in such forms and on such terms as determined by the Board or such
committee. The Board or such committee may determine the number of Options to
grant, provided that the number of Shares issued pursuant to the Option Plan
shall be no greater than 2,222,222 Shares. The per Share exercise price for the
Options may not be less than $2.00. If Options are to be granted to an employee
of a subsidiary, such subsidiary will grant such Options instead of Carrier1
International. Carrier1 International will grant the subsidiary options to
acquire Shares to meet its Option obligations at a per Share exercise price
based upon an agreed fair market value (or, failing agreement, a fair market
value determined by the Board). Options granted under the Option Plan will vest
in five equal annual installments beginning the first anniversary of the grant
of such Options. Options will expire if not exercised within 10 years of the
grant, or on an earlier date as specified by the Board or the committee. If the
employment of a participant is terminated for any reason, all unvested Options
will immediately expire and vested Options must be exercised within a particular
number of days, which number will vary depending on the reasons for termination.
Subject to certain exceptions, Options will be nontransferable during the life
of an optionee except pursuant to a valid domestic relations order. Upon an
optionee's
84
<PAGE>
death, disability or termination of employment, the subsidiary which employs the
optionee, or its designee, will have the right to repurchase all Shares held by
the optionee, whether or not such Shares were acquired pursuant to the exercise
of Options. Under Luxembourg law, Carrier1 International and certain
subsidiaries may be precluded from exercising such right directly.
Carrier1 has granted Options pursuant to the 1999 Share Option Plan to
acquire approximately 2,110,968 Shares at an exercise price of $2.00 per Share
plus applicable capital duty (currently 1% of the subscription price payable to
Carrier1 International by the subsidiary granting the applicable Option).
Carrier1 intends to grant additional Options in the future.
SECURITIES PURCHASE AGREEMENT
Carrier1 International, the LLC and up to 44 employee investors
(collectively, the "Management Investors") have entered into the Securities
Purchase Agreement (the "Securities Purchase Agreement") (effective as of March
1, 1999) under which each Management Investor has purchased a specified number
of Shares at $2.00 per Share, for an aggregate purchase price of $2.14 million.
As part of the restructuring of the management equity arrangements described
above, each of Messrs. Johansson, Bauer, Rizzo, van Ophem, Craven, Nordahl,
Gross, and Poulter has, in effect, exchanged 68,260 Class A Units (at $1.00 per
unit) to acquire, pursuant to the Securities Purchase Agreement, 34,130 Shares
(at $2.00 per Share). Carrier1 International intends in the future to issue
additional Shares to employees that are or become party to the Securities
Purchase Agreement. The Securities Purchase Agreement also contains provisions
relating to the sale of a number of Shares (at $2.00 per Share) sufficient to
complete the equity investment in Carrier1 International by the LLC in which
Providence, Primus and Messrs. Wynne and Pelson have membership interests. The
$60.0 million Equity Investment by Providence and Primus was completed in
February, 1999. The LLC has paid in an additional $800,000 to the capital of
Carrier1 International. Issuance of the remaining 400,000 Shares to the LLC
pursuant to these provisions is pending as of May 1, 1999. The Securities
Purchase Agreement provides that Carrier1 International will indemnify the LLC
and Management Investors for, among other things, losses related to any
transaction financed or to be financed with proceeds from the sale of securities
purchased pursuant to the Securities Purchase Agreement or any related agreement
and environmental losses. The Securities Purchase Agreement contains customary
conditions, representations and warranties.
REGISTRATION RIGHTS AGREEMENT
Carrier1 International, the LLC, and Messrs. Johansson, Bauer, Rizzo, van
Ophem, Craven, Nordahl, Gross, Poulter, Wynne and Pelson (the "Original
Management Investors") have entered into a registration rights agreement
(effective as of March 1, 1999) (the "Registration Rights Agreement"). The
Registration Rights Agreement provides that the LLC may at any time request
registration under the Securities Act of its Shares and certain other equity
securities. In addition, the Registration Rights Agreement gives certain
piggyback registration rights to the LLC and the Original Management Investors
and, at the request of certain Original Management Investors, possibly
additional employees party to the Securities Purchase Agreement or the
Securityholders' Agreement described below. The Original Management Investors do
not, however, have piggyback rights in connection with an initial public
offering. The Registration Rights Agreement contains provisions governing the
registration statement filing process. Among other things, it provides that
Carrier1 International will bear all registration expenses and expenses for each
piggyback registration in which the LLC or any of the Original Management
Investors participate, other than underwriting discounts and commissions, in
connection with its obligations under the Registration Rights Agreement.
SECURITYHOLDERS' AGREEMENT
In connection with the Securities Purchase Agreement, Carrier1 International
has entered into a securityholders' agreement (effective as of March 1, 1999)
(the "Securityholders' Agreement") with
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<PAGE>
Messrs. Wynne and Pelson, the Management Investors and the LLC. The
Securityholders' Agreement places restrictions on Management Investors' ability
to transfer their securities without the prior written consent of the Board
except under special circumstances. Transfers of securities are subject to the
right of first refusal by the LLC or its transferee. The LLC will also benefit
from preemptive rights in certain other circumstances. The Securityholders'
Agreement also provides that the Management Investors will (i) consent to and
raise no objections to a sale of Carrier1 International approved by the Board
and (ii) comply with a Board request to pledge their securities to secure
financing to be provided to Carrier1 International. Management Investors have
tag-along rights in the event of sales by the LLC or its members of securities
if a change of control is involved. The Securityholders' Agreement provides for
certain individuals to be appointed to the Board. Finally, under the
Securityholders' Agreement, the Management Investors agree not to disclose
confidential information of, compete with, or solicit employees or customers
from the LLC or Carrier1.
EPOCH PEERING ARRANGEMENT
Carrier1 has entered into a peering arrangement with Epoch Networks. The
contract with Epoch Networks provides for the free exchange of data traffic
between Carrier1 and Epoch Networks. A fund managed by Providence that holds a
majority of the Class A Units of the LLC and another fund managed by Providence
that also holds an interest in Class A Units of the LLC own a combined 21% of
the outstanding equity of Epoch Networks.
OTHER TRANSACTIONS
The LLC has advanced a loan of $68,260, bearing interest at 12%, to Mr. van
Ophem, evidenced by a promissory note dated June 30, 1998, to finance his equity
investment in the LLC. As of December 31, 1998, Mr. van Ophem owed $68,260 to
the LLC. Mr. van Ophem is required to repay principal and interest on the loan
in five equal annual installments of $18,936 commencing July 1, 2001. Carrier1
expects (effective as of March 1, 1999) to become the creditor with respect to
such loan.
During the period ended December 31, 1998, Carrier1 reimbursed Providence
and Primus for expenses incurred in connection with the formation of Carrier1
and the negotiation of certain agreements entered into by Carrier1. Such
reimbursements totaled $339,000 and were expensed as selling, general and
administrative expenses.
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<PAGE>
PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Shares of Carrier1 International, as of May 12, 1999, by
(1) each person known to Carrier1 International to own beneficially more
than 5% of Carrier1 International's outstanding Shares,
(2) each director of Carrier1 International,
(3) each executive officer of Carrier1 International listed in the
Summary Compensation Table under "Management" above and
(4) all executive officers and directors of Carrier1 International as a
group.
All information with respect to beneficial ownership has been furnished to
Carrier1 International by the respective shareholders of Carrier1 International.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER OF SHARES SHARES
- --------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Carrier One, LLC................................................................. 30,399,999 90.52%
c/o Providence Equity Partners Inc.
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Providence Equity Partners L.P.(2)............................................... 30,400,000 90.52
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Jonathan M. Nelson(2)............................................................ 30,400,000 90.52
Paul J. Salem(2)................................................................. 30,400,000 90.52
<CAPTION>
NAME OF EXECUTIVE OFFICER OR DIRECTOR
- ---------------------------------------------------------------------------------
<S> <C> <C>
Stig Johansson(3)................................................................ 105,241 *
Eugene A. Rizzo(3)............................................................... 105,241 *
Terje Nordahl(3)................................................................. 69,685 *
Joachim Bauer(3)................................................................. 105,241 *
Kees van Ophem(3)................................................................ 105,241 *
Glenn M. Creamer (2)............................................................. 30,400,000 90.52
Jonathan E. Dick................................................................. -- --
Mark A. Pelson................................................................... -- --
Victor A. Pelson(4).............................................................. 20,000 *
Thomas J. Wynne(4)............................................................... 20,000 *
All directors and executive officers as a group (11 persons)..................... 31,035,890 92.41
</TABLE>
- ------------------------
* Less than one percent.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), a person is deemed a "beneficial owner" of a
security if he or she has or shares the power to vote or direct the voting
of such security or the power to dispose or direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities
which that person has the right to acquire beneficial ownership of within 60
days. More than one person may be deemed to be a beneficial owner of the
same securities.
(2) The LLC is the direct beneficial owner of 29,999,999 Shares and Providence
Equity Partners L.P. ("Providence L.P.") is the direct beneficial owner of 1
Share. Providence L.P. is the majority Class A Unit holder of the LLC, and
by virtue of such status may be deemed to be the beneficial owner of the
Shares in which the LLC has direct beneficial ownership. Providence Equity
Partners L.L.C. ("PEP LLC") is the general partner of Providence L.P., and
by virtue of such status may be deemed to be the
87
<PAGE>
beneficial owner of the Shares in which Providence L.P. has direct or
indirect beneficial ownership. Jonathan M. Nelson, Glenn M. Creamer and Paul
J. Salem may be deemed to share voting and investment power with respect to
the Shares in which PEP LLC has direct or indirect beneficial ownership.
Each of Jonathan M. Nelson, Glenn M. Creamer, Paul J. Salem, PEP LLC and
Providence L.P. disclaims such deemed beneficial ownership.
(3) Includes 34,130 Shares and an additional 71,111 Shares (35,555, in the case
of Mr. Nordahl) issuable to each such person upon exercise of options which
are exercisable within 60 days.
(4) Consists of options that Carrier1 International has issued to each of Thomas
J. Wynne and Victor A. Pelson for a total of 40,000 Shares of its common
stock (20,000 Shares each).
The following table sets forth certain information regarding the current
beneficial ownership of Class A Units (the "Class A Units") of the LLC by:
(1) each director of Carrier1 International,
(2) each executive officer of Carrier1 International listed in the Summary
Compensation Table under "Management" above,
(3) all directors and executive officers of Carrier1 International as a
group as of May 1, 1999 and
(4) each person known to Carrier1 International to own beneficially more
than 5% of the LLC's Class A Units.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF DIRECTOR/EXECUTIVE OFFICER(1) NUMBER OF UNITS UNITS(1)
- ---------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Stig Johansson.................................................................... -- --
Eugene A. Rizzo................................................................... -- --
Terje Nordahl..................................................................... -- --
Joachim Bauer..................................................................... -- --
Kees van Ophem.................................................................... -- --
Glenn M. Creamer (2).............................................................. 50,000,000 82.24%
Jonathan E. Dick.................................................................. -- --
Mark A. Pelson.................................................................... -- --
Victor A. Pelson (3).............................................................. 400,000 *
Thomas J. Wynne (3)............................................................... 400,000 *
All directors and executive officers as a group (11 persons)...................... 50,800,000 83.55%
NAME AND ADDRESS OF BENEFICIAL OWNER
Providence Equity Partners, L.P. (2).............................................. 49,312,400 81.11%
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Jonathan M. Nelson (2)............................................................ 50,000,000 82.24%
Paul J. Salem (2)................................................................. 50,000,000 82.24%
Primus Capital Fund IV Limited Partnership (4).................................... 9,600,000 15.79%
5900 Landerbrook Drive
Suite 200
Cleveland, OH 44124-4020
</TABLE>
- ------------------------
* Less than one percent.
(1) Based upon 60.8 million Class A Units outstanding.
(2) Providence L.P. holds 49,312,400 Class A Units, and another fund managed by
Providence holds 687,600 Class A Units. PEP LLC is the general partner of
Providence L.P. and the other fund, and by
88
<PAGE>
virtue of such status may be deemed to be the beneficial owner of the Class
A Units in which Providence L.P. and the other fund have direct or indirect
beneficial ownership. Jonathan M. Nelson, Glenn M. Creamer and Paul J. Salem
may be deemed to share voting and investment power with respect to the Class
A Units in which PEP LLC has direct or indirect beneficial ownership. Each
of Jonathan M. Nelson, Glenn M. Creamer, Paul J. Salem and PEP LLC disclaims
such deemed beneficial ownership.
(3) Thomas J. Wynne and Victor A. Pelson each have purchased (directly or
through trusts organized for the benefit of family members) 400,000 Class A
Units in the LLC, which in turn will use the proceeds of such purchases to
acquire a total of 400,000 Shares. These Class A Units do not include
additional options that Carrier1 International has issued to each of Thomas
J. Wynne and Victor A. Pelson for a total of 40,000 Shares of its common
stock (20,000 Shares each). Messrs. Wynne and Pelson intend to disclaim
beneficial ownership in any Class A Units held in any such trusts.
(4) Primus Capital Fund IV Limited Partnership ("Primus Capital LP") holds
9,600,000 Class A Units and another fund managed by Primus holds 400,000
Class A Units. Primus Venture Partners IV Limited Partnership ("Primus
Venture LP") is the general partner of Primus Capital LP and the other fund,
and Primus Venture Partners IV, Inc. ("Primus Venture Inc.") is the General
Partner of Primus Venture LP. By virtue of such status, either of Primus
Venture LP or Primus Venture Inc. may be deemed to be the beneficial owner
of the Class A Units in which Primus Capital LP and the other fund have
beneficial ownership. Each of Primus Venture LP and Primus Venture Inc.
disclaims such deemed beneficial ownership.
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<PAGE>
DESCRIPTION OF THE NOTES
The old dollar notes and the old Euro notes were issued under separate
indentures, each dated as of February 19, 1999. The Chase Manhattan Bank is the
trustee under each indenture. The new dollar notes will be issued under the
dollar indenture and the new Euro notes will be issued under the Euro indenture.
The indentures have been filed as exhibits to the registration statement of
which this prospectus is a part. They are available as set forth under the
heading "Where You Can Find More Information." The terms of the new notes of a
series are identical to the terms of the old notes of such series, except that
the new notes will be registered under the Securities Act and will not contain
restrictions on transfer or include provisions relating to additional interest
and will contain different administrative terms. New notes will otherwise be
treated as notes for purposes of the indentures.
The following is a summary of the material provisions of the indentures.
This summary does not contain all of the information that may be important to an
investor in the notes. It is subject to, and is qualified in its entirety by
reference to, all the provisions of the indentures, including terms defined in
the indentures and provisions of the Trust Indenture Act of 1939. Whenever
particular defined terms of the indentures not otherwise defined here are
referred to, such defined terms are incorporated here by reference. For
definitions of certain capitalized terms used in the following summary, see
"--Certain Definitions." In this summary, "Carrier1 International" refers only
to Carrier1 International S.A. and its successors under the relevant indenture
and not to any of Carrier1 International S.A.'s subsidiaries.
BRIEF DESCRIPTION OF THE NOTES
The notes are:
- general, unsubordinated obligations of Carrier1 International;
- unsecured, except as indicated under "--Security" below; and
- issued only in fully registered form, without coupons.
The dollar notes will be represented by one or more permanent global dollar
notes. These global dollar notes will be registered in the name of The
Depository Trust Company, commonly known as "DTC". The relevant trustee will
hold these global dollar notes as custodian for DTC.
Old Euro notes offered and sold in transactions outside the United States in
reliance on Regulation S are represented solely by certificated Euro notes.
Other Euro notes will be represented by one or more permanent global Euro notes.
Global Euro notes will be deposited with the relevant trustee, as common
depositary for Euroclear and Cedel Bank. If a qualified institutional buyer of a
beneficial interest in a global Euro note wishes to hold that interest through
DTC, those beneficial interests will be represented by one or more permanent
global Euro notes. These DTC Euro notes will be registered in the name of DTC.
The relevant trustee will hold these DTC Euro notes as custodian for DTC.
Carrier1 International will not impose any service charge for any
registration of transfer or exchange of notes. However, Carrier1 International
may require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection with a transfer or exchange.
PRINCIPAL, MATURITY AND INTEREST
Carrier1 International will issue new dollar notes with a maximum aggregate
principal amount of $160.0 million and new Euro notes with a maximum aggregate
principal amount of [Euro]85.0 million. Carrier1 International will issue dollar
notes in denominations of $1,000 and integral multiples of $1,000. Carrier1
International will issue Euro notes in denominations of [Euro]1,000 and integral
multiples of [Euro]1,000. The notes will mature on February 15, 2009.
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Interest on the notes will accrue at a rate of 13.25% per annum and will be
payable semi-annually in arrears on February 15 and August 15 of each year,
commencing on August 15, 1999. Carrier1 International will make each interest
payment to the holders of record of the notes on the immediately preceding
February 1 and August 1.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
All payments on the notes will be made at the office or agency of Carrier1
International in the Borough of Manhattan, the City of New York. Transfers or
exchanges of the notes may also be made at this office or agency. This office or
agency will initially be the corporate trust office of the relevant trustee in
the City of New York. Carrier1 International may pay interest by check mailed to
the holders of the notes at their addresses as they appear in a register kept
pursuant to the relevant indenture.
Carrier1 International may issue additional notes ("Additional Notes") under
the indentures. Old notes, new notes and any Additional Notes will be treated as
a single class for all purposes under the relevant indenture. References in this
"Description of the Notes" to the notes refer to the relevant series of notes.
THE GLOBAL SECURITIES
Ownership of beneficial interests in a global note will be limited to
persons, known as "participants," who have an account with DTC or Euroclear and
Cedel Bank or persons who hold interests through participants. Qualified
institutional buyers may hold their interest in a global note directly through
DTC or Euroclear and Cedel Bank, if they are participants in such system, or
indirectly through organizations which are participants in such system.
Beneficial interests in the global dollar notes and DTC Euro notes will be shown
on records maintained by DTC or its participants. Transfers of these beneficial
interests will be effected only through records maintained by DTC or its
participants. Beneficial interests in the global Euro notes will be shown on
records maintained by Euroclear and Cedel Bank or their participants. Transfers
of these beneficial interests will be effected only through records maintained
by Euroclear, Cedel Bank or their participants. Carrier1 expects that, upon
deposit of a global note representing new notes, DTC or Euroclear or Cedel Bank
will credit the account of participants tendering old notes in exchange for new
notes with an interest in the applicable global note. All beneficial interests
in the global securities will be subject to the procedures and requirements of
DTC, Euroclear or Cedel Bank. Transactions settled through DTC, Euroclear and
Cedel will settle on a T+3 basis.
Owners of beneficial interests in the global securities will not be entitled
to have notes registered in their names. They also will not have physical
delivery of definitive certificates representing individual notes except in
limited circumstances. The laws of some jurisdictions may require some
purchasers to take physical delivery of the notes. Accordingly, the ability to
transfer interests in notes represented by a global note to such persons may be
limited. In addition, DTC, Euroclear and Cedel Bank can act only on behalf of
their respective participants, who in turn act on behalf of persons who hold
interests through such participants. Therefore, the lack of a physical
definitive note may affect the ability of a person having an interest in a
global note to pledge or transfer that interest to persons or entities that do
not participate in DTC's, Euroclear's or Cedel Bank's system, or to take other
actions.
So long as DTC, Euroclear or Cedel Bank is the registered owner or holder of
any of the global securities, the relevant organization (or its nominee) will be
considered the sole owner or holder of the notes represented by such global
notes for all purposes under the indentures. No beneficial owner of an interest
in the global notes will be able to transfer that interest except in accordance
with DTC's, Euroclear's or Cedel Bank's applicable procedures, in addition to
those provided for under the relevant indenture.
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Transfers between participants in DTC will be effected in accordance with
DTC's procedures. Those transfers will be settled in same-day funds. Transfers
between participants in Euroclear or Cedel Bank will be effected in the ordinary
way in accordance with their respective rules and operating procedures.
Carrier1 International expects that DTC, Euroclear or Cedel Bank will take
any action permitted to be taken by a holder of notes only at the direction of
their participants and only for the portion of the notes as to which such
participants have given direction.
PAYMENTS
Payments will be made through a paying agent to :
- DTC for global dollar notes and DTC Euro notes or
- Euroclear or Cedel Bank for global Euro notes other than the DTC Euro
notes.
All amounts payable under the dollar notes will be payable in U.S. dollars and
all amounts payable under the Euro notes will be payable in Euro, except as
otherwise provided below. Carrier1 International, the trustees, the transfer
agent and the paying agent will not be liable or responsible for:
- keeping or reviewing any records relating to beneficial ownership
interests in the global notes or
- payments for beneficial ownership interests in the global notes.
If the Euro notes are included in the regulated unofficial market (Freiverkehr)
of the Frankfurt Stock Exchange, Carrier1 International will maintain a paying
agent and registrar in Germany.
Carrier1 International expects that DTC, Euroclear or Cedel Bank, upon
receipt of any payments on the global notes, will credit participants' accounts
with payments in proportion to their beneficial interests, as shown on the
records of the applicable organization. Carrier1 International also expects that
payments by participants to owners of beneficial interests in the global notes
will be governed by standing instructions and customary practice. Such payments
will be the responsibility of such participants.
PAYMENTS ON GLOBAL EURO NOTES. Payments to holders of global Euro notes in
respect of principal and interest on the Euro notes will be made in Euro, except
as may otherwise be agreed between any applicable securities clearing system and
any holders. See "--Currency Conversions for Holders of Beneficial Interests in
DTC Euro Notes." Payments will be subject in all cases to any applicable fiscal
or other laws and regulations. None of Carrier1 International, the trustees or
any paying agent shall be liable to any person for any commissions, costs,
losses or expenses relating to any currency conversion or rounding.
CURRENCY CONVERSIONS FOR HOLDERS OF BENEFICIAL INTERESTS IN DTC EURO
NOTES. Investors who hold beneficial interests in DTC Euro notes, directly or
indirectly, through DTC will be paid in U.S. dollars converted from payments in
Euro by the applicable agent unless the registered holder, on behalf of an owner
of beneficial interests, elects to receive payments in Euro or the chosen
currency, as the case may be. All costs of conversion, if any, will be borne by
holders of beneficial interests in the DTC Euro notes, by deduction from such
payments.
An owner of a beneficial interest in a DTC Euro note may receive payment in
Euro by notifying the DTC participant through which it holds its interest on or
prior to the record date of (a) the owner's election to receive payment in Euro
and (b) wire transfer instructions to an account entitled to receive the
relevant payment. The DTC participant must notify DTC of the owner's election
and wire transfer instructions (a) on or prior to the second New York business
day after the record date for any payment of interest and (b) on or prior to the
eighth day prior to the payment of principal. DTC will notify the paying agent
of such election and wire transfer instructions (a) on or prior to the fourth
New York business day after the record date for any payment of interest and (b)
on or prior to the sixth New York business day prior to the payment of
principal. If the DTC participant, DTC and the paying agent receive complete
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instructions on or prior to such dates, such owner will receive payment in Euro
outside DTC. Otherwise the paying agent will only make U.S. dollar payments to
such owner. All costs of payment by wire transfer will be borne by registered
holders receiving such payments by deduction from such payments. For purposes of
the foregoing, "New York business day" means a day all banking institutions are
not authorized or obligated by law or executive order to be closed in The City
of New York.
Investors may be subject to foreign exchange risks that may have important
economic and tax consequences to them.
INFORMATION CONCERNING DTC, EUROCLEAR AND CEDEL
Carrier1 International understands that: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Carrier1 International understands that: Euroclear and Cedel Bank hold
securities for participating organizations and facilitate the clearance and
settlement of securities transactions between their respective participants
through electronic book-entry changes in accounts of such participants.
Euroclear and Cedel Bank provide to their participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Euroclear and Cedel Bank interface with domestic securities markets. Euroclear
and Cedel Bank participants are financial institutions such as underwriters,
securities brokers and dealers, banks, trust companies and certain other
organizations. Indirect access to Euroclear or Cedel Bank 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 Cedel Bank participant,
either directly or indirectly.
Subject to compliance with any transfer restrictions applicable to the
global notes, transfers between the DTC participants, on the one hand, and
Euroclear or Cedel Bank participants, on the other hand, will be effected
through DTC in accordance with DTC's rules. These transfers will require
delivery of instructions to Euroclear or Cedel Bank in accordance with their
rules and procedures and within their established deadlines. Euroclear or Cedel
Bank will, if the transaction meets its settlement requirements, deliver
instructions to its 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 Cedel Bank
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel Bank.
Because of time zone differences, the securities account of a Euroclear or
Cedel Bank participant purchasing an interest in a global security from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel Bank participant, during the securities
settlement processing day immediately following the settlement date of DTC. The
securities settlement processing day must be a business day for Euroclear and
Cedel Bank. Cash received in Euroclear or Cedel Bank as a result of sales of an
interest in a global note by or through a Euroclear or Cedel Bank participant to
a DTC participant will be received with value on the settlement date of DTC but
will be available in the relevant Euroclear or Cedel Bank cash account only as
of the business day for Euroclear or Cedel Bank following DTC's settlement date.
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Carrier1 International expects DTC, Euroclear and Cedel Bank to follow these
procedures to facilitate transfers of interests in the global notes among
participants in DTC, Euroclear and Cedel Bank. These organizations, however, are
under no obligation to perform or to continue to perform these procedures. They
may discontinue them at any time. None of Carrier1 International, any trustee or
any paying agent will have any responsibility for the performance by DTC,
Euroclear and Cedel Bank or their participants or indirect participants of their
obligations under the rules and procedures governing their operations.
CERTIFICATED SECURITIES
In some circumstances specified in the indentures, Carrier1 International
will issue certified notes in exchange for the global notes. Certificated notes
representing old notes would be subject to transfer restrictions.
OPTIONAL REDEMPTION
Carrier1 International may opt to redeem the notes, in whole or in part, at
any time on or after February 15, 2004. If Carrier1 International chooses this
optional redemption, it is required to provide a notice of the redemption not
les than 30 and not more than 60 days prior to the redemption. If redeemed
during the twelve-month period beginning on February 15 of the years set forth
below, the notes may be redeemed at the following Redemption Prices, which are
expressed as percentages of the principal amount, plus accrued and unpaid
interest:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2004........................................................................ 106.625%
2005........................................................................ 104.417
2006........................................................................ 102.208
2007 and thereafter......................................................... 100.000
</TABLE>
In addition, at any time prior to February 15, 2002, Carrier1 International
may redeem notes of either series in an aggregate principal amount equal to up
to 35% of the principal amount of the dollar notes or Euro notes, as the case
may be, with funds in an amount equal to the proceeds of one or more sales of
Capital Stock (other than Disqualified Stock) of, or capital contributions to,
Carrier1 International. If Carrier1 International chooses this optional
redemption, it may redeem either series of notes, at any time and from time to
time in part, at a Redemption Price of 113.25%, expressed as a percentage of
principal amount, plus accrued and unpaid interest to the Redemption Date.
Carrier1 may make any such redemption if:
(1) an aggregate principal amount equal to at least 65% of the principal
amount of the initially issued dollar notes or Euro notes, as the case may
be, plus the principal amount of any Additional Notes of such series remains
outstanding after each such redemption, and
(2) notice of any such redemption is provided within 60 days of each
such sale or capital contribution.
For any partial redemption, the relevant trustee will select the notes for
redemption by a method specified in the relevant indenture. However, no dollar
note of $1,000 in principal amount or less or Euro note of [Euro]1,000 in
principal amount or less shall be redeemed in part. If any note is to be
redeemed in part only, the notice of redemption relating to such note shall
state the portion of the principal amount to be redeemed. A new note in
principal amount equal to the unredeemed portion will be issued in the name of
the relevant holder upon cancellation of the original note.
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In the event that
(1) as a result of any change in, or amendments to, any laws or treaties
(or any regulations or rulings promulgated thereunder) or any change in
official position regarding the application 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 after the Closing Date, Carrier1
International has become or would become obligated to pay, on the next date
on which any amount would be payable under or with respect to the notes, any
Additional Amounts (as defined herein), and
(2) Carrier1 International cannot reasonably arrange (without other
material adverse consequences to Carrier1 International) for another obligor
to make such payment so as to avoid the requirement to pay such Additional
Amounts,
then Carrier1 International may redeem all the notes at any time at 100% of the
principal amount thereof, together with accrued interest thereon, if any, to the
redemption date. See "--Additional Amounts."
SINKING FUND
There will be no sinking fund payments for the notes.
REGISTRATION RIGHTS
Carrier1 International has agreed to use its best efforts to file a
registration statement for this exchange offer and cause it to become effective.
The registration statement of which this prospectus is a part constitutes the
registration statement to be filed pursuant to this registration rights
agreement.
If applicable interpretations of the staff of the United States Securities
and Exchange Commission (the "Commission") do not permit Carrier1 International
to effect the exchange offer, Carrier1 International shall use its best efforts
to cause a shelf registration statement with respect to resales of each series
of old notes to become effective. Carrier1 shall also use its best efforts to
keep the shelf registration statement effective for time periods specified in
the registration rights agreement. Carrier1 International shall, in the event of
a shelf registration, provide to each holder copies of the prospectus and notify
each holder when the shelf registration statement has become effective. Carrier1
International generally will be required to name a holder that sells its notes
pursuant to a shelf registration statement as a selling security holder in the
related prospectus. Such a selling holder must generally deliver a prospectus to
purchasers. Civil liability provisions under the Securities Act will apply to
such a selling holder in connection with such sales. Provisions of the
registration rights agreement will also apply to such a holder (including
indemnification obligations of holders).
If the exchange offer is not consummated and a shelf registration statement
is not declared effective with respect to either series of old notes on or prior
to August 19, 1999, the interest rate borne for such series of old notes will be
increased by 0.5% per annum until the exchange offer is consummated or the shelf
registration statement is declared effective.
This is a summary of the material provisions of the registration rights
agreement. It does not contain all of the information that may be important to
an investor in the notes. It is subject to, and is qualified in its entirety by
reference to, all the provisions of the registration rights agreement. A copy of
the registration rights agreement is available as set forth under the heading
"Where You Can Find More Information."
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SECURITY
Carrier1 International has pledged the Pledged Securities to the relevant
trustee for the benefit of the holders of the relevant notes to pay the first
five scheduled interest payments due on the notes. Carrier1 International used
approximately $49.2 million and [Euro]26.9 million of the original offering to
acquire the Pledged Securities.
Before an Interest Payment Date on the notes, Carrier1 International may
either (a) deposit cash to pay the interest scheduled for that date or (b)
direct the trustee to release proceeds from the relevant Pledge Account to pay
such interest. If Carrier1 International exercises the former option, it may
direct the trustee to release to it an equal amount of proceeds or Pledged
Securities from the relevant Pledge Account. A failure by Carrier1 International
to pay interest for the first five interest payment dates will be an immediate
Event of Default under the applicable indenture, with no grace or cure period.
Each series of notes is secured in part by the applicable Pledged Securities
and the applicable Pledge Account maintained with an affiliate of the relevant
trustee as securities intermediary (the "Securities Intermediary"). Once
Carrier1 International makes the first five scheduled interest payments on the
notes, all of the remaining Pledged Securities and any other amounts in the
Pledge Accounts, if any, will be released from the Pledge Accounts. Thereafter,
the notes will be unsecured.
RANKING
The debt evidenced by the notes will rank PARI PASSU in right of payment
with all existing and future unsubordinated indebtedness of Carrier1
International and senior in right of payment to all subordinated indebtedness of
Carrier1 International. As of March 31, 1999, Carrier1 International had no
indebtedness outstanding other than the notes of both series and had current
liabilities of $4.2 million. In addition, all existing and future liabilities
(including trade payables) of Carrier1 International's subsidiaries will be
effectively senior to the notes. As of March 31, 1999, Carrier1 International's
subsidiaries had $47.1 million of current liabilities, including trade payables.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the indentures. Reference is made to the
indentures for the definition of any other capitalized term used herein for
which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or is merged with or consolidated
with a Restricted Subsidiary or assumed in connection with an Asset Acquisition
by a Restricted Subsidiary and not Incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of Carrier1 International and its Restricted Subsidiaries for
such period determined on a consolidated basis in conformity with GAAP; PROVIDED
that the following items shall be excluded in computing Adjusted Consolidated
Net Income (without duplication):
(1) the net income (or loss) of any Person that is not a Restricted
Subsidiary, except (x) with respect to net income, to the extent of the
amount of dividends or other distributions actually paid to Carrier1
International or any of its Restricted Subsidiaries by such Person during
such period and (y) with respect to net losses, to the extent of the amount
of Investments made by Carrier1 International or any Restricted Subsidiary
in such Person during such period;
(2) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
the "Limitation on Restricted Payments" covenant described below (and in
such case, except to the extent includable pursuant to clause (1) above),
the
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net income (or loss) of any Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with Carrier1
International or any of its Restricted Subsidiaries or all or substantially
all of the property and assets of such Person are acquired by Carrier1
International or any of its Restricted Subsidiaries;
(3) the net income of any Restricted Subsidiary other than a Permanent
Guarantor to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of such net income is
not at the time permitted (after giving effect to any effective waiver,
consent or approval) by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary;
(4) any gains or losses attributable to Asset Sales (without regard to
clause (c) or (d) in the proviso to the definition thereof);
(5) solely for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any amount
paid or accrued as dividends on Preferred Stock of Carrier1 International or
any Restricted Subsidiary owned by Persons other than Carrier1 International
and any of its Restricted Subsidiaries;
(6) all extraordinary gains and extraordinary losses or extraordinary
charges;
(7) any compensation expense to the extent paid or payable solely with
Capital Stock (other than Disqualified Stock) of Carrier1 International or
any options, warrants or other rights to acquire Capital Stock (other than
Disqualified Stock) of Carrier1 International; and
(8) the cumulative effect of a change in accounting principles.
"Adjusted Consolidated Net Tangible Assets" means the total amount of assets
of Carrier1 International and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom:
(1) all current liabilities of Carrier1 International and its Restricted
Subsidiaries (excluding intercompany items) and
(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles,
all as set forth on the most recent quarterly or annual consolidated balance
sheet of Carrier1 International and its Restricted Subsidiaries, prepared in
conformity with GAAP and filed with the Commission or provided to the relevant
trustee pursuant to the "Commission Reports and Reports to Holders" covenant.
"Affiliate" means, 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, means 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.
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"Asset Acquisition" means:
(1) an investment by Carrier1 International or any of its Restricted
Subsidiaries in any other Person pursuant to which such Person shall become
a Restricted Subsidiary or shall be merged into or consolidated with
Carrier1 International or any of its Restricted Subsidiaries; PROVIDED that
such Person's primary business is related, ancillary or complementary to the
businesses of Carrier1 International and its Restricted Subsidiaries on the
date of such investment, as determined in good faith by the Board of
Directors (whose determination shall be conclusive and evidenced by a Board
Resolution) or
(2) an acquisition by Carrier1 International or any of its Restricted
Subsidiaries of the property and assets of any Person other than Carrier1
International or any of its Restricted Subsidiaries that constitute
substantially all of a division or line of business of such Person; PROVIDED
that the property and assets acquired are related, ancillary or
complementary to the businesses of Carrier1 International and its Restricted
Subsidiaries on the date of such acquisition, as determined in good faith by
the Board of Directors (whose determination shall be conclusive and
evidenced by a Board Resolution).
"Asset Disposition" means the sale or other disposition by Carrier1
International or any of its Restricted Subsidiaries (other than to Carrier1
International or another Restricted Subsidiary) of:
(1) all or substantially all of the Capital Stock of any Restricted
Subsidiary or
(2) all or substantially all of the assets that constitute a division or
line of business of Carrier1 International or any of its Restricted
Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by Carrier1 International or any of its
Restricted Subsidiaries to any Person other than Carrier1 International or any
of its Restricted Subsidiaries of:
(1) all or any of the Capital Stock of any Restricted Subsidiary,
(2) all or substantially all of the property and assets of an operating
unit or business of Carrier1 International or any of its Restricted
Subsidiaries or
(3) any other property and assets (other than the Capital Stock of or
any other Investment in an Unrestricted Subsidiary) of Carrier1
International or any of its Restricted Subsidiaries outside the ordinary
course of business of Carrier1 International or such Restricted Subsidiary
and, in each case, that is not governed by the provisions of the relevant
indenture applicable to mergers, consolidations and sales of all or
substantially all of the assets of Carrier1 International; PROVIDED that "Asset
Sale" shall not include:
(a) sales, transfers or other dispositions of Temporary Cash
Investments, inventory, receivables and other current assets,
(b) sales, transfers or other dispositions of assets constituting a
Restricted Payment (or a transaction excluded from the definition of the
term "Restricted Payments") permitted to be made under the "Limitation on
Restricted Payments" covenant,
(c) sales, transfers or other dispositions of assets with a fair market
value (as certified in an Officers' Certificate) not in excess of $2 million
in any transaction or series of related transactions, or
(d) sales or other dispositions of assets for consideration at least
equal to the fair market value of the assets sold or disposed of, to the
extent that the consideration received would constitute property or assets
of the kind described in clause (B) of the second paragraph of the
"Limitation on Asset Sales" covenant.
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"Average Life" means, at any date of determination with respect to any
Indebtedness, the quotient obtained by dividing (1) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such Indebtedness and (b) the amount
of such principal payment by (2) the sum of all such principal payments.
"Capital Stock" means, 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, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, 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 GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as:
(1) a "person" or "group" (within the meaning of Section 13(d) or
14(d)(2) under the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 35% (50%, if the
Permitted Holders hold more than 35% of the voting power of the Voting Stock
of Carrier1 International on a fully diluted basis) of the total voting
power of the Voting Stock of Carrier1 International on a fully diluted basis
and such ownership represents a greater percentage of the total voting power
of the Voting Stock of Carrier1 International, on a fully diluted basis,
than is held by Permitted Holders on such date; or
(2) during any period of two consecutive years beginning on or after the
Closing Date, individuals who at the beginning of such period were members
of the Board of Directors (together with any new directors whose election by
the Board of Directors or whose nomination for election by Carrier1
International's shareholders was approved by a vote of at least a majority
of the members of the Board of Directors then 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 the Board of Directors
then in office.
"Closing Date" means the date on which the notes are first issued under the
indentures.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including, without limitation all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income,
(1) Consolidated Interest Expense,
(2) provision for all taxes based on income, profits or capital,
(3) depreciation expense,
(4) amortization expense (including but not limited to amortization of
goodwill and intangibles and amortization and write-off of financing costs)
and
(5) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual
or reserve is, or is required by GAAP to be, made), less all non-cash items
increasing Adjusted Consolidated Net Income (other than any item reversing,
offsetting or reducing any such accrual or reserve),
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all as determined on a consolidated basis for Carrier1 International and its
Restricted Subsidiaries in conformity with GAAP; PROVIDED that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
EBITDA shall be reduced (to the extent not otherwise reduced in accordance with
GAAP) by an amount equal to
(A) the amount of the Adjusted Consolidated Net Income attributable to
such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by Carrier1
International or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; 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 Carrier1 International or any
of its Restricted Subsidiaries) and the interest component of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by Carrier1
International and its Restricted Subsidiaries during such period, all as
determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of:
(1) the aggregate amount of Indebtedness of Carrier1 International and
its Restricted Subsidiaries on a consolidated basis outstanding on such
Transaction Date to
(2) four times the amount of Consolidated EBITDA for the then most
recent fiscal quarter for which financial statements of Carrier1
International have been filed with the Commission or provided to the
relevant trustee pursuant to the "Commission Reports and Reports to Holders"
covenant described below (such quarter being the "Quarter");
PROVIDED that, in making the foregoing calculation:
(A) PRO FORMA effect shall be given, in calculating the amount of
Indebtedness outstanding on the Transaction Date, to any Indebtedness to be
Incurred on the Transaction Date, or to be repaid, repurchased, redeemed or
otherwise retired or discharged on the Transaction Date;
(B) PRO FORMA effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving PRO FORMA effect to the application of
proceeds of any Asset Disposition) that occur from the beginning of the
Quarter through the Transaction Date (the "Reference Period"), as if they
had occurred and such proceeds had been applied on the first day of such
Reference Period; and
(C) PRO FORMA effect shall be given to asset dispositions and asset
acquisitions (including giving PRO FORMA effect to the application of
proceeds of any asset disposition) that have been made by any Person that
has become a Restricted Subsidiary or has been merged with or into, or
consolidated with, Carrier1 International or any Restricted Subsidiary
during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on
the first day of such Reference Period;
PROVIDED that to the extent that clause (B) or (C) of this sentence requires
that PRO FORMA effect be given to an Asset Acquisition or Asset Disposition,
such PRO FORMA calculation shall be based upon the full fiscal quarter
immediately preceding the Transaction Date of the Person, or division or line of
business of the Person, that is acquired or disposed of for which financial
information is available.
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"Consolidated Net Worth" means, at any date of determination, shareholders'
equity (plus, to the extent not otherwise included, Preferred Stock of Carrier1
International) as set forth on the most recently available quarterly or annual
consolidated balance sheet of Carrier1 International and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of such computation, and which shall not take into account Unrestricted
Subsidiaries), less any amounts attributable to Disqualified 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 the Capital Stock of Carrier1 International or any of its Restricted
Subsidiaries, each item to be determined in conformity with GAAP (excluding the
effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"disinterested member" means, with respect to any transaction, a member of
the Board of Directors having no material financial interest in or with respect
to such transaction. A member of the Board of Directors shall not be deemed to
have such a financial interest solely by reason of such member's holding Capital
Stock of Carrier1 International or any parent thereof or any options, warrants
or other rights in respect of such Capital Stock.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity of the notes,
(2) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the notes or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Indebtedness having a scheduled maturity prior to
the Stated Maturity of the notes;
PROVIDED that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the Stated Maturity of the notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants
described below and such Capital Stock, or the agreements or instruments
governing the redemption rights thereof, specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior to
Carrier1 International's repurchase of such notes as are required to be
repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes
upon a Change of Control" covenants described below.
"European Government Obligations" means securities that are direct and
unconditional obligations of the Belgian, Dutch, French, German or Swiss
government and are not callable or redeemable at the option of the issuer
thereof; provided that at the time of determination the conversion rate between
the sovereign currency of such country and the Euro is fixed and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such European Government Obligation or a specific payment of
interest on or principal of any such European Government Obligation held by such
custodian for the account of the holder of a depository receipt; PROVIDED that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the European Government
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Obligation or the specific payment of interest on or principal of the European
Government Obligation evidenced by such depository receipt.
"European Government Securities" means securities that are direct and
unconditional obligations of the German government meeting the requirements of
the Pledge Agreement relating to the Euro notes.
"European Union" means the European Union, including the countries of
Austria, Belgium, Denmark, France, Finland, Germany, Greece, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, Spain, Sweden, and the United Kingdom; as
well as any other country which at the time of determination is a member of the
European Union.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; PROVIDED that for purposes of clause (8) of the
second paragraph of the "Limitation on Indebtedness" covenant,
(x) the fair market value of any security registered under the Exchange
Act shall be the average of the closing prices, regular way, of such
security for the 20 consecutive trading days immediately preceding the sale
of Capital Stock and
(y) in the event the aggregate fair market value of any other property
(other than cash or cash equivalents) received by Carrier1 International
exceeds $10 million, the fair market value of such property shall be
determined by a nationally recognized investment banking or appraisal firm
and set forth in their written opinion which shall be delivered to the
relevant trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession; PROVIDED, HOWEVER, that all reports and other financial
information provided by Carrier1 International to the holders of the relevant
series of notes or the relevant trustee shall be prepared in accordance with
GAAP as in effect from time to time. All ratios and computations contained or
referred to in the relevant Indenture shall be computed in conformity with GAAP
applied on a consistent basis, except that calculations made for purposes of
determining compliance with the terms of the covenants and with other provisions
of the relevant indenture shall be made without giving effect to (1) the
amortization or write-off of any expenses incurred in connection with the
offering of the Units and (2) the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"German Network" means the fiber optic network to be built in Germany by
Carrier1 International or any of its Restricted Subsidiaries with affiliates of
Viatel, Inc. and Metromedia Fiber Network Inc. contemplated by the letter of
intent dated August 20, 1998.
"German Network L/C" means a letter of credit in an amount not to exceed $75
million issued to secure obligations of Carrier1 International or any of its
Restricted Subsidiaries with respect to the German Network.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any such obligation, direct or
indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services (unless such purchase
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arrangements are on arm's-length terms and are entered into in the ordinary
course of business), to take-or-pay, or to maintain financial statement
conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
PROVIDED 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" means, with respect to any Indebtedness, to incur, create, issue,
assume, enter into any Guarantee of or otherwise become liable for or with
respect to, or become responsible for, the payment of, contingently or
otherwise, such Indebtedness, including an "Incurrence" by means of the
acquisition of more than 50% of the Capital Stock of any Person; PROVIDED that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication):
(1) all indebtedness of such Person for borrowed money;
(2) all principal obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(3) all reimbursement obligations of such Person in respect of letters
of credit or other similar instruments (excluding obligations with respect
to letters of credit (including trade letters of credit) or other similar
instruments securing obligations (other than obligations described in (1) or
(2) above or (5), (6) or (7) below) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not
properly honored and drawn upon or, if properly honored and drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement);
(4) all obligations of such Person to pay the deferred and unpaid
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;
(5) all Capitalized Lease Obligations of such Person;
(6) 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 of such Person shall be the
lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(7) all Indebtedness of other Persons Guaranteed by such Person;
provided that the amount of Indebtedness of such Person shall be the lesser
of (A) the amount Guaranteed and (B) the amount of such Indebtedness of such
other Persons; and
(8) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements, except if such
agreements
(a) are designed solely to protect Carrier1 International or its
Restricted Subsidiaries against fluctuations in foreign currency exchange
rates or interest rates and
(b) 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.
The amount of Indebtedness of any Person as described above at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent
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obligations as described above, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided:
(A) 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 the time of its issuance as determined in conformity with
GAAP,
(B) that obligations for money borrowed and set aside at the time of the
Incurrence of any Indebtedness in order to prefund the payment of the
interest on such Indebtedness shall not be deemed to be "Indebtedness" so
long as such money is held to secure the payment of such interest,
(C) that the amount of an obligation in respect of a letter of credit or
other similar instrument is the aggregate undrawn and unexpired amount
thereof plus the aggregate amount of drawings properly honored thereunder
that have not then been reimbursed, and
(D) that "Indebtedness" shall not include any liability for federal,
state, local or other taxes.
Indebtedness shall not be deemed to include any obligation arising from the
honoring of a check, draft or similar instrument drawn against insufficient
funds, provided that such obligation is extinguished within five business days
of its Incurrence.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances, loans or other extensions of credit
to customers or suppliers in the ordinary course of business to the extent
required by GAAP to be recorded as accounts receivable, prepaid expenses or
deposits on the balance sheet of Carrier1 International or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, bonds,
notes, debentures or other similar instruments issued by, such Person and shall
include:
(1) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and
(2) the fair market value of the Capital Stock (or any other
Investment), held by Carrier1 International or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a Restricted
Subsidiary, including without limitation, by reason of any transaction
permitted by clause (3) of the "Limitation on the Issuance and Sale of
Capital Stock of Restricted Subsidiaries" covenant;
PROVIDED that the fair market value of the Investment remaining in any Person
that has ceased to be a Restricted Subsidiary shall not exceed the aggregate
amount of Investments previously made in such Person valued at the time such
Investments were made less the net reduction of such Investments. For purposes
of the definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below:
(1) "Investment" shall include the fair market value of the assets (net
of liabilities (other than liabilities to Carrier1 International or any of
its Restricted Subsidiaries)) of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary,
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(2) the fair market value of the assets (net of liabilities (other than
liabilities to Carrier1 International or any of its Restricted
Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and
(3) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Management Investor" means any officer, director, employee or other member
of the management of Carrier1 International or any of its Subsidiaries, or
family members or relatives thereof, or trusts or partnerships for the benefit
of any of the foregoing, or any of their heirs, executors, successors and legal
representatives.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means:
(a) with respect to any Asset Sale, the proceeds of such Asset Sale when
received 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 Carrier1 International or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of
(1) brokerage commissions and other fees and expenses (including fees
and expenses of counsel and investment bankers) related to such Asset
Sale,
(2) provisions for all taxes (whether or not such taxes will actually
be paid or are payable) as a result of such Asset Sale without regard to
the consolidated results of operations of Carrier1 International and its
Restricted Subsidiaries, taken as a whole, including as a consequence of
any transfer of funds in connection with the application thereof in
accordance with the "Limitation on Asset Sales" covenant,
(3) payments made, or required to be 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 Asset Sale,
(4) all distributions and other payments required to be made to
minority interest holders in a Restricted Subsidiary or joint venture as
a result of such Asset Sale by or of such Restricted Subsidiary or joint
venture, or to any other Person (other than Carrier1 International or a
Restricted Subsidiary) owning a beneficial interest in the assets
disposed of in such Asset Sale, and
(5) appropriate amounts to be provided by Carrier1 International or
any Restricted Subsidiary as a reserve against any liabilities or
obligations 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 GAAP and
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(b) with respect to any issuance or sale of Capital Stock, the proceeds
of such 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 such
obligations are financed or sold with recourse to Carrier1 International or
any Restricted Subsidiary) 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.
In the event that any consideration for any Asset Sale that would otherwise
constitute Net Cash Proceeds is required to be held in escrow pending
determination of whether a purchase price adjustment, indemnification or other
payment or other similar adjustment will be made, such consideration will become
Net Cash Proceeds only when and to the extent released from escrow to Carrier1
International or a Restricted Subsidiary.
"Offer to Purchase" means an offer to purchase notes by Carrier1
International from the holders commenced by mailing a notice to the relevant
trustee and providing notice to each holder stating:
(1) the covenant pursuant to which the offer is being made and that all
notes validly tendered will be accepted for payment on a pro rata basis;
(2) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Payment Date");
(3) that any note not tendered will continue to accrue interest pursuant
to its terms;
(4) that, unless Carrier1 International defaults in the payment of the
purchase price, any note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment Date;
(5) that holders electing to have a note purchased pursuant to the Offer
to Purchase will be required to surrender the note, together with the form
entitled "Option of the holder to Elect Purchase" on the reverse side of the
note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date;
(6) that holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such holder, the principal
amount of notes delivered for purchase and a statement that such holder is
withdrawing his election to have such notes purchased; and
(7) 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
notes surrendered; PROVIDED that each note purchased and each new note
issued shall be in a principal amount of $1,000 or an integral multiple
thereof, with respect to the dollar notes, and [Euro]1,000 or an integral
multiple thereof, with respect to the Euro notes.
On the Payment Date, Carrier1 International shall
(1) accept for payment on a pro rata basis notes or portions thereof
tendered pursuant to an Offer to Purchase;
(2) deposit with the relevant Paying Agent money sufficient to pay the
purchase price of all notes or portions thereof so accepted; and
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(3) deliver, or cause to be delivered, to the relevant trustee all notes
or portions thereof so accepted together with an Officers' Certificate
specifying the notes or portions thereof accepted for payment by Carrier1
International.
The relevant Paying Agent shall promptly mail to the holders of notes so
accepted payment in an amount equal to the purchase price, and the relevant
trustee shall promptly authenticate and mail to such holders a new note equal in
principal amount to any unpurchased portion of the note surrendered; PROVIDED
that each note purchased and each new note issued shall be in a principal amount
of $1,000 or an integral multiple thereof, with respect to the dollar notes, and
[Euro]1,000 or an integral multiple thereof, with respect to the Euro notes.
Carrier1 International will publicly announce the results of an Offer to
Purchase as soon as practicable after the Payment Date. The relevant trustee
shall act as the Paying Agent for an Offer to Purchase. Carrier1 International
will comply with Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable, in the event that Carrier1 International is required to repurchase
notes pursuant to an Offer to Purchase. To the extent the provisions of any such
laws or regulations conflict with the provisions of the relevant indenture,
Carrier1 International will comply with such laws and regulations and will not
be deemed to have breached its obligations under such indenture by virtue
thereof.
"Permanent Guarantor" means a Restricted Subsidiary that irrevocably
guarantees the payment of the notes on an unsubordinated basis; provided that
such guarantee may provide that it shall be automatically and unconditionally
released and discharged upon:
(1) any sale, exchange or transfer (including by way of merger or
consolidation), to any Person not an Affiliate of Carrier1 International, of
all of Carrier1 International's and each Restricted Subsidiary's Capital
Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange, transfer or other transaction is not
prohibited by the relevant indenture),
(2) the legal or covenant defeasance of the notes or satisfaction and
discharge of the relevant indenture, subject to customary contingent
reinstatement provisions or
(3) upon the merger or consolidation of the Permanent Guarantor with and
into Carrier1 International or another Permanent Guarantor that is the
surviving Person in such merger or consolidation.
"Permitted Holder" means any of the following: any of Providence Equity
Partners L.P., Providence Equity Partners II L.P., Providence Equity Partners
III L.P., Primus Capital Fund IV Limited Partnership and Primus Executive Fund
Limited Partnership and any of the respective Affiliates or successors of the
foregoing.
"Permitted Investment" means:
(1) an Investment in Carrier1 International (including the notes of
either series) or a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary or be merged or
consolidated with or into, or transfer or convey all or substantially all
its assets to, Carrier1 International or a Restricted Subsidiary; PROVIDED
that such Person's primary business is related, ancillary or complementary
to the businesses of Carrier1 International and its Restricted Subsidiaries
on the date of such Investment;
(2) Temporary Cash Investments;
(3) commissions, payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses in accordance with GAAP;
(4) stock, obligations, securities or other Investments received (a) in
satisfaction of judgments or (b) in settlement of debts, or as a result of
foreclosure, perfection or enforcement of any Lien, in each
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case under this clause (b) arising in the ordinary course of business and
not in contemplation of the acquisition of such stock, obligations,
securities or other Investments;
(5) Investments in negotiable instruments held for collection, lease,
utility and worker's compensation, performance and other similar pledges or
deposits and other pledges or deposits permitted under the "Limitation on
Liens" covenant;
(6) obligations under Interest Rate Agreements and Currency Agreements
designed solely to protect Carrier1 International or its Restricted
Subsidiaries against fluctuations in interest rates or foreign currency
exchange rates;
(7) Investments in a joint venture to cover Carrier1 International's
portion of the cost (including the cost of design, development, acquisition,
construction, installation and improvement) of building a telecommunications
network (or network segment) in Europe, provided that Carrier1 International
or any of its Restricted Subsidiaries will directly own their portion of
such network (or network segment); and Investments in joint ventures to
acquire or maintain or otherwise relating to any rights-of-way, wayleaves,
governmental approvals, licenses, franchises or concessions relating to any
such network (or network segment);
(8) Investments in any Person in an aggregate amount not to exceed 25%
of any gains (net of any losses) attributable to Asset Sales after the
Closing Date and prior to the date of such Investment; and
(9) loans or advances to directors, officers or employees of Carrier1
International or any Restricted Subsidiary that do not in the aggregate
exceed $3 million at any time outstanding.
"Permitted Joint Venture" means any joint venture between Carrier1
International or any Restricted Subsidiary and any Person other than a
Subsidiary, engaged in the provision or sale of telecommunications services, or
in any other business that is related, ancillary or complementary to the
provision or sale of telecommunications services, as determined in good faith by
the Board of Directors (whose determination shall be conclusive if evidenced by
a Board Resolution); PROVIDED that prior to making any Investment in such a
Person, Carrier1 International's Board of Directors shall have determined that
such Investment fits Carrier1 International's strategic plan and is on terms
that are fair and reasonable to Carrier1 International.
"Permitted Liens" means:
(1) Liens for taxes, assessments, governmental charges or claims not yet
delinquent, or that in the aggregate are not material, or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision,
if any, as shall be required in conformity with GAAP shall have been made;
(2) statutory and common law Liens of landlords, carriers, warehousemen,
mechanics, suppliers, materialmen or repairmen or other similar Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or that have been bonded or being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security and other similar legislation or other
insurance-related obligations (including, without limitation, pledges or
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements);
(4) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, licenses, obligations for utilities, statutory or
regulatory obligations, bankers' acceptances, letters of credit, surety and
appeal bonds, government or other contracts, completion guarantees,
performance and
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return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money);
(5) easements, rights-of-way, municipal and zoning ordinances, utility
agreements, reservations, encroachments, restrictions and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of Carrier1 International or
any of its Restricted Subsidiaries;
(6) Liens (including extensions, renewals and replacements thereof) upon
real or personal property or assets (including leases on an indefeasible
right-to-use basis); PROVIDED that
(a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with the "Limitation on
Indebtedness" covenant described below, to finance or refinance the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) of the item of
property or assets subject thereto and the original such Lien is created
prior to, at the time of or within one year after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or assets,
(b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and
(c) any such Lien shall not extend to or cover any property or assets
other than such item of property or assets and any improvements,
accessions or proceeds in respect of such item;
(7) leases, subleases, licenses or sublicenses granted to others that do
not materially interfere with the ordinary course of business of Carrier1
International and its Restricted Subsidiaries, taken as a whole;
(8) Liens encumbering property or assets under construction (and related
rights) in favor of a contractor or developer, or arising from progress or
partial payments by a customer of Carrier1 International or its Restricted
Subsidiaries relating to such property or assets;
(9) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(10) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(11) Liens (including extensions, renewals and replacements thereof) on
property or assets of, or on shares of Capital Stock or Indebtedness of, any
Person existing (in the case of the original such Lien) at the time such
Person becomes, or becomes a part of, any Restricted Subsidiary; PROVIDED
that such Liens do not extend to or cover any property or assets of Carrier1
International or any Restricted Subsidiary other than the property, assets,
Capital Stock or Indebtedness so acquired (plus improvements, accessions or
proceeds (including dividends or distributions) in respect thereof);
(12) Liens in favor of Carrier1 International or any Restricted
Subsidiary;
(13) Liens arising from the rendering of a final judgment, order, decree
or award against Carrier1 International or any Restricted Subsidiary that
does not give rise to an Event of Default;
(14) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such letters
of credit and the products and proceeds thereof;
(15) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(16) Liens encumbering customary initial deposits and margin deposits,
and other Liens that are within the general parameters customary in the
industry and incurred in the ordinary course of
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business, in each case, securing Indebtedness or other obligations under
Interest Rate Agreements and Currency Agreements and forward contracts,
options, future contracts, futures options or similar agreements or
arrangements designed solely to protect Carrier1 International or any of its
Restricted Subsidiaries from fluctuations in interest rates, currencies or
the price of commodities;
(17) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by Carrier1
International or any of its Restricted Subsidiaries in the ordinary course
of business;
(18) Liens on or sales or transfers of receivables (including related
rights);
(19) Liens that secure Indebtedness or other obligations with an
aggregate principal amount not in excess of $5 million at any time
outstanding;
(20) Liens placed by any third party on property over which Carrier1
International or any Restricted Subsidiary has easement or other rights or
on any leased property, or arising by reason of subordination or similar
agreements relating thereto; and Liens arising by reason of any condemnation
or eminent domain proceedings;
(21) Liens on Capital Stock or other securities of an Unrestricted
Subsidiary that secure Indebtedness or other obligations of such
Unrestricted Subsidiary;
(22) any encumbrance or restriction (including, but not limited to, put
and call agreements) with respect to Capital Stock of any joint venture or
similar arrangement pursuant to any joint venture or similar agreement;
(23) Liens (including extensions, renewals and replacements thereof) on
property or assets acquired by Carrier1 International or any Restricted
Subsidiary; provided that
(a) such Liens were not created in connection with or in anticipation
of such acquisition,
(b) such Liens do not secure Indebtedness other than Indebtedness
assumed in connection with such acquisition, and
(c) such Liens do not extend to or cover any property or assets of
Carrier1 International or any Restricted Subsidiary other than the
property or assets so acquired (plus improvements, accessions or proceeds
in respect thereof); and
(24) Liens on cash set aside at the time of the Incurrence of any
Indebtedness, or government securities purchased with such cash, in either
case to the extent that such cash or government securities prefund the
payment of interest on such Indebtedness and are held in an escrow account
or similar arrangement to be applied for such purpose.
"Pledge Account" means an account established with the relevant Securities
Intermediary for the benefit of the applicable trustee pursuant to the terms of
relevant Pledge Agreement for the deposit of the applicable Pledged Securities
to be purchased by Carrier1 International with the net proceeds from the sale of
relevant series of notes.
"Pledge Agreements" means the U.S. Dollar Collateral Pledge and Security
Agreement, dated as of the Closing Date, made by Carrier1 International in favor
of the relevant trustee with respect to the dollar notes and the Euro Collateral
Pledge and Security Agreement, dated as of the Closing Date, made by Carrier1
International in favor of the relevant trustee with respect to the Euro notes,
as each such agreement may be amended, restated, supplemented or otherwise
modified from time to time.
"Pledged Securities" means the U.S. Government Securities to be purchased by
Carrier1 International and held in the relevant Pledge Account in accordance
with the Pledge Agreement related to the dollar notes and the European
Government Securities to be purchased by Carrier1 International and held in the
relevant Pledge Account in accordance with the Pledge Agreement related to the
Euro notes.
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"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
now outstanding or issued after the Closing Date, including, without limitation,
all series and classes of such preferred stock or preference stock.
"refinance" means refinance, refund, replace, renew, repay, modify, restate,
defer, substitute, supplement, reissue, resell or extend (including by way of
any exchange of Indebtedness, or pursuant to any defeasance or discharge
mechanism); and the terms "refinances," "refinanced" and "refinancing" as used
for any purpose in the Indentures shall have a correlative meaning.
"Released Indebtedness" means, with respect to any Asset Sale:
(1) Indebtedness of Carrier1 International or any Restricted Subsidiary
which is assumed by the purchaser or any affiliate thereof in connection
with such Asset Sale; PROVIDED that Carrier1 International or such
Restricted Subsidiary receives written, unconditional, valid and enforceable
releases from each creditor, no later than the closing date of such Asset
Sale and
(2) Indebtedness of a Restricted Subsidiary that is no longer a
Restricted Subsidiary as a result of such Asset Sale; PROVIDED that neither
Carrier1 International nor any other Restricted Subsidiary thereafter
Guarantees such Indebtedness.
"Restricted Subsidiary" means any Subsidiary of Carrier1 International other
than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, and its successors.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries:
(1) for the most recent fiscal year of Carrier1 International, accounted
for more than 10% of the consolidated revenues of Carrier1 International and
its Restricted Subsidiaries or
(2) as of the end of such fiscal year, was the owner of more than 10% of
the consolidated assets of Carrier1 International and its Restricted
Subsidiaries,
all as set forth on the most recently available consolidated financial
statements of Carrier1 International for such fiscal year.
"Stated Maturity" means:
(1) 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
(2) 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 Carrier1
International or any Permanent Guarantor Incurred to finance the acquisition of
a Person engaged in a business that is related, ancillary or complementary to
the business conducted by Carrier1 International or any of its Restricted
Subsidiaries, which Indebtedness by its terms, or by the terms of any agreement
or instrument pursuant to which such Indebtedness is Incurred:
(1) is expressly made subordinate in right of payment to the notes and
(2) 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 Carrier1 International's obligations under the
notes;
PROVIDED that such Indebtedness may provide for and be repaid at any time from
the proceeds of a capital contribution or the sale of Capital Stock (other than
Disqualified Stock) of Carrier1 International after the Incurrence of such
Indebtedness.
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"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the voting power of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following:
(1) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the United
States of America or any agency thereof;
(2) bankers' acceptances, time deposit accounts, certificates of deposit
and money market deposits maturing within one year of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States of America, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $50 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above or clause
(6) below entered into with a bank meeting the qualifications described in
clause (2) above;
(4) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than an Affiliate of Carrier1
International) organized and in existence under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P;
(5) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
S&P or Moody's; and
(6) direct obligations of, or obligations fully and unconditionally
guaranteed by, (a) The Netherlands, the United Kingdom, France, Germany or
Switzerland, or (b) any other member of the European Economic Community and
rated at least "A" by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by Carrier1 International or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of Carrier1 International that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary (including any
newly acquired or newly formed Subsidiary of Carrier1 International) to be an
Unrestricted Subsidiary unless such Subsidiary owns
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any Capital Stock of, or owns or holds any Lien on any property of, Carrier1
International or any Restricted Subsidiary; PROVIDED that:
(A) any Guarantee by Carrier1 International or any Restricted Subsidiary
of any Indebtedness of the Subsidiary being so designated shall be deemed an
"Incurrence" of such Indebtedness and an "Investment" by Carrier1
International or such Restricted Subsidiary (or both, if applicable) at the
time of such designation;
(B) either (1) the Subsidiary to be so designated has total assets of
$1,000 or less or (2) if such Subsidiary has assets greater than such
amount, such designation would be permitted under the "Limitation on
Restricted Payments" covenant described below and
(C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under the
"Limitation on Indebtedness" and "Limitation on Restricted Payments"
covenants described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED that:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such designation and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such
time, have been permitted to be Incurred (and shall be deemed to have been
Incurred) for all purposes of the relevant indenture.
Any such designation by the Board of Directors shall be evidenced to the
relevant trustee by promptly filing with the trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are:
(1) direct obligations of the United States of America for the payment
of which its full faith and credit is pledged or
(2) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America,
which, in either case, are not callable or redeemable at the option of the
issuer thereof at any time prior to the Stated Maturity of the notes, and shall
also include a depository receipt issued by a bank or trust company as custodian
with respect to any such U.S. Government Obligation or a specific payment of
interest on or principal of any such U.S. Government Obligation held by such
custodian for the account of the holder of a depository receipt; PROVIDED that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depository receipt.
"U.S. Government Securities" means direct obligations of, obligations fully
guaranteed by, or participations in pools consisting solely of obligations of or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the option of the
issuer thereof.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
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"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
LIMITATION ON INDEBTEDNESS
(a) Carrier1 International will not, and will not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness (other than the notes of
either series (including any new notes of either series, but excluding any
Additional Notes), and other Indebtedness existing on the Closing Date);
PROVIDED that Carrier1 International or any Permanent Guarantor may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the proceeds therefrom, the Consolidated Leverage
Ratio would be greater than zero and less than 6:1.
Notwithstanding the foregoing, Carrier1 International and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(1) Indebtedness outstanding at any time in an aggregate principal
amount not to exceed (after giving effect to any refinancing thereof) the
sum of
(a) $100 million, less any amount of such Indebtedness permanently
repaid as provided under the "Limitation on Asset Sales" covenant
described below, plus
(b) an amount equal to the lesser of (1) 80% of the consolidated book
value of the accounts receivable of Carrier1 International and its
Restricted Subsidiaries determined in accordance with GAAP (determined as
of the end of the most recently ended fiscal quarter for which reports
have been filed with the Commission or provided to the relevant trustee)
and (2) $100 million;
(2) Indebtedness owed (A) to Carrier1 International evidenced by a
promissory note or (B) to any Restricted Subsidiary; PROVIDED that any event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to
Carrier1 International or another Restricted Subsidiary) shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (2);
(3) Indebtedness issued to refinance then outstanding Indebtedness
(other than Indebtedness Incurred under clause (1), (2), (4), (6), (8), (11)
or (12) of this paragraph) and any refinancings thereof, in an amount not to
exceed the amount so refinanced (plus premiums, accrued interest, fees and
expenses); PROVIDED that Indebtedness the proceeds of which are used to
refinance the notes in part or Indebtedness that is PARI PASSU with, or
expressly subordinated in right of payment to, the notes or any notes
Guarantee shall only be permitted under this clause (3) if
(A) in case the notes are refinanced in part or the Indebtedness to
be refinanced is PARI PASSU with the notes or any notes Guarantee, such
new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is outstanding, is
expressly made PARI PASSU with, or expressly subordinate in right of
payment to, the remaining notes or any notes Guarantee,
(B) in case the Indebtedness to be refinanced is expressly
subordinated in right of payment to the notes or any notes Guarantee,
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 or any notes Guarantee at least to the extent that the Indebtedness
to be refinanced is subordinated to the notes or any notes Guarantee and
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(C) such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity of
the Indebtedness to be refinanced and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced;
and PROVIDED FURTHER that in no event may Indebtedness of Carrier1
International be refinanced by means of any Indebtedness of any Restricted
Subsidiary pursuant to this clause (3);
(4) Indebtedness (A) in respect of performance, surety, appeal or other
similar bonds provided in the ordinary course of business and (B) arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, or from Guarantees or letters of credit, bankers'
acceptances, surety or performance bonds or other similar instruments
securing any obligations of Carrier1 International or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary (other
than Guarantees of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by Carrier1 International or any Restricted
Subsidiary in connection with such disposition;
(5) Indebtedness of Carrier1 International or any Permanent Guarantor,
to the extent the net proceeds thereof are promptly (A) used to purchase
notes tendered in an Offer to Purchase made as a result of a Change in
Control or (B) deposited to defease the notes as described below under
"Defeasance";
(6) Guarantees of the notes and Guarantees of Indebtedness of Carrier1
International by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the "Limitation on
Issuance of Guarantees by Restricted Subsidiaries" covenant described below;
and Guarantees of Indebtedness of any Restricted Subsidiary by any
Restricted Subsidiary provided such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the relevant indenture
providing for a Guarantee of payment of the notes by such Restricted
Subsidiary;
(7) Indebtedness (including Guarantees and the German Network L/C)
Incurred to finance or refinance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network
assets (including leases on an indefeasible right-to-use basis and multiple
investment units) (including acquisitions by way of Capitalized Lease and
acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment,
inventory or network assets so acquired) by Carrier1 International or a
Restricted Subsidiary;
(8) Indebtedness of Carrier1 International or any Permanent Guarantor
not to exceed, at any one time outstanding (after giving effect to any
refinancing thereof), two times the sum of
(A) the Net Cash Proceeds received by Carrier1 International after
the Closing Date as a capital contribution or from the issuance and sale
of its Capital Stock (other than Disqualified Stock) to a Person that is
not a Subsidiary of Carrier1 International, to the extent (I) such
capital contribution or Net Cash Proceeds have not been used pursuant to
clause (C)(2) of the first paragraph or clause (3), (4), (6) or (10) of
the second paragraph of the "Limitation on Restricted Payments" covenant
described below to make a Restricted Payment and (II) if such capital
contribution or Net Cash Proceeds are used to consummate a transaction
pursuant to which Carrier1 International Incurs Acquired Indebtedness,
the amount of such Net Cash Proceeds exceeds one-half of the amount of
Acquired Indebtedness so Incurred and
(B) 80% of the fair market value of property (other than cash and
cash equivalents) received by Carrier1 International after the Closing
Date as a capital contribution or from the sale of its
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Capital Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of Carrier1 International, to the extent (I) such capital
contribution or sale of Capital Stock has not been used pursuant to
clause (3), (4) or (7) of the second paragraph of the "Limitation on
Restricted Payments" covenant described below to make a Restricted
Payment and (II) if such capital contribution or Capital Stock is used to
consummate a transaction pursuant to which Carrier1 International Incurs
Acquired Indebtedness, 80% of the fair market value of the property
received exceeds one-half of the amount of Acquired Indebtedness so
Incurred PROVIDED that such Indebtedness does not mature prior to the
Stated Maturity of the notes and has an Average Life longer than the
notes;
(9) Acquired Indebtedness;
(10) Strategic Subordinated Indebtedness;
(11) Indebtedness in respect of bankers' acceptance and letters of
credit, all in the ordinary course of business, in an aggregate amount
outstanding at any time not to exceed $10 million; and
(12) subordinated Indebtedness of Carrier1 International or any
Permanent Guarantor (in addition to Indebtedness permitted under clauses (1)
through (11) above) in an aggregate principal amount outstanding at any time
(after giving effect to any refinancing thereof) not to exceed $100 million.
(b) For purposes of determining compliance with any dollar-denominated
restriction on the Incurrence of Indebtedness denominated in another currency,
the dollar-equivalent principal amount of such Indebtedness Incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date that such Indebtedness was Incurred (or, in the case of
Indebtedness under a revolving credit facility, at the time of commitment),
PROVIDED that if such Indebtedness is Incurred to refinance other Indebtedness
denominated in a foreign currency, and such refinancing would cause the
applicable dollar-denominated restriction to be exceeded if calculated at the
relevant currency exchange rate in effect on the date of such refinancing, such
dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced. The principal amount of
any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
respective Indebtedness is denominated that is in effect on the date of such
refinancing.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant,
(1) Guarantees, Liens or obligations with respect to letters of credit,
bankers' acceptances or other similar instruments supporting Indebtedness
otherwise included in the determination of such particular amount shall not
be included and
(2) any Liens granted pursuant to the equal and ratable provisions
referred to in the "Limitation on Liens" covenant described below shall not
be treated as giving rise to Indebtedness.
For purposes of determining compliance with this "Limitation on Indebtedness"
covenant,
(1) any other obligation of the obligor on such Indebtedness arising
under any Lien or letter of credit, bankers' acceptance or other similar
instrument or obligation supporting such Indebtedness shall be disregarded
to the extend that the same secures the principal amount of such
Indebtedness and
(2) 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,
Carrier1 International, in its sole discretion, shall classify, and from
time to time may reclassify, such item of Indebtedness and only be required
to
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include the amount and type of such Indebtedness in one of such clauses (but
may allocate portions of such Indebtedness between or among such clauses).
LIMITATION ON RESTRICTED PAYMENTS
Carrier1 International will not, and will not permit any Restricted
Subsidiary to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock (other than (x) dividends or distributions
payable solely in shares of its Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to acquire shares of such
Capital Stock and (y) dividends or distributions on Capital Stock of a
Restricted Subsidiary held by minority interest holders on no more than a
pro rata basis, measured by value and based on all outstanding Capital Stock
of such Restricted Subsidiary) held by Persons other than Carrier1
International or any of its Restricted Subsidiaries,
(2) purchase, redeem, retire or otherwise acquire for value any shares
of Capital Stock of
(A) Carrier1 International or an Unrestricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital
Stock) held by any Person other than Carrier1 International or any Wholly
Owned Restricted Subsidiary or
(B) a Restricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Affiliate of
Carrier1 International (other than a Wholly Owned Restricted Subsidiary)
or any holder (or any Affiliate of such holder) of 5% or more of the
Capital Stock of Carrier1 International,
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of Carrier1 International that is
expressly subordinated in right of payment to the Notes or any Notes
Guarantee or
(4) make any Investment, other than a Permitted Investment, in any other
Person
(such payments or any other actions described in clauses (1) through (4) above
being collectively "Restricted Payments") if, at the time of, and after giving
effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing,
(B) Carrier1 International could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant or
(C) the aggregate amount of all Restricted Payments (the amount, 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) made after the Closing Date shall exceed the sum of
(1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100%
of the amount of such loss) accrued on a cumulative basis during the
period (taken as one accounting period) beginning on the first day of the
fiscal quarter beginning immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed with the Commission or
provided to the relevant trustee pursuant to the "Commission Reports and
Reports to Holders" covenant PLUS
(2) the aggregate Net Cash Proceeds received by Carrier1
International after the Closing Date as a capital contribution or from
the issuance and sale permitted by the relevant indenture of its Capital
Stock (other than Disqualified Stock) to a Person who is not a Subsidiary
of Carrier1 International, including the proceeds of an issuance or sale
permitted by the relevant
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indenture of Indebtedness of Carrier1 International for cash subsequent
to the Closing Date upon the conversion of such Indebtedness into Capital
Stock (other than Disqualified Stock) of Carrier1 International, or from
the issuance to a Person who is not a Subsidiary of Carrier1
International of any options, warrants or other rights to acquire Capital
Stock of Carrier1 International (in each case, exclusive of any
Disqualified Stock or any options, warrants or other rights that are
redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the notes), in each case except to the
extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to
clause (8) of the second paragraph under the "Limitation on Indebtedness"
covenant PLUS
(3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments and Investments under clause (6), (8)
or (12) of the second paragraph of this "Limitation on Restricted
Payments" covenant) in any Person resulting from payments of interest on
Indebtedness, dividends, distributions, repayments of loans or advances,
or other transfers of assets, in each case to Carrier1 International or
any Restricted Subsidiary or from the Net Cash Proceeds from the sale or
other disposition of any such Investment (except, in each case, to the
extent of any gain on such sale or other disposition that would be
included in the calculation of Adjusted Consolidated Net Income for
purposes of clause (C)(1) above), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided
in the definition of "Investments"), not to exceed, in each case, the
amount of Investments previously made by Carrier1 International or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(1) 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 foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the notes or any notes Guarantee, including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (3) of the second paragraph of the
"Limitation on Indebtedness" covenant;
(3) the repurchase, redemption or other acquisition of Capital Stock of
Carrier1 International or any Subsidiary of Carrier1 International (or
options, warrants or other rights to acquire such Capital Stock) in exchange
for, or out of the proceeds of a capital contribution or a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified
Stock) of Carrier1 International (or options, warrants or other rights to
acquire such Capital Stock);
(4) the making of any principal payment on or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of Carrier1 International which is subordinated in right of
payment to the notes in exchange for, or out of the proceeds of a capital
contribution or a substantially concurrent offering of, shares of the
Capital Stock (other than Disqualified Stock) of Carrier1 International (or
options, warrants or other rights to acquire such Capital Stock);
(5) payments or distributions to dissenting shareholders pursuant to
applicable law, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the relevant
indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of Carrier1 International;
(6) any Investment in any Person the primary business of which is
related, ancillary or complementary to the business of Carrier1
International and its Restricted Subsidiaries on the date of
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such Investment; PROVIDED that the aggregate amount of Investments made
pursuant to this clause (6) does not exceed the sum of
(a) $25 million, plus
(b) the amount of Net Cash Proceeds received by Carrier1
International after the Closing Date as a capital contribution or from
the sale of its Capital Stock (other than Disqualified Stock) to a Person
who is not a Subsidiary of Carrier1 International, except to the extent
such Net Cash Proceeds are used to Incur Indebtedness pursuant to clause
(8) of the second paragraph under the "Limitation on Indebtedness"
covenant or to make Restricted Payments pursuant to clause (C)(2) of the
first paragraph, or clauses (3), (4) or (10) of this paragraph, of this
"Limitation on Restricted Payments" covenant, plus
(c) the net reduction in Investments made pursuant to this clause (6)
resulting from distributions on or repayments of such Investments or from
the Net Cash Proceeds from the sale or other disposition of any such
Investment (except in each case to the extent of any gain on such sale or
other disposition that would be included in the calculation of Adjusted
Consolidated Net Income for purposes of clause (C)(1) above) or from such
Person becoming a Restricted Subsidiary (valued in each case as provided
in the definition of "Investments"), PROVIDED that the net reduction in
any Investment shall not exceed the amount of such Investment;
(7) Investments acquired as a capital contribution to or in exchange for
Capital Stock (other than Disqualified Stock) of Carrier1 International;
(8) Investments in Permitted Joint Ventures not exceeding, at the time
of the Investment, the sum of
(A) $10 million and
(B) the net reduction in Investments made pursuant to this clause (8)
resulting from distributions on or repayments of such Investments or from
the Net Cash Proceeds from the sale or other disposition of any such
Investment (except in each case to the extent of any gain on such sale or
disposition that would be included in the calculation of Adjusted
Consolidated Net Income for purposes of clause (C)(1) above) or from such
Person becoming a Restricted Subsidiary (valued in each case as provided
in the definition of "Investments"), PROVIDED that the net reduction in
any Investment shall not exceed the amount of such Investment;
(9) repurchases of Warrants pursuant to a Repurchase Offer or within ten
days of their expiration in accordance with the terms of the Warrant
Agreements in effect on the Closing Date, any purchase of any fractional
shares of Common Stock (or other Capital Stock of Carrier1 International
issuable upon exercise of the Warrants) in connection with an exercise of
the Warrants, and any payments in connection with the anti-dilution
provisions of the Warrant Agreements;
(10) the purchase, redemption, retirement or other acquisition for value
of shares of Capital Stock of Carrier1 International or options, warrants or
other rights to purchase such shares held by Management Investors upon
death, disability, retirement, termination of employment or pursuant to the
terms of any agreement under which such shares of Capital Stock or options,
warrants or other rights were issued; PROVIDED that the aggregate
consideration paid for such purchase, redemption, retirement or other
acquisition for value of such shares or options, warrants or other rights
after the Closing Date does not in the aggregate exceed
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(A) $5 million, plus
(B) the aggregate Net Cash Proceeds received by Carrier1
International after the Closing Date as a capital contribution from, or
from the issuance or sale to, Management Investors of Capital Stock of
Carrier1 International or any options, warrants or other rights to
acquire such Capital Stock, plus
(C) the proceeds of insurance policies used to effect any such
purchase, redemption, retirement or other acquisition;
(11) any purchase, redemption, retirement or other acquisition of
Capital Stock deemed to occur upon the exercise of options, warrants or
other rights if such Capital Stock represents a portion of the exercise
price thereof; or
(12) other Restricted Payments in an aggregate amount not to exceed $5
million plus the net reduction in Investments made pursuant to this clause
(12) resulting from distributions on or repayments of such Investments or
from the Net Cash Proceeds from the sale or other disposition of any such
Investment (except in each case to the extent of any gain on such sale or
disposition that would be included in the calculation of Adjusted
Consolidated Net Income for purposes of clause (C)(1) above) or from such
Person becoming a Restricted Subsidiary (valued in each case as provided in
the definition of "Investments"), PROVIDED that the net reduction in any
Investment shall not exceed the amount of such Investment;
PROVIDED that, except in the case of clauses (1), (3) and (11), 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 preceding paragraph (other
than the Restricted Payment referred to in clause (2) thereof, an exchange of
Capital Stock for Capital Stock or Indebtedness referred to in clause (3) or (4)
thereof, an Investment referred to in clause (7) thereof and a purchase,
redemption, retirement or other acquisition of Capital Stock referred to in
clause (11) thereof), and the Net Cash Proceeds from any capital contribution or
any issuance of Capital Stock referred to in clauses (3), (4) and (6) 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.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
Carrier1 International will not, and will not permit any Restricted
Subsidiary to, 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:
(1) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
Carrier1 International or any other Restricted Subsidiary,
(2) pay any Indebtedness owed to Carrier1 International or any other
Restricted Subsidiary,
(3) make loans or advances to Carrier1 International or any other
Restricted Subsidiary, or
(4) transfer any of its property or assets to Carrier1 International or
any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(1) existing on the Closing Date, including under the indentures or any
other agreements or instruments in effect on the Closing Date, and any
refinancings of such agreements or instruments; PROVIDED that the
encumbrances and restrictions in any such refinancings are no less favorable
in any
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material respect to the holders than those encumbrances or restrictions that
are then in effect and that are being refinanced;
(2) existing under or by reason of applicable law or any requirement of
any applicable governmental regulatory authority;
(3) existing with respect to any Person, or any property or assets,
acquired by Carrier1 International or any Restricted Subsidiary, existing at
the time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable (A) in the case of an
acquisition of such Person, to any other Person or (B) in the case of an
acquisition of such property or assets, any other property or assets;
(4) in the case of clause (4) (and, solely with respect to clauses (A),
(B) and (D) of this clause (4), clause (1)) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant,
(A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is, or is subject to, a lease,
license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of
Carrier1 International or any Restricted Subsidiary not otherwise
prohibited by the relevant Indenture,
(C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of Carrier1
International or any Restricted Subsidiary in any manner material to
Carrier1 International or any Restricted Subsidiary or
(D) arising under the terms of Indebtedness Incurred under clause (7)
of the second paragraph of the "Limitation on Indebtedness" covenant that
restrict the transfer of the property or assets acquired with such
Indebtedness;
(5) 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 of, or property and assets of, such
Restricted Subsidiary;
(6) contained in the terms of any Indebtedness or any agreement pursuant
to which such Indebtedness was issued, or any agreement relating to the
sale, disposition or financing of receivables, if
(A) either (1) the encumbrance or restriction applies only in the
event of a payment default or a default with respect to a financial
covenant contained in the terms of such Indebtedness or agreement or (2)
Carrier1 International in good faith determines (as set forth in a Board
Resolution) that any such encumbrance or restriction will not materially
affect Carrier1 International's ability to make principal or interest
payments on the notes and
(B) the encumbrance or restriction is not materially more
disadvantageous to the holders of the notes than is customary in
comparable financings (as determined by Carrier1 International in good
faith);
(7) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
or
(8) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business.
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Nothing contained in this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent Carrier1 International
or any Restricted Subsidiary from:
(1) creating, incurring, assuming or suffering to exist any Liens
otherwise permitted under the "Limitation on Liens" covenant or
(2) restricting the sale or other disposition of property or assets of
Carrier1 International or any of its Restricted Subsidiaries that secure
Indebtedness of Carrier1 International or any of its Restricted
Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Carrier1 International will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except:
(1) to Carrier1 International or a Wholly Owned Restricted Subsidiary;
(2) issuances of director's qualifying shares or issuances or sales to
foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and
any Investment in such Person remaining after giving effect to such issuance
or sale would have been permitted to be made under the "Limitation on
Restricted Payments" covenant if made on the date of such issuance or sale;
or
(4) issuances or sales of Common Stock of a Restricted Subsidiary,
provided that Carrier1 International or such Restricted Subsidiary applies
the Net Cash Proceeds, if any, of any such sale in accordance with clause
(A) or (B) of the "Limitation on Asset Sales" covenant described below.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
Carrier1 International will not permit any Restricted Subsidiary, directly
or indirectly, to Guarantee any Indebtedness of Carrier1 International or any
Subsidiary Guarantor which is PARI PASSU with or expressly subordinate in right
of payment to the notes or any notes Guarantee ("Guaranteed Indebtedness"),
unless:
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the relevant indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the notes by such Restricted
Subsidiary and
(2) 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 Carrier1
International or any other Restricted Subsidiary as a result of any payment
by such Restricted Subsidiary under its Subsidiary Guarantee, until payment
in full of the outstanding principal amount of such notes and any premium or
accrued and unpaid interest thereon then due and owing;
PROVIDED that this paragraph shall not be applicable to any Guarantee of any
Restricted Subsidiary:
(a) that existed at the time such Person became a Restricted
Subsidiary and was not Incurred in connection with, or in contemplation
of, such Person becoming a Restricted Subsidiary or
(b) of Indebtedness Incurred pursuant to clause (1) of the second
paragraph of the "Limitation on Indebtedness" covenant.
If the Guaranteed Indebtedness is (A) PARI PASSU with the notes, then the
Guarantee of such Guaranteed Indebtedness shall be PARI PASSU with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to
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the notes, then the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon:
(1) any sale, exchange or transfer (including by way of merger or
consolidation), to any Person not an Affiliate of Carrier1 International, of
all of Carrier1 International's and each Restricted Subsidiary's Capital
Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange, transfer or other transaction is not
prohibited by the relevant indenture),
(2) the legal or covenant defeasance of the notes or satisfaction and
discharge of the relevant indenture, subject to customary contingent
reinstatement provisions,
(3) the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee or
(4) upon the merger or consolidation of such Subsidiary Guarantor with
and into Carrier1 International or another Subsidiary Guarantor that is the
surviving Person in such merger or consolidation.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Carrier1 International will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any holder
(or any Affiliate of such holder) of 5% or more of any class of Capital Stock of
Carrier1 International or with any Affiliate of Carrier1 International or any
Restricted Subsidiary, except upon fair and reasonable terms that taken as a
whole are no less favorable to Carrier1 International or such Restricted
Subsidiary than could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of the execution of
the agreement providing therefor, in a comparable arm's-length transaction with
a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions (A) approved by a majority of the disinterested members
of the Board of Directors or (B) for which Carrier1 International or a
Restricted Subsidiary delivers to the relevant trustee a written opinion of
a nationally recognized investment banking or appraisal firm stating that
the transaction is fair to Carrier1 International or such Restricted
Subsidiary from a financial point of view, or is upon terms that taken as a
whole are no less favorable to Carrier1 International or such Restricted
Subsidiary than could be obtained in a comparable arm's-length transaction;
(2) any transaction solely between or among Carrier1 International and
any of its Wholly Owned Restricted Subsidiaries or solely between or among
Wholly Owned Restricted Subsidiaries;
(3) the payment of reasonable and customary regular fees to directors of
Carrier1 International who are not employees of Carrier1 International;
(4) any payments or other transactions pursuant to any tax-sharing
agreement between Carrier1 International and any other Person with which
Carrier1 International files a consolidated tax return or with which
Carrier1 International is part of a consolidated group for tax purposes;
(5) any Restricted Payments (or a transaction excluded from the
definition of the term "Restricted Payments") not prohibited by the
"Limitation on Restricted Payments" covenant;
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(6) transactions consisting of or pursuant to employment or benefit
agreements, plans, programs or arrangements for or with, or indemnification
or contribution obligations to, employees, officers or directors in the
ordinary course of business;
(7) the entering into of the Securities Purchase and Cancellation
Agreement, the 1999 Share Option Plan, the Securities Purchase Agreement,
the Registration Rights Agreement and the Securityholders' Agreement, as
described in the offering memorandum relating to the original offering, and
performance of the obligations and the transactions contemplated thereby; or
(8) issuances or sales of Capital Stock (other than Disqualified Stock)
of Carrier1 International or options, warrants or other rights to acquire
such Capital Stock.
Notwithstanding the foregoing, any transaction or series of related transactions
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (2) through (8)
of this paragraph, the aggregate amount of which exceeds $2 million in value,
must be approved or determined to be fair in the manner provided for in clause
(1)(A) or (B) above.
LIMITATION ON LIENS
Carrier1 International will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Lien on any of its
assets or properties of any character (including, without limitation, licenses),
or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary,
without making effective provision for all of the notes and all other amounts
due under the relevant indenture to be directly secured equally and ratably with
(or, if the obligation or liability to be secured by such Lien is expressly
subordinated in right of payment to the notes, prior to) the obligation or
liability secured by such Lien.
The foregoing limitation does not apply to:
(1) Liens existing on the Closing Date;
(2) Liens granted after the Closing Date on any assets or Capital Stock
of Carrier1 International or its Restricted Subsidiaries created in favor of
the holders;
(3) Liens with respect to the assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to Carrier1 International or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to Carrier1 International
or such other Restricted Subsidiary;
(4) Liens securing Indebtedness which is permitted to be Incurred under
clause (3) of the second paragraph of the "Limitation on Indebtedness"
covenant to refinance secured Indebtedness; PROVIDED that such Liens do not
extend to or cover any property or assets of Carrier1 International or any
Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced;
(5) Liens on the Capital Stock of, or any property or assets of, a
Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary
(or obligations in respect thereof) permitted under the "Limitation on
Indebtedness" covenant; or
(6) Permitted Liens.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
Carrier1 International will not, and will not permit any Restricted
Subsidiary to, enter into any sale-leaseback transaction involving any of its
assets or properties whether now owned or hereafter acquired, whereby Carrier1
International or a Restricted Subsidiary sells or transfers such assets or
properties more than one year after acquiring such assets or properties and then
or thereafter leases such assets or properties or any part thereof or any other
assets or properties which Carrier1 International or
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such Restricted Subsidiary, as the case may be, intends to use for substantially
the same purpose or purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if:
(1) the lease is for a period, including renewal rights, of not in
excess of three years;
(2) the lease secures or relates to industrial revenue or pollution
control bonds;
(3) the transaction is solely between Carrier1 International and any
Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or
(4) Carrier1 International or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the second paragraph of the "Limitation
on Asset Sales" covenant described below.
LIMITATION ON ASSET SALES
Carrier1 International will not, and will not permit any Restricted
Subsidiary to, consummate any Asset Sale, unless:
(1) the consideration received by Carrier1 International or such
Restricted Subsidiary (including any Released Indebtedness and including by
way of relief from or by any other Person assuming responsibilities for any
liabilities other than Indebtedness ("Released Liabilities")) is at least
equal to the fair market value of the assets sold or disposed of; PROVIDED
that this clause (1) shall not apply to any sale, transfer or other
disposition arising from foreclosure, condemnation or similar action with
respect to any assets and
(2) at least 75% of the consideration received (including any Released
Indebtedness and Released Liabilities) consists of cash, Temporary Cash
Investments or Released Indebtedness and Released Liabilities; PROVIDED,
HOWEVER, that this clause (2) shall not apply to long-term assignments in
capacity in a telecommunications network or other transfers of indefeasible
rights of use, multiple investment units or dark fibers.
In the event and to the extent that the Net Cash Proceeds received by
Carrier1 International or any of its Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of Carrier1 International and its
Subsidiaries has been filed with the Commission or provided to the relevant
trustee pursuant to the "Commission Reports and Reports to Holders" covenant),
then Carrier1 International shall or shall cause the relevant Restricted
Subsidiary to:
(1) within 12 months after the date Net Cash Proceeds so received exceed
10% of Adjusted Consolidated Net Tangible Assets
(A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of Carrier1 International
or any Restricted Subsidiary providing a notes Guarantee, or Indebtedness
of any other Restricted Subsidiary, in each case owing to a Person other
than Carrier1 International or any of its Restricted Subsidiaries or
(B) invest an equal amount, or the amount not so applied pursuant to
clause (A), (or enter into a definitive agreement committing to so invest
within 12 months after the date of such agreement) in property or assets
(other than current assets) of a nature or type or that are used in a
business (or in a company having property and assets of a nature or type,
or engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, Carrier1 International and
its Restricted Subsidiaries existing on the date of such investment (as
determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) and
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(2) apply (no later than the end of the 12-month period referred to in
clause (1)) such excess Net Cash Proceeds (to the extent not applied or
committed to be applied pursuant to clause (1)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant.
The amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth in clause (1)
of the preceding sentence and not applied or committed to be applied as so
required by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5 million, Carrier1
International must commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the holders of the notes (and if
and to the extent required by the terms of any Indebtedness that is PARI PASSU
with the notes or any notes Guarantee ("Pari Passu Indebtedness"), purchase,
redeem or repay such Pari Passu Indebtedness) on a PRO RATA basis an aggregate
principal amount of notes (and an amount of Pari Passu Indebtedness) equal to
the Excess Proceeds on such date, at a purchase price equal to 100% of the
principal amount of the notes (and the required amount of Pari Passu
Indebtedness) plus accrued interest (if any) to the Payment Date. If the
aggregate principal amount of the notes and aggregate principal amount of such
Pari Passu Indebtedness validly tendered and not withdrawn (or otherwise subject
to purchase, redemption or repayment) exceeds such Excess Proceeds, such Excess
Proceeds will be apportioned between the notes and such Pari Passu Indebtedness,
with the portion of such Excess Proceeds payable in respect of the notes to
equal the lesser of
(x) the Excess Proceeds amount multiplied by a fraction, the numerator
of which is the aggregate principal amount of the notes and the denominator
of which is the sum of the aggregate principal amount of the notes and the
aggregate principal amount of such Pari Passu Indebtedness and
(y) the principal amount of notes validly tendered and not withdrawn.
Any Excess Proceeds remaining after such Offer to Purchase is completed may
be applied to fund any general corporate purpose not prohibited by the relevant
indenture.
For purposes of the first paragraph of this "Limitation on Asset Sales"
covenant:
(1) securities received by Carrier1 International or any Restricted
Subsidiary in any Asset Sale that are converted by Carrier1 International or
such Restricted Subsidiary into cash within 12 months after such Asset Sale
and
(2) consideration consisting of Indebtedness of Carrier1 International
or any Restricted Subsidiary,
shall be deemed to be cash.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Carrier1 International must commence, within 30 days of the occurrence of a
Change of Control, and consummate an Offer to Purchase for all notes then
outstanding, at a purchase price equal to 101% of the principal amount thereof,
PLUS accrued and unpaid interest (if any) to the Payment Date.
The terms of other Indebtedness of Carrier1 International and its
Subsidiaries may provide that the occurrence of a Change of Control constitutes
a default thereunder, prohibit certain events that would constitute a Change of
Control, or require such Indebtedness to be repurchased or repaid upon a Change
of Control. Moreover, the exercise by the holders of their right to require
Carrier1 International to repurchase the notes could cause a default under the
terms of such other Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on Carrier1 International. The
above covenant requiring Carrier1 International to repurchase the notes will,
unless consents are obtained,
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require Carrier1 International to repay all indebtedness then outstanding which
by its terms would prohibit such note repurchase, either prior to or
concurrently with such note repurchase. Carrier1 International's ability to pay
cash to the holders upon a Change of Control may be limited by Carrier1
International's then existing financial resources. There can be no assurance
that Carrier1 International 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 or under the terms of any other Indebtedness.
The Change of Control purchase feature is a result of negotiations between
Carrier1 International and the placement agents. Carrier1 International has no
present plans to engage in a transaction involving a Change of Control, although
it is possible that Carrier1 International would decide to do so in the future.
Subject to the limitations contained in the indentures, Carrier1 International
could, in the future, enter into certain transactions, including acquisitions,
refinancings or recapitalizations, that would not constitute a Change of Control
under the indentures, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect Carrier1 International's capital
structure or credit ratings.
COMMISSION REPORTS AND REPORTS TO HOLDERS
At all times from and after the earlier of (1) the date of the commencement
of an exchange offer or the effectiveness of a Shelf Registration Statement (the
"Registration") and (2) the date that is six months after the Closing Date, in
either case, whether or not Carrier1 International is then required to file
reports with the Commission, Carrier1 International shall file with the
Commission to the extent then permitted by the Securities Exchange Act of 1934,
as amended, and by the Commission, all such information on an appropriate
available form as it would be required to file with the Commission by Sections
13(a) or 15(d) under the Securities Exchange Act of 1934 as if it were a U.S.
company and subject thereto including information required by annual, quarterly
and current reports whether or not required to be so filed. Carrier1
International shall supply the relevant trustee and each holder or shall supply
to the relevant trustee for forwarding to all holders, without cost to such
holders, copies of such reports and other information. In addition, at all times
prior to the earlier of the date of the Registration and the date that is six
months after the Closing Date, Carrier1 International shall, at its cost, supply
the relevant trustee and each holder or shall supply to the relevant trustee for
forwarding to all holders, without cost to such holders, quarterly and annual
reports substantially equivalent to those described above or which would
otherwise be required by the Exchange Act commencing with the report for the
fiscal quarter ending immediately after the Closing Date; provided that Carrier1
International may deliver copies of the registration statement (including
pre-effective amendments thereto) with respect to the exchange offer to the
extent it contains the information that would have been required in such
reports. In addition, at all times prior to the Registration, upon the request
of any holder or any prospective purchaser of the notes designated by a holder,
Carrier1 International shall supply to such holder or such prospective purchaser
the information required under Rule 144A under the Securities Act.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the relevant
Indenture:
(a) 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;
(b) default in the payment of interest on any note when the same becomes
due and payable, and such default continues for a period of 30 days;
provided that a failure to make any of the first five scheduled interest
payments on the relevant series of notes on the applicable Interest Payment
Date will constitute an Event of Default with no grace or cure period;
(c) default in the performance or breach of the provisions of such
indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of Carrier1 International
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or the failure to make or consummate an Offer to Purchase when required in
accordance with the "Limitation on Asset Sales" or "Repurchase of Notes upon
a Change of Control" covenant;
(d) Carrier1 International defaults in the performance of or breaches
any other covenant or agreement of Carrier1 International in such indenture
or under the relevant notes (other than a default specified in clause (a),
(b) or (c) above) or the relevant Pledge Agreement and such default or
breach continues for a period of 30 consecutive days after written notice by
the relevant trustee or the holders of 25% or more in aggregate principal
amount of the relevant series of notes;
(e) there occurs with respect to any issue or issues of Indebtedness of
Carrier1 International or any Significant Subsidiary having an outstanding
principal amount of $10 million or more in the aggregate for all such issues
of all such Persons, whether such Indebtedness now exists or shall hereafter
be created, (A) an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated Maturity
and such Indebtedness has not been discharged in full or such acceleration
has not been rescinded or annulled within 30 days of such acceleration
and/or (B) the failure to make a principal payment at the final (but not any
interim) fixed maturity and such defaulted payment shall not have been made,
waived or extended within 30 days of such payment default;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against Carrier1 International or any Significant Subsidiary and
shall not be paid or discharged, and there shall be any period of 60
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 or discharged against all such Persons to exceed $10 million during
which a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or order
for
(A) relief in respect of Carrier1 International or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect,
(B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of Carrier1 International or
any Significant Subsidiary or for all or substantially all of the
property and assets of Carrier1 International or any Significant
Subsidiary or
(C) the winding up or liquidation of the affairs of Carrier1
International or any Significant Subsidiary and, in each case, such
decree or order shall remain unstayed and in effect for a period of 30
consecutive days; or
(h) Carrier1 International or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents
to the entry of an order for relief in an involuntary case under any such
law,
(B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of Carrier1 International or any Significant Subsidiary
or for all or substantially all of the property and assets of Carrier1
International or any Significant Subsidiary or
(C) effects any general assignment for the benefit of creditors; or
(i) the relevant Pledge Agreement shall cease to be in full force and
effect or enforceable in accordance with its terms, other than in accordance
with its terms.
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If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to Carrier1 International) occurs and
is continuing under the relevant indenture, the relevant trustee or the holders
of at least 25% in aggregate principal amount of the dollar notes or the Euro
notes, as the case may be, then outstanding, by written notice to Carrier1
International (and to the relevant trustee if such notice is given by the
holders), may, and such trustee at the request of such holders shall, declare
the principal of, and premium, if any, and accrued and unpaid interest on the
relevant notes to be immediately due and payable. Upon a declaration of
acceleration, such principal of, and premium, if any, and accrued and unpaid
interest shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (e) 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 (e) shall be remedied or cured by Carrier1
International or the relevant Significant Subsidiary 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 clause (g) or (h)
above occurs with respect to Carrier1 International, the principal of, and
premium, if any, and accrued and unpaid interest 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 either trustee or any holder. The
holders of at least a majority in principal amount of the outstanding notes of
the relevant series, by written notice to Carrier1 International and to the
relevant trustee, may waive all past defaults and rescind and annul a
declaration of acceleration and its consequences if:
(1) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the relevant notes that have
become due solely by such declaration of acceleration, have been cured or
waived and
(2) 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 "--Modification and Waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding dollar notes or Euro notes, as the case may be, may direct the time,
method and place of conducting any proceeding for any remedy available to the
relevant trustee or exercising any trust or power conferred on such trustee.
However, such trustee may refuse to follow any direction that conflicts with law
or the relevant indenture, that may involve such trustee in personal liability,
or that such trustee determines in good faith may be unduly prejudicial to the
rights of holders of the dollar notes or Euro notes, as the case may be, not
joining in the giving of such direction and may take any other action it deems
proper that is not inconsistent with any such direction received from holders of
the relevant notes. A holder may not pursue any remedy with respect to the
relevant indenture or the relevant notes unless:
(1) the holder gives the relevant trustee written notice of a continuing
Event of Default;
(2) the holders of at least 25% in aggregate principal amount of
outstanding dollar notes or Euro notes, as the case may be, make a written
request to such trustee to pursue the remedy;
(3) such holder or holders offer such trustee indemnity satisfactory to
such trustee against any costs, liability or expense;
(4) such trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the holders of a majority in aggregate
principal amount of the outstanding dollar notes or Euro notes, as the case
may be, do not give such trustee a direction that is inconsistent with the
request.
However, such limitations do not apply to the right of any holder of a note to
receive payment of the principal of, and premium, if any, or interest on, such
note or to bring suit for the enforcement of any such
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payment, on or after the due date expressed in the notes, which right shall not
be impaired or affected without the consent of the holder.
Each indenture requires certain officers of Carrier1 International to
certify, on or before a date not more than 90 days after the end of each fiscal
year, that a review has been conducted of the activities of Carrier1
International and its Restricted Subsidiaries and Carrier1 International's and
its Restricted Subsidiaries' performance under such indenture and that Carrier1
International has fulfilled all obligations thereunder, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
and the nature and status thereof. Carrier1 International is also obligated to
notify the relevant trustee of any default or defaults in the performance of any
covenants or agreements under the relevant indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Carrier1 International will not consolidate with, merge with or into, or
sell, convey, transfer, lease or otherwise dispose of all or substantially all
of its property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into Carrier1 International unless:
(1) Carrier1 International shall be the continuing Person, or the Person
(if other than Carrier1 International) formed by such consolidation or into
which Carrier1 International is merged or that acquired or leased such
property and assets of Carrier1 International shall be a corporation
organized and validly existing under the laws of the Kingdom of the
Netherlands (including the Netherlands Antilles), Bermuda, Canada,
Switzerland, any member state of the European Union or the United States of
America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the relevant trustee, all
of the obligations of Carrier1 International on the relevant series of notes
and under the relevant indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, Carrier1 International or any Person becoming the successor obligor
of the notes shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of Carrier1 International immediately prior to
such transaction; PROVIDED that this clause (3) shall only apply to a sale
of less than all of the assets of Carrier1 International;
(4) immediately after giving effect to such transaction on a pro forma
basis Carrier1 International, or any Person becoming the successor obligor
on such notes, as the case may be, could Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; PROVIDED that this clause (4) shall not apply to a consolidation,
merger or sale of all (but not less than all) of the assets of Carrier1
International if all Liens and Indebtedness of Carrier1 International or any
Person becoming the successor obligor of the notes, as the case may be, and
its Restricted Subsidiaries outstanding immediately after such transaction
would, if Incurred at such time, have been permitted to be Incurred (and all
such Liens and Indebtedness, other than Liens and Indebtedness of Carrier1
International and its Restricted Subsidiaries outstanding immediately prior
to the transaction, shall be deemed to have been Incurred) for all purposes
of the relevant indenture; and
(5) Carrier1 International delivers to the relevant trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clauses (3) and (4) above) and Opinion of Counsel, in each case to the
effect that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for in this paragraph relating to such transaction have been
complied with;
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PROVIDED, HOWEVER, that (x) in giving any such opinion such counsel may rely on
an Officers' Certificate as to compliance with the foregoing clauses (2), (3)
and (4) and as to any matters of fact and (y) clauses (3) and (4) above will not
apply if, in the good faith determination of the Board of Directors of Carrier1
International, whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the jurisdiction of
organization of Carrier1 International, and such transaction does not have as
one of its purposes the evasion of the foregoing limitations.
DEFEASANCE
DEFEASANCE AND DISCHARGE
Each indenture provides that Carrier1 International will be deemed to have
paid and will be discharged from any and all obligations in respect of the notes
issued thereunder on the 123rd day after the deposit referred to below, and the
provisions of the relevant indenture will no longer be in effect with respect to
such notes (except for, among other matters, certain obligations to register the
transfer or exchange of such notes, to replace stolen, lost or mutilated notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things:
(A) Carrier1 International has deposited with the relevant trustee, in
trust, money and/or U.S. Government Obligations, in the case of dollar
notes, or European Government Obligations, in the case of Euro notes, that
through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to
pay the principal of, premium, if any, and accrued interest on the relevant
notes
(1) on the Stated Maturity of such payments in accordance with the
terms of the relevant indenture and such notes or
(2) on any earlier Redemption Date pursuant to the terms of the
relevant indenture and such notes;
PROVIDED that Carrier1 International has provided the relevant trustee
with irrevocable instructions to redeem all of the outstanding notes of
such series on such Redemption Date,
(B) Carrier1 International has delivered to the relevant trustee
(1) either (x) an Opinion of Counsel to the effect that holders will
not recognize income, gain or loss for federal income tax purposes as a
result of Carrier1 International's exercise of its option under this
"Defeasance" provision and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not occurred,
which Opinion of Counsel must be based upon (and accompanied by a copy
of) a ruling of the Internal Revenue Service to the same effect unless
there has been a change in applicable federal income tax law after the
Closing Date such that a ruling is no longer required or (y) a ruling
directed to the relevant trustee received from the Internal Revenue
Service to the same effect as the aforementioned Opinion of Counsel and
(2) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and
after the passage of 123 days following the deposit, the trust fund will
not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending on
the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any other
material agreement or instrument to which Carrier1
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International or any of its Subsidiaries is a party or by which Carrier1
International or any of its Subsidiaries is bound and
(D) if at such time the relevant notes are listed on a national
securities exchange, Carrier1 International has delivered to the relevant
trustee an Opinion of Counsel to the effect that the relevant notes will not
be delisted as a result of such deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
Each indenture further provides that the provisions of such indenture will
no longer be in effect with respect to clauses (3) and (4) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants" and "Repurchase of Notes upon a Change of Control," clause (c) under
"Events of Default" with respect to such clauses (3) and (4) under
"Consolidation, Merger and Sale of Assets" and with respect to the "Limitation
on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants,
clause (d) under "Events of Default" with respect to such other covenants and
clauses (e) and (f) under "Events of Default" shall be deemed not to be Events
of Default upon, among other things, the deposit with the relevant trustee, in
trust, of money and/or U.S. Government Obligations in the case of dollar notes,
and European Government Obligations, in the case of Euro notes, that through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the relevant notes
(1) on the Stated Maturity of such payments in accordance with the terms
of the relevant indenture and the notes or
(2) on any earlier Redemption Date pursuant to the terms of the relevant
indenture and such notes, PROVIDED that Carrier1 International has provided
the relevant trustee with irrevocable instructions to redeem all of the
outstanding notes of such series on such Redemption Date, the satisfaction
of the provisions described in clauses (B)(2), (C) and (D) of the preceding
paragraph and the delivery by Carrier1 International to the relevant trustee
of an Opinion of Counsel to the effect that, among other things, the holders
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain covenants and Events of
Default and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT
In the event Carrier1 International exercises its option to omit compliance
with certain covenants and provisions of either indenture with respect to the
relevant series of notes as described in the immediately preceding paragraph and
such notes are declared due and payable because of the occurrence of an Event of
Default that remains applicable, the amount of money and/or U.S. Government
Obligations, in the case of dollar notes, and European Government Obligations,
in the case of Euro notes, on deposit with the relevant trustee will be
sufficient to pay amounts due on such notes at the time of their Stated Maturity
or earlier Redemption Date but may not be sufficient to pay amounts due on such
notes at the time of the acceleration resulting from such Event of Default.
However, Carrier1 International will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of either indenture or either Pledge Agreement
may be made by Carrier1 International and the relevant trustee with the consent
of the holders of not less than a majority in aggregate principal amount of the
outstanding dollar notes or Euro notes, as the case may be; PROVIDED, HOWEVER,
that no such modification or amendment may, without the consent of each holder
affected thereby:
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(1) change the Stated Maturity of the principal of, or any installment
of interest on, any note,
(2) reduce the principal amount of, or premium, if any, or interest on,
any note,
(3) change the place or currency of payment of principal of, or premium,
if any, or interest on, any note,
(4) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption, on
or after the Redemption Date) of any note,
(5) reduce the above-stated percentage of outstanding notes the consent
of whose holders is necessary to modify or amend the applicable indenture,
(6) waive a default in the payment of principal of, or premium, if any,
or interest on, the notes,
(7) release any collateral subject to the relevant Pledge Agreement
(other than as contemplated thereby), or
(8) reduce the percentage or aggregate principal amount of outstanding
notes the consent of whose holders is necessary for waiver of compliance
with certain provisions of the applicable indenture or for waiver of certain
defaults.
ADDITIONAL AMOUNTS
All payments made by Carrier1 International under or with respect to the
notes will be made free and clear of and without withholding or deduction for or
on account of any present or future tax, duty, levy, impost, assessment, or
other governmental charge (including penalties, interest and other liabilities
related thereto) (collectively, "Taxes") imposed or levied by or on behalf of
Luxembourg or any other jurisdiction in which Carrier1 International is
organized or is a resident for tax purposes or by any government authority or
political subdivision or territory or possession or agency therein or thereof
having the power to tax (each, a "Taxing Authority"), unless Carrier1
International is required to withhold or deduct Taxes by law or by the
interpretation or administration thereof.
If Carrier1 International is required to withhold or deduct any amount for
or on account of Taxes imposed by a Taxing Authority within Luxembourg or within
any other jurisdiction in which Carrier1 International is organized or is a
resident for tax purposes, from any payment made under or with respect to the
notes, Carrier1 International will pay such additional amounts ("Additional
Amounts") as may be necessary so that the net amount received by each holder of
notes after such withholding or deduction will not be less than the amount the
holder and beneficial owner would have received if such Taxes had not been
withheld or deducted; PROVIDED that no Additional Amounts will be payable with
respect to a payment made to a holder of notes or to a third party on behalf of
a holder, with respect to:
(a) any Taxes that would not have been so imposed but for the existence
of any present or former connection between such holder and the jurisdiction
imposing such tax (other than the mere receipt of such payment or the
ownership or holding outside of Luxembourg of such note);
(b) any estate, inheritance, gift, sales, excise, transfer, personal
property tax or similar tax, assessment or governmental charge;
(c) any Taxes payable otherwise than by deduction or withholding from
payments of principal of, premium, if any, or interest on such note; or
(d) Taxes that would not have been imposed but for the failure of the
holder or beneficial owner of a note to comply, upon written request
therefor furnished by Carrier1 International to the trustee, with any
certification, identification, information, or other documentation
requirement under law, regulation, administrative practice or an applicable
treaty that is a precondition to exemption from, or reduction in the rate of
the imposition, deduction or withholding of Taxes;
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nor will Additional Amounts be paid:
(1) if the payment under or with respect to the notes could have been
made by another paying agent without such deduction or withholding,
(2) if the payment under or with respect to the notes could have been
made without such deduction or withholding if the beneficiary of the payment
had presented the note for payment within 30 days after (A) the date on
which such payment or such note became due and payable or (B) the date on
which payment thereof is duly provided for, whichever is later (except to
the extent that the holder would have been entitled to Additional Amounts
had the note been presented on the last day of such 30 day period),
(3) with respect to any payment under or with respect to the notes to
any holder who is a fiduciary or partnership or any person other than the
sole beneficial owner of such payment, to the extent that a beneficiary or
settlor with respect to such fiduciary, a member of such a partnership or
the beneficial owner of such payment would not have been entitled to the
Additional Amounts had such beneficiary, settlor, member or beneficial owner
been the actual holder of such note.
Carrier1 International will also (1) make such withholding or deduction and (2)
remit the full amount deducted or withheld to the relevant authority in
accordance with applicable law. Carrier1 International will use its reasonable
efforts to obtain certified copies of tax receipts evidencing the payment of any
Taxes so deducted or withheld from each Taxing Authority imposing such Taxes.
Carrier1 International will supply to the relevant trustee for forwarding to all
holders, without cost to such holders, within 60 days after the date the payment
of any Taxes so deducted or withheld is due pursuant to applicable law,
certified copies of tax receipts evidencing such payment by Carrier1
International or if, notwithstanding Carrier1 International's efforts to obtain
such receipts, the same are not obtainable, other evidence of such payments by
Carrier1 International.
At least 30 days prior to each date on which any payment under or with
respect to the notes is due and payable, if Carrier1 International will be
obligated to pay Additional Amounts with respect to such payment, Carrier1
International will deliver to the relevant trustee an Officers' Certificate
stating the fact that such Additional Amounts will be payable, the amounts so
payable and will set forth such other information as is necessary to enable such
trustee to pay such Additional Amounts to holders of notes on the payment date.
The foregoing provisions shall survive any termination or the discharge of
the relevant indenture and shall apply MUTATIS MUTANDIS to any jurisdiction in
which any successor Person to Carrier1 International is organized or is engaged
in business for tax purposes or any political subdivision or taxing authority or
agency thereof or therein.
In addition, Carrier1 International will pay any stamp, issue, registration,
documentary or other similar taxes and duties, including interest and penalties,
payable in Luxembourg or any political subdivision thereof or therein in respect
of the creation, issue and offering of the Notes.
Whenever in the relevant indenture, the notes or this prospectus there is
mentioned in any context, the payment of amounts based upon principal of,
premium, if any, or interest or of any other amount payable under or with
respect to any of the notes, such mention shall be deemed to include mention of
the payment of Additional Amounts to the extent that, in such context,
Additional Amounts are, were or would be payable in respect thereof.
GOVERNING LAW AND CONSENT TO JURISDICTION
The notes and the indentures are governed by the laws of the State of New
York. Carrier1 International has appointed CT Corporation System, 1633 Broadway,
New York, NY 10019 as its agent for service of process in any suit, action or
proceeding with respect to the relevant indenture or the notes and
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for actions brought under federal or state securities laws, in each case brought
in any federal or state court located in the City of New York and will agree to
submit to the jurisdiction of such courts.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
Each indenture provides that no recourse for the payment of the principal
of, or premium, if any, or interest on, any of the notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of Carrier1 International in such indenture,
or in any of the notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, stockholder,
officer, director, employee or controlling person of Carrier1 International or
of any successor Person thereof. Each holder, by accepting the notes, waives and
releases all such liability.
CONCERNING THE TRUSTEE
Each indenture provides that, except during the continuance of a Default,
the relevant trustee will not be liable, except for the performance of such
duties as are specifically set forth in such indenture. If an Event of Default
has occurred and is continuing, the relevant trustee will use the same degree of
care and skill in its exercise of the rights and powers vested in it under such
indenture as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
Each indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the relevant trustee, should it become a creditor of Carrier1 International, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. Such
trustee is permitted to engage in other transactions; PROVIDED, HOWEVER, that if
it acquires any conflicting interest, it must eliminate such conflict or resign.
135
<PAGE>
TAXATION
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal income tax
considerations relevant to the acquisition, ownership and disposition of the
notes. The discussion is based upon provisions of the U.S. Internal Revenue Code
of 1986, as amended (the "Code"), its legislative history, judicial authority,
current administrative rulings and practice, and existing and proposed Treasury
Regulations, including regulations concerning the treatment of debt instruments
issued with original issue discount (the "OID Regulations"), all as in effect
and existing on the date hereof. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the conclusions
set forth below, possibly on a retroactive basis. This discussion assumes that
any notes are or will be held as capital assets (as defined in Section 1221 of
the Code) by the holders thereof. Except as otherwise described herein, this
discussion applies only to a person that is an initial holder who purchased
units pursuant to the original offering at the initial offering price and that
is (1) a citizen or resident of the United States, (2) a corporation or
partnership created or organized in or under the laws of the United States, any
State thereof or the District of Columbia, (3) an estate the income of which is
subject to U.S. federal income taxation regardless of source or (4) a trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more U.S. persons has the authority to
control all substantial decisions of such trust (a "U.S. holder"). Non-U.S.
holders are advised to consult their own tax advisors regarding the tax
considerations incident to an investment in the notes. In addition, this
discussion does not purport to deal with all aspects of U.S. federal income
taxation that might be relevant to other particular holders in light of their
personal investment circumstances or status, nor does it discuss the U.S.
federal income tax consequences to certain types of holders that may be subject
to special rules under the U.S. federal income tax laws, such as persons owning
(or treated as owning) 10% or more of the total combined voting power of
Carrier1 International, financial institutions, insurance companies, dealers in
securities or foreign currency, tax-exempt organizations, foreign corporations
or nonresident alien individuals, or persons that hold notes that are a hedge
against, or that are hedged against, currency risk or that are part of a
straddle or conversion transaction, or persons whose functional currency is not
the U.S. dollar. Moreover, the effect of any applicable state, local or foreign
tax laws is not discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH HOLDER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF NOTES.
EXCHANGE OFFER. The exchange of an old note by a U.S. holder for a new note
will not constitute a taxable exchange of the note, and thus a U.S. holder will
not recognize taxable gain or loss upon receipt of a new note, a U.S. holder's
holding period for a new note will include the holding period for the old note
so exchanged and such U.S. holder's adjusted tax basis in a new note will be the
same as such U.S. holder's adjusted tax basis in the old note so exchanged.
ALLOCATION OF ISSUE PRICE BETWEEN NOTES AND WARRANTS
The old notes were issued together with warrants and were treated as part of
an "investment unit" for U.S. Federal income tax purposes. Accordingly, the
total issue price of each unit was allocated between its components (i.e., notes
and warrants) on the basis of the fair market value of each such component as of
the issue date. The amounts so allocated were a U.S. holder's initial tax basis
in his warrants and notes, respectively, and the amount so allocated to the
notes was the issue price of the notes. The issue price of the dollar units for
U.S. federal income tax purposes was the price at which a substantial amount of
the dollar units were sold to the public (excluding sales to dealers,
underwriters, brokers and similar persons). The issue price of the Euro units
for U.S. federal income tax purposes was determined under the same
136
<PAGE>
principle. Carrier1 International intends to take the position that $9.02 of the
$1,000 issue price of each dollar unit should be allocated to each associated
warrant and the remainder should be allocated to each dollar note. Carrier1
International also intends to take the position that [Euro]9.02 of the
[Euro]1,000 issue price of each Euro unit should be allocated to each associated
warrant and the remainder should be allocated to each Euro note. On the basis of
this allocation and Carrier1 International's best judgment, the amount of
original issue discount ("OID") will fall within the DE MINIMIS exception for
OID under the Code and will be treated as zero. Each holder will be bound by
such allocation for U.S. federal income tax purposes unless such holder
disclosed on a statement attached to its tax return for the taxable year that
includes the acquisition date of such unit that its allocation differs from that
of Carrier1 International. No assurance can be given that the Internal Revenue
Service (the "IRS") will accept Carrier1 International's allocation. If Carrier1
International's allocation were successfully challenged by the IRS, the issue
price, the amount of original issue discount accrued on the notes and gain or
loss on the sale or disposition of a note or warrant would be different from
that resulting under the allocation determined by Carrier1 International.
NOTES
TAXATION OF STATED INTEREST ON NOTES. Stated interest on a note will be
includible in the income of a U.S. holder in accordance with such U.S. holder's
regular method of tax accounting. In the case of the Euro notes, a cash method
U.S. holder will translate stated interest into U.S. dollars at the spot
exchange rate in effect on the date such interest payment is received. In the
case of an accrual method U.S. holder of Euro notes, the amount of any interest
income accrued during any accrual period will generally be determined by
translating such accruals into U.S. dollars at the average exchange rate
applicable to the accrual period (or, with respect to an accrual period that
spans two taxable years, at the average exchange rate for the partial period
within the taxable year). Such a U.S. holder will additionally realize exchange
gain or loss with respect to any interest income accrued on the date that
payment in respect of such interest income is received (or on the date the note
is disposed of) in an amount equal to the difference between (x) the amount
determined by converting the amount of the payment received into U.S. dollars at
the spot exchange rate in effect on the date such payment is received and (y)
the amount of interest income accrued in respect of such payment according to
the rule set forth in the prior sentence. Any such exchange gain or loss will
generally be treated as ordinary income or loss. Notwithstanding the rules
described above, an accrual method U.S. holder may alternatively make an
election to apply a "spot accrual convention" that effectively allows such U.S.
holder to translate accrued interest into U.S. dollars at a single spot exchange
rate, as set forth in Treasury Regulations Section1.988-2(b)(2)(iii)(B). The
above election will apply to all other debt obligations held by the U.S. holder
and may not be changed without the consent of the IRS. The amount of interest
income earned by a U.S. holder as set forth in this paragraph will generally be
treated as "passive income" or, in the case of certain U.S. holders, "financial
services income", in either case from sources outside the United States, and any
foreign currency exchange gain or loss as set forth in this paragraph will
generally be treated as realized from sources within the United States.
SALE, EXCHANGE OR REDEMPTION OF NOTES
In general, unless a nonrecognition provision applies, the sale, exchange,
redemption (including pursuant to an offer by Carrier1 International) or other
disposition of a note will be a taxable event for U.S. federal income tax
purposes. In such event, a U.S. holder will recognize gain or loss equal to the
difference between (1) the amount of cash plus the fair market value of any
property received upon such sale, exchange, redemption or other taxable
disposition (except to the extent such cash or property is attributable to
accrued interest, which will be taxable as ordinary income) and (2) the U.S.
holder's adjusted tax basis in the note. Any such gain or loss with respect to a
dollar note should be capital gain or loss and will be long-term capital gain or
loss if such dollar note has been held by the U.S. holder for more than one year
at the time of such sale, exchange, redemption or other disposition. Such gain
generally will be treated as U.S. source and, under recently issued U.S.
Treasury Regulations, loss on such disposition would be allocated to reduce U.S.
source income, subject to applicable limitations. With respect to the sale,
137
<PAGE>
exchange, retirement or repayment of a Euro note, the foreign currency amount
realized will be considered to be the payment of accrued but unpaid interest (on
which exchange gain or loss is recognized as described above) and as a payment
of principal. With respect to such payment of principal, exchange, gain or loss
is separately computed on the foreign currency amount of the purchase price that
is repaid to the extent that the rate of exchange on the date of retirement or
disposition differs from the rate of exchange on the date such Euro note was
acquired. Exchange gain or loss computed on accrued interest, and principal is
recognized, however, only to the extent of total gain or loss on the
transaction. In general, any such recognized exchange, gain or loss will be
treated as ordinary income realized from U.S. sources.
SPECIAL INTEREST
Because the notes provide for the payment of special interest in certain
circumstances described under "Description of the Notes--Registration Rights,"
the notes could be subject to the Treasury Regulations that apply to debt
instruments that provide for one or more contingent payments (the "Contingent
Payment Regulations"). Under the Contingent Payment Regulations, however, a
payment is not a contingent payment merely because of a contingency that, as of
the issue date, is either "remote" or "incidental." Carrier1 International
intends to take the position that, for purposes of the Contingent Payment
Regulations, the payment of such additional interest is a remote or incidental
contingency as of the issue date. Accordingly, the Contingent Payment
Regulations should not apply to the notes unless payments are actually made upon
a registration default, in which case the rules described below would apply to
such payments.
If payments of additional interest were actually made, then such payments
would be includable in a U.S. holder's gross income in the taxable year in which
such payments were actually made, regardless of the tax accounting method used
by such holder. If payments of additional interest were actually made and such
payments were "not insignificant" under the Contingent Payment Regulations, the
notes would be treated as reissued for purposes of applying the original issue
discount rules. As a consequence of such reissuance, a U.S. holder could be
required to accrue all payments on a note in excess of its issue price
(including, possibly, amounts that would otherwise constitute DE MINIMIS
original issue discount) on a constant yield basis.
If the IRS were to take the position that, as of the date of issuance, the
payment of such additional interest were not a "remote" or "incidental"
contingency for purposes of the Contingent Payment Regulations, then (i) all
payments (including any PROJECTED payments of such additional interest) on a
note in excess of its issue price would effectively be treated as original issue
discount, and (ii) in each taxable year, a holder would be required to include
an allocable portion of such amounts in gross income on a constant yield basis
whether or not the payment of such additional interest were fixed or
determinable in the taxable year.
Carrier1 International's position for purposes of the Contingent Payment
Regulations that the payment of such additional interest is a remote contingency
as of the issue date is binding on each holder for federal income tax purposes,
unless such holder discloses in the proper manner to the IRS that it is taking a
different position.
Prospective acquirers should consult their tax advisors as to the tax
considerations relating to debt instruments providing for payments such as the
additional interest payable upon a registration default, particularly in
connection with the possible application of the Contingent Payment Regulations.
TAXATION OF ADDITIONAL AMOUNTS
In the event that Additional Amounts are paid in respect of withholding or
deduction for taxes imposed on payments on the notes (as described in
"Description of the Notes--Additional Amounts") such Additional Amounts will be
taxable to a U.S. holder as ordinary income at the time such amounts are accrued
or received, in accordance with the U.S. holder's method of accounting for U.S.
federal income tax
138
<PAGE>
purposes. The amount taxable to a U.S. holder also will include all taxes
withheld or deducted in respect thereof. Thus, a U.S. holder may be required to
report income in an amount greater than the cash it receives in respect of
payments on its notes. However, a U.S. holder may, subject to certain
limitations, be eligible to claim as a credit or deduction in respect of such
taxes for purposes of computing its U.S. federal income tax liability. The rules
relating to foreign tax credits are extremely complex, and U.S. holders should
consult their own tax advisors with regard to the availability of a foreign tax
credit and the application of the foreign tax credit to their particular
situation.
TRANSACTIONS IN EURO
Euro received as interest on, or on the sale, exchange or retirement of a
Euro note will have a tax basis equal to their U.S. dollar value at the time
such interest is received or at the time payment is received in consideration of
such sale, exchange or retirement. The amount of gain or loss recognized on a
sale or other disposition of such Euro will be equal to the differences between
(1) the amount of U.S. dollars, or the fair market value in U.S. dollars of the
other currency or property received in such sale or other disposition and (2)
the tax basis of such Euro.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and OID on a note and the proceeds of certain
sales of notes in respect of U.S. holders other than certain exempt persons
(such as corporations). A 31.0% backup withholding tax will apply to such
payments if the U.S. holder fails to provide a correct taxpayer identification
number or certification of exempt status or, with respect to certain payments,
the U.S. holder fails to report in full all interest income and the IRS notifies
the payor of such under-reporting.
Any amounts withheld under the backup withholding rules will be allocated as
a credit against such U.S. holder's U.S. federal income tax liability and may
entitle such U.S. holder to a refund, provided the required information is
furnished to the IRS. Treasury regulations, generally effective for payment made
after December 31, 2000, modify certain of the certification requirements for
backup withholding. It is possible that Carrier1 International and other
withholding agents may request a new withholding exemption from holders in order
to qualify for continued exemption from backup withholding under Treasury
regulations when they become effective.
CERTAIN LUXEMBOURG TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX CONSULTANTS TO DETERMINE POSSIBLE
LUXEMBOURG TAX CONSEQUENCES OF AN EXCHANGE OR PURCHASE OF NOTES.
The following summary outlines certain Luxembourg tax consequences to
persons who are nonresidents of Luxembourg and who do not have a permanent
establishment in Luxembourg ("Non-Resident Holders") with respect to the
ownership and disposition of notes.
Under Luxembourg tax laws currently in effect, there is no withholding tax
on payment of principal, interest, nor on accrued but unpaid interest in respect
of the notes, nor is any Luxembourg withholding tax payable upon the redemption
of the notes.
Non-Resident Holders of notes are not liable for Luxembourg income tax on
payments of principal or interest or upon redemption of, or on capital gains on
sale of, any notes.
No stamp, value added, issue, registration, transfer or similar taxes or
duties will, under present Luxembourg law, be payable in Luxembourg by the
holders of the notes in connection with the issue of the notes.
139
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge and represent that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by certain
broker-dealers (as specified in the registration rights agreement) in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities. Carrier1 has agreed that, for a period not to exceed 90 days after
the expiration date, it will furnish additional copies of this prospectus, as
amended or supplemented, to any such broker-dealer that reasonably requests such
documents for use in connection with any such resale. In addition, until
, 1999, all dealers effecting transactions in the new notes may be required to
deliver a prospectus.
Carrier1 will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. Each 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.
Carrier1 has agreed to pay certain expenses incident to the exchange offer,
and Carrier1 will indemnify the holders of the old notes against certain
liabilities.
LEGAL MATTERS
The validity of the new notes offered hereby will be passed upon for
Carrier1 by Debevoise & Plimpton, New York, New York, special New York counsel
to Carrier1 and certain other matters will be passed upon for Carrier1 by Bonn &
Schmitt, Luxembourg.
EXPERTS
The financial statements as of December 31, 1998 and for the period from
February 20, 1998 (date of inception) to December 31, 1998 included in this
prospectus have been audited by Deloitte & Touche Experta AG, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
140
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31,
1998:
Consolidated Balance Sheet............................................................................... F-3
Consolidated Statement of Operations..................................................................... F-4
Consolidated Statement of Shareholders' Equity........................................................... F-5
Consolidated Statement of Cash Flows..................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND FOR THE PERIOD
FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO MARCH 31, 1998:
Consolidated Balance Sheet............................................................................... F-19
Consolidated Statement of Operations..................................................................... F-20
Consolidated Statement of Shareholders' Equity........................................................... F-21
Consolidated Statement of Cash Flows..................................................................... F-22
Notes to Consolidated Financial Statements............................................................... F-23
</TABLE>
F-1
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Carrier1 International S.A.
We have audited the accompanying consolidated balance sheet of Carrier1
International S.A. and subsidiaries (collectively, the "Company") as of December
31, 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for the period from February 20, 1998 (date of inception)
to December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Carrier1 International S.A. and
subsidiaries as of December 31, 1998, and the results of its operations and its
cash flows for the period from February 20, 1998 (date of inception) to December
31, 1998 in conformity with generally accepted accounting principles in the
United States of America.
DELOITTE & TOUCHE EXPERTA AG
<TABLE>
<S> <C>
/s/ DAVID WILSON /s/ JERRY M. MAYER
David Wilson Jerry M. Mayer
</TABLE>
Erlenbach, Switzerland
March 17, 1999
F-2
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 4,184
Restricted cash.................................................................. 1,518
Accounts receivables............................................................. 1,217
Unbilled receivables............................................................. 1,645
Other receivables................................................................ 3,014
Prepaid expenses and other current assets........................................ 3,179
---------
Total current assets........................................................... 14,757
PROPERTY AND EQUIPMENT--Net (See Note 5)........................................... 31,091
INVESTMENT IN JOINT VENTURE (See Note 6)........................................... 4,675
OTHER ASSETS....................................................................... 911
---------
TOTAL.............................................................................. $ 51,434
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable........................................................... $ 27,602
Accrued liabilities.............................................................. 4,643
---------
Total current liabilities...................................................... 32,245
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $2 par value, 30,000,000 shares authorized, 18,885,207 issued and
outstanding (See Note 2)....................................................... 37,770
Accumulated deficit.............................................................. (19,235)
Accumulated other comprehensive income........................................... 654
---------
Total shareholders' equity..................................................... 19,189
---------
TOTAL.............................................................................. $ 51,434
---------
---------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<S> <C>
REVENUES.......................................................................... $ 2,792
OPERATING EXPENSES:
Cost of services (exclusive of items shown separately below).................... 11,669
Selling, general and administrative............................................. 8,977
Depreciation and amortization................................................... 1,409
---------
Total operating expenses...................................................... 22,055
---------
LOSS FROM OPERATIONS.............................................................. (19,263)
OTHER INCOME (EXPENSE):
Interest income (expense), net.................................................. 81
Other, net...................................................................... (53)
---------
Total other income (expense).................................................. 28
---------
LOSS BEFORE INCOME TAX BENEFIT.................................................... (19,235)
INCOME TAX BENEFIT--Net of valuation allowance (See Note 9)....................... --
---------
NET LOSS.......................................................................... $ (19,235)
---------
---------
EARNINGS (LOSS) PER SHARE:
Net loss:
Basic......................................................................... $ (2.61)
---------
---------
Diluted....................................................................... $ (2.61)
---------
---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON ACCUMULATED COMPREHENSIVE
STOCK DEFICIT INCOME TOTAL
--------- ------------ ----------------- ----------
<S> <C> <C> <C> <C>
Issuance of shares (18,885,207 shares)....................... $ 37,770 -- -- $ 37,770
Comprehensive income (loss):
Net loss................................................... -- $ (19,235) -- (19,235)
Other comprehensive income, net of tax:
Currency translation adjustments......................... -- -- $ 654 654
----------
Total comprehensive loss................................... (18,581)
--------- ------------ ----- ----------
BALANCE--December 31, 1998................................... $ 37,770 $ (19,235) $ 654 $ 19,189
--------- ------------ ----- ----------
--------- ------------ ----- ----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (19,235)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................. 1,409
Changes in operating assets and liabilities:
Restricted cash............................................................. (1,518)
Receivables................................................................. (5,838)
Prepaid expenses and other current assets................................... (3,165)
Other assets................................................................ (898)
Trade accounts payable and accrued liabilities.............................. 14,804
---------
Net cash used in operating activities..................................... (14,441)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (15,191)
Investment in joint venture..................................................... (4,675)
---------
Net cash used in investing activities..................................... (19,866)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.......................................... 37,770
---------
Net cash provided by financing activities................................. 37,770
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS...................... 721
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................................... 4,184
CASH AND CASH EQUIVALENTS:
Beginning of period............................................................. --
---------
End of period................................................................... $ 4,184
---------
---------
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND INVESTING ACTIVITIES:
As of December 31, 1998, the Company had purchased approximately $17,315 of
equipment on open accounts payable.
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
1. NATURE OF OPERATIONS
Carrier1 International S.A., its subsidiaries in Europe and its subsidiary
in the United States ("Carrier1" or the "Company"), operate in the
telecommunications industry offering long distance voice and Internet Protocol
telecommunication services on a wholesale basis. The Company offers these
services primarily to competitive fixed-line operators, other carriers, wireless
operators, Internet service providers, resellers, and multi-national
corporations. The Company is a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg and has adopted a fiscal year end of December 31.
Since inception, the Company has financed its operations through equity
contributions. The expansion of the Company's business and network will require
significant capital to fund planned capital expenditures, working capital, cash
flow deficits and any debt service. As of December 31, 1998, the major investors
had contributed $37,770 in equity to fund start-up operations and have committed
to contribute an additional $22,230 in equity. In January 1999, the major
investors contributed the additional $22,230 in exchange for common stock of the
Company. In February 1999, the Company raised additional capital through a
private placement debt offering (see Note 13). If additional sources of
financing are required, the Company intends to pursue commercial bank
borrowings, equipment financing or accounts receivable financing, or the private
or public sale of equity or debt securities.
2. ORGANIZATION
In February 1998, the investors of the Company purchased a shelf company
registered in the United Kingdom which was ultimately renamed Carrier1 UK
Limited ("UK"). Subsequently, UK formed subsidiaries in Switzerland, Germany,
the United States and the United Kingdom. In August 1998, Carrier1 International
S.A. ("SA") was formed. Subsequently, SA formed subsidiaries in France, the
Netherlands, Germany, Austria and Luxembourg. Both UK and SA were 99.995% owned
by Carrier One, LLC ("LLC"), a Delaware limited liability company. In December
1998, the Company reorganized the ownership structure of all of its
subsidiaries. The Company, in exchange for all of the outstanding shares of UK,
issued 15,365,207 shares of common stock to LLC.
The effects of the reorganization have been accounted for as a
reorganization of entities under common control similar to a pooling of
interests. This reorganization has been reflected in the Company's consolidated
financial statements as if the post-reorganization structure had been in effect
since the date of inception since all of the entities are under common control.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with U.S. 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates. Estimates are used
when accounting for such items as revenue,
F-7
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
long-term customer contracts, allowances for uncollectable receivables,
investments, telecommunications expense, depreciation and amortization, employee
benefit plans and taxes.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company are prepared in
accordance with generally accepted accounting principles in the United States.
The financial statements include the consolidated accounts of the Company with
all significant intercompany balances and transactions eliminated. The
investment in the joint venture is accounted for using the equity method.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the Company's functional and reporting currency. The
financial statements of the Company's non-U.S. subsidiaries, where the local
currency is the functional currency, are translated into U.S. dollars using
exchange rates in effect at period end for assets and liabilities and average
exchange rates during each reporting period for results of operations.
Adjustments resulting from translation of financial statements are reflected as
a separate component of shareholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the respective functional
currency are included in results of operations as incurred.
REVENUE
The Company recognizes revenue on telecommunication services, generally
measured in terms of traffic minutes processed or transmission capacity provided
to customers, in the period that the service is provided. Revenue is presented
net of discounts.
COMPREHENSIVE INCOME
Comprehensive income is the change in equity of a business enterprise during
a period from transactions and other events and circumstances from non-owner
sources. It includes all changes in equity for a period except those resulting
from investments by owners and distributions to owners. For the period from
February 20, 1998 (date of inception) to December 31, 1998, other comprehensive
income consisted of foreign currency translation adjustments.
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
shares outstanding during the period. Diluted earnings per share is computed by
including the stock options and stock subscriptions considered to be dilutive
common stock equivalents, unless deemed anti-dilutive.
CASH AND CASH EQUIVALENTS
Cash equivalents consist primarily of interest bearing certificates of
deposit of well-rated European banks. The Company considers all highly-liquid
investments with a maturity of 90 days or less at the time of
F-8
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
purchase to be cash equivalents. The carrying amount reported in the
accompanying balance sheets for cash equivalents approximates fair value due to
the short-term maturity of these instruments.
RESTRICTED CASH
At December 31, 1998, $1,518 of cash was pledged as collateral on
outstanding letters of credit and guarantees to telecommunication companies that
provide refile services to the Company.
OTHER RECEIVABLES
Other receivables consist primarily of value-added tax refund receivables at
December 31, 1998.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Cost includes the charges received from the equipment and software suppliers for
turnkey installation and customization and network set-up costs. Depreciation is
recorded commencing with the first full month that the assets are in service.
The straight-line depreciation method is applied using the assets' estimated
useful lives as follows:
<TABLE>
<S> <C>
Switching equipment, routers and
network management equipment
including related software 5 years
Computer and data center equipment 3 years
Furniture and fixtures 5 years
Leasehold improvements Lesser of lease term or estimated
useful life
</TABLE>
Indefeasible right of use investments, which are treated as capital leases,
are amortized over their estimated useful lives, not to exceed 15 years even in
those cases where the right of use has been acquired for a longer period of
time. During the period from February 20, 1998 (date of inception) to December
31, 1998, the Company acquired a 25-year indefeasible right of use on a
transatlantic cable. This indefeasible right of use is being amortized over a
useful life of 15 years. Maintenance, repairs, and reengineering costs are
charged to expense as incurred.
LONG-LIVED ASSETS
The Company reviews the carrying value of its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of these assets may not be recoverable. In the event that events
or circumstances indicate that the cost of any long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down is required. The write-down would be measured as the difference
between the discounted estimated future operating cash flows from such asset and
the carrying value.
F-9
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENSION PLANS
The Company maintains various plans for providing employee pension benefits,
which conform to laws and practices in the countries concerned. Retirement
benefit plans are generally funded by contributions by both the employees and
the companies to independent entities that operate the retirement benefit
schemes. Where this is not the case, appropriate liabilities are recorded in the
financial statements. Currently, all of the Company's pension plans are defined
contribution plans.
TAXES
Taxes are provided based on reported income and include taxes on capital as
well as non-recoverable tax withheld on dividends, management fees and royalties
received or paid. Such taxes are calculated in accordance with the tax
regulations in effect in each country. The Company provides for deferred taxes
using the comprehensive liability method. Provision is made in respect of all
temporary differences arising between the tax values of assets and liabilities
and their values in the consolidated financial statements. Provision is made
against deferred tax assets to the extent that it is more likely than not that
these will not be realized. Deferred tax balances are adjusted for subsequent
changes in tax rates or for new taxes imposed. Deferred tax liabilities are
included under provisions. Non-recoverable withholding taxes are only accrued if
distribution by subsidiary companies is probable.
STOCK-BASED COMPENSATION PLANS
The Company records compensation expense for its stock-based compensation
plans in accordance with the intrinsic value method prescribed by APB 25,
"Accounting for Stock Issued to Employees." Intrinsic value is the amount by
which the estimated market value of the underlying stock exceeds the exercise
price of the stock option on the measurement date, generally the date of grant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1998, the carrying amounts of the Company's financial
instruments approximate their fair value.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. This
F-10
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standard is effective for the Company's fiscal year ending December 31, 2000.
Management has not yet completed its analysis of this new accounting standard
and, therefore, has not determined whether this standard will have a material
effect on the Company's financial statements.
4. EARNINGS PER SHARE
The following details the earnings per share calculations for the period
from February 20, 1998 (date of inception) to December 31, 1998 (in thousands of
U.S. dollars, except per share information):
<TABLE>
<S> <C>
Loss from operations............................................ $ (19,263)
---------
---------
Net loss........................................................ $ (19,235)
---------
---------
Total number of shares used to compute basic earnings
(loss) per share.............................................. 7,367,000
---------
---------
Loss from operations:
Basic loss per share.......................................... $ (2.61)
---------
---------
Diluted loss per share........................................ $ (2.61)
---------
---------
Net loss:
Basic loss per share.......................................... $ (2.61)
---------
---------
Diluted loss per share........................................ $ (2.61)
---------
---------
</TABLE>
Potential dilutive securities have been excluded from the computation for
the period from February 20, 1998 (date of inception) to December 31, 1998 as
their effect is antidilutive. Had the Company been in a net income position for
the period from February 20, 1998 (date of inception) to December 31, 1998,
diluted earnings per share would have included an additional 2,822,000 shares
related to outstanding stock options and stock subscriptions (determined using
the treasury stock method at the estimated average market value).
F-11
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Network equipment............................................... $ 14,613
Indefeasible right of use investments........................... 11,106
Leasehold improvements.......................................... 1,712
Furniture, fixtures and office equipment........................ 709
Construction in progress........................................ 4,353
-----------
32,493
Less: accumulated depreciation and amortization................. (1,402)
-----------
Property and equipment, net................................... $ 31,091
-----------
-----------
</TABLE>
At December 31, 1998, network equipment totaling $13,565, which is owned by
the Company and has been accrued as trade accounts payable, is expected to be
pledged as collateral under a product financing arrangement with a vendor. The
Company is currently negotiating the terms and conditions of such financing
arrangement with the vendor, which is obligated to provide financing under the
terms of the related turnkey purchase agreement.
6. INVESTMENT IN JOINT VENTURE
The Company entered into a binding letter of intent dated August 20, 1998
(the "LOI") with affiliates of Viatel, Inc. ("Viatel") and Metromedia Fiber
Network, Inc. ("Metromedia") which sets forth the principal terms upon which the
parties will build and own a telecommunications network in Germany (the "German
Network"). Under the LOI, the parties have agreed to form a company (the
"Developer") to act as their agent to arrange construction of the German
Network. The Developer will be owned 50.01%, 24.995%, and 24.995% by Viatel, the
Company and Metromedia, respectively. The Developer will be responsible for the
development, design, construction and supervision of the German Network and will
also provide other services related to the German Network.
The parties are currently in negotiations with respect to the legal
structure of the Developer and the definitive project terms. Until such
development agreement has been negotiated and executed by the parties, Viatel
will provide such services as the Developer is obligated to provide under the
LOI. Each of the parties has contributed $4.05 million for incremental costs,
and their pro-rata share of $2.5 million for pre-development costs. Each party
is obligated to provide the Developer with a $75 million letter of credit,
conditional upon the ability of each of the Company and Metromedia to raise at
least $75 million through financing or equity. Failure by any party to do so
will terminate the LOI with respect to such party, and any or all of the parties
that have not so defaulted may, at their option, assume the rights and
obligations of the defaulting party and continue with the construction of the
German Network. If neither remaining party assumes the rights and obligations of
the defaulting party, the LOI is terminated. Under the terms of the LOI, Viatel
is entitled to receive a developer's fee of 3% of certain construction costs
associated with the German Network.
F-12
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
6. INVESTMENT IN JOINT VENTURE (CONTINUED)
Upon completion of the German Network, each party will own its own cable
subduct and access points. In addition, to the extent possible, each party will
have its own divisible and transferable rights in all permits, easements, rights
of way and other third party approvals. In the event the agreement is
terminated, each party (other than a defaulting party) is entitled to maintain
its ownership interest in any intellectual property rights, technology, plans,
permits and approvals (to the extent such permits and approvals are issued in
the name of such party) and other intangible property, as well as in any actual
construction completed and materials ordered.
On February 19, 1999, the parties executed a development agreement. In
accordance with the development agreement, the Company provided a 109.5 million
Deutsche Mark letter of credit (approximately $64.8 million) to the Developer to
fund the Company's share of construction costs (see Note 13). Pursuant to this
definitive development agreement, all decisions required to be made by Viatel,
MFN and the Company will be made by a majority in interest, except for major
decisions specified in the development agreement. Most specified major
decisions, such as those approving budgets, significant cost increases and
delays, or changes in network cities shall be approved by unanimous vote. Other
major decisions, such as related-party transactions, require the vote of at
least two owners. Under the terms of the development agreement, the Developer
will act as agent for each of the parties, as owners, to arrange construction of
a fiber optic network for each party. The development agreement contemplates
that the parties and the Developer will enter into a construction contract for
which each party, and not the Developer, will be severally liable. As each
portion of the network is completed and delivered, each party will own its own
network. The parties have agreed to take all necessary actions necessary or
desirable to obtain and maintain separate ownership of all components of their
respective networks. The development agreement contains contingency provisions
for the possibility in limited circumstances of joint ownership of particular
assets, such as rights of way, licenses and permits. The owners will have equal
access rights to use transmission equipment sites in each network city, but the
specific form of legal ownership at each such site will be determined on a
case-by-case basis.
The Company currently estimates that its share of the development costs of
the German Network will be up to approximately $82 million, including the fiber
deployed, which is expected to be incurred over the next 15 months.
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain network capacity, office space, equipment,
vehicles, and operating facilities under noncancellable operating leases.
Certain leases contain renewal options and many leases for office space require
the Company to pay additional amounts for operating and maintenance costs. As
F-13
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
of December 31, 1998, future minimum lease payments under operating leases with
remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 11,393
2000............................................................ 2,863
2001............................................................ 2,637
2002............................................................ 2,558
2003............................................................ 1,235
Thereafter...................................................... 692
-----------
Total minimum lease payments.................................. $ 21,378
-----------
-----------
</TABLE>
Total rental expense under operating leases was $5,171 during the period
from February 20, 1998 (date of inception) to December 31, 1998.
PURCHASE COMMITMENTS
During the period from February 20, 1998 (date of inception) to December 31,
1998, the Company entered into an agreement to purchase a Multiple Investment
Unit ("MIU") that gives the Company rights to a portion of a trans-Atlantic
cable scheduled for completion in early 2000. Currently, the Company estimates
its remaining share of development and construction costs to be $11,262. The
Company has also entered into various contracts with vendors to provide network
set-up and maintenance services. Based on the Company's current network
development plans, such amounts are expected to be paid as follows:
<TABLE>
<CAPTION>
NETWORK
IN THOUSANDS MIU SERVICES TOTAL
- ------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
1999......................................................... $ 3,155 $ 9,050 $ 12,205
2000......................................................... 7,155 9,360 16,515
2001......................................................... 952 952
--------- --------- ---------
$ 11,262 $ 18,410 $ 29,672
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. INCENTIVE COMPENSATION PLANS
In February 1998, the employee stock option plan (the "Stock Option Plan")
was adopted. This plan provides for the issuance of options to purchase Class A
or Class B shares of LLC, based on certain criteria as defined in the plan
document. The aggregate number of options to be issued under the Stock Option
Plan is the lesser of 4,444,444 options or 11.1% of the number of shares
purchased by the current owners of LLC. The per-share exercise price for the
options may not be less than $1 per share. Options vest over a period of five
years and expire if not exercised within 10 years of the grant. In connection
with the creation of the Stock Option Plan, employees were required to agree to
reduce the percentage of the bonus to which they are eligible under the
Company's cash bonus plan (the "Cash Bonus Plan"). The Company intends to issue
such options to eligible employees in 1999. As of December 31, 1998, the Company
had
F-14
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
8. INCENTIVE COMPENSATION PLANS (CONTINUED)
granted options to acquire 4,044,442 Class A shares for a purchase price of $1
per share to certain members of management. As a result of the reorganization of
the Company in December 1998, the Company intends to create a new option plan so
that employees will be granted options from the Company rather than LLC. The
Company intends to have LLC cancel options granted under the Stock Option Plan
and will grant replacement options with the same economic terms under the new
plan. (See Note 13).
As required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
determined the pro-forma information as if the Company had accounted for stock
options under the fair value method of SFAS 123. The weighted-average fair value
of options granted during the period was $0.15 per option. The fair value of
option grants is estimated on the date of grant using the minimum value
option-pricing model, as allowed under SFAS 123 for nonpublic companies, for
pro-forma footnote purposes with the following assumptions used: dividend yield
of 0%, risk-free interest rate of 5.53%, and expected option life of 5 years.
The tax-effected pro-forma effect of these options would be as follows:
<TABLE>
<S> <C>
Net loss, as reported............................................. $ (19,235)
Estimated fair value of options granted, net of tax............... (226)
---------
Net loss, adjusted................................................ $ (19,461)
---------
---------
Adjusted net loss per share--basic basis.......................... $ (2.64)
---------
---------
</TABLE>
In March 1998, the Company established the Cash Bonus Plan to provide
incentive compensation to certain officers and employees. Individuals are
eligible to receive an annual cash bonus ranging from 10% to 25% of their annual
salary based on the terms of their employment agreement. Bonuses are payable at
the discretion of the Board of Directors based upon the Company achieving
specific goals.
Employees were also entitled to subscribe to purchase shares (the "Stock
Purchase Plan") in LLC at the price of $1 per Class A share up to a maximum
investment of approximately $68 per employee. The purchase offer was valid until
September 1, 1998 with payment due before October 1, 1998. Under the Stock
Purchase Plan, certain employees committed to purchase approximately 1,424,000
Class A shares with an aggregate value of approximately $1,424. Management has
determined that no compensation expense is required to be recognized in
connection with this plan since the estimated market value of the stock was less
than the price paid by employees. As a result of the reorganization of the
Company in December 1998, the Company has amended the Stock Purchase Plan so
that employees will be issued shares of common stock of the Company rather than
shares of LLC. In 1999, the Company collected the amounts due from employees
under the Stock Purchase Plan and expects to issue the related shares in the
second quarter of 1999.
F-15
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
9. INCOME TAXES
The income tax benefit for the period from February 20, 1998 (date of
inception) to December 31, 1998 consists of the following:
<TABLE>
<S> <C>
Current......................................................... $ --
Deferred........................................................ 5,378
-----------
5,378
Valuation allowance............................................. (5,378)
-----------
Total........................................................... $ --
-----------
-----------
</TABLE>
The Company has tax loss carryforwards of approximately $5,378 at December
31, 1998. The ability of the Company to fully realize deferred tax assets
related to these tax loss carryforwards in future years is contingent upon its
success in generating sufficient levels of taxable income before the statutory
expiration periods for utilizing such net operating losses lapses. Net operating
losses expire as follows: 2003--$149; 2005--$3,245; 2013--$318. Net operating
losses totaling $1,666 do not expire. Due to its limited history, the Company
was unable to conclude that realization of such deferred tax assets in the near
future was more likely than not. Accordingly, a valuation allowance was recorded
to offset the full amount of such assets.
Deferred income tax assets result primarily from net operating loss
carryforwards. Other components of deferred income tax assets and liabilities
are not significant as of December 31, 1998.
10. RELATED PARTY TRANSACTIONS
During the period from February 20, 1998 (date of inception) to December 31,
1998, the Company reimbursed certain companies, which are shareholders in LLC,
for expenses incurred in connection with the formation of the Company and the
negotiation of certain agreements entered into by the Company. Such
reimbursements totaled $339 and were expensed as selling, general and
administrative expenses.
The Company has entered into a transmission peering arrangement with an
entity that is 21% beneficially owned by a combination of Providence Equity
Partners L.P., the majority unitholder of LLC, and Providence Equity Partners II
L.P., another unitholder of LLC. Under the terms of the agreement, the parties
agree to carry certain levels of each other's traffic on their network without
charge for one year. This agreement is automatically renewable unless it is
terminated by either party with appropriate notice as required by the agreement.
11. EMPLOYEE BENEFIT PLANS
The Company contributes to defined contribution pension plans in accordance
with the laws and practices of the countries in which it operates. During the
period from February 20, 1998 (date of inception) to December 31, 1998, the
Company recorded pension expense totaling $267.
F-16
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
12. SEGMENT AND RELATED INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires the Company to disclose certain information related to
segments and geographic areas in which the Company operates and its major
customers.
SEGMENT INFORMATION
The Company has identified two reportable operating segments as defined in
SFAS No. 131: voice services and Internet Protocol data services. The voice
services segment provides long distance voice telecommunications services to
competitive fixed-line operators, other carriers, wireless operators, resellers
and multi-national corporations. The data services segment provides data
telecommunications services to Internet service providers.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance of segments based on its fixed cost contribution, which is defined
as segment revenues less direct variable costs incurred by the segment. Fixed
cost contribution is a non-GAAP measure of financial performance. Shared costs
and assets are not allocated to the segments. There were no intersegment
transactions during the period from February 20, 1998 (date of inception) to
December 31, 1998.
Summarized financial information concerning the Company's reportable
segments as of December 31, 1998 and for the period from February 20, 1998 (date
of inception) to December 31, 1998 is shown in the following table. The "Other"
column includes unallocated shared network and corporate related assets which
are all assets other than network equipment that has been identified as relating
to a specific segment. Network equipment of $11,400 has been identified as
relating to a specific segment and network equipment of $3,213 is shared by the
segments. The remaining assets, including but not limited to indefeasible right
of use investments and construction in progress, are not allocated to segments
since such assets are considered to be either shared or corporate-related.
<TABLE>
<CAPTION>
VOICE DATA
SERVICES SERVICES OTHER CONSOLIDATED
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Revenues........................................ $ 2,735 $ 57 $ 2,792
Fixed cost contribution......................... 61 57 118
Identifiable assets............................. 9,599 1,801 40,034 51,434
Depreciation and amortization................... 483 125 801 1,409
Capital expenditures............................ 10,082 1,926 25,160 37,168
</TABLE>
F-17
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
12. SEGMENT AND RELATED INFORMATION (CONTINUED)
The following table reconciles the fixed cost contribution for reportable
segments to the loss before income tax benefit for the period from February 20,
1998 (date of inception) to December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Total fixed cost contribution for reportable segments............................. $ 118
Unallocated amounts
Unallocated cost of services (exclusive of amounts shown separately below)...... (8,995)
Selling, general and administrative expenses.................................... (8,977)
Depreciation and amortization................................................... (1,409)
Total other income (expense).................................................... 28
----------
Loss before income tax benefit.................................................... $ (19,235)
----------
----------
</TABLE>
Unallocated cost of services include network and transmission costs that are
shared by the voice and data services segments.
GEOGRAPHIC INFORMATION
The following table also provides detail of the Company's revenues for the
period from February 20, 1998 (date of inception) to December 31, 1998 and
long-lived assets as of December 31, 1998 on a geographic basis. Revenues have
been allocated based on the location of the customer. Indefeasible right of use
investments are included based on the entity which owns the investment. The
Company did not earn any revenues in its country of domicile, Luxembourg.
<TABLE>
<CAPTION>
LONG-LIVED
REVENUES ASSETS
----------- -----------
<S> <C> <C>
Germany................................................................ $ 878 $ 10,369
Switzerland............................................................ 108 14,186
United Kingdom......................................................... 1,768 7,399
United States.......................................................... 3,006
Other countries........................................................ 38 1,717
----------- -----------
$ 2,792 $ 36,677
----------- -----------
----------- -----------
</TABLE>
MAJOR CUSTOMERS
During the period from February 20, 1998 (date of inception) to December 31,
1998, the Company earned 69% of its revenues from three major customers as
follows:
<TABLE>
<CAPTION>
% OF
CUSTOMER REVENUES
- ----------------------------------------------------------------------------------- -------------
<S> <C>
Interroute Telecommunications (UK) Limited......................................... 46%
WorldCom Telecommunications Services GmbH.......................................... 13%
Star Telecommunications Deutschland GmbH........................................... 10%
--
69%
--
--
</TABLE>
F-18
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
13. SUBSEQUENT EVENTS
SHAREHOLDERS' EQUITY
On January 15, 1999, the Board of the Company adopted the 1999 Share Option
Plan (the "1999 Option Plan"), under which Carrier1 International SA and related
companies of the consolidated Carrier1 group (the "Related Corporations") may
grant to any employee of the Company or Related Corporations options in equity
securities (the "Options") issued by the Company. The 1999 Option Plan is
administered by the Board and may be administered by a committee appointed by
the Board, and authorizes the Board or such committee to issue Options in such
forms and on such terms as determined by the Board or such committee. The Board
or such committee may determine the number of Options to grant, provided that
the number of shares of the Company (the "Shares") issued pursuant to the 1999
Option Plan is no greater than the lesser of (a) 2,222,222 Shares and (b) the
number of Shares representing 11.1% of the Shares held by purchasers purchasing
shares pursuant to a securities purchase agreement dated as of December 30,
1998. The per-share exercise price for the Options may not be less than $2.
Options granted under the 1999 Option Plan vest in five equal annual
installments beginning on the first anniversary of the grant of such Options.
Options expire if not exercised within 10 years of the grant, or on an earlier
date as specified by the Board or the committee. If the employment of a
participant is terminated for any reason, all unvested Options immediately
expire and vested Options must be exercised within a certain period of time as
specified by the plan document. The Company expects to cancel the options
granted under the 1998 Stock Option Plan and issue replacement options under the
1999 Option Plan by May 31, 1999.
On February 10, 1999, the Company increased its authorized number of shares
to 55,000,000.
LONG-TERM DEBT
On February 19, 1999, the Company issued $165 million and [Euro]85 million
of 13 1/4% senior notes (the "Notes") with detachable warrants with a scheduled
maturity of February 2009. Each Dollar warrant is initially exercisable to
purchase 6.71013 shares of common stock and each Euro warrant is initially
exercisable to purchase 7.53614 shares of common stock. Holders will be able to
exercise the warrants at a per share price equal to the greater of $2.00 per
share and the minimum par value required by Luxembourg law (currently 50
Luxembourg francs), subject to adjustment.
The Company has the right to redeem any of the Notes beginning on February
15, 2004. The initial redemption price is 106.625% of their principal amount,
plus accrued interest. The redemption price will decline each year after 2004
and will be 100% of their principal amount, plus accrued interest, beginning on
February 15, 2007. In addition, before February 15, 2002, the Company may redeem
up to 35% of the aggregate amount of either series of Notes with the proceeds of
sales of its capital stock at 113.25% of their principal amount. The Company may
make such redemption only if after any such redemption, an amount equal to at
least 65% of the aggregate principal amount of such Notes originally issued
remains outstanding.
The Notes contain covenants that restrict the Company's ability to enter
into certain transactions including, but not limited to, incurring additional
indebtedness, creating liens, paying dividends, redeeming capital stock, selling
assets, issuing or selling stock of restricted subsidiaries, or effecting a
consolidation or merger.
F-19
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
13. SUBSEQUENT EVENTS (CONTINUED)
The Company is obligated to use its best efforts to cause the Notes to
generally be freely transferable under the Securities Act of 1933 no later than
August 19, 1999. If this requirement is not met, then the interest on the Notes
will increase by 0.5% per annum until the Notes are generally freely
transferable.
COMMITMENTS
On February 2, 1999, the Company entered into a letter of intent for a lease
for network fiber, which requires monthly payments of $274, including operating
and maintenance costs, for 36 months, after which the Company will obtain a
15-year IRU for the leased fiber at no additional charge. The Company will be
required to pay an annual operating and maintenance fee of $250 for the term of
the indefeasible right of use.
On February 18, 1999, the Company entered into an agreement to purchase
fiber optic cable for the German Network during 1999 for $20,286, plus
value-added tax. The seller will either provide financing for the entire amount
of the purchase with the contract value to be repaid over three years in equal
annual installments beginning on December 31, 2001 together with interest, or
will allow the Company to make payment in full by December 31, 2001 without
interest. The loan, if provided, will bear interest at the U.S. dollar Libor
rate plus 4% per annum. If a loan is not provided, the seller is obligated to
provide certain additional equipment to the Company without charge.
F-20
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
1998*
MARCH 31, ------------
1999
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 107,960 $ 4,184
Restricted cash..................................................................... 1,446 1,518
Restricted investments held in escrow (See Notes 5 and 6)........................... 98,180 --
Accounts receivables................................................................ 6,583 1,217
Unbilled receivables................................................................ 5,829 1,645
Other receivables................................................................... 5,301 3,014
Prepaid expenses and other current assets........................................... 4,508 3,179
----------- ------------
Total current assets.............................................................. 229,807 14,757
PROPERTY AND EQUIPMENT--Net........................................................... 41,546 31,091
INVESTMENT IN JOINT VENTURE........................................................... 4,675 4,675
RESTRICTED INVESTMENTS HELD IN ESCROW (See Note 6).................................... 44,854 --
OTHER ASSETS.......................................................................... 8,895 911
----------- ------------
TOTAL................................................................................. $ 329,777 $ 51,434
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.............................................................. $ 36,015 $ 27,602
Accrued liabilities................................................................. 15,279 4,643
----------- ------------
Total current liabilities......................................................... 51,294 32,245
LONG-TERM DEBT (Net of discount of $2,269) (See Note 6)............................... 249,608 --
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Common stock, $2 par value, 30,000,000 shares authorized, 30,000,000 and 18,885,207
issued and outstanding at March 31, 1999 and December 31, 1998, respectively...... 60,000 37,770
Additional paid-in capital (See Note 8)............................................. 2,304 --
Accumulated deficit................................................................. (34,265) (19,235)
Accumulated other comprehensive income.............................................. 836 654
----------- ------------
Total shareholders' equity........................................................ 28,875 19,189
----------- ------------
TOTAL................................................................................. $ 329,777 $ 51,434
----------- ------------
----------- ------------
</TABLE>
* Derived from audited consolidated financial statements.
See notes to unaudited consolidated financial statements.
F-21
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO MARCH 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PERIOD
THREE FROM
MONTHS FEBRUARY 20,
ENDED 1998 TO
MARCH 31, MARCH 31,
1999 1998
---------- ------------
<S> <C> <C>
REVENUES................................................................................ $ 12,293 $ --
OPERATING EXPENSES:
Cost of services (exclusive of items shown separately below).......................... 17,015 --
Selling, general and administrative................................................... 3,318 157
Depreciation and amortization......................................................... 1,336 --
----------
Total operating expenses............................................................ 21,669 157
---------- ------------
LOSS FROM OPERATIONS.................................................................... (9,376) (157)
OTHER INCOME (EXPENSE):
Interest expense...................................................................... (4,205)
Interest income....................................................................... 979 --
Currency exchange loss, net........................................................... (2,428) --
---------- ------------
Total other income (expense)........................................................ (5,654) --
---------- ------------
LOSS BEFORE INCOME TAX BENEFIT.......................................................... (15,030) (157)
INCOME TAX BENEFIT--Net of valuation allowance.......................................... -- --
---------- ------------
NET LOSS................................................................................ $ (15,030) $ (157)
---------- ------------
---------- ------------
EARNINGS (LOSS) PER SHARE:
Net loss:
Basic............................................................................... $ (0.53) $ (1.50)
---------- ------------
---------- ------------
Diluted............................................................................. $ (0.53) $ (1.50)
---------- ------------
---------- ------------
</TABLE>
See notes to unaudited consolidated financial statements.
F-22
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN- ACCUMULATED COMPREHENSIVE
STOCK CAPITAL DEFICIT INCOME TOTAL
----------- ----------- ------------ ----------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE--December 31, 1998.................... $ 37,770 $ (19,235) $ 654 $ 19,189
Issuance of shares (11,114,793 shares)........ 22,230 22,230
Issuance of warrants.......................... $ 2,304 2,304
Comprehensive income (loss):
Net loss.................................... (15,030) (15,030)
Other comprehensive income, net of tax:
Currency translation adjustments.......... 182 182
----------
Total comprehensive loss.................... (14,848)
----------- ----------- ------------ ----- ----------
BALANCE--March 31, 1999....................... $ 60,000 $ 2,304 $ (34,265) $ 836 $ 28,875
----------- ----------- ------------ ----- ----------
----------- ----------- ------------ ----- ----------
</TABLE>
See notes to unaudited consolidated financial statements.
F-23
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO MARCH 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PERIOD
THREE FROM
MONTHS FEBRUARY 20,
ENDED 1998 TO
MARCH 31, MARCH 31,
1999 1998
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................. $ (15,030) (157)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization...................................................... 1,336 --
Changes in operating assets and liabilities:
Restricted cash.................................................................. 71 --
Receivables...................................................................... (12,077) --
Prepaid expenses and other current assets........................................ (677) (1)
Other assets..................................................................... (8,515) --
Trade accounts payable and accrued liabilities................................... 15,982 44
----------- -----
Net cash used in operating activities.......................................... (18,910) (114)
----------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................................................. (9,688) --
Purchases of restricted investments held in escrow................................... (143,034) --
----------- -----
Net cash used in investing activities.......................................... (152,722) --
----------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt............................................ 66
Proceeds from issuance of long-term debt............................................. 249,608 --
Proceeds from issuance of common stock............................................... 24,533 177
----------- -----
Net cash provided by financing activities...................................... 274,141 243
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS........................... 1,267 (10)
----------- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS.............................................. 103,776 119
CASH AND CASH EQUIVALENTS:
Beginning of period.................................................................. 4,184
----------- -----
End of period........................................................................ $ 107,960 $ 119
----------- -----
----------- -----
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND INVESTING ACTIVITIES:
At March 31, 1999 and December 31, 1998, the Company had purchased approximately
$21,713 and $17,315, respectively, of equipment on open accounts payable.
</TABLE>
See notes to unaudited consolidated financial statements.
F-24
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO MARCH 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
1. NATURE OF OPERATIONS
Carrier1 International S.A., its subsidiaries in Europe and its subsidiary
in the United States ("Carrier1" or the "Company"), operate in the
telecommunications industry offering long distance voice and Internet Protocol
telecommunication services on a wholesale basis. The Company offers these
services primarily to competitive fixed-line operators, other carriers, wireless
operators, Internet service providers, resellers, and multi-national
corporations. The Company is a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg and has adopted a fiscal year end of December 31.
2. UNAUDITED FINANCIAL INFORMATION
The financial information included herein is unaudited; however, the
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the Company's financial position and results of operations and
cash flows for the interim periods presented. 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.
3. EARNINGS PER SHARE
The following details the earnings per share calculations for the three
months ended March 31, 1999 and for the period from February 20, 1998 (date of
inception) to March 31, 1998 (in thousands of U.S. dollars, except share
information):
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS FEBRUARY 20,
ENDED 1998 TO
MARCH 31, MARCH 31,
1999 1998
------------- ------------
<S> <C> <C>
Loss from operations............................................. $ (9,376) $ (157)
------------- ------------
------------- ------------
Net loss......................................................... $ (15,030) $ (157)
------------- ------------
------------- ------------
Total number of shares used to compute basic earnings
(loss) per share............................................... 28,145,000 105,000
------------- ------------
------------- ------------
Loss from operations:
Basic loss per share........................................... $ (0.33) $ (1.50)
------------- ------------
------------- ------------
Diluted loss per share......................................... $ (0.33) $ (1.50)
------------- ------------
------------- ------------
Net loss:
Basic loss per share........................................... $ (0.53) $ (1.50)
------------- ------------
------------- ------------
Diluted loss per share......................................... $ (0.53) $ (1.50)
------------- ------------
------------- ------------
</TABLE>
Potential dilutive securities have been excluded from the computation for
the three months ended March 31, 1999 and for the period from February 20, 1998
(date of inception) to March 31, 1998 as their effect is antidilutive. Had the
Company been in a net income position for the three months ended March 31, 1999
and for the period from February 20, 1998 (date of inception) to March 31, 1998,
diluted
F-25
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO MARCH 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
3. EARNINGS PER SHARE (CONTINUED)
earnings per share would have included an additional 2,822,000 and 2,822,000
shares, respectively, related to outstanding stock options and stock
subscriptions (determined using the treasury stock method at the estimated
average market value).
4. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1999, consist of the following:
<TABLE>
<S> <C>
Network equipment............................................... $ 27,145
Indefeasible right of use investments........................... 10,331
Leasehold improvements.......................................... 3,647
Furniture, fixtures and office equipment........................ 1,794
Construction in progress........................................ 1,185
-----------
44,102
Less: accumulated depreciation and amortization................. (2,556)
-----------
Property and equipment, net................................... $ 41,546
-----------
-----------
</TABLE>
5. INVESTMENT IN JOINT VENTURE
On February 19, 1999, the parties to the joint venture executed a
development agreement. In accordance with the development agreement, the Company
provided a 109.5 million Deutsche Mark letter of credit (approximately $64.8
million) to the Developer to fund the Company's share of construction costs. To
secure the letter of credit, the Company placed securities with a value of $64.8
million in an escrow account at the bank. Pursuant to this definitive
development agreement, all decisions required to be made by Viatel, MFN and the
Company will be made by a majority in interest, except for major decisions
specified in the development agreement. Most specified major decisions, such as
those approving budgets, significant cost increases and delays, or changes in
network cities shall be approved by unanimous vote. Other major decisions, such
as related-party transactions, require the vote of at least two owners. Under
the terms of the development agreement, the Developer will act as agent for each
of the parties, as owners, to arrange construction of a fiber optic network for
each party. The development agreement contemplates that the parties and the
Developer will enter into a construction contract for which each party, and not
the Developer, will be severally liable. As each portion of the network is
completed and delivered, each party will own its own network. The parties have
agreed to take all necessary actions necessary or desirable to obtain and
maintain separate ownership of all components of their respective networks. The
development agreement contains contingency provisions for the possibility in
limited circumstances of joint ownership of particular assests, such as rights
of way, licenses and permits. The owners will have equal access rights to use
transmission equipment sites in each network city, but the specific form of
legal ownership at each such site will be determined on a case-by-case basis.
F-26
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO MARCH 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
6. LONG-TERM DEBT
On February 19, 1999, the Company issued $160 million and 85 million Euro of
13 1/4% senior notes (the "Notes") with detachable warrants with a scheduled
maturity of February 15, 2009. Each Dollar warrant is initially exercisable to
purchase 6.71013 shares of common stock and each Euro warrant is initially
exercisable to purchase 7.53614 shares of common stock. Holders will be able to
exercise the warrants at a per share price equal to the greater of $2.00 per
share and the minimum par value required by Luxembourg law (currently 50
Luxembourg francs), subject to adjustment.
The Company has the right to redeem any of the Notes beginning on February
15, 2004. The initial redemption price is 106.625% of their principal amount,
plus accrued interest. The redemption price will decline each year after 2004
and will be 100% of their principal amount, plus accrued interest, beginning on
February 15, 2007. In addition, before February 15, 2002, the Company may redeem
up to 35% of the aggregate amount of either series of Notes with the proceeds of
sales of its capital stock at 113.25% of their principal amount. The Company may
make such redemption only if after any such redemption, an amount equal to at
least 65% of the aggregate principal amount of such Notes originally issued
remains outstanding.
The Notes contain covenants that restrict the Company's ability to enter
into certain transactions including, but not limited to, incurring additional
indebtedness, creating liens, paying dividends, redeeming capital stock, selling
assets, issuing or selling stock of restricted subsidiaries, or effecting a
consolidation or merger.
The Company is obligated to use its best efforts to cause the Notes to
generally be freely transferable under the Securities Act of 1933 no later than
August 19, 1999. If this requirement is not met, then the interest on the Notes
will increase by 0.5% per annum until the Notes are generally freely
transferable.
As required by the terms of the Notes, the Company used approximately $49.2
million of the net proceeds to purchase a portfolio of U.S. government
securities and approximately [Euro]26.9 million ($29.8 million) of the net
proceeds to purchase a portfolio of European government securities, and pledged
these portfolios for the benefit of the holders of the respective series of
Notes to secure and fund the first five interest payments.
7. COMMITMENTS AND CONTINGENCIES
LEASES
On February 2, 1999, the Company entered into a letter of intent for a lease
for network fiber, which requires monthly payments of $274, including operating
and maintenance costs, for 36 months, after which the Company will obtain a
15-year IRU for the leased fiber at no additional charge. The Company will be
required to pay an annual operating and maintenance fee of $250 for the term of
the IRU.
PURCHASE COMMITMENTS
On February 18, 1999, the Company entered into an agreement to purchase
fiber optic cable for the German Network during 1999 for $20,286, plus
value-added tax. The seller will either provide financing for the entire amount
of the purchase with the contract value to be repaid over three years in equal
annual installments beginning on December 31, 2001 together with interest, or
will allow the Company to make
F-27
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO MARCH 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
payment in full by December 31, 2000 without interest. The loan, if provided,
will bear interest at the U.S. dollar Libor rate plus 4% per annum. If a loan is
not provided, the seller is obligated to provide certain additional equipment to
the Company without charge.
8. SHAREHOLDERS' EQUITY
On February 19, 1999, the Company issued $160 million and [Euro]85 million
of units each consisting of one 13 1/4% senior note and one detachable warrant.
Additional paid-in capital of $2.3 million represents the allocation of a
portion of the proceeds of such issuance to such warrants, based on the relative
fair value of the debt and detachable warrants. The Company has allocated
approximately $9.0 of the $1000 issue price of each dollar unit to the
associated warrant and the remaining $991 to the dollar note. The Company has
allocated approximately [Euro]9.0 of the [Euro]1,000 issue price of each Euro
unit to the associated warrant and the remaining [Euro]991 to the Euro note. The
warrants were valued using the Black-Scholes option pricing model with the
following assumptions: dividend yield of 0%, volatility factor of 50%, risk-free
interest rate of 5.1% and expected option life of 10 years.
9. INCOME TAXES
The Company has tax loss carryforwards of approximately $15,000 at March 31,
1999. The ability of the Company to fully realize deferred tax assets related to
these tax loss carryforwards in future years is contingent upon its success in
generating sufficient levels of taxable income before the statutory expiration
periods for utilizing such net operating losses lapses. Due to its limited
history, the Company was unable to conclude that realization of such deferred
tax assets in the near future was more likely than not. Accordingly, a valuation
allowance was recorded to offset the full amount of such assets.
10. SEGMENT INFORMATION
Summarized financial information concerning the Company's reportable
segments for the three months ended March 31, 1999 is shown in the following
table. The "Other" column includes unallocated shared and corporate related
assets.
<TABLE>
<CAPTION>
VOICE
SERVICES DATA SERVICES OTHER CONSOLIDATED
------------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Revenues......................................... $ 11,911 $ 382 $ 12,293
Fixed cost contribution.......................... 2,345 382 2,727
Identifiable assets.............................. 14,656 2,040 313,081 329,777
</TABLE>
11. SUBSEQUENT EVENTS
LONG-TERM DEBT
The Company has negotiated a vendor financing agreement with Nortel. The
Nortel facility will allow Carrier1 to borrow money to purchase network
equipment from Nortel and, in limited amounts, other suppliers. Under this
facility, Carrier1 may borrow up to $75 million or the actual amount paid or
payable by Carrier1 for network equipment supplied prior to December 31, 1999,
whichever is less. Advances under the facility will bear interest at a floating
rate tied to LIBOR, and interest payments will be payable periodically from the
date of the relevant advance. At Carrier1's option, it may pledge assets to
secure the
F-28
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO MARCH 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
11. SUBSEQUENT EVENTS (CONTINUED)
Nortel facility and receive a lower interest rate. Carrier1 may not borrow
additional funds under the Nortel facility after December 31, 2000. Advances are
to be repaid in sixteen equal quarterly installments beginning March 31, 2001.
As of June 25, 1999, Carrier1 had not drawn any amounts under the Nortel
facility.
SHAREHOLDERS' EQUITY
Carrier1 has granted Options pursuant to the 1999 Share Option Plan to
acquire approximately 2,110,968 Shares at an exercise price of $2.00 per Share
plus applicable capital duty (currently 1% of the subscription price payable to
Carrier1 International by the subsidiary granting the applicable Option).
Carrier1 intends to grant additional Options in the future.
As of May 1, the Company had substantially completed a restructuring of its
management equity arrangements. Pursuant to this restructuring, certain members
of management in effect have exchanged their equity interests and options that
they had held in Carrier One, LLC (the "LLC") (which holds a majority of the
equity of Carrier1 International) to acquire an equivalent dollar amount of
shares and options of Carrier1 International common stock. Each LLC share with a
par value of $1 was exchanged for 1/2 of a Carrier1 International S.A. share
with a par value of $2. Each option to purchase one LLC share at an exercise
price of $1 was exchanged for 1/2 of an option bearing the right to purchase one
share of Carrier1 International S.A. with an exercise price of $2. Management
believes that this restructuring of management equity arrangements does not
result in a new measurement date for purposes of APB 25.
PURCHASE COMMITMENTS
On April 16, 1999, the Company signed an agreement to swap fiber wavelength
on the basis of a 15 year indefeasible right of use (IRU). Carrier1 is to
receive two unprotected wavelengths on diverse routes between Hamburg,
Copenhagen and Malmo and provides two unprotected wavelengths on the routes
between Hamburg and Frankfurt, Hamburg and Berlin, and Berlin and Frankfurt in
exchange. The first wavelength to Scandinavia is scheduled for receipt by
Carrier1 in the third quarter of 1999, the second for early fourth quarter,
1999. Carrier1 will deliver the two wavelengths on the German ring during the
first quarter of 2000. The Company will account for this transaction as a
nonmonetary exchange in accordance with Accounting Principles Board Opinion No.
29, "Accounting for Nonmonetary Transactions."
On April 29, 1999, Carrier1 signed a letter of intent with Nortel for the
purchase of DWDM equipment to light up dark fiber in Germany and on the London
ring. The value of the purchases and the associated services to be performed
within 18 months amounts to $25 million.
On May 7, 1999, Carrier1 signed a contract for the purchase of a 10-year
indefeasible right of use (IRU) for 2.5 Gbit/s of capacity from London to
Amsterdam, Frankfurt, Paris and Brussels in the amount of $15.0 million. The
capacity is scheduled to be delivered in mid-1999. Carrier1 sold in exchange to
the same company a 10-year IRU for 2.5 Gbit/s of capacity from London to
Frankfurt, Amsterdam and Paris in the amount of $12.0 million. Carrier1 will pay
$3.0 million on the date of acceptance, the remaining $12.0 million will be
offset by the delivery of Carrier1's wavelength.
PAYMENT TO NORTEL
On April 16, 1999, Carrier1 paid Nortel for equipment delivered prior to
that date in the amount of $27.9 million.
F-29
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
Carrier1 International S.A.
Offer to exchange its
13 1/4% Senior Dollar Notes Due 2009 and
13 1/4% Senior Euro Notes Due 2009
, 1999
- --------------------------------------------------------------------------------
Dealer Prospectus Delivery Obligation
Until , 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Luxembourg law, civil liability of directors both to the company and
to third parties is generally considered to be a matter of public policy. It is
possible that Luxembourg courts would declare void an explicit or even implicit
contractual limitation on directors' liability to Carrier1 International S.A.
Carrier1 International S.A., however, can validly agree to indemnify the
directors against the consequences of liability actions brought by third parties
(including shareholders if such shareholders have personally suffered a damage
which is independent of and distinct from the damage caused to the company).
Under Luxembourg law, an employee of Carrier1 International S.A. can only be
liable to Carrier1 International S.A. for damages brought about by his or her
willful acts or gross negligence. Any arrangement providing for the
indemnification of officers against claims of Carrier1 would be contrary to
public policy. Employees are liable to third parties under general tort law and
may enter into arrangements with Carrier1 International S.A. providing for
indemnification against third party claims.
Under Luxembourg law, an indemnification agreement can never cover a willful
act or gross negligence.
Carrier1 has amended its Articles of Incorporation to provide for the
indemnification of officers and directors (the "Agreement"), having terms
substantially similar to the following:
The corporation shall indemnify any director, any member of any
committee designated by the board of directors and any fonde de pouvoir and
his or her heirs, executors and administrators, against expenses (including
attorneys' fees) judgments and fines in connection with any action, suit or
proceeding or appeal therefrom, to which he or she may be made a party by
reason of his or her being or having been a director or a member of any
committee designated by the board of directors or a fonde de pouvoir of the
corporation, or, at the request of the corporation, of any other corporation
partnership, joint venture, trust or other enterprise in which the
corporation holds a direct or indirect ownership interest or of which the
corporation is a direct or indirect creditor and by which he or she is not
entitled to be indemnified, provided that he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action
or proceeding had no reasonable cause to believe his or her conduct was
unlawful; and in the event of a settlement, such indemnification shall be
provided for all expenses incurred and amounts paid in connection with such
settlement unless the corporation is advised by its legal counsel that the
person to be indemnified did not meet the above-indicated standard of
conduct; except that in the case of an action or suit brought by the
corporation against such a director, committee member or fonde de pouvoir to
procure a judgment in favor of the corporation (1) such indemnification
shall be limited to expenses (including attorneys' fees) actually and
reasonably incurred by such person in the defense or settlement of such
action or suit, and (2) notwithstanding, any other provisions hereof, no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Luxembourg Courts or the courts in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such costs and expenses as the Luxembourg Court or such other court may deem
legal and proper.
The corporation may purchase and maintain insurance on behalf of any
person who is or was or has agreed to become a director, committee member or
fonde de pouvoir of the corporation, or is or was serving at the request of
the corporation in any equivalent position in any such other corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him or on his behalf in any such
capacity, or arising out of his status as such, whether or
II-1
<PAGE>
not the corporation would have the power to indemnify him against such
liability under the provisions of the Agreement, provided that such
insurance is available on acceptable terms, which determination shall be
made by a vote of a majority of the entire board of directors. If the
Agreement or any portion thereof shall be invalidated on any ground by any
court of competent jurisdiction, then the corporation shall nevertheless
indemnify each such director, committee member or fonde de pouvoir and may
indemnify each employee or agent of the corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the corporation, to the fullest extent permitted by any applicable
portion of the Agreement that shall not have been invalidated and to the
fullest extent permitted by applicable law.
Subject to the applicable provisions of Luxembourg law and in particular
Section 59 of the Luxembourg Law on Commercial Companies, no director,
committee member or fonde de pouvoir of the corporation shall be liable to
the corporation or its stockholders for his actions or omissions when
performing his duties as a director, committee member or fonde de pouvoir,
provided that nothing contained in the Agreement shall eliminate or limit
the liability of a director, committee member or fonde de pouvoir (i) for
any breach of his duty of loyalty to the corporation or its stockholder,
(ii) for acts or omissions not in good faith or which involves intentional
misconduct or a knowing violation of the law, or (iii) for any transaction
from which the director derived an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation of Carrier1 International S.A.*
4.1 Indenture, dated as of February 19, 1999, between Carrier1 International S.A. and the Chase Manhattan
Bank, as Trustee, relating to Carrier1 International S.A.'s 13 1/4 Senior Dollar Notes Due 2009*
4.2 Form of 13 1/4 Senior Dollar Note (included in Exhibit 4.1)
4.3 Indenture, dated as of February 19, 1999, between Carrier1 International S.A. and the Chase Manhattan
Bank, as Trustee, relating to Carrier1 International S.A.'s 13 1/4 Senior Euro Notes Due 2009*
4.4 Form of 13 1/4 Senior Euro Note (included in Exhibit 4.3)
4.5 Notes Registration Rights Agreement, dated February 12, 1999, among Carrier1 International S.A., Morgan
Stanley & Co. Incorporated, Salomon Smith Barney Inc., Warburg Dillon Read LLC and Bear, Stearns & Co.
Inc.*
4.6 U.S. Dollar Collateral Pledge and Security Agreement, dated as of February 19, 1999, among Carrier1
International S.A., The Chase Manhattan Bank, as Trustee and The Chase Manhattan Bank, as securities
intermediary*
4.7 Euro Collateral Pledge and Security Agreement, dated as of February 19, 1999, among Carrier1
International S.A., The Chase Manhattan Bank, as Trustee and The Chase Manhattan Bank AG, as securities
intermediary*
4.8 Loan Agreement, dated June 25, 1999, between Carrier1 International S.A. as Borrower, the Lenders and
Financial Institutions named therein, and Nortel Networks Inc. as Agent.
5.1 Opinion of Debevoise & Plimpton
5.2 Opinion of Bonn & Schmitt
10.1 Dollar Warrant Agreement, dated as of February 19, 1999, between Carrier1 International S.A. and The
Chase Manhattan Bank, as Warrant Agent*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.2 Euro Warrant Agreement, dated as of February 19, 1999, between Carrier1 International S.A. and The Chase
Manhattan Bank, as Warrant Agent*
10.3 Warrants Registration Rights Agreement, dated as of February 12, 1999, between Carrier1 International
S.A. and The Chase Manhattan Bank, as Warrant Agent*
10.4 Carrier1 International S.A. 1999 Share Option Plan*
10.5 Master Option Agreement, dated as of December 30, 1998, among Carrier1 International S.A., Carrier One
LLC, Carrier1 International GmbH, Carrier1 B.V., Carrier1 France S.A.R.L., Carrier1 U.K. Limited and
Carrier1 GmbH & Co. AG*
10.6 Form of Option Agreement*
10.7 Employment Agreement, dated as of March 4, 1998, between Carrier One AG and Stig Johansson*
10.8 Employment Agreement, dated as of March 4, 1998, between Carrier One AG and Eugene A. Rizzo*
10.9 Employment Agreement, dated as of March 26, 1998, between Carrier One AG and Terje Nordahl*
10.10 Employment Agreement, dated as of March 4, 1998, between Carrier One AG and Joachim Bauer*
10.11 Employment Agreement, dated as of March 4, 1998, between Carrier One AG and Kees van Ophem*
10.12 Securities Purchase Agreement, dated as of March 1, 1999, among Carrier1, Carrier One LLC and the
employee investors named therein*
10.13 Registration Rights Agreement, dated as of March 1, 1999, among Carrier1 International S.A., Carrier One
LLC, Stig Johansson, Joachim Bauer, Gene Rizzo, Kees van Ophem, Terje Nordahl and the other parties
named therein*
10.14 Securityholders' Agreement, dated as of March 1, 1999, among Carrier1 International S.A. and the
employee investors named therein*
10.15 Development Agreement, dated as of February 19, 1999 by and among ViCaMe Infrastructure Development
GmbH, Viatel German Asset GmbH, Carrier 1 Fiber Network GmbH & Co. oHG, Metromedia Fiber Network GmbH,
Viatel, Inc. and Metromedia Fiber Network, Inc.**/*
10.16 Amendment No. 1 to Securityholders' Agreement and Registration Rights Agreement, dated as of March 1,
1999*
10.17 Amendment No. 2 to Securityholders' Agreement and Securities Purchase Agreement, dated as of March 1,
1999*
10.18 Amendment No. 3 to Securityholders' Agreement and Securities Purchase Agreement, dated as of March 1,
1999*
10.19 Amendment No. 4 to Securityholders' Agreement and Securities Purchase Agreement, dated as of March 1,
1999*
12.1 Calculation of Ratio of Earnings to Fixed Charges*
21.1 List of Subsidiaries of Carrier1 International S.A.*
23.1 Consent of Deloitte & Touche Experta AG
23.2 Consent of Debevoise & Plimpton (included in Exhibit 5.1 hereto)
23.3 Consent of Bonn & Schmitt (included in Exhibit 5.2 hereto)
24.1 Power of Attorney from Glenn M. Creamer*
24.2 Power of Attorney from Jonathan E. Dick*
24.3 Power of Attorney from Stig Johansson*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
24.4 Power of Attorney from Mark A. Pelson*
24.5 Power of Attorney from Victor A. Pelson*
24.6 Power of Attorney from Thomas J. Wynne*
24.7 Power of Attorney from Joachim Bauer*
25.1 Statement of Eligibility of The Chase Manhattan Bank on Form T-1*
27.1 Financial Data Schedule*
99.1 Form of Letter of Transmittal (Dollar Notes and DTC Held Euro Notes)
99.2 Form of Letter of Transmittal (Non-DTC Held Euro Notes)*
99.3 Form of Notice of Guaranteed Delivery (Dollar Notes and DTC Held Euro Notes)
99.4 Form of Notice of Guaranteed Delivery (Non-DTC Held Euro Notes)*
99.5 Instructions to Registered Holders and/or Book Entry Transfer Participant from Beneficial Owner for
Tender of 13 1/4% Senior Dollar Notes Due 2009 and 13 1/4% Senior Euro Notes Due 2009 (DTC Held) for
registered 13 1/4% Senior Dollar Notes Due 2009 and 13 1/4% Senior Euro Notes Due 2009 (DTC Held)*
99.6 Instructions to Registered Holders and/or Book Entry Transfer Participant from Beneficial Owner for
Tender of 13 1/4% Senior Euro Notes Due 2009 (Non-DTC Held) for registered 13 1/4% Senior Euro Notes Due
2009 (Non-DTC Held)*
</TABLE>
- ------------------------
* Previously filed
** Confidential treatment requested as to certain portions
(B) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements or related
notes and therefore has been omitted.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising over the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
II-4
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 5 TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ZURICH ON JULY 15,
1999.
<TABLE>
<S> <C> <C>
By: *
-----------------------------------------
Name: Stig Johansson
Title: Chief Executive Officer and
President
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 5 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE
INDICATED.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------ --------------------------- -------------------
Director, Chief Executive
* Officer and President
- ------------------------------ (Principal Executive July 15, 1999
Stig Johansson Officer)
Chief Financial Officer
/s/ JOACHIM W. BAUER (Principal Financial
- ------------------------------ Officer and Principal July 15, 1999
Joachim W. Bauer Accounting Officer)
* Director
- ------------------------------ July 15, 1999
Glenn M. Creamer
* Director
- ------------------------------ July 15, 1999
Jonathan E. Dick
* Director
- ------------------------------ July 15, 1999
Mark A. Pelson
* Director
- ------------------------------ July 15, 1999
Victor A. Pelson
* Director
- ------------------------------ July 15, 1999
Thomas J. Wynne
Authorized Representative
CARRIER 1, INC. in the U.S. July 15, 1999
<TABLE>
<S> <C> <C> <C>
By: /s/ JOACHIM BAUER
-------------------------
Joachim Bauer, ITS July 15, 1999
SECRETARY
*By: /s/ JOACHIM W. BAUER
-------------------------
Joachim W. Bauer July 15, 1999
by Power of Attorney
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation of Carrier1 International S.A.*
4.1 Indenture, dated as of February 19, 1999, between Carrier1 International S.A. and the Chase Manhattan
Bank, as Trustee, relating to Carrier1 International S.A.'s 13 Senior Dollar Notes Due 2009*
4.2 Form of 13 Senior Dollar Note (included in Exhibit 4.1)
4.3 Indenture, dated as of February 19, 1999, between Carrier1 International S.A. and the Chase Manhattan
Bank, as Trustee, relating to Carrier1 International S.A.'s 13 Senior Euro Notes Due 2009*
4.4 Form of 13 Senior Euro Note (included in Exhibit 4.3)
4.5 Notes Registration Rights Agreement, dated February 12, 1999, among Carrier1 International S.A., Morgan
Stanley & Co. Incorporated, Salomon Smith Barney Inc., Warburg Dillon Read LLC and Bear, Stearns & Co.
Inc.*
4.6 U.S. Dollar Collateral Pledge and Security Agreement, dated as of February 19, 1999, among Carrier1
International S.A., The Chase Manhattan Bank, as Trustee and The Chase Manhattan Bank, as securities
intermediary*
4.7 Euro Collateral Pledge and Security Agreement, dated as of February 19, 1999, among Carrier1
International S.A., The Chase Manhattan Bank, as Trustee and The Chase Manhattan Bank AG, as securities
intermediary*
4.8 Loan Agreement, dated June 25, 1999, between Carrier1 International S.A. as Borrower, the Lenders and
Financial Institutions named therein, and Nortel Networks Inc. as Agent.
5.1 Opinion of Debevoise & Plimpton
5.2 Opinion of Bonn & Schmitt
10.1 Dollar Warrant Agreement, dated as of February 19, 1999, between Carrier1 International S.A. and The
Chase Manhattan Bank, as Warrant Agent*
10.2 Euro Warrant Agreement, dated as of February 19, 1999, between Carrier1 International S.A. and The Chase
Manhattan Bank, as Warrant Agent*
10.3 Warrants Registration Rights Agreement, dated as of February 12, 1999, between Carrier1 International
S.A. and The Chase Manhattan Bank, as Warrant Agent*
10.4 Carrier1 International S.A. 1999 Share Option Plan*
10.5 Master Option Agreement, dated as of December 30, 1998, among Carrier1 International S.A., Carrier One
LLC, Carrier1 International GmbH, Carrier1 B.V., Carrier1 France S.A.R.L., Carrier1 U.K. Limited and
Carrier1 GmbH & Co. AG*
10.6 Form of Option Agreement*
10.7 Employment Agreement, dated as of March 4, 1998, between Carrier One AG and Stig Johansson*
10.8 Employment Agreement, dated as of March 4, 1998, between Carrier One AG and Eugene A. Rizzo*
10.9 Employment Agreement, dated as of March 26, 1998, between Carrier One AG and Terje Nordahl*
10.10 Employment Agreement, dated as of March 4, 1998, between Carrier One AG and Joachim Bauer*
10.11 Employment Agreement, dated as of March 4, 1998, between Carrier One AG and Kees van Ophem*
10.12 Securities Purchase Agreement, dated as of March 1, 1999, among Carrier1, Carrier One LLC and the
employee investors named therein*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.13 Registration Rights Agreement, dated as of March 1, 1999, among Carrier1 International S.A., Carrier One
LLC, Stig Johansson, Joachim Bauer, Gene Rizzo, Kees van Ophem, Terje Nordahl and the other parties
named therein*
10.14 Securityholders' Agreement, dated as of March 1, 1999, among Carrier1 International S.A. and the
employee investors named therein*
10.15 Development Agreement, dated as of February 19, 1999 by and among ViCaMe Infrastructure Development
GmbH, Viatel German Asset GmbH, Carrier 1 Fiber Network GmbH & Co. oHG, Metromedia Fiber Network GmbH,
Viatel, Inc. and Metromedia Fiber Network, Inc.**/*
10.16 Amendment No. 1 to Securityholders' Agreement and Registration Rights Agreement, dated as of March 1,
1999*
10.17 Amendment No. 2 to Securityholders' Agreement and Securities Purchase Agreement, dated as of March 1,
1999*
10.18 Amendment No. 3 to Securityholders' Agreement and Securities Purchase Agreement, dated as of March 1,
1999*
10.19 Amendment No. 4 to Securityholders' Agreement and Securities Purchase Agreement, dated as of March 1,
1999*
12.1 Calculation of Ratio of Earnings to Fixed Charges*
21.1 List of Subsidiaries of Carrier1 International S.A.*
23.1 Consent of Deloitte & Touche Experta AG
23.2 Consent of Debevoise & Plimpton (included in Exhibit 5.1 hereto)
23.3 Consent of Bonn & Schmitt (included in Exhibit 5.2 hereto)
24.1 Power of Attorney from Glenn M. Creamer*
24.2 Power of Attorney from Jonathan E. Dick*
24.3 Power of Attorney from Stig Johansson*
24.4 Power of Attorney from Mark A. Pelson*
24.5 Power of Attorney from Victor A. Pelson*
24.6 Power of Attorney from Thomas J. Wynne*
24.7 Power of Attorney from Joachim Bauer*
25.1 Statement of Eligibility of The Chase Manhattan Bank on Form T-1*
27.1 Financial Data Schedule*
99.1 Form of Letter of Transmittal (Dollar Notes and DTC Held Euro Notes)
99.2 Form of Letter of Transmittal (Non-DTC Held Euro Notes)*
99.3 Form of Notice of Guaranteed Delivery (Dollar Notes and DTC Held Euro Notes)
99.4 Form of Notice of Guaranteed Delivery (Non-DTC Held Euro Notes)*
99.5 Instructions to Registered Holders and/or Book Entry Transfer Participant from Beneficial Owner for
Tender of 13 1/4% Senior Dollar Notes Due 2009 and 13 1/4% Senior Euro Notes Due 2009 (DTC Held) for
registered 13 1/4% Senior Dollar Notes Due 2009 and 13 1/4% Senior Euro Notes Due 2009 (DTC Held)*
99.6 Instructions to Registered Holders and/or Book Entry Transfer Participant from Beneficial Owner for
Tender of 13 1/4% Senior Euro Notes Due 2009 (Non-DTC Held) for registered 13 1/4% Senior Euro Notes Due
2009 (Non-DTC Held)*
</TABLE>
- ------------------------
* Previously filed
** Confidential treatment requested as to certain portions
<PAGE>
Exhibit 4.8
LOAN AGREEMENT
for a
MULTI-CURRENCY FACILITY
to
CARRIER 1 INTERNATIONAL S.A.
as Borrower
with
NORTEL NETWORKS INC.
as Agent
FOR THE PURPOSES OF ARTICLE 1 OF THE PROTOCOL ANNEXED TO THE CONVENTION ON
JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS
SIGNED AT BRUSSELS ON SEPTEMBER 27, 1968, CARRIER 1 INTERNATIONAL
S.A. EXPRESSLY AND SPECIFICALLY AGREES TO CLAUSE 19 OF THIS LOAN AGREEMENT
TERJE NORDAHL KEES VAN OPHEM
CARRIER 1 INTERNATIONAL S.A.
NORTON ROSE
London
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
CLAUSE HEADING PAGE
<S> <C> <C>
1 Purpose and definitions.......................................................................6
1.1 Purpose..............................................................................6
1.2 Definitions..........................................................................6
1.3 Headings............................................................................36
1.4 Construction of certain terms.......................................................37
1.5 Majority Lenders....................................................................38
1.6 Agent's opinion.....................................................................38
1.7 Unrestricted Subsidiary.............................................................38
1.8 Restricted Subsidiary...............................................................39
1.9 Guarantee of Unrestricted Subsidiary................................................39
1.10 Currency Exchange Calculations......................................................39
2 The Facility.................................................................................41
2.1 Amount..............................................................................41
2.2 Obligations several.................................................................41
2.3 Interests several...................................................................42
3 Conditions...................................................................................43
3.1 Documents and evidence..............................................................43
3.2 General conditions precedent........................................................43
3.3 Waiver of conditions precedent......................................................43
3.4 Notification........................................................................43
4 Advances; currencies.........................................................................44
4.1 Maximum outstandings................................................................44
4.2 Purpose of Advances.................................................................44
4.3 Drawdown............................................................................44
4.4 Amount..............................................................................45
4.5 Selection of currencies.............................................................46
4.6 Currency Amounts....................................................................46
4.7 Notification to Lenders.............................................................47
4.8 Application of proceeds.............................................................47
5 Interest; alternative interest rates.........................................................48
5.1 Normal interest rate................................................................48
5.2 Selection of Interest Periods.......................................................48
5.3 Determination of Interest Periods...................................................48
5.4 Default Interest....................................................................48
5.5 Notification of interest rate.......................................................49
5.6 Reference Bank quotations...........................................................49
5.8 Secured/ Unsecured Advances and Calculation of Margin...............................50
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6 Repayment, prepayment and cancellation.......................................................52
6.1 Repayment...........................................................................52
6.2 Voluntary prepayment................................................................52
6.3 Application of prepayments..........................................................52
6.4 Amounts payable on prepayment.......................................................52
6.5 Notice of prepayment................................................................52
6.6 Cancellation of Commitments.........................................................52
6.7 Termination of Commitments..........................................................53
6.8 Mandatory Prepayments/Cancellation..................................................53
6.9 Additional Mandatory Prepayments....................................................56
7 Fees and expenses............................................................................57
7.1 Fees................................................................................57
7.2 Expenses............................................................................57
7.3 Value Added Tax.....................................................................57
7.4 Stamp and other duties..............................................................58
8 Payments and Taxes; accounts and calculations................................................59
8.1 No set-off or counterclaim; distribution to the Lenders.............................59
8.2 Payments by the Lenders.............................................................59
8.3 Non-Banking Days....................................................................59
8.4 Agent may assume receipt............................................................59
8.5 Grossing-up for Taxes...............................................................60
8.6 Qualifying Persons..................................................................60
8.7 Claw-back of Tax benefit............................................................61
8.8 Rules Concerning Additional Amounts.................................................61
8.9 Bank accounts.......................................................................62
8.10 Partial payments....................................................................62
8.11 Calculations........................................................................63
8.12 Certificates prima facie............................................................63
8.13 Effect of monetary union............................................................63
9 Subsidiary Guarantee.........................................................................65
10 Representations and warranties...............................................................66
10.1 Repeated representations and warranties.............................................66
10.2 Repetition..........................................................................69
11 Undertakings.................................................................................70
11.1 Positive Covenants..................................................................70
11.2 Negative covenants..................................................................72
11.3 No Consolidations etc...............................................................88
11.4 Consolidations......................................................................89
11.5 Further Restrictions on Consolidations..............................................89
12 Events of Default............................................................................90
12.1 Events of Default...................................................................90
12.2 Acceleration........................................................................91
12.3 Demand basis........................................................................92
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
13 Indemnities..................................................................................93
13.1 Miscellaneous indemnities...........................................................93
13.2 Currency of account; currency indemnity.............................................93
13.3 ECB Reserve Requirements............................................................94
14 Unlawfulness and increased costs; mitigation.................................................95
14.1 Unlawfulness........................................................................95
14.2 Increased costs.....................................................................95
14.3 Exceptions..........................................................................97
14.4 Mitigation..........................................................................97
15 Set-off and pro rata payments................................................................99
15.1 Set-off.............................................................................99
15.2 Pro rata payments...................................................................99
15.3 No release.........................................................................100
15.4 No charge..........................................................................100
16 Assignment, substitution and lending offices................................................101
16.1 Benefit and burden.................................................................101
16.2 No assignment by Obligors..........................................................101
16.3 Substitution.......................................................................101
16.4 Reliance on Transfer Certificate...................................................102
16.5 Authorisation of Agent.............................................................102
16.6 Construction of certain references.................................................102
16.7 Lending offices....................................................................103
16.8 Disclosure of information..........................................................103
16.9 Confidentiality undertaking........................................................103
16.10 Restrictions on transfers..........................................................104
17 Agent, Security Trustee and Reference Bank..................................................105
17.1 Appointment of Agent...............................................................105
17.2 Agent's actions....................................................................105
17.3 Agent's duties.....................................................................105
17.4 Agent's rights.....................................................................106
17.5 No liability of Security Trustee and Agent.........................................107
17.6 Non-reliance on Security Trustee or Agent.........................................108
17.7 No Responsibility on Security Trustee or Agent for any Security
Provider's performance.............................................................108
17.8 Reliance on documents and professional advice......................................108
17.9 Other dealings.....................................................................109
17.10 Rights of Agent and Security Trustee as Lender; no partnership.....................109
17.11 Amendments; waivers................................................................109
17.12 Reimbursement and indemnity by Lenders.............................................110
17.13 Retirement of Agent................................................................111
17.14 Security Trustee as Joint Creditor.................................................111
18 Notices and other matters...................................................................114
18.1 Notices............................................................................114
18.2 Notices through the Agent..........................................................115
18.3 No implied waivers, remedies cumulative............................................115
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
18.4 English translations...............................................................115
18.5 Counterparts.......................................................................115
19 Governing law and jurisdiction..............................................................116
19.1 Law................................................................................116
19.2 Submission to jurisdiction.........................................................116
19.3 Agent for service of process.......................................................116
SCHEDULE
1 The Lenders and their Commitments...........................................................117
2 Part A Form of Drawdown Notice - Supplier Financing........................................118
Part B Form of Drawdown Notice - Supplier Re-financing..................................120
Part C Form of Drawdown Notice - Non-Supplier Financing.................................122
Part D Form of Drawdown Notice - Non-Supplier Refinancing...............................124
3 Part A - Documents and evidence required as conditions precedent to the first Advance.......126
Part B - Documents and evidence to be delivered by the Borrower.........................129
4 Calculation of Additional Cost..............................................................130
5 Form of Transfer Certificate................................................................132
6 Documents and Evidence to be delivered by a Guarantor.......................................135
7 Agent's Letter..............................................................................136
</TABLE>
5
<PAGE>
THIS AGREEMENT is dated 25 June 1999 and is made BETWEEN:
(1) CARRIER 1 INTERNATIONAL S.A. as Borrower;
(2) THE LENDERS AND FINANCIAL INSTITUTIONS whose names and addresses are
set out in schedule 1;
(3) NORTEL NETWORKS INC. as Agent; and
(4) any person who may, from time to time, accede to this Agreement as
security trustee for the Finance Parties under the Security Trust Deed
as Security Trustee.
IT IS AGREED as follows:
1 PURPOSE AND DEFINITIONS
1.1 PURPOSE
This Agreement sets out the terms and conditions upon and subject to
which the Lenders agree, according to their several obligations, to
make available to the Borrower a senior revolving credit facility for
the purposes set out in clause 4.2.
1.2 DEFINITIONS
In this Agreement, subject to clause 1.4(k) and unless the context
otherwise requires:
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or is merged with or
consolidated with a Restricted Subsidiary or assumed in connection with
an Asset Acquisition by a Restricted Subsidiary and not Incurred in
connection with, or in anticipation of, such Person becoming a
Restricted Subsidiary or such Asset Acquisition;
"ADDITIONAL COST" means in relation to any period relating to any
Advance a percentage calculated for such period at an annual rate
determined in accordance with schedule 4;
"ADDITIONAL NOTES" means Notes which may, from time to time, be issued
pursuant to section 2.15 of either Indenture after the Closing Date
(other than Exchange Notes, as defined in either Indenture);
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of
assets of the Borrower and its Restricted Subsidiaries (less applicable
depreciation, amortisation and other valuation reserves), except to the
extent resulting from write-ups of capital assets (excluding write-ups
in connection with accounting for acquisitions in conformity with
GAAP), after deducting therefrom:
(a) all current liabilities of the Borrower and its Restricted
Subsidiaries (excluding inter-company items); and
6
<PAGE>
(b) all goodwill, trade names, trademarks, patents, unamortised
debt discount and expenses and other like intangibles,
all as set forth in the most recent quarterly or annual consolidated
balance sheet of the Borrower and its Restricted Subsidiaries, prepared
in conformity with GAAP and filed with the Commission and provided to
the Agent;
"ADJUSTED CONSOLIDATED NET INCOME" means, for any period, the aggregate
net income (or loss) of the Borrower and its Restricted Subsidiaries
for such period determined on a consolidated basis in conformity with
GAAP provided that the following items shall be excluded in computing
Adjusted Consolidated Net Income (without duplication):
(a) the net income (or loss) of any Person that is not a
Restricted Subsidiary, except (x) with respect to net income,
to the extent of the amount of dividends or other
distributions actually paid to the Borrower or any of its
Restricted Subsidiaries by such Person during such period and
(y) with respect to net losses, to the extent of the amount of
Investments made by the Borrower or any Restricted Subsidiary
in such Person during such period;
(b) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to paragraph (C)
of clause 11.2(b) (and in such case, except to the extent
included pursuant to paragraph (a) above), the net income (or
loss) of any Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with
the Borrower or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person
are acquired by the Borrower or any of its Restricted
Subsidiaries;
(c) the net income of any Restricted Subsidiary other than a
Permanent Guarantor to the extent that the declaration or
payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time
permitted (after giving effect to any effective waiver,
consent or approval) by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such
Restricted Subsidiary;
(d) any gains or losses attributable to Asset Sales (without
regard to paragraph (iii) or (iv) in the proviso to the
definition thereof);
(e) solely for purposes of calculating the amount of Restricted
Payments that may be made pursuant to paragraph (C) of clause
11.2(b), any amount paid or accrued as dividends on Preferred
Stock of the Borrower or any Restricted Subsidiary owned by
Persons other than the Borrower and any of its Restricted
Subsidiaries;
(f) all extraordinary gains and extraordinary losses or
extraordinary charges;
7
<PAGE>
(g) any compensation expense to the extent paid or payable solely
with Capital Stock (other than Disqualified Stock) of the
Borrower or any options, warrants or other rights to acquire
Capital Stock (other than Disqualified Stock) of the Borrower;
and
(h) the cumulative effect of a change in accounting principles;
"ADVANCE" means each borrowing of a portion of the Commitments by a
Borrower by way of advance or (as the context may require) the
principal amount of such borrowing for the time being;
"AFFILIATE" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person;
"AGENT" means Nortel Networks Inc. of Delaware, USA whose registered
office is at CT Corporation System, Corporate Trust Ctr, 1209 Orange
Street, Wilmington, Delaware, US 19801 or such other person as may be
appointed agent for the Lenders pursuant to clause 17;
"ASSET ACQUISITION" means:
(a) an investment by the Borrower or any of its Restricted
Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into
or consolidated with the Borrower or any of its Restricted
Subsidiaries provided that such Person's primary business is
related, ancillary or complementary to the businesses of the
Borrower and its Restricted Subsidiaries on the date of such
investment, as determined in good faith by the Board of
Directors (whose determination shall be conclusive and
evidenced by a Board Resolution); or
(b) an acquisition by the Borrower or any of its Restricted
Subsidiaries of the property and assets of any Person other
than the Borrower or any of its Restricted Subsidiaries that
constitute substantially all of a division or line of business
of such Person provided that the property and assets acquired
are related, ancillary or complementary to the businesses of
the Borrower and its Restricted Subsidiaries on the date of
such acquisition, as determined in good faith by the Board of
Directors (whose determination shall be conclusive and
evidenced by a Board Resolution);
"ASSET DISPOSITION" means the sale or other disposition by the Borrower
or any of its Restricted Subsidiaries (other than to the Borrower or
another Restricted Subsidiary) of:
(a) all or substantially all of the Capital Stock of any
Restricted Subsidiary; or
(b) all or substantially all of the assets that constitute a
division or line of business of the Borrower or any of its
Restricted Subsidiaries;
8
<PAGE>
"ASSET SALE" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Borrower or any
of its Restricted Subsidiaries to any Person other than the Borrower or
any of its Restricted Subsidiaries of:
(a) all or any of the Capital Stock of any Restricted Subsidiary;
(b) all or substantially all of the property and assets of an
operating unit or business of the Borrower or any of its
Restricted Subsidiaries; or
(c) any other property and assets (other than the Capital Stock of
or any other Investment in an Unrestricted Subsidiary) of the
Borrower or any of its Restricted Subsidiaries outside the
ordinary course of business of the Borrower or such Restricted
Subsidiary,
provided that "ASSET SALE" shall not include:
(i) sales, transfers or other dispositions of Temporary
Cash Investments, inventory, receivables and other
current assets;
(ii) sales, transfers or other dispositions of assets
constituting a Restricted Payment (or a transaction
excluded from the definition of the term "Restricted
Payments") permitted to be made under clause 11.2(b);
(iii) sales, transfers or other dispositions of assets with
a fair market value (as certified in a Certificate)
not in excess of $2 million in any transaction or
series of related transactions; or
(iv) sales or other dispositions of assets for
consideration at least equal to the fair market value
of the assets sold or disposed of, to the extent that
the consideration received would constitute property
or assets of the kind described in sub-paragraph 2)
of paragraph (A) of the proviso to paragraph (ii) of
clause 11.2(j);
"ASSOCIATED COMPANY" of a person means:
(a) any other person which is directly or indirectly controlled
by, under common control with or controlling such person; or
(b) any other person owning beneficially and/or legally, directly
or indirectly, 10 per cent. or more of the equity interest in
such person or 10 per cent. of whose equity interest is owned
beneficially and/or legally directly or indirectly by such
person,
and for the purposes of this definition the term "control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person whether through
the ownership of interests or voting securities, by contract or
otherwise;
9
<PAGE>
"AUTHORISED OFFICER" means that officer or officers of the relevant
Obligor authorised to sign Certificates, Drawdown Notices and other
notices, requests, or confirmations referred to in this Agreement or
relating to the Facility;
"AVAILABLE FACILITY AMOUNT" means at any time the amount by which the
Facility Amount exceeds the aggregate Dollar Amount of the Loan (the
Dollar Amount of the Loan being calculated in accordance with clause
4.6(c));
"AVERAGE LIFE" means, at any date of determination with respect to any
Indebtedness, the quotient obtained by dividing
(a) the sum of the products of (i) the number of years from such
date of determination to the dates of each successive
scheduled principal payment of such Indebtedness and (ii) the
amount of such principal payment; by
(b) the sum of all such principal payments;
"BANKING DAY" means a day (other than Saturday or Sunday) on which
dealings in deposits in the relevant Optional Currency are carried on
in the London Interbank Market and (if any calculation in respect of,
or transfer of funds in an Optional Currency is required to be made on
such day) on which banks and foreign exchange markets are open for
business in the City of London, New York City and the principal
financial centre in the jurisdiction of the Optional Currency
concerned;
"BOARD OF DIRECTORS" means the Board of Directors of the Borrower;
"BOARD RESOLUTION" means a resolution of the Board of Directors of the
Borrower which has been duly adopted by the Board of Directors and is
in full force and effect on the date of such adoption and at the date
of delivery of a copy thereof to the Agent under this Agreement;
"BORROWER" means Carrier 1 International S.A., a societe anonyme
organised under the laws of the Grand Duchy of Luxembourg;
"BORROWINGS" has the same definition as "Indebtedness" except that the
last three words of paragraph (d) shall be amended to read "...
including Trade Payables";
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which the commercial banks in the City of New York, in Frankfurt or in
the city of the principal office of the Agent are authorised by law to
close;
"BUSINESS PLAN" means the business plan in respect of the Group
(version 12.4) for the period 1998 to 2005;
"CAPITALISED LEASE" means, with respect to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted
present value
10
<PAGE>
of the rental obligations of such Person as lessee is, under GAAP,
required to be capitalised on the balance sheet of such Person;
"CAPITALISED LEASE OBLIGATIONS" means the discounted present value of
the rental obligations under a Capitalised Lease;
"CAPITAL STOCK" means, 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, whether
outstanding on the Closing Date or issued thereafter;
"CERTIFICATE" means, in respect of a corporate entity, a certificate
signed by two executive officers of such entity;
"CHANGE OF CONTROL" means such time as:
(a) a "person" or "group" (within the meaning of Section 13(d) or
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35 per cent. (50 per cent., if the Permitted Holders
hold more than 35 per cent. of the voting power of the Voting
Stock of the Borrower on a fully diluted basis) of the total
voting power of the Voting Stock of the Borrower on a fully
diluted basis and such ownership represents a greater
percentage of the total voting power of the Voting Stock of
the Borrower, on a fully diluted basis, than is held by
Permitted Holders on such date; or
(b) during any period of two consecutive years beginning on or
after the Closing Date, individuals who at the beginning of
such period were members of the Board of Directors (together
with any new directors whose election by the Board of
Directors or whose nomination for election by the Borrower's
shareholders was approved by a vote of at least a majority of
the members of the Board of Directors then 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 the Board of Directors then in
office;
"CLOSING DATE" means February 19, 1999;
"COLLATERAL INSTRUMENTS" means notes, bills of exchange, certificates
of deposit and other negotiable and non-negotiable instruments,
guarantees and any other documents or instruments which contain or
evidence an obligation (with or without security) to pay, discharge or
be responsible directly or indirectly for, any Indebtedness or
liabilities under this Agreement;
"COMMISSION" means the Securities and Exchange Commission of the
United States of America, as from time to time constituted, created
under the Exchange Act or, if at any time after the execution of this
Agreement such Commission is not existing and performing the duties
now assigned to it, then the body performing such duties at such time;
11
<PAGE>
"COMMITMENT" means, in relation to a Lender, at any relevant time the
percentage set opposite its name in schedule 1 and/or, in the case of a
Transferee, the amount transferred as specified in the relevant
Transfer Certificate, as reduced, in each case, by any relevant term of
this Agreement and so that, if at such time the Total Commitments have
been reduced to zero, references to a Lender's Commitment shall be
construed as a reference to that Lender's Commitment immediately prior
to such reduction to zero;
"CONSOLIDATED EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income:
(a) Consolidated Interest Expense;
(b) provision for all taxes based on income, profits or capital;
(c) depreciation expense;
(d) amortisation expense (including but not limited to
amortisation of goodwill and intangibles and amortisation and
write-off of financing costs); and
(e) all other non-cash items reducing Adjusted Consolidated Net
Income (other than items that will require cash payments and
for which an accrual or reserve is, or is required by (GAAP to
be, made), less all non-cash items increasing Adjusted
Consolidated Net Income (other than any item reversing,
offsetting or reducing any such accrual or reserve),
all as determined on a consolidated basis for the Borrower and its
Restricted Subsidiaries in conformity with GAAP provided that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to:
(A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary; multiplied by
(B) the percentage ownership interest in the income of such
Restricted Subsidiary not owned on the last day of such period
by the Borrower or any of its Restricted Subsidiaries;
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortisation
of original issue discount on any Indebtedness and the interest portion
of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; 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 the Borrower or any of its Restricted Subsidiaries) and the
interest component of Capitalised Lease Obligations paid, accrued or
12
<PAGE>
scheduled to be paid or to be accrued by the Borrower and its
Restricted Subsidiaries during such period, all as determined on a
consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP;
"CONSOLIDATED LEVERAGE RATIO" means, on any relevant date, the ratio
of:
(a) the aggregate amount of Indebtedness of the Borrower and its
Restricted Subsidiaries on a consolidated basis outstanding on
such date; to
(b) four times the amount of Consolidated EBITDA for the then most
recent fiscal quarter for which financial statements of the
Borrower have been filed with the Commission and provided to
the Agent under this Agreement (such quarter being the
"QUARTER") provided that, in making the foregoing calculation:
(A) effect shall be given, in calculating the amount of
Indebtedness outstanding on the date, to any
Indebtedness to be Incurred on the date, or to be
repaid, repurchased, redeemed or otherwise retired or
discharged on the date;
(B) effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving effect to the
application of proceeds of any Asset Disposition)
that occur from the beginning of the Quarter through
the Transaction Date (the "REFERENCE PERIOD"), as if
they had occurred and such proceeds had been applied
on the first day of such Reference Period; and
(C) effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving effect to the
application of proceeds of any asset disposition)
that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or
into, or consolidated with, the Borrower or any
Restricted Subsidiary during such Reference Period
and that would have constituted Asset Dispositions or
Asset Acquisitions had such transactions occurred
when such Person was a Restricted Subsidiary as if
such asset dispositions or asset acquisitions were
Asset Dispositions or Asset Acquisitions that
occurred on the first day of such Reference Period
provided that to the extent that paragraph (B) or (C)
of this definition requires that effect be given to
an Asset Acquisition or Asset Disposition, such
calculation shall be based upon the full fiscal
quarter immediately preceding the relevant date of
the Person, or division or line of business of the
Person, that is acquired or disposed of for which
financial information is available;
"CONSOLIDATED NET WORTH" means, at any date of determination,
shareholders' equity (plus, to the extent not otherwise included,
Preferred Stock of the Borrower) as set forth on the most recently
available quarterly or annual consolidated balance sheet of the
Borrower and its Restricted Subsidiaries
13
<PAGE>
(which shall be as of a date not more than 90 days prior to the date of
such computation, and which shall not take into account Unrestricted
Subsidiaries), less any amounts attributable to Disqualified 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 the Capital Stock of the Borrower or
any of its Restricted Subsidiaries, each item to be determined in
conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52);
"CONTRIBUTION" means, in relation to a Lender, the principal amount of
the Advances owing to such Lender at any relevant time;
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or any other similar agreement or arrangement;
"DEFAULT" means any Event of Default or any event or circumstance which
would, upon the giving of a notice by the Agent and/or the expiry of
the relevant period and/or the fulfilment of any other condition (in
each case as specified in clause 12.1), constitute an Event of Default;
"DISQUALIFIED STOCK" means any class or series of Capital Stock of any
Person that by its terms or otherwise is:
(a) required to be redeemed prior to the Stated Maturity of the
Loan;
(b) redeemable at the option of the holder of such class or series
of Capital Stock at any time prior to the Stated Maturity of
the Loan; or
(c) convertible into or exchangeable for Capital Stock referred to
in paragraphs (a) or (b) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Loan
provided that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders
thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an Asset Sale
or Change of Control occurring prior to the Stated Maturity of
the Loan shall not constitute Disqualified Stock if the
Borrower can show, to the satisfaction of the Agent, that such
Capital Stock would not constitute Disqualified Stock under
this Agreement;
"DOLLAR AMOUNT" means in relation to an Advance, the Loan or any part
of the Loan drawn down or to be drawn down and if denominated in:
(a) Dollars, the amount of such Advance, the Loan (or part
thereof) or any other amount;
(b) an Optional Currency, the amount in Dollars which would be
required to purchase the principal amount of that Advance, the
Loan or such part of the Loan (as determined in accordance
with clause 4.6);
14
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"DOLLAR NOTE" has the meaning given to it in the Indentures;
"DOLLARS" and "$" mean the lawful currency for the time being of the
United States of America;
"DRAWDOWN DATE" means the date, being a Banking Day falling within the
Drawdown Period, on which an Advance is or is to be drawn down;
"DRAWDOWN NOTICE" means a notice in the form or substantially in the
form of the appropriate part of schedule 2 (and the appropriate part
shall be determined by reference to clause 4.3) duly completed with
particulars of the relevant Advance;
"DRAWDOWN PERIOD" means the period from the date of this Agreement and
ending on whichever is the earlier of:
(a) Termination Date; and
(b) the date on which:
(i) the Borrower cancels the whole of the undrawn
Commitments under clause 6; or
(ii) the Total Commitments are reduced to zero pursuant to
clauses 6, 12.2 or 14.1;
"ENCUMBRANCE" means any mortgage, charge (whether fixed or floating),
pledge, lien, hypothecation, assignment by way of security, trust
arrangement for the purpose of providing security or other security
interest of any kind securing any obligation of any person but does not
include liens arising in the ordinary course of trading by operation of
law;
"END OF TERM AMOUNT" means the lesser of:
(a) $75 million; and
(b) the Dollar Amount of the Loan outstanding as at the
Termination Date;
"ENVIRONMENTAL CLAIM" means any claim, notice of prosecution, demand,
action, official warning, abatement or other order (conditional or
otherwise) relating to Environmental Matters or any notification or
order requiring compliance with the terms of any Environmental Licence
or Environmental Law;
"ENVIRONMENTAL LAW" means all or any law, statute, rule, regulation,
treaty, by-law, code of practice, order, notice, demand, decision of
the courts or of any governmental authority or agency or any other
regulatory or other body in any jurisdiction relating to Environmental
Matters;
"ENVIRONMENTAL LICENCE" means any permit, licence, authorisation,
consent or other approval required at any time by any Environmental
Law;
15
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"ENVIRONMENTAL MATTERS" means:
(a) the generation, deposit, disposal, keeping, treatment,
transportation, transmission, handling, importation,
exportation, processing, collection, sorting, presence or
manufacture of any Relevant Substance;
(b) nuisance, noise, defective premises, health and safety at work
or elsewhere; and
(c) the pollution, conservation or protection of the environment
(both natural and built) or of man or any living organisms
supported by the environment or any other matter whatsoever
affecting the environment or any part of it;
"EQUIPMENT" means any Switch, Transmission Equipment, Software and any
other telecommunications equipment including, but for the avoidance of
doubt, not limited to, equipment supplied or to be supplied under the
Original Supply Contract;
"EVENT OF DEFAULT" means any of the events or circumstances described
in clause 12.1;
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
of the United States of America;
"FACILITY" means the credit facility granted by the Lenders to the
Borrower under this Agreement;
"FACILITY AMOUNT" has the meaning given to it in clause 2.1(a);
"FINAL MATURITY DATE" means 31 December 2004;
"FINANCE DOCUMENTS" means this Agreement, the fee letter referred to in
clause 7.1(a), any Transfer Certificates and any Security Document;
"FINANCE PARTY" means each of the Agent, the Security Trustee and the
Lenders;
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including those
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity as approved by a significant segment of the accounting
profession; provided, however, that all reports and other financial
information provided by the Borrower to the Holders of the Notes or
the Trustee shall be prepared in accordance with GAAP as in effect
from time to time. All ratios and computations contained or referred
to in this Agreement shall be computed in conformity with GAAP applied
on a consistent basis, except that calculations made for purposes of
determining compliance with the terms of the covenants and with other
provisions of this Agreement shall be
16
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made without giving effect to (a) the amortisation or write-off of any
expenses incurred in connection with the offering of the Units and (b)
the amortisation of any amounts required or permitted by Accounting
Principles Board Opinion Nos. 16 and 17;
"GROUP" means the Borrower and its Subsidiaries;
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness, Borrowings
or Indebtedness for Borrowed Money (as the case may be) of any other
Person and, without limiting the generality of the foregoing, any such
obligation, direct or indirect, contingent or otherwise, of such
Person:
(a) to purchase or pay (or advance or supply funds for the
purchase or payment of such Indebtedness, Borrowings or
Indebtedness for Borrowed Money (as the case may be) of) such
other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services (unless such purchase
arrangements are on arm's-length terms and are entered into in
the ordinary course of business), to take-or-pay, or to
maintain financial statement conditions or otherwise); or
(b) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness, Borrowings or Indebtedness for
Borrowed Money (as the case may be) of the payment thereof or
to protect such obligee against loss in respect thereof (in
whole or in part),
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 shall have a corresponding meaning;
"GUARANTEED INDEBTEDNESS" has the meaning given to it in clause
11.2(e);
"GUARANTEED LIABILITIES" means all moneys, obligations and liabilities
of the Borrower under or pursuant to this Agreement, from time to time,
guaranteed or Guaranteed or to be guaranteed or Guaranteed by any
Subsidiary Guarantor;
"HOLDER" means the registered holder of any Note;
"HOLDING COMPANY" means, in relation to a Person, a Person of which
that Person is a Subsidiary;
"INCAPACITY" means, in relation to a person, the insolvency,
liquidation, dissolution, winding-up, administration, receivership or
other incapacity of that person whatsoever;
"INCUR" means, with respect to any Indebtedness or Borrowings, to
incur, create, issue, assume, enter into any Guarantee of or otherwise
become liable for or with respect to, or become responsible for, the
payment of, contingently or otherwise, such Indebtedness or Borrowings,
including an "INCURRENCE" by means of the
17
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acquisition of more than 50 per cent. of the Capital Stock of any
Person provided that neither the accrual of interest nor the accretion
of original issue discount shall be considered an Incurrence of
Indebtedness or Borrowings;
"INDEBTEDNESS" means, with respect to any Person at any date of
determination (without duplication):
(a) all indebtedness of such Person for borrowed money;
(b) all principal obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(c) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments (excluding
obligations with respect to letters of credit (including trade
letters of credit) or other similar instruments securing
obligations (other than obligations described in (a) or (b)
above or (e), (f) or (g) below) entered into in the ordinary
course of business of such Person to the extent such letters
of credit are not properly honoured and drawn upon or, if
properly honoured and drawn upon, to the extent such drawing
is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement);
(d) all obligations of such Person to pay the deferred and unpaid
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 excluding Trade Payables;
(e) all Capitalised Lease Obligations of such Person;
(f) all Indebtedness of other Persons secured by a Encumbrance on
any asset of such Person, whether or not such Indebtedness is
assumed by such Person provided that the amount of such
Indebtedness of such Person shall be the lesser of:
(i) the fair market value of such asset at such date of
determination; and
(ii) the amount of such Indebtedness of such other
Persons;
(g) all Indebtedness of other Persons Guaranteed by such Person
provided that the amount of Indebtedness of such Person shall
be the lesser of (i) the amount Guaranteed and (ii) the amount
of such Indebtedness of such other Persons; and
(h) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate
Agreements, except if such agreements (i) are designed solely
to protect the Borrower or its Restricted Subsidiaries against
fluctuations in foreign currency exchange
18
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rates or interest rates and (ii) 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 provided that the amount of
Indebtedness of any Person as described above at any date
shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect
to contingent obligations as described above, the maximum
liability upon the occurrence of the contingency giving rise
to the obligation, provided (A) 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 unamortised portion of the original issue discount
of such Indebtedness at the time of its issuance as determined
in conformity with GAAP, (B) that obligations for money
borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to pre-fund the payment of the interest
on such Indebtedness shall not be deemed to be "Indebtedness"
so long as such money is held to secure the payment of such
interest, (C) that the amount of an obligation in respect of a
letter of credit or other similar instrument is the aggregate
undrawn and unexpired amount thereof plus the aggregate amount
of drawings properly honoured thereunder that have not then
been reimbursed; (D) that "Indebtedness" shall not include any
liability for federal, state, local or other taxes; and (E)
Indebtedness shall not be deemed to include any obligation
arising from the honouring of a check, draft or similar
instrument drawn against insufficient funds, provided that
such obligation is extinguished within five Business Days of
its Incurrence;
"INDEBTEDNESS FOR BORROWED MONEY" means Indebtedness of a type
described in clause (a), (b) or (e) of the definition of
"Indebtedness";
"INDENTURE" means each of:
(a) a trust indenture dated 19 February 1999 in respect of 13 1/4
per cent. Senior Euro Notes due 2009, issued or to be issued
by Carrier 1 International S.A.; and
(b) a trust indenture dated 19 February 1999 in respect of 13 1/4
per cent. Senior Dollar Notes due 2009, issued or to be issued
by Carrier 1 International S.A.;
"INSOLVENT" means in relation to a Person:
(a) when the relevant Person becomes insolvent, is subject to
controlled management, is declared bankrupt, ceases payment of
or is unable to pay all or any of its debts as they fall due;
(b) when the relevant Person has an administrator, receiver or
liquidator appointed over all or any substantial part of its
assets;
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(c) when a substantial part of its assets is subject to
sequestration, attachment or other process of enforcement;
(d) when the relevant Person is subject to an application for
declaration of bankruptcy or a liquidation;
(e) when the relevant Person is involuntarily in liquidation; or
(f) when an event analogous to any of the above occurs in any
jurisdiction;
"INTERCONNECT AGREEMENTS" means, in respect of a Purchaser, the
inter-connect agreements entered into from time to time between such
Purchaser and the principal fixed line telephony operator in any
Relevant Jurisdiction including each and every such inter-connect
agreement delivered or to be delivered to the Agent pursuant to clauses
3 and/or 4.3(d) together with any replacement, substitute or
supplemental inter-connect agreements entered into or to be entered
into from time to time between such parties;
"INTEREST PAYMENT DATE" means in relation to an Advance or, as the case
may be, the Loan the last day of each Interest Period;
"INTEREST PERIOD" means, in relation to an Advance or Loan, each period
for the calculation of interest in respect of such Advance or Loan
ascertained in accordance with clause 5;
"INTEREST RATE AGREEMENT" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap or collar agreement,
interest rate hedge agreement, option or future contract or any other
similar agreement or arrangement;
"INVESTMENT" means, in relation to any Person, any direct or indirect
advance, loan or other extension of credit (including by way of
Guarantee or similar arrangement but excluding advances, loans or other
extensions of credit to customers or suppliers in the ordinary course
of business to the extent required by GAAP to be recorded as accounts
receivable, prepaid expenses or deposits on the balance sheet of the
Borrower or its Restricted Subsidiaries) or capital contribution to (by
means of any transfer of cash or other property to others or any
payment for property or services for the account or use of others), or
any purchase or acquisition of Capital Stock, bonds, notes, debentures
or other similar instruments issued by, such Person and shall include:
(a) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary; and
(b) the fair market value of the Capital Stock (or any other
Investment), held by the Borrower or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary provided that the fair market value of
the Investment remaining in any Person that has ceased to be a
Restricted Subsidiary shall not exceed the aggregate amount of
20
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Investments previously made in such Person valued at the time
such Investments were made less the net reduction of such
Investments;
"LENDERS" means the banks and financial institutions listed in schedule
1 and includes their successors in title and Transferees;
"LIBOR" means, in relation to a particular period, the BBA Libor rate
for deposits of the currency in question for a period equivalent to
such period at or about 11 a.m. on the Quotation Date as displayed on
the relevant Bloomberg Page (or any equivalent successor to such page),
provided that if on such date no such rate is so displayed, LIBOR for
such period shall be the arithmetic mean (rounded upward if necessary
to five decimal places) of the rates respectively quoted to the Agent
by each of the Reference Banks at the request of the Agent (which
request shall be made by the Agent) at which each such Reference Bank
was offering to prime banks in the London Interbank Market deposits in
the currency of such amount at 11 a.m. on the Quotation Date for such
period in an amount approximately equal to the amount in relation to
which LIBOR is to be determined for a period equivalent to such period;
"LICENCES" means, in relation to a Purchaser, any licence, franchise
and permit that:
(a) is issued to such Purchaser (including issued by way of
replacement or renewal (in whole or in part) of any previous
licence, franchise or permit); and
(b) is material to the business of the Borrower or such Purchaser;
"LOAN" means the aggregate principal amount owing to the Lenders under
this Agreement at any relevant time;
"MAJORITY LENDERS" means at any relevant time Lenders:
(a) the aggregate of whose Contributions exceeds 51 per cent of
the Advances; or
(b) (if no principal amounts are outstanding under this Agreement)
the aggregate of whose Commitments exceeds 51 per cent of the
Total Commitments;
"MANAGEMENT LNVESTOR" means any officer, director, employee or other
member of the management of the Borrower or any of its Subsidiaries, or
family members or relatives thereof, or trusts or partnerships for the
benefit of any of the foregoing, or any of their heirs, executors,
successors and legal representatives;
"MARGIN" means the interest margin applicable to an Advance or to a
Loan calculated in accordance with clause 5.8;
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"MATERIAL ADVERSE EFFECT" means an event or series of events which has
had or would reasonably be expected to have a material adverse effect
on:
(a) the Borrower's ability to make payments when due in respect of
any of its Indebtedness under this Agreement;
(b) the financial viability of the Borrower and the Subsidiary
Guarantors, if any, taken as a whole; or
(c) the ability of the Lenders to exercise their rights under this
Agreement;
"MATERIAL AGREEMENT" means:
(a) each Interconnect Agreement;
(b) the Notes;
(c) the Transmission Capacity Agreement between Hermes Europe
Railtel (Ireland) Limited and Carrier1 AG dated 29 May 1998;
(d) the Purchase Agreement between Siemens AG and Carrier1 Fibre
Network GmbH dated 18 February 1999;
(e) the Construction and Maintenance Agreement relating to the TAT
- 14 Cable Network between, among others, Carrier1 AG dated 2
September 1998;
(f) the Capacity Agreement and Wet & Dry Sale Agreement between
Telemonde International Bandwidth (Bermuda) Limited and
Carrier1 relating to the Gemini Network; and
(g) the Shareholder Agreement of ViCaMe Infrastructure Development
GmbH made between Viatel Inc., Carrier1 Fibre Network GmbH and
Co. OHG and Metromedia Fibre Network GmbH,. dated 19 February
1999 together with all the Exhibits thereto;
"MONTH" or "MONTHS" means a period beginning in one calendar month and
ending in the relevant later calendar month on the day numerically
corresponding to the day of the calendar month in which it started,
provided that:
(a) if the period started on the last Banking Day in a calendar
month or if there is no such numerically corresponding day, it
shall end on the last Banking Day in such later calendar
month; and
(b) if such numerically corresponding day is not a Banking Day,
the period shall end on the next following Banking Day in such
later calendar month but if there is no such Banking Day it
shall end on the preceding Banking Day,
and "MONTHLY" shall be construed accordingly;
22
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"NECESSARY AUTHORISATIONS" means all approvals, authorisations and
licences (excluding Licences) from, all rights granted by and all
filings, registrations and agreements with any Person including any
government or other regulatory authority which are material to the
Borrower and its Restricted Subsidiaries taken as a whole;
"NET CASH PROCEEDS" means:
(a) with respect to any Asset Sale, the proceeds of such Asset
Sale when received 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 the Borrower or any
Restricted Subsidiary) and proceeds from the conversion of
other property received when converted to cash or cash
equivalents, net of
(i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and
investment bankers) related to such Asset Sale;
(ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of
such Asset Sale without regard to the consolidated
results of operations of the Borrower and its
Restricted Subsidiaries, taken as a whole, including
as a consequence of any transfer of funds in
connection with the application thereof in accordance
with clause 11.2(j);
(iii) payments made, or required to be made, to repay
Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is
secured by an Encumbrance on the property or assets
sold, or (B) is required to be paid as a result of
such Asset Sale;
(iv) all distributions and other payments required to be
made to minority interest holders in a Restricted
Subsidiary or joint venture as a result of such Asset
Sale by or of such Restricted Subsidiary or joint
venture, or to any other Person (other than the
Borrower or a Restricted Subsidiary) owning a
beneficial interest in the assets disposed of in such
Asset Sale; and
(v) appropriate amounts to be provided by the Borrower or
any Restricted Subsidiary as a reserve against any
liabilities or obligations associated with such Asset
Sale, including 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
GAAP; and
23
<PAGE>
(b) with respect to any issuance or sale of Capital Stock, the
proceeds of such 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 such
obligations are financed or sold with recourse to the Borrower
or any Restricted Subsidiary) and proceeds from the conversion
of other property received when converted to cash or cash
equivalents, net of attorneys' 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. In the event that any
consideration for any Asset Sale that would otherwise
constitute Net Cash Proceeds is required to be held in escrow
pending determination of whether a purchase price adjustment,
indemnification or other payment or other similar adjustment
will be made, such consideration will become Net Cash Proceeds
only when and to the extent released from escrow to the
Borrower or a Restricted Subsidiary;
"NOTES" means any of the securities that are authenticated and
delivered under either of the Indentures;
"NOTES GUARANTEE" means any Guarantee of the Borrower's obligations
with respect to the Notes by a Permanent Guarantor or any Subsidiary
Guarantor (as defined in the Indentures);
"NORTEL" means Nortel Networks Corporation of Canada whose registered
office is at World Trade Centre, 380 St Antoine Street West, 8th Floor,
Montreal, Quebec, Canada, H2Y 3Y4;
"NORTEL ENTITY" means any Affiliate, Associated Company or Subsidiary
of Nortel and/or Nortel Networks plc;
"NORTEL NETWORKS PLC" means company numbered 2515751 whose registered
office is at Maidenhead Office Park. Westacott Way, Maidenhead,
Berkshire, SL6 3QH;
"OBLIGOR" means the Borrower, each Subsidiary Guarantor and any
Purchaser providing security as envisaged in clause 5.8;
"OFFERING MEMORANDUM" means the final offering memorandum issued in
respect of each Indenture and "OFFERING MEMORANDA" means both of them;
"OFFICER" has the meaning given to it in the Indentures;
"OPTIONAL CURRENCY" means any currency of any of the Territories which
is freely transferable, freely convertible into Dollars and which is
dealt on the London Interbank Market;
24
<PAGE>
"ORIGINAL SUPPLY CONTRACT" means the supply contract between Nortel
Networks plc (formerly Nortel plc)and the Borrower dated 28 May 1998;
"PERMANENT GUARANTOR" means a Restricted Subsidiary that irrevocably
guarantees the payment of the Notes and/or the Loan on an
unsubordinated basis provided that such guarantee may provide that it
shall be automatically and unconditionally released and discharged
upon:
(a) any sale, exchange or transfer (including by way of merger or
consolidation), to any Person not an Affiliate of the
Borrower, of all of the Borrower's and each Restricted
Subsidiary's Capital Stock in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange,
transfer or other transaction is not prohibited by this
Agreement);
(b) the legal or covenant defeasance of the Notes or satisfaction
and discharge of this Agreement, subject to customary
contingent reinstatement provisions; or
(c) upon the merger or consolidation of the Permanent Guarantor
with and into the Borrower or another Permanent Guarantor that
is the surviving Person in such merger or consolidation;
"PERMITTED ENCUMBRANCES"
(i) Encumbrances for taxes, assessments, governmental charges or
claims not yet delinquent, or that in the aggregate are not
material, or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with
GAAP shall have been made;
(ii) statutory and common law Encumbrances of landlords, carriers,
warehousemen, mechanics, suppliers, materialmen or repairmen
or other similar Encumbrances arising in the ordinary course
of business and with respect to amounts not yet delinquent or
that have been bonded or are being contested in good faith by
appropriate proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with
GAAP shall have been made;
(iii) Encumbrances incurred or deposits made in the ordinary course
of business in connection with workers' compensation,
unemployment insurance and other types of social security and
other similar legislation or other insurance-related
obligations (including, without limitation, pledges or
deposits securing liability to insurance carriers under
insurance or self-insurance arrangements);
(iv) Encumbrances incurred or deposits made to secure the
performance of tenders, bids, leases, licenses, obligations
for utilities, statutory or
25
<PAGE>
regulatory obligations, bankers' acceptances, letters of
credit, surety and appeal bonds, government or other
contracts, completion guarantees, performance and
return-of-money bonds and other obligations of a similar
nature incurred in the ordinary course of business (exclusive
of obligations for the payment of borrowed money);
(v) easements, rights-of-way, municipal and zoning ordinances,
utility agreements, reservations, encroachments, restrictions
and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the
ordinary course of business of the Borrower or any of its
Restricted Subsidiaries;
(vi) Encumbrances (including extensions, renewals and replacements
thereof) upon real or personal property or assets (including
leases on an indefeasible right-to-use basis); provided that:
1) such Encumbrance is created solely for the purpose of
securing Indebtedness Incurred as permitted under
clause 11.2(a);
2) the principal amount of the Indebtedness secured by
such Encumbrance does not exceed 100 per cent. of
such cost; and
3) any such Encumbrance shall not extend to or cover any
property or assets other than such item of property
or assets and any improvements, accessions or
proceeds in respect of such item;
(vii) leases, subleases, licenses or sublicenses granted to others
that do not materially interfere with the ordinary course of
business of the Borrower and its Restricted Subsidiaries,
taken as a whole;
(viii) Encumbrances encumbering property or assets under construction
(and related rights) in favour of a contractor or developer,
or arising from progress or partial payments by a customer of
the Borrower or its Restricted Subsidiaries relating to such
property or assets;
(ix) any interest or title of a lessor in the property subject to
any Capitalised Lease or operating lease;
(x) Encumbrances arising from filing Uniform Commercial Code
financing statements regarding leases;
(xi) Encumbrances (including extensions, renewals and replacements
thereof) on property or assets of, or on shares of Capital
Stock or Indebtedness of, any Person existing (in the case of
the original such Encumbrance) at the time such Person
becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Encumbrances do not extend to or cover any
property or assets of the Borrower or any Restricted
Subsidiary other than the property, assets, Capital Stock or
Indebtedness so acquired (plus improvements, accessions or
proceeds (including dividends or distributions) in respect
thereof);
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<PAGE>
(xii) Encumbrances in favour of the Borrower or any Restricted
Subsidiary;
(xiii) Encumbrances arising from the rendering of a final judgment,
order, decree or award against the Borrower or any Restricted
Subsidiary that does not give rise to an Event of Default;
(xiv) Encumbrances securing reimbursement obligations with respect
to letters of credit that encumber documents and other
property relating to such letters of credit and the products
and proceeds thereof;
(xv) Encumbrances in favour of customs and revenue authorities
arising as a matter of law to secure payment of customs duties
in connection with the importation of goods;
(xvi) Encumbrances encumbering customary initial deposits and margin
deposits, and other Encumbrances that are within the general
parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing
Indebtedness or other obligations under Interest Rate
Agreements and Currency Agreements and forward contracts,
options, future contracts, futures options or similar
agreements or arrangements designed solely to protect the
Borrower or any of its Restricted Subsidiaries from
fluctuations in interest rates, currencies or the price of
commodities;
(xvii) Encumbrances arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods
entered into by the Borrower or any of its Restricted
Subsidiaries in the ordinary course of business;
(xviii) Encumbrances on or sales or transfers of receivables
(including related rights);
(xix) Encumbrances that secure Indebtedness or other obligations
with an aggregate principal amount not in excess of $5 million
at any time outstanding;
(xx) Encumbrances placed by any third party on property over which
the Borrower or any Restricted Subsidiary has easement or
other rights or on any leased property, or arising by reason
of subordination or similar agreements relating thereto; and
Encumbrances arising by reason of any condemnation or eminent
domain proceedings;
(xxi) Encumbrances on Capital Stock or other securities of an
Unrestricted Subsidiary that secure Indebtedness or other
obligations of such Unrestricted Subsidiary;
(xxii) any Encumbrance or restriction (including put and call
agreements) with respect to Capital Stock of any joint venture
or similar arrangement pursuant to any joint venture or
similar agreement;
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<PAGE>
(xxiii) Encumbrances (including extensions, renewals and replacements
thereof) on property or assets acquired by the Borrower or any
Restricted Subsidiary provided that:
(A) such Encumbrances were not created in connection with
or in anticipation of such acquisition;
(B) such Encumbrances do not secure Indebtedness other
than Indebtedness assumed in connection with such
acquisition; and
(C) such Encumbrances do not extend to or cover any
property or assets of the Borrower or any Restricted
Subsidiary other than the property or assets so
acquired (plus improvements, accessions or proceeds
in respect thereof); and
(xxiv) Encumbrances on cash set aside at the time of the Incurrence
of any Indebtedness, or government securities purchased with
such cash, in either case to the extent that such cash or
government securities pre-fund the payment of interest on such
Indebtedness and are held in an escrow account or similar
arrangement to be applied for such purpose;
"PERMITTED HOLDER" means any of the following: any of Providence Equity
Partners L.P., Providence Equity Partners II L.P., Providence Equity
Partners III L.P., Primus Capital Fund IV Limited Partnership and
Primus Executive Fund Limited Partnership and any of the respective
Affiliates or successors of the foregoing;
"PERMITTED INVESTMENT" means:
(a) an Investment in the Borrower (including the Notes) or a
Restricted Subsidiary or a Person which will, upon the making
of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into, or transfer or convey all
or substantially all its assets to, the Borrower or a
Restricted Subsidiary provided that such Person's primary
business is related, ancillary or complementary to the
businesses of the Borrower and its Restricted Subsidiaries on
the date of such Investment;
(b) Temporary Cash Investments;
(c) commissions, payroll, travel and similar advances to cover
matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP;
(d) stock, obligations, securities or other Investments received
(i) in satisfaction of judgments or (ii) in settlement of
debts, or as a result of foreclosure, perfection or
enforcement of any Encumbrance, in each case under this
paragraph (ii) arising in the ordinary course of business and
not in contemplation of the acquisition of such stock,
obligations, securities or other Investments;
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<PAGE>
(e) Investments in negotiable instruments held for collection,
lease, utility and worker's compensation, performance and
other similar pledges or deposits and other pledges or
deposits permitted under clause 11.2(g);
(f) obligations under Interest Rate Agreements and Currency
Agreements designed solely to protect the Borrower or its
Restricted Subsidiaries against fluctuations in interest rates
or foreign currency exchange rates;
(g) Investments in a joint venture to cover the Borrower's portion
of the cost (including the cost of design, development,
acquisition, construction, installation and improvement) of
building a telecommunications network (or network segment) in
Europe, provided that the Borrower or any of its Restricted
Subsidiaries will directly own their portion of such network
(or network segment); and Investments in joint ventures to
acquire or maintain or otherwise relating to any
rights-of-way, wayleaves, governmental approvals, licenses,
franchises or concessions relating to any such network (or
network segment);
(h) Investments in any Person in an aggregate amount not to exceed
25 per cent. of any gains (net of any losses) attributable to
Asset Sales after the Closing Date and prior to the date of
such Investment; and
(i) loans or advances to directors, officers or employees of the
Borrower or any Restricted Subsidiary that do not in the
aggregate exceed $3 million at any time outstanding;
"PERMITTED JOINT VENTURE" means any joint venture between the Borrower
or any Restricted Subsidiary and any Person other than a Subsidiary,
engaged in the provision or sale of telecommunications services, or in
any other business that is related, ancillary or complementary to the
provision or sale of telecommunications services, as determined in good
faith by the Board of Directors (whose determination shall be
conclusive if evidenced by a Board Resolution) provided that prior to
making any Investment in such a Person, the Borrower's Board of
Directors shall have determined that such Investment fits the
Borrower's strategic plan and is on terms that are fair and reasonable
to the Borrower;
"PERSON" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or
organisation, including a government or political subdivision or an
agency or instrumentality thereof;
"PLEDGE AGREEMENT" has the same meaning given to it in the Notes;
"PREFERRED STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's preferred or
preference equity, whether now outstanding or issued after the Closing
Date, including all series and classes of such preferred stock or
preference stock;
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"PURCHASER" means each Wholly Owned Subsidiary of the Borrower carrying
on a telecommunications business in any jurisdiction;
"QUALIFYING PERSON" means:
(a) any Nortel Entity; or
(b) a Person, being a bank or a financial institution (whether
incorporated in the United Kingdom or elsewhere),
which in each of cases (a) and (b) is eligible to have payments made to
it by the Borrower without any deduction or withholding in respect of
Taxes either:
(i) by virtue of a double taxation treaty; or
(ii) by virtue of the fact that the Borrower is not required to
make such a deduction or withholding;
"QUARTER DAY" means 31 March, 30 June, 30 September and 31 December in
any year;
"QUARTERLY PERIOD" means each period of approximately three months
commencing on the day after a Quarter Day and ending on the next
following Quarter Day;
"QUOTATION DATE" means, in relation to a period for which LIBOR is to
be determined, the date on which quotations would customarily be
provided by leading banks in the London Interbank Market for deposits
in the relevant currency for delivery on the first day of that period;
"REFERENCE BANKS" means the principal London offices of HSBC Investment
Bank plc and Barclays Bank plc and any other bank designated, from time
to time, as a Reference Bank by the Agent and the Borrower;
"RELEASED INDEBTEDNESS" means with respect to any Asset Sale:
(a) Indebtedness of the Borrower or any Restricted Subsidiary
which is assumed by the purchaser or any affiliate thereof in
connection with such Asset Sale provided that the Borrower or
the Restricted Subsidiary receives written, unconditional and
enforceable releases from each creditor of such Indebtedness
no later than the closing date of such Asset Sale; and
(b) Indebtedness of a Restricted Subsidiary that is no longer a
Restricted Subsidiary as a result of such Asset Sale provided
that neither the Borrower nor the Restricted Subsidiary
thereafter Guarantees such Indebtedness;
"RELEVANT AMOUNT" means:
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(a) in respect of any date falling on or after the first Repayment
Date, but before the second Repayment Date an amount equal to
93.75 per cent. of the End of Term Amount;
(b) in respect of any date falling on or after the second
Repayment Date, but before the third Repayment Date an amount
equal to 87.5 per cent. of the End of Term Amount;
(c) in respect of any date falling on or after the third Repayment
Date, but before the fourth Repayment Date an amount equal to
81.25 per cent. of the End of Term Amount;
(d) in respect of any date falling on or after the fourth
Repayment Date, but before the fifth Repayment Date an amount
equal to 75 per cent. of the End of Term Amount;
(e) in respect of any date falling on or after the fifth Repayment
Date, but before the sixth Repayment Date an amount equal to
68.75 per cent. of the End of Term Amount;
(f) in respect of any date falling on or after the sixth Repayment
Date, but before the seventh Repayment Date an amount equal to
62.5 per cent. of the End of Term Amount;
(g) in respect of any date falling on or after the seventh
Repayment Date, but before the eighth Repayment Date an amount
equal to 56.25 per cent. of the End of Term Amount;
(h) in respect of any date falling on or after the eighth
Repayment Date, but before the ninth Repayment Date an amount
equal to 50 per cent. of the End of Term Amount;
(i) in respect of any date falling on or after the ninth Repayment
Date, but before the tenth Repayment Date an amount equal to
43.75 per cent. of the End of Term Amount;
(j) in respect of any date falling on or after the tenth Repayment
Date, but before the eleventh Repayment Date an amount equal
to 37.5 per cent. of the End of Term Amount;
(k) in respect of any date falling on or after the eleventh
Repayment Date, but before the twelfth Repayment Date an
amount equal to 31.25 per cent. of the End of Term Amount;
(l) in respect of any date falling on or after the twelfth
Repayment Date, but before the thirteenth Repayment Date an
amount equal to 25 per cent. of the End of Term Amount;
(m) in respect of any date falling on or after the thirteenth
Repayment Date, but before the fourteenth Repayment Date an
amount equal to 18.75 per cent. of the End of Term Amount;
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(n) in respect of any date falling on or after the fourteenth
Repayment Date, but before the fifteenth Repayment Date an
amount equal to 12.5 per cent. of the End of Term Amount;
(o) in respect of any date falling on or after the fifteenth
Repayment Date, but before the sixteenth Repayment Date an
amount equal to 6.25 per cent. of the End of Term Amount;
(p) on or after the sixteenth Repayment Date, 0 per cent.;
"RELEVANT DATE" in respect of any particular clause or definition shall
have the meaning ascribed to it in that clause or definition by
reference to clause 1.9;
"RELEVANT JURISDICTION" means, as to the Borrower, any Restricted
Subsidiary or any Purchaser, each jurisdiction such person is
incorporated or formed or in which such person has its principal place
of business or owns any material assets;
"RELEVANT SUBSTANCE" means any substance whatsoever (whether in a solid
or liquid form or in the form of a gas or vapour and whether alone or
in combination with any other substance) or waste which is capable of
causing harm to man or any other living organism supported by the
environment, or damaging the environment or public health or welfare;
"REPAYMENT DATE" means 31 March 2001 and each Quarter Day thereafter up
to and including the Final Maturity Date;
"RESTRICTED PAYMENT" has the meaning given to it in clause 11.2(b);
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Borrower other than
an Unrestricted Subsidiary;
"SECURED ADVANCE" has the meaning given to it in clause 5.8;
"SECURED PURCHASER" has the meaning given to it in clause 5.8;
"SECURITIES ACT" means the Securities Act of 1933, as amended, of the
United States of America;
"SECURITY DOCUMENTS" means the Subsidiary Guarantees (if any) and all
mortgages, charges, pledges, guarantees or deeds and other instruments
from time to time entered into by any Security Provider in favour of
the Finance Parties (or any of them) by way of guarantee or other
assurance and/or security for amounts owed to the Finance Parties (or
any of them) under the Finance Documents including, but not limited to,
any mortgages, charges, pledges, guarantees or deeds and other
instruments from time to time entered into as envisaged in clause 5.8;
"SECURITY PROVIDERS" means the Subsidiary Guarantors and each and every
Purchaser who, at any time, provides any security to the Finance
Parties (or any of them) as contemplated by clause 5.8 or otherwise;
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"SECURITY TRUST DEED" means any security trust deed which may be
entered into from time to time by, among others, the Security Trustee
under which the Security Trustee holds any and all security provided by
an Obligor pursuant to this Agreement and/ or under the Security
Documents;
"SECURITY TRUSTEE" means Nortel Networks Inc. and/or any other Person
as may be appointed as security trustee pursuant to the Security Trust
Deed;
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries:
(a) for the most recent fiscal year of the Borrower, accounted for
more than 10 per cent. of the consolidated revenues of the
Borrower and its Restricted Subsidiaries; or
(b) as of the end of such fiscal year, was the owner of more than
10 per cent. of the consolidated assets of the Borrower and
its Restricted Subsidiaries, all as set forth on the most
recently available consolidated financial statements of the
Borrower for such fiscal year;
"SOFTWARE" means software developed or acquired by any Supplier or
other vendor and licensed to a Purchaser and includes:
(a) the machine executable object code version of the userloadable
programs of the infrastructure equipment;
(b) the microcode embedded in the infrastructure equipment;
(c) all related user documentation;
(d) any update or revision of these programs or the microcode
delivered to the Purchaser; and
(e) any copy of these items;
"STATED MATURITY" means:
(a) with respect to any debt security, the date specified in such
debt security as the fixed date on which the final instalment
of principal of such debt security is due and payable; and
(b) with respect to any scheduled instalment of principal of or
interest on any debt security, the date specified in such debt
security as the fixed date on which such instalment is due and
payable;
"STERLING" and "(pound)" mean the lawful currency for the time being of
the United Kingdom and in respect of all payments to be made under this
Agreement in Sterling mean immediately available, freely transferable
cleared funds;
"STRATEGIC SUBORDINATED INDEBTEDNESS" means Indebtedness of the
Borrower or any Permanent Guarantor Incurred to finance the acquisition
of a Person
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engaged in a business that is related, ancillary or complementary to
the business conducted by the Borrower or any of its Restricted
Subsidiaries, which Indebtedness by its terms, or by the terms of any
agreement or instrument pursuant to which such Indebtedness is
Incurred:
(a) is expressly made subordinate in right of payment to the Loan;
and
(b) 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 the Borrower's
obligations under the Notes or the Loan provided that such
Indebtedness may provide for and be repaid at any time from
the proceeds of a capital contribution or the sale of Capital
Stock (other than Disqualified Stock) of the Borrower after
the Incurrence of such Indebtedness;
"SUBSIDIARY" means, with respect to any Person, any corporation,
association or other business entity of which more than 50 per cent. of
the voting power of the outstanding Voting Stock is owned, directly or
indirectly, by such Person and one or more other Subsidiaries of such
Person;
"SUBSIDIARY GUARANTEE" means each guarantee (if any) of all or any
moneys, obligations and liabilities of the Borrower under or pursuant
to this Agreement given, from time to time, by a Subsidiary Guarantor;
"SUBSIDIARY GUARANTOR" means any Restricted Subsidiary who, from time
to time, provides a guarantee pursuant to clause 11.2(e)(i);
"SUPPLIER" means any Nortel Entity who may, from time to time, supply
or contract to supply Equipment to a Purchaser;
"SWITCH" means the common term for telecommunications hardware,
firmware and documentation purchased or to be purchased by the
Borrower;
"TAXES" includes all present and future taxes, levies, imposts, duties,
fees or other governmental charges of whatever nature together with
interest thereon and penalties in respect thereof and "TAXATION" shall
be construed accordingly;
"TELECOMMUNICATIONS LAWS" means, in relation to an Obligor or to any
Purchaser, all laws, statutes, regulations and judgments relating to
telecommunications and similar services applicable to such Obligor or
Purchaser and/or the business carried on by such Obligor or Purchaser
in any Relevant Jurisdiction of such Obligor or Purchaser;
"TEMPORARY CASH INVESTMENTS" means any of the following:
(a) direct obligations of the United States of America or any
agency thereof or obligations fully and unconditionally
guaranteed by the United States of America or any agency
thereof;
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(b) bankers' acceptances, time deposit accounts, certificates of
deposit and money market deposits maturing within one year of
the date of acquisition thereof issued by a bank or trust
company which is organised under the laws of the United States
of America, any state thereof or any foreign country
recognised by the United States of America, and which bank or
trust company has capital, surplus and undivided profits
aggregating in excess of $50 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least
one nationally recognised statistical rating organisation or
any money-market fund sponsored by a registered broker dealer
or mutual fund distributor;
(c) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in paragraph
(a) above or paragraph (f) below entered into with a bank
meeting the qualifications described in paragraph (b) above;
(d) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an
Affiliate of the Borrower) organised and in existence under
the laws of the United States of America, any state thereof or
any foreign country recognised by the United States of America
with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P;
(e) securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed
by any state, commonwealth or territory of the United States
of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or Moody's;
and
(f) direct obligations of, or obligations fully and
unconditionally guaranteed by:
(i) The Netherlands, the United Kingdom, France, Germany
or Switzerland; or
(ii) any other member of the European Economic Community
and rated at least "A" by S&P or Moody's;
"TERMINATION DATE" means 31 December 2000;
"TERRITORIES" means any country in which a Purchaser or the Borrower is
incorporated;
"TOTAL COMMITMENTS" means at any relevant time the total of the
Commitments of all the Lenders at such time;
"TRADE PAYABLES" means, with respect to any Person, any accounts
payable or any other Indebtedness or monetary obligation to trade
creditors created,
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assumed or guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition
of goods or services;
"TRANSACTION DATE" means, with respect to the Incurrence of any
Indebtedness by the Borrower or any of its Restricted Subsidiaries, the
date such Indebtedness is to be Incurred and, with respect to any
Restricted Payment, the date such Restricted Payment is to be made;
"TRANSFER CERTIFICATE" means a certificate substantially in the terms
of schedule 5;
"TRANSFEREE" has the meaning given to it in clause 16.3;
"TRANSMISSION EQUIPMENT" means transmission equipment required for the
operation of a Switch;
"UNITS" has the meaning given to it in the Indentures;
"UNRESTRICTED SUBSIDIARY" means:
(a) any Subsidiary of the Borrower that, at the time of
determination, shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided by clause
1.7; and
(b) any Subsidiary of an Unrestricted Subsidiary;
"UNSECURED ADVANCE" has the meaning given to it in clause 5.8;
"UNSECURED PURCHASER" has the meaning given to it in clause 5.8;
"VAT" or "VALUE ADDED TAX" means value added tax chargeable in the
United Kingdom under the Value Added Tax Act 1994 or any similar tax
imposed in another jurisdiction;
"VOTING STOCK" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of
such Person;
"WARRANT AGREEMENTS" has the meaning given to it in the Indentures;
"WARRANTS" has the meaning given to it in the Indentures; and
"WHOLLY OWNED" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary
(other than any director's qualifying shares or Investments by foreign
nationals mandated by applicable law) by such Person or one or more
Wholly Owned Subsidiaries of such Person.
1.3 HEADINGS
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Clause headings and the table of contents are inserted for convenience
of reference only and shall be ignored in the interpretation of this
Agreement.
1.4 CONSTRUCTION OF CERTAIN TERMS
In this Agreement, unless the context otherwise requires:
(a) references to clauses and schedules are to be construed as
references to the clauses of, and schedules to, this Agreement
and references to this Agreement include its schedules;
(b) references to (or to any specified provision of) this
Agreement or any other document shall be construed as
references to this Agreement, that provision or that document
as in force for the time being and as from time to time
amended in accordance with its terms, or, as the case may be,
with the agreement of the relevant parties and (where such
consent is, by the terms of this Agreement or the relevant
document, required to be obtained as a condition to such
amendment being permitted) the prior written consent of the
Agent, all of the Lenders or the Majority Lenders (as the case
may be);
(c) references to a "REGULATION" include any present or future
regulation, rule, directive, requirement, request or guideline
(whether or not having the force of law) of any agency,
authority, central bank or government department or any
self-regulatory or other national or supra-national authority;
(d) words importing the plural shall include the singular and vice
versa;
(e) references to a time of day are to London time;
(f) references to "ASSETS" include all or part of any business,
undertaking, real property, personal property, uncalled
capital and any rights (whether actual or contingent, present
or future) to receive, or require delivery of, any of the
foregoing;
(g) references to the "EQUIVALENT" of an amount specified in a
particular currency (the "SPECIFIED CURRENCY AMOUNT") shall be
construed as a reference to the amount of the other relevant
currency which can be purchased with the specified currency
amount in the London foreign exchange market at or about the
relevant time on the day on which the calculation falls to be
made for delivery on the relevant day as determined by the
Agent;
(h) references to the "AGREED FORM" means, in relation to any
document, the form of such document as shall have been agreed
between the Borrower and the Agent (acting reasonably for and
on behalf of all of the Lenders);
(i) any term which is used in this Agreement but not defined in
this Agreement or is defined in this Agreement but by
reference to or
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incorporation of terms of the Indentures shall, if used and
defined in the Indentures, be incorporated from the Indentures
(as at the date of this Agreement) into this Agreement (with
any necessary changes) but shall be construed under and in
accordance with this Agreement;
(j) the words "INCLUDING", "INCLUDE" and "IN PARTICULAR" shall be
construed as being by way of emphasis and shall not limit the
generality of any foregoing words nor exclude any words not
included in any foregoing words; and
(k) references to any enactment shall be deemed to include
references to such enactment as re-enacted, amended or
extended.
1.5 MAJORITY LENDERS
Where this Agreement provides for any matter to be determined by
reference to the opinion of the Majority Lenders or to be subject to
the consent or request of the Majority Lenders or for any action to be
taken on the instructions of the Majority Lenders, such opinion,
consent, request or instructions shall (solely as between the Lenders)
only be regarded as having been validly given or issued by the Majority
Lenders if all the Lenders shall have received prior notice of the
matter on which such opinion, consent, request or instructions are
required to be obtained and the relevant majority of Lenders shall have
given or issued such opinion, consent, request or instructions but so
that (as between the Obligors and the Lenders), once informed by the
Agent that such opinion, consent, request or instructions have been
given, the Obligors shall be entitled (and bound) to assume that such
notice shall have been duly received by each Lender and that the
relevant majority shall have been obtained to constitute Majority
Lenders whether or not this is in fact the case.
1.6 AGENT'S OPINION
Where this Agreement provides for the Agent's opinion to determine
whether any matter would or is reasonably likely to have a Material
Adverse Effect and/or a material adverse effect (as the case may be)
the Agent shall act in accordance with the instructions of the Majority
Lenders in making such determination.
1.7 UNRESTRICTED SUBSIDIARY
The Borrower may, from time to time, designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of
the Borrower) to be an Unrestricted Subsidiary (unless such Subsidiary
owns any Capital Stock of, or owns or holds any Encumbrance on any
property of, the Borrower or any Restricted Subsidiary) provided that:
(a) either:
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(i) the Subsidiary to be so designated has total assets
of $1,000 (or the equivalent in any other currency)
or less; or
(ii) if such Subsidiary has assets greater than such
amount, such designation would be permitted under
clause 11.2; and
(b) the related Incurrence of any Indebtedness and any Investment,
both as envisaged in clause 1.9 would be permitted under
paragraph 11.2;
(c) at the same time as making the designation it makes the same
designation under the Notes; and
(d) before the designation becomes effective, the designation is
authorised by the Board of Directors by way of Board
Resolution and a copy of such Board Resolution has been
provided to the Agent together with a Certificate certifying
that the designation complies with the foregoing provisions.
1.8 RESTRICTED SUBSIDIARY
The Borrower may, from time to time, designate any Unrestricted
Subsidiary to be a Restricted Subsidiary provided that:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such
designation; and
(b) all Encumbrances and Indebtedness of such Unrestricted
Subsidiary outstanding immediately after such designation
would, if Incurred at such time, have been permitted to be
Incurred (and shall be deemed to have been Incurred) for all
purposes of this Agreement;
(c) at the same time as making the designation it makes the same
designation under the Notes; and
(d) before the designation becomes effective, the designation is
authorised by the Board of Directors by way of Board
Resolution and a copy of such Board Resolution has been
provided to the Agent together with a Certificate certifying
that the designation complies with the foregoing provisions.
1.9 GUARANTEE OF UNRESTRICTED SUBSIDIARY
Any Guarantee by the Borrower or by any Restricted Subsidiary of any
Indebtedness of the Subsidiary being designated an Unrestricted
Subsidiary under clause 1.7 shall be deemed an "Incurrence" of such
Indebtedness and an "Investment" by the Borrower or by such Restricted
Subsidiary (or both, if applicable) at the time of such designation.
1.10 CURRENCY EXCHANGE CALCULATIONS
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(a) Where any provision of this Agreement requires the calculation
of the Dollar equivalent of an amount in an Optional Currency
as at a particular date (the "RELEVANT DATE") the Agent shall
determine the amount of Dollars which would be required to
purchase the amount of such Optional Currency by reference to
the exchange rate displayed on relevant Bloomberg Page (or any
equivalent successor to that page) in respect of the Relevant
Date.
(b) If, in respect of any Relevant Date, the relevant exchange
rate is not displayed on the relevant Bloomberg Page (or any
equivalent successor to that page) then the exchange rate
shall be the average of the spot rates of exchange quoted to
the Agent by the Reference Banks to be ruling in the London
Foreign Exchange Market on the Relevant Date.
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2 THE FACILITY
2.1 AMOUNT
(a) The Lenders, relying upon each of the representations and
warranties in clause 10 agree to lend to the Borrower upon and
subject to the terms of this Agreement the lesser of:
(i) the principal sum of $75,000,000; and
((ii)) ((A)) 100 per cent. of the price paid (exclusive
of any Value Added Tax) (and where such
payment is made in an Optional Currency the
Relevant Date for the purposes of clause
1.10 shall be the date of payment) or
payable to any Supplier for (and where such
payment is to be made in an Optional
Currency the Relevant Date for the purposes
of clause 1.10 shall be at or about 11a.m. 5
Banking Days before the relevant Drawdown
Date) the supply of Equipment by such
Supplier to the Purchasers on or before 31
December 1999; plus
(B) up to $12 million in respect of the price
paid (exclusive of any Value Added Tax) (and
where such payment is made in an Optional
Currency the Relevant Date for the purposes
of clause 1.10 shall be the date of payment)
or payable (and where such payment is to be
made in an Optional Currency the Relevant
Date for the purposes of clause 1.10 shall
be at or about 11a.m. 5 Banking Days before
the relevant Drawdown Date) to any vendor
other than a Supplier for the supply of
Equipment by any such vendor to the
Purchasers on or before the same date,
and at any relevant time such amount shall be the "FACILITY
AMOUNT" (or its equivalent in Optional Currencies).
(b) The obligation of each Lender under this Agreement shall be to
contribute that proportion of each Advance which, as at the
Drawdown Date of such Advance, its Commitment bears to the
Total Commitments.
2.2 OBLIGATIONS SEVERAL
(a) The obligations of each Lender under this Agreement are
several.
(b) The failure of any Lender to perform its obligations under
this Agreement shall not relieve any other Finance Party or
the Borrower of any of their respective obligations or
liabilities under this Agreement nor shall the Agent or the
Security Trustee be responsible for the obligations of any
Lender (except for its own obligations, if any, as a Lender)
nor
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shall any Lender be responsible for the obligations of any
other Lender under this Agreement.
2.3 INTERESTS SEVERAL
(a) Notwithstanding any other term of this Agreement (but without
prejudice to the provisions of this Agreement relating to or
requiring action by the Majority Lenders and without prejudice
to clause 17.14) the interests of each Finance Party are
several and the amount due to the Agent (for its own account),
to the Security Trustee and to each Lender is a separate and
independent debt.
(b) Each Finance Party shall have the right to protect and enforce
its rights arising out of this Agreement and it shall not be
necessary for any other Finance Party to be joined as an
additional party in any proceedings for this purpose.
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3 CONDITIONS
3.1 DOCUMENTS AND EVIDENCE
The obligation of each Lender to make its Commitment available shall be
subject to the condition that the Agent, or its duly authorised
representative, shall have received not later than five Banking Days
before the day on which the first Advance is to be made, the documents
and evidence specified in part A of schedule 3 in form and substance
satisfactory to all of the Lenders.
3.2 GENERAL CONDITIONS PRECEDENT
The obligation of each Lender to contribute to any Advance is subject
to the further conditions that at the date of each Drawdown Notice and
on each Drawdown Date:
(a) the representations and warranties set out in clause 10.1
(adjusted in accordance with clause 10.2) are true and correct
on and as of each such date as if each were made with respect
to the facts and circumstances existing at such date;
(b) no Default shall have occurred and be continuing or would
result from the making of such Advance; and
(c) such Advance, if made, would not result in the Dollar Amount
of the Loan exceeding the Facility Amount (and for the
purposes of making this calculation the Relevant Date under
clause 1.10 shall be at or about 11a.m. two Banking Days
before the proposed Drawdown Date).
3.3 WAIVER OF CONDITIONS PRECEDENT
The conditions specified in this clause 3 are inserted solely for the
benefit of the Lenders and may be waived on their behalf in whole or in
part and with or without conditions by the Agent acting on the
instructions of all of the Lenders in respect of the first Advance to
the Borrower and on the instructions of the Majority Lenders with
respect to any other Advances without prejudicing the right of the
Agent acting on such instructions to require fulfilment of such
conditions in whole or in part in respect of any other Advance.
3.4 NOTIFICATION
The Agent shall notify the Lenders and the Borrower promptly after
receipt by it of the documents and evidence referred to in clause 3.1
in form and substance satisfactory to all the Lenders or the Majority
Lenders (as the case may be).
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4 ADVANCES; CURRENCIES
4.1 MAXIMUM OUTSTANDINGS
No Advance shall be made if:
(a) following the making of such Advance, the Facility Amount
applicable at the time of such Advance would be exceeded;
(b) if the making of such Advance would result in more than two
Advances being outstanding in respect of a Purchaser; or
(c) 40 or more Advances have already been made.
4.2 PURPOSE OF ADVANCES
Advances may only be drawn by the Borrower for the following purposes:
(a) to finance amounts due to any Supplier in consideration for
Equipment and related services provided to any Purchaser on or
before 31 December 1999 ("SUPPLIER FINANCING");
(b) to refinance (including to replace) amounts paid to any
Supplier in consideration for Equipment and related services
provided to any Purchaser on or before 31 December 1999
("SUPPLIER REFINANCING");
(c) subject to the monetary cap in clause 2.1(a)(ii)(B), to
finance amounts due or paid to vendors other than Suppliers in
consideration for Equipment and related services to be
provided by them to any Purchaser on or before 31 December
1999 ("NON-SUPPLIER FINANCING"); and
(d) subject to the monetary cap in clause 2.1(a)(ii)(B), to
refinance (including to replace) amounts paid to vendors other
than Suppliers in consideration for Equipment and related
services provided by them to any Purchaser on or before 31
December 1999 ("NON-SUPPLIER REFINANCING").
4.3 DRAWDOWN
(a) In respect of each Advance the Drawdown Notice shall specify:
(i) the Purchaser of the Equipment; and
(ii) the relative supply contract,
in relation to which the proposed Advance is to be made.
(b) A Drawdown Notice shall not specify more than one Purchaser,
one supply contract or one currency.
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(c) Subject to the terms and conditions of this Agreement, an
Advance shall be made available to the Borrower following
receipt by the Agent from the Borrower of a Drawdown Notice:
(i) in respect of Supplier Financing, substantially in
form and substance the same as that appearing in
schedule 2, part A;
(ii) in respect of Supplier Refinancing, substantially in
form and substance the same as that appearing in
schedule 2, part B;
(iii) in respect of Non-Supplier Financing, substantially
in form and substance the same as that appearing in
schedule 2, part C; and
(iv) in respect of Non-Supplier Refinancing, substantially
in form and substance the same as that appearing in
schedule 2, part D,
not later than 10 a.m. on the fifth Banking Day before the
proposed Drawdown Date. Each Drawdown Notice shall be
effective on actual receipt by the Agent and, once given,
shall, except as provided in clause 5.7(a), be irrevocable.
(d) Each Drawdown Notice in respect of an Advance shall be
accompanied by a copy certified as a true, complete and
up-to-date copy by two Officers of the Borrower of:
(i) each and every invoice relative to the Equipment to
which the prospective Advance relates evidencing, in
a manner reasonably satisfactory to the Agent, that
the amount to be drawn down is due and payable or has
already been paid as contemplated in clause 4.2; and
(ii) each and every Interconnect Agreement entered into
by, and each and every material Licence granted to,
the Purchaser in respect of whom the Advance has been
requested together with a certificate signed by two
Officers of the Borrower certifying that the
Interconnect Agreements and such Licences are in full
force and effect in all material respects.
(e) The Borrower irrevocably authorises the Agent to remit the
proceeds of any Advance requested for the purpose of Supplier
Financing at such bank and such bank account as shall be
notified, from time to time, by or on behalf of Nortel
Networks plc to the Agent and the Borrower acknowledges that
such payment by the Agent shall constitute the making of such
Advance to the Borrower by the Lenders.
4.4 AMOUNT
Each Advance shall be:
(a) of a Dollar Amount which is a minimum of $1,000,000 but no
Advance may be drawn down on any day of a Dollar Amount
exceeding the
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Available Facility Amount on such day and for this purpose any
other Advance which is the subject of a current Drawdown
Notice shall be taken into account; and
(b) denominated in one currency only.
4.5 SELECTION OF CURRENCIES
Subject to the provisions of clause 4.6 each Advance may be drawn down
in any Optional Currency provided that an Advance shall only be made to
the Borrower in respect of a Purchaser in Dollars, euros or the legal
currency of the country of incorporation of such Purchaser.
4.6 CURRENCY AMOUNTS
(a) If an Advance is to be drawn down in an Optional Currency, the
Lenders shall, subject to clause 3.2, advance to the Borrower
on drawdown of such Advance, the amount of such Optional
Currency requested.
(b) The Dollar Amount of any Advance under clause 4.6(a) shall be
the amount of Dollars (as determined by the Agent) which would
be required to purchase the amount of such Optional Currency
at the rates of exchange:
(i) displayed on relevant Bloomberg Page (or any
equivalent successor to that page) on the Relevant
Date; or
(ii) if the relevant exchange rate is not displayed on the
relevant Bloomberg Page (or any equivalent successor
to that page) on the Relevant Date then the exchange
rate shall be the average of the spot rates of
exchange quoted to the Agent by the Reference Banks
to be ruling in the London Foreign Exchange Market on
the Relevant Date,
in each case for the purchase of such Optional Currency with
Dollars (and for the purposes of this clause the Relevant Date
under clause 1.10 shall be at or about 11 a.m. on the fifth
Banking Day before the proposed Drawdown Date).
(c) The Dollar Amount of the Loan on any relevant day shall be the
aggregate of:
(i) the Dollar Amount of the outstanding Advances
denominated in Dollars; plus
(ii) the amount of Dollars which would be required to
purchase the aggregate amount of all outstanding
Advances denominated in any Optional Currency at the
rates of exchange:
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(A) displayed on the relevant Bloomberg Page (or
any equivalent successor to that page) on
the Relevant Date; or
(B) if the relevant exchange rate is not
displayed on the relevant Bloomberg Page (or
any equivalent successor to that page) on
the Relevant Date then the exchange rate
shall be the average of the spot rates of
exchange quoted to the Agent by the
Reference Banks to be ruling the London
Foreign Exchange Market on the Relevant
Date,
in each case for the purchase of such Optional
Currency with Dollars (and for the purposes of this
clause the Relevant Date under clause 1.9 shall be at
or about 11 a.m. on the fifth Banking Day before the
proposed Drawdown Date).
4.7 NOTIFICATION TO LENDERS
As soon as practicable after receipt of a Drawdown Notice complying
with the terms of this Agreement the Agent shall notify each Lender
and, subject to clause 3, each of the Lenders shall on the Drawdown
Date make available to the Agent its portion of the relevant Advance in
accordance with clause 8.2.
4.8 APPLICATION OF PROCEEDS
Without prejudice to the Borrower's obligations under this Agreement,
none of the Finance Parties shall have any responsibility for the
application of the proceeds of any Advance by the Borrower.
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5 INTEREST; ALTERNATIVE INTEREST RATES
5.1 NORMAL INTEREST RATE
The Borrower shall pay interest in arrears on each Advance made to it
in respect of each Interest Period on the relevant Interest Payment
Date at the rate per annum equal to the aggregate of:
(a) the Margin;
(b) the Additional Cost (if any); and
(c) LIBOR,
with respect to such Interest Period.
5.2 SELECTION OF INTEREST PERIODS
Each Borrower may by notice received by the Agent not later than 10 am
on the fifth Banking Day before the beginning of each Interest Period
in respect of an Advance made to it select a duration of one, two,
three or six months.
5.3 DETERMINATION OF INTEREST PERIODS
Every Interest Period shall be of the duration specified by the
Borrower in accordance with clause 5.2 but so that:
(a) the initial Interest Period in respect of each Advance will
commence on the date on which such Advance is made and each
subsequent Interest Period in respect of such Advance will
commence forthwith upon the expiry of the previous Interest
Period;
(b) if an Interest Period would otherwise overrun;
(i) the Final Maturity Date;
(ii) the Termination Date; or
(iii) any other Repayment Date,
such Interest Period shall end on such date; and
(c) if the Borrower fails to specify the duration of an Interest
Period in accordance with the provisions of clause 5.2 such
Interest Period shall have a duration of 1 month or such other
period as the Agent may determine as shall comply with this
clause 5.3.
5.4 DEFAULT INTEREST
(a) If the Borrower fails to pay any sum on its due date for
payment under this Agreement, the Borrower shall pay interest
on such sum from the
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due date up to the date of actual payment (both before and
after judgment) at the rate determined by the Agent pursuant
to this clause 5.4.
(b) The period beginning on such due date and ending on such date
of payment shall be divided into successive periods of not
less than 3 months and not more than 6 months as selected by
the Agent (after consultation with the Lenders) each of which
(other than the first, which shall commence on such due date)
shall commence on the last day of the preceding such period.
(c) The rate of interest applicable to each such period shall be
the aggregate of:
(i) 1 per cent. per annum;
(ii) the Margin;
(iii) the Additional Cost (if any); and
(iv) LIBOR.
(d) Such interest shall be due and payable on the last day of each
such period as determined by the Agent and each such day
shall, for the purposes of this Agreement, be treated as an
Interest Payment Date.
5.5 NOTIFICATION OF INTEREST RATE
The Agent shall notify the Borrower and the Lenders promptly of the
duration of each Interest Period or other period for the calculation of
interest (or, as the case may be, default interest) and of each rate of
interest calculated by it under this clause 5.
5.6 REFERENCE BANK QUOTATIONS
If any Reference Bank is unable or otherwise fails to furnish a
quotation for the purpose of calculating LIBOR, (if there is more than
one Reference Bank) the interest rate for the relevant Interest Period
or other period shall be determined, subject to clause 5.7, on the
basis of the quotations furnished by the remaining Reference Banks.
5.7 MARKET DISRUPTION; NON-AVAILABILITY
(a) If and whenever, at any time prior to the making of any
Advance or the commencement of any Interest Period in respect
of an outstanding Advance the Agent:
(i) shall have determined, after consultation with the
Reference Banks (which determination shall, in the
absence of manifest error, be conclusive), that
adequate and fair means do not exist for ascertaining
LIBOR during such Interest Period; or
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(ii) the Reference Banks do not supply the Agent with a
quotation for the purpose of calculating LIBOR; or
(iii) shall have received notification from Lenders with
Commitments aggregating not less than one-third of
the Total Commitments that deposits in the relevant
currency are not available to such Lenders in the
London Interbank Market in the ordinary course of
business in sufficient amounts to fund their
contributions to the relevant Advance for such
Interest Period or that LIBOR does not accurately
reflect the cost to such Lenders of obtaining such
deposits,
the Agent shall forthwith give notice (a "DETERMINATION
NOTICE") to the Borrower and to each of the Lenders by telefax
or by telephone (in which case followed in writing) containing
particulars of the relevant circumstances giving rise to its
issue. After a Determination Notice is served the undrawn
amount of the Total Commitments shall not be borrowed until:
(A) notice to the contrary is given to the
Borrower by the Agent (which notice shall be
given by the Agent at such time as none of
the circumstances specified in clause 5.7(a)
continues to exist); or
(B) if earlier, a Substitute Basis is agreed
between the Agent and the Borrower;
(b) During the period of 10 days after any Determination Notice
has been given by the Agent under clause 5.7(a), each Lender
shall certify an alternative basis (the "SUBSTITUTE BASIS")
for making available or, as the case may be, maintaining its
Contribution to the affected Advance. The Substitute Basis may
include alternative interest periods, alternative currencies
or alternative rates of interest but shall include a margin
above the cost of funds including the Additional Cost, if any,
to such Lender equivalent to the Margin.
(c) Each Substitute Basis shall be binding upon the Obligors and
shall take effect in accordance with its terms from the date
specified in the Determination Notice until such time as none
of the circumstances specified in clause 5.7(a) continues to
exist whereupon the normal interest rate fixing provisions of
this Agreement shall apply.
5.8 SECURED/ UNSECURED ADVANCES AND CALCULATION OF MARGIN
(a) Unless otherwise determined in accordance with this clause
5.8, each Purchaser shall be an Unsecured Purchaser and each
Advance shall be an Unsecured Advance.
(b) The Margin applicable:
(i) to an Unsecured Advance shall be 5 per cent. per
annum; and
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(ii) to a Secured Advance, shall be, subject to clause
5.8(e), 4 per cent. per annum.
(c) In respect of the first Advance relative to each Purchaser, if
the following documentation is provided to the Agent prior to
the delivery of the Drawdown Notice for such Advance then such
Purchaser and such Advance shall be designated a Secured
Purchaser and a Secured Advance respectively:
(i) first ranking security reasonably acceptable to the
Agent (as confirmed in writing (not more than two
Banking Days before the Drawdown Notice relative to
such Advance) to the Borrower by the Agent by way of
a letter in the form or substantially in the form of
the letter set out in schedule 7) has been provided
in favour of the Security Trustee by such Purchaser
over all the Equipment supplied or to be supplied to
such Purchaser and financed or to be financed under
the Facility; and
(ii) the documents and evidence specified in part B of
schedule 3 in form and substance satisfactory to the
Lenders.
(d) Each Advance made in respect of a Secured Purchaser shall be a
Secured Advance.
(e) Without prejudice to any other right of the Lenders under this
Agreement, if, at any time, the Agent is not reasonably
satisfied that the security reasonably provided by a Secured
Purchaser fully secures, by way of first ranking security
reasonably acceptable to the Agent, the Secured Advances made
or to be made in respect of such Secured Purchaser, then the
Agent shall give notice to the Borrower that it must remedy
such situation to the reasonable satisfaction of the Agent and
if, within 30 days of such notice, the Borrower does not
remedy such situation to the reasonable satisfaction of the
Agent, then upon the expiry of such 30 day period the Agent
shall give the Borrower notice of such fact whereupon the
Secured Advances in respect of the relevant Purchaser shall
immediately become prepayable under clause 6.4 and such
Purchaser shall irrevocably be re-designated as an Unsecured
Purchaser.
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6 REPAYMENT, PREPAYMENT AND CANCELLATION
6.1 REPAYMENT
The Borrower shall repay each Advance in the currency in which it is
denominated in sixteen equal instalments on each consecutive Repayment
Date.
6.2 VOLUNTARY PREPAYMENT
The Borrower may, without premium or penalty, prepay any Advance made
to the Borrower in whole or in part (provided that, in the case of
part, the Dollar Amount of such part is a minimum of $1,000,000 and
integral multiples of $500,000) on any Interest Payment Date relating
to such Advance subject to the provisions of this clause 6.
6.3 APPLICATION OF PREPAYMENTS
Subject to clauses 5.8(e) and 6.8(b), any amounts prepaid after the
Termination Date shall be applied pro rata in reducing the repayment
instalments referred to in clause 6.1 and may not be redrawn.
6.4 AMOUNTS PAYABLE ON PREPAYMENT
Any prepayment under this Agreement shall be made in the currency in
which the relevant Advance is then denominated together with:
(a) accrued interest to the date of prepayment on the amount to be
prepaid;
(b) any additional amount payable under clause 8.5 or 14.2; and
(c) all other sums due and payable by the Borrower to the relevant
Lender under this Agreement including any amounts payable
under clause 13.1.
6.5 NOTICE OF PREPAYMENT
(a) No voluntary prepayment may be effected under this clause 6
unless the Borrower shall have given the Agent at least 5
Banking Days' notice of its intention to make such prepayment.
(b) Every notice of prepayment shall be effective only on actual
receipt by the Agent, shall be irrevocable and shall oblige
the Borrower to make such prepayment on the date specified.
6.6 CANCELLATION OF COMMITMENTS
(a) The Borrower may at any time during the Drawdown Period by
notice to the Agent (effective only on actual receipt) cancel
with effect from a date not less than 5 Banking Days after the
receipt by the Agent of such notice the whole or any part
(provided that, in the case of part, the Dollar Amount of such
part is a minimum of $1,000,000 and integral multiples of
$500,000) of the Total Commitments provided that any
commitment
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commission accrued under clause 7.1(b) on the amount that is
cancelled shall be payable by the Borrower to the Agent under
this Agreement on the date of cancellation.
(b) Any such notice of cancellation, once given, shall be
irrevocable and upon such cancellation taking effect the
Commitment of each Lender shall be reduced proportionately.
6.7 TERMINATION OF COMMITMENTS
Without prejudice to any other term of this Agreement, any part of the
Commitments which is undrawn and uncancelled on the Termination Date
shall thereupon be automatically reduced to zero and no Advance shall
be made to the Borrower thereafter.
6.8 MANDATORY PREPAYMENTS/CANCELLATION
(a) If, on any Interest Payment Date:
(i) on or prior to the Termination Date, the Dollar
Amount (as recalculated by the Agent in respect of
such date) of the Advance or Advances (the "RELEVANT
ADVANCES") relative to such Interest Payment Date
when aggregated with the Dollar Amount (as calculated
as at the date of the Advance) of all other Advances
exceeds $78.75 million then the Borrower shall
forthwith following notice from the Agent prepay, pro
rata, the Relevant Advances such that the Dollar
Amount of the Loan is reduced to a level not
exceeding $78.75 million; and
(ii) after the Termination Date, the Agent reasonably
decides (the reasonableness of such decision being
assessed in relation to the extent of material
currency fluctuations during the relevant period) to
recalculate the Dollar Amount of the entire Loan,
then if the Agent notifies the Borrower that the
Dollar Amount of the Loan on such date exceeds 105
per cent. of the Relevant Amount on such date then
the Borrower shall forthwith prepay, pro rata, the
Advance or Advances relative to such Interest Payment
Date such that the Dollar Amount of the Loan is
reduced to a level not exceeding 105 per cent. of the
Relevant Amount on such date provided that the Agent
may not make more than one such notification under
this clause 6.8(a)(ii) in any period of 12 calendar
months.
(b) If, in respect of Equipment over which or in respect of which
the Security Trustee holds or has the benefit of security
pursuant to clause 5.8, net sale proceeds or insurance
proceeds are received by any Purchaser which are not
reinvested in purchasing replacement Equipment within 365 days
and those net proceeds or insurance proceeds, when aggregated
with other net sale proceeds or insurance proceeds received or
receivable by such Purchaser or any other Purchaser (the
"AGGREGATE AMOUNT") and
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not so reinvested within 365 days and not previously applied
in accordance with this clause 6.8(b), exceed an amount
equivalent to $1,000,000 then:
(i) on or prior to the Termination Date and in respect of
that part of the Total Commitment which is undrawn
and uncancelled at such date, the Total Commitment
shall thereupon be automatically reduced by an amount
equal to the Aggregate Amount;
(ii) on and prior to the Termination Date, if and to the
extent that the Aggregate Amount exceeds the Total
Commitment which is undrawn and uncancelled at such
date, then the Borrower (on such date if such date is
an Interest Payment Date or on the next Interest
Payment Date if it is not) shall prepay an amount
equal to such excess and the provisions of clause 6.4
shall apply;
(iii) after the Termination Date, the Borrower (on such
date if such date is an Interest Payment Date or on
the next Interest Payment Date if it is not) shall
prepay an amount equal to the Aggregate Amount which
shall be applied:
(A) first, pro rata in pre-payment of the
Secured Advances; and
(B) secondly, pro rata in pre-payment of the
Unsecured Advances,
and the provisions of clause 6.4 shall apply;
(c) Subject to clauses 6.8(d), (e) and (f), within 180 days:
(i) of receipt, the Borrower shall apply an amount
equivalent to the net proceeds of:
(A) any Indebtedness for Borrowed Money Incurred
by the Borrower or any Restricted Subsidiary
of the Borrower (other than Indebtedness for
Borrowed Money Incurred by the Borrower or
any Subsidiary to any other member of the
Group); or
(B) the issue of equity by the Borrower or any
Subsidiary of the Borrower to a Person who
is not the Borrower or a Subsidiary of the
Borrower;
(ii) of receipt by or on behalf of the Noteholders of any
monies by way of fee (howsoever described) the
receipt and amount of which is not expressly
contemplated in the Notes at the date of this
Agreement, an amount equivalent to the amount of
receipt,
in prepayment of the Loan and clause 6.4 shall apply.
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(d) Indebtedness for Borrowed Money Incurred by the Borrower or
the issue of equity by the Borrower to a Person who is not the
Borrower or a Subsidiary of the Borrower shall not trigger the
mandatory prepayment provisions of clause 6.8(c) if and to the
extent that the Agent is reasonably satisfied on evidence
produced by the Borrower that the net proceeds of such
Indebtedness for Borrowed Money or issue of equity are used to
finance the purchase of Equipment (and other capital assets)
the acquisition of which is:
(i) incremental to the overall acquisition of Equipment
by the Borrower envisaged in the Business Plan; and
(ii) provided that any security granted in respect of such
Indebtedness for Borrowed Moneyor the issue of equity
is limited to such Equipment (or such other capital
assets).
(e) Indebtedness for Borrowed Money Incurred by the Borrower by
way of a vendor financing of Equipment supplied or to be
supplied by such vendor to the Borrower, shall not trigger the
mandatory prepayment provisions of clause 6.8(c) if and to the
extent that:
(i) the proceeds of such Indebtedness for Borrowed Money
are used to finance the purchase of Equipment
supplied by such vendor; and
(ii) such financing is advanced or made available from
such vendor (or the Holding Company or a Subsidiary
of such vendor) direct to the Borrower or such
Restricted Subsidiary without the benefit to the
vendor (or such Holding Company or such Subsidiary),
whether directly or indirectly, of any collateral
financial support, participation or Guarantee in
respect of the vendor's (or such Holding Company's or
such Subsidiary's) obligations in respect of such
Indebtedness for Borrowed Money,
and provided that any security granted in respect of such
Indebtedness for Borrowed Money is limited to such Equipment.
(f) After the date of this Agreement, Indebtedness for Borrowed
Money Incurred in respect of receivables or for working
capital purposes (including any financing or sale of
receivables) by the Borrower the net proceeds of which do not
exceed an amount equivalent to $100 million in aggregate and
in respect of which:
(i) the value of the receivables disposed of; and
(ii) the value of the receivables over which security is
provided in relation to such Indebtedness for
Borrowed Money,
does not exceed an amount equivalent to $75 million in
aggregate, shall not trigger the mandatory prepayment
provisions of clause 6.8(c). The
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value of such receivables shall be calculated at the time
of disposition or grant of the applicable security and
shall equal the book value of such receivables as shown on
the most recent consolidated financial statements of the
Borrower prepared in accordance with GAAP.
6.9 ADDITIONAL MANDATORY PREPAYMENTS
The Borrower shall also make mandatory prepayments as required under
clause 11.2(j)(ii)(B).
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7 FEES AND EXPENSES
7.1 FEES
The Borrower shall pay, or procure the payment, to the Agent whether or
not any part of the Commitments is ever advanced:
(a) as a condition precedent to the drawdown of the first Advance
for the account of Nortel Networks plc, a facility fee of an
amount agreed between the Borrower and the Agent in a letter
dated the date hereof; and
(b) in arrears on 31 December 1999 on each Quarter Day thereafter
during the Drawdown Period and on the last day of the Drawdown
Period, for the account of each Lender, commitment commission
computed from 1 October 1999 at the rate of 0.50 per cent. per
annum on the average daily undrawn and uncancelled amount of
such Lender's Commitment (assuming for the purposes of this
calculation only that the Total Commitment is $75,000,000); if
an Advance is outstanding in an Optional Currency, the amount
of the Commitments treated as drawn for the purpose of
calculating commitment commission shall be the Dollar Amount
of such Advance calculated at the date of such Advance.
7.2 EXPENSES
The Borrower shall pay, or procure the payment, to the Agent on demand:
(a) all reasonable expenses (including reasonable legal, printing
and out-of-pocket expenses of one firm of counsel in each
Relevant Jurisdiction) incurred by the Agent and the Security
Trustee in connection with the negotiation, preparation and
execution of this Agreement and any Security Documents and of
any amendment or extension of, or the granting of any waiver
or consent under, this Agreement or any Security Documents;
and
(b) all expenses (including legal and out-of-pocket expenses)
incurred by any Finance Party in contemplation of, or
otherwise in connection with, the enforcement or attempted
enforcement of, or preservation or attempted preservation of
any rights under, this Agreement and/or any Security
Documents, including after the occurrence of a Default or if
otherwise agreed with the Borrower, the fees and expenses of
accountants or other experts incurred in relation to any
investigation into the affairs of any Obligor, or otherwise in
respect of the moneys owing under this Agreement and/or any
Security Documents.
7.3 VALUE ADDED TAX
All fees and expenses payable pursuant to this clause 7 shall be paid
together with an amount equal to any Value Added Tax payable by any of
the Finance Parties in respect of such fees and expenses to the extent
that such Value Added Tax is not recoverable by such Finance Party by
way of credit or repayment.
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7.4 STAMP AND OTHER DUTIES
The Borrower shall pay all stamp, documentary, registration or other
similar duties or Taxes imposed on or in connection with the execution
and delivery of this Agreement and/or the Security Documents (other
than those imposed by reason of any transfer by any Lender) and shall
indemnify the Finance Parties against any liability arising by reason
of any delay or omission by the Borrower to pay such duties or Taxes.
7.5 OTHER VALUE ADDED TAX
(a) All payments made or to be made by the Borrower under this
Agreement are to be made exclusive of Value Added Tax.
(b) If the Borrower makes a payment to any Finance Party for a
taxable or deemed taxable supply by the Finance Party or
otherwise, the Borrower shall upon receipt of the appropriate
Value Added Tax invoice, pay, in addition to the
consideration, an amount equal to the amount of the Value
Added Tax which is chargeable on the Finance Party in respect
of the taxable supply in question.
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8 PAYMENTS AND TAXES; ACCOUNTS AND CALCULATIONS
8.1 NO SET-OFF OR COUNTERCLAIM; DISTRIBUTION TO THE LENDERS
All payments to be made by the Obligors under this Agreement and/or the
Security Documents shall be made in full, without any set-off or
counterclaim whatsoever and, subject as provided in clause 8.5, free
and clear of any deductions or withholdings, in Dollars or the relevant
Optional Currency (except for costs, charges or expenses which shall be
payable in the currency in which they are incurred) on the due date to
the account of the Agent at such bank as the Agent may from time to
time specify for this purpose. Save where this Agreement and/or the
Security Documents provide for a payment to be made for the account of
the Agent (for its own account), the Security Trustee (for its own
account) or a particular Lender (including clauses 6.3, 7, 8.5, 13.1,
13.2, 14.1 and 14.2), in which case the Agent shall distribute the
relevant payment to the Lender concerned, payments to be made by any
Obligor under this Agreement and/or the Security Documents shall be for
the account of all the Lenders and the Agent shall forthwith distribute
such payments in like funds as are received by the Agent to the Lenders
rateably in accordance with their Commitments or Contributions, as the
case may be.
8.2 PAYMENTS BY THE LENDERS
All sums to be advanced by the Lenders to a Borrower under this
Agreement shall be remitted in Dollars or the relevant Optional
Currency on the relevant Drawdown Date to the account of the Agent at
such bank as the Agent may have notified to the Lenders and shall be
paid by the Agent on such date in like funds as are received by the
Agent to the account of the Borrower specified in the relevant Drawdown
Notice.
8.3 NON-BANKING DAYS
(a) When any payment under this Agreement would otherwise be due
on a day which is not a Banking Day, the due date for payment
or the date of such reduction shall be postponed to the next
following Banking Day unless such Banking Day falls in the
next calendar month in which case payment shall be made on the
immediately preceding Banking Day.
(b) If any other relevant date under this Agreement is not a
Banking Day all references thereto shall be deemed to be to
the immediately preceding Banking Day.
8.4 AGENT MAY ASSUME RECEIPT
Where any sum is to be paid under this Agreement to the Agent for the
account of another Person, the Agent may assume that the payment will
be made to the Agent when due and may (but shall not be obliged to)
make such sum available to the Person so entitled. If it proves to be
the case that such payment was not made to the Agent, then the Person
to whom such sum was so made available shall on request refund such sum
to the Agent together with interest thereon
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sufficient to compensate the Agent for the cost of making available
such sum up to the date of such repayment and the Person by whom such
sum was payable shall indemnify the Agent for any and all loss or
reasonable expense which the Agent may sustain or incur as a
consequence of such sum not having been paid on its due date.
8.5 GROSSING-UP FOR TAXES
Subject to clause 8.6, if at any time any Obligor is required to make
any deduction or withholding in respect of Taxes from any payment due
under this Agreement and/or the Security Documents for the account of
any Finance Party (or if the Agent is required to make any such
deduction or withholding from a payment to the Security Trustee or
Lender), the sum due from the relevant Obligor in respect of such
payment shall be increased to the extent necessary to ensure that,
after the making of such deduction or withholding, each Finance Party
receives on the due date for such payment (and retains, free from any
liability in respect of such deduction or withholding) a net sum equal
to the sum which it would have received had no such deduction or
withholding been required to be made and the relevant Obligor shall
indemnify each Finance Party against any losses or costs incurred by
any of them by reason of any failure of such Obligor to make any such
deduction or withholding or by reason of any increased payment not
being made on the due date for such payment. The relevant Obligor shall
promptly deliver to the Agent any receipts, certificates or other proof
evidencing the amounts (if any) paid or payable in respect of any such
deduction or withholding.
8.6 EXCLUSIONS FROM TAX GROSS-UP
(a) Each Finance Party agrees promptly to notify the Borrower and
the Agent if it is not, or if it ceases to be, a Qualifying
Person by reason of sub-paragraph (i) of the definition of
Qualifying Person ceasing to apply and if any Finance Party is
not or ceases to be a Qualifying Person then (save in
circumstances where such Finance Party ceases to be a
Qualifying Person by reason of any change in law, regulation
or double taxation treaty or its application, in each case
taking effect after the date of this Agreement) the relevant
Obligor shall not be obliged to pay such Finance Party under
clause 8.5.
(b) Clause 8.5 shall not apply to Taxes imposed by reason of any
connection between the jurisdiction imposing such tax and any
Finance Party or any Lender's applicable lending office,
branch or affiliate other than a connection arising solely
from any Finance Party having executed, delivered or performed
its obligations under, or received payment under or enforced,
this Agreement or any Note.
(c) Clause 8.5 shall not apply to Taxes that would not have been
imposed but for the failure of any Finance Party, arising from
a reasonable request together with appropriate assistance and
direction from the relevant Obligor, to reasonably comply with
any certification, identification, information, or other
documentation requirement under law, regulation,
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administrative practice or an applicable treaty that is a
precondition to exemption from, or reduction in the rate of
the imposition, deduction or withholding of Taxes.
(d) If a Lender changes its applicable lending office (other than
pursuant to clause 8.8(b) below) or effects a transfer or
assignment of rights (pursuant to clause 16.3) and the effect
of the change or transfer or assignment, as of the date of the
change or transfer or assignment, would be to cause any
Obligor to become obliged to pay any additional amount under
clause 8.5, such Obligor shall not be obliged to pay such
additional amount.
8.7 CLAW-BACK OF TAX BENEFIT
If following any such deduction or withholding as is referred to in
clause 8.5 the Finance Parties or any of them shall receive or be
granted a credit against or remission for any Taxes payable by it, the
Finance Parties shall, subject to the relevant Obligor having made any
increased payment in accordance with clause 8.5 and to the extent that
any Finance Party can do so without prejudicing the retention of the
amount of such credit or remission and without prejudice to the right
of any Finance Party to obtain any other relief or allowance which may
be available to it, reimburse the relevant Obligor with such amount as
any Finance Party shall in its absolute discretion certify to be the
proportion of such credit or remission as will leave any Finance Party
(after such reimbursement) in no worse position than it would have been
in had there been no such deduction or withholding from the payment by
the relevant Obligor as aforesaid. Such reimbursement shall be made
forthwith upon any Finance Party certifying that the amount of such
credit or remission has been received by it. Nothing contained in this
Agreement shall oblige any Finance Party to rearrange its tax affairs
or to disclose any information regarding its tax affairs and
computations. Without prejudice to the generality of the foregoing, the
Obligors shall not, by virtue of this clause 8.7, be entitled to
enquire about any Finance Party's tax affairs.
8.8 RULES CONCERNING ADDITIONAL AMOUNTS
(a) If a condition or an event occurs which would, or would upon
the passage of time or giving of notice, result in the payment
of any additional amount to any Finance Party by an Obligor
pursuant to clause 8.5, the relevant Finance Party shall take
such steps as may reasonably be available to it and acceptable
to the Obligor to mitigate the effects of such condition or
event provided that such Finance Party shall not be required
to take any step that, in its reasonable judgment, would be
materially disadvantageous to its business or operations or be
in conflict with such Finance Party's (or, as the case may be,
its Holding Company's) general lending policies or would
result in any material increased administrative burden or
would require it to incur additional costs (unless the Obligor
agrees to reimburse such Finance Party for the reasonable
incremental out-of-pocket costs thereof).
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(b) If the Obligor shall become obliged to pay additional amounts
pursuant to clause 8.5 and any affected Finance Party shall
not have promptly taken steps necessary to avoid the need for
payments under clause 8.5, the Obligor shall have the right at
its own expense, for so long as such obligation remains, with
the assistance of the Agent, to seek one or more substitute
Lenders reasonably satisfactory to the Agent and the Obligor
to purchase the affected Loan, in whole or in part, at an
aggregate price no less than such Loan's principal amount plus
accrued interest, and assume the affected obligations under
this Agreement, or to the extent that no Default or Event of
Default under clause 12 shall have occurred of which the
Obligor has actual knowledge and is then continuing, upon at
least four Banking Days irrevocable notice to the Agent, to
prepay the affected Loan, in whole or in part, subject to
clause 13.1, without premium or penalty. In the case of the
substitution of a Lender, the Obligor, the Agent, the affected
Lender, and any substitute Lender shall execute and deliver an
appropriately completed Transfer Certificate pursuant to
clause 16.3 to effect the assignment of rights to, and the
assumption of obligations by, the substitute Lender. The
Obligor shall pay all expenses (including Taxes other than
Taxes measured by or imposed upon the overall net income or
gains of any Finance Party or any Lender's applicable lending
office) arising from a substitution of a Lender pursuant to
this clause 8. In the case of a prepayment of an affected
Loan, the amount specified in the notice shall be due and
payable on the date specified therein, together with any
accrued interest to such date on the amount prepaid. In the
case of each of the substitution of a Lender and of the
prepayment of an affected Loan, the obligor shall first pay
the affected Lender any additional amounts owing under clauses
8.5 and 14.2 (as well as any commitment fees and other amounts
then due and owing to such Lender) prior to such substitution
or prepayment.
8.9 BANK ACCOUNTS
Each Lender shall maintain, in accordance with its usual practices, an
account or accounts evidencing the amounts from time to time lent by,
owing to and paid to it under this Agreement. The Agent shall maintain
a control account showing each Advance and other sums owing by each
Obligor under this Agreement and all payments in respect thereof made
by the Obligors from time to time. The control account shall be prima
facie evidence as to the amount from time to time owing by each Obligor
under this Agreement.
8.10 PARTIAL PAYMENTS
If, on any date on which a payment is due to be made by any Obligor
under this Agreement and/or the Security Documents, the amount received
by the Agent from the relevant Obligor falls short of the total amount
of the payment due to be made by the relevant Obligor on such date
then, without prejudice to any rights or remedies available to the
Finance Parties under this Agreement and/or the Security Documents, the
Agent shall apply the amount actually received from the relevant
Obligor in or towards discharge of the obligations of the Obligors
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under this Agreement in the following order, notwithstanding any
appropriation made, or purported to be made, by the relevant Obligor:
(a) in the case of a payment by the Borrower, first, in or towards
payment, on a pro rata basis, of any unpaid fees, costs and
expenses of the Agent under this Agreement and/or the Security
Documents;
(b) in the case of a payment by the Borrower, secondly, in or
towards payment to Nortel Networks plc of any portion of the
facility fee payable under clause 7.1(a) which remains unpaid;
(c) in the case of a payment by the Borrower, thirdly, in or
towards payment to the Lenders, on a pro rata basis, of any
accrued commitment commission payable under clause 7.1(b)
which shall have become due but remains unpaid;
(d) fourthly, in or towards payment to the Lenders, on a pro rata
basis, of any accrued interest which shall have become due but
remains unpaid by the Borrower;
(e) fifthly, in or towards payment to the Lenders, on a pro rata
basis, of any principal which shall have become due but
remains unpaid by a Borrower; and
(f) sixthly, in or towards payment of any other sum which shall
have become due but remains unpaid (and, if more than one such
sum so remains unpaid, on a pro rata basis) by the Borrower.
The order of application set out in this clause 8.10(b) to 8.10(f)
shall be varied by the Agent if all Lenders so direct, without any
reference to, or consent or approval from, any of the Obligors.
8.11 CALCULATIONS
All interest and other payments of an annual nature under this
Agreement shall accrue from day to day and be calculated on the basis
of actual days elapsed and (in the case of Sterling) a 365 day year or
(in the case of currencies other than Sterling) a 360 day year. In
calculating the actual number of days elapsed in a period which is one
of a series of consecutive periods with no interval between them or a
period on the last day of which any payment falls to be made in respect
of such period, the first day of such period shall be included but the
last day excluded.
8.12 CERTIFICATES PRIMA FACIE
Any certificate or determination of the Agent or any Lender as to any
rate of interest or any amount payable under this Agreement shall be
prima facie evidence thereof and shall not be conclusive save where
otherwise expressly stated in this Agreement.
8.13 EFFECT OF MONETARY UNION
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If the country of any national currency in which any amount is payable
under this Agreement participates in Economic and Monetary Union in
accordance with Article 109j of the Treaty on European Union, then:
(a) any amount payable under this Agreement in that national
currency shall be made in euro;
(b) any amount so required to be paid in euro shall be converted
from that national currency at the rate stipulated pursuant to
Article 109l(4) of the Treaty on European Union and payment of
the amount in euro derived from such conversion shall
discharge the obligation of the relevant party to pay such
national currency amount in accordance with, and subject to,
the Regulation(s) made pursuant to Article 109l(4); and
(c) after consultation with the Borrower and the Lenders, and
notwithstanding clause 17.11, the Agent shall be entitled to
make such reasonable amendments to this Agreement as it may
determine to be necessary to take account of monetary union
and any consequent changes in market practices (whether as to
the settlement or rounding of obligations, the calculation of
interest or otherwise howsoever).
Any amendment made to this Agreement by the Agent shall be promptly
notified to the other Finance Parties and the Obligors by the Agent and
shall be binding on all the other Finance Parties and the Obligors.
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9 SUBSIDIARY GUARANTEE
The Borrower shall, from time to time, procure the issue of Subsidiary
Guarantees in accordance with clause 11.2(e).
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10 REPRESENTATIONS AND WARRANTIES
10.1 REPEATED REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each of the Finance Parties
that:
(a) DUE INCORPORATION: it, each of the Subsidiaries who are
Restricted Subsidiaries and each Security Provider, is duly
incorporated or organised and validly existing under the laws
of the respective country of its incorporation or organisation
and has power to carry on its business as it is now being
conducted and to own its property and other assets;
(b) POWER TO BORROW ETC.: it, each of the Subsidiaries who are
Restricted Subsidiaries and each Security Provider, has power
to execute, deliver and perform its obligations under the
Finance Documents to which it is a party and, in the case of
the Borrower, to borrow the Commitments and all necessary
corporate, shareholder and other corporate action has been
taken to authorise the execution, delivery and performance of
the same and, in the case of the Borrower, no limitation on
the powers of the Borrower to borrow will be exceeded as a
result of Borrowings under this Agreement;
(c) BINDING OBLIGATIONS: the Finance Documents when executed and
delivered by each Obligor who is party to such document will
constitute, valid and legally binding obligations of such
Obligor enforceable in accordance with their respective terms
subject to:
(i) applicable bankruptcy, insolvency, fraudulent
conveyance, moratoria or similar laws;
(ii) general principles of equity; and
(iii) the qualifications, limitations and exceptions
contained in the legal opinions referred to in
schedule 3 which are expressed to relate to the
relevant Finance Document;
(d) NO CONFLICT WITH OTHER OBLIGATIONS: the execution and delivery
of, the performance of its obligations under, and compliance
with the provisions of, the Finance Documents to which it is a
party by the relevant Obligor will not:
(i) contravene any existing applicable law, statute, rule
or regulation or any judgment, decree or permit to
which such Obligor is subject in any material
respect;
(ii) conflict with, or result in any material breach of
any of the terms of, or constitute a material default
under, any agreement or other instrument to which
such Obligor is a party or is subject or by which it
or any of its property is bound;
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(iii) contravene or conflict with any provision of such
Obligor's constitutive documents;
(iv) breach in any material respect any term of the
Licences or Necessary Authorisations; or
(v) save for the Encumbrances granted to the Security
Trustee pursuant to the Security Documents or
otherwise permitted under this Agreement, result in
the creation or imposition of or oblige it or any of
its Subsidiaries which are Restricted Subsidiaries to
create any Encumbrance on its or any of such of its
Subsidiaries' undertakings, assets, rights or
revenues (except for any Encumbrance permitted by
this Agreement);
(e) NO LITIGATION: no material litigation, arbitration or
administrative proceeding is taking place, pending or, to the
knowledge of the officers of the Borrower, threatened against
it or any of its Subsidiaries which are Restricted
Subsidiaries, except as would not reasonably be expected to
have a Material Adverse Effect;
(f) NO MATERIAL ADVERSE CHANGE: there has been no event which
would reasonably be expected to have a Material Adverse
Effect;
(g) TITLE TO ASSETS: in respect of all Equipment which is to be
financed in whole or in part by an Advance, the relevant
Purchaser will be, at the time of such Advance, the legal
owner of such Equipment (other than Software and other rights
held under licence) free and clear of any Encumbrances and any
other rights or interests in favour of third parties save for
those Encumbrances permitted under this Agreement;
(h) NO GUARANTORS: none of the Borrowings of the Borrower is
Guaranteed by any of its Restricted Subsidiaries save to the
extent permitted by this Agreement;
(i) PRIOR REPRESENTATIONS: representations made in the Business
Plan as at the date of this Agreement and in the Offering
Memoranda as at their date, taken as a whole, are materially
accurate and complete and not materially misleading provided
that no representation or warranty is made concerning any
forecasts, estimates or pro forma information, projections and
statements as to anticipated future performance or conditions,
or the assumptions on which they were based except that such
forecasts, estimates and pro forma information, projections
and statements were arrived at after due and careful
consideration and enquiry and were based on the good faith
assumptions of the management of the Borrower which
assumptions were believed by such management to be reasonable
(it being understood that such forecasts, estimates and pro
forma information, projections and statements and the
assumptions on which they were based may or may not prove to
be correct);
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(j) YEAR 2000: except as would not reasonably be expected to have
a Material Adverse Effect, any reprogramming required to
permit the proper functioning in and following the year 2000,
of:
(i) the computer systems of any Obligor and each of its
Restricted Subsidiaries;
(ii) equipment containing embedded microchips (including
systems and equipment supplied by others to any
Obligor or any of its Restricted Subsidiaries or with
which the systems of any Obligor or any of its
Restricted Subsidiaries interface) and the testing of
all such systems and equipment, as so reprogrammed,
has been completed;
(k) OTHER BORROWINGS: there is no material default under any
material credit facility or any Material Agreement between an
Obligor or any of its Restricted Subsidiaries and any other
Person;
(l) USE OF ADVANCES: Advances have only been used, and shall only
be used, for the purposes set out in clause 4.2;
(m) LICENCES AND NECESSARY AUTHORISATIONS:
(i) each Purchaser has secured all necessary Licences and
such Licences are in full force and effect and such
Purchaser is in compliance in all material respects
with all provisions thereof that are applicable to
it;
(ii) except as would not reasonably be expected to have a
Material Adverse Effect, each Obligor and each of its
Subsidiaries which are Restricted Subsidiaries has
secured all the Necessary Authorisations, all such
Necessary Authorisations are in full force and effect
and such Obligor and such of its Subsidiaries are in
compliance in all material respects with all
provisions thereof;
(iii) neither any Obligor nor any of its Subsidiaries which
is a Restricted Subsidiary has been notified (in
writing or otherwise) that the Licences or any of the
Necessary Authorisations issued to such Obligor or
any such of its Subsidiaries are the subject of any
pending or threatened attack or revocation; AND
(iv) every material consent, authorisation, licence or
approval of, or registration with or declaration to,
governmental or public bodies or authorities of
courts (other than the Licences and the Necessary
Authorisations) required by an Obligor or any of its
Subsidiaries which is a Restricted Subsidiary to
authorise, or required by such Obligor or any of its
Subsidiaries which is a Restricted Subsidiary in
connection with, the execution, delivery, validity,
enforceability or admissibility in evidence of this
Agreement and the Security Documents to which it is a
party or the performance
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by such Obligor or any of its Subsidiaries which is a
Restricted Subsidiary of their respective obligations
under this Agreement and the Security Documents to
which they are a party has been obtained or made
(other than any not yet required) and is in full
force and effect in all material respects and there
has been no material default in the observance of the
conditions or restrictions (if any) imposed in, or in
connection with, any of the same;
(n) LAWS: each Obligor and each of its Subsidiaries which
is a Restricted Subsidiary is in compliance in all
material respects with all material laws;
(o) NO DEFAULT: no Default has occurred which is
continuing;
(p) ENVIRONMENTAL MATTERS:
(i) each Obligor and each of its Subsidiaries
which is a Restricted Subsidiary complies,
in all respects, with all requirements of
Environmental Laws where failure to do so
has or is reasonably likely to have a
Material Adverse Effect; and
(ii) after due enquiry, no Environmental Claim
is, to the knowledge of such Obligor or any
of its Subsidiaries which is a Restricted
Subsidiary, existing as at the date of this
Agreement, which has or is reasonably likely
to have a Material Adverse Effect; and
(q) NO FILINGS REQUIRED: save for the filings,
registrations and notarisations referred to in the
legal opinions referred to in schedule 3, it is not
necessary to ensure the legality, validity,
enforceability or admissibility in evidence of this
Agreement or the Security Documents to which each
Obligor is a party, that any of them or any other
instrument be notarised, filed, recorded, registered
or enrolled in any court, public office or elsewhere
in any Relevant Jurisdiction or that any stamp,
registration or similar tax or charge be paid in any
Relevant Jurisdiction on or in relation to this
Agreement or any of the Security Documents to which
such Obligor is a party and this Agreement and the
Security Documents to which each Obligor is a party
are in proper form for their enforcement in the
courts of any Relevant Jurisdiction.
10.2 REPETITION
The representations and warranties in clause 10.1 shall be deemed to be
repeated by the Borrower on and as of each Drawdown Date as if made
with reference to the facts and circumstances existing on each such day
save that references to financial statements shall be amended to refer
to the latest such financial statements delivered to the Agent under
clause 11.1.
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11 UNDERTAKINGS
11.1 POSITIVE COVENANTS
The Borrower (in respect of itself and Restricted Subsidiaries)
undertakes with each of the Finance Parties that, from the date of this
Agreement and so long as any moneys are owing under this Agreement or
remain available for drawing by the Borrower, it will:
(a) subject to clauses 11.2 and 11.3, do or cause to be done all
things necessary to preserve and keep in full force and effect
its existence and the existence of each of its Restricted
Subsidiaries in accordance with the respective organisational
or constitutional documents of the Borrower and each
Restricted Subsidiary and the rights (whether pursuant to
charter, partnership certificate, agreement, statute or
otherwise), licenses and franchises of the Borrower and each
Restricted Subsidiary provided that the Borrower shall not be
required to preserve any such right, license or franchise, or
the existence of any Restricted Subsidiary, if the maintenance
or preservation thereof is, in the judgment of the Borrower,
no longer desirable in the conduct of the business of the
Borrower and its Restricted Subsidiaries taken as a whole;
(b) pay or discharge and shall cause each of its Restricted
Subsidiaries to pay or discharge, or cause to be paid or
discharged, before the same shall become delinquent:
(i) all material taxes, assessments and governmental
charges levied or imposed upon:
(A) the Borrower or any such Restricted
Subsidiary;
(B) the income or profits of any such Restricted
Subsidiary which is a corporation or other
corporate entity; or
(C) the property of the Borrower or any such
Restricted Subsidiary; and
(ii) all material lawful claims for labour, materials and
supplies that, if unpaid, might by law become a lien
or an encumbrance upon the property of the Borrower
or any such Restricted Subsidiary,
provided that the Borrower shall not be required to pay or
discharge, or cause to be paid or discharged, any such tax,
assessment, charge or claim (x) the amount, applicability or
validity of which is being contested in good faith by
appropriate proceedings and for which adequate reserves have
been established to the extent required by generally accepted
accounting principles or (y) if failure to do so would not (as
determined by the Borrower in good faith) reasonably be
expected to have a material adverse effect on the financial
condition, results of operations or business of the Borrower
and its Restricted Subsidiaries taken as a whole or (z) if
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any resulting Encumbrance constitutes a Permitted Encumbrance
or otherwise complies with clause 11.2(g);
(c) cause all properties used or useful in the conduct of its
business or the business of any of its Restricted Subsidiaries
to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and
will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in
the judgment of the Borrower may be necessary so that the
business carried on in connection therewith may be properly
and advantageously conducted at all times provided that
nothing in this clause 11.1(c) shall prevent the Borrower or
any Restricted Subsidiary from omitting to take such action or
discontinuing the use, operation or maintenance of any of such
properties or disposing of any of them, if such omission,
discontinuance or disposal is, in the judgment of the
Borrower, desirable in the conduct of the business of the
Borrower or such Restricted Subsidiary;
(d) provide or cause to be provided, for itself and its Restricted
Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured
against by corporations similarly situated and owning like
properties, including, but not limited to, products liability
insurance and public liability insurance, with reputable
insurers, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly
situated in the industry in which the Borrower or any such
Restricted Subsidiary, as the case may be, is then conducting
business provided that in the judgment of the Borrower such
insurance is available to the Borrower on commercially
reasonable terms and is desirable;
(e) in the event that any Officer becomes aware of any Default or
Event of Default, promptly deliver to the Agent a Certificate
specifying such Default or Event of Default;
(f) deliver to the Agent, within 90 days after the end of each
fiscal year, a Certificate stating whether or not the signers
know of any Default or Event of Default that occurred during
such fiscal quarter. Such certificate shall contain a
certification from the principal executive officer, principal
financial officer or principal accounting officer of the
Borrower that a review has been conducted of the activities of
the Borrower and its Restricted Subsidiaries and the
Borrower's and its Restricted Subsidiaries' performance under
this Agreement and that the Borrower has complied with all
conditions and covenants under this Agreement; and for
purposes of this clause 11.1(f), such compliance shall be
determined without regard to any period of grace or
requirement of notice provided under this Agreement; and if
any of the Officers of the Borrower signing such Certificate
has knowledge of such a Default or Event of Default, the
certificate shall describe any such Default or Event of
Default and its status;
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(g) ensure that each Obligor and each Purchaser (in respect of
which Advances have been made under this Agreement) shall
remain a Wholly Owned Subsidiary of the Borrower;
(h) from and after the earlier of the date provided under Section
4.18(I) of the Indentures and the date that is six months
after the Closing Date (such earlier date, the "FILING DATE")
file with the Commission to the extent then permitted by the
Exchange Act and by the Commission, all such information on an
appropriate available form as it would be required to file
with the Commission by Sections 13(a) or 15(d) under the
Exchange Act as if it were a U.S. company and subject thereto,
including information required by annual, quarterly and
current reports whether or not required to be so filed; and it
will supply the Agent copies of such reports and other
information; and in addition prior to the Filing Date, it will
supply to the Agent, at the Borrower's cost, quarterly and
annual reports substantially equivalent to those described
above or which would otherwise be required by the Exchange Act
(or other reports or documents that include substantially the
same information) commencing with the report for the fiscal
quarter ending immediately after the date of this Agreement.
11.2 NEGATIVE COVENANTS
The Borrower (in respect of itself and the Restricted Subsidiaries)
undertakes with each of the Finance Parties that, from the date of this
Agreement and so long as any moneys are owing under this Agreement or
remain available for drawing by the Borrower, without the prior written
consent of the Agent acting on the instructions of the Majority
Lenders:
(a) it will not, and it will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than
Indebtedness under this Agreement and under the Notes (but
excluding any Additional Notes) and other Indebtedness
existing on the Closing Date provided that the Borrower or any
Permanent Guarantor may Incur Indebtedness if, after giving
effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds therefrom, the Consolidated
Leverage Ratio would be greater than zero and less than 6:1
and provided that the Borrower and any Restricted Subsidiary
(except as specified below) may Incur each and all of the
following:
(i) Indebtedness outstanding at any time in an aggregate
principal amount not to exceed (after giving effect
to any refinancing thereof) the sum of (A) $100
million, less any amount of such Indebtedness
permanently repaid as provided under clause 11.2(j)
plus (B) an amount equal to the lesser of (1) 80 per
cent. of the consolidated book value of the accounts
receivable of the Borrower and its Restricted
Subsidiaries determined in accordance with GAAP
(determined as of the end of the most recently ended
fiscal quarter for which reports have been filed
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with the Commission and provided to the Agent) and (2) $100
million;
(ii) Indebtedness owed (A) to the Borrower evidenced by a
promissory note or (B) to any Restricted Subsidiary
provided that any event which results in any such
Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Borrower or another
Restricted Subsidiary) shall be deemed, in each case,
to constitute an Incurrence of such Indebtedness not
permitted by this paragraph (ii);
(iii) Indebtedness to refinance then outstanding
Indebtedness (other than Indebtedness Incurred under
paragraph (i), (ii), (iv), (vi), (viii), (x) or (xi)
of this paragraph) and any refinancings thereof, in
an amount not to exceed the amount so refinanced
(plus premiums, accrued interest, fees and expenses)
provided that Indebtedness the proceeds of which are
used to refinance the Loan in part or Indebtedness
that is pari passu with, or expressly subordinated in
right of payment to, the Loan and any Subsidiary
Guarantee shall only be permitted under this
paragraph (iii) if:
(A) in cases where the Indebtedness to be
refinanced is pari passu with the Loan or
any Subsidiary Guarantee such new
Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to
which such new Indebtedness is outstanding,
is expressly made pari passu with, or
expressly subordinate in right of payment
to, the remaining Loan and any Subsidiary
Guarantee;
(B) in cases where the Indebtedness to be
refinanced is expressly subordinated in
right of payment to the Loan and any
Subsidiary Guarantee, 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 Loan and any
Subsidiary Guarantee at least to the extent
that the Indebtedness to be refinanced is
subordinated to the Loan and any Subsidiary
Guarantee; and
(C) such new Indebtedness, determined as of the
date of Incurrence of such new Indebtedness,
does not mature prior to the Stated Maturity
of the Indebtedness to be refinanced and the
Average Life of such new Indebtedness is at
least equal to the remaining Average Life of
the Indebtedness to be refinanced; and
provided further that in no event may
Indebtedness of the Borrower be refinanced
by means of any Indebtedness of any
Restricted Subsidiary pursuant to this
paragraph (iii);
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(iv) Indebtedness (A) in respect of performance, surety,
appeal or other similar bonds provided in the
ordinary course of business and (B) arising from
agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from
Guarantees or letters of credit, bankers'
acceptances, surety or performance bonds or other
similar instruments securing any obligations of the
Borrower or any of its Restricted Subsidiaries
pursuant to such agreements, in any case Incurred in
connection with the disposition of any business,
assets or Restricted Subsidiary (other than
Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets
or Restricted Subsidiary for the purpose of financing
such acquisition), in a principal amount not to
exceed the gross proceeds actually received by the
Borrower or any Restricted Subsidiary in connection
with such disposition;
(v) Guarantees of the Loan and Guarantees of Indebtedness
of the Borrower by any Restricted Subsidiary provided
the Guarantee of such Indebtedness is permitted by
and made in accordance with clause 11.2(e) and
Guarantees of Indebtedness of any Restricted
Subsidiary by any Restricted Subsidiary provided such
Restricted Subsidiary simultaneously executes and
delivers a Subsidiary Guarantee;
(vi) Indebtedness Incurred to finance or refinance the
cost (including the cost of design, development,
acquisition, construction, acquisition, construction,
installation, improvement, transportation or
integration) to acquire equipment, inventory or
network assets (including leases on an indefeasible
right to use basis and multiple investment units)
(including acquisitions by way of Capitalised Lease
and acquisitions of the Capital Stock of a Person
that becomes a Restricted Subsidiary to the extent of
the fair market value of the equipment, inventory or
network assets so acquired) by the Borrower or a
Restricted Subsidiary;
(vii) Indebtedness of the Borrower or any Permanent
Guarantor not to exceed at any one time outstanding
(after giving effect to any refinancing thereof), two
times the sum of:
(A) the Net Cash Proceeds received by the
Borrower after the Closing Date as a capital
contribution or from the issuance and sale
of its Capital Stock (other than
Disqualified Stock) to a Person that is not
a Subsidiary of the Borrower, to the extent
(I) such capital contribution or Net Cash
Proceeds have not been used pursuant to
paragraph (C)(2) of clause 11.2(b) or
paragraphs (iii), (iv), (vi) or (x) of
clause 11.2(b) to make a Restricted Payment
and (II) if such capital contribution or Net
Cash Proceeds are used to consummate a
transaction pursuant to which the Borrower
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incurs Acquired Indebtedness, the amount of
such Net Cash Proceeds exceeds one-half of
the amount of Acquired Indebtedness so
Incurred; and
(B) 80 per cent. of the fair market value of
property (other than cash and cash
equivalents) received by the Borrower after
the Closing Date as a capital contribution
or from the sale of its Capital Stock (other
than Disqualified Stock) to a Person that is
not a Subsidiary of the Borrower, to the
extent (I) such capital contribution or sale
of Capital Stock has not been used pursuant
to paragraphs (iii), (iv) or (vii) of clause
11.2(b) to make a Restricted Payment and
(II) if such capital contribution or Capital
Stock is used to consummate a transaction
pursuant to which the Borrower Incurs
Acquired Indebtedness, 80 per cent. of the
fair market value of the property received
exceeds one-half of the amount of Acquired
Indebtedness so Incurred PROVIDED that such
Indebtedness does not mature prior to the
Stated Maturity of the Loan or the Notes and
has an Average Life longer than the Loan or
the Notes;
(viii) Acquired Indebtedness;
(ix) Strategic Subordinated Indebtedness;
(x) Indebtedness in respect of bankers' acceptance and
letters of credit, all in the ordinary course of
business, in an aggregate amount outstanding at any
time not to exceed $10 million; and
(xi) subordinated Indebtedness of the Borrower or any
Permanent Guarantor (in addition to Indebtedness
permitted under paragraphs (i) through (xi) above) in
an aggregate principal amount outstanding at any time
(after giving effect to any refinancing thereof) not
to exceed $100 million,
provided that for the purposes of determining:
A) compliance with any Dollar-denominated restriction
under this clause 11.2(a) on the Incurrence of
Indebtedness denominated in another currency; or
B) any particular amount of Indebtedness under this
clause 11.2(a),
the methodology used in Sections 4.03(b) and 4.03(c) (as the
case may be) of the Indentures shall be adopted;
(b) it will not, and it will not permit any Restricted
Subsidiary to, directly or indirectly:
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1) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than
(x) dividends or distributions payable solely in
shares of its Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to
acquire shares of such Capital Stock and (y)
dividends or distributions on Capital Stock of a
Restricted Subsidiary held by minority interest
holders on no more than a pro rata basis, measured by
value and based on all outstanding Capital Stock of
such Restricted Subsidiary) held by Persons other
than the Borrower or any of its Restricted
Subsidiaries;
2) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (i) the Borrower
or an Unrestricted Subsidiary (including options,
warrants or other rights to acquire such shares of
Capital Stock) held by any Person other than the
Borrower or any Wholly Owned Restricted Subsidiary or
(ii) a Restricted Subsidiary (including options,
warrants or other rights to acquire such shares of
Capital Stock) held by any Affiliate of the Borrower
(other than a Wholly Owned Restricted Subsidiary) or
any holder (or any Affiliate of such holder) of 5 per
cent. or more of the Capital Stock of the Borrower;
3) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase,
defeasance, or other acquisition or retirement for
value, of Indebtedness of the Borrower that is
expressly subordinated in right of payment to the
Loan or any Subsidiary Guarantee; or
4) make any Investment, other than a Permitted
Investment, in any other Person,
(such payments or any other actions described in paragraphs
(1) through (4) above being collectively "RESTRICTED
PAYMENTS"), if, at the time of, and after giving effect to,
the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and
be continuing;
(B) the Borrower could not Incur at least $1.00 of
Indebtedness under clause 11.2(a); or
(C) the aggregate amount of all Restricted Payments (the
amount, 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) made after the Closing Date shall
exceed the sum of:
(1) 50 per cent. of the aggregate amount of the
Adjusted Consolidated Net Income (or, if the
Adjusted Consolidated Net Income is a loss,
minus 100 per cent. of
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the amount of such loss) accrued on a
cumulative basis during the period (taken as
one accounting period) beginning on the
first day of the fiscal quarter beginning
immediately following the Closing Date and
ending on the last day of the last fiscal
quarter preceding the Transaction Date for
which reports have been filed with the
Commission and provided to the Agent; plus
(2) the aggregate Net Cash Proceeds received by
the Borrower after the Closing Date as a
capital contribution or from the issuance
and sale permitted by this Agreement of its
Capital Stock (other than Disqualified
Stock) to a Person who is not a Subsidiary
of the Borrower, including the proceeds of
an issuance or sale permitted by this
Agreement of Indebtedness of the Borrower
for cash subsequent to the Closing Date upon
the conversion of such Indebtedness into
Capital Stock (other than Disqualified
Stock) of the Borrower, or from the issuance
to a Person who is not a Subsidiary of the
Borrower of any options, warrants or other
rights to acquire Capital Stock of the
Borrower (in each case, exclusive of any
Disqualified Stock or any options, warrants
or other rights that are redeemable at the
option of the holder, or are required to be
redeemed, prior to the Stated Maturity of
the Loan), in each case except to the extent
such Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause
11.2(a)(vii); plus
(3) an amount equal to the net reduction in
Investments (other than reductions in
Permitted Investments and Investments under
clause 11.2(b) (vi), (viii) or (xii)) in any
Person resulting from payments of interest
on Indebtedness, dividends, distributions,
repayments of loans or advances, or other
transfers of assets, in each case to the
Borrower or any Restricted Subsidiary or
from the Net Cash Proceeds from the sale or
other disposition of any such Investment
(except, in each case, to the extent of any
gain on such sale or other disposition that
would be included in the calculation of
Adjusted Consolidated Net Income for
purposes of paragraph (C)(l) above), or from
re-designations of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each
case as provided in the definition of
"Investments"), not to exceed, in each case,
the amount of Investments previously made by
the Borrower or any Restricted Subsidiary in
such Person or Unrestricted Subsidiary,
provided that the provisions of this clause 11.2(b)
shall not be violated by reason of:
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(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
foregoing provisions of clause 11.2(b);
(ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness
that is subordinated in right of payment to the Loan
or any Subsidiary Guarantee, including premiums, if
any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness
Incurred under clause 11.2(a)(iii) which is permitted
under this Agreement;
(iii) the repurchase, redemption or other acquisition of
Capital Stock of the Borrower or any Subsidiary of
the Borrower (or options, warrants or other rights to
acquire such Capital Stock) in exchange for, or out
of the proceeds of a capital contribution or a
substantially concurrent offering of, shares of
Capital Stock (other than Disqualified Stock) of the
Borrower (or options, warrants or other rights to
acquire such Capital Stock);
(iv) the making of any principal payment on or the
repurchase, redemption, retirement, defeasance or
other acquisition for value of Indebtedness of the
Borrower which is subordinated in right of payment to
the Loan in exchange for, or out of the proceeds of a
capital contribution or a substantially concurrent
offering of, shares of the Capital Stock (other than
Disqualified Stock) of the Borrower (or options,
warrants or other rights to acquire such Capital
Stock);
(v) payments or distributions to dissenting shareholders
pursuant to applicable law, pursuant to or in
connection with a consolidation, merger or transfer
of assets that complies with clauses 11.3 and 11.4;
(vi) any Investment in any Person the primary business of
which is related, ancillary or complementary to the
business of the Borrower and its Restricted
Subsidiaries on the date of such Investment; provided
that the aggregate amount of Investments made
pursuant to this paragraph (vi) does not exceed the
sum of:
a) $25 million, plus;
b) the amount of Net Cash Proceeds received by
the Borrower after the Closing Date as a
capital contribution or from the sale of its
Capital Stock (other than Disqualified
Stock) to a Person who is not a Subsidiary
of the Borrower, except to the extent such
Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause 11.2(a)(vii)
or to make Restricted Payments pursuant to
paragraph (C)(2) of this clause 11.2(b)
above or clauses 11.2(b)(iii), (iv) or (x);
plus
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c) the NET REDUCTION in Investments made
pursuant to this paragraph (vi) resulting
from distributions on or repayments of such
Investments or from the Net Cash Proceeds
from the sale or other disposition of any
such Investment (except in each case to the
extent of any gain on such sale or other
disposition that would be included in the
calculation of Adjusted Consolidated Net
Income for purposes of paragraph (C)(l) of
this clause 11.2(b) above) or from such
Person becoming a Restricted Subsidiary
(valued in each case as provided in the
definition of "INVESTMENTS"), provided that
the NET REDUCTION in any Investment shall
not exceed the amount of such Investment;
(vii) Investments acquired as a capital contribution to or
in exchange for Capital Stock (other than
Disqualified Stock) of the Borrower;
(viii) Investments in Permitted Joint Ventures not
exceeding, at the time of the Investment, the sum of:
a) $10 million; and
b) the NET REDUCTION in Investments made
pursuant to this paragraph (viii) resulting
from distributions on or repayments of such
Investments or from the Net Cash Proceeds
from the sale or other disposition of any
such Investment (except in each case to the
extent of any gain on such sale or
disposition that would be included in the
calculation of Adjusted Consolidated Net
Income for purposes of paragraph (C)(1) of
this clause 11.2(b) above) or from such
Person becoming a Restricted Subsidiary
(valued in each case as provided in the
definition of "Investments"), provided that
the NET REDUCTION in any Investment shall
not exceed the amount of such Investment;
(ix) repurchases of Warrants pursuant to a repurchase
offer or within ten days of their expiration in
accordance with the terms of the Warrant Agreements
in effect on the Closing Date, and any purchase of
any fractional shares of Common Stock (or other
Capital Stock of the Borrower issuable upon exercise
of the Warrants) in connection with an exercise of
the Warrants, and any payments in connection with the
anti-dilution provisions of the Warrant Agreements;
(x) the purchase, redemption, retirement or other
acquisition for value of shares of Capital Stock of
the Borrower or options, warrants or other rights to
purchase such shares held by Management Investors
upon death, disability, retirement, termination of
employment or pursuant to the terms of any
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agreement under which such shares of Capital Stock or
options, warrants or other rights were issued
provided that the aggregate consideration paid for
such purchase, redemption, retirement or other
acquisition for value of such shares or options,
warrants or other rights after the Closing Date does
not in the aggregate exceed:
a) $5 million; plus
b) the aggregate Net Cash Proceeds received by
the Borrower after the Closing Date as a
capital contribution from, or from the
issuance or sale to, Management Investors of
Capital Stock of the Borrower or any
options, warrants or other rights to acquire
such Capital Stock; plus
c) the proceeds of insurance policies used to
effect any such purchase, redemption,
retirement or other acquisition;
(xi) any purchase, redemption, retirement or other
acquisition of Capital Stock deemed to occur upon the
exercise of options, warrants or other rights if such
Capital Stock represents a portion of the exercise
price thereof; or
(xii) other Restricted Payments in an aggregate amount not
to exceed $5 million plus the net reduction in
Investments made pursuant to this paragraph (xii)
resulting from distributions on or repayments of such
Investments or from the Net Cash Proceeds from the
sale or other disposition of any such Investment
(except in each case to the extent of any gain on
such sale or disposition that would be included in
the calculation of Adjusted Consolidated Net Income
for purposes of paragraph (C)(1) of this clause
11.2(b) above) or from such Person becoming a
Restricted Subsidiary (valued in each case as
provided in the definition of "Investments"),
provided that the net reduction in any Investment
shall not exceed the amount of such Investment;
(c) it will not, and it will not permit any Restricted Subsidiary
to, 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:
(A) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of
such Restricted Subsidiary owned by the Borrower or
any other Restricted Subsidiary;
(B) pay any Indebtedness owed to the Borrower or any
other Restricted Subsidiary;
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(C) make loans or advances to the Borrower or any other
Restricted Subsidiary; or
(D) transfer any of its property or assets to the
Borrower or any other Restricted Subsidiary provided
that the foregoing provisions shall not restrict any
encumbrances or restrictions:
(i) existing on the Closing Date , including
under the Indentures, or any other
agreements or instruments in effect on the
Closing Date, and any refinancings of such
agreements or instruments; provided that the
encumbrances and restrictions in any such
refinancings are no less favourable in any
material respect to the Holders or the
Lenders than those encumbrances or
restrictions that are then in effect and
that are being refinanced;
(ii) existing under or by reason of applicable
law or any requirement of any applicable
governmental regulatory authority;
(iii) existing with respect to any Person, or any
property or assets, acquired by the Borrower
or any Restricted Subsidiary, existing at
the time of such acquisition and not
incurred in contemplation thereof, which
encumbrances or restrictions are not
applicable (A) in the case of an acquisition
of such Person, to any other Person or (B)
in the case of an acquisition of such
property or assets, any other property or
assets;
(iv) 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 of, or property and assets
of, such Restricted Subsidiary;
(v) contained in the terms of any Indebtedness
or any agreement pursuant to which such
Indebtedness was issued, or any agreement
relating to the sale, disposition or
financing of receivables, if (A) either (1)
the encumbrance or restriction applies only
in the event of a payment default or a
default with respect to a financial covenant
contained in the terms of such Indebtedness
or agreement or (2) the Borrower in good
faith determines (as set forth in a Board
Resolution) that any such encumbrance or
restriction will not materially affect the
Borrower's ability to make principal or
interest payments in respect of the Loan and
(B) the encumbrance or restriction is not
materially more disadvantageous to the
Lenders than is customary in comparable
financings (as determined by the Borrower in
good faith);
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(vi) restrictions on cash or other deposits or
net worth imposed by customers under
contracts entered into in the ordinary
course of business; or
(vii) customary provisions in joint venture
agreements and other similar agreements
entered into in the ordinary course of
business;
(Nothing in this clause 11.2(c) shall prevent the
Borrower or any Restricted Subsidiary from creating,
incurring, assuming or suffering to exist any Liens
otherwise permitted under clause 11.2(g) or
restricting the sale or other disposition of property
or assets of the Borrower or any of its Restricted
Subsidiaries that secure Indebtedness of the Borrower
or any of its Restricted Subsidiaries);
(d) it will not sell, and it will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any
shares of Capital Stock of a Restricted Subsidiary (including
options, warrants or other rights to purchase shares of such
Capital Stock) except:
(i) to the Borrower or a Wholly Owned Restricted
Subsidiary;
(ii) issuance of director's qualifying shares or issuance
or sales to foreign nationals of shares of Capital
Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law;
(iii) if, immediately after giving effect to such issuance
or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such
issuance or sale would have been permitted to be made
under clause 11.2(b) if made on the date of such
issuance or sale; or
(iv) issuance or sales of Common Stock of a Restricted
Subsidiary, provided that the Borrower or such
Restricted Subsidiary applies the Net Cash Proceeds,
if any, of any such sale in accordance with clause
11.2(j);
(e) it will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Borrower or
any Subsidiary Guarantor which is pari passu with or expressly
subordinate in right of payment to the Loan or any Subsidiary
Guarantee ("GUARANTEED INDEBTEDNESS"), unless:
(i) such Restricted Subsidiary simultaneously executes
and delivers a Subsidiary Guarantee together with all
the documents and evidence listed in schedule 6, in
form and substance satisfactory to the Agent; and
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(ii) such Restricted Subsidiary waives and will not in any
manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity
or subrogation or any other rights against the
Borrower or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee, until payment in full
of the outstanding principal amount of the Loan and
any accrued and unpaid interest thereon then due and
owing provided that this paragraph shall not be
applicable to any Guarantee of any Restricted
Subsidiary:
(A) that existed at the time such Person became
a Restricted Subsidiary and was not Incurred
in connection with, or in contemplation of,
such Person becoming a Restricted
Subsidiary; or
(B) of Indebtedness Incurred pursuant to clause
11.2(a)(i),
provided that if the Guaranteed Indebtedness is:
1) pari passu with the Loan, then the
Guarantee of such Guaranteed
Indebtedness shall be pari passu
with, or subordinated to, the
Subsidiary Guarantee; or
2) subordinated to the Loan, then the
Guarantee of such Guaranteed
Indebtedness shall be subordinated
to the Subsidiary Guarantee at
least to the extent that the
Guaranteed Indebtedness is
subordinated to the Loan,
provided that any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be
automatically and unconditionally released and discharged
upon:
A) any sale, exchange or transfer (including by way of
merger or consolidation), to any Person not an
Affiliate of the Borrower, of all the Borrower's and
each Restricted Subsidiary's Capital Stock in, or all
or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange, transfer or other
transaction is not prohibited by this Agreement);
B) the absolute and unconditional repayment of the Loan
and cancellation of the Commitments, subject to
customary contingent reinstatement provisions;
C) the release or discharge of the Guarantee which
resulted in the creation of the Subsidiary Guarantee,
except a discharge or release by or as a result of a
payment under such Guarantee; or
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D) upon the merger or consolidation of such Subsidiary
Guarantor with and into the Borrower or another
Subsidiary Guarantor that is the surviving Person in
such merger or consolidation;
(f) it will not, and it will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any
transaction (including the purchase, sale, lease or exchange
of property or assets, or the rendering of any service) with
any holder (or any Affiliate of such holder) of 5 per cent. or
more of any class of Capital Stock of the Borrower or with any
Affiliate of the Borrower or any Restricted Subsidiary, except
upon fair and reasonable terms that taken as a whole are no
less favourable to the Borrower or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if
such transaction is pursuant to a written agreement, at the
time of the execution of the agreement providing therefor, in
a comparable arm's-length transaction with a Person that is
not such a holder or an Affiliate provided that the foregoing
limitation does not limit, and shall not apply to:
(i) transactions (A) approved by a majority of the
disinterested members of the Board of Directors or
(B) for which the Borrower or a Restricted Subsidiary
delivers to the Agent a written opinion of a
nationally recognised investment banking or appraisal
firm stating that the transaction is fair to the
Borrower or such Restricted Subsidiary from a
financial point of view, or is upon terms that taken
as a whole are no less favourable to the Borrower or
such Restricted Subsidiary than could be obtained in
a comparable arm's-length transaction;
(ii) any transaction solely between or among the Borrower
and any of its Wholly Owned Restricted Subsidiaries
or solely between or among Wholly Owned Restricted
Subsidiaries;
(iii) the payment of reasonable and customary regular fees
to directors of the Borrower who are not employees of
the Borrower;
(iv) any payments or other transactions pursuant to any
tax-sharing agreement between the Borrower and any
other Person with which the Borrower files a
consolidated tax return or with which the Borrower is
part of a consolidated group for tax purposes;
(v) any Restricted Payments (or a transaction excluded
from the definition of the term "Restricted
Payments") not prohibited by clause 11.2(b);
(vi) transactions consisting of or pursuant to employment
or benefit agreements, plans, programs or
arrangements for or with, or indemnification or
contribution obligations to, employees, officers or
directors in the ordinary course of business;
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(vii) the entering into of the Securities Purchase and
Cancellation Agreement, the 1999 Share Option Plan,
the Securities Purchase Agreement, the Registration
Rights Agreement and the Securityholders' Agreement,
as described in the Offering Memorandum dated
February 12, 1999 as amended or supplemented, and
performance of the obligations and the transactions
contemplated thereby; or
(viii) issuances or sales of Capital Stock (other than
Disqualified Stock) of the Borrower or options,
warrants or other rights to acquire such Capital
Stock,
provided that notwithstanding the foregoing, any transaction
or series of related transactions covered by the first
paragraph of this clause 11.2(f) and not covered by paragraphs
(ii) through (viii), the aggregate amount of which exceeds $2
million in value, must be approved or determined to be fair in
the manner provided for in paragraph (i)(A) or (B) above;
(g) it will not, and it will not permit any Restricted Subsidiary
to, create, incur, assume or suffer to exist any Encumbrance
on any of its assets or properties of any character (including
licenses), or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision
for all of the Loan to be directly secured equally and
rateably with (or, if the obligation or liability to be
secured by such Encumbrance is expressly subordinated in right
of payment to the Loan prior to) the obligation or liability
secured by such Encumbrance provided that, subject to clause
11.2(h), the foregoing limitation does not apply to:
(i) Encumbrances existing on the Closing Date;
(ii) Encumbrances granted after the Closing Date on any
assets or Capital Stock of the Borrower or its
Restricted Subsidiaries created in favour of the
Lenders;
(iii) Encumbrances with respect to the assets of a
Restricted Subsidiary granted by such Restricted
Subsidiary to the Borrower or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to
the Borrower or such other Restricted Subsidiary;
(iv) Encumbrances securing Indebtedness which is permitted
to be Incurred under clause 11.2(a)(iii) to refinance
secured Indebtedness provided that such Encumbrances
do not extend to or cover any property or assets of
the Borrower or any Restricted Subsidiary other than
the property or assets securing the Indebtedness
being refinanced;
(v) Encumbrances on the Capital Stock of or any property
or assets of, a Restricted Subsidiary securing
Indebtedness of such
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Restricted Subsidiary (or obligations in respect
thereof) permitted under clause 11.2(a); or
(vi) Permitted Encumbrances;
(h) it will not, and it will not permit any Restricted Subsidiary,
to create, incur, assume or suffer to exist any Encumbrance on
any of the Equipment financed under this Agreement other than
where such Encumbrance is for the benefit of Lenders or arises
in the ordinary course of business or under operation of law;
(i) it will not, and it will not permit any Restricted Subsidiary
to, enter into any sale-leaseback transaction involving any of
its assets or properties whether now owned or hereafter
acquired, whereby the Borrower or a Restricted Subsidiary
sells or transfers such assets or properties more than one
year after acquiring such assets or properties and then or
thereafter leases such assets or properties or any part
thereof or any other assets or properties which the Borrower
or such Restricted Subsidiary, as the case may be, intends to
use for substantially the same purpose or purposes as the
assets or properties sold or transferred provided that the
foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including
renewal rights, of not in excess of three years; (ii) the
lease secures or relates to industrial revenue or pollution
control bonds; (iii) the transaction is solely between the
Borrower and any Wholly Owned Restricted Subsidiary or solely
between Wholly Owned Restricted Subsidiaries; or (iv) the
Borrower or such Restricted Subsidiary, within 12 months after
the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from
such sale in accordance with clause 11.2(j);
(j) it will not, and it will not permit any Restricted Subsidiary
to, consummate any Asset Sale, unless:
(i) the consideration received by the Borrower or such
Restricted Subsidiary (including any Released
Indebtedness and including by way of relief from or
by any other Person assuming responsibilities for any
liabilities other than Indebtedness ("RELEASED
LIABILITIES")) is at least equal to the fair market
value of the assets sold or disposed of provided that
this paragraph (i) shall not apply to any sale,
transfer or other disposition arising from
foreclosure, condemnation or similar action with
respect to any assets; and
(ii) at least 75 per cent. of the consideration received
(including any Released Indebtedness and Released
Liabilities) consists of cash, Temporary Cash
Investments or Released Indebtedness and Released
Liabilities provided, however, that this paragraph
(ii) shall not apply to long-term assignments in
capacity in a telecommunications network or other
transfers of indefeasible rights of use, multiple
investment units or dark fibres,
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provided that in the event and to the extent that the Net Cash
Proceeds received by the Borrower or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or
after the Closing Date in any period of 12 consecutive months
exceed 10 per cent. of Adjusted Consolidated Net Tangible
Assets (determined as of the date closest to the commencement
of such 12-month period for which a consolidated balance sheet
of the Borrower and its Subsidiaries has been filed with the
Commission and provided to the Agent), then the Borrower shall
or shall cause the relevant Restricted Subsidiary to:
(A) within 12 months after the date Net Cash
Proceeds so received exceed 10 per cent. of
Adjusted Consolidated Net Tangible Assets:
1) apply an amount equal to such
excess Net Cash Proceeds to
permanently repay unsubordinated
Indebtedness of the Borrower, or
any Restricted Subsidiary providing
a Subsidiary Guarantee or
Indebtedness of any other
Restricted Subsidiary, in each case
owing to a Person other than the
Borrower or any of its Restricted
Subsidiaries; or
2) invest an equal amount, or the
amount not so applied pursuant to
paragraph (1), (or enter into a
definitive agreement committing to
so invest within 12 months after
the date of such agreement) in
property or assets (other than
current assets) of a nature or type
or that are used in a business (or
in a company having property and
assets of a nature or type, or
engaged in a business) similar or
related to the nature or type of
the property and assets of, or the
business of, the Borrower and its
Restricted Subsidiaries existing on
the date of such investment (as
determined in good faith by the
Board of Directors, whose
determination shall be conclusive
and evidenced by a Board
Resolution); and
(B) apply (no later than the end of the 12-month
period referred to in paragraph (A)) such
excess Net Cash Proceeds (to the extent not
applied or committed to be applied pursuant
to paragraph (A)) in prepayment of the Loan
and clause 6.4 shall apply; and
(k) it will not and it will not permit any Obligor to, merge,
amalgamate or consolidate with any other Person unless it or
the relevant Obligor (as the case may be) is the continuing
Person or unless the continuing Person expressly assumes the
obligations of the Lenders of the merged entities provided
that such merger, amalgamation or consolidation shall only be
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permitted if it also complies with the provisions of clauses
11.3 and 11.4.
11.3 NO CONSOLIDATIONS ETC
An Obligor shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially
all of its property and assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions) to,
any Person or permit any Person to merge with or into an Obligor
unless:
(a) such Obligor shall be the continuing Person, or the Person (if
other than such Obligor) formed by such consolidation or into
which such Obligor is merged or that acquired or leased such
property and assets of the Borrower shall be a corporation
organised and validly existing under the laws of the Kingdom
of the Netherlands (including the Netherlands Antilles),
Bermuda, Canada, Switzerland, any member state of the European
Union or the United States of America or any jurisdiction
thereof and shall expressly assume, by deed of accessions (in
form and substance satisfactory to the Agent) all of the
obligations of such Obligor under or in respect of this
Agreement;
(b) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be
continuing;
(c) immediately after giving effect to such transaction on a pro
forma basis, such Obligor or any Person becoming the successor
obligor under or in respect of this Agreement shall have a
Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the relevant Obligor immediately
prior to such transaction provided that this paragraph (c)
shall only apply to a sale of less than all of the assets of
an Obligor;
(d) immediately after giving effect to such transaction on a pro
forma basis such Obligor, or any Person becoming the successor
obligor under or in respect of this Agreement and, as the case
may be, could incur at least $1.00 of indebtedness under the
first paragraph of clause 11.2(a) provided that this paragraph
(d) shall not apply to a consolidation, merger or sale of all
(but not less than all) of the assets of such Obligor if all
Encumbrances and Indebtedness of such or any Person becoming a
successor obligor under or in respect of this Agreement and
its Restricted Subsidiaries outstanding immediately after such
transaction would, if incurred at such time, have been
permitted to be incurred (and all such Encumbrances and
Indebtedness, other than Encumbrances and Indebtedness of such
Obligor and its Restricted Subsidiaries outstanding
immediately prior to the transaction, shall be deemed to have
been incurred) for all purposes of this Agreement; and
(e) the Borrower delivers to the Agent a Certificate (attaching
the arithmetic computations to demonstrate compliance with
paragraphs (c) and (d)) and Opinion of Counsel, in each case
to the effect that such
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consolidation, merger or transfer and any supplemental
agreement complies with this provision and that all conditions
precedent provided for in this paragraph relating to such
transaction have been complied with provided that:
(i) in giving any such opinion such Counsel may rely on
the Certificate as to compliance with the foregoing
paragraphs (b), (c) and (d) and as to any matters of
fact; and
(ii) paragraphs (c) and (d) above will not apply if, in
the good faith determination of the Board of
Directors of the relevant Obligor, whose
determination shall be evidenced by a Board
Resolution, the principal purpose of such transaction
is to change the jurisdiction of organisation of such
Obligor, and such transaction does not have as one of
its purposes the evasion of the foregoing
limitations.
11.4 CONSOLIDATIONS
Upon any consolidation or merger, or any sale, conveyance, transfer,
lease or other disposition of all or substantially all of the property
and assets of an Obligor in accordance with clause 11.3, the successor
Person formed by such consolidation or into which such Obligor is
merged or to which such sale, conveyance, transfer, lease or other
disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of, such Obligor under or in respect of
this Agreement with the same effect as if such successor Person had
been named as the Borrower herein or, as the case my be, an Obligor
provided that the Borrower shall not be released from its obligation to
pay the principal of or interest on the Loan in the case of a lease of
all or substantially all of its property and assets.
11.5 FURTHER RESTRICTIONS ON CONSOLIDATIONS
Notwithstanding any other provision of this Agreement, the Borrower
shall not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or
permit any Person to merge with or into an Obligor if following such
consolidation, merger, sale, conveyance, transfer, lease or disposal
the Person who is the successor obligor in respect of the Notes is not
the same as the Person who is the successor obligor in respect of the
Loan.
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12 EVENTS OF DEFAULT
12.1 EVENTS OF DEFAULT
Each of the events and circumstances set out below is an Event of
Default (whether or not caused by any reason outside of the control of
an Obligor):
(a) failure to pay any scheduled principal instalment sum due from
it under this Agreement in the currency, at the time or in the
manner stipulated in this Agreement;
(b) failure to pay any other amount which is due to be paid by way
of indemnity or by way of mandatory prepayment under this
Agreement, and such default continues for a period of 10
Banking Days;
(c) failure to pay interest or fees under this Agreement when the
same becomes due and payable, and such default continues for a
period of 10 Banking Days;
(d) default in the performance or breach of the provisions of
clause 11.3;
(e) default in the performance of or breaches any other covenant
or agreement in this Agreement (other than a default specified
in clause (a), (b) or (c) above) and such default or breach
continues for a period of 30 consecutive days after written
notice by the Agent;
(f) any representation or warranty made pursuant to clause 10
proving to be untrue when made in any material respect;
(g) there occurs with respect to any Borrowings of the Borrower or
any Significant Subsidiary having an outstanding principal
amount of $5 million or more in the aggregate (or, its
equivalent in any other currency) whether such Borrowings now
exists or shall hereafter be created:
(i) an event of default that has caused the relevant
Person to declare such Borrowings to be due and
payable prior to its Stated Maturity and such
Borrowings has not been discharged in full or such
acceleration has not been rescinded or annulled
within 30 days of such acceleration; and/or
(ii) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such
defaulted payment shall not have been made, waived or
extended within 30 days of such payment default;
(h) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate (or
its equivalent in any other currency) for all such final
judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered)
shall be rendered against the Borrower or any Significant
Subsidiary and shall not be paid or discharged, and there
shall be any
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period of 60 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 or
discharged against all such Persons to exceed $10 million
during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not
be in effect.
(i) a court having jurisdiction in the premises enters a
decree or order for:
(i) relief in respect of the Borrower or any Significant
Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar
law now or hereafter in effect;
(ii) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official
of the Borrower or any Significant Subsidiary or for
all or substantially all of the property and assets
of the Borrower or any Significant Subsidiary; or
(iii) the winding up or liquidation of the affairs of the
Borrower or any Significant Subsidiary and, in each
case, such decree or order shall remain unstayed and
in effect for a period of 30 consecutive days;
(j) the Borrower or any Significant Subsidiary:
(i) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any
such law;
(ii) consents to the appointment of or taking possession
by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the
Borrower or any Significant Subsidiary or for all or
substantially all of the property and assets of the
Borrower or any Significant Subsidiary; or
(iii) effects any general assignment for the benefit of
creditors;
(k) any Security Document shall cease to be in full force and
effect or enforceable in accordance with its terms, and the
Borrower has neither cured such defect nor prepaid the Advance
or Advances which were secured by such Security Document
within the period set out in clause 5.8(e); or
(l) the occurrence of an event or circumstance which has a
Material Adverse Effect.
12.2 ACCELERATION
The Agent may, and if so requested by the Majority Lenders shall,
without prejudice to any other rights of the Lenders, at any time after
the happening of an
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Event of Default so long as the same is continuing, unremedied or
unwaived by notice to the Borrower declare that:
(a) the obligation of each Lender to make its Commitment available
shall be terminated, whereupon the Total Commitments shall be
reduced to zero forthwith; and/or
(b) all of the Loan together with accrued interest and all other
amounts accrued under this Agreement have become immediately
due and payable or have become due and payable on demand,
whereupon the same shall, immediately or in accordance with
the terms of such notice, become so due and payable; and/or
(c) the Security Documents (or any of them) have become
enforceable whereupon the same shall be enforceable.
On or at any time after the making of any such declaration, the Agent
shall be entitled, to the exclusion of the Borrower (and without
prejudice to clause 5.3), to select the duration of each period for the
calculation of interest in relation to any outstanding Advances or
other sums payable under this Agreement.
12.3 DEMAND BASIS
If, pursuant to clause 12.2(b), the Agent declares all outstanding
Advances to be due and payable on demand then the Agent may (and, if so
instructed by the Majority Lenders, shall) at any time by written
notice to the Borrower:
(a) call for repayment of all of the Loan together with accrued
interest and all other amounts accrued under this Agreement on
such date as may be specified in such notice whereupon all of
the Loan together with accrued interest and all other amounts
accrued under this Agreement shall become due and payable on
the date so specified; or
(b) withdraw such declaration with effect from the date specified
in such notice.
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13 INDEMNITIES
13.1 MISCELLANEOUS INDEMNITIES
The Borrower shall on demand indemnify each Finance Party and, in the
case of (e) below, their respective officers, employees, agents and
delegates (together the "INDEMNIFIED PARTIES") in respect of which each
Finance Party holds this indemnity on trust, without prejudice to any
of their other rights under this Agreement and the Security Documents,
against any loss (including loss of Margin, in the case of (a) and (b)
below) or expense which such Finance Party or Indemnified Party shall
have sustained or incurred and shall have certified as sustained or
incurred by it as a consequence of:
(a) any default in payment by any Obligor of any sum under or
pursuant to this Agreement or any of the Security Documents
when due;
(b) the occurrence of any other Event of Default;
(c) any prepayment of all or part of any Advance or being made
otherwise than on any Interest Payment Date relative thereto
(provided that the Borrower shall not be obliged to indemnify
any Finance Party under this paragraph (c) for loss of
Margin); or
(d) any Advance not being made or issued for any reason (excluding
any default by the Agent or any Lender) after a Drawdown
Notice has been given; or
(e) any Environmental Claim made or asserted against such
Indemnified Party which would not have arisen if this
Agreement had not been executed and which was not caused by
the gross negligence or wilful default of the relevant Finance
Party or the relevant Indemnified Party of the relevant
Finance Party,
including, in the case of any Lender, in the case of (a) to (d) above,
but not limited to, any loss or expense sustained or incurred by such
Lender in maintaining or funding all or any part of its Contribution or
in liquidating or re-employing deposits from third parties acquired or
contracted for to fund all or any part of its Contribution or any other
amount owing to such Lender.
13.2 CURRENCY OF ACCOUNT; CURRENCY INDEMNITY
No payment by any Obligor under or pursuant to this Agreement which is
made in a currency other than the currency ("CONTRACTUAL CURRENCY") in
which such payment is required to be made pursuant to this Agreement
shall discharge the obligation in respect of which it is made except to
the extent of the net proceeds in the Contractual Currency received by
the Agent upon the sale of the currency so received, after taking into
account any premium and costs of exchange in connection with such sale.
For the avoidance of doubt the Finance Parties shall not be obliged to
accept any such payment in a currency other than the Contractual
Currency nor shall the Finance Parties be liable to any Obligor for
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any loss or alleged loss arising from fluctuations in exchange rates
between the date on which such payment is so received by the Agent and
the date on which the Agent effects such sale, as to which the Agent
shall (as against the relevant Obligor) have an absolute discretion. If
any sum due from any Obligor under this Agreement or any order or
judgment given or made in relation hereto is required to be converted
from the Contractual Currency or the currency in which the same is
payable under such order or judgment (the "FIRST CURRENCY") into
another currency (the "SECOND CURRENCY") for the purpose of (a) making
or filing a claim or proof against the relevant Obligor, (b) obtaining
an order or judgment in any court or other tribunal or (c) enforcing
any order or judgment given or made in relation to this Agreement, the
relevant Obligor shall indemnify and hold harmless the Finance Parties
from and against any loss suffered as a result of any difference
between (i) the rate of exchange used for such purpose to convert the
sum in question from the first currency into the second currency and
(ii) the rate or rates of exchange at which such Finance Party may in
the ordinary course of business purchase the first currency with the
second currency upon receipt of a sum paid to it in satisfaction, in
whole or in part, of any such order, judgment, claim or proof. Any
amount due from any Obligor under the indemnity contained in this
clause 13.2 shall be due as a separate debt and shall not be affected
by judgment being obtained for any other sums due under or in respect
of this Agreement and the term "RATE OF EXCHANGE" includes any premium
and costs of exchange payable in connection with the purchase of the
first currency with the second currency.
13.3 ECB RESERVE REQUIREMENTS
The Borrower agrees to indemnify on demand each Lender against any cost
or loss suffered by it as a result of complying with the reserve
requirements of the European Central Bank to the extent that such
requirements relate to its participation in the Facility and are not
recoverable by the Lender under clause 13.2.
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14 UNLAWFULNESS AND INCREASED COSTS; MITIGATION
14.1 UNLAWFULNESS
(a) For the avoidance of doubt, without prejudice to clause 16.3,
if it is or becomes contrary to any law or regulation for any
Lender to contribute to Advances or to maintain its Commitment
or fund its Contribution, such Lender shall promptly, through
the Agent, notify the Borrower whereupon:
(i) such Lender's Commitment shall be reduced to zero;
and
(ii) the Borrower shall be obliged to prepay the
Contribution of such Lender either:
(A) forthwith; or
(B) on a future specified date, as specified by
the Agent not being earlier than the latest
date permitted by the relevant law or
regulation.
(b) For the avoidance of doubt, without prejudice to clause 16.3,
if it is or becomes contrary to any law or regulation for the
Borrower to Incur or maintain Borrowings under this Agreement:
(i) the Lenders' Commitments shall be reduced to zero;
and
(ii) the Borrower shall be obliged to prepay the
Contribution of each Lender either:
(A) forthwith; or
(B) on a future specified date, as specified by
the Agent not being earlier than the latest
date permitted by the relevant law or
regulation.
(c) Any prepayment pursuant to this clause 14.1 shall be made
together with all amounts referred to in clause 6.4.
14.2 INCREASED COSTS
If any change in, or in the interpretation or application of, or the
introduction of, any law or any regulation, request or requirement of
any central bank or other fiscal, monetary or governmental authority
(whether or not having the force of law, but, if not having the force
of law, with which the relevant Lender or, as the case may be, its
Holding Company habitually complies), including (without limitation)
those relating to capital adequacy, liquidity, reserve assets, cash
ratio deposits and special deposits, and the result of such change or
introduction is to:
(a) subject any Lender to Taxes or change the basis of Taxation of
any Lender with respect to any payment under this Agreement
(other than
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Taxes or Taxation measured by or imposed upon the overall net
income of any Finance Party or any Lender's applicable lending
office, any franchise taxes, branch taxes, taxes on doing
business or taxes measured by or imposed upon the overall
capital or net worth of any Finance Party or any Lender's
applicable lending office in each case imposed: (i) by the
jurisdiction under the laws of which any Finance Party or any
Lender's applicable lending office is organised or is located,
or in which the principal executive office of any Finance
Party is located, or any nation within which such jurisdiction
is located or any political sub-division thereof; or (ii) by
reason of any connection between the jurisdiction imposing
such tax and any Finance Party or any Lender's applicable
lending office other than a connection arising solely from any
Finance Party having executed, delivered or performed its
obligations under, or received payment under or enforced, this
Agreement; and/or
(b) increase the cost to, or impose an additional cost on, any
Lender or its Holding Company in making or keeping available
all or part of such Lender's Commitment or maintaining or
funding all or part of such Lender's Contribution; and/or
(c) reduce the amount payable or the effective return to any
Lender under this Agreement; and/or
(d) reduce any Lender's or its Holding Company's rate of return on
its overall capital by reason of a change in the manner in
which it is required to allocate capital resources to such
Lender's obligations under this Agreement; and/or
(e) require any Lender or its Holding Company to make a payment or
forego a return calculated by reference to or on any amount
received or receivable by such Lender under this Agreement;
and/or
(f) require any Lender or its Holding Company to incur or sustain
a loss (including a loss of future potential profits) by
reason of being obliged to deduct all or part of such Lender's
Commitment or Contribution from its capital for regulatory
purposes,
then and in each such case (but subject to clause 14.3):
(i) such Lender shall notify the Borrower through the
Agent in writing of such event promptly upon its
becoming aware of the same; and
(ii) the Borrower shall on demand, made at any time
whether or not such Lender's Contribution has been
repaid, pay to the Agent for the account of such
Lender the amount which such Lender specifies (in a
certificate setting forth the basis of the
computation of such amount in reasonable detail but
not including any matters which such Lender or its
Holding Company regards as confidential) is required
to compensate such Lender and/or its
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Holding Company for such liability to Taxes,
increased or additional cost, reduction, payment,
forgone return or loss.
For the purposes of this clause 14.2 and clause 14.4 "HOLDING COMPANY"
means, in relation to a Lender, the Borrower or entity (if any) within
the consolidated supervision of which such Lender is included.
14.3 EXCEPTIONS
Nothing in clause 14.2 shall entitle any Lender to receive any amount
in respect of compensation for any such liability to Taxes, increased
or additional cost, reduction, payment, forgone return or loss to the
extent that the same:
(a) is taken into account in calculating the Additional Cost; or
(b) is the subject of an additional payment under clause 8.5; or
(c) arises as a consequence of (or of any law or regulation
implementing) (i) the proposals for international convergence
of capital measurement and capital standards published by the
Basle Committee on Banking Regulations and Supervisory
Practices in July 1988 and/or (ii) any applicable directive of
the European Union (in each case) unless it results from any
change in, or in the interpretation or application of, such
proposals or any such applicable directive (or any law or
regulation implementing the same) occurring after the date
hereof; or
(d) arises as a result of a breach by such Lender of any
regulation, request or requirement (which either (i) is in
existence at the date of this Agreement or (ii) which comes
into effect after the date of this Agreement and with which
such Lender would have complied if such regulation, request or
requirement was in effect on the date of this Agreement) of
any applicable central bank or other fiscal, monetary or other
authority (whether or not having the force of law); or
(e) arises by reason of such Lender's unreasonable delay in
notifying the Borrower through the Agent of its right to make
a demand under clause 14.2 after it has become aware of and is
able to ascertain the amount of its claim.
For the purposes of clause 14.3(c) the term "APPLICABLE DIRECTIVE"
means (exclusively) each of the Own Funds Directive (89/299/EEC of 17th
April 1989) and the Solvency Ratio Directive (89/647/EEC of 18th
December 1989).
14.4 MITIGATION
If circumstances arise which would, or would upon the giving of notice,
result in:
(a) the application of clause 5.6 in relation to any Lender;
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(b) the reduction of any Lender's Commitment to zero or the
Borrower being required to prepay any Lender's Contribution
pursuant to clause 14.1; or
(c) the Borrower being required to make a payment to any Lender to
compensate such Lender or its Holding Company for a liability
to Taxes, increased or additional cost, reduction, payment,
forgone return or loss pursuant to clause 14.2(ii);
then, without in any way limiting, reducing or otherwise qualifying the
obligations of the Obligors under clause 8 and this clause 14, such
Lender shall, in consultation with the Agent, take such reasonable
steps (and/or, in the case of clause 14.2(ii) and where the increased
or additional cost, reduction, payment, forgone return or loss is that
of its Holding Company, to procure that its Holding Company takes such
reasonable steps) as are open to it (or, as the case may be, its
Holding Company) to mitigate or remove such circumstances (including
(in the case of such Lender) the transfer of its rights and obligations
under this Agreement to another bank or financial institution
acceptable to the Borrower) unless the taking of such steps might (in
the opinion of such Lender) be prejudicial to such Lender (or, as the
case may be, its Holding Company) or be in conflict with such Lender's
(or, as the case may be, its Holding Company's) general banking
policies or involve such Lender (or, as the case may be, its Holding
Company) in any material expense or any material increased
administrative burden.
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15 SET-OFF AND PRO RATA PAYMENTS
15.1 SET-OFF
After an Event of Default (whilst such Event of Default is continuing)
each Obligor authorises each Finance Party to apply any credit balance
to which such Obligor is then entitled on any bank account of such
Obligor with such Finance Party at any of its branches in or towards
satisfaction of any sum then due and payable from such Obligor to such
Finance Party under this Agreement. For this purpose each Finance Party
is authorised to purchase with the moneys standing to the credit of
such account such other currencies as may be necessary to effect such
application. No Finance Party shall be obliged to exercise any right
given to it by this clause 15.1. Each Finance Party shall notify the
Agent and the relevant the Borrower (giving full details) forthwith
upon the exercise or purported exercise of any right of set-off and the
Agent shall inform the other Finance Parties.
15.2 PRO RATA PAYMENTS
(a) If at any time any Finance Party (the "RECOVERING LENDER")
receives or recovers any amount owing to it by any Obligor
under this Agreement by direct payment, set-off or in any
manner other than by payment through the Agent pursuant to
clause 8.1 or 8.10 (not being a payment received from a
Transferee of such Finance Party's Contribution or any other
payment of an amount due to the Recovering Lender for its sole
account pursuant to clauses 5.7, 7, 8.5, 13.1, 13.2, 14.1 or
14.2), the Recovering Lender shall, within two Banking Days of
such receipt or recovery (a "RELEVANT RECEIPT") notify the
Agent of the amount of the Relevant Receipt. If the Relevant
Receipt exceeds the amount which the Recovering Lender would
have received if the Relevant Receipt had been received by the
Agent and distributed pursuant to clause 8.1 or 8.10 (as the
case may be) then:
(i) within two Banking Days of demand by the Agent, the
Recovering Lender shall pay to the Agent an amount
equal (or equivalent) to the excess;
(ii) the Agent shall treat the excess amount so paid by
the Recovering Lender as if it were a payment made by
the relevant Obligor and shall distribute the same to
the Finance Parties (other than the Recovering
Lender) in accordance with clause 8.10; and
(iii) as between the relevant Obligor and the Recovering
Lender the excess amount so re-distributed shall be
treated as not having been paid but the obligations
of the relevant Obligor to the other Lenders shall,
to the extent of the amount so re-distributed to
them, be treated as discharged.
(b) If any part of the Relevant Receipt subsequently has to be
wholly or partly refunded by the Recovering Lender (whether to
a liquidator or
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otherwise) each Finance Party to which any part of such
Relevant Receipt was so re-distributed shall on request from
the Recovering Lender repay to the Recovering Lender such
Finance Party's pro rata share of the amount which has to be
refunded by the Recovering Lender.
(c) Each Finance Party shall on request supply to the Agent such
information as the Agent may from time to time request for the
purpose of this clause 15.2.
(d) Notwithstanding the foregoing provisions of this clause 15.2
no Recovering Lender shall be obliged to share any Relevant
Receipt which it receives or recovers pursuant to legal
proceedings taken by it to recover any sums owing to it under
this Agreement with any other party which has a legal right
to, but does not, either join in such proceedings or commence
and diligently pursue separate proceedings to enforce its
rights in the same or another court (unless the proceedings
instituted by the Recovering Lender are instituted by it
without prior notice having been given to such party through
the Agent).
15.3 NO RELEASE
For the avoidance of doubt it is hereby declared that failure by any
Recovering Lender to comply with the provisions of clause 15.2 shall
not release any other Recovering Lender from any of its obligations or
liabilities under clause 15.2.
15.4 NO CHARGE
The provisions of this clause 15 shall not, and shall not be construed
so as to, constitute a charge by a Finance Party over all or any part
of a sum received or recovered by it in the circumstances mentioned in
clause 15.2.
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16 ASSIGNMENT, SUBSTITUTION AND LENDING OFFICES
16.1 BENEFIT AND BURDEN
This Agreement shall be binding upon, and enure for the benefit of, the
Finance Parties and the Borrower and their respective successors.
16.2 NO ASSIGNMENT BY BORROWER
The Borrower shall not assign or otherwise transfer any of its rights
or obligations under this Agreement.
16.3 SUBSTITUTION
(a) If a Lender (a "TRANSFEROR LENDER") wishes to transfer all or
any part of its rights, benefits and obligations under this
Agreement it shall first give the Borrower at least 10
Business Days' notice (with copy to the Agent) of its
intention to do so and such notice shall identify the Person
to whom it intends to make such transfer (a "PROPOSED
TRANSFEREE").
(b) If, within 10 Business Days of the service of any notice
pursuant to clause 16.3(a), the Borrower has not served a
counter-notice on the Transferor Lender (with copy to the
Agent) objecting to the transfer expressly on the grounds that
the Proposed Transferee is not a reputable Qualifying Person
then the Proposed Transferee shall be deemed to be a reputable
Qualifying Person.
(c) Subject to clauses 16.2(a) and (b), a Transferor Lender may
transfer all or any part (being at least $5,000,000 and an
integral multiple of $500,000) of its rights, benefits and/or
obligations under this Agreement to a reputable Qualifying
Person (a "TRANSFEREE") provided that if immediately following
such transfer as a result of laws in force at the time of
transfer, the Transferee would be entitled to receive from the
Borrower in respect of such rights, benefits and obligations
transferred more than the Transferor Lender then the
Transferee will be entitled to receive any such amount only to
the extent that the Transferor would have been so entitled had
there been no transfer. Any such transfer shall be effected
upon not less than 5 Banking Days' prior notice by delivery to
the Agent of a duly completed Transfer Certificate duly
executed by the Transferor Lender and the Transferee. On the
Effective Date (as specified and defined in a Transfer
Certificate so executed and delivered) by virtue of the
counter-signature of the Transfer Certificate by the Agent
(for itself and the other parties to this Agreement):
(i) to the extent that in such Transfer Certificate the
Transferor Lenders seeks to transfer such obligations
and rights hereunder the existing parties to this
Agreement and the Transferor Lender shall be released
from their respective obligations towards one
another, other than the obligations outstanding from
the Obligors to the Transferor Lender, under this
Agreement ("DISCHARGED
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OBLIGATIONS") and their respective rights against one
another, other than the outstanding rights of the
Transferor Lender against the Obligors, under this
Agreement ("DISCHARGED RIGHTS") shall be cancelled
and the rights of the Transferor Lender against the
Obligors shall be assigned to the Transferee party to
the relevant transfer certificate (the "ASSIGNED
RIGHTS");
(ii) the Transferee party to the relevant Transfer
Certificate and the existing parties to this
Agreement (other than such Transferor Lender) shall
assume obligations towards each other which differ
from the discharged obligations only insofar as they
are owed to or assumed by such Transferee instead of
to or by such Transferor Lender; and
(iii) the Transferee party to the relevant Transfer
Certificate and the existing parties to this
Agreement and the Security Trust Deed (other than
such Transferor Lender) shall acquire rights against
each other which differ from the discharged rights
and the assigned rights only insofar as they are
exercisable by or against such Transferee instead of
by or against such Transferor Lender,
and, on such Effective Date, the Transferee shall pay to the
Agent for its own account a fee of L1,000. The Agent
shall promptly notify the Borrower of the receipt by it of any
Transfer Certificate and shall promptly deliver a copy of such
Transfer Certificate to the Borrower.
16.4 RELIANCE ON TRANSFER CERTIFICATE
The Finance Parties and the Borrower shall be fully entitled to rely on
any Transfer Certificate delivered to the Agent in accordance with the
foregoing provisions of this clause 16 which is complete and regular on
its face as regards its contents and purportedly signed on behalf of
the relevant Transferor Lender and the Transferee and none of the
Finance Parties or the Borrower shall have any liability or
responsibility to any party as a consequence of placing reliance on and
acting in accordance with any such Transfer Certificate if it proves to
be the case that the same was not authentic or duly authorised.
16.5 AUTHORISATION OF AGENT
Each party to this Agreement irrevocably authorises the Agent to
counter-sign each Transfer Certificate on its behalf for the purposes
of clause 16.3 without any further consent of, or consultation with,
any such party.
16.6 CONSTRUCTION OF CERTAIN REFERENCES
If any Lender assigns all or any part of its rights or transfers any
part of its rights, benefits and obligations as provided in clause 16.3
all relevant references in this Agreement to such Lender shall
thereafter be construed as a reference to such Lender and/or its
Transferee to the extent of their respective interests.
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16.7 LENDING OFFICES
Each Lender shall lend through its office at the address specified in
schedule 1 or, as the case may be, in any relevant Transfer Certificate
or through any other office of such Lender selected from time to time
by such Lender through which such Lender wishes to lend for the
purposes of this Agreement.
16.8 DISCLOSURE OF INFORMATION
(a) Save as permitted pursuant to the terms of this Agreement or
the relevant Security Document any information furnished to
any Finance Party pursuant to this Agreement or any Security
Document or in connection with the negotiation of this
Agreement to which any Obligor is a party to any Finance Party
shall be kept confidential by the recipient and the other
Finance Parties, save that the provisions of this clause 16.8
shall not apply:
(i) to any information already known to the recipient and
not furnished by or on behalf of an Obligor in
connection with the negotiation of this Agreement;
(ii) to any information subsequently received by the
recipient which it would otherwise be free to
disclose;
(iii) to any information which is or becomes public
knowledge otherwise than as a result of a breach by
any Person of this clause 16.8 or of any
confidentiality undertaking entered into pursuant to
clause 16.9; and
(iv) to any extent that the recipient is required to
disclose the same pursuant to any law or order of any
court or order or request of any governmental agency
with whose instructions the recipient habitually
complies, and has jurisdiction over the recipient
provided that the recipient shall give notice of such
disclosure to the Borrower as far in advance as
practicable.
(b) Each Obligor agrees that information provided to any Finance
Party under this Agreement or any Security Document may be
passed on by such Finance Party to the other Finance Parties,
subject to the provisions and requirements of this clause 16.8
and of clause 16.9.
16.9 CONFIDENTIALITY UNDERTAKING
Any Finance Party may disclose to a prospective Assignee or Transferee
or to any other Person who may propose entering into contractual
relations with such Finance Party in relation to this Agreement or any
Security Document any information referred to in clause 16.8 subject to
the prospective Transferee or other Person first entering into a
confidentiality undertaking with the Borrower in substantially the same
terms as clause 16.8 and this clause 16.9.
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16.10 RESTRICTIONS ON TRANSFERS
Where a Lender transfers part of its rights, benefits and obligations
pursuant to clause 16.3, that Lender must transfer equal fractions of
its Commitment and Contribution (if any) and, if at the time when such
transfer takes effect more than one Advance is outstanding, the
transfer of its Contribution shall take effect in respect of the same
fraction of each Advance. The Transfer Certificate relating to any such
transfer shall be completed accordingly.
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17 AGENT, SECURITY TRUSTEE AND REFERENCE BANK
17.1 APPOINTMENT OF AGENT
Each Lender irrevocably appoints the Agent as its agent for the
purposes of this Agreement and irrevocably authorises the Agent in such
capacity:
(a) to execute all documents as may be approved by the Majority
Lenders for execution by the Agent; and
(b) (whether or not by or through employees or agents) to take
such action on such Lender's behalf and to exercise such
rights, remedies, powers and discretions as are specifically
delegated to the Agent by this Agreement or, (as the case may
be) the Security Documents, together with such powers and
discretions as are reasonably incidental thereto (but subject
to any restrictions or limitations specified in this
Agreement). None of the Agent or the Security Trustee shall,
however, have any duties, obligations or liabilities (whether
fiduciary or otherwise) to the Lenders beyond those expressly
stated in this Agreement and/or the Security Documents.
Notwithstanding that the Agent and the Security Trustee may from time
to time be the same entity, the Agent and Security Trustee have entered
into this Agreement in their separate capacities as agent for the
Lenders under and pursuant to this Agreement and as security trustee
for the Beneficiaries (as defined in the Security Trust Deed) to hold
the security created or to be created by the Security Documents on the
terms set out in the Security Trust Deed. However, where this Agreement
provides for the Agent to communicate with or provide instructions to
the Security Trustee, while the Agent and the Security Trustee are the
same entity, it will not be necessary for there to be any such formal
communications or instructions notwithstanding that this Agreement
provides in certain cases for the same to be in writing.
17.2 AGENT'S ACTIONS
Any action taken by the Agent under or in relation to this Agreement
with requisite authority, or on the basis of appropriate instructions,
received from the Majority Lenders (or as otherwise duly authorised)
shall be binding on all the Lenders.
17.3 AGENT'S DUTIES
The Agent shall:
(a) promptly notify each Lender of the contents of each notice,
certificate or other document received by the Agent from any
Security Provider under or pursuant to any of the Finance
Documents;
(b) consult the Lenders as to whether and, if so, how a discretion
vested in the Agent is, either in any particular instance or
generally, to be exercised
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but so that this shall not prevent the Agent in exceptional
circumstances where time does not permit such consultation and
urgent action is required, from exercising its rights and
powers, or from instructing the Security Trustee to exercise
its rights and powers, to preserve the security constituted by
the Security Documents so long as the Agent promptly notifies
the Lenders subsequently of such exercise; and
(c) (subject to the other provisions of this clause 17) take such
action or, as the case may be, refrain from taking such action
with respect to the exercise of any of its rights, remedies,
powers and discretions as agent or security agent, as the
Majority Lenders may reasonably direct.
17.4 AGENT'S RIGHTS
The Agent may:
(a) in the exercise of any right, remedy, power or discretion in
relation to any matter, or in any context, not expressly
provided for by this Agreement, act or, as the case may be,
refrain from acting in accordance with the instructions of the
Majority Lenders, and shall be fully protected in so doing;
(b) unless and until it shall have received directions from the
Majority Lenders, take such action, or refrain from taking
such action in respect of a Default of which the Agent has
actual knowledge as it shall deem advisable in the best
interests of the Lenders (but shall not be obliged to do so);
(c) refrain from acting in accordance with any instructions of the
Majority Lenders to institute, or to instruct the Security
Trustee to institute any legal proceedings arising out of or
in connection with this Agreement and/or the Security
Documents until it and/or the Security Trustee has been
indemnified and/or secured to its satisfaction against any and
all costs, expenses or liabilities (including legal fees)
which it and/or the Security Trustee would or might incur as a
result;
(d) deem and treat (i) each Lender as the Person entitled to the
benefit of the Contribution of such Lender for all purposes of
this Agreement and the Security Documents unless and until a
Transfer Certificate shall have been filed with the Agent and
shall have become effective, and (ii) the office set opposite
the name of each Lender in schedule 1 or, as the case may be,
in any relevant Transfer Certificate as such Lender's lending
office unless and until a written notice of change of lending
office shall have been received by the Agent; and the Agent
may act upon any such notice unless and until the same is
superseded by a further such notice;
(e) rely as to matters of fact which might reasonably be expected
to be within the knowledge of any Security Provider upon a
certificate signed by any director of the relevant Security
Provider on behalf of such Security Provider; and
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(f) refrain from doing anything which would, or might in its
opinion, be contrary to any law or regulation of any
jurisdiction and may do anything which is in its opinion
necessary or desirable to comply with any such law or
regulation.
17.5 NO LIABILITY OF SECURITY TRUSTEE AND AGENT
None of the Security Trustee, the Agent or any of their respective
employees and agents shall:
(a) be obliged to request any certificate or opinion under clause
11.1 or any other provision of the Finance Documents or to
make any enquiry as to the use of the proceeds of the Facility
unless (in the case of the Agent) so required in writing by
any Lender, in which case the Agent shall promptly make the
appropriate request of the relevant Security Provider; or
(b) be obliged to make any enquiry as to any breach or default by
any Security Provider in the performance or observance of any
of the provisions of any Finance Document or as to the
existence of a Default unless (in the case of the Agent) the
Agent has actual knowledge thereof or has been notified in
writing thereof by a Lender, in which case the Agent shall
promptly notify the Lenders of the relevant event or
circumstance; or
(c) be obliged to enquire whether or not any representation or
warranty made by any Security Provider pursuant to any of the
Finance Documents is true; or
(d) be obliged to do anything (including disclosing any document
or information) which would, or might in its opinion, be
contrary to any law or regulation or be a breach of any duty
of confidentiality or otherwise be actionable or render it
liable to any Person; or
(e) be obliged to account to any Lender for any sum or the profit
element of any sum received by it for its own account; or
(f) be obliged to institute any legal proceedings arising out of
or in connection with, or otherwise take steps to enforce any
of the Finance Documents other than on the instructions of the
Majority Lenders; or
(g) be liable to any Lender for any action taken or omitted under
or in connection with any of the Finance Documents or the Loan
unless caused by its gross negligence or wilful misconduct.
For the purposes of this clause 17 neither the Agent, nor the Security
Trustee shall be treated as having actual knowledge of any matter of
which the corporate finance or any other division outside the agency or
loan administration department of the Person for the time being acting
as the Agent or the Security Trustee, as the case may be, may become
aware in the context of corporate
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finance, advisory or lending activities from time to time undertaken by
the Agent or the Security Trustee, as the case may be, for the Borrower
or any of its Subsidiaries or Associated Companies or any other Person
which may be a trade competitor of any of the Security Providers or may
otherwise have commercial interests similar to those of any of the
Security Providers.
17.6 NON-RELIANCE ON SECURITY TRUSTEE OR AGENT
Each Lender acknowledges, by virtue of its execution of this Agreement
or, as the case may be, a Transfer Certificate, that it has not relied
on any statement, opinion, forecast or other representation made by the
Security Trustee or the Agent to induce it to enter into this Agreement
and that it has made and will continue to make, without reliance on the
Agent or the Security Trustee and based on such documents as it
considers appropriate, its own appraisal of the creditworthiness of
each Security Provider and its own independent investigation of the
financial condition, prospects and affairs of each Security Provider in
connection with the making and continuation of the Loan under this
Agreement. None of the Security Trustee or the Agent shall have any
duty or responsibility, either initially or on a continuing basis, to
provide any Lender with any credit or other information with respect to
the Security Providers whether coming into its possession before the
making of any Advance or at any time or times thereafter, other than
(in the case of the Agent) as provided in clause 17.3(a).
17.7 NO RESPONSIBILITY ON SECURITY TRUSTEE OR AGENT FOR ANY SECURITY
PROVIDER'S PERFORMANCE
None of the Security Trustee or the Agent shall have any responsibility
or liability to any Lender:
(a) on account of the failure of any Security Provider to perform
its obligations under any Finance Document; or
(b) for the financial condition of any Security Provider; or
(c) for the completeness or accuracy of any statements,
representations or warranties in any Finance Document or any
document delivered under any Finance Document; or
(d) for the execution, effectiveness, adequacy, genuineness,
validity, enforceability or admissibility in evidence of any
of the Finance Documents or of any certificate, report or
other document executed or delivered under any of the Finance
Documents; or
(e) otherwise in connection with the Facility or its negotiation
or for acting (or, as the case may be, refraining from acting)
in accordance with the instructions of the Majority Lenders.
17.8 RELIANCE ON DOCUMENTS AND PROFESSIONAL ADVICE
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The Agent shall be entitled to rely on any communication, instrument or
document believed by it to be genuine and correct and to have been
signed or sent by the proper person and shall be entitled to rely as to
legal or other professional matters on opinions and statements of any
legal or other professional advisers selected or approved by it
(including those in the Agent's employment).
17.9 OTHER DEALINGS
The Agent may, without any liability to account to the Lenders, accept
deposits from, lend money to, and generally engage in any kind of
banking or other business with, and provide advisory or other services
to, any Security Provider or any of their respective Associated
Companies or any of the Lenders as if it were not the Agent, as the
case may be.
17.10 RIGHTS OF AGENT AND SECURITY TRUSTEE AS LENDER; NO PARTNERSHIP
With respect to its own Commitment and Contribution (if any) the Agent
and the Security Trustee shall have the same rights and powers under
this Agreement and the Security Documents as any other Lender and may
exercise the same as though it were not performing the duties and
functions delegated to it under this Agreement and/or the Security
Documents and the term "LENDERS" shall, unless the context clearly
otherwise indicates, include the Agent and the Security Trustee in its
individual capacity as a Lender. This Agreement shall not and shall not
be construed so as to constitute a partnership between the parties or
any of them.
17.11 AMENDMENTS; WAIVERS
(a) Subject to clause 17.11(b), the Agent may, with the consent of
the Majority Lenders (or if and to the extent expressly
authorised by the other provisions of this Agreement) and, if
so instructed by the Majority Lenders, shall (i) agree
amendments or modifications to this Agreement or any Security
Document with the Security Providers and/or (ii) vary or waive
breaches of, or defaults under, or otherwise excuse
performance of, any provision of any Finance Document by any
Security Provider. Any such action so authorised and effected
by the Agent shall be documented in such manner as the Agent
shall (with the approval of the Majority Lenders) determine,
shall be promptly notified to the Lenders by the Agent and
(without prejudice to the generality of clause 17.2) shall be
binding on all the Lenders.
(b) Except with the prior written consent of all the Lenders, the
Agent shall not have authority on behalf of the Lenders (A) to
agree with any Security Provider any amendment or modification
to any Finance Document or to grant waivers in respect of
breaches or defaults or to vary or excuse performance of or
under any Finance Document by any Security Provider, if the
effect of such amendment, modification, waiver, variation or
excuse would be to (i) reduce the Margin, (ii) postpone the
due date or reduce the amount of any reduction in
availability, any
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payment of principal, interest, commitment commission or other
amount payable by any Security Provider under any Finance
Document, (iii) change the currency in which any amount is
payable by any Security Provider under any Finance Document,
(iv) increase any Lender's Commitment, (v) extend the
Availability Period, (vi) change the definition of "Majority
Lenders" in clause 1.5, (vii) change any provision of any
Finance Document which requires the approval or consent of all
the Lenders such that the relevant approval or consent may be
given otherwise than with the sanction of all the Lenders,
(viii) change clauses 4.1 or 4.2, (ix) change the order of
distribution under clause 8.10, (x) change clause 15.2, (xi)
change this clause 17.11 or (B) release any Security Provider
or any of their respective assets from the security created by
any of the Security Documents unless such release is to permit
the disposal or other dealing with such Security Provider or
asset in accordance with the terms of the Finance Documents.
(c) For the purposes of this clause 17.11 it is expressly agreed
and acknowledged that the execution of any deed or instrument
pursuant to a further assurance provision in the Security
Documents shall not constitute an amendment or modification
to, or variation of, this Agreement or any of the Security
Documents.
17.12 REIMBURSEMENT AND INDEMNITY BY LENDERS
Each Lender shall reimburse the Agent (rateably in accordance with such
Lender's Commitment or Contribution), to the extent that the Agent is
not reimbursed by the Security Providers, for the costs, charges and
expenses incurred by the Agent in connection with the negotiation,
preparation and execution of the Finance Documents and/or in
contemplation of, or otherwise in connection with, the enforcement or
attempted enforcement of, or the preservation or attempted preservation
of any rights under, or in carrying out its duties under, any of the
Finance Documents including (in each case) the fees and expenses of
legal or other professional advisers. Each Lender shall on demand
indemnify the Agent (rateably in accordance with its Commitment or
Contribution) against all liabilities, damages, costs and claims
whatsoever incurred by the Agent in connection with the Finance
Documents or the performance of its duties under the Finance Documents
or any action taken or omitted by the Agent under any of the Finance
Documents, unless such liabilities, damages, costs or claims arise from
the Agent's own gross negligence or wilful misconduct.
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17.13 RETIREMENT OF AGENT
(a) Subject to clause 17.15, the Agent may retire from its
appointment as Agent under this Agreement having given to the
Borrower and each of the Lenders not less than 30 days' notice
of its intention to do so, provided that no such retirement
shall take effect unless there has been appointed by the
Lenders (with the consent of the Borrower pursuant to clause
17.15) as a successor agent:
(i) a Lender nominated by the Majority Lenders; or
(ii) failing such a nomination, any reputable and
experienced bank or financial institution with
offices in London nominated by the Agent.
Any corporation into which the Agent may be merged or
converted or any corporation with which the Agent may be
consolidated or any corporation resulting from any merger,
conversion, amalgamation, consolidation or other
reorganisation to which the Agent shall be a party shall, to
the extent permitted by applicable law, be the successor Agent
under this Agreement without the execution or filing of any
document or any further act on the part of any of the parties
to this Agreement, save that notice of any such merger,
conversion, amalgamation, consolidation or other
reorganisation shall forthwith be given to the parent and the
Lenders.
(b) Upon any such successor as aforesaid being appointed, the
retiring Agent shall be discharged from any further obligation
under this Agreement (but shall continue to have the benefit
of this clause 17 in respect of any action it has taken or
refrained from taking prior to such discharge) and its
successor and each of the other parties to this Agreement
shall have the same rights and obligations among themselves as
they would have had if such successor had been a party to this
Agreement in place of the retiring Agent. The retiring Agent
shall provide its successor with copies of such of its records
as its successor reasonably requires to carry out its
functions under this Agreement.
17.14 SECURITY TRUSTEE AS JOINT CREDITOR
(a) Each Finance Party and each Obligor agrees that the Security
Trustee shall be the joint creditor (together with the
relevant other Finance Party) of each and every payment
obligation of each Obligor towards each of the other Finance
Parties under the Finance Documents and that accordingly the
Security Trustee will have its own independent right to demand
payment by each Obligor in satisfaction of those obligations,
provided that it is expressly acknowledged that any discharge
of any payment obligation to the Security Trustee or the
relevant other Finance Party shall to the same extent
discharge the corresponding obligation owing to the other
party.
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(b) Without limiting or affecting the Security Trustee's right
against any Obligor (whether under this clause or under any
other provision of the Finance Documents) the Security Trustee
agrees with each other Finance Party (on a several and divided
basis) that it will not exercise its rights as joint creditor
with another Finance Party except with the prior written
consent of the relevant Finance Party. However, for the
avoidance of doubt, nothing in the previous sentence shall in
any way limit the Security Trustee's right to act in the
protection or preservation of rights under or to enforce any
Finance Document as contemplated by the relevant Finance
Document. Any amount recovered by the Security Trustee as a
result of the operation of this clause 17.14 shall be held for
the benefit of each Finance Party to be applied in accordance
with Security Trust Deed.
17.15 BORROWER CONSENT TO CHANGE OF AGENT
(a) If the Agent wishes to retire it must first give the Borrower
at least 10 Business Days' notice of its intention to do so
and such notice shall identify the Person (the "PROPOSED NEW
AGENT") whom it is proposed would be appointed as the new
Agent.
(b) Within 10 Business Days' of service of any notice pursuant to
clause 17.15(a), the Borrower may serve a counter-notice on
the Agent expressly withholding its consent to the appointment
of the Proposed New Agent as Agent (such consent not to be
unreasonably withheld).
(c) If the Borrower does not expressly withhold its consent within
the time period specified in clause 17.15(b) the Borrower
shall be deemed to have given its consent to the appointment
of the Proposed New Agent as Agent.
(d) It shall be deemed unreasonable for the Borrower to withhold
consent, inter alia:
(i) if the Proposed New Agent is a Lender or a Proposed
Transferee under clause 16.3 and the Borrower has
previously withheld its consent to the proposed
appointment of all other Lenders (other than a Lender
who is a Nortel Entity) or Proposed Transferees as
Agent; or
(ii) if:
(A) the Proposed New Agent is a Proposed
Transferee under clause 16.3 from a Nortel
Entity;
(B) such Nortel Entity is the only Lender;
(C) such Proposed Transferee has made it a
condition of transfer that the Proposed
Transferee (or one of its Affiliates) be
appointed Agent; and
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(D) the Agent, having made reasonable efforts,
is unable to procure a reasonable
alternative Person, other than such Proposed
Transferee, to act as Agent hereunder who
would be reasonably acceptable to the
Borrower, such Proposed Transferee and the
Transferor Lender.
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18 NOTICES AND OTHER MATTERS
18.1 NOTICES
Every notice, request, demand or other communication under this
Agreement shall:
(a) be in writing delivered personally or by first-class prepaid
letter (airmail if available) or telefax;
(b) be deemed to have been received, subject as otherwise provided
in this Agreement, in the case of a letter when delivered and,
in the case of a telefax, when a complete and legible copy is
received by the addressee (unless the date of despatch is not
a business day in the country of the addressee or the time of
despatch of any telefax is after the close of business in the
country of the addressee in which case it shall be deemed to
have been received at the opening of business on the next such
business day); and
(c) be sent:
(i) to the Borrower at:
Militarstrasse 36,
CH-8004,
Zurich
Switzerland
Attention: General Counsel/ Chief Financial Officer
Fax: 411 297 2601
(ii) to the Agent at:
Nortel Networks,
Loan Administration,
PO Box 833858
Richardson,
Texas
75083-3858
USA
Attention: Kimberley Poe/ Jacqueline Grace, Loan
Administration
Fax: 1 972 684 7687
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Tel: 1 972 684 3808
(iii) to each Lender: at its address specified in schedule
1 or in any relevant Transfer Certificate,
or to such other address or telefax number as is notified by
the relevant party to the other parties to this Agreement save
that a change of address of the Borrower or a Finance Party
need only be notified to the Agent and the Security Trustee.
18.2 NOTICES THROUGH THE AGENT
Every notice, request, demand or other communication under this
Agreement to be given by the Borrower to any other party shall be given
to the Agent for onward transmission as appropriate and to be given to
the Borrower (or any of them) shall (except as otherwise provided in
this Agreement) be given by the Agent.
18.3 NO IMPLIED WAIVERS, REMEDIES CUMULATIVE
No failure or delay on the part of any party hereto to exercise any
power, right or remedy under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise by any party hereto
of any power, right or remedy preclude any other or further exercise
thereof or the exercise of any other power, right or remedy. The
remedies provided in this Agreement are cumulative and are not
exclusive of any remedies provided by law.
18.4 ENGLISH TRANSLATIONS
All certificates, instruments and other documents to be delivered under
or supplied in connection with this Agreement shall be in the English
language or shall be accompanied by a certified English translation
upon which the Agent and the Lenders shall be entitled to rely.
18.5 COUNTERPARTS
This Agreement and each other Finance Document may be executed in any
number of counterparts and by the different parties on separate
counterparts, each of which when so executed and delivered shall be an
original, but all counterparts of the same Finance Document shall
together constitute one and the same instrument.
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19 GOVERNING LAW AND JURISDICTION
19.1 LAW
This Agreement shall be governed by English law.
19.2 SUBMISSION TO JURISDICTION
For the benefit of the Finance Parties the Borrower irrevocably agrees
that:
(a) the High Court of Justice in England is to have jurisdiction
for all purposes of, or in connection with, the Finance
Documents;
(b) it submits to the jurisdiction of the High Court of Justice in
England; and
(c) any Finance Party may also commence proceedings against the
Borrower in any jurisdiction where the Borrower may have
assets.
19.3 AGENT FOR SERVICE OF PROCESS
The Borrower irrevocably designates, appoints and empowers Carrier 1
U.K. Ltd to receive for it and on its behalf service of process issued
out of the High Court of Justice in England in relation to any claim
arising out of or in connection with the Finance Documents.
IN WITNESS whereof the parties to this Agreement have caused this Agreement to
be duly executed on the date first above written.
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SCHEDULE 1
THE LENDERS AND THEIR COMMITMENTS
NAME ADDRESS AND TELEFAX PERCENTAGE COMMITMENT
NUMBER
Nortel Networks PLC Westacott Way, Berkshire, 100 per cent.
SL6 3QH
01628 432884
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SCHEDULE 2
PART A
FORM OF DRAWDOWN NOTICE - SUPPLIER FINANCING
To: [Agent]
19
MULTI-CURRENCY FACILITY AGREEMENT
DATED _________________ 1999 (AS FROM TIME TO TIME AMENDED,
VARIED, EXTENDED, RESTATED, REFINANCED OR REPLACED, THE "AGREEMENT")
We refer to the Agreement and hereby give you notice that we wish to
draw down an Advance of [SPECIFY ONE OPTIONAL CURRENCY AND THE AMOUNT
OF SUCH OPTIONAL CURRENCY](1) on _______________19___ and select first
Interest Period in respect of the same to be ___ months. The funds
should be credited to [Nortel Account] in accordance with clauses
4.2(a) and 4.3(e) of the Agreement.
We confirm that:
(a) so far as we are aware, no event or circumstance has occurred
and is continuing which constitutes a Default; and
(b) the representations and warranties contained in clause 10.1 of
the Agreement to be repeated in accordance with clause 10.2 of
the Agreement are true and correct as at the date of this
notice as if made with respect to the facts and circumstances
existing at the date of this notice;
We attach copies of the documentation relating to this Advance as
required under clause 4.3 of the Agreement (the "RELEVANT
DOCUMENTATION"). We warrant that none of the Relevant Documentation has
supported any other Drawdown Notice made by us in respect of an Advance
which has not been repaid in full.
The Advance is to be used for the purpose of financing the acquisition
of Equipment by [SPECIFY NAME OF PURCHASER] (who is a [SPECIFY WHETHER
A SECURED PURCHASER OR AN UNSECURED PURCHASER] ) from [NAME NORTEL
ENTITY WHO IS THE SUPPLIER] under [DESCRIBE CONTRACT E.G. PARTIES/
DATE] in accordance with clause 4.2(a) of the Agreement[.
[The Margin applicable to this Advance pursuant to clause 5.8 of the
Agreement shall be [4] [5] per cent per annum.]
- ------------------------------------------------------------------------------
(1) If a drawdown in more than one currency is required then separate
Drawdown Notices will be required.
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Words and expressions defined in the Agreement shall have the same
meanings where used in this notice.
This Drawdown Notice shall be governed by English Law.
For and on behalf of
................................................
as Borrower
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PART B
FORM OF DRAWDOWN NOTICE - SUPPLIER RE-FINANCING
MULTI-CURRENCY FACILITY AGREEMENT
DATED _______________1999 (AS FROM TIME TO TIME AMENDED,
VARIED, EXTENDED, RESTATED, REFINANCED OR REPLACED, THE "AGREEMENT")
We refer to the Agreement and hereby give you notice that we wish to draw
down an Advance of
[SPECIFY ONE OPTIONAL CURRENCY AND THE AMOUNT OF SUCH OPTIONAL CURRENCY](1)
on ____________19___ and select first Interest Period in respect of the same
to be ____ months. The funds should be credited to [Account Name] in accordance
with clause 4.2(b) of the Agreement.
We confirm that:
(a) so far as we are aware, no event or circumstance has occurred and is
continuing which constitutes a Default; and
(b) the representations and warranties contained in clause 10.1 of the
Agreement to be repeated in accordance with clause 10.2 of the
Agreement are true and correct as at the date of this notice as if made
with respect to the facts and circumstances existing at the date of
this notice.
We attach copies of the documentation relating to this Advance as required under
clause 4.3 of the Agreement including a certified true copy of invoices relating
to this Advance (which were paid on the dates shown below) (the "RELEVANT
DOCUMENTATION"):
[LIST INVOICES AND PAYMENT DATES]
We warrant that none of the Relevant Documentation has supported any other
Drawdown Notice made by us in respect of an Advance which has not been repaid in
full.
The Advance is to be used for the purpose of re-financing the acquisition of
Equipment by [SPECIFY NAME OF PURCHASER] (who is a [SPECIFY WHETHER A SECURED
PURCHASER OR AN UNSECURED PURCHASER] ) from [NAME NORTEL ENTITY WHO IS THE
SUPPLIER] under [DESCRIBE CONTRACT E.G. PARTIES/ DATE] in accordance with clause
4.2(b) of the Agreement.
[The Margin applicable to this Advance pursuant to clause 5.8 of the Agreement
shall be [4] [5] per cent per annum.]
- ------------------------------------------------------------------------------
(1) If a drawdown in more than one currency is required then separate
Drawdown Notices will be required.
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Words and expressions defined in the Agreement shall have the same meanings
where used in this notice.
This Drawdown Notice shall be governed by English Law.
For and on behalf of
................................................
as Borrower
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PART C
FORM OF DRAWDOWN NOTICE - NON-SUPPLIER FINANCING
To: [Agent]
19
MULTI-CURRENCY FACILITY AGREEMENT
DATED ______________ 1999 (AS FROM TIME TO TIME AMENDED,
VARIED, EXTENDED, RESTATED, REFINANCED OR REPLACED, THE "AGREEMENT")
We refer to the Agreement and hereby give you notice that we wish to draw
down an Advance of
[SPECIFY ONE OPTIONAL CURRENCY AND THE AMOUNT OF SUCH OPTIONAL CURRENCY](1)
on ___________________19___ and select first Interest Period in respect of
the same to be ____ months. The funds should be credited to [SPECIFY ACCOUNT
DETAILS] in accordance with clause 4.2(c) of the Agreement.
We confirm that:
(a) so far as we are aware, no event or circumstance has occurred and is
continuing which constitutes a Default; and
(b) the representations and warranties contained in clause 10.1 of the
Agreement to be repeated in accordance with clause 10.2 of the
Agreement are true and correct as at the date of this notice as if made
with respect to the facts and circumstances existing at the date of
this notice.
We attach a certified true copy of invoices and other documentation as required
under clause 4.3 of the Agreement (the "RELEVANT DOCUMENTATION"). We warrant
that none of the Relevant Documentation has supported any other Drawdown Notice
made by us in respect of an Advance which has not been repaid in full.
The Advance is to be used for the purpose of financing the acquisition of
Equipment by [SPECIFY NAME OF PURCHASER] (who is a [SPECIFY WHETHER A SECURED
PURCHASER OR AN UNSECURED PURCHASER] ) from [NAME VENDOR] under [DESCRIBE
CONTRACT E.G. PARTIES/ DATE] in accordance with clause 4.2(c) of the Agreement[.
[The Margin applicable to this Advance pursuant to clause 5.8 of the Agreement
shall be [4] [5] per cent per annum.]
- ------------------------------------------------------------------------------
(1) If a drawdown in more than one currency is required then separate
Drawdown Notices will be required.
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Words and expressions defined in the Agreement shall have the same meanings
where used in this notice.
This Drawdown Notice shall be governed by English Law.
For and on behalf of
................................................
as Borrower
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PART D
FORM OF DRAWDOWN NOTICE - NON-SUPPLIER REFINANCING
MULTI-CURRENCY FACILITY AGREEMENT
DATED __________________ 1999 (AS FROM TIME TO TIME AMENDED,
VARIED, EXTENDED, RESTATED, REFINANCED OR REPLACED, THE "AGREEMENT")
We refer to the Agreement and hereby give you notice that we wish to draw
down an Advance of [SPECIFY ONE OPTIONAL CURRENCY AND THE AMOUNT OF SUCH
OPTIONAL CURRENCY](1) on ___________________19___ and select first Interest
Period in respect of the same to be ___ months. The funds should be credited to
[SPECIFY ACCOUNT DETAILS] in accordance with clause 4.2(d) of the Agreement.
We confirm that:
(a) so far as we are aware, no event or circumstance has occurred and is
continuing which constitutes a Default; and
(b) the representations and warranties contained in clause 10.1 of the
Agreement to be repeated in accordance with clause 10.2 of the
Agreement are true and correct as at the date of this notice as if made
with respect to the facts and circumstances existing at the date of
this notice.
We attach copies of the documentation relating to this Advance as required under
clause 4.3 of the Agreement including a certified true copy of invoices relating
to this Advance (which were paid on the dates shown below) as required under
clause 4.3 of the Agreement (the "RELEVANT DOCUMENTATION"):
[LIST INVOICES AND PAYMENT DATES]
We warrant that none of the Relevant Documentation has supported any other
Drawdown Notice made by us in respect of an Advance which has not been repaid in
full.
The Advance is to be used for the purpose of re-financing the acquisition of
Equipment by [SPECIFY NAME OF PURCHASER] (who is a [SPECIFY WHETHER A SECURED
PURCHASER OR AN UNSECURED PURCHASER] ) from [VENDOR] under [DESCRIBE CONTRACT
E.G. PARTIES/ DATE] in accordance with clause 4.2(b) of the Agreement.
[The Margin applicable to this Advance pursuant to clause 5.8 of the Agreement
shall be [4] [5] per cent per annum.]
- ------------------------------------------------------------------------------
(1) If a drawdown in more than one currency is required then separate
Drawdown Notices will be required.
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Words and expressions defined in the Agreement shall have the same meanings
where used in this notice.
This Drawdown Notice shall be governed by English Law.
For and on behalf of
................................................
as Borrower
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SCHEDULE 3
PART A - DOCUMENTS AND EVIDENCE REQUIRED
AS CONDITIONS PRECEDENT TO THE FIRST ADVANCE
(a) Copies, certified as true, complete and up-to-date copies by two
Officers of the certificate of incorporation and Memorandum and
Articles of Association (or equivalent constitutional documents) of the
Borrower.
(b) A copy, certified as a true copy by two Officers of resolutions of the
Board of Directors of the Borrower evidencing approval of this
Agreement and each Security Document to which it is a party (if any)
and authorising its appropriate officers to execute and deliver this
Agreement and each Security Document to which it is a party (if any)
and to give all notices and take all other action required by it under
this Agreement and each Security Document to which it is a party (if
any) including, in the case of the Borrower, Drawdown Notices.
(c) Copies, certified as true and complete (including all amendments and
supplements thereto) each Indenture and the Offering Memoranda.
(d) Copies, certified as true and complete (including all amendments and
supplements thereto) of each Warrant Agreement.
(e) Specimen signatures, authenticated by two Directors of the Borrower of
the persons authorised in the resolutions of the Board of Director
referred to in paragraph (b) above, together with originals of any
powers of attorney granted by the Borrower.
(f) The Business Plan.
(g) Copies, certified as true, complete and up-to-date by two Officers of
the Borrower of each of the documents mentioned in clause 11.2(f)(vii).
(h) An opinion of Norton Rose, solicitors to the Agent, dated no earlier
than the date of this Agreement.
(i) An opinion of Bonn & Schmitt, special legal advisers in Luxembourg to
the Finance Parties, dated no earlier than the date of this Agreement.
(j) A copy of the audited consolidated financial statements of the Borrower
and its Subsidiaries for the financial year ended 31 December 1998.
(k) A report from DDV Telecommunications & Media Consultants
(l) Each Pledge Agreement;
(m) The Fee Letter referred to in clause 7.1(a)
(n) Fees payable under clause 7.1(a).
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(o) All expenses owed to the Agent pursuant to clause 7.2(a).
(p) Copies, certified as true, complete and up-to-date copies by two
Officers of the Borrower of:
(i) each Material Agreement (save that in respect of Interconnect
Agreements, the conditions precedent shall only be those
listed in sub-paragraph (iii) below); and
(ii) each Licence in respect of the following Relevant
Jurisdictions:
(A) Germany;
(B) the United Kingdom;
(C) Austria;
(D) Belgium;
(E) Denmark;
(F) France;
(G) Ireland;
(H) Italy;
(I) Finland;
(J) Netherlands;
(K) Norway;
(L) Sweden; and
(M) Switzerland; and
(iii) each Interconnect Agreement in respect of the following
Relevant Jurisdictions:
(A) Germany;
(B) the United Kingdom;
(C) Austria;
(D) Belgium;
(E) France;
(F) Italy;
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(G) Netherlands;
(H) Sweden; and
(I) Switzerland.
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SCHEDULE 3
PART B - DOCUMENTS AND EVIDENCE UNDER CLAUSE 5.8(a)
(a) Copies, certified as true, complete and up-to-date copies by two
Officers relevant Purchaser of the Memorandum and Articles of
Association of the relevant Purchaser.
(b) Copies, certified as a true copy by two Officers of the Borrower, of
resolutions of the Board of Directors of the relevant Purchaser
evidencing approval of each Security Document to which it is a party
and authorising its appropriate officers to execute and deliver each
Security Document to which it is a party and to give all notices and
take all other action required by it under each Security Document to
which it is a party.
(c) Specimen signatures, authenticated by two Officers, of the persons
authorised in the resolutions of the Board of Directors referred to in
paragraph (b) above, together with originals of any powers of attorney
granted by the relevant Purchaser.
(d) Evidence (including but not limited to acceptance certificates)
reasonably satisfactory to the Agent that the relevant Purchaser has
unencumbered title to the relevant Equipment and that such Equipment
has been accepted under the relevant purchase contract.
(e) Security Documents in respect of the relevant Equipment executed by the
Purchaser.
(f) Security Trust Deed.
(g) An opinion of Norton Rose, solicitors to the Agent.
(h) An opinion of counsel in the Relevant Jurisdiction of the relevant
Purchaser.
(i) An opinion of counsel in the jurisdiction of the relevant Equipment if
the Equipment is to be located in a jurisdiction different to the
Relevant Jurisdiction of the Purchaser.
(j) Purchase Orders.
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SCHEDULE 4
CALCULATION OF ADDITIONAL COST
(THE ADDITIONAL COST SHALL BE CALCULATED AS IF NORTEL NETWORKS PLC WERE THE
ONLY LENDER)
1 The Additional Cost shall be calculated by the Agent in respect of each
period for which it falls to be calculated relating to an Advance in
accordance with the following formulae:
In relation to Sterling Advance:
CL + S(L - Z) = 0.01F
--------------------- = PER CENT. PER ANNUM
100 - (C + S)
In relation to each other Advance (if any):
0.01F
Y ----- = PER CENT. PER ANNUM
100
Where:
C = The amount required to be held as a non-interest
bearing cash ratio deposit with the Bank of England
expressed as a percentage of an eligible
institution's eligible liabilities (above any stated
minimum).
F = The amount of Sterling per (pound)1,000,000 of the
fee base of an authorised institution payable to the
Financial Services Authority per annum (disregarding
any minimum fee payable under the Fees Regulations).
L = The rate of interest per annum at which Sterling
deposits of an amount comparable to the relevant
Advance are offered by the Agent to leading banks in
the London Interbank Market at or about 11.00 a.m. on
the date of calculation for a period comparable to
the period for which the Additional Cost is to be
calculated.
S = The amount required to be placed as special deposits
with the Bank of England, expressed as a percentage
of an eligible institution's eligible liabilities
(above any stated minimum).
Y = The fraction of foreign currency liabilities taken
into account under the Fees Regulations in
calculating the fee base (disregarding any offset for
claims on non-resident offices).
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Z = The lower of L and the rate of interest per annum
paid by the Bank of England on special deposits at or
about 11.00 a.m. on the date of calculation.
2 For the purposes of calculating the Additional Cost:
(a) C, L, S and Z are included in the formula as numbers and not
as percentages, e.g. if C = 0.15 per cent. and L = 7 per cent.
CL is calculated as 0.15 x 7;
(b) the formula is applied on the first day of each period for
which it falls to be calculated (and the result shall apply
for the duration of such period);
(c) each amount is rounded up to the nearest four decimal places;
and
(d) if the formula produces a negative percentage, the percentage
shall be taken as zero.
3 If alternative or additional financial requirements are imposed by the
Bank of England, the Financial Services Authority or any other United
Kingdom governmental authority or agency which in the Agent's opinion
(after consultation with the Lenders) make the formulae (or either of
them) no longer appropriate, the Agent shall be entitled by notice to
the Borrower to stipulate such other formulae as shall be suitable to
apply in substitution for the formulae. Any such other formulae so
stipulated shall take effect in accordance with the terms of such
notice.
4 In this schedule 4:
"AUTHORISED" and "INSTITUTION" have the meanings given to those terms
in the Banking Act 1987;
"BANK OF ENGLAND ACT" means the Bank of England Act 1998;
"ELIGIBLE INSTITUTION" has the meaning given to that term in schedule 2
to the Bank of England Act;
"ELIGIBLE LIABILITIES" has the meaning given to that term in the Cash
Ratio Deposits (Eligible Liabilities) Order 1999 or the applicable
substitute order made under the Bank of England Act as is in force on
the date of application of the formula;
"FEE BASE" has the meaning given to that term in the Fees Regulations;
"FEES REGULATIONS" means the Banking Supervision (Fees) Regulations
1999 or the applicable substitute regulations made under the Bank of
England Act as are in force on the date of application of the formula;
and
"SPECIAL DEPOSITS" has the meaning given to that term by the Bank of
England on the date of application of the formula.
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SCHEDULE 5
FORM OF TRANSFER CERTIFICATE
LENDERS ARE ADVISED NOT TO EMPLOY TRANSFER CERTIFICATES WITHOUT FIRST ENSURING
THAT THE TRANSACTION COMPLIES WITH ALL APPLICABLE LAWS AND REGULATIONS,
INCLUDING THE FINANCIAL SERVICES ACT 1986 AND REGULATIONS MADE THEREUNDER.
To: [Agent]
Attention: ______________________19___
TRANSFER CERTIFICATE
This Transfer Certificate relates to an Agreement (as from time to time amended,
varied, extended, restated, refinanced or replaced, the "AGREEMENT") dated
_________________1999 between ________________. Terms defined in the Agreement
shall have the same meaning in this Transfer Certificate.
1 [NAME OF TRANSFEROR LENDER] (the "TRANSFEROR LENDER") (a) confirms the
accuracy of the summary of its Commitment and Contribution set out in
the schedule to this Transfer Certificate; and (b) requests [TRANSFEREE
LENDER] (the "TRANSFEREE") to accept by way of assignment and transfer
the portion of its Commitment and Contribution specified in the
schedule to this Transfer Certificate by counter-signing and delivering
this Transfer Certificate to the Agent at its address for the service
of notices specified in the Agreement.
2 The Transferee requests the Agent (on behalf of itself and the other
parties to the Agreement) to accept this Transfer Certificate as being
delivered to the Agent pursuant to and for the purposes of clause 16.3
of the Agreement, so as to take effect in accordance with its terms on
[DATE OF TRANSFER], (the "EFFECTIVE DATE").
3 The Agent (on behalf of itself and the other parties to the Agreement)
confirms the assignment and transfer effected by this Transfer
Certificate pursuant to and for the purposes of clause 16.3 of the
Agreement.
4 The Transferee confirms:
(a) that it has received a copy of the Agreement and all the
Security Documents and other documentation and information
required by it in connection with the transactions
contemplated by this Transfer Certificate;
(b) that it has made its own assessment of the execution,
effectiveness, adequacy, genuineness, validity, enforceability
and admissibility in evidence of the Agreement, the Security
Documents and this Transfer
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Certificate and has not relied and will not rely on the
Transferor Lender or any statements made by the Transferor
Lender in that respect;
(c) that it has made and will continue to make its own appraisal
of the creditworthiness of the Security Providers and its own
independent investigation of the financial condition,
prospects and affairs of the Security Providers and has not
relied and will not rely on the Transferor Lender, the Agent,
the Security Trustee or any other Lender or any statement,
opinion, forecast or other representation made by the
Transferor Lender, the Agent, the Security Trustee or any
other Lender in that respect;
(d) accordingly, none of the Transferor Lender, the Agent, the
Security Trustee or any other Lender shall have no liability
or responsibility to the Transferee in respect of any of the
foregoing matters[; and]
(e) it is a Qualifying Person.
5 Execution of this Transfer Certificate by the Transferee constitutes
its representation to the Transferor Lender and all other parties to
the Agreement and the Security Trust Deed that it has power to become
party to the Agreement and the Security Trust Deed as a Lender on the
terms herein and therein set out and has taken all necessary steps to
authorise execution and delivery of this Transfer Certificate.
6 The Transferee acknowledges that the Transferor Lender has no
obligation to repurchase or re-acquire any of the rights and
obligations assigned or transferred by virtue of this Transfer
Certificate or to support, indemnify or compensate the Transferee for
any losses suffered by the Transferee as a consequence of the novation
effected by virtue of this Transfer Certificate.
7 The Transferee hereby undertakes to the Transferor Lender, the Security
Providers, the Security Trustee and the Agent that it will perform in
accordance with their terms all those obligations which by the
respective terms of the Agreement will be assumed by it after
acceptance of this Transfer Certificate by the Agent.
8 This Transfer Certificate is governed by English law.
NOTE: THIS TRANSFER CERTIFICATE IS NOT A SECURITY, BOND, NOTE, DEBENTURE,
INVESTMENT OR SIMILAR INSTRUMENT.
AS WITNESS the hands of the authorised signatories of the parties hereto on the
date appearing below.
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<TABLE>
<CAPTION>
THE SCHEDULE
DOLLAR AMOUNT
AMOUNT OF SECURED/ NEXT INTEREST PORTION OF COMMITMENT PORTION
ADVANCE UNSECURED ADVANCE PAYMENT DATE TRANSFERRED $ TRANSFERRED $
- ------- ----------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
ADMINISTRATIVE DETAILS OF TRANSFEREE
Lending office:
Account for payments:
Telephone:
Telefax:
Attention:
[TRANSFEROR LENDER] [TRANSFEREE]
By: By:
Date: Date:
The Agent
By:
on its own behalf
and on behalf of the other parties to the Agreement
Date:
]
134
<PAGE>
SCHEDULE 6
DOCUMENTS AND EVIDENCE TO BE DELIVERED BY A SUBSIDIARY GUARANTOR
(a) A Subsidiary Guarantee duly executed by the Subsidiary
Guarantor and the Borrower.
(b) A copy of the constitutional documents of each of the
Subsidiary Guarantor.
(c) A copy of a resolution of the board of directors of each of
the Subsidiary Guarantor approving the terms of, and the
transactions contemplated by, the Subsidiary Guarantee and
authorising its Authorised Officers to execute and deliver the
Subsidiary Guarantee and give all notices and take all other
action required by it under the Finance Documents to which it
is party;
(d) A certificate of a director of the Subsidiary Guarantor
certifying that the amounts to be guaranteed by the Subsidiary
Guarantor would not cause any guaranteeing limit binding on it
to be exceeded.
(e) A specimen of the signature of each person authorised by a
resolution referred to in paragraph (c) above.
(f) A legal opinion of English legal advisers, acceptable to the
Agent, addressed to Agent and to the Security Trustee on
behalf of the Finance Parties.
(g) If the Subsidiary Guarantor is incorporated in a jurisdiction
outside England, a legal opinion of legal advisers, acceptable
to the Agent, in the jurisdiction of incorporation of the
Subsidiary Guarantor (as appropriate), addressed to the Agent
and to the Security Trustee on behalf of the Finance Parties.
(h) A certificate of an Authorised Officer of the Subsidiary
Guarantor certifying that each copy document specified in this
schedule 6 and relating to it is correct, complete and in full
force and effect as at a date no earlier than the date of the
Subsidiary Guarantee.
(i) A certificate of an Authorised Officer of the Borrower
confirming that its constitutional documents have not been
amended (or, if they have, enclosing a copy of the amended
constitutional documents) and that all authorisations and
resolutions authorising its appropriate officers to execute
and deliver the Subsidiary Guarantee remain in full force and
effect.
(j) Any other documents as the Agent may reasonably require after
taking the advice of the legal advisers referred to in
paragraphs (g) and (h) above.
135
<PAGE>
SCHEDULE 7
AGENT'S LETTER
[Headed paper of Agent]
To: [The Borrower]
Dear Sirs,
REQUEST TO DESIGNATE A PURCHASER AS A SECURED PURCHASER
You have indicated to us that you intend to make a Drawdown Request relative to
[IDENTIFY NAME OF PURCHASER] within the next two Banking Days.
Based on the information and documentation you have supplied to us, we confirm
that for the purposes of clause 5.8(c) of the Loan Agreement, such Purchaser
shall be designated a Secured Purchaser.
This letter shall be governed by English law.
Yours faithfully
.............................
(for the Agent)
136
<PAGE>
BORROWER
SIGNED for and on behalf of ) /s/ TERJE NORDAHL,
CARRIER I INTERNATIONAL ) ------------------------
S.A. ) CHIEF OPERATING OFFICER
/s/ KEES VAN OPHEM
------------------------
VICE PRESIDENT
& GENERAL COUNSEL
LENDERS
SIGNED for and on behalf of ) /s/ IAIN J MORGAN
NORTEL NETWORKS ) ------------------------
PLC. )
AGENT
SIGNED for and on behalf of ) /s/ IAIN J MORGAN
NORTEL NETWORKS ) ------------------------
INC. )
137
<PAGE>
Exhibit 5.1
[LETTERHEAD OF DEBEVOISE & PLIMPTON]
June 25, 1999
Carrier1 International S.A.
Route d'Arlon 3
L-8009 Strassen
Luxembourg
Registration Statement on Form S-4
of Carrier1 International S.A.
(Registration No. 333-75195)
--------------------------------------
Ladies and Gentlemen:
We have acted as special New York counsel to Carrier1 International
S.A., a societe anonyme organized under the laws of the Grand Duchy of
Luxembourg ("Carrier1"), in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), of a Registration Statement on Form S-4 (as
amended to the date hereof, the "Registration Statement"), which includes a
Prospectus (the "Prospectus") relating to the proposed offering of (i)
$160,000,000 aggregate principal amount of Carrier1's 13 1/4% Senior Dollar
Notes Due 2009 (such Dollar Notes collectively, the "New Dollar Notes") , which
are to be registered under the Act pursuant to the Registration Statement, in
exchange for an equal principal amount of Carrier1's outstanding 13 1/4% Senior
Dollar Notes Due 2009 (the "Existing Dollar Notes") and (II) [Euro]85,000,000
aggregate principal amount of Carrier1's 13 1/4% Senior Euro Notes Due 2009 of
Carrier1 (such Euro Notes collectively, the "New Euro Notes," and together with
the New Dollar Notes, the "New Notes") which are to be registered under the Act
pursuant to the Registration Statement, in exchange for an equal principal
amount of Carrier1's outstanding 13 1/4% Senior Euro Notes Due 2009 (the
"Existing Euro Notes" and, together with the Existing Dollar Notes, the
"Existing Notes"). The New Dollar Notes are to be issued pursuant to the Dollar
Notes Indenture, dated as of February 19, 1999 (the "Dollar Notes Indenture"),
between Carrier1 and The Chase Manhattan Bank, as trustee (the "Dollar Notes
Trustee"). The New Euro Notes are to be issued pursuant to the Euro Notes
Indenture, dated as of February 19, 1999 (the "Euro Notes Indenture" and, each
of the Dollar Notes Indenture and the Euro Notes Indenture, an "Indenture"),
between Carrier1 and The Chase Manhattan Bank, as trustee (the "Euro Notes
Trustee" and, each of the Dollar Notes Trustee and the Euro Notes Trustee, a
"Trustee").
<PAGE>
Carrier1 International S.A. - 2 - June 25, 1999
In so acting as special New York counsel to Carrier1, we have examined
and relied upon the originals, or copies certified or otherwise identified to
our satisfaction, of such corporate records, documents, certificates and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below. In all such examinations, we have assumed
without investigation the legal capacity of all natural persons executing
documents, the genuineness of all signatures on original or certified copies,
the authenticity of all original or certified copies and the conformity to
original or certified documents of all copies submitted to us as conformed or
reproduction copies. We have relied as to factual matters upon, and have assumed
the accuracy of, representations, statements and certificates of or from public
officials and of or from officers and representatives of Carrier1 and others.
With your permission, for purposes of the opinion expressed herein, we have
assumed that (I) each Trustee is and has been duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, (II)
each Trustee had and has the power and authority to enter into and perform, and
has duly authorized, executed and delivered, each Indenture, (III) each
Indenture is valid, binding and enforceable with respect to the Trustee, (IV)
the New Notes will be duly authenticated by the applicable Trustee in the manner
provided in each Indenture and (V) insofar as any obligation under either
Indenture or the New Notes is to be performed in, or by a party organized
under the laws of, any jurisdiction outside the United States of America, its
performance will not be illegal or ineffective in any such jurisdiction by
virtue of the law of that jurisdiction.
Based on the foregoing, and subject to the further qualifications set
forth below, we are of the opinion that:
Upon the execution and issuance of the New Notes by Carrier1 and
authentication of the New Notes by the applicable Trustee in accordance with
the applicable Indenture and delivery of the New Notes against exchange
therefor of the Existing Notes pursuant to the exchange offer described in
the Registration Statement, the New Notes will be valid and binding
obligations of Carrier1, enforceable against Carrier1 in accordance with
their terms.
The foregoing opinion is limited by and subject to the effects of (I)
bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer,
reorganization or moratorium laws or other similar laws relating to or affecting
enforcement of creditors' rights or remedies generally and (II) general
principles of equity (whether such principles are considered in a proceeding at
law or equity), including the discretion of the court before which any
proceeding may be brought, concepts of good faith, reasonableness and fair
dealing, and standards of materiality.
We express no opinion as to the effect of any Federal or state laws
regarding fraudulent transfers or conveyances. We express no opinion as to the
laws of any jurisdiction other than the Federal laws of the United States and
the laws of the State of New York, as currently in effect. In particular (and
without limiting the generality of the
<PAGE>
Carrier1 International S.A. - 3 - June 25, 1999
foregoing) we express no opinion concerning (I) the laws of any country
(other than such laws of the United States of America) or as to the effect of
such laws (whether limiting, prohibitive or otherwise) on any of the rights
or obligations of any of Carrier1 and the holders of the New Notes, or any
other party to or beneficiary of any of either Indenture and the New Notes,
or (II) the effect, if any, of any law of any jurisdiction (except the State
of New York) in which any holder of any New Note is located that limits the
rate of interest that such holder may charge or collect. We express no
opinion whether a United States Federal court would accept jurisdiction in
any dispute, action, suit or proceeding arising out of or relating to the New
Notes or either Indenture or the transactions contemplated thereby. In
rendering the opinion expressed herein, we have, with your approval, relied
without independent investigation as to all matters governed by or involving
conclusions under the laws of the Grand Duchy of Luxembourg upon the opinion
(including the qualifications, assumptions and limitations expressed therein)
of Bonn & Schmitt, special Luxembourg counsel to Carrier1, of even date
herewith, addressed to you and filed as an exhibit to the Registration
Statement.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not hereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
<PAGE>
Exhibit 5.2
[Letterhead of Bonn & Schmitt]
CARRIER1 INTERNATIONAL S.A
3 route d'Arlon
L-8009 LUXEMBOURG
June 25, 1999
RE.: REGISTRATION STATEMENT ON FORM S-4
OF CARRIER1 INTERNATIONAL S.A. ("CARRIER1")
(REGISTRATION NO. 333-75195)
Ladies and Gentlemen:
We have acted as special Luxembourg counsel to Carrier1 International
S.A., a SOCIETE ANONYME organized under the laws of the Grand Duchy of
Luxembourg ("Carrier1"), in connection with the preparation and filing with
the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), of a Registration Statement
on Form S-4 (as amended to the date hereof, the "Registration Statement"),
which includes a Prospectus (the "Prospectus") relating to the proposed
offering of (i) $160,000,000 aggregate principal amount of Carrier1's 13 1/4%
Senior Dollar Notes Due 2009 (such Dollar Notes collectively, the "New Dollar
Notes"), which are to be registered under the Act pursuant to the
Registration Statement, in exchange for an equal principal amount of
Carrier1's outstanding 13 1/4% Senior Dollar Notes Due 2009 (the "Existing
Dollar Notes") and (ii) 85,000,000 aggregate principal amount of Carrier1's
13 1/4% Senior Euro Notes Due 2009 of Carrier1 (such Euro Notes collectively,
the "New Euro Notes," and together with the New Dollar Notes, the "New
Notes") which are to be registered under the Act pursuant to the Registration
Statement, in Exchange for an equal principal amount of Carrier1's outstanding
13 1/4% Senior Euro
<PAGE>
Notes Due 2009 (the "Existing Euro Notes" and, together with the Existing
Dollar Notes, the "Existing Notes"). The New Dollar Notes are to be issued
pursuant to the Dollar Notes Indenture, dated as of February 19, 1999 (the
"Dollar Notes Indenture"), between Carrier1 and The Chase Manhattan Bank, as
trustee (the "Dollar Notes Trustee"). The New Euro Notes are to be issued
pursuant to the Euro Notes Indenture, dated as of February 19, 1999 (the
"Euro Notes Indenture" and, each of the Dollar Notes Indenture and the Euro
Notes Indenture, an "Indenture"), between Carrier1 and The Chase Manhattan
Bank, as trustee (the "Euro Notes Trustee" and, each of the Dollar Notes
Trustee and the Euro Notes Trustee, a "Trustee").
Words not otherwise defined herein shall the meaning ascribed to them in
the Indentures.
We have examined the following:
1. the Indentures;
2. resolutions adopted at a meeting of the Board of Directors of
Carrier1 held on February 11, 1999;
3. the articles of incorporation of Carrier1; and
4. such other documents as we have deemed necessary.
The Indentures and the New Notes are together referred to as the "Issue
Documents".
For the purposes of this opinion, we have assumed:
(a) that the execution, delivery and performance of the Issue Documents
are within the corporate power and authority of the parties thereto,
other than Carrier1, and that these Issue Documents have been duly
authorized, executed and delivered by, and are binding upon, all
such parties, other than Carrier1;
2
<PAGE>
(b) that the New Notes will be duly authenticated by the relevant Trustee
in the manner provided in the applicable Indenture;
(c) the genuineness of all signatures on all documents and the
completeness, and the conformity to original documents, of all copies
submitted to us;
(d) that all authorizations and consents of any public authority of any
country other than the Grand-Duchy of Luxembourg which may be
required in connection with the execution, delivery and performance
of the Indentures and the issuance of the New Notes have been or will
be obtained;
(e) that the documents are substantially in the form of the drafts or
copies we have examined; and
(f) the legality, validity and enforceability of the Issue Documents
under their governing laws (other than the laws of Luxembourg).
On the basis of the foregoing and subject to the limitations,
qualifications and assumptions set forth herein, we are, as of the date
hereof, of the opinion that:
(i) Carrier1 has been duly incorporated and is validly existing under
the laws of Luxembourg;
(ii) Carrier1 had and has the corporate power and authority to execute,
deliver and perform its obligations under the Issue Documents;
(iii) Each Indenture has been duly authorized, executed and delivered by
Carrier1;
(iv) Carrier1 has taken all necessary corporate action to duly
authorize its execution, issuance and delivery of the New Notes
pursuant to the exchange offer described in the Registration
Statement; and
3
<PAGE>
(v) No Luxembourg governmental authorization is required to effect
payments of principal, premium, if any, and interest (including any
Additional Amounts due and payable thereon) on the New Notes.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not hereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.
This opinion is strictly limited to the matters of Luxembourg law stated
herein and is not to be read as extending by implication to any other matters.
This opinion is governed by Luxembourg law and the Luxembourg courts have
exclusive jurisdiction in respect thereto.
Yours faithfully,
/s/ Alex Schmitt /s/ Laurent Lazard
BONN & SCHMITT
4
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 5 to Registration Statement No.
333-75195 of Carrier1 International S.A. of our report dated March 17, 1999
appearing in the Prospectus, which is a part of such Registration Statement,
and to the reference to us under the headings "Summary Consolidated Financial
Data," "Selected Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE EXPERTA AG
/s/ David Wilson /s/ Jeffrey A. Swormstedt
David Wilson Jeffrey A. Swormstedt
Erlenbach, Switzerland
July 14, 1999
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
CARRIER1 INTERNATIONAL S.A.
Offer to Exchange all Outstanding
13 1/4% Senior Dollar Notes Due 2009 and
13 1/4% Senior Euro Notes Due 2009 (DTC Held)
for
13 1/4% Senior Dollar Notes Due 2009 and
13 1/4% Senior Euro Notes Due 2009 (DTC Held)
which Have Been Registered Under
the Securities Act of 1933
Pursuant to the Prospectus, dated , 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
DELIVERY TO: The Chase Manhattan Bank, EXCHANGE AGENT
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (212) 638-0828
Global Trust Services FACSIMILE TRANSMISSION NUMBER:
55 Water Street (212) 638-7380/81
Room 234, North Building
New York, New York 10041 CONFIRM BY TELEPHONE:
Attention: Carlos Esteves (212) 638-0828
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
<PAGE>
The undersigned acknowledges that he, she or it has received and reviewed
this Letter of Transmittal (the "Letter") and the Prospectus, dated ,
1999 (the "Prospectus"), of Carrier1 International S.A., a societe anonyme
organized under the laws of the Grand Duchy of Luxembourg (the "Company" or the
"Issuer"), relating to its offer to exchange (i) up to $160,000,000 aggregate
principal amount of its 13 1/4% Senior Dollar Notes Due 2009 (the "New Dollar
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of its issued and
outstanding 13 1/4% Senior Dollar Notes Due 2009 (the "Old Dollar Notes") from
the registered holders thereof (the "Dollar Note Holders") and (ii) its 13 1/4%
Senior Euro Notes Due 2009 (the "New Euro Notes"), which have been registered
under the Securities Act, for a like principal amount of its issued and
outstanding 13 1/4% Senior Euro Notes Due 2009 (the "Old Euro Notes"). The
Prospectus and this Letter together constitute the Company's offer to exchange
(the "Exchange Offer") (i) its New Dollar Notes for a like principal amount of
its Old Dollar Notes from the registered holders thereof (the "Dollar Note
Holders") and (ii) its New Euro Notes which are to be deposited with a custodian
for, and registered in the name of, The Depository Trust Company ("DTC") or its
nominee (the "New DTC Euro Notes") for a like principal amount of Old Euro Notes
which have been deposited with a custodian for, and registered in the name of,
DTC or its nominee (the "Old DTC Euro Notes") from the registered holders
thereof (the "DTC Euro Note Holders" and, together with the Dollar Note Holders,
the "Holders"). For the purposes of this Letter, the New Dollar Notes and the
New DTC Euro Notes are collectively referred to as the "New Notes," and the Old
Dollar Notes and the Old DTC Euro Notes are collectively referred to as the "Old
Notes."
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from February 19, 1999. Accordingly, registered Holders of New Notes
on the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from February 19, 1999. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of accrued interest on such Old Notes otherwise payable on
any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer.
This Letter is to be completed by a Holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at DTC (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus. Holders of Old Notes whose certificates are
not immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
<PAGE>
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- -----------------------------------------------------------------------------------------------------
(1) (2) (3)
AGGREGATE
NAME(S) AND ADDRESS(ES) PRINCIPAL PRINCIPAL
OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 or [EURO]1,000, as applicable,
and any integral multiple thereof. See Instruction 1.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution Which Guaranteed Delivery ______________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER ENTITLED, PURSUANT TO THE TERMS OF
THE REGISTRATION RIGHTS AGREEMENT REFERRED TO IN THE PROSPECTUS, TO RECEIVE,
AND WISH TO RECEIVE, 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF
ANY AMENDMENTS OR SUPPLEMENTS THERETO WITHIN 90 DAYS AFTER THE EXPIRATION
DATE.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges and
represents that it will deliver a prospectus meeting the requirements of the
Securities Act, in connection with any resale of such New Notes; however, by so
acknowledging and representing and by delivering such a prospectus the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. If the undersigned is a broker-dealer that will
receive New Notes, it represents that the Old Notes to be exchanged for the New
Notes were acquired as a result of market-making activities or other trading
activities. In addition, such broker-dealer represents that it is not acting on
behalf of any person who could not truthfully make the foregoing
representations.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among other
things, to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned hereby represents and warrants that the undersigned has full power
and authority to tender, sell, assign and transfer the Old Notes, and to acquire
New Notes issuable upon the exchange of such tendered Old Notes, and that, when
such Old Notes are accepted for exchange, the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents and warrants that any
New Notes acquired in exchange for Old Notes tendered hereby will have been
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the undersigned, that neither the Holder of
such Old Notes nor any such other person is participating in, intends to
participate in or has an arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
Old Notes or New Notes, that neither the Holder of such Old Notes nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities Act,
of the Company, and that neither the Holder of such Old Notes nor such other
person is acting on behalf of any person who could not truthfully make the
foregoing representations and warranties.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder that is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Holder's business, at the time of commencement of
the Exchange Offer such Holder has no arrangement or understanding with any
person to participate in a distribution of such New Notes, and such Holder is
not engaged in, and does not intend to engage in, a distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in other
circumstances. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes and has no arrangement or understanding to participate
in a distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes, it represents
that the Old Notes to be exchanged for the New Notes were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes; however, by so acknowledging
and by delivering a prospectus meeting the requirements of the Securities Act,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The SEC has taken the position that such broker-dealers may fulfill their
prospectus delivery requirements with respect to the New Notes (other than a
resale of New Notes received in exchange for an unsold allotment from the
original sale of the Old Notes) with the Prospectus. The Prospectus, as it may
be amended or supplemented from time to time, may be used by certain
broker-dealers (as specified in the Registration Rights Agreement referenced in
the Prospectus) ("Participating Broker-Dealers") for a period of time, starting
on the Expiration Date and ending on the close of business 90 days after the
<PAGE>
Expiration Date in connection with the sale or transfer of such New Notes. The
Company has agreed that, for such period of time, it will make the Prospectus
(as it may be amended or supplemented) available to such a broker-dealer which
elects to exchange Old Notes, acquired for its own account as a result of market
making or other trading activities, for New Notes pursuant to the Exchange Offer
for use in connection with any resale of such New Notes. By accepting the
Exchange Offer, each broker-dealer that receives New Notes pursuant to the
Exchange Offer acknowledges and agrees to notify the Company prior to using the
Prospectus in connection with the sale or transfer of New Notes and that, upon
receipt of notice from the Company of the happening of any event which makes any
statement in the Prospectus untrue in any material respect or which requires the
making of any changes in the Prospectus in order to make the statements therein
(in light of the circumstances under which they were made) not misleading, such
broker-dealer will suspend use of the Prospectus until (i) the Company has
amended or supplemented the Prospectus to correct such misstatement or omission
and (ii) either the Company has furnished copies of the amended or supplemented
Prospectus to such broker-dealer or, if the Company has not otherwise agreed to
furnish such copies and declines to do so after such broker-dealer so requests,
such broker-dealer has obtained a copy of such amended or supplemented
Prospectus as filed with the SEC. Except as described above, the Prospectus may
not be used for or in connection with an offer to resell, a resale or any other
retransfer of New Notes. A broker-dealer that acquired Old Notes in a
transaction other than as part of its market-making activities or other trading
activities will not be able to participate in the Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
x ___________________________________________________________________ , 1999
x ___________________________________________________________________ , 1999
____________________________________________________________________________
Signature(s) of Owner Date
Area Code and Telephone Number _____________________________________________
If a Holder is tendering an Old Note, this Letter must be signed by the
registered Holder(s) as the name(s) appear(s) on the certificate(s) for the
Old Note or by any person(s) authorized to become registered Holder(s) by
endorsements and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting
in a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s) ____________________________________________________________________
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: __________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
SIGNATURE(S) GUARANTEED BY _________________________________________________
AN ELIGIBLE INSTITUTION: ___________________________________________________
(AUTHORIZED SIGNATURE)
__________________________________________________________________________
(TITLE)
__________________________________________________________________________
(NAME AND FIRM)
DATED: ______________________________________________________________ , 1999
(PLEASE COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 HEREIN. SEE INSTRUCTION
5.)
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter above, or if
Old Notes delivered by book-entry transfer which are not accepted for
exchange are to be returned by credit to an account maintained at the
Book-Entry Transfer Facility other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
_________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
__________________________________________________________________________
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
________________________________________________________________________
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at
an address other than shown in the box entitled "Description of Old Notes"
on this Letter above.
Mail: New Notes and/or Old Notes to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
_________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
- -----------------------------------------------------
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER
OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A
BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY
THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
13 1/4% SENIOR DOLLAR NOTES DUE 2009 AND 13 1/4% SENIOR EURO NOTES DUE 2009 (DTC
HELD)
OF CARRIER1 INTERNATIONAL S.A. IN EXCHANGE FOR THE
13 1/4% SENIOR DOLLAR NOTES DUE 2009 AND 13 1/4% SENIOR EURO NOTES DUE 2009 (DTC
HELD)
OF CARRIER1 INTERNATIONAL S.A., WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by Holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering Holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 or [EURO]1,000, as applicable, and
any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution,
(ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
Holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically-tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by this Letter will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically-tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, are received by the Exchange Agent within three NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering Holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be
registered mail, properly insured, with return receipt requested, made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering Holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering Holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
<PAGE>
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered Holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered Holder or Holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered Holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered Holder or
Holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered Holder or Holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY ANY MEMBER FIRM OF A
REGISTERED NATIONAL SECURITIES EXCHANGE OR OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC., A COMMERCIAL BANK OR TRUST COMPANY HAVING AN OFFICE OR
CORRESPONDENT IN THE UNITED STATES OR AN "ELIGIBLE GUARANTOR INSTITUTION" WITHIN
THE MEANING OF RULE 17AD-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (EACH AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES
(WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE
BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION
LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED
"SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" IN THIS
LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering Holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Holders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such Holder may designate hereon. If no such instructions are given,
such Old Notes not exchanged will be returned to the name and address of the
person signing this Letter.
5. TAXPAYER IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering Holder whose Old
Notes are accepted for exchange must provide the Company (as payor), or the
Paying Agent designated by the Company to act on its behalf, with such Holder's
correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 below,
which in the case of a tendering Holder who is an individual, is his or her
social security number. If the Company is not provided with the current TIN or
an adequate basis for an exemption from backup
<PAGE>
withholding, such tendering Holder may be subject to a $50 penalty imposed by
the Internal Revenue Service. In addition, delivery to such tendering Holder of
New Notes may result in backup withholding in an amount equal to 31% of all
reportable payments made after the exchange. If withholding results in an
overpayment of taxes, a refund may be obtained.
Exempt Holders of Old Notes (including, among others, all corporations and
certain foreign individual) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering Holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such Holder is awaiting a TIN) and that (i) the Holder is exempt from
backup withholding, or (ii) the Holder has not been notified by the Internal
Revenue Service that such Holder is subject to backup withholding as a result of
a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the Holder that such Holder is no longer subject to backup
withholding. If the tendering Holder of Old Notes is a nonresident alien or
foreign entity not subject to backup withholding, such Holder must give the
Exchange Agent a completed Form W-8, Certificate of Foreign Status. This form
may be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, such Holder should consult the
W-9 Guidelines for information on which TIN to report. If such Holder does not
have a TIN, such Holder should consult the W-9 Guidelines for instructions on
applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write
"applied for" in lieu of its TIN. Note: Checking this box and writing "applied
for" on the form means that such Holder has already applied for a TIN or that
such Holder intends to apply for one in the near future. If such Holder does not
provide its TIN to the Issuer within 60 days, backup withholding will begin and
continue until such Holder furnishes its TIN to the Issuer.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
Holder of the Old Notes tendered hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered Holder or any other persons)
will be payable by the tendering Holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
<PAGE>
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. WITHDRAWAL RIGHTS.
Tenders of Old Notes of a series may be withdrawn at any time prior to 5:00
P.M., New York City time, on the Expiration Date with respect to such series.
For a withdrawal of a tender of Old Notes to be effective, a written notice
of withdrawal must be received by the Exchange Agent at the address set forth
above prior to 5:00 P.M., New York City time, on the Expiration Date with
respect to such series. Any such notice of withdrawal must (i) specify the name
of the person having tendered the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the principal amount of
such Old Notes), (iii) in the case of Old Notes tendered by book-entry transfer,
specify the number of the account at the Book-Entry Transfer Facility from which
the Old Notes were tendered and specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility, (iv) contain a statement
that such Holder is withdrawing its election to have such Old Notes exchanged,
(v) be signed by the Holder in the same manner as the original signature on the
Letter by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes in the name of
the person withdrawing the tender and (vi) specify the name in which such Old
Notes are registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer and
no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes that have been tendered for
exchange but which are not exchanged for any reason will be returned to the
tendering Holder thereof without cost to such Holder (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures set
forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus,
such Old Notes will be credited to an account maintained with the Book-Entry
Transfer Facility for the Old Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following the procedures described above at any time
on or prior to 5:00 P.M., New York City time, on the Expiration Date with
respect to such series of Old Notes.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices of
Guaranteed Delivery and other related documents may be directed to the Exchange
Agent, at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: THE CHASE MANHATTAN BANK, AS PAYING AGENT
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE
PROVIDE
YOUR TIN IN THE BOX
AT RIGHT AND
CERTIFY
BY SIGNING AND
DATING BELOW.
-----------------------------------------------------
TIN:
SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER
Form W-9 PART 2--TIN APPLIED FOR / /
-----------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY,
I CERTIFY THAT:
(1) the number shown on this form is my correct
Taxpayer Identification Number (or I am waiting for a
number to be issued to me).
(2) I am not subject to backup withholding either
because: (a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYOR'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER backup withholding, and
("TIN") AND CERTIFICATION (3) any other information provided on this form is
true and correct.
Signature
--------------------------------------- Date
------------
- ---------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have be notified by the
IRS that you are subject to backup withholding because of underreporting of interest
or dividends on your tax return and you have not been notified by the IRS that you are
no longer subject to backup withholding.
--------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not
been issued to me, and either (a) I have mailed or delivered an application to receive
a taxpayer identification number to the appropriate Internal Revenue Service Center or
Social Security Administration Office or (b) I intend to mail or deliver an
application in the near future. I understand that if I do not provide a taxpayer
identification number by the time of the exchange, 31 percent of all reportable
payments made to me thereafter will be withheld until I provide a number.
Signature ----------------------------------------------------- Date
--------------------
- ---------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU PURSUANT TO THE TENDER OFFER AND/OR THE
SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
<PAGE>
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
<PAGE>
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
FOR
CARRIER1 INTERNATIONAL S.A.
13 1/4% SENIOR DOLLAR NOTES DUE 2009
AND
13 1/4% SENIOR EURO NOTES DUE 2009 (DTC HELD)
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Carrier1, International S.A. (the "Issuer" or the "Company")
made pursuant to the Prospectus, dated , 1999 (the "Prospectus"), if
certificates (as applicable) for outstanding 13 1/4% Senior Dollar Notes Due
2009 (the "Old Dollar Notes") of the Issuer or for outstanding 13 1/4% Senior
Euro Notes Due 2009 (which have been deposited with a custodian for, and
registered in the name of, The Depository Trust Company ("DTC") or its nominee)
(the "Old DTC Euro Notes" and, together with the Old Dollar Notes, the "Old
Notes") of the Issuer are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach The Chase Manhattan Bank, as exchange
agent (the "Exchange Agent") prior to 5:00 P.M., New York City time, on the
Expiration Date of the Exchange Offer. Such form may be delivered or transmitted
by facsimile transmission, mail or hand delivery to the Exchange Agent as set
forth below. In addition, in order to utilize the guaranteed delivery procedure
to tender Old Notes pursuant to the Exchange Offer, a completed, signed and
dated Letter of Transmittal (or facsimile thereof) relating to the tender for
exchange of Old Dollar Notes or Old DTC Euro Notes (the "Letter of Transmittal")
must also be received by the Exchange Agent prior to 5:00 P.M., New York City
time, on the Expiration Date. Capitalized terms not defined herein are defined
in the Prospectus or the Letter of Transmittal.
DELIVERY TO: The Chase Manhattan Bank, EXCHANGE AGENT
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (212) 638-0828
Global Trust Services FACSIMILE TRANSMISSION NUMBER:
55 Water Street (212) 638-7380/81
Room 234, North Building
New York, New York 10041 CONFIRM BY TELEPHONE:
Attention: Carlos Esteves (212) 638-0828
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S)
(IF KNOWN) OF EXISTING
NOTES OR ACCOUNT AGGREGATE PRINCIPAL
NUMBER AT THE BOOK- AGGREGATE PRINCIPAL AMOUNT TENDERED
ENTRY TRANSFER FACILITY AMOUNT REPRESENTED (IF LESS THAN ALL)*
<S> <C> <C>
</TABLE>
* Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such Old Notes.
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES,
SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
PLEASE SIGN HERE
<TABLE>
<S> <C> <C>
X
--------------------------------------------------------- -----------------------------
--------------------------------------------------------- -----------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
</TABLE>
Area Code and Telephone Number: __________
Must be signed by the Holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered Holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
<PAGE>
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _______________________________________________________________________
Capacity: ______________________________________________________________________
Address(es): ___________________________________________________________________
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby guarantees that the
certificates representing the principal amount of Old Notes tendered hereby in
proper form for transfer, or timely confirmation of the book-entry transfer of
such Old Notes into the Exchange Agent's account at The Depository Trust Company
pursuant to the procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus, together with any required signature
guarantee and any other documents required by the Letter of Transmittal, will be
received by the Exchange Agent at the address set forth above, no later than
three New York Stock Exchange trading days after the date of execution of this
Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of Firm Authorized Signature
Address Title
Name:
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED
LETTER OF TRANSMITTAL.
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. The method of delivery of this
Notice of Guaranteed Delivery and any other required documents to the
Exchange Agent is at the election and risk of the Holder and the delivery
will be deemed made only when actually received by the Exchange Agent. If
delivery is by mail, registered or certified mail properly insured, with
return receipt requested, is recommended. In all cases sufficient time
should be allowed to assure timely delivery. For a description of the
guaranteed delivery procedure, see Instruction 1 of the Letter of
Transmittal.
2. Signatures of this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered Holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written
on the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant
of the Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of Old Notes, the signature must correspond
with the name shown on the security position listing as the owner of the Old
Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Old Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered Holder(s) appears
on the Old Notes or signed as the name of the participant shown on the
Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust
company, or other nominee for assistance concerning the Exchange Offer.
