<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 2000
REGISTRATION NO. 333-94541
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CARRIER 1 INTERNATIONAL S.A.
(Exact name of Registrant as specified in its charter)
<TABLE>
<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, ESQ.
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 COPIES TO:
<TABLE>
<S> <C> <C>
DAVID A. BRITTENHAM, ESQ. ANDREW R. SCHLEIDER, ESQ.
DEBEVOISE & PLIMPTON SHEARMAN & STERLING
875 THIRD AVENUE AND 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 909-6000 (212) 848-4000
</TABLE>
------------------------
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 on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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(c)
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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
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>
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 WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE SUCH OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED FEBRUARY 18, 2000
9,375,000 SHARES
[LOGO]
IN THE FORM OF SHARES OR AMERICAN DEPOSITARY SHARES
-----------------
CARRIER1 INTERNATIONAL S.A. IS OFFERING 7,500,000 COMMON SHARES, PAR VALUE $2.00
PER SHARE, AND THE SELLING SHAREHOLDERS ARE OFFERING 1,875,000 SHARES. THIS IS
OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES
OR ADSS. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
[EURO]77 AND [EURO]87 ($75.73 AND $85.56) PER SHARE. THE SHARES OFFERED IN THIS
PROSPECTUS WILL BE SOLD IN THE FORM OF REGISTERED SHARES OR, UPON REQUEST IN THE
U.S. OFFERING ONLY, IN THE FORM OF ADSS. EACH ADS REPRESENTS THE RIGHT TO
RECEIVE 0.2 SHARES.
-------------------
WE HAVE APPLIED TO HAVE THE ADSS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "CONE". WE HAVE APPLIED TO HAVE THE SHARES LISTED ON THE NEUER MARKT
SEGMENT OF THE FRANKFURT STOCK EXCHANGE UNDER THE SYMBOL "CJN".
-------------------
INVESTING IN THE SHARES OR ADSS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 12.
-----------------
PRICE [EURO] ($ ) A SHARE AND $ AN ADS
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSIONS CARRIER1 SELLING SHAREHOLDERS
-------- ------------- ----------- --------------------
<S> <C> <C> <C> <C>
PER SHARE............... [EURO] ($ ) [EURO] ($ ) [EURO] ($ ) [EURO] ($ )
PER ADS................. $ $ $ $
TOTAL................... $ $ $ $
</TABLE>
-------------------
CARRIER1 INTERNATIONAL S.A. AND THE SELLING SHAREHOLDERS HAVE GRANTED THE
UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL 1,406,250 SHARES TO COVER
OVER-ALLOTMENTS.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE UNDERWRITERS EXPECT TO DELIVER THE SHARES TO PURCHASERS ON , 2000.
-------------------
JOINT GLOBAL COORDINATORS AND BOOKRUNNERS
MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY INTERNATIONAL
-------------------
WARBURG DILLON READ
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
COMMERZBANK
A K T I E N G E S E L L S C H A F T
, 2000
<PAGE>
[Map showing Carrier1's current and contracted network.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary............................... 5
Risk Factors.......................... 12
Use of Proceeds....................... 24
Dividend Policy....................... 24
Dilution.............................. 25
Capitalization........................ 26
Selected Consolidated Financial
Data................................ 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 43
Management............................ 68
Certain Relationships and Related
Transactions........................ 77
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Principal and Selling Shareholders.... 81
Description of Certain Indebtedness... 86
Description of Share Capital.......... 88
Description of American Depositary
Receipts............................ 94
Shares Eligible for Future Sale....... 101
Taxation.............................. 102
Underwriters.......................... 107
Legal Matters......................... 110
Experts............................... 111
Where You Can Find More Information... 111
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
When we refer to "Carrier1 International," we are referring to the holding
company Carrier1 International S.A., the issuer of the shares and ADSs. 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.
You should rely only on the information contained in this prospectus. 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 in this prospectus. 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 securities offered by this prospectus does
not, under any circumstances, mean that there has not been a change in our
affairs since the date of this prospectus. It also does not mean that the
information in this prospectus is correct after this date.
------------------------
Until , 2000 (25 days after the commencement of this offering),
all dealers that buy, sell or trade shares or ADSs, 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.
CERTAIN REGULATORY ISSUES
For investors outside the United States: No action has been or will be taken
in any jurisdiction by any underwriter or by us that would permit a public
offering of the shares or ADSs or possession or distribution of this prospectus
in any jurisdiction where action for that purpose is required, other than in the
United States. Persons into whose possession this prospectus comes are required
by the underwriters and by us to inform themselves about, and to observe any
restrictions as to, the offering of the shares and ADSs and the distribution of
this prospectus.
The distribution of this document, and the offering of the shares and ADSs
in the United Kingdom is restricted. This document has not been drawn up in
accordance with the United Kingdom's Public Offers of Securities Regulation 1995
and a copy has not been delivered to the Registrar of Companies in England and
Wales for registration. Accordingly, the shares and ADSs may not be offered or
sold in the United Kingdom other than to persons whose ordinary activities
involve them in
3
<PAGE>
the acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses within the meaning of
regulation 7(2)(a) of the Public Offers of Securities Regulation 1995 (the "POS
Regulations") or otherwise in circumstances that do not constitute an offer to
the public in the United Kingdom.
This prospectus is only being distributed in the United Kingdom to persons
of the kind described in: (a) article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 (as amended): (b) article 6
of that Order; or (c) Article 8 of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) (No. 2) Order 1995 or to whom it would otherwise be
lawful to distribute it. This prospectus is only directed at such persons in the
UK and it would be imprudent for persons of any other kind to respond to it.
The securities may not be offered, sold, transferred or delivered in or from
the Netherlands as part of their initial distribution or at any time thereafter,
directly or indirectly, other than to individuals or legal entities who or which
trade or invest in securities in the conduct of a business or profession, which
includes, but is not limited to, banks, brokers, dealers, insurance companies,
pension funds, other institutional investors and commercial enterprise which
regularly, as an ancillary activity, invest in securities.
This prospectus is being distributed on the basis that each person in the
Netherlands to whom this prospectus is issued is reasonably believed to be a
person falling within the exemption described in the foregoing paragraph.
Accordingly, by accepting delivery of this prospectus the recipient warrants and
acknowledges that it is a person falling within any such exemption.
The offering of the shares and ADSs in the Republic of Italy has not been
registered with the COMMISSIONE NAZIONALE PER LE SOCIETA E LA BORSA ("CONSOB")
pursuant to Italian securities legislation. The distribution of this prospectus
in the Republic of Italy is restricted to persons who qualify as professional
investors under applicable Italian securities regulation.
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. We have 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" or "Deutsche Mark" are to the lawful currency of Germany.
Certain euro amounts in this prospectus have been translated into U.S.
dollars at an exchange rate of $0.9835 to [EURO]1.00, the Noon Buying Rate in
effect on February 15, 2000.
4
<PAGE>
SUMMARY
THIS IS ONLY A SUMMARY AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY
BE IMPORTANT TO YOU. BEFORE YOU DECIDE TO INVEST IN OUR SHARES OR ADSS, YOU
SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE SECTION ENTITLED "RISK FACTORS"
AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES.
CARRIER1
We are a rapidly expanding European facilities-based provider of voice,
Internet and bandwidth and related telecommunications services. We offer these
services primarily to other telecommunications service providers. In
March 1998, our experienced management team and Providence Equity Partners
formed Carrier1. By September 1998, we had deployed our initial network and
commenced selling services. By December 31, 1999, we had 259 contracts with
voice customers and 70 contracts with Internet and bandwidth customers.
We are developing an extensive city-to-city European fiber optic network
accessing and linking key population centers. In select European cities, we are
also developing:
- intra-city networks, and
- data centers for housing and managing equipment.
We expect these intra-city networks to give us faster, lower cost access to
customers, with better quality control. We also expect to bundle and cross-sell
our intra-city network and data center capabilities with our other services.
As of December 31, 1999, we offered voice, Internet and bandwidth and
related services in 17 cities and 11 countries. In addition, as of December 31,
1999 we had arranged to secure, through a combination of building, buying and
swapping assets, a network of approximately 9,000 kilometers, which we expect to
become operational in stages through the end of 2000. This network will consist
of wholly-owned fiber in Germany, France, the United Kingdom, The Netherlands,
Norway and Sweden, and wholly owned capacity at speeds greater than 2.5 Gbps in
Denmark, Italy, Switzerland and Belgium. The network will include a 2,370
kilometer network in Germany, and an intra-city network in Amsterdam that we
expect to complete by the end of the third quarter of 2000.
We intend to continue rapidly expanding our network in a cost-effective
manner by building, buying or swapping network assets. For example, we expect to
complete construction of the 2,370 kilometer German network in the first half of
2000. The German network will connect 14 principal cities and pass a number of
other major cities. We are building the German network with partners to lower
our fixed cost of construction. When the German network is complete, we will own
our own duct which will initially contain 72 fiber strands. We have swapped
excess capacity on the German network for capacity on other networks in our
target markets, including France and Scandinavia, to increase the reach of our
owned and controlled network in a capital-efficient way.
INDUSTRY AND MARKET OPPORTUNITY
We believe that the market for advanced, high bandwidth, transmission
capacity and related voice and Internet services in Europe will grow
significantly due to a number of factors, including:
- LIBERALIZATION. As a result of liberalization, we expect the European
telecommunications market to experience an increase in both international
and national traffic volume, reduced prices, increased service offerings
and the emergence of new entrants seeking to outsource some or all of
their telecommunications infrastructure and service needs.
5
<PAGE>
- LARGE AND RAPIDLY GROWING MARKET FOR VOICE SERVICES. Industry sources
report that the European international long distance market is among the
largest in the world and is continuing to grow rapidly.
- RAPIDLY GROWING DEMAND FOR INTERNET AND BANDWIDTH SERVICES. Industry
sources estimate that the penetration rate of web users in Europe will
grow from a level of approximately 10% at the end of 1998 to approximately
45% in 2003. We believe that substantial additional bandwidth and faster
transmission speeds will be required to accommodate new Internet intensive
business applications.
- DEMAND FOR RELATED SERVICES. Increasing demand for basic
telecommunications services presents opportunities for companies to market
other related services, such as data center services.
BUSINESS STRATEGY
Our objective is to become a leading European wholesale provider of high
quality voice, Internet and bandwidth and related services. The key elements of
our strategy are:
- TARGET TELECOMMUNICATIONS SERVICE PROVIDERS. By focusing on the wholesale
sector, we can take advantage of our management's strong market-oriented
skills, first-hand understanding of the European telecommunications
markets and long-standing customer relationships, with less overhead than
a mass retail carrier. We believe our target customers prefer an
independent supplier of wholesale services to an incumbent telephone
operator or other supplier with which they compete directly for retail
customers.
- FOCUS ON CUSTOMER NEEDS. We will continue to build relationships with a
large number of telecommunications service providers by providing quality,
customized service and a superior level of customer support.
- QUALITY OF SERVICE. Based on our management's experience in
telecommunications markets, we believe that we offer among the highest
minimum service levels for voice and Internet and bandwidth services in
Europe. Owning fiber optic networks, switches, multiplexers and routers
helps us to control the quality and breadth of our service offerings.
- SUPERIOR CUSTOMER SUPPORT. We have designed our systems with the goal
of providing a level of customer support significantly higher than that
generally offered in the wholesale market in Europe.
- RAPID AND CAPITAL-EFFICIENT NETWORK EXPANSION. We seek to invest in key
strategic assets, such as our German network, which we can use as a
currency for swaps to extend our European coverage as rapidly as possible.
We have reduced the capital necessary to assemble our expanding network
by:
- sharing the cost of building the German network with partners,
- selling or pre-selling conduit rights or capacity to defray costs, and
- swapping capacity or services.
We plan to continue to take this rapid and capital-efficient approach in
implementing our strategy to secure intra-city networks in up to 20 cities
throughout Europe.
- EXPLOIT LOW COST PROVIDER POSITION. Owning a high capacity, cross-border
network in Europe gives us a significant cost advantage over incumbent
providers with extensive legacy networks and newer competitors that
currently lease the majority of their network or will be required to lease
a significant amount of capacity in the future to meet increased demand or
that are incurring the full cost of building networks without the use of
capital-efficient swapping or pre-selling.
6
<PAGE>
- PURSUE GROWING DEMAND FOR BANDWIDTH. We believe that demand for high
bandwidth Internet transmission capacity will increase substantially over
the next several years.
- BUNDLE AND CROSS-SELL A COMPREHENSIVE RANGE OF NETWORK SOLUTIONS. We can
customize our voice, Internet and bandwidth and other capabilities in
combinations, or as comprehensive European end-to-end network solutions.
We offer customers these comprehensive network solutions to create a
virtual carrier network in which we will provide all of the European
telecommunications network infrastructure and services they require,
except for branding, sales and features customized for end users.
In furtherance of our business strategy, we regularly explore possible
strategic alliances, acquisitions, business combinations and other similar
transactions.
RECENT DEVELOPMENTS
During the fourth quarter of 1999, we and several other parties formed Hubco
S.A., a joint venture to build data centers in which we can house and manage
mission-critical voice and data networking equipment both for ourselves and for
our customers. We have committed $23.25 million of the $155 million in total
equity committed in the project to develop these full-service facilities in
major markets throughout Europe. Hubco intends to build up to 20 to
25 facilities, generally ranging in size from 100,000 to 350,000 square feet in
major markets in Europe during 2000 and 2001. We expect to have a minimum of
between 10,000 and 25,000 square feet available for our use and the use of our
customers in each facility. We expect to connect each facility that we use to
our fiber optic network.
MANAGEMENT AND EQUITY SPONSORS
Stig Johansson, Chief Executive Officer, and our management have extensive
experience in European telecommunications markets and longstanding relationships
with European wholesale customers and suppliers.
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 our operations. After giving effect to this offering, the
Providence funds will indirectly hold 57.8%, or 52.4% on a fully diluted basis,
and the Primus funds will indirectly hold 11.1%, or 10.1% on a fully diluted
basis, of the shares of Carrier1 International. Providence is a private
investment firm that specializes in equity investments in telecommunications and
media companies in the United States and Europe. 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 41-1-297-2600.
7
<PAGE>
SUMMARY OF THE OFFERING
Unless otherwise indicated, the information throughout this prospectus
assumes that the underwriters do not exercise their over-allotment option to
purchase additional shares in this offering.
<TABLE>
<S> <C>
Shares offered............................... 9,375,000 shares, in the form of shares or,
upon request in the United States, ADSs.
Shares offered by us....................... 7,500,000 shares.
Shares offered by the selling 1,875,000 shares.
shareholders.............................
Over-allotment option........................ 1,406,250 shares.
Shares to be outstanding after the 40,590,490 shares, not including the exercise
offering................................... of any outstanding options or warrants, other
than warrants being exercised in connection
with this offering. As of December 31, 1999
we had outstanding options and warrants
which, if fully exercised, would allow the
holders to purchase an aggregate of
4,232,661 shares.
The ADSs..................................... For shares sold in the form of ADSs, each ADS
represents 0.2 shares.
Dividend policy.............................. We have never declared or paid dividends, and
we do not expect to do so in the foreseeable
future.
Use of proceeds.............................. We intend to use the net proceeds received by
us from this offering:
- to repay debt,
- to expand our network, and
- for working capital and other general
corporate purposes, including acquiring
network assets.
We will not receive any of the proceeds from
the sale of the shares by the selling
shareholders.
Proposed Neuer Markt symbol.................. "CJN" for the shares.
Proposed Nasdaq National Market symbol....... "CONE" for the ADSs.
</TABLE>
8
<PAGE>
RISK FACTORS
See "Risk Factors," immediately following this Summary, for a discussion of
risk factors relating to us, our business and an investment in the shares and
ADSs.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data as of
and for the period from our inception, or February 20, 1998, to December 31,
1998 and as of and for the year ended December 31, 1999. The summary
consolidated financial data as of and for the period from our inception to
December 31, 1998, and as of and for the year ended December 31, 1999, were
derived from our consolidated financial statements which were audited by
Deloitte & Touche Experta AG, independent auditors. The data set forth below is
not necessarily indicative of the results of future operations and should be
read in conjunction with our consolidated financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Amounts are presented in thousands, except share data.
<TABLE>
<CAPTION>
YEAR ENDED INCEPTION TO
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.................................................... $ 97,117 $ 2,792
Cost of services (exclusive of amounts shown separately
below).................................................... 113,809 11,669
Selling, general and administrative expenses................ 18,369 8,977
Depreciation and amortization............................... 13,849 1,409
---------- ---------
Loss from operations........................................ (48,910) (19,263)
Other income (expense):
Interest income........................................... 5,859 92
Interest expense.......................................... (29,475) (11)
Other income (expense).................................... (555) --
Currency exchange loss, net............................... (15,418) (53)
---------- ---------
Loss before income tax benefit.............................. (88,499) (19,235)
Income tax benefit, net of valuation allowance (1).......... -- --
---------- ---------
Net loss.................................................... $ (88,499) $ (19,235)
========== =========
Weighted average number of shares outstanding (2)........... 29,752,000 7,367,000
Net loss per share (basic).................................. $ (2.97) $ (2.61)
Net loss per share (diluted) (3)............................ (2.97) (2.61)
OTHER FINANCIAL DATA:
EBITDA (4).................................................. $ (35,061) $ (17,854)
Capital expenditures (5).................................... 195,376 37,168
Net cash used in operating activities....................... (78,359) (14,441)
Net cash used in investing activities....................... (253,247) (19,866)
Net cash provided by financing activities................... 353,450 37,770
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $28,504 $4,184
Restricted cash............................................. 5,512 1,518
Restricted investments (6).................................. 90,177 --
Total assets (7)............................................ 437,655 51,434
Total long-term debt (8).................................... 337,756 --
Shareholders' equity........................................ (34,509) 19,189
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
10
<PAGE>
- ------------------------
(1) Due to our limited operating history, we were unable to conclude that
realization of our 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. See Note 10 to our consolidated financial statements.
(2) See Note 4 to our consolidated financial statements.
(3) Potential dilutive securities have been excluded from the computation for
the period from our inception to December 31, 1998 and for the year ended
December 31, 1999, as their effect is antidilutive. See Note 4 to our
consolidated financial statements.
(4) EBITDA stands for earnings before interest, taxes, depreciation,
amortization, foreign currency exchange gains or losses and other income
(expense).
EBITDA is used by management and certain investors as an indicator of a
company's ability to service debt and to satisfy its 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
our 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
similarly titled measures as calculated under our debt agreements.
(5) Consists of purchases of property and equipment, and an investment in a
joint venture.
(6) Reflects:
(a) the remaining portion of the net proceeds of our 13 1/4% senior notes
which was used to purchase government securities to secure and fund the
first five scheduled interest payments on the notes, and
(b) approximately $29.3 million used to collateralize a letter of credit
relating to the construction of the German network.
See Notes 6 and 7 to our consolidated financial statements.
(7) Includes net capitalized financing costs of approximately $14.2 million as
of December 31, 1999.
(8) For information about indebtedness incurred subsequent to December 31, 1999,
see "Capitalization."
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 EVENTS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED, AND
THE TRADING PRICE OF OUR SHARES AND ADSS COULD DECLINE. IN THAT EVENT, YOU MAY
LOSE ALL OR PART OF YOUR INVESTMENT.
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 at least 2002.
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.
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, accounting and administrative
resources, 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 procedures, 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 RESULTS MAY FLUCTUATE SIGNIFICANTLY.
At least initially, our revenues are dependent upon a relatively small
number of significant customers and contracts. The loss or addition of one or
more of these 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 existing indebtedness and any
additional indebtedness we may incur 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, which in turn could increase our costs and
hinder our ability to swap or sell transmission capacity to other
telecommunications entities.
OUR SUBSTANTIAL INDEBTEDNESS AND OUR ABILITY TO INCUR MORE INDEBTEDNESS COULD
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER OUR EXISTING DEBT OBLIGATIONS.
We have significant indebtedness. The following table shows certain
important credit statistics at December 31, 1999 and as adjusted to give effect
to the offering and the use of proceeds from the offering, assuming an initial
public offering price of [EURO]82.00 ($80.65) per share.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------
ACTUAL AS ADJUSTED
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Total long-term debt........................................ $337,756 $262,753
Shareholders' equity........................................ (34,509) 534,362
Total long-term debt as a percentage of total
capitalization............................................ 111% 33%
</TABLE>
Our deficiency of earnings to fixed charges for the year ended December 31,
1999 was approximately $90.0 million.
Our debt instruments limit, but do not prohibit, us from incurring more
indebtedness. Moreover, our debt instruments that will remain outstanding
following the offering permit us to incur an unlimited amount of indebtedness to
finance the acquisition of equipment, inventory and network assets.
If we cannot generate sufficient cash flow from operations to meet our debt
service requirements, we may be required to refinance our indebtedness. 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.
OUR DEBT AGREEMENTS IMPOSE OPERATING AND FINANCIAL RESTRICTIONS, WHICH MAY
PREVENT US FROM CAPITALIZING ON BUSINESS OPPORTUNITIES.
Our existing debt agreements 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, consolidations or other business combinations, repurchasing or
redeeming our shares, or otherwise capitalizing on business opportunities.
Failure to comply with the covenants and restrictions in our indentures or other
financing agreements could trigger defaults under such agreements even if we are
able to pay our debt.
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In addition, the indentures governing our 13 1/4% senior notes provide that
upon a "change of control," each note holder will have the right to require us
to purchase all or a portion of the holder's notes at a purchase price of 101%
of the principal amount, together with accrued and unpaid interest, if any, to
the redemption date. We may be unable to incur the additional indebtedness or
otherwise obtain the additional funds necessary to satisfy that obligation,
which could have a material adverse effect on us. This provision could also
delay, deter or prevent a change of control transaction.
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. A number of 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, other construction delays, natural disasters and other casualties,
delays in the deployment or delivery of network capacity of others that we have
arranged to acquire, and other events that we cannot foresee. We have recently
experienced some construction delays in connection with the planned completion
of our Amsterdam network, and some cost overruns and construction delays in
connection with the planned completion of portions of our German network.
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
voice 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 or cause us to incur penalties for untimely
delivery of promised capacity or could result in termination of our swaps.
Any one of these results could prevent us from increasing our operating
revenues or could adversely impact gross margins.
EUROPEAN USE OF THE INTERNET, ELECTRONIC COMMERCE AND THE DEMAND FOR BANDWIDTH
INTENSIVE APPLICATIONS MAY NOT INCREASE AS SUBSTANTIALLY AS WE EXPECT, WHICH
WOULD LIMIT DEMAND FOR OUR SERVICES AND LIMIT OUR ABILITY TO INCREASE OUR
REVENUES.
Our business plan assumes that European use of the Internet, electronic
commerce and other bandwidth intensive applications will increase substantially
in the next few years, in a manner similar to the increased use in the United
States market in the past few years. If the use of bandwidth intensive
applications in Europe does not increase as anticipated, demand for some of our
services, including our Internet and bandwidth services will be lower than we
currently anticipate and our ability to generate revenues will be adversely
affected. We cannot assure you that demand for our services will grow in
accordance with our expectations. Reduced demand for our services will have a
negative effect on our business.
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
depend on parties from whom we have
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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 DEPEND ON OUR HIGHLY TRAINED EXECUTIVE OFFICERS AND EMPLOYEES. ANY DIFFICULTY
IN RETAINING OUR CURRENT EMPLOYEES OR IN HIRING NEW 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. In addition, our business
functions are managed by a relatively small number of key employees. The loss of
any of these individuals could have a material adverse effect on us. 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.
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.
One of the most cost-effective ways for a wholesale carrier to achieve voice
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 maintain adequate interconnection arrangements would cause us to
incur high voice termination costs, which could have a material adverse effect
on our ability to compete with carriers that have a more effective system of
interconnection agreements for the countries in which they operate.
Our ability to maintain 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 maintain these peering
arrangements, we are required to pay a transit fee in order to exchange Internet
traffic. Our inability to maintain sufficient peering arrangements would keep
our Internet termination costs high and could limit our ability to compete
effectively with other European Internet backbone providers that have lower
transit costs than we do.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Factors Affecting Future Operations--Cost of Services."
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 still 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.
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<PAGE>
Our operations are dependent on licenses that we acquire from governmental
authorities in each jurisdiction in which we operate. These licenses 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
may cause us to lose favorable interconnection rates or, in some cases, force us
to stop operating in the relevant country.
THE ADOPTION OR MODIFICATION OF LAWS OR REGULATIONS RELATING TO THE INTERNET
COULD ADVERSELY AFFECT OUR BUSINESS.
The adoption or modification of laws or regulations relating to the Internet
could adversely affect our business. The European Union has recently enacted its
own privacy regulations. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws, such as those governing
intellectual property, privacy, libel and taxation, apply to the Internet. In
addition, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on companies conducting business online.
THE TELECOMMUNICATIONS INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO
COMPETE SUCCESSFULLY.
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 and to effectively bundle and cross-sell the services we offer to
our customers. We cannot assure you that we will be able to do so.
We expect price decreases in the European Internet market over the next few
years as competition increases. We cannot assure you that Internet service
prices will not decline more quickly than our Internet transmission or
termination costs, which could have a material adverse effect on our gross
profit margins.
As a result of the construction of European fiber optic networks by our
competitors, the price of wholesale bandwidth capacity is declining rapidly. The
decline in market prices has lowered the price at which we are able to sell our
voice and Internet and bandwidth products, including dark fiber, that is, fiber
that has been laid but not "lit" with transmission electronics. We also expect
technological advances that greatly increase the capacity of fiber optic cable
to exacerbate downward price pressure.
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 a more developed network than ours may lower
prices so as to increase volume and maximize utilization rates.
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
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<PAGE>
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 Internet transport 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, Internet transport and data center
customers will typically renew their contracts because it is costly and
technically burdensome to switch providers, which could impede our ability to
attract new customers.
Although we believe that there has been and is currently strong demand for
data centers in the European market, there are numerous new entrants with which
we compete in specific markets. Many of our competitors have been established
providers of data center services in Europe for longer than we have. There can
be no assurance that new entrants like us will be able to effectively compete.
We also compete with companies that are building European networks to the
extent these companies offer wholesale services. Some of these companies have
more experience operating a network than our company 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 own more
infrastructure and thus may 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 transmission capacity from others,
and we have swapped capacity on our own German network for transmission capacity
on other carriers' networks. We therefore currently depend on other parties for
much of our 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 us in the provision of wholesale telecommunications
services, those suppliers may no longer be willing to provide us with capacity.
Until our owned network is fully operational, we will need to continue to
lease capacity. 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
our owned network is not completed on a timely basis, we will need to rely on
leased lines to a greater extent than currently anticipated. If we cannot
purchase additional capacity at our target costs for additional needs we may
have in the future, we may have to seek to meet those needs by building
additional capacity, for which 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.
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<PAGE>
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 voice 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 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.
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.
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.
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<PAGE>
If the growth we anticipate in the demand for telecommunications 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 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. Similarly, while we
seek to provide a higher quality of bandwidth service than our competitors,
there is somewhat limited scope for differentiation. There can be no assurance
that small variations between our prices and those of other carriers will not
cause our customers to divert their traffic or choose other carriers.
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 Internet
customers to carry their Internet 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 Internet 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. In the year ended December 31, 1999, for example, one customer
accounted for approximately 14% of our revenue. 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 activity among ISPs
and Internet backbone providers. The consolidation of ISPs may reduce the
customer base for our Internet services.
WE WILL ENGAGE IN JOINT VENTURES, WHICH ARE ACCOMPANIED BY INHERENT RISKS.
We are constructing the German network with Viatel and Metromedia. We are
investing in data center facilities through a joint venture. 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,
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- 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.
THE COSTS AND DIFFICULTIES OF ACQUIRING AND INTEGRATING BUSINESSES OR ENGAGING
IN OTHER STRATEGIC TRANSACTIONS COULD IMPEDE OUR FUTURE GROWTH AND ADVERSELY
AFFECT OUR COMPETITIVENESS.
We intend to evaluate, and may enter into, acquisition or other strategic
transactions in order to expand our business or enhance our product portfolio.
We may acquire interests in businesses in countries in which we do not currently
operate. Any such acquisitions or other strategic transactions may expose us to
the following risks:
- the difficulty of identifying appropriate strategic transaction candidates
in the countries in which we do business or intend to do business,
- the difficulty of assimilating the operations and personnel of the
acquired entities,
- the potential disruption to our ongoing business caused by senior
management's focus on the strategic transactions,
- our failure to successfully incorporate licensed or acquired technology
into our network and product offerings,
- the failure to maintain uniform standards, controls, procedures and
policies, and
- the impairment of relationships with employees and customers as a result
of changes in management and ownership.
We cannot assure you that we would be successful in overcoming these risks,
and our failure to overcome these risks could have a negative effect on our
business. Additionally, in connection with an acquisition, we will generally
record goodwill that must be amortized and which would reduce our earnings per
share.
In addition, in connection with our listing on the Neuer Markt segment of
the Frankfurt Stock Exchange, we are required to agree to comply with the German
take-over code. Our compliance with the German take-over code could have the
effect of delaying or preventing a tender offer or takeover. If we intend to
merge with or acquire a publicly-traded German stock corporation, we must comply
with notice, disclosure and other regulatory requirements.
WE ARE CONTROLLED BY PARTIES WHOSE INTERESTS MAY NOT BE ALIGNED WITH YOURS.
After the completion of the offering, funds managed by Providence alone, and
funds managed by Providence and funds managed by Primus together, will continue
to indirectly control us. Such ownership may present conflicts of interest
between the Providence or Primus funds and us. They may pursue or cause us to
pursue transactions that could enhance their controlling interest, or permit
them to realize upon their investment, in a manner that is not in the interests
of minority shareholders.
Providence and Primus, or their affiliates, currently have significant
investments in other telecommunications companies, 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 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.
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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 on our debt are denominated in U.S. dollars and euros, but
our revenues are denominated in other currencies as well. Any appreciation in
the value of the U.S. dollar or the euro relative to such other currencies could
decrease our revenues, increase our debt and interest payments and, therefore,
materially adversely affect our operating margins. Fluctuations in foreign
currencies may also make period to period comparisons of our results of
operations difficult.
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. While we believe that our systems have not
been and will not be adversely impacted by the introduction of the euro, there
can be no assurance that we will not incur increased operational costs or 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. In addition, there can be no assurance that our third-party
suppliers and customers will be able to successfully implement the necessary
protocols.
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 continue to function adequately. A failure of our computer systems
or other systems could have a material adverse effect on us. Any failure of the
computer systems of our vendors, suppliers or customers 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."
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
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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.
THE ABSENCE OF A PRIOR PUBLIC MARKET FOR OUR SHARES OR THE ADSS CREATES
UNCERTAINTY IN MARKET PRICE.
Prior to this offering, you could not buy or sell our shares publicly.
Although we have applied to have the ADSs quoted on the Nasdaq National Market
and to have the shares listed on the Neuer Markt of the Frankfurt Stock
Exchange, an active public market for the shares or ADSs may not develop or be
sustained after the offering. Moreover, if a market does develop, the market
price of our shares or ADSs may decline below the initial public offering price.
After the offering, the market price of the shares and ADSs may fluctuate
significantly in response to a number of factors, some of which are beyond our
control, including:
- quarterly variations in our operating results,
- changes in financial estimates by securities analysts,
- changes in market valuations of telecommunications companies,
- announcements by us, or our competitors, of significant contracts,
acquisitions, strategic partnerships, joint ventures, business
combinations, or capital commitments,
- loss of a major customer,
- additions or departures of key personnel, and
- sales of shares or ADSs.
THE POSSIBLE VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR
SHAREHOLDERS.
Historically, the market prices for securities of emerging companies in the
telecommunications industry have been highly volatile. In addition, the stock
market has experienced volatility that has affected the market prices of equity
securities of many companies and that often has been unrelated to the operating
performance of those companies. These broad market fluctuations may adversely
affect the market price of our shares or ADSs. Furthermore, following periods of
volatility in the market price of a company's securities, shareholders of the
company have often instituted securities class action litigation against the
company. Any similar litigation against us could result in substantial costs and
a diversion of management's attention and resources, which could adversely
affect the conduct of our business.
SALES OF SUBSTANTIAL NUMBERS OF SHARES AFTER THIS OFFERING COULD ADVERSELY
AFFECT THE MARKET PRICE OF THE SHARES.
Following the offering, we will have 40,590,490 shares outstanding, 57.8% of
which will be held indirectly by funds managed by Providence and 11.1% of which
will be held indirectly by funds managed by Primus. Subject to some exceptions,
the investment vehicle for the Providence and Primus funds and each of our
executive officers and directors have agreed not to sell any shares for a period
of 180 days after the date of this prospectus without the prior written consent
of Morgan Stanley & Co. International Limited and Salomon Brothers International
Limited or certain of their affiliates. Following this 180-day period, they may
sell their shares as permitted by the securityholders' agreement, U.S.
securities laws and other applicable laws. In addition as of December 31, 1999,
we had 4,232,661 shares issuable upon the exercise of outstanding warrants and
options. Future sales of a large block of our shares, or the perception that
these sales could occur, could cause a decrease in the market price of our
shares or the ADSs. The warrant holders and our majority shareholder, among
others, have registration rights described under "Description of Share
Capital--Description of the
22
<PAGE>
Warrants--Other Provisions" and "Certain Relationships and Related
Transactions--Equity Investments--Registration Rights Agreement."
WE HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THE OFFERING.
We are required to repay the amount outstanding under our existing credit
facilities from the net proceeds of this offering. From the remaining net
proceeds, approximately $356.3 million of the total estimated net proceeds of
the offering has been allocated for general corporate and working capital
purposes. We will determine how to use the remaining net proceeds based on a
number of factors, and we have broad discretion in allocating a significant
portion of the remaining net proceeds from the offering without any action or
approval of our shareholders. Accordingly, investors will not have the
opportunity to evaluate the economic, financial and other relevant information,
which we will take into account, in determining the application of the remaining
net proceeds. See "Use of Proceeds."
EVENTS DESCRIBED BY OUR FORWARD-LOOKING STATEMENTS MAY NOT OCCUR.
This prospectus includes 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,
- 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.
23
<PAGE>
USE OF PROCEEDS
We expect that net proceeds to us from this offering will be approximately
$568.9 million, assuming an initial public offering price of [EURO]82.00
($80.65) per share ($16.13 per ADS) and assuming no exercise of the
over-allotment option. We will not receive any proceeds from the offering by the
selling shareholders. We intend to use the net proceeds of this offering:
- to repay approximately [EURO]40 million of floating rate indebtedness due
December 20, 2000 and that is outstanding under an interim credit facility
with Morgan Stanley Senior Funding, Inc. and Citibank, N.A., and
approximately $75 million of floating rate indebtedness due 2004 and
outstanding under an equipment financing agreement with Nortel
Networks Inc.,
- to fund our $23.25 million commitment to invest in the Hubco joint venture
for the development of data centers,
- to fund an estimated $75 million for the expansion of our network to
intra-city networks, and
- with respect to the remainder, for working capital and other general
corporate purposes.
DIVIDEND POLICY
Carrier1 International has never declared or paid any dividends and does not
expect to do so in the foreseeable future. We do not expect to generate any net
income in the foreseeable future, but anticipate that future earnings generated
from operations, if any, will be retained to finance the expansion and continued
development of our business. Subject to the declaration of interim dividends by
Carrier1 International's board of directors, decisions to pay dividends may only
be made by its shareholders acting at a shareholders' meeting. If Carrier1
International were to pay dividends, we would expect to pay them in either U.S.
dollars or euros. Any cash dividends payable to holders of shares or ADSs who
are nonresidents of Luxembourg would normally be subject to Luxembourg statutory
withholding taxes. See "Taxation--Certain Luxembourg Tax Considerations." Any
future determination with respect to the payment of dividends on our shares will
depend upon, among other things, our 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 dividends will be restricted under the terms of
our debt agreements.
24
<PAGE>
DILUTION
Our net tangible book value (deficit) as of December 31, 1999 was
approximately $(1.58) per share or $(0.32) per ADS. Net tangible book value
(deficit) per share represents the amount of our total tangible assets less our
total liabilities, divided by the number of shares outstanding. After giving
effect to the receipt of $568.9 million of estimated net proceeds from the sale
of shares in the offering (assuming an initial public offering price of
[EURO]82.00 ($80.645) per share), our pro forma net tangible book value as of
December 31, 1999 would have been approximately $12.75 per share or $2.55 per
ADS. This represents an immediate increase of $14.33 per share; or $2.87 per
ADS, to existing shareholders and an immediate dilution of $67.90 per share, or
$13.58 per ADS, to new investors. The following table illustrates this dilution:
<TABLE>
<CAPTION>
PER SHARE PER ADS
--------------- ---------------
<S> <C> <C> <C> <C>
Assumed initial public offering price............... $80.65 $16.13
Net tangible book value (deficit) as of
December 31, 1999................................. $(1.58) $(0.32)
Increase in net tangible book value attributable to
the offering...................................... 14.33 2.87
------ ------
Net tangible book value after adjustment for the
offering.......................................... 12.75 2.55
------ ------
Dilution in net tangible book value to new
investors......................................... $67.90 $13.58
====== ======
</TABLE>
The foregoing computations assume no exercise of any options or warrants or
the over-allotment option. As of December 31, 1999, there were outstanding
2,518,468 options and 245,000 warrants to purchase an aggregate of 4,232,661
shares at exercise prices ranging from $2.00 to $40.34 per share for the options
and, at December 31, 1999, $2.00 for the warrants. If all of the foregoing
options and warrants had been exercised as of December 31, 1999, the net
tangible book value at such date would have been $(1.05) per share, or $(0.21)
per ADS, and the pro forma net tangible book value after giving effect to the
offering would have been $11.84 per share, or $2.37. This represents an
immediate increase of $12.89 per share, or $2.58 per ADS, to existing
shareholders and an immediate dilution of $68.81 per share, or $13.76 per ADS,
to new investors. The foregoing computations do not take into account
approximately 55,000 shares purchased prior to December 31, 1999 but formally
issued under Luxembourg law in January 2000, or 4,083 shares held in treasury at
December 31, 1999.
The following table summarizes, as of December 31, 1999, the number of
shares purchased from Carrier1 International, the total consideration paid and
the average price per share paid by the existing shareholders and the average
price per share and per ADS paid by new investors assuming initial public
offering price of $80.65 per share, or $16.13 per ADS, and before deducting the
underwriting discount and the estimated expenses of the offering payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE AVERAGE
PRICE PER PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE ADS
----------- -------- ------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Existing shareholders................ 33,010,700 81% $ 66,241,792 10% $ 2.01 $ 0.40
Investors purchasing in the
offering........................... 7,500,000 19 604,837,500 90 80.65 16.13
----------- --- ------------ ----
Total............................ 40,510,700 100% $671,079,292 100%
=========== === ============ ====
</TABLE>
The foregoing data has been computed based upon the estimated number of
shares to be outstanding after the offering, excluding 2,747,222 shares reserved
for issuance under our share option plan and 1,714,193 reserved for issuance
upon the exercise of outstanding warrants.
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<PAGE>
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and total capitalization at December 31, 1999 and as adjusted to give effect to
the application of the proceeds of this offering, but without giving effect to
the issuance of 24,650 shares upon exercise of warrants in connection with the
offering.
Amounts are presented in thousands, except share data.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
Cash and cash equivalents (1)............................... $ 28,504 $483,032
========= ========
Restricted cash............................................. $ 5,512 $ 5,512
========= ========
Restricted investments...................................... $ 90,177 $ 90,177
========= ========
Long term debt (1)
Senior notes.............................................. $ 243,415 $243,415
Other long-term debt...................................... 94,341 19,338
Shareholders' equity (deficit):
Common stock, $2 par value, 33,010,700 shares issued and
outstanding at December 31, 1999; 40,510,700 shares
issued and outstanding, as adjusted..................... 66,021 81,021
Additional paid-in capital................................ 2,524 556,395
Accumulated deficit....................................... (107,734) (107,734)
Accumulated other comprehensive income.................... 4,688 4,688
Common stock held in treasury, 4,083 shares............... (8) (8)
--------- --------
Total shareholders' equity (deficit).................. (34,509) 534,362
--------- --------
Total capitalization................................ $ 303,247 $797,115
========= ========
</TABLE>
- ------------------------
(1) As of December 31, 1999 we also had [EURO]10 million of short term debt
outstanding under our interim credit facility. In the first quarter of 2000,
we have borrowed an additional [EURO]30 million under this facility. We are
required to repay the total amount of [EURO]40 million outstanding under the
facility with the proceeds of this offering, which is reflected in the as
adjusted figure for cash and cash equivalents. We have also incurred
additional long term debt of approximately $4.0 million since December 31,
1999 under our seller financing agreement.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data as
of and for the period from our inception to December 31, 1998 and as of and for
the year ended December 31, 1999. The selected consolidated financial data as of
and for the period from our inception to December 31, 1998, and as of and for
the year ended December 31, 1999, were derived from our consolidated financial
statements which were audited by Deloitte & Touche Experta AG, independent
auditors. The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with our
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Amounts are presented in thousands, except share data.
<TABLE>
<CAPTION>
YEAR ENDED INCEPTION TO
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................................... $ 97,117 $ 2,792
Cost of services (exclusive of amounts shown separately
below)................................................... 113,809 11,669
Selling, general and administrative expenses............... 18,369 8,977
Depreciation and amortization.............................. 13,849 1,409
----------- ----------
Loss from operations....................................... (48,910) (19,263)
Other income (expense):
Interest income.......................................... 5,859 92
Interest expense......................................... (29,475) (11)
Other income (expense)................................... (555) --
Currency exchange loss, net.............................. (15,418) (53)
----------- ----------
Loss before income tax benefit............................. (88,499) (19,235)
Income tax benefit, net of valuation allowance (1)......... -- --
----------- ----------
Net loss................................................... $ (88,499) $ (19,235)
=========== ==========
Weighted average number of shares outstanding (2).......... 29,752,000 7,367,000
Net loss per share (basic)................................. $ (2.97) $ (2.61)
Net loss per share (diluted) (3)........................... (2.97) (2.61)
OTHER FINANCIAL DATA:
EBITDA (4)................................................. $ (35,061) $ (17,854)
Capital expenditures (5)................................... 195,376 37,168
Net cash used in operating activities...................... (78,359) (14,441)
Net cash used in investing activities...................... (253,247) (19,866)
Net cash provided by financing activities.................. 353,450 37,770
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 28,504 $ 4,184
Restricted cash............................................. 5,512 1,518
Restricted investments (6).................................. 90,177 --
Total assets (7)............................................ 437,655 51,434
Total long-term debt (8).................................... 337,756 --
Shareholders' equity........................................ (34,509) 19,189
</TABLE>
- ------------------------
(1) Due to our limited operating history, we were unable to conclude that
realization of our 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. See Note 10 to our consolidated financial statements.
(2) See Note 4 to our consolidated financial statements.
(3) Potential dilutive securities have been excluded from the computation for
the period from our inception to December 31, 1998 and for the year ended
December 31, 1999, as their effect is antidilutive. See Note 4 to our
consolidated financial statements.
(4) EBITDA stands for earnings before interest, taxes, depreciation,
amortization, foreign currency exchange gains or losses and other income
(expense).
EBITDA is used by management and certain investors as an indicator of a
company's ability to service debt and to satisfy its 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
our 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
similarly titled measures as calculated under our debt agreements.
(5) Consists of purchases of property and equipment and investment in joint
venture.
(6) Reflects:
(a) the remaining portion of the net proceeds of our 13 1/4% senior notes
which was used to purchase government securities to secure and fund the
first five scheduled interest payments on the notes, and
(b) approximately $29.3 million used to collateralize a letter of credit
relating to the construction of the German network.
See Notes 6 and 7 to our consolidated financial statements.
(7) Includes net capitalized financing costs of approximately $14.2 million as
of December 31, 1999.
(8) For a description of indebtedness incurred subsequent to December 31, 1999,
see "Capitalization."
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES. CERTAIN INFORMATION CONTAINED IN THE DISCUSSION
AND ANALYSIS OR SET FORTH ELSEWHERE IN THIS PROSPECTUS, INCLUDING INFORMATION
WITH RESPECT TO OUR PLANS AND STRATEGY FOR OUR 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 IN THIS PROSPECTUS.
OVERVIEW
We are a rapidly expanding European facilities-based provider of voice,
Internet and bandwidth and related telecommunications services. We offer these
services primarily to other telecommunications service providers. In
March 1998, our experienced management team and Providence Equity Partners
formed Carrier1 to capitalize on the significant opportunities emerging for
facilities-based carriers in Europe's rapidly liberalizing telecommunications
markets. By September 1998, we had deployed our initial network and commenced
selling services. By December 31, 1999, we had 259 contracts with voice
customers and 70 contracts with Internet and bandwidth customers.
We are developing an extensive city-to-city European fiber optic network
accessing and linking key population centers. In select European cities, we are
also developing intra-city networks and data centers for housing and managing
equipment. We expect these intra-city networks to give us faster, lower cost
access to customers, with better quality control. We also expect to bundle and
cross-sell our intra-city network and data center capabilities with our other
services. We intend to continue rapidly expanding our network in a
cost-effective manner by building, buying or swapping network assets.
To date, we have experienced net losses and negative cash flow from
operating activities. From our inception to September 1998, our principal
activities included developing our business plans, obtaining governmental
authorizations and licenses, acquiring equipment and facilities, designing and
implementing our voice and Internet 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, we commenced the roll-out of our services. We expect to continue
to generate net losses and negative cash flow through at least 2002 as we expand
our operations. 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. See "--Liquidity and Capital
Resources."
Although our management is highly experienced in the wholesale
telecommunications business, our company itself has a limited operating history.
Prospective investors therefore have limited operating and financial information
about our company upon which to base an evaluation of our performance and an
investment in our securities.
Our consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles. We have adopted a fiscal year end of
December 31.
FACTORS AFFECTING FUTURE OPERATIONS
REVENUES
We expect to generate most of our revenues through the sale of wholesale
long distance voice and Internet and bandwidth services to other
telecommunications service providers. We record revenues from the sale of voice
and Internet services at the time of customer usage. During the quarter ended
June 30, 1999, we recognized revenue of approximately $3.2 million and cost of
services of
29
<PAGE>
approximately $1.9 million from one bandwidth IRU contract that was treated as a
sales-type lease. In the future, similar revenues and expenses will be
recognized over the term of the relevant contract, typically over 15 to
20 years. Our agreements with our 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. We generate a steady stream of voice traffic by providing
high-quality service and superior customer support. Our Internet and bandwidth
services are generally charged at a flat monthly rate, regardless of usage,
based on the line speed and level of performance made available to the customer.
Since March 31, 1999, we have migrated to offering usage-based Internet pricing
for our Internet transport services, "Internet Exchange Connect" and "Global
Transit", only in combination with Internet contracts that have a fee-based
component that guarantees minimum revenue, in order to encourage usage of our
network services by our Internet customers. Our agreements with our Internet
transport customers are generally for a minimum term of twelve months, although
we may seek minimum terms of two years or more for agreements providing for
higher line speeds. Currently, our bandwidth services are typically also for an
initial term of twelve months, although we expect to be able to offer more
flexible pricing alternatives to bandwidth customers in the future. We believe
that, if the quality of the service is consistently high, Internet transport
customers will typically increase the amount of capacity they purchase from us.
We believe that they will also generally renew their contracts because it is
costly and technically burdensome to switch carriers.
Our services are priced competitively and we emphasize quality and customer
support. The rates charged to voice and Internet and bandwidth customers are
subject to change from time to time. Although our revenue per billable minute
for voice traffic in the third quarter of 1999 increased as a result of a more
favorable traffic and services mix, we generally expect to experience declining
revenue per billable minute for voice traffic and declining revenue per Mb for
Internet traffic and bandwidth, in part as a result of increasing competition.
As a result of the construction of European fiber optic networks by our
competitors, the price of wholesale bandwidth capacity is declining rapidly,
which has lowered the price at which we are able to sell our Internet and
bandwidth products, including dark fiber. We also expect technological advances
that greatly increase the capacity of fiber optic cable to exacerbate downward
price pressure. We anticipate, however, that the incremental costs of lighting
dark fiber with transmission equipment will remain significant and will
therefore serve as an economic restraint to increases in available managed
bandwidth capacity at low marginal costs. Furthermore, we believe that price
decreases will promote demand for high volumes and opportunities for
volume-related revenue increases. The impact on our results of operations from
price decreases has been in prior quarters and we believe it will continue to
be, at least partially offset by decreases in our cost of providing services,
largely due to our increased use of our own fiber and our consequent decreased
termination costs, and increases in our voice and Internet traffic volumes. In
addition, we believe that our ability to bundle and cross-sell network services
allows us to compete effectively and to protect our business, in part, against
the impact of these price decreases.
Our focus on the wholesale markets results in us 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
our high volume routes, could have a material impact, positive or negative, on
our revenues. For example, for the year ended December 31, 1999, one customer
accounted for approximately 14% of our revenues, and this customer may continue
to account for a significant portion of revenues in the near term. Furthermore,
many wholesale customers of voice services tend to be price sensitive and may
switch suppliers for certain routes on the basis of small price differentials.
In contrast, Internet and bandwidth customers tend to use fewer suppliers than
voice customers, cannot switch suppliers as easily and, we believe, are more
sensitive to service quality than to price. We believe that customers for data
center services are more sensitive to the differential
30
<PAGE>
services that we plan to provide than to price. In addition, we believe that
they are unlikely to move between facilities due to their initial investments in
tenant improvements and the high costs and risks of network outage associated
with moving to another facility.
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 the following general
categories: access costs, transmission costs, voice and Internet termination
costs and other costs of services.
ACCESS COSTS. We have minimal access costs as our wholesale customers are
typically responsible for the cost of accessing our network. We have begun to
provide services to switchless resellers. Switchless resellers do not have any
telecommunications infrastructure. Therefore, for services to switchless
resellers we will have access costs payable to the originating local provider,
usually the incumbent telephone operator. These costs are reflected in our
pricing and will vary based on calling volume and the distance between the
caller and our point of presence.
TRANSMISSION COSTS. Our transmission costs currently consist primarily of
leased capacity and switch and router facilities costs. Leased capacity charges
are fixed monthly payments based on capacity provided and are typically higher
than a "dark fiber cost level," which is our 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 but which has not
been "lit" with transmission electronics. 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," or indefeasible
rights of use, known as "IRUs." Because of the higher cost base of leased
capacity, we have not generally sought to provide our bandwidth services over
leased network routes.
As part of our strategy to lower our cost base over time, we will seek dark
fiber cost levels for our entire transmission platform, through building,
acquiring or swapping capacity. For example, we anticipate that the German
network will be operational in the first half of 2000 and the Amsterdam
intra-city network will be operational in the third quarter of 2000. We have
acquired intra-city capacity in London to lower our access costs, and we have
made capital-efficient arrangements to swap capacity on the German network for
capacity on other networks. We further minimize our transmission costs by
optimizing the routing of our voice traffic and increasing volumes on our
fixed-cost leased and owned lines, thereby spreading the allocation of fixed
costs over a larger number of voice minutes or larger volume of Internet
traffic, as applicable. To the extent we overestimate anticipated traffic
volume, however, per unit costs will increase. As we continue to develop our
owned network and rely less on leased capacity, per unit voice transmission
costs are expected to decrease substantially, offset partially by an increase in
depreciation and amortization expense. We also expect to experience declining
transmission costs per billable minute or per Mb, as applicable, as a result of
increasing use of our owned network as opposed to leased network assets,
decreasing cost of leased transmission capacity, increasing availability of more
competitively priced IRUs and MIUs and increasing traffic volumes.
VOICE TERMINATION COSTS. Termination costs represent the costs we are
required to pay to other carriers from the point of exit from our network to the
final point of destination. Generally, most 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 we have 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 usually the least costly mode of terminating a call. If a
call is to a location in which we do not have a point of presence, or have a
point of presence
31
<PAGE>
but do not have an interconnection agreement giving us 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. We pay this carrier a refile fee for terminating our 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. We seek to reduce our
refile costs by utilizing least cost routing. For example, where we do not yet
have interconnection agreements, we implement "resale" agreements whereby a
local carrier that has an interconnection agreement with the incumbent telephone
operator "resells" or shares this interconnection right with us for a fee.
Termination through resale agreements is more expensive than through
interconnection agreements but significantly less expensive than through refile
agreements because the traffic does not need to be rerouted to another country.
In countries where we have not been directly authorized to provide services, we
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. We believe
our refile and resale agreements are competitively priced. If our traffic
volumes are higher than expected, we may have to divert excess traffic onto
another carrier's network, which would also increase our termination costs. We
believe, however, that we have sufficient capacity and could, if necessary,
obtain more. In addition, our technologically advanced daily traffic monitoring
capabilities allow us to identify changes in volume and termination cost
patterns as they begin to develop, thereby permitting us to respond in a
cost-efficient manner.
We believe that our termination costs per unit should decrease as we extend
our network, increase transmission capacity and interconnect with more incumbent
telephone operators. We also believe 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.
INTERNET TERMINATION COSTS. Termination costs represent costs we are
required to pay to other Internet backbone providers from the point of exit of
our network. Internet termination is effected through peering and transit
arrangements. Peering arrangements provide for the exchange of Internet traffic
free-of-charge. We have entered into peering arrangements with ISPs in the
United States and Europe, including recent peering arrangements with several
European incumbent telephone operators. There can be no assurance that we will
be able to negotiate additional peering arrangements. Under transit
arrangements, we are 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 us by our transit partners. The major United States ISPs require almost all
European ISPs and Internet backbone providers, including us, to pay a transit
fee to exchange traffic. See "Business--Network--Existing and Planned Traffic
Termination Arrangements--Internet Termination."
Recently, the Internet services industry has experienced increased merger
and consolidation activity. This activity is likely to increase the
concentration of market power of Internet backbone providers, and may adversely
affect our ability to obtain peering and cost-effective transit arrangements.
OTHER COSTS OF SERVICES. Other costs of planned services include the
expenses associated with providing value-added Internet services and data center
capabilities. These expenses will consist primarily of certain engineering
costs, personnel costs and lease expenses within our data center facilities.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our wholesale strategy allows us to maintain lower selling, general and
administrative expenses than companies providing services to the mass retail
market. Our 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.
We employ a direct sales force located in the major markets in which we offer
services. To attract and retain a highly qualified sales force, we offer our
sales personnel a compensation package emphasizing performance-based commissions
and equity options. We expect to incur significant selling and marketing costs
in advance of anticipated related revenue as we continue to expand our
operations and service offerings. Our selling, general and administrative
expenses are expected to decrease as a percentage of revenues, however, once we
have established our operations in targeted markets and expanded our customer
base.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense includes charges relating to
depreciation of property and equipment, which consist principally of equipment
(such as switches, multiplexers and routers), investments in indefeasible rights
of use and in multiple investment units, furniture and equipment. We depreciate
our network over periods ranging from 5 to 15 years and amortize our intangible
assets over a period of 5 years. We depreciate our investments in indefeasible
rights of use and in multiple investment units over their estimated useful lives
of not more than 15 years. We expect depreciation and amortization expense to
increase significantly as we expand our owned network, including the development
of the German network.
RESULTS OF OPERATIONS
Because we commercially introduced our services in September 1998, our
management believes that comparisons of results for the year ended December 31,
1999 to the period from our inception to December 31, 1998 and for the
three-month period ending December 31, 1999 to the three-month period ending
December 31, 1998 are not meaningful.
CONSOLIDATED QUARTERLY FINANCIAL DATA
The following table sets forth our consolidated financial data as of and for
the three-month periods ended December 31, September 30, June 30 and March 31,
1999. The consolidated financial data were derived from our unaudited
consolidated financial statements and include, in the opinion of our 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 rest of this discussion and with our consolidated financial
statements and related notes.
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Amounts are presented in thousands.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
DECEMBER 31, 1999 SEPTEMBER 30, 1999 JUNE 30, 1999 MARCH 31, 1999
----------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue............................ $ 37,319 $ 27,311 $ 20,194 $ 12,293
Cost of services (exclusive of
amounts shown separately
below)........................... 41,905 32,543 22,346 17,015
Selling, general and administrative
expenses......................... 7,688 4,216 3,147 3,318
Depreciation and amortization...... 6,032 4,183 2,298 1,336
-------- -------- -------- --------
Loss from operations............... (18,306) (13,631) (7,597) (9,376)
Other income (expense):
Interest income.................... 772 2,009 2,099 979
Interest expense................... (8,152) (8,718) (8,400) (4,205)
Other income (expense)............. (117) (25) (413) --
Currency exchange gain (loss),
net.............................. (10,200) 1,931 (4,721) (2,428)
-------- -------- -------- --------
Loss before income tax benefit..... (36,003) (18,434) (19,032) (15,030)
Income tax benefit, net of
valuation allowance.............. -- -- -- --
-------- -------- -------- --------
Net loss........................... $(36,003) $(18,434) $(19,032) $(15,030)
======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA............................. $(12,274) $ (9,448) $ (5,299) $ (8,040)
Net cash used in operating
activities....................... (18,790) (20,121) (20,932) (18,910)
Net cash used in investing
activities....................... (53,992) (13,311) (31,893) (152,722)
Net cash provided by (used in)
financing activities............. 86,638 (2,153) (4,996) 274,141
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1999
Revenues for the three-month period ended December 31, 1999 were
approximately $37.3 million, primarily relating to voice services, which
contributed $34.3 million or 92% to the total revenue generated in the fourth
quarter of 1999. Voice revenue increased 34% compared to the third quarter of
1999. Voice traffic volume of 238 million minutes was billed to our customers.
In general, the majority of our voice traffic originates and terminates in
Europe where prices are generally lower, but where we have implemented
interconnection agreements and therefore generally do not need to terminate
traffic via more costly refile or resale arrangements. Average revenue per
minute in the fourth quarter of 1999 was 14.4 cents, which represented an
increase of approximately 3% compared to the third quarter of 1999, due
primarily to changes in traffic mix (with a higher proportion of non-European
traffic) offset somewhat by price reductions.
Internet and bandwidth revenue was $3.0 million in the fourth quarter of
1999, representing an increase of 77% compared to the third quarter.
Cost of services (exclusive of amounts shown separately) consists primarily
of costs for operation of the network, costs for leases for transmission
capacity, and termination expenses including refiling. These costs for the
three-month period ended December 31, 1999 increased 29% from the previous
quarter, to approximately $41.9 million, primarily as a result of an increase in
refile costs associated with our increased voice revenues. As a percentage of
revenues, these costs for the fourth quarter were 112% of revenues, a decrease
from 119% of revenues in the previous quarter.
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Selling, general and administrative expenses were approximately $7.7 million
for the three-month period ended December 31, 1999 and consisted primarily of
personnel costs, information technology costs, office costs, professional fees
and expenses.
Depreciation and amortization for the three-month period ended December 31,
1999 was approximately $6.0 million and consisted primarily of depreciation
costs for network equipment, indefeasible rights of use, and furniture and other
equipment.
Net interest expense for the three-month period ended December 31, 1999 was
approximately $7.4 million. It consisted of approximately $8.2 million of
interest expense on our 13 1/4% senior notes and other debt, less interest
income of approximately $0.8 million from investing the remaining proceeds of
the investments by our equity sponsors, employees and directors and the issuance
of the 13 1/4% senior notes and related warrants.
The weakening of the euro to the U.S. dollar in the fourth quarter of 1999
resulted in a currency exchange loss of $10.2 million.
Our management evaluates the relative performance of our voice and Internet
and bandwidth services operations based on their respective fixed cost
contributions. Fixed cost contribution consists of the revenues generated by the
provision of voice services or Internet and bandwidth services, as the case may
be, less direct variable costs incurred as a result of providing such services.
Certain direct costs, such as network and transmission costs, are shared by both
the voice and Internet and bandwidth operations and are not allocated by
management to either service. See Note 13 to our consolidated financial
statements. Fixed cost contribution for voice services for the three-month
period ended December 31, 1999 was $3.1 million, representing $34.3 million in
voice revenue less $31.2 million, or 13.1 cents per minute, in voice termination
costs. Fixed cost contribution for Internet and bandwidth services for the same
period was equivalent to Internet and bandwidth services revenue, or $3.0
million.
THREE MONTHS ENDED SEPTEMBER 30, 1999
Revenues for the three-month period ended September 30, 1999 were
approximately $27.3 million, primarily relating to voice services, which
contributed $25.6 million or 94% to the total revenue generated in the third
quarter of 1999. Voice revenue increased 62% compared to the second quarter of
1999. Voice traffic volume of 183 million minutes was billed to our customers.
Average revenue per minute in the third quarter of 1999 was 14 cents, which
represented an increase of approximately 8% compared to the second quarter of
1999, due primarily to changes in traffic mix (with a higher proportion of
non-European traffic) offset somewhat by price reductions.
Internet and bandwidth revenue was $1.7 million in the third quarter of
1999, representing a decrease of 61% compared to the second quarter, but
representing an increase of 51% excluding a second-quarter bandwidth IRU
contract recorded as a $3.2 million sale.
Cost of services (exclusive of amounts shown separately) consists primarily
of costs for operation of the network, costs for leases for transmission
capacity, and termination expenses including refiling. These costs for the
three-month period ended September 30, 1999 increased 46% from the previous
quarter, to approximately $32.5 million. As a percentage of revenues, these
costs for the third quarter were 119% of revenues, an increase from 111% of
revenues in the previous quarter, but a slight decrease from 120% in the
previous quarter excluding the revenue and cost of services associated with the
bandwidth IRU contract in the earlier quarter.
Selling, general and administrative expenses were approximately
$4.2 million for the three-month period ended September 30, 1999 and consisted
primarily of personnel costs, information technology costs, office costs,
professional fees and expenses.
Depreciation and amortization for the three-month period ended
September 30, 1999 was approximately $4.2 million and consisted primarily of
depreciation costs for network equipment, indefeasible rights of use, and
furniture and other equipment.
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Net interest expense for the three-month period ended September 30, 1999 was
approximately $6.7 million. It consisted of approximately $8.7 million of
interest expense on our 13 1/4% senior notes and other long term debt, less
interest income of approximately $2.0 million from investing the remaining
proceeds of the investments by our equity sponsors, employees and directors and
the issuance of the 13 1/4% senior notes and related warrants.
The strengthening of the euro to the U.S. dollar in the third quarter of
1999 resulted in a currency exchange gain of $1.9 million.
Fixed cost contribution for voice services for the three-month period ended
September 30, 1999 was $4.2 million, representing $25.6 million in voice revenue
less $21.4 million, or 11.7 cents per minute, in voice termination costs. Fixed
cost contribution for Internet and bandwidth services for the same period was
equivalent to Internet and bandwidth services revenue, or $1.7 million.
YEAR ENDED DECEMBER 31, 1999
Revenues for the year ended December 31, 1999 were approximately
$97.1 million, primarily relating to voice services, which contributed
$87.6 million or 90% to the total revenue generated during that period. Voice
traffic volume of 606 million minutes was billed to our customers. Average
revenue per minute for the period was 14.5 cents. Revenue of $9.5 million for
the same period was generated by Internet and bandwidth services, including
revenue of $3.2 million associated with the second quarter bandwidth IRU
contract.
Cost of services (exclusive of items shown separately) consists primarily of
operation of the network, leases for transmission capacity, and termination
expenses including refiling. These costs for the year ended December 31, 1999
were approximately $113.8 million, including $1.9 million of cost of services
associated with the second quarter bandwidth IRU contract.
Selling, general and administrative expenses were approximately
$18.4 million for the year ended December 31, 1999 and consisted primarily of
personnel costs, information technology costs, office costs, professional fees
and expenses.
Depreciation and amortization for the year ended December 31, 1999 was
approximately $13.8 million and consisted primarily of depreciation costs for
network equipment, indefeasible rights of use, and other furniture and
equipment.
Net interest expense for the year ended December 31, 1999 was approximately
$23.6 million. It consisted during this period of approximately $29.5 million of
interest on the 13 1/4% senior notes, other short term and long term debt, less
interest income of approximately $5.9 million. Interest income consists of
interest earned from investing the remaining proceeds of the investments by our
equity sponsors, employees and directors and the issuance of the 13 1/4% senior
notes and related warrants.
The weakening of the euro to the U.S. dollar in the year ended December 31,
1999 resulted in a currency exchange loss of approximately $15.4 million.
Fixed cost contribution for voice services for the year ended December 31,
1999 was $12.6 million, representing $87.6 million in voice revenue less
$75.0 million, or 12.4 cents per minute, in voice termination costs. Fixed cost
contribution for Internet and bandwidth services for the same period was
$7.6 million, representing approximately $9.5 million in Internet and bandwidth
services revenue less approximately $1.9 million of cost of services for the
bandwidth IRU contract.
PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1998
We commercially introduced our services in September 1998. Revenues for the
period from our inception to December 31, 1998 were approximately $2.8 million,
primarily relating to voice services, which contributed 98% to the total revenue
achieved in 1998. Voice traffic volume from the start of
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<PAGE>
operations in September 1998 until the end of 1998 amounted to 10 million
minutes. Revenue of $0.1 million for the same period was generated by Internet
services.
Cost of services (exclusive of amounts shown separately) consists primarily
of operation of the network, leases for transmission capacity, and termination
expenses including refiling. These costs for the period from our inception to
December 31, 1998 were approximately $11.7 million.
Selling, general and administrative expenses were approximately
$9.0 million for the period from our inception to December 31, 1998 and
consisted primarily of start-up expenses, personnel costs, information
technology costs, office costs, professional fees and promotion expenses.
Depreciation and amortization for the period from our 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.
Interest income during the period from our inception to December 31, 1998
consisted of interest earned from investing the proceeds of the issuance of
equity. Interest income totaled approximately $92,000 for the period from our
inception to December 31, 1998. No material interest expense was incurred during
the same period. No material currency exchange loss was incurred during the same
period.
Fixed cost contribution for voice services for the period from our inception
to December 31, 1998 was $0.1 million, representing $2.7 million in voice
revenue less $2.6 million in voice termination costs, reflecting the fact that
during the early stages of our operations, we had relatively few interconnection
agreements with incumbent telephone operators so that traffic had to be
terminated at higher cost through refiling. Fixed cost contribution for Internet
and bandwidth services for the same period was equivalent to Internet and
bandwidth services revenue, or $0.1 million.
LIQUIDITY AND CAPITAL RESOURCES
We broadly define liquidity as our ability to generate sufficient cash flow
from operating activities to meet our obligations and commitments. In addition,
liquidity includes the ability to obtain appropriate debt and equity financing
and to convert into cash those assets that are no longer required to meet
existing strategic and financial objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.
From our inception through December 31, 1998, we financed our operations
through equity contributions. During the year ended December 31, 1999, we
financed our operations through additional equity contributions and with the
proceeds of the issuance of our 13 1/4% senior notes and related warrants,
vendor financing and other long term debt, and an interim credit facility. The
further development of our business and deployment of our network will require
significant capital to fund capital expenditures, working capital, cash flow
deficits and debt service. Our principal capital expenditure requirements
include the expansion of our network, including construction of the German and
intra-city networks, the acquisition of multiplexers, routers and transmission
equipment and the construction of data center facilities through an investment
in the Hubco joint venture. Additional funding will also be required for office
space, switch site buildout and corporate overhead and personnel.
Between our inception and December 31, 1998, we had incurred capital
expenditures of approximately $37.2 million, and during the year ended December
31, 1999 we incurred capital expenditures of approximately $195.4 million,
including amounts related to the German network in both periods. Capital
expenditures in 1998 and 1999 were principally for investments in fiber
infrastructure and transmission equipment. We estimate that we will incur
capital expenditures of approximately $362 million from January 2000 through the
end of 2001 ($242 million for 2000 and $120 million for 2001), including
approximately $23 million of which we estimate will be required for
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our investment in the Hubco joint venture. We expect capital expenditures in
2000 and 2001 will be principally for investments in fiber infrastructure and
transmission equipment. By the end of the first half of 2000, we plan to
complete construction of the German network and to purchase additional
multiplexers and routers, and we plan to complete the Amsterdam intra-city
network in the third quarter of 2000.
As of December 31, 1998 funds managed by our equity sponsors had invested a
total of approximately $37.8 million to fund start-up operations. By
February 19, 1999, such funds had completed their aggregate equity investment
totaling $60 million in equity contributions. On February 19, 1999, we issued
13 1/4% senior notes, with warrants, for net proceeds of approximately
$242 million, after deducting discounts and commissions and expenses.
Approximately $79.0 million of the net proceeds were originally used to secure
the first five interest payments on the notes. In addition, as of December 31,
1999, employees and directors had directly or indirectly invested approximately
$6.7 million in our shares, approximately $0.5 million of which relates to
shares formally issued under Luxembourg law after December 31, 1999.
In addition to the net proceeds of this offering, other potential sources of
capital, if available on acceptable terms or at all, may include possible sales
of dark fiber on the German or Amsterdam networks or additional private or
public financings, such as an offering of debt or equity in the capital markets,
an accounts receivable or bank facility or equipment financings. We believe,
based on our current business plan, that these sources, or a combination of
them, will be sufficient to fund the expansion of our business as planned, and
to fund operations until we achieve positive cash flow from operations. We
expect to continue to generate net losses and negative cash flow through at
least 2002 as we expand our operations, and we do not expect to generate
positive cash flow from operating activities until at least 2003. 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.
For example, our net losses and negative cash flow from operating activities are
likely to continue beyond that time if:
- we decide to build extensions to our network because we cannot otherwise
reduce our transmission costs,
- we do not establish a customer base that generates sufficient revenue,
- we do not reduce our termination costs by negotiating competitive
interconnection rates and peering arrangements as we expand our network,
- prices decline faster than we have anticipated,
- we do not attract and retain qualified personnel,
- we do not obtain necessary governmental approvals and operator licenses or
- we are unable to obtain any additional financing as may be required.
Our ability to achieve these objectives is subject to financial,
competitive, regulatory, technical and other factors, many of which are beyond
our control. There can be no assurance that we will achieve profitability or
positive cash flow.
The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of, among other things, the demand for
our services and regulatory, technological and competitive developments. There
can be no assurance that sources of additional financing will be available on
acceptable terms or at all.
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As of December 31, 1999, we had total current assets of $171.3 million, of
which $32.6 million was escrowed for interest payments on the 13 1/4% senior
notes and $29.3 million of which was allocated to the construction cost of the
German network. Net unrestricted cash as of the same date was $28.5 million. In
the first quarter of 2000, we allocated approximately $20.0 million in
additional funds for the construction cost of the German network and provided a
letter of credit to secure payment of that amount.
EBITDA, which we define as earnings before interest, taxes, depreciation,
amortization, foreign currency exchange gains or losses and other income
(expense), decreased from negative $9.4 million in the third quarter of 1999 to
negative $12.3 million in the fourth quarter of 1999. EBITDA is used by
management and certain investors as an indicator of a company's ability to
service 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 an indication of our operating performance or any other measure of
performance derived under generally accepted accounting principles. EBITDA as
used in this prospectus may not be comparable to other similarly titled measures
of other companies or to similarly titled measures as calculated under our debt
agreements.
Our significant debt and vendor financing activity to date has consisted of
the following:
- On February 19, 1999, we issued $160 million and [EURO]85 million of
13 1/4% senior notes, with a scheduled maturity of February 15, 2009, with
detachable warrants.
- On February 18, 1999 we entered into an agreement to purchase fiber optic
cable for the German network for $20.3 million plus value-added tax. We
have borrowed an additional amount of approximately $4.0 million under
this agreement since December 31, 1999. We have the right to defer payment
until December 31, 2000 without interest, after which we may obtain seller
financing, with interest accruing from January 1, 2001.
- In June 1999, we entered into a financing facility with Nortel
Networks Inc., an equipment supplier. As of December 31, 1999, we had
borrowed substantially the full amount of the $75 million available under
the facility. The debt outstanding under this facility bears interest at a
LIBOR-based floating interest rate, and the weighted average on
outstanding amounts was 11.04% as of December 31, 1999. The debt is
required to be repaid from the proceeds of this offering.
- In December 1999, we entered into an interim credit agreement with Morgan
Stanley Senior Funding, Inc. and Citibank N.A. As of December 31, 1999, we
had borrowed [EURO]10 million of the $200.0 million (or the euro
equivalent) available under the facility. This debt bears interest at a
LIBOR-based floating interest rate equal to 6.72% as of December 31, 1999.
The debt outstanding under this facility, currently [EURO]40 million, is
required to be repaid from the proceeds of this offering. Under the terms
of the facility, the commitments of the lenders will be reduced in an
amount equal to the proceeds of this offering.
See "Description of Certain Indebtedness" for further details.
FOREIGN CURRENCY
Our reporting currency is the U.S. dollar, and interest and principal
payments on the 13 1/4% senior notes are in U.S. dollars and euros. However, the
majority of our revenues and operating costs are derived from sales and
operations outside the United States and are incurred in a number of different
currencies. Accordingly, fluctuations in currency exchange rates may have a
significant effect on our 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 we are subject. We will,
however,
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continue to incur revenues and operating costs in non-Euro denominated
currencies, such as pounds sterling. Although we do not currently engage in
exchange rate hedging strategies, we may attempt to limit foreign exchange
exposure by purchasing forward foreign exchange contracts or engaging in other
similar hedging strategies. We have outstanding one contract to purchase
Deutsche Marks in exchange for dollars from time to time in amounts anticipated
to satisfy our Deutsche Mark-denominated obligations under our German network
arrangements. Any reversion from the euro currency system to a system of
individual country floating currencies could subject us to increased currency
exchange risk.
INFLATION
We do not believe that inflation will have a material effect on our results
of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66." The interpretation is effective for sales of real estate with property
improvements or integral equipment entered into after June 30, 1999. Under this
interpretation, fiber is considered integral equipment and accordingly title
must transfer to a lessee in order for a lease transaction to be accounted for
as a sales-type lease. After June 30, 1999, the effective date of FASB
Interpretation No. 43, sales-type lease accounting is not appropriate for fiber
leases and, therefore, these transactions are accounted for as operating leases
unless title to the fibers under lease transfers to the lessee or the agreement
was entered into prior to June 30, 1999. During the three months ended June 30,
1999, Carrier1 recognized revenue of approximately $3.2 million and cost of
services of approximately $1.9 million from one bandwidth IRU contract that was
treated as a sales-type lease. In the future, similar revenues and expenses will
be recognized over the term of the related contracts, typically 15 to 20 years.
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. The adoption of this
standard is effective for the first quarter of our 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 our 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 our computer systems could have a material
adverse effect on our operations, including our ability to make payments on our
existing indebtedness.
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TRANSITION TO YEAR 2000
We did not experience any interruption to our business as a result of the
transition to January 1, 2000. As we developed and implemented our network,
operational support systems, and computer systems, we conducted an evaluation
for Year 2000 compliance. Based on such evaluation, we concluded that our
critical information technology, known as IT, systems and our non-IT systems,
such as our network transmission equipment and the Nortel and Cisco network
operating systems, were Year 2000 compliant. In addition, we received written
assurances from Cisco, Nortel, and International Computers Limited (a
significant software supplier) that the systems they provided us are Year 2000
compliant. We intend to maintain a Year 2000 project team with responsibility
for our efforts to continue to protect us and our customers from Year 2000
issues and the other potential problem dates in the year 2000, and beyond. The
Year 2000 project team includes members of the network and voice switches, IP
network services, IT, building services, corporate network, customer care and
legal departments.
RISKS OF YEAR 2000 ISSUES
Any failure of the computer systems of our vendors, service or capacity
suppliers or customers as a result of not being Year 2000 compliant could
materially and adversely affect us. For example, in the event of a failure as a
result of Year 2000 issues in any systems of third parties with whom we
interact, we could experience disruptions in portions of our network, lose or
have trouble accessing or receive inaccurate third party data, experience
internal and external communication difficulties, or have difficulty obtaining
components that are Year 2000 compliant from our vendors. Any of these
occurrences could adversely affect our ability to operate our network and retain
customers. In addition, we could also experience a slowdown or reduction of
sales if customers are adversely affected by Year 2000 issues. Although we have
not experienced any failure of our computer systems and we are not aware of any
of our major vendors, suppliers or customers experiencing significant problems,
there can be no assurance as to the potential for problems to emerge throughout
the course of the year 2000 and even beyond. For example, our sophisticated
billing system is designed to provide flexible options to our customers in the
presentation of their bills as well as valuable cost management information to
us, including breakdowns of traffic, revenues and margins by customer and route.
This system is vital to our ability to operate efficiently and provide a high
level of customer service. We will not be able to fully assess the impact of the
transition to the year 2000 until we have completed at least one or more full
billing cycles without any system failure.
CONTINGENCY PLANS AND COSTS
Based on Year 2000 compliance information we received from suppliers and
customers, we developed 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 our vendors, service or capacity suppliers or customers to be
Year 2000 compliant. This contingency plan has been reviewed and approved by
management. There can be no assurance this plan will not need to be revised over
the course of the year 2000.
We did not incur any significant costs associated with our Year 2000 testing
and planning phase and do not anticipate incurring significant costs in the
future. We may, however, have to bear costs and expenses in connection with any
failure of our vendors, suppliers or customers to be Year 2000 compliant. We
have not yet identified any material Year 2000 issues in connection with
external sources, and therefore cannot reasonably estimate costs which may be
required for remediation or for implementation of contingency plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because most of our outstanding debt at December 31, 1999 is fixed-rate
debt, a change in market interest rates is not likely to have a material effect
on our earnings, cash flows or financial condition.
41
<PAGE>
We have some exposure to fluctuations in interest rates due to the
[EURO]25 million and $75 million outstanding under facilities that bear interest
at a floating rate. However, our future exposure is minimized because we are
required to repay this debt with the proceeds of this offering. We are exposed
to market risk from changes in foreign currency exchange rates. Our market risk
exposure exists from changes in foreign currency exchange rates associated with
our non-derivative financial instruments, such as our 13 1/4% senior euro notes,
and with transactions in currencies other than local currencies in which we
operate. As of December 31, 1999, we did not have a position in futures,
forwards, swaps, options or other similar financial instruments to manage the
risk arising from these interest rate and foreign currency exchange rate
exposures.
We have foreign currency exposures related to purchasing services and
equipment and selling our services in currencies other than the local currencies
in which we operate. Our most significant foreign currency exposures relate to
Western European countries, primarily Germany, Switzerland, and the United
Kingdom, where our principal operations exist. However, the introduction of the
euro has significantly reduced the degree of intra-Western European currency
fluctuations to which we are subject as of December 31, 1999 (other than
fluctuations in currencies that were not converted to the euro, such as the
British pound and the Swiss franc). Additionally, we are exposed to cash flow
risk related to debt obligations denominated in foreign currencies, particularly
our 13 1/4% senior euro notes.
The table below presents principal cash flows and related average interest
rates for our obligations by expected maturity dates as of December 31, 1999.
The information is presented in U.S. dollar equivalents, our reporting currency,
using the exchange rate at December 31, 1999. The actual cash flows are payable
in either U.S. dollars (US$) or euro ([EURO]), as indicated in the parentheses.
Average variable interest rates are based on our borrowing rate as of
December 31, 1999. Fair value of the dollar and euro notes was estimated based
on quoted market prices. Fair value for all other debt obligations was estimated
using discounted cash flows analyses, based on our borrowing rate as of
December 31, 1999.
<TABLE>
<CAPTION>
(IN THOUSANDS)
EXPECTED
MATURITY DATE 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
- --------------------- -------- -------- -------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable:
Fixed rate
([EURO])........... $ 85,541 $ 85,541 $ 90,887
Interest rate........ 13.25% 13.25%
Fixed rate ($)....... $160,000 $160,000 $160,800
Interest rate........ 13.25% 13.25%
Other long-term debt:
Fixed rate ($)....... $3,124 $2,838 $ 754 $ 6,716 $ 6,716
Interest rate........ 9.7% 9.7% 9.7%
Variable rate ($).... $5,249 $5,249 $5,248 $ 15,746 $ 14,296
Interest rate........ 9.7% 9.7% 9.7%
</TABLE>
The cash flows in the table above are presented in accordance with the
maturity dates defined in the debt obligations. However, the dollar and euro
notes allow for early redemption at specified dates in stated principal amounts,
plus accrued interest. We have not determined if these debt obligations will be
redeemed at the specified early redemption dates and amounts. We may elect to
redeem these debt obligations early at a future date. Cash flows associated with
the early redemption of these debt obligations are not assumed in the table
above. Should we elect to redeem these debt obligations earlier than the
required maturities, the cash flow amounts in the table above could change
significantly. We have not presented in the above table information relating to
our obligations under the Nortel facility since we are required to repay the
amount outstanding under this facility with the proceeds of this offering.
42
<PAGE>
BUSINESS
OVERVIEW
We are a rapidly expanding European facilities-based provider of voice,
Internet and bandwidth and related telecommunications services. We offer these
services primarily to other telecommunications service providers. In
March 1998, our experienced management team and Providence Equity Partners
formed Carrier1 to capitalize on the significant opportunities emerging for
facilities-based carriers in Europe's rapidly liberalizing telecommunications
markets. By September 1998, we had deployed our initial network and commenced
selling services. By December 31, 1999, we had 259 contracts with voice
customers and 70 contracts with Internet and bandwidth customers.
We are developing an extensive city-to-city European fiber optic network
accessing and linking key population centers. In select European cities, we are
also developing intra-city networks and data centers for housing and managing
equipment. We expect these intra-city networks to give us faster, lower cost
access to customers, with better quality control. We also expect to bundle and
cross-sell our intra-city network and data center capabilities with our other
services.
As of December 31, 1999, we offered voice, Internet and bandwidth and
related services in 17 cities and 11 countries. In addition, as of December 31,
1999 we had arranged to secure, through a combination of building, buying and
swapping assets, a network of approximately 9,000 kilometers, which we expect to
become operational in stages through the end of 2000. This network will consist
of wholly-owned fiber in Germany, France, the United Kingdom, The Netherlands,
Norway and Sweden, and wholly-owned capacity at speeds greater than 2.5 Gbps in
Denmark, Italy, Switzerland and Belgium. The network will include a 2,370
kilometer network in Germany, and an intra-city network in Amsterdam that we
expect to complete by the end of the third quarter of 2000.
We intend to continue rapidly expanding our network in a cost-effective
manner by building, buying or swapping network assets. For example:
- We expect to complete construction of the 2,370 kilometer German network
in the first half of 2000. The German network will connect 14 principal
cities and pass a number of other major cities. We are building the German
network with partners to lower our fixed cost of construction. We will own
our own duct, which will initially contain 72 fiber strands. We have
swapped excess capacity on the German network for fiber capacity on other
networks in our target markets, including France and Scandinavia, to
increase the reach of our owned and controlled network in a
capital-efficient way. Moreover, our duct may have space for additional
fiber strands which may be used to meet additional demands for bandwidth
or improvements in technology.
- We have arranged to construct 44 kilometers of intra-city network capacity
in Amsterdam for expected completion in the third quarter of 2000. We
pre-sold conduit rights on this network to lower our fixed cost of
construction, and we have swapped excess capacity to extend it an
additional 70 kilometers. When completed, this network will connect major
telecommunications and business centers in Amsterdam.
As we have expanded our owned network, we have been phasing out our leased
network assets.
Stig Johansson, Chief Executive Officer, and our 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. Our 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. We believe that management's
experience and long-standing customer relationships were key to our launch of
operations approximately six months after our founding.
43
<PAGE>
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 41-1-297-2600.
INDUSTRY AND MARKET OPPORTUNITY
We believe that the market for advanced, high bandwidth, transmission
capacity and other telecommunications services in Europe will grow significantly
due to a number of factors, including:
- LIBERALIZATION. Entry to the telecommunications market was liberalized in
almost all European Union member states on January 1, 1998. We expect the
European telecommunications market to experience developments similar to
those that have occurred in the United States and the United Kingdom
following liberalization, including an increase in both international and
national traffic volume, reduced prices, increased service offerings and
the emergence of new entrants seeking to outsource some or all of their
telecommunications infrastructure and service needs. In addition, we
expect some regional carriers in the United States to begin to offer
international long distance service, which we believe will lead to
increased demand for alternative carriers of transatlantic and European
traffic.
- LARGE AND RAPIDLY GROWING MARKET FOR VOICE SERVICES. Industry sources
report that the European international long distance market is among the
largest in the world and is continuing to grow rapidly.
- RAPIDLY GROWING DEMAND FOR INTERNET AND BANDWIDTH SERVICES. Industry
sources estimate that the penetration rate of web users in Europe will
grow from a level of approximately 10% at the end of 1998 to approximately
45% in 2003. We believe that substantial additional bandwidth and faster
transmission speeds will be required to accommodate new Internet intensive
business applications, such as electronic commerce, the deployment of
corporate intranets and virtual private networks, voice communication over
the Internet, video conferencing, broadcast multimedia, application
hosting services, access via cellular networks, and other Internet
protocol-based value added products and services.
- DEMAND FOR RELATED SERVICES. Increasing demand for basic
telecommunications services presents opportunities for companies to market
other related services, such as data centers to house and manage a
customer's mission-critical telecommunications and data equipment, which
have significant space and monitoring requirements.
BUSINESS STRATEGY
Our objective is to become a leading European provider of high quality
voice, Internet and bandwidth and related services to other telecommunications
service providers. The key elements of our strategy are:
- TARGET TELECOMMUNICATIONS SERVICE PROVIDERS. By focusing on the wholesale
sector, we can take advantage of our management's strong market-oriented
skills, first-hand understanding of the European telecommunications
markets and long-standing customer relationships. Moreover, our focused
wholesale marketing strategy allows us to operate with less overhead than
carriers with mass retail operations and to provide unbiased services to
new entrants and established carriers alike.
In particular, we focus our marketing efforts on fixed-line and mobile
competitive retail operators that lack international infrastructure. We
also focus our marketing efforts on established non-European operators
that lack infrastructure in Europe or are seeking lower-cost alternatives
and wish to outsource their European infrastructure needs. Based on our
44
<PAGE>
management's experience in European telecommunications markets, we believe
these new entrants and non-European operators prefer an independent
supplier of wholesale services to an incumbent telephone operator or other
supplier with which they compete directly. In addition, we believe that
these customers are increasingly seeking flexible, lower cost alternatives
to the high tariffs that incumbents have traditionally charged.
- FOCUS ON CUSTOMER NEEDS. We will continue to build relationships with a
large number of telecommunications service providers by providing quality,
customized service and a superior level of customer support.
- QUALITY OF SERVICE. We believe that quality of service is critical to
obtaining and retaining customers. Our technologically advanced network
and network management and information systems allow us to offer our
services at guaranteed minimum levels of order implementation, response
and repair time and availability. Based on our management's experience
in telecommunications markets, we believe that we offer among the
highest minimum service levels for voice and Internet and bandwidth
services. Owning fiber optic networks, switches, multiplexers and
routers helps us to control the quality and breadth of our service
offerings.
- SUPERIOR CUSTOMER SUPPORT. We have designed our systems with the goal
of providing a level of customer support significantly higher than what
we believe is generally offered in the wholesale market in Europe,
particularly by incumbent telephone operators. Key features of these
systems include: (1) decentralized and locally based 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. We
believe that these features allow us to offer our customers the ability
to monitor and control services we provide them.
- RAPID AND CAPITAL-EFFICIENT NETWORK EXPANSION. We seek to invest in key
strategic assets, such as our German network, which we can use as a
currency for swaps to extend our European coverage as rapidly as possible.
Through this strategy we are developing a cross-border network linking
principal cities of Western Europe and expect to continue to increase the
number of countries covered by the network and broaden our network
presence within particular countries. We have reduced the capital
necessary to assemble this existing and contracted network by:
- sharing the cost of building the German network with partners,
- selling or pre-selling conduit rights or capacity to defray costs, and
- swapping capacity or services.
We plan to continue to take this rapid and capital-efficient approach in
implementing our strategy to secure intra-city networks in up to 20 cities
throughout Europe through swaps of fiber and pre-selling of conduit rights.
Similarly, we are taking a capital-efficient approach to developing data
center capabilities by building them through a joint venture. We expect
that having intra-city networks and data center capabilities will enhance
the value of our network by bringing us closer to major telecommunication
centers and therefore to our customers.
- EXPLOIT LOW COST PROVIDER POSITION. Owning a high capacity, cross-border
network in Europe gives us a significant cost advantage over incumbent
providers with extensive legacy networks and newer competitors that
currently lease the majority of their network or that will be required to
lease a significant amount of capacity in the future to meet increased
demand or that are incurring the full cost of building networks without
the use of capital-efficient swapping or pre-selling strategies. We
believe that we will further reduce the overall cost of deploying our
network by continuing to engage in swaps and sales of dark fiber. We
believe that the intra-city extension of our network in up to 20 major
cities will enhance our low-cost position by reducing
45
<PAGE>
the need for alternative city carriers and leased lines, which can be
expensive and have long lead times for delivery. We expect that acquiring
our data center capabilities through a joint venture will also enhance our
low-cost position.
- PURSUE GROWING DEMAND FOR BANDWIDTH. We believe that demand from European
telecommunications carriers, Internet service providers and other
businesses for high bandwidth Internet transmission capacity will increase
substantially over the next several years primarily due to technological
and regulatory developments. We also believe that additional network
transmission capacity and faster transmission speeds will be required to
accommodate high bandwidth business applications such as electronic
commerce, the deployment of corporate intranets and virtual private
networks, facsimile transmission over the Internet, video conferencing,
access via cellular networks, and other Internet protocol-based services.
We believe that pursuing this demand in the Internet sector will be key to
our continued success.
- BUNDLE AND CROSS-SELL A COMPREHENSIVE RANGE OF NETWORK SOLUTIONS. We can
customize our voice, Internet and bandwidth and other capabilities in
combinations, or as comprehensive European end-to-end network solutions.
For example, we believe existing customers that use our city-to-city
capabilities will be interested in locating their equipment in our data
centers, as they become available. After a customer places equipment in a
data center, we have an enhanced opportunity to manage that equipment or
to provide additional city-to-city or intra-city transport. Similarly, a
customer who may use our intra-city and data center capabilities, as both
of these develop, may also find it convenient to use our city-to-city and
other capabilities. We can also offer customers the entire range of our
capabilities to create a virtual carrier network in which we provide all
of the European telecommunications network infrastructure and services
they require, except for branding, sales and features customized for end
users. These virtual carrier network solutions will allow a customer to
select from a menu of our capabilities to create its own branded
pan-European service, with the ability to monitor and control the services
we provide, without investing in the infrastructure and support that we
offer.
In furtherance of our core business strategy, we regularly explore possible
strategic alliances, acquisitions, business combinations and other similar
transactions, with a view to expanding our European and international presence,
securing cost-effective access to transmission capacity or other products and
services, or otherwise enhancing our business, operations and competitive
position. Our industry is characterized by high levels of this type of activity.
We expect to continue to regularly explore possibilities of this kind with other
telecommunications companies. We believe that the flexibility to utilize either
cash or our publicly traded shares as a currency for possible transactions may
enhance our ability to pursue acquisition or other business combination
opportunities following this offering. Any future transaction may be significant
to us, although no assurance can be given that any transaction will occur.
SERVICES
We are focusing on providing voice, Internet and bandwidth and related
services, primarily to other telecommunications service providers, at the high
level of quality expected by European customers. For the year ended
December 31, 1999, we had $87.6 million of revenues from voice services and
$9.5 million of revenues from Internet and bandwidth services. For more
information about our revenues, see Note 13 to our consolidated financial
statements.
VOICE SERVICES
Our voice services generally consist of providing city-to-city transport
from our network points of presence located in strategic European cities and New
York for termination anywhere in the world. Our customers generally will arrange
for transmission of their traffic to one of our points of presence at their own
cost, although we may provide service from the customer's site if traffic volume
is
46
<PAGE>
sufficient. We are in the process of extending our network locally in select
cities, which will enable us to provide city-to-city and intra-city service from
some customers' sites in those cities and will increase quality control, lower
the cost of connection and shorten implementation times. Our voice service
contracts guarantee a minimum of 99.9% availability on the network and maximum
implementation, response and repair times.
Our current offering of voice services allows a customer to access our
network both by direct connection and indirect access. Indirect access and other
capabilities have allowed us to provide value-added services to customers with
no telecommunications infrastructure, such as switchless resellers, to
distributors of pre-paid phone cards and toll-free services, and to other
customers with needs for particular value-added capabilities, such as ISDN.
INTERNET AND BANDWIDTH SERVICES
We seek to be a major European Internet backbone and value-added services
provider.
INTERNET TRANSPORT SERVICES. We currently offer two types of wholesale
Internet transport services, "Global Transit Services" and "Internet Exchange
Connect Services." We offer both services at various capacity and quality
levels.
Our Global Transit Service provides customers with high-speed, high-quality
connectivity to Internet domain addresses world-wide. This backbone service
interconnects our 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
optimal Internet reach and connectivity.
Our Internet Exchange Connect Service, or 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.
We currently offer IX Connect connectivity to the following internet exchanges:
LINX in London, BNIX in Brussels, AMS-IX in Amsterdam, D-GIX in Stockholm,
DE-CIX in Frankfurt, VIX in Vienna, MIX in Milan, CIPX in Geneva, SFINX and
PARIX in Paris, MAE East in Washington and several Internet backbone providers
in New York. We expect to extend connectivity to MAE West in San Francisco and
selected other exchanges in the United States by the end of the second quarter
of 2000. 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. We will also guarantee
certain minimum connection speeds and maximum response and repair times.
VALUE-ADDED INTERNET SERVICES. We are currently offering select
Internet-based value added services. These include streaming media distribution,
which consists of the transmission of audio and video media, and virtual ISP
service, which consists of providing a menu of our capabilities from which an
ISP can create its own branded Internet service without investing in the
Internet infrastructure we plan to provide. For example, we have entered into an
agreement with Yahoo! Broadcast Services to facilitate the distribution of their
streaming media. To optimize the distribution process, we have enabled our
network for multicasting, which is an efficient mechanism for delivering
broadcasts from one source to thousands of receivers. We are also enabling our
ISP customers' networks for multicasting.
We are currently testing other Internet-based value-added services and
evaluating their introduction, which will depend on commercial feasibility and
demand. These services include virtual private networks using security
management, electronic-commerce related services, application hosting, wireless
access to the Internet, voice transmission over Internet protocol and unified
messaging services.
47
<PAGE>
BANDWIDTH SERVICES. As we migrate our services to our owned transmission
network, we have increasingly targeted the demand for high quality bandwidth
services, including:
- MANAGED BANDWIDTH. Our managed bandwidth service provides capacity of 2
Mbps, 34 Mbps, 45 Mbps, and 155 Mbps. Larger bandwidths up to 2.5 Gbps are
available upon request. These services are designed for customers who
require large data transport capacity between cities.
- WAVELENGTH SERVICES. The dense wave division multiplexing, or DWDM,
technology used in our network allows us to offer optical wave or
"wavelength" services to our customers, which provides 2.5 Gbps to 10 Gbps
of capacity. The capacity that we use to provide these wavelengths is in
addition to the capacity we use to provide our other services. We can
derive on average eight 10 Gbps wavelengths, and up to thirty-two 10 Gbps
wavelengths, from a single strand of fiber with equipment that we
currently have on order. We expect this capability to increase with
advances in technology. This service is designed for customers who require
very large transport capacities between cities, but who do not wish to
purchase dark fiber and invest in the transmission electronics to enable
the fiber to carry traffic. We believe, based on our management's
experience, that many potential customers will be interested in wavelength
services because they allow purchases of bandwidth in smaller increments
than purchases of dark fiber while retaining the control advantages of
dark fiber.
- DARK FIBER. We also offer rights for dark fiber and related services.
Because dark fiber consists of fiber strands contained within a fiber
optic cable which has been laid but has not yet been "lit" with
transmission electronics, purchasers of dark fiber typically install their
own electrical and optical transmission equipment. For example, in
December 1999, we entered into an 18 year IRU under which we will provide
two pairs of dark fiber on the German network, and related services, to
Tesion, a joint venture in which Swisscom is a 50% participant.
DATA CENTER CAPABILITIES
Telecommunications and Internet technologies that are emerging in Europe, as
well as existing technologies, have significant space and monitoring
requirements. The liberalization of the telecommunications industry and
resulting increase in new entrants and demand for Internet services have created
a growing demand for data center services in Europe. We plan to offer to
customers state-of-the-art data centers to house mission-critical voice, video,
caching, data networking and transmission equipment in a highly reliable,
redundant and secure environment. We will also offer technical support to
monitor, manage and troubleshoot the equipment.
We believe the ability to offer managed data center capabilities will help
us to cross-sell multiple services to customers and to further secure our
relationships with those customers. In addition, as we develop additional
Internet services, we expect that these facilities will enhance our ability to
offer virtual ISP and similar services.
We are developing our network of data centers in major European markets
through our Hubco joint venture. Hubco intends to build up to 20 to 25
facilities, generally ranging in size from 100,000 to 350,000 square feet in
major markets in Europe during 2000 and 2001. We expect to have a minimum of
between 10,000 and 25,000 square feet for our use and the use of our customers
in each facility. We expect to connect each facility in which we become a
strategic anchor tenant to our fiber optic network. As a strategic anchor tenant
in these facilities, we will have favorable rents and rights to additional
space, subject to some conditions, including that we not become an affiliate of
a Hubco competitor. We can opt not to be a tenant in some planned locations and,
if we wish to build data centers in additional locations, we have given Hubco
the right of first refusal to construct them.
We expect to compete with Hubco and another of our joint venture partners in
providing data center capabilities.
48
<PAGE>
NETWORK
We believe it is critical to own or control key elements of our network in
order to become a high-quality, low-cost provider. We commenced operations
primarily on a leased fiber optic transmission platform to enable our early
entry into the market. Over time, we have expanded our network in a phased
approach, adding capacity to meet expected increases in demand. To reduce our
cost base, however, we have sought to obtain additional transmission capacity at
dark fiber cost levels, through building new capacity and acquiring capacity
through purchases or swaps of excess capacity.
For example, by investing in the German network with partners, and by
pre-selling rights to conduit space on the Amsterdam network, we first reduced
our own cost of construction. We then swapped fiber on the German network for
2,650 kilometers of transmission capacity in France, for 2,000 kilometers in the
Nordic region, and for two wavelengths connecting Hamburg, Copenhagen and Malmo.
Similarly, we have swapped fiber to extend the reach of the Amsterdam network.
In addition, by extending our network intra-city in up to 20 European
cities, we intend to acquire transmission capacity in areas that have
traditionally been served by very few carriers or by only one carrier. We expect
that these intra-city networks will lower the cost of our services by providing
us with a dark fiber alternative to expensive leased lines. We also expect that
these intra-city networks will serve as valuable currency to swap for capacity
on other networks.
Our early and continued use of multiplexers to establish points of presence
rapidly and cost effectively also illustrates this capital-efficient approach to
network expansion. Multiplexers are less costly and easier to install than
switches, enhance our flexibility and service quality and help to reduce our
termination costs. As voice traffic increases, we may replace multiplexers with
switches and redeploy these multiplexers in new markets. We have the flexibility
to continue using multiplexers and defer purchasing additional switches until
improved technologies, which we are in the process of testing, become
commercially available.
The following table shows, as of December 31, 1999, the cities where we had
Nortel switches, multiplexers and high-capacity Cisco routers in service. We
selected these cities because they represent important sites of European traffic
origination or termination. The table also shows, as of December 31, 1999, the
cities where we plan to install multiplexers and routers through the end of
2000. In anticipation of technological advances in voice transmission and
switches, we are deferring the installation of more traditional switches. The
timing, location and number of switches, multiplexers and routers may change
depending on advances in technology, customer demand or regulatory conditions.
<TABLE>
<CAPTION>
INSTALLED NETWORK COMPONENTS (AS OF DECEMBER 31, 1999)
- -----------------------------------------------------------------------------------------------------------------
VOICE INTERNET
- -------------------------------------------------------------------------- ------------------------------------
SWITCHES MULTIPLEXERS ROUTERS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Amsterdam Copenhagen Amsterdam
Berlin Geneva Brussels
Brussels Hanover Dusseldorf
Dusseldorf Munich Frankfurt
Frankfurt Geneva
Hamburg Hamburg
London London
Manchester Milan
Milan New York
New York Paris
Paris Stockholm
Stockholm Vienna
Vienna Zurich
Zurich
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
PLANNED NETWORK INSTALLATIONS THROUGH END OF YEAR 2000 (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------------------
VOICE INTERNET
- --------------------------------------------- ---------------------------------------------
MULTIPLEXERS ROUTERS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Barcelona Barcelona
Bremen Chicago
Cologne Cologne
Dortmund Dallas
Dresden Dublin
Dublin Lyon
Essen Madrid
Helsinki Marseille
Leipzig Stuttgart
Lyon Helsinki
Madrid Leipzig
Marseille Oslo
Mannheim San Francisco
Nuremberg Washington D.C.
Oslo
San Francisco
Stuttgart
</TABLE>
We are also considering installing multiplexers in Athens, Budapest, Lisbon,
Prague and Warsaw, and routers in Athens, Berlin, Budapest, Copenhagen,
Manchester, Munich, Lisbon, Prague and Warsaw.
EXISTING NETWORK
Our management believes that entering the liberalizing European
telecommunications markets early and establishing our position quickly with a
technologically advanced network has given us a competitive advantage in such
markets.
TRANSMISSION CAPACITY. Our traffic is currently transmitted principally
over:
1) three STM-1 (155 Mbps) transatlantic circuits, all terminating in New York
and starting in Amsterdam, Frankfurt, and London,
2) one DWDM enabled fiber ring connecting London, Paris, Frankfurt and
Amsterdam and, on a physically separate route, one 2.5 Gbps wavelength, with
an option to upgrade to 10 Gbps, acquired in a swap for the purpose of
diversity, configured in a ring linking London, Brussels, Amsterdam,
Frankfurt and Paris,
3) one 2.5 Gbps wavelength, with an option to upgrade to 10 Gbps, configured in
a ring linking Paris, Zurich, Milan and Geneva,
4) one STM-1 linking Hamburg, Copenhagen and Stockholm,
5) two STM-1s linking Frankfurt and Vienna,
6) one STM-1 linking Frankfurt and Zurich,
7) one E3 (34 Mbps) linking Vienna and Zurich,
8) one VC-3 (45 Mbps) linking Frankfurt and Milan,
9) one STM-1 linking London and Manchester,
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10) one T3 (45 Mbps) linking MAE East and New York,
11) in Germany, STM-1s linking Frankfurt and Dusseldorf; Dusseldorf and Hamburg;
Hamburg and Berlin; Berlin and Frankfurt; Hamburg and Hannover; Hannover and
Frankfurt; and Frankfurt and Munich,
12) two VC-3 circuits, acquired in a swap, linking London and Stockholm, and
13) one long term lease of DWDM enabled fiber connecting the major
telecommunications facilities in London.
NETWORK MANAGEMENT CAPABILITIES. We have installed Synchronous Digital
Hierarchy, or SDH, equipment at each network point of presence that provides us
with information relating to the status and performance of all elements of our
network, including the transmission capacity provided to us by various third
parties. This SDH layer also provides us with flexibility to connect new
providers of transmission capacity and to configure this capacity in a flexible
manner.
PLANNED NETWORK DEPLOYMENT
We are continuing to pursue an aggressive timetable for extending the scope
of our network, thereby rapidly expanding our presence in our target markets. We
are installing a cross-border network linking the principal cities of several
European countries and will continue to increase the number of countries covered
by the network and broaden our presence within particular countries and cities.
THE GERMAN NETWORK. We entered into a development agreement to build the
German network with affiliates of Viatel and Metromedia. We expect the German
network to be completed in the first half of 2000. The German network, when
completed, will be an advanced, high-capacity, bi-directional self-healing 2,370
kilometer fiber optic ring utilizing advanced SDH and DWDM 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, we will own our own cable
duct and access points. Our cable duct will initially contain 72 strands of
fiber. It may have space for additional strands, permitting for upgrades in
quality or capacity in the future. Our estimated share of the development costs
will be approximately $115 million, including the fiber initially deployed and
the installation of 14 points of presence.
We decided to build our network in Germany because:
- Germany is the largest telecommunications market in Europe and a major
center for voice and Internet traffic within Europe,
- there is limited availability of cost-effective transmission capacity in
Germany,
- leased transmission costs are currently high in Germany and we desire to
lower our 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 our voice
termination and access costs and improve our position within the German
regulatory framework, and
- Germany's central location within Europe provides a good base from which
to connect the German network to other parts of Europe.
In addition, excess capacity on the German network has been useful to us as a
valuable currency to swap for capacity on other networks described below. We
believe excess capacity will continue to be useful swap currency.
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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, controls all but certain major
decisions relating to the development of the German network which require
unanimous consent. Costs of construction are 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 is
entitled to a developer's fee of 3% of certain construction costs, 25% of which
is borne by us.
Each of Viatel, Metromedia and us provided 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.
THE FRENCH NETWORK. Under the terms of a 15 year IRU exchange agreement, we
will receive 12 strands of fiber on a 2,650 kilometer French network in exchange
for 12 strands of fiber on our German network. The French network connects 14
cities, representing some of the largest population centers within France,
including Paris, Lyon, Marseille, Toulouse, Montpellier, Bordeaux, Nantes,
Rennes, Caen and Le Havre. The network is being constructed with fiber routing
through city centers connecting to the major city fiber rings. The exchange
agreement includes the ancillary services required to use the fiber. These
services consist primarily of operations and maintenance, rack space in repeater
and regeneration sites, power facilities and security, but do not include the
transmission equipment required to light the fiber. We expect to deliver a
substantial portion of the fiber on the German network in March 2000 and the
remainder by the end of May 2000, and to receive fiber on the French network in
the third quarter of 2000.
THE SCANDINAVIAN NETWORK. Under the terms of another 15 year IRU exchange
agreement, we will receive two wavelengths connecting Hamburg to Copenhagen and
Malmo, Sweden, in exchange for two wavelengths connecting the German cities of
Hamburg, Berlin and Frankfurt. The initial capacity of the wavelengths will be
2.5 Gbps, but we have secured options to upgrade to 10 Gbps. The agreement
includes the operations and maintenance on each of the wavelengths, and rack
space in repeater sites, regeneration sites and points of presence. We expect to
make the exchange by the third quarter of 2000.
In addition, under the terms of an 18 year IRU capacity exchange agreement,
we will obtain transmission capacity along a 2,000 kilometer route linking four
major population centers of the Nordic region: Stockholm, Oslo, Gothenburg and
Malmo. For the first three years of the agreement we will receive a 2.5 Gbps
wavelength, upgradable at our option to 10 Gbps or dark fiber after one year. We
believe that receiving this wavelength will enable us to defer the significant
investment in transmission equipment required to light the 2,000 kilometer
route. In exchange, we will provide Internet transmission capacity. The
agreement includes the ancillary services required for use of the transmission
capacity. These services consist primarily of operations and maintenance, rack
space in repeater and regeneration sites, power facilities and security, but do
not include the transmission equipment required to light the fiber if we elect
to upgrade to dark fiber. We began to deliver the Internet capacity in
November 1999, and we expect to receive the transmission capacity in
August 2000.
OTHER CITY TO CITY EUROPEAN NETWORKS. Under the terms of a 10 year IRU, we
will receive a 2.5 Gbps wavelength linking Paris, Geneva, Zurich, Milan and
Frankfurt, which may be upgraded to 10 Gbps of capacity.
THE AMSTERDAM NETWORK. For the Amsterdam intra-city network, we are
building a 44 kilometer ring of 12 ducts, one of which is to be filled with a
cable of 144 strands of fiber and four of which have been pre-sold, reducing our
future unit costs. In addition, we have arranged a swap to extend this network
by an additional 70 kilometers, to cover the greater Amsterdam metropolitan
area, including Schiphol Airport and the major business parks. Construction of
the Amsterdam network is currently underway and is expected to be completed in
the third quarter of 2000.
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TRANSATLANTIC CAPACITY. We have arranged to purchase a multiple investment
unit in TAT-14, a transatlantic cable connecting Amsterdam, London and New York.
We expect TAT-14 to become operational during the first quarter of 2001.
FURTHER NETWORK EXTENSIONS AND DEVELOPMENTS
We have already begun to extend our planned network beyond our original
deployment plans. We will consider further extending our network within Europe
beyond our current planned deployment in light of evolving market conditions and
our financial position and financing options. Due to the rapidly evolving
dynamics of the European telecommunications market, we will continually reassess
the most cost-effective means of network expansion. Future increases in the
supply of dark fiber may make building new capacity a less favorable option, in
economic terms, than variable or fixed-rate lease arrangements, the purchase of
transmission rights or the swapping of transmission capacity or services.
EXISTING AND PLANNED TRAFFIC TERMINATION ARRANGEMENTS
By establishing interconnection arrangements with incumbent telephone
operators in liberalized markets and direct operating agreements with incumbent
telephone operators in emerging markets, we can keep our costs of terminating
voice traffic lower and exercise greater control over quality and transmission
capacity than we can using refile or resale agreements. Similarly, entering into
additional peering agreements will minimize the cost of terminating our Internet
traffic.
VOICE TERMINATION. We carry voice traffic to any destination in the world,
either directly through interconnection or direct operating agreements or
indirectly 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 December 31, 1999, we had established points of interconnection to
provide for the local origination and termination of our voice traffic with
carriers in Austria, Belgium, Denmark, Germany, Italy, The Netherlands, Sweden,
Switzerland, the United Kingdom, and the United States, and we had started to
implement an interconnection arrangement in France. Subsequent to December 31,
1999, we implemented the interconnection agreement with the local carrier in
France.
As of December 31, 1999, we had interconnection applications pending in
Finland, Ireland and Norway. We also had upgraded our direct link into Turkey,
an important traffic destination from Germany, and had also implemented direct
operating agreements with local carriers for termination of voice traffic in a
number of emerging markets in Africa that are important traffic destinations
from France and the United Kingdom.
Most refilers currently operate out of London or New York. Accordingly, much
of our refiled traffic is rerouted to London or New York, but we can also refile
traffic from most of our other points of presence, where refiled traffic is then
carried to its termination point.
INTERNET TERMINATION. Internet termination is effected free-of-charge
through peering and for a fee through transit arrangements. As of December 31,
1999, we had peering arrangements with approximately 85 ISPs and backbone
providers, primarily in Europe, including Cable & Wireless, UUNet and Deutsche
Telekom. As our volume of Internet traffic increases, we expect we will be in a
position to negotiate peering with 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, we
have transit agreements with UUNet Technologies, Inc., an MCI WorldCom
subsidiary, and GTE Internetworking, a unit of GTE Corporation. In the United
States, we have peering arrangements with Epoch Networks, Exodus and PSINet.
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OPERATIONS
NETWORK IMPLEMENTATION AND OPERATION
In July 1999, we assumed the technical operation of our network from Cisco
and Nortel, other than basic equipment servicing, so that we can control all the
customer-related functions of the business. A small team of operations staff
will manage the future planning and architecture of the network.
The voice and Internet network operating systems allow us to use advanced
software to maximize the efficient operation of the network, including managing
the flow of voice and Internet traffic on a daily basis and identifying the
precise location of faults. These systems are also sufficiently flexible to
allow us to migrate to more advanced technological applications as they become
commercially feasible.
We have a network operations center in London from which we operate the
voice and Internet network. We believe that a centralized network operations
center enables us to identify overloaded or malfunctioning circuits and reroute
traffic much more quickly than if the network were controlled by separate
network operations centers in different countries.
CUSTOMER SUPPORT
An essential goal of our business strategy is to provide a level of customer
support above that which is currently available in the wholesale
telecommunications markets of Europe.
The in-country operations support team, together with the operations teams
at our network operations center, manages the point of presence locations and
implementation of a customer's order. The in-country operations and sales teams
provide a customer with local language support and quick access and response to
orders and other 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. During the second quarter of 2000, we
plan to establish an additional help desk in continental Europe to specifically
address our German- and French-speaking customers.
All customer service orders received by the local sales forces are reported
to the central order desk at our network operations center. The central desk
then logs the order into our computer system and directs the order to the voice
or Internet team. The central desk also tracks the status of an order during
implementation. We have automated our operational workflows so that the status
of customer order implementation, traffic faults, repair histories and other
customer-related information is accessible, on-line, by our employees at any
time. We believe that the internal visibility created by the on-line
availability to employees 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, we optimize our
ability to provide follow-up and proactive advice to our customers.
In addition to the minimum service level guarantees contained in our voice
and Internet service contracts, we also guarantee response times to customer
requests within hours, and repair times within one day of the fault being
reported.
INFORMATION SYSTEMS
Unburdened by legacy systems, we have obtained and installed advanced
information technology systems tailored to providing voice, Internet and
bandwidth services on a wholesale basis. We have developed our own system to
enable us to determine optimum routing on a real-time basis, allowing us
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to optimize margins and quality within the constraints of the network. In order
to identify the most cost-efficient and quality-acceptable route for voice
traffic at any given time, the system takes into account costs on a given route,
the capacity of the route, and quality considerations. Routing information is
updated daily and takes into account the prior day's actual costs rather than
hypothetical forward costs. Once the optimum routing has been determined, all
switches are updated automatically from a routing computer. Among other things,
our 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 our performance level guarantees.
We currently use software programs developed by third parties as our primary
office and information management systems. These programs have been tailored,
however, to our particular specifications.
BILLING SYSTEMS
As part of our strategy of focusing on the specific needs of many types of
telecommunications service providers, our 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.
Our billing system analyzes our traffic, revenues and margins by customer and by
route, on a daily basis, which is an important cost management tool for us. Our
voice customers are able to obtain call detail records and other information
through an on-line billing information inquiry function. We plan to maintain
separate billing modules for voice and Internet services, although customers
utilizing both services may be billed on one invoice if desired.
TARGET CUSTOMERS
As of December 31, 1999, we had 259 contracts with voice customers and 70
contracts with Internet and bandwidth customers. We target the following
specific 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 voice traffic as well as their
Internet and bandwidth needs.
- WIRELESS OPERATORS. Wireless operators frequently outsource much of their
international and national long distance traffic and also have demand for
bandwidth.
- INCUMBENTS AND THEIR ALLIANCES. A number of incumbent telephone operators
and their affiliated alliances are increasingly using wholesale carriers,
rather than sending traffic under bilateral agreements with other
incumbents. As these operators concentrate on their domestic markets, we
expect they will increasingly outsource their international networks and
related traffic transmission to independent carriers such as us.
- NON-EUROPEAN CARRIERS. This category includes operators that lack
infrastructure in Europe or have experienced an imbalance in their
remaining bilateral agreements and wish to outsource their European
telecommunications needs to an independent supplier of wholesale services
with which they do not compete directly. This category will include
regional Bell operating companies that receive regulatory approval to
provide long distance services.
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- ISPS AND REGIONAL AND SPECIALIST PROVIDERS. As demand for Internet and
bandwidth services grows in Europe, ISPs are increasingly requiring
low-cost transmission and connection capabilities from wholesale carriers.
Many ISPs do not own or operate their own transmission capacity. This
category also includes application service providers, or ASPs.
- OTHER NON-INCUMBENT CARRIERS. This category includes operators with
international infrastructure, who select us to carry overflow traffic, to
carry traffic to select, low-price destinations and to provide managed
bandwidth services.
- 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. Switchless resellers do not have
telecommunications infrastructure, but access retail markets through the
infrastructure of others. The reseller category also includes satellite
resellers, a group that is currently demanding a significant amount of
low-cost Internet services.
- INTERNET CONTENT PROVIDERS AND MEDIA COMPANIES. This category includes
Internet-based content providers, media companies, cable networks and
emerging broadband service providers looking to distribute their
respective content in a cost-effective manner to their end users. Demand
for distributing media-related content, such as audio and video streaming
and other value-added services, is expected to grow significantly as
broadband capabilities become available to the end user.
- MULTI-NATIONAL CORPORATIONS. Increasingly, multi-national corporations are
seeking wholesale voice, Internet and bandwidth services to reduce their
costs or as a component of their own value-added services such as frame
relay. Although we are not currently serving this customer category, we
intend to target select multi-national corporations in the future.
- 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. Although we are not currently serving this customer
category, we intend to target buying consortia and will also seek to
provide our services to research consortia. The research consortia
represent an important part of the Internet market.
Our customers are located primarily in Europe and the United States, with
customers in Germany representing approximately 41% of our revenues for the year
ended December 31, 1999. See Note 13 to our consolidated financial statements
for more geographical financial information.
We use a credit screening process to evaluate potential new customers. In
performing our credit analysis, we rely primarily on internal assessments of our
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. We currently
depend on a small number of significant customers for our revenues. For the year
ended December 31, 1999, Mobilcom AG accounted for approximately 14% of our
revenues and may continue to account for a significant portion of our revenues
in the near term. Our agreement with Mobilcom employs usage-based pricing and
does not provide for minimum volume commitments.
SALES
As of December 31, 1999, we had an internal sales force focused on marketing
voice, Internet and bandwidth and data center services to wholesale customers.
We have sales representatives in Amsterdam, Berlin, Frankfurt, London, New York,
Milan, Paris, Stockholm and Zurich. As of December 31, 1999 we had 40 sales
representatives. The heads of these sales offices have extensive
telecommunications-related marketing and sales experience, as well as strong
customer relationships, in
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the geographic markets in which they are located. We intend to hire between
approximately 40 and 50 additional sales executives as we increase the number of
our offices and expand our existing sales efforts. In the first quarter of 2000,
we anticipate opening sales offices in Vienna and Madrid. We 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, our Frankfurt sales office functions as the regional head office
generally covering German-speaking Europe (Austria, Germany and Switzerland) and
Central and Eastern Europe; the Amsterdam sales office functions as the regional
head sales office for the Benelux countries (Belgium, The Netherlands and
Luxembourg); our Paris sales office functions as the regional head office for
France; our New York sales office functions as the regional sales center for
North America; our Stockholm sales office functions as the regional sales center
for the Nordic region (Denmark, Finland, Norway and Sweden) and the Baltic
region (Estonia, Latvia and Lithuania); our Milan sales office functions as the
regional sales center for Italy; our London sales office functions as the
regional head office for all English-speaking countries in Europe (United
Kingdom and Ireland); and our Berlin sales office functions as the regional
sales center for the Berlin vicinity and Poland. Customers who are not within a
specific region are covered centrally by our Zurich headquarters sales office,
which also co-ordinates servicing pan-European and global customers. During the
year 2000, we expect that the new Madrid sales office will function as the sales
center for the Iberian peninsula (Portugal and Spain) and that the new Vienna
sales office will serve Austria, Hungary and the Czech Republic, Slovakia and
the former Yugoslavia. We also anticipate establishing sales offices in
Dusseldorf, Hamburg, Munich and Geneva to cover the regions around these cities,
but we expect our regional strategy will permit us to keep operating costs down
until traffic volumes in various other locations in Europe are large enough to
justify establishing sales offices in those locations.
We also have sales people specializing in Internet services who work out of
the London, Frankfurt, Paris and Amsterdam sales offices. These Internet
specialists focus on marketing to ISPs and other customers whose needs are
primarily or exclusively Internet-oriented. They also work with other members of
the sales force in marketing a package of voice and Internet services as
required by customer demand.
We 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. We expect
that this market characteristic will permit us to continue to provide
personalized account management even as the number of our customers continues to
grow.
PRICING
Our agreements with our 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. Our Internet and bandwidth services are generally charged at a flat
monthly rate, based on the line speed and level of performance made available to
the customer. We offer usage-based Internet pricing only in combination with
Internet transport contracts that have a fee-based component that guarantees
minimum revenue, in order to encourage usage of our network services by our
Internet transport customers. Our agreements with our Internet transport
customers are generally for a minimum term of twelve months, although we may
seek minimum terms of two years or more for agreements providing for higher line
speeds. Currently, our bandwidth services are also typically for an initial term
of twelve months, although we expect to be able to offer more flexible pricing
alternatives to bandwidth customers in the future.
Our services are priced competitively and we emphasize quality and customer
support. The rates charged to customers are subject to change from time to time.
We expect to experience declining revenue per billable minute for voice traffic
and declining revenue per Mb for Internet traffic, in part
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as a result of increasing competition, and declining revenue per Mb for
bandwidth in part as a result of advances in technology. We believe, however,
that the impact on our results of operations from such price decreases will be
at least partially offset by decreases in our cost of providing services and
increases in our traffic volumes and the demand for bandwidth services. In
addition, our ability to bundle and cross-sell network services allows us to
compete effectively and to protect our business, in part, against the impact of
these price decreases.
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 transmission capacity. New
networks are being built to provide significant additional capacity, creating
further downward pressure on prices. While decreasing prices are fueling growing
demand for bandwidth, they are also narrowing gross profit margins on long
distance voice traffic. Except for value-added services for switchless
resellers, basic voice carrier services are not highly differentiated, and
switching carriers is not costly. Most 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. Our ability to compete successfully in this
environment will be highly dependent on our ability to generate high traffic
volumes from our customers while keeping the costs of our services low. We
believe that Internet customers will typically renew their contracts, if the
quality of the service is consistently high, because it is costly and
technically burdensome to switch carriers.
In voice services, we have 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
Telecommunications plc, Cable & Wireless Communications plc, Global One (a joint
venture of Deutsche Telekom, France Telecom and Sprint Corp.), MCI
WorldCom, Inc., Tele Danmark A/S, Teleglobe Inc. and Telecom Italia S.p.A. The
second category comprises new entrants to the telecommunications market that
provide wholesale services. This group includes Energis plc, Pacific Gateway
Exchange, Inc., Viatel, Inc., RSL Communications Ltd., Interoute
Telecommunications (UK) Ltd. and Storm Telecommunications Limited.
In Internet services, our main competitors include UUNet, a subsidiary of
MCI WorldCom, Ebone, Cable & Wireless, InfoNet and KPN Qwest N.V., 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. Our main bandwidth competitors include KPN Qwest N.V.,
Global Telesystems, Inc., Global Crossing Ltd., Viatel, Inc., MCI
WorldCom, Inc. and Level 3 Communications, Inc. There are currently several
existing and potential operators with whom we will compete in providing data
center services. These include KPN Qwest N.V., Global Crossing Ltd., Level 3
Communications, Inc., Telehouse Europe, Worldswitch, iaxis B.V. and our joint
venture Hubco S.A.
Many of our competitors are larger enterprises that have greater financial
resources than we do, and accordingly may be able to deploy more extensive
networks or may be better able to withstand pricing and other market pressures.
In addition, incumbent telephone operators and their affiliates have additional
competitive advantages, such as control of access to local networks, significant
operational economies, large national networks and close ties with national
regulatory authorities.
GOVERNMENT REGULATION
The following discussion summarizes the material aspects of the regulatory
frameworks in certain regions in which we currently operate or plan to operate
in the near future. This discussion is intended to provide a general overview of
the more relevant regulations and our current regulatory posture in
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the most significant jurisdictions in which we operate and expect to operate. It
is not intended as a detailed description of the entire regulatory framework
applicable to us.
OVERVIEW
Increasing regulatory liberalization in many countries' telecommunications
markets now permits more flexibility in the way we can provide infrastructure
and services to our 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 we intend
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 General ("DG") of the European Commission, including DG
Information Society (previously DG XIII) and DG Competition (previously DG IV),
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.
The principal telecommunications operators in many European Union member
states, including in particular the United Kingdom, the Netherlands and most
Scandinavian countries, have generally accepted market liberalization and have
acted accordingly in their dealings with new entrants. In other markets, we and
other new entrants face less open and independent regulatory environments and
hence have experienced more protracted and difficult procedures in obtaining
licenses and negotiating interconnection agreements. We believe 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 our 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, we are unable to predict with certainty the precise impact of
regulatory requirements and restrictions on our implementation of our business
strategy or on our financial performance.
International value-added telecommunications services, such as the data
center capabilities and value-added Internet services we intend to provide, are
generally not regulated or only lightly regulated in the United States and
Europe at the present time. The regulatory framework applicable to voice
transported over Internet protocols is still developing. In addition to the
telecommunications regulatory framework in Europe, a separate legal framework is
evolving for electronic commerce. Recently established or pending rules and
conventions on jurisdiction, consumer protection, and ISP liability for unlawful
content, copyright infringement and defamation could directly and adversely
impact our ISP and other of our Internet and bandwidth customers, which could
indirectly impact our business. We cannot predict, however, whether the final
forms of these or similar regulatory developments will affect us directly or
indirectly, or the way in which they may do so.
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.
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The WTO Agreement became effective on February 5, 1998 and for most
signatory countries (including ten European Union member states) the commitments
took effect on January 1, 1998. We believe that the WTO Agreement has increased
and will continue to increase opportunities for us and our 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
significantly expedite regulatory liberalization already underway in countries
in which we operate.
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 authorizations
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.
In October 1997, the European Commission issued a consultative document
supporting the implementation 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 has subsequently
updated these benchmarks to take account of recently negotiated interconnection
arrangements. It 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 for
determining interconnection rates in many countries.
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. As an infrastructure
provider in many countries, we have been able to benefit from lower
interconnection rates than are applicable to many of our competitors. However,
in countries where we cannot effectively build out our own network
infrastructure, these rate differentials can work to our disadvantage. To the
extent we do not have a point of presence in a country we serve, such as Ireland
or Luxembourg, we will be forced to terminate traffic through refile or resale
agreements with other carriers, resulting in higher costs.
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The European Commission has been regularly monitoring the implementation by
European Union member states of its overall regulatory framework. On the basis
of its most recent review, the Commission has indicated its commitment to
ensuring more uniform and consistent steps to put this framework into practice.
It has also concurrently announced its proposals for a comprehensive overhaul of
the existing framework which is intended to simplify and consolidate existing
directives related to licensing and interconnection.
In particular, the European Commission has stated its intention to assess
various ways of encouraging higher speed local access for Internet and other
data services, including a requirement for unbundling components of incumbent
telecommunications operators' local loops and steps to encourage the licensing
of wireless local loops. We believe that such initiatives could stimulate demand
for our Internet backbone and connection services. In addition, the Commission
is proposing to examine other interconnection-related issues, such as the cost
of terminating traffic on mobile systems and the availability for resale of the
infrastructure and services of mobile operators, that might enable us to offer
more cost effective and diverse services to our customers. We believe that the
Commission's proposals to streamline and make more efficient current regulatory
arrangements would have an overall beneficial impact on our business operations
and enable us to become more responsive to our customers' needs. However, there
can be no assurances as to the ultimate outcome of the Commission's review or
its impact on our business operations.
REGULATORY STATUS
The following discussion summarizes our assessment of the regulatory
situation in the major markets in which we expect 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.
We have been granted an international simple voice services resale license
and an international facilities license that allows us to own indefeasible
rights of use and to lay cable for international services. The international
facilities license has been converted into a national Public Telecommunications
Operator (PTO) license through statutory instrument of the United Kingdom
Department of Trade and Industry, which came into force on September 27, 1999.
This national PTO license will allow us to provide any national or international
service in the United Kingdom. We have obtained a switched access number which
has been implemented with British Telecom. With this access number, we can
provide services directly to end users, which allows our switchless reseller
customers to offer switched access services directly to their customers in the
United Kingdom.
We currently have implemented interconnection agreements with Cable &
Wireless and British Telecom. In addition, we have entered into interconnection
agreements with other telecommunications operators in the United Kingdom to
route traffic to locations not directly served by us.
The current liberal regulatory climate in the United Kingdom has encouraged
the rapid development of new operators that are available to interconnect with
us or to be served by us as our customers. London, along with New York, has
become one of the major international centers for refiling of traffic among
international telecommunications service providers.
UNITED STATES. In June 1998, we obtained a Section 214 authorization to
provide international telecommunications services to all locations around the
world. We will be subject only to various reporting and filing obligations with
respect to our 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 our Section 214
authorization and the WTO Agreement, we
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will be expected to settle our international switched traffic at or below the
level of the international rate benchmarks prescribed by the FCC. We would also
have to obtain prior FCC approval to resell leased lines between the United
States and any country in which we might operate with an affiliated carrier with
market power. However, we do not expect that any current or currently
anticipated FCC regulatory requirement would materially limit our 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 we intend to operate.
We have experienced no difficulties in negotiating interconnection
agreements with U.S.-based telecommunications operators. These arrangements
permit us to extend our services into the U.S. domestic market as well as to
terminate traffic worldwide. In addition, refiling arrangements available in the
United States allow us to terminate traffic in European Union and other markets
that are not directly served by our own infrastructure. Depending on market
conditions, such arrangements represent a viable alternative to refiling through
the United Kingdom or one of our other points of presence.
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.
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. We have been issued a
nationwide Class 4 license for the provision of voice telephony services and a
Class 3 infrastructure license to construct and operate fiber optic cables. We
have obtained amendments to our infrastructure licenses to authorize the
geographic extension of our network. We do not anticipate any difficulty in
obtaining any further required amendments. We are in the process of filing
another amendment to extend our license prior to putting our German network into
service. However, we do not expect any problems or delays in obtaining any
necessary regulatory approvals.
On October 30, 1998, the German regulator ruled, in a case filed by us
against Deutsche Telekom, that Deutsche Telekom had to interconnect with us at
the two points of interconnect requested by us within three months after the
ruling. This ruling was implemented by both parties and was based on a condition
that we would install an additional 11 points of interconnection with Deutsche
Telekom when we deploy our German network.
We subsequently signed an interconnection agreement with Deutsche Telekom
that adds ten points of interconnection to the 13 points that we have already
arranged. Both parties are working to implement this interconnection agreement
by the end of the first quarter of 2000. This agreement
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supersedes the German regulatory agency's decision to the extent it does not
require us to install additional points of interconnection. However, if we do
not install a point of interconnection in all of the 23 access areas in Germany,
the amount of traffic that we may originate or terminate will be significantly
limited in any access area in which we have not installed a point of
interconnection. We do not currently anticipate any difficulties in installing
points of interconnection in all 23 access areas.
We are currently negotiating a new interconnection agreement with Deutsche
Telecom. The interconnect tariffs as of January 1, 2000 have been approved by
the German regulator. We do not expect any adverse effect on our business
operations from the new interconnection tariffs and the new interconnection
agreement. We have obtained a switched access number and have implemented it
with Deutsche Telekom. With this access number, we can provide services directly
to end users, which allows our switchless reseller customers 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 the recommendation
of the Autorite de regulation des Telecommunications ("ART"), France's
regulatory agency.
We have 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 public voice telephony
providers. Public 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.
We have recently implemented an interconnection agreement with France
Telecom.
In France, the ART implements an extra charge (on a cost per minute basis,
regardless of whether the traffic originates in France) to finance the cost of a
universal service fund. The total amount of this universal service fund was
approximately $1.1 billion for 1998 and has been challenged by new entrants in
the French market, who have filed a complaint with DG Competition. In response,
the European Commission sent a reasoned opinion to the French Government
regarding non-conformity of French legislation to European Community Directives
regarding the telecommunication sector, in particular with respect to methods of
calculation of the net costs of telecommunications universal service provision
and contributions paid by telecommunications operators for its financing. We are
unable to estimate at this time the impact of the proposed universal service
program on our operating margins if fully implemented. We have obtained from the
French regulator a switched access number. With this number, we can provide
services directly to end users, which allows our switchless reseller customers
to offer switched access services directly to their customers in France. We are
in the process of filing an amendment to our L33.1 license prior to putting the
French network into service in order to cover the expansion of this network.
However, we do not expect any problems or delays in obtaining any necessary
regulatory approvals.
BELGIUM. In December 1997, the Belgian Parliament provided for the full
liberalization of the provision of telecommunications services. The
Telecommunications Act and secondary legislation have now been fully
implemented.
Under the current licensing scheme, applicants for a telecommunications
network operator license such as us must agree to make a minimum amount of
infrastructure investment or install a minimum amount of fiber 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 revenues to fund research
and
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development activities. We have been granted approval of our application to
become a network operator from the Belgian national regulator, the Belgian
Institute for Postal Services and Telecommunications ("BIPT"). We plan to deploy
dark fiber in Belgium, and have been granted an infrastructure license for this
purpose. We will also be required to obtain a voice services license in order to
serve switchless resellers and end users directly. We expect to submit this
application early in the year 2000 and do not anticipate any significant delay
in obtaining regulatory approval.
We have implemented an interconnection agreement with Belgacom S.A.,
Belgium's incumbent telephone operator.
The Belgian telecommunications law also provides for the establishment of a
universal service fund, to be managed by BIPT, according to which operators
would be required to contribute in proportion to their revenues derived from the
Belgian market. The fund has not yet been activated. We are unable to estimate
at this time the impact of any potential universal service payments on the
overall cost of terminating our customers' calls in Belgium.
ITALY. In 1997, the Italian authorities enacted a legislative framework for
the full liberalization of telecommunications services by January 1, 1998. This
framework has been fully implemented. We have obtained both infrastructure and
public voice licenses. In contrast with the other major markets in which we
operate, the Italian authorities require general authorization to provide
Internet services, which we have also obtained.
In July 1999, Telecom Italia published its Reference Interconnect Offer (the
"RIO"). The RIO provides for nationwide origination and termination, even
through one single point of interconnect with the incumbent's network, and has
brought interconnection rates down to a level much closer to the European Union
benchmarks for "best practices." We have implemented an interconnection
agreement with Telecom Italia.
We have obtained a switched access number which is implemented with Telecom
Italia. With this access number, we can provide services directly to end users,
which allows our switchless reseller customers to offer switched access services
directly to their customers in Italy.
In Italy, providers of network infrastructure and switched voice services,
as well as national mobile operators, may be required to contribute to a
universal service fund. Such a requirement has not yet taken effect and will
only be implemented if 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 may exempt new entrants from an
obligation to contribute to such a universal service fund. The Italian
competition agency may recommend such an exemption scheme to the Italian
regulator. However, we cannot assess at this time any possible impact of any
such universal service obligations on our 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.
We have obtained the necessary authorizations to provide both services and
infrastructure in The Netherlands.
We have implemented an interconnection agreement with KPN Telecom and we
have obtained a switched access number from the Dutch regulator. With this
access number, we can provide services directly to end users, which allows our
switchless reseller customers to offer switched access services directly to
their customers in the Netherlands.
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 Telecommunications Act provides for liberalization of the
Swiss telecommunication market as of January 1, 1998.
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We have obtained the necessary authorization to provide voice services in
Switzerland. We do not currently have authorization to provide infrastructure in
Switzerland but we will apply for a license if we decide to build infrastructure
in Switzerland. In that event, we do not expect any difficulty or delay in
obtaining the necessary approvals. Although Switzerland is not a member of the
European Union and accordingly European Union directives do not apply, the Swiss
regulatory agency, Ofcom, generally follows European Union policies and
directives. Switzerland is a party to the WTO Agreement as well, and we expect
that the national regulatory body will follow the general principles and
policies embedded in the WTO Agreement.
We signed an interconnection agreement with Swisscom which has been
implemented, and we have obtained a switched access number which has been
implemented by Swisscom. With this access number, we can provide services
directly to end users, which allows our switchless reseller customers to offer
switched access services directly to their customers in Switzerland.
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. We obtained the
necessary licenses in Austria necessary to provide voice services and to operate
our own infrastructure.
The interconnection rules provide for cost-based interconnection rates for
every licenseholder, without distinction between infrastructure owners and
resellers. We have implemented an interconnection agreement with Telekom
Austria, the Austrian incumbent telephone operator. We have also obtained a
switched access number from the Austrian regulator which has been implemented by
Telekom Austria.
Telekom Austria has recently proposed interconnection arrangements that are
generally similarly structured to those provided by Deutsche Telekom in Germany.
It has indicated an intention to limit the amount of traffic that may be
originated or terminated in any of the eight access areas in which a carrier
interconnecting with its network does not have a point of interconnection. There
can be no assurance concerning the impact of any such restrictions on our
operations in Austria in the event that Telekom Austria's proposals are
implemented.
We believe that the restrictions proposed by Telekom Austria are violating
Austrian regulation as well as provisions of various relevant European Union
Directives. We may challenge Telekom Austria's restrictions in the future.
However, any process initiated by us against Telekom Austria's practices with
the Austrian regulator or the European Commission might well be costly and time
consuming, and we are unable to predict with certainty the timing and outcome of
such proceedings.
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 have been granted licenses to provide voice
telephony services. As of the end of 1999, numerous individual licenses for the
provision of telecommunications services to third parties or for the operation
of public telecommunications networks have been granted by the Spanish
regulator. In addition, a third license for a mobile telecommunications operator
was granted in June 1998. We expect to be able to provide services on a
wholesale basis to these newly authorized operators.
We have filed an application to provide infrastructure and voice and
Internet services in Spain in early 2000. In addition, we have filed for a
carrier's carrier registration. As in the case of Italy, and unlike the other
major markets in which we operate, the Spanish authorities require specific
authorization to provide Internet services. We will need a license and an
interconnection agreement when we plan to install a point of presence in Spain
in mid 2000. We are not currently subject to access deficit contributions or
contributions to universal service obligations, but such obligations might be
imposed in the future by regulatory authorities.
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SWEDEN, DENMARK, FINLAND, NORWAY, AND IRELAND. We are offering services in
Sweden and are planning to provide services in a number of countries including
Denmark, Finland, Norway, and Ireland which have adopted a liberal approach to
authorizing new service providers.
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. We have complied with the applicable procedures in each of these
countries.
We have implemented an interconnection agreement with Tele Danmark in
Denmark and with Telia in Sweden. We have obtained switched access numbers in
both Sweden and Denmark, which are implemented by Telia and Tele Danmark. We
have opened discussions with the main national operators in Finland and Norway
and we expect that interconnection arrangements will be implemented when our
points of presence become operational in these countries. We have obtained a
switched access number in Finland and in Norway.
Any new service provider must obtain a license to provide services in
Ireland. We have received such a license. We expect that an interconnection
agreement with Telecom Eireann will be implemented when our point of presence in
Dublin is operational. We have also received a switched access number in
Ireland.
OTHER COUNTRIES. We will also be able to provide service through direct
operating agreements with correspondent telecommunications operators in
countries where we have not been directly authorized to provide services. As a
consequence of our having obtained the status of a recognized operator agency
under the rules of the International Telecommunications Union, we 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, 1999, we employed 137 people. Our employees represent
fifteen different nationalities in total. None of our employees is represented
by a labor union or covered by a collective bargaining agreement. We believe
that relations with our employees are good.
PROPERTIES
We lease 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 2004.
Our aggregate rent expense was approximately $2.6 million for the fiscal
year ended December 31, 1999 and approximately $1.0 million for the period from
Inception to December 31, 1998.
LEGAL PROCEEDINGS
We may, from time to time, be a party to litigation that arises in the
normal course of our business operations. In October 1998, in a case filed by us
against Deutsche Telekom, the German regulator made a ruling requiring Deutsche
Telekom to interconnect with us at two points of interconnection that we
requested. We have not been since our inception and are not presently a party to
any litigation or arbitration that we believe had or would reasonably be
expected to have a material adverse effect on our business or results of
operations.
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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 our board, all of our executive officers and certain of the
experts named in this prospectus are residents of countries other than the
United States. A substantial portion of our 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 us or such
persons; or
- enforce against us or such persons in U.S. courts judgments obtained in
U.S. 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 U.S. courts
in actions against us or such directors and officers, as well as certain of the
experts named in this prospectus, 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. We cannot assure investors that they
will be able to enforce any judgment against us, certain members of our board,
our executive officers or certain of the experts named in this prospectus,
including judgments under the U.S. securities laws.
INTERESTS IN SUBSIDIARIES
Carrier1 International is a holding company which operates through
subsidiaries in Europe and the United States. Our direct subsidiaries are listed
in the following table, together with their subscribed capital, our equity
holdings in each, the receivables or obligations of Carrier1 International with
respect to each, net income (loss) for the year ended December 31, 1999, and the
book values of the equity holdings as of December 31, 1999, as set forth in
their unaudited financial statements. In addition to the subsidiaries listed in
the table, we have four wholly-owned indirect subsidiaries in Germany, one in
France, one in Switzerland and one in Delaware. All amounts are presented in
thousands.
<TABLE>
<CAPTION>
NET INCOME
DUE FROM (TO) (LOSS) BOOK VALUE
SUBSCRIBED CARRIER1 (YEAR ENDED (AS OF
CAPITAL INTERNATIONAL AT DECEMBER 31, DECEMBER 31,
LOCAL (IN LOCAL EQUITY DECEMBER 31, 1999 1999) 1999)
COMPANY CURRENCY CURRENCY) HOLDING (IN U.S.$) (IN LOCAL CURRENCY) (IN U.S.$)(1)
------- --------- ---------- -------- ------------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Carrier1 BV, Amsterdam........ NLG 40 100% (8,868) (3,255) 22
Carrier1 Telecommunikation
GmbH........................ AS 500 100% (4,300) (10,230) 42
Carrier1 Iberia S.L.,
Madrid...................... PTAS 501 100% -- (1,415) 3
Carrier1 Nordics AG,
Stockholm................... SEK 111 100% (3,078) (4,778) 14
Carrier1 Holding SARL,
Paris....................... FFr 1,000 100% -- (24) 182
Carrier1 UK Limited, London... L 18,415 100% (21,101) (479) 30,730
Carrier1 Belgium SPRL,
Brussel..................... Bfr 1,531 100% (1,427) (3,417) 42
Carrier1 SaP, Kopenhagen...... DK 140 100% -- (4,302) 20
Carrier1 Italia Srl, Milano... Euro 10 99% (2,589) (1,260,033) 11
Carrier1 International GmbH,
Zurich...................... Sfr 250 98% (142,282) (90,211) 9,130
Carrier1 International
Management S.A., Luxemburg.. $ 15 100% -- 0 15
Carrier1 Holding GmbH,
Frankfurt................... DM 50 98% -- (271) 30
</TABLE>
- ------------------------------
(1) Book value represents Carrier1 International's invested capital in the
subsidiary.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth certain information with respect to the
directors of Carrier1 International and our executive officers and other key
employees as of December 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH CARRIER1
- ---- ------------------- ------------------------------------------
<S> <C> <C>
Stig Johansson............................ 57 Chief Executive Officer, President and
Director of Carrier1 International
Eugene A. Rizzo........................... 48 Vice President, Sales and Marketing
Terje Nordahl............................. 52 Chief Operating Officer
Joachim W. Bauer.......................... 55 Chief Financial Officer
Kees van Ophem............................ 37 Vice President, Purchase and General
Counsel
Neil E. Craven............................ 31 Vice President, Business Development
Alex Schmid............................... 31 Vice President, Strategic Development
Philip Poulter............................ 49 Managing Director of Sales, United Kingdom
and Ireland
Edward A. Gross........................... 41 Managing Director of Sales, Germany,
Austria, Switzerland and Central and
Eastern Europe
Isabelle Russier.......................... 35 Managing Director of Sales, France
Marcus J. Gauw............................ 39 Managing Director of Sales, Benelux
Carlos Colina............................. 47 Acting Managing Director of Sales, North
America
Oscar Escribano........................... 41 Managing Director of Sales, Spain and
Portugal
Thomas Svalstedt.......................... 47 Managing Director of Sales, Nordic and
Baltic Regions
Sebastiano Galantucci..................... 33 Managing Director of Sales, Italy
Glenn M. Creamer.......................... 37 Director of Carrier1 International
Jonathan E. Dick.......................... 41 Director of Carrier1 International
Mark A. Pelson............................ 37 Director of Carrier1 International
Victor A. Pelson.......................... 62 Director of Carrier1 International
Thomas J. Wynne........................... 59 Director of Carrier1 International
</TABLE>
STIG JOHANSSON has served as a director of Carrier1 International since
August 1998 and as our 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 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
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N.V.'s supervisory board from 1992 until 1996. Prior to joining Unisource
Carrier Services, Mr. Johansson worked for Telia AB, 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 Luleo
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 our Vice President, Sales and Marketing since
March 1998 and has over 22 years of experience in international sales and
marketing and 11 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 Communications Services, an international joint venture between
AT&T Corp. and Unisource NV. Prior to joining Unisource, Mr. Rizzo held various
marketing and management positions with International Business Machines
Corporation, or "IBM", Wang Laboratories, Inc. and Tandem Computers Inc. 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 our Chief Operating Officer since March 1998 and
has 26 years of experience in telecommunications operations. Mr. Nordahl also
has extensive experience in the computer and Internet industry. As a Managing
Director at Unisource Business Networks BV 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. From 1993 to 1995, Mr. Nordahl established and operated
Creative Technology Management AS, 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 First Honors
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 our Chief Financial Officer since March 1998
and has six 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 our Vice President, Purchase and General
Counsel since March 1998, with responsibility for interconnection, licensing,
legal affairs and carrier relations. Mr. van Ophem has eight years of experience
in the telecommunications industry. Prior to joining us, 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), with
responsibility for the legal aspects of its start-up ventures in Hungary,
Bulgaria, Czech Republic and Ukraine and the formation of
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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 our Vice President, Business Development since
March 1998 and has six 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.
ALEX SCHMID has served as our Vice President, Strategic Development since
December 1999 and has over seven years of experience in international
telecommunications, Internet technology and media industry investments.
Immediately prior to joining us, Mr. Schmid was the General Partner of personal
investment vehicles targeting the technology, Internet, telecommunications and
media industries. From February 1996 until September 1998, Mr. Schmid was a
Managing Director and Head of Private Equity for the Bank Austria Group, where
he was responsible for investing primarily in European telecommunications and
telecommunications-related companies and investment vehicles. Mr. Schmid also
served on the board of directors of Central Europe Telecom Investment L.P., a
venture capital fund targeting investments in telecommunications and
telecommunications-related companies in Central Europe. From August 1995 until
February 1996, Mr. Schmid was a Vice President at AIG Capital Partners. From
March 1993 until August 1995, Mr. Schmid was an Associate of the Private Equity
Group at Creditanstalt. Mr. Schmid is a graduate of the Wharton School at the
University of Pennsylvania with a Bachelor of Science in Economics. He is a
German citizen.
PHILIP POULTER has served as our 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 us, Mr. Poulter was Operations
Director of ACC Long Distance UK Ltd., a switch-based provider of
telecommunications services, from December 1997 to June 1998. From March 1997 to
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., 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 our 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 us,
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 14 years, during which time he held various positions
in network
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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 our Managing Director of Sales, France since
August 1998 and has four 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 our Managing Director of Sales, Benelux since
June 1999 and prior to that had served as our Managing Director of Sales,
Internet, since May 1998. He has 14 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.
CARLOS COLINA has served as our Acting Managing Director of Sales, North
America since March 1999 and before that as its Manager, Carrier Sales--North
America since September 1998. He has over 24 years of experience in the
telecommunications industry. Prior to joining us, 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.
OSCAR ESCRIBANO has served as our Managing Director of Sales, Spain and
Portugal since December 1999 and has 13 years experience in the
telecommunications industry. Prior to joining us, Mr. Escribano held various
positions in sales management at Unisource Carrier Services from 1995 to 1999,
among them Director of Sales for Internet Services and Director of Sales
Southern Europe. From 1986 to 1995, he worked for Telefonica, where he served as
Project Manager for planning and procurement of fixed telephony and data
networks, as well as satellite communications. Prior to his involvement in the
telecommunications industry, Mr. Escribano worked 4 years as an engineer in the
field of Safety of Nuclear Power Plants. Mr. Escribano holds an Engineering
degree in Power and Energy from the Politechnical University of Madrid. He is a
citizen of Spain.
THOMAS SVALSTEDT has served as our Managing Director of Sales for the Nordic
and Baltic Regions since April 1999 and has 23 years of experience in the
telecommunications industry. Prior to joining us, Mr. Svalstedt was the Managing
Director for Corporate Business and a member of the Management Board at Telecom
Eireann in Ireland from 1997 to 1999. From 1993 to 1997, he was the Nordic
Region's Managing Director for Unisource. Mr. Svalstedt was the Sales Director
for Telia Megacom, Telia's company for corporate business customers, from 1991
to 1993. From 1976 to 1991, Mr. Svalstedt held various positions in sales
management and project management at the Telia Group and for
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different data communications companies in the Nordic Region. Mr. Svalstedt
holds a Masters Degree in Business Administration from the Stockholm School of
Economics. He is a citizen of Sweden.
SEBASTIANO GALANTUCCI has served as our Managing Director of Sales for Italy
and Greece since January 1 2000. He has 12 years of experience in the
telecommunications industry. Prior to joining us, Mr. Galantucci held various
positions in sales and marketing management at Telecom Italia and Telemedia
International, most recently as Area Sales Manager for International Accounts
from December 1998 to December 1999. From 1995 to 1998, Mr. Galantucci worked in
Singapore and then Hong Kong for the Asia Pacific Area of Telemedia where he
served as a Marketing & Sales Manager and Senior Marketing Manager,
respectively. Prior to working overseas, Mr. Galantucci worked from 1987 to 1993
in planning and project implementation for Telecom Italia in Milan, Italy.
Mr. Galantucci holds a Degree in Business Administration from the Cattolica
University of Milan and a Diploma in Marketing from the University of Hong Kong.
He is a citizen of Italy.
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 a director of
American Cellular Corporation, Celpage, Inc., Epoch Networks, Inc., Hubco S.A.,
Wireless One Network L.P. and Worldwide Fiber Inc. 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 Entek IRD International Corporation,
Ingredients.com, Paycor, Inc., PlanSoft Corporation and Spirian
Technologies, 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 Madison River Telephone Company,
L.L.C., GlobeNet Communications Group Limited and Language Line Holdings, LLC.
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.
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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, Inc. and Dynatech Corporation.
Mr. Pelson received a Bachelor of Science degree in Mechanical Engineering from
New Jersey Institute of Technology 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
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. Carrier1 International's articles of incorporation
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. Each director was
appointed to hold office for a term of 6 years.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board has recently established an audit committee. The audit committee,
consisting of Messrs. Dick, Wynne and M. Pelson, is responsible for reviewing
the services provided by our independent auditors, our annual financial
statements and our system of internal accounting controls.
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 maintains directors' and officers'
liability insurance. Carrier1 International has granted 20,000 options to
purchase shares to each of Messrs. Wynne and V. Pelson. Members of the board
receive no other compensation for services provided as a director.
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to, our Chief Executive
Officer and our other four most highly compensated executive officers during the
periods from March 4, 1998 through December 31, 1998 and from January 1, 1999
through December 31, 1999. During 1998, these individuals held options in
Carrier One, LLC, which in turn held substantially all of the equity of Carrier1
International. Pursuant
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to a restructuring of our management equity, these options for Carrier One, LLC
interests were cancelled and equivalent options for shares of Carrier1
International were issued in their place. The economic terms of these new
options are substantially the same as the terms of the Carrier One, LLC options.
<TABLE>
<CAPTION>
SHORT TERM LONG TERM
COMPENSATION COMPENSATION
----------------------- ----------------------------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD(A) SALARY(B) BONUS(C) (B)(D) OPTIONS COMPENSATION(F)
- --------------------------- --------- --------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stig Johansson............ 1999 $279,603 $34,951 $27,938 355,555 $72,823
PRESIDENT AND CHIEF 1998 245,569 46,044 22,188 (e) 39,550
EXECUTIVE OFFICER
Eugene A. Rizzo........... 1999 197,368 24,671 26,723 355,555 31,649
VICE PRESIDENT, SALES AND 1998 173,343 32,502 22,188 (e) 27,248
MARKETING
Terje Nordahl............. 1999 171,051 21,382 25,263 177,777 37,666
CHIEF OPERATING OFFICER 1998 135,207 25,352 19,969 (e) 24,248
Joachim W. Bauer.......... 1999 171,051 21,382 26,245 355,555 40,380
CHIEF FINANCIAL OFFICER 1998 150,230 28,168 23,147 (e) 34,793
Kees van Ophem............ 1999 171,051 21,382 25,111 355,555 16,788
VICE-PRESIDENT, PURCHASE 1998 150,230 28,168 22,188 (e) 14,756
AND GENERAL COUNSEL
</TABLE>
- ------------------------
(a) Short term compensation for the 1998 period relates to the period from
March 4, 1998 through December 31, 1998 except in the case of Terje
Nordahl, for whom the relevant 1998 period was March 26, 1998 through
December 31, 1998.
(b) We record this compensation expense in Swiss Francs. The U.S. dollar
amounts shown for 1998 were calculated using an average exchange rate of
$0.69337 to SFr1, and for 1999 were calculated using an average exchange
rate of $0.65789 to SFr1.
(c) The bonus figures for the 1999 period are estimates, calculated at the
rate of 12.5% of salary for each executive officer for the period, and
will be determined and paid in the first quarter of 2000. The maximum
achievable bonuses for the 1999 period are 25% of salary for the period.
(d) Consists of general business expenses and contributions under a health
plan for our executive officers. Business expenses consist of car and
travel expenses in the following approximate amounts, in thousands:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Stig Johansson.............................................. $22.2 $27.9
Eugene A. Rizzo............................................. 22.2 26.7
Terje Nordahl............................................... 20.0 25.3
Joachim W. Bauer............................................ 22.2 26.2
Kees van Ophem.............................................. 22.2 25.1
</TABLE>
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(e) Pursuant to the equity restructuring, options to purchase Carrier One,
LLC interests, which were granted to each executive in 1998, have been
cancelled and were replaced by the economically equivalent options shown
above as granted in 1999.
(f) Consists of contributions under a defined contribution pension plan.
STOCK OPTION GRANTS AND FISCAL YEAR-END VALUES
The following tables set forth information regarding grants of options to
purchase shares of Carrier1 International and the fiscal year-end value of such
options, which were granted to the executive officers listed in the Summary
Compensation Table above pursuant to the 1999 share option plan to replace
options to purchase Carrier One, LLC interests pursuant to a restructuring of
our management equity. The economic terms of these new options are substantially
the same as the terms of the Carrier One, LLC options. Options vest in equal
annual installments over the five years ending on the fifth anniversary of the
grant date of the predecessor options, subject to the executive's continuing
employment.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED
UNDERLYING TO EXERCISE PRESENT VALUE
OPTIONS EMPLOYEES PRICE AT DATE OF
NAME GRANTED IN 1999 ($/SHARE) EXPIRATION DATE GRANT(A)
- ---- ---------- ---------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Stig Johansson..................... 355,555 14.4% $2.00 March 4, 2008 $106,666.65
Eugene A. Rizzo.................... 355,555 14.4% 2.00 March 4, 2008 106,666.65
Terje Nordahl...................... 177,777 7.2% 2.00 March 26, 2008 53,333.25
Joachim W. Bauer................... 355,555 14.4% 2.00 March 4, 2008 106,666.65
Kees van Ophem..................... 355,555 14.4% 2.00 March 4, 2008 106,666.65
</TABLE>
- ------------------------
(a) The fair value of options grants is estimated on the date of the grant
of the economically equivalent predecessor options to purchase Carrier
One, LLC interests, 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, 1999 DECEMBER 31, 1999
SHARES -------------------------- --------------------------
NAME ACQUIRED ON EXERCISE VALUE REALIZED EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- ---- -------------------- -------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Stig Johansson....... 0 $0 71,111/284,444 $2,726,395/10,905,583
Eugene A. Rizzo...... 0 0 71,111/284,444 2,726,395/10,905,583
Terje Nordahl........ 0 0 35,555/142,222 1,363,179/5,452,791
Joachim W. Bauer..... 0 0 71,111/284,444 2,726,395/10,905,583
Kees van Ophem....... 0 0 71,111/284,444 2,726,395/10,905,583
</TABLE>
Carrier1 International has authorized the issuance of options for up to
2,747,222 shares of Carrier1 International pursuant to its 1999 share option
plan dated as of December 30, 1998. As of
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December 31, 1999, Carrier1 International had outstanding options for a total of
2,478,468 shares under the 1999 share option plan. Carrier1 International has
also issued options to acquire 20,000 shares to each of Messrs. Wynne and V.
Pelson outside the scope of the 1999 share 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 W. Bauer and
Kees van Ophem has entered into an employment agreement with a wholly owned
subsidiary of Carrier1 International. The employment agreements provide that the
executive shall serve in his current capacity and that the executive shall be
paid base salary, bonus and pension plan contributions as set forth in the
Summary Compensation Table. Such agreements include, among others, the following
terms:
TERM. The employment agreements continue for an unspecified period of time
and may be terminated by either party upon six months' notice.
NONDISCLOSURE, NONCOMPETITION AND NONSOLICITATION COVENANTS. Each of the
above executives has agreed that during his period of employment and the
eighteen months thereafter he 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
Carrier One, LLC or its subsidiaries. Additionally, each of the above executives
has agreed that during this non-compete period, he will not induce or attempt to
induce any of our employees to leave our employ, nor will he attempt to induce
any of our suppliers, distributors or customers to cease doing business with us.
Each of the above executives has also agreed that he will refrain from
disclosing confidential information. In addition, each of the above executives
is subject to nondisclosure, noncompetition and nonsolicitation covenants
pursuant to deeds of covenant entered into among Carrier One, LLC, Carrier One
Limited, Providence and the executives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Carrier1 International does not have a compensation committee. The
compensation of executive officers and other of our key employees is determined
by the board. Stig Johansson, our President and Chief Executive Officer, is
currently a member of the board and has participated in such determinations. See
"Certain Relationships and Related Transactions" for a description of
transactions involving some members of the board.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EQUITY INVESTMENTS
As of December 31, 1999, shares of Carrier1 International are held by
Carrier1's management and employees, Providence Equity Partners L.P. (which
holds one share) and Carrier One, LLC. Messrs. Johansson, Bauer, Rizzo, van
Ophem, Craven, Nordahl, Gross and Poulter are among the management that have
subscribed and paid for outstanding shares.
Carrier One, 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 Carrier One, LLC through arrangements arrived
at separately with Providence and Primus. Messrs. Wynne and Pelson own (directly
or through trusts organized for the benefit of family members) 400,000 Class A
Units and 100,000 Class A Units, respectively, in Carrier One, 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.
Messrs. Wynne and Pelson do not directly hold any outstanding shares of Carrier1
International.
In 1999, we completed a restructuring of our management equity arrangements.
Pursuant to this restructuring, each of Messrs. Johansson, Bauer, Rizzo, van
Ophem, Craven, Nordahl, Gross and Poulter in effect exchanged his equity
interests and options that he had held in Carrier One, LLC to acquire an
equivalent dollar amount of shares and options to purchase shares of Carrier1
International. Each effected this exchange through a series of transactions with
Carrier One, 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 holds shares and options to acquire shares 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 (20,000 shares 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, under which we and related companies of the
consolidated Carrier1 group may grant to any employee or director options for
shares of Carrier1 International 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. During 1999, the board raised the maximum number of shares issuable
pursuant to the option plan from 2,222,222 to 2,747,222 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 on the
first anniversary of the date of commencement of employment. 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 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
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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.
As of December 31, 1999, we have granted options pursuant to the option plan
to acquire 2,478,468 shares at exercise prices ranging from $2.00 to $40.34 per
share plus applicable capital duty (currently 1% of the subscription price
payable to Carrier1 International by the subsidiary granting the applicable
option). We intend to grant additional options in the future.
SECURITIES PURCHASE AGREEMENT
Carrier1 International, Carrier One, LLC and employee investors have entered
into the securities purchase agreement (effective as of March 1, 1999) under
which Carrier One, LLC and each employee investor has purchased a specified
number of shares at prices ranging from $2.00 to $10.00 per share, for an
aggregate purchase price of approximately $6.0 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,
in effect, exchanged 68,260 Class A Units (at $1.00 per unit) of Carrier One,
LLC 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 completion of the equity investment in Carrier1 International by
Carrier One, 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. Carrier One, LLC has paid in an
additional $800,000 to the capital of Carrier1 International and received
400,000 shares. The securities purchase agreement provides that Carrier1
International will indemnify Carrier One, LLC and employee 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, Carrier One, LLC, and Messrs. Johansson, Bauer,
Rizzo, van Ophem, Craven, Nordahl, Gross, Poulter, Wynne and Pelson, as the
original investors, have entered into a registration rights agreement, effective
as of March 1, 1999. The registration rights agreement provides that Carrier
One, 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 Carrier One, LLC and
the original investors and, at the request of certain original investors,
possibly additional employees party to the securityholders' agreement described
below. The original 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 Carrier One, LLC
or any of the original 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,
with Messrs. Wynne and Pelson, the employee investors and Carrier One, LLC. This
agreement places restrictions on employee 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 Carrier One, LLC or its
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transferee. Carrier One, LLC will also benefit from preemptive rights in certain
other circumstances. This agreement also provides that the employee 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.
Employee investors have tag-along rights in the event of sales by Carrier One,
LLC or its members of securities if a change of control is involved. Finally,
under this agreement, the employee investors agree not to disclose confidential
information of, compete with, or solicit employees or customers from Carrier
One, LLC or Carrier1.
EPOCH PEERING ARRANGEMENT
We have entered into a peering arrangement with Epoch Networks. The contract
with Epoch Networks provides for the free exchange of Internet traffic between
us and Epoch Networks. A fund managed by Providence that holds a majority of the
Class A Units of Carrier One, LLC and another fund managed by Providence that
also holds an interest in Class A Units of Carrier One, LLC own a combined 19%
of the outstanding equity of Epoch Networks. Glenn Creamer, one of our
directors, is also a director of Epoch.
DATA CENTER FACILITIES JOINT VENTURE
We are developing our network of data centers in major European markets
through our Hubco joint venture. Hubco intends to build up to 20 to 25
facilities, generally ranging in size from 100,000 to 350,000 square feet in
major markets in Europe during 2000 and 2001. We expect to have a minimum of
between 10,000 and 25,000 square feet for our use and the use of our customers
in each facility. We expect to connect each facility to our fiber optic network.
As a strategic anchor tenant in these facilities, we will have favorable rents
and rights to additional space. We can opt not to be a strategic anchor tenant
in some planned locations and, if we wish to build data centers in additional
locations, we have given Hubco the right of first refusal to construct them.
We expect to compete with Hubco and another of our joint venture partners in
providing data center capabilities. The joint venture agreement permits us to do
so, with some exceptions. Moreover, we will be entitled to retain the benefits
of our strategic anchor tenant status unless we default or we cease to be a
Hubco shareholder or we acquire or are acquired by a company that competes with
Hubco.
Our partners in Hubco include an investment vehicle for funds managed by
Providence and Primus. Glenn Creamer, one of our directors, is a director of
Hubco.
WORLDWIDE FIBER BACKHAUL AGREEMENT
In December, 1999, we entered into an agreement with Worldwide Fiber
Networks (UK) Limited, a wholesale managed bandwidth services provider with
substantial North American and transatlantic assets, under which we will provide
bandwidth from the point of termination of its transatlantic capacity in London,
to destinations across Europe. We expect to commence transmission pursuant to
this agreement in March 2001 and, as one of their major providers of European
backhaul capacity, expect to deliver a substantial amount of bandwidth over the
15 year term of the agreement. Under the agreement, Worldwide Fiber has the
option to swap excess transatlantic capacity for four strands of fiber on our
German network or a combination of two strands of fiber and a 10 Gbps wavelength
once it has purchased a total of 100 STM-1s. A fund managed by Providence owns
approximately 4.5% of the outstanding common stock of Worldwide Fiber Inc. Glenn
Creamer, one of our directors, is also a director of Worldwide Fiber Inc.
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OTHER TRANSACTIONS
Carrier One, LLC 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 original equity investment in Carrier One, LLC. As of December 31, 1999,
Mr. van Ophem owed $68,260 to Carrier One, 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. Effective as of March 1, 1999, Carrier1
International GmbH became the creditor with respect to the loan.
During the year ended December 31, 1999 and during the period ended
December 31, 1998, we reimbursed Providence and Primus for expenses incurred in
connection with our formation and the negotiation of certain agreements we
entered into. Such reimbursements totaled $96,000 and $339,000, respectively,
and were expensed as selling, general and administrative expenses.
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PRINCIPAL AND SELLING SHAREHOLDERS
BENEFICIAL OWNERSHIP OF CARRIER1 INTERNATIONAL
The following table sets forth information regarding the beneficial
ownership of the shares of Carrier1 International, as of December 31, 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,
(4) all executive officers and directors of Carrier1 International as a
group, and
(5) each selling shareholder.
All information with respect to beneficial ownership has been furnished to
us by the respective shareholders of Carrier1 International.
<TABLE>
<CAPTION>
NUMBER OF
BEFORE THE OFFERING SHARES TO AFTER THE OFFERING
----------------------- BE SOLD IN -----------------------
NUMBER OF PERCENTAGE THE NUMBER OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES OF SHARES OFFERING SHARES OF SHARES
- --------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Carrier One, LLC(2)......................... 30,399,999 92.1% 1,850,350 28,549,649 70.3%
c/o Providence Equity Partners Inc.
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Providence Equity Partners L.P.(3).......... 30,400,000 92.1 1,850,350 28,549,650 70.3
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Jonathan M. Nelson(3)....................... 30,400,000 92.1 1,850,350 28,549,650 70.3
Paul J. Salem(3)............................ 30,400,000 92.1 1,850,350 28,549,650 70.3
Putnam Investment Management, Inc., on
behalf of certain funds for which it
serves as investment advisor(4)........... 226,392 * 13,778 212,614 *
Putnam Fiduciary Trust Company, on behalf of
certain funds for which it serves as
investment advisor(5)..................... 7,246 * 442 6,804 *
The Putnam Advisory Company, Inc., on behalf
of certain accounts for which it serves as
investment advisor(6)..................... 5,029 * 307 4,722 *
Other selling shareholders as a group
(13 persons)(7)........................... 166,370 * 10,123 156,247 *
NAME OF EXECUTIVE OFFICER OR DIRECTOR
- --------------------------------------------
Stig Johansson(8)........................... 105,241 * *
Eugene A. Rizzo(8).......................... 105,241 * *
Terje Nordahl(8)............................ 69,685 * *
Joachim Bauer(8)............................ 105,241 * *
Kees van Ophem(8)........................... 105,241 * *
Glenn M. Creamer(3)......................... 30,400,000 92.1 1,850,350 28,549,650 70.3
Jonathan E. Dick............................ -- --
Mark A. Pelson.............................. -- --
Victor A. Pelson(9)......................... 4,000 * *
Thomas J. Wynne(9).......................... 4,000 * *
All directors and executive officers as a
group (12 persons)........................ 31,003,890 92.8 1,850,350 29,153,540 71.2
</TABLE>
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- ------------------------
* Less than one percent.
(1) "Beneficial owner" refers to a person who has or shares the power to vote or
direct the voting of a security or the power to dispose or direct the
disposition of the security or who has the right to acquire beneficial
ownership of a security within 60 days. More than one person may be deemed
to be a beneficial owner of the same securities. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares subject to options and warrants held by that person that are
currently exercisable or exercisable within 60 days of December 31, 1999 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(2) If the underwriters exercise their overallotment option, Carrier One, LLC
would sell an additional 277,562 shares.
(3) Carrier One, LLC is the direct beneficial owner of 30,399,999 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
Carrier One, LLC, and by virtue of such status may be deemed to be the
beneficial owner of the shares in which Carrier One, 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 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. The address of Messrs. Nelson and Salem is c/o Providence Equity
Partners Inc., 901 Fleet Center, 50 Kennedy Plaza, Providence, RI 02903.
(4) Shares are being sold severally, and not jointly or jointly and severally,
by the following funds or private investment accounts: Putnam High Yield
Trust (3,556); Putnam Global Governmental Income Trust (254); Putnam High
Yield Advantage Fund (3,073); Putnam High Income Convertible and Bond Fund
(46); Putnam Variable Trust-Putnam VT High Yield Fund (1,026); Putnam
Variable Trust-Putnam VT Global Asset Allocation Fund (53); Putnam Master
Income Trust (208); Putnam Premier Income Trust (530);Putnam Master
Intermediate Income Trust (308); Putnam Diversified Income Trust (2,294);
Putnam Convertible Opportunities and Income Trust (46); Putnam Asset
Allocation Funds-Growth Portfolio (87); Putnam Asset Allocation Funds-
Balanced Portfolio (214); Putnam Asset Allocation Funds-Conservative
Portfolio (73); Putnam Funds Trust-Putnam High Yield Trust II (1,469);
Putnam Managed High Yield Trust (100); Lincoln National Global Asset
Allocation Fund, Inc. (26); Putnam Strategic Income Fund (107); and Putnam
Variable Trust-Putnam VT Diversified Income Fund (308). Putnam Investment
Management, Inc. provides investment advisory services to each entity
identified above, and to other investment companies and to certain other
funds which may hold securities issued by Carrier1 International. If the
underwriters exercise their overallotment option, these shareholders would
sell an additional 2,069 shares.
(5) Shares being sold severally, and not jointly or jointly and severally, by
the following funds or private investment accounts: Putnam High Yield
Managed Trust (342); and Putnam High Yield Fixed Income Fund, LLC (100).
Putnam Fiduciary Trust Company provides investment advisory services to each
entity identified above, and to other investment companies and to certain
other funds which may hold securities issued by Carrier1 International. If
the underwriters exercise their overallotment option, these shareholders
would sell an additional 59 shares.
(6) Shares are being sold severally, and not jointly or jointly and severally,
by the following funds or private investment accounts: Agway Inc. Employees'
Retirement Trust (33); Abbott Laboratories Annuity Retirement Plan (60);
Strategic Global Fund-High Yield Fixed Income (Putnam) Fund
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(67); Northrop Grumman Corporation (107); and Ameritech Pension Trust (40).
If the underwriters exercise their overallotment option, these shareholders
would sell an additional 37 shares.
(7) None of these shareholders owns more than 1% of the outstanding shares
immediately prior to this offering. If the underwriters exercise their
overallotment option, these shareholders would sell an additional 1,523
shares.
(8) 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. Options for an additional 71,111 shares
(35,555 in the case of Mr. Nordahl) will become exercisable in March 2000.
(9) Consists of options exercisable within 60 days that Carrier1 International
has issued to each of Thomas J. Wynne and Victor A. Pelson out of a total of
40,000 shares (20,000 shares each). Options for an additional 8,000 shares
(4,000 shares each) will become exercisable on March 1, 2000.
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<PAGE>
BENEFICIAL OWNERSHIP OF CARRIER ONE, LLC, THE MAJORITY SHAREHOLDER OF CARRIER1
INTERNATIONAL
The following table sets forth certain information regarding the beneficial
ownership of Class A Units (the "Class A Units") of Carrier One, LLC, the
majority shareholder of Carrier1 International, as of December 31, 1999 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 December 31, 1999, and
(4) each person known to Carrier1 International to own beneficially more
than 5% of Carrier One, 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............................................ 100,000 *
Thomas J. Wynne (3)......................................... 400,000 *
All directors and executive officers as a group (12 50,800,000 83.55%
persons)..................................................
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 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.
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<PAGE>
(3) Thomas J. Wynne holds (directly or through trusts organized for the benefit
of family members) 400,000 Class A Units. These Class A Units do not include
additional options that Carrier1 International has issued to Mr. Wynne for a
total of 40,000 shares. Mr. Wynne disclaims 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 CERTAIN INDEBTEDNESS
Our significant debt and vendor financing activity to date has consisted of
the following:
13 1/4% SENIOR DOLLAR NOTES AND 13 1/4% SENIOR EURO NOTES
On February 19, 1999, we issued $160 million and [EURO]85 million of 13 1/4%
senior notes, with detachable warrants, with a scheduled maturity of
February 15, 2009.
We have 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, we may redeem up to
35% of the aggregate amount of either series of notes with the proceeds of sales
of our capital stock at 113.25% of their principal amount. We 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.
Except for the approximately $79.0 million originally used to secure the
first five interest payments on the notes, the notes were not secured by any of
our assets and rank equally in right of payment with all of our unsubordinated
and unsecured indebtedness, including the Nortel facility described below. The
notes are senior in right of payment to all of our future subordinated
indebtedness.
The indentures governing each series of notes contain affirmative and
restrictive covenants. The affirmative covenants require us, among other things,
to provide information, maintain insurance, pay taxes and maintain our
properties. The restrictive covenants include limitations on the ability of
Carrier1 International and its restricted subsidiaries to:
- incur indebtedness,
- pay dividends,
- prepay subordinated indebtedness,
- repurchase shares,
- make investments,
- engage in transactions with affiliates,
- create liens,
- sell assets, and
- engage in mergers and consolidations.
Events of default under the indentures covering each series of notes include,
among other things:
- payment defaults,
- covenant defaults,
- cross-defaults to certain other indebtedness,
- judgment defaults, and
- events of bankruptcy and insolvency.
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FIBER OPTIC CABLE DEFERRED PURCHASE PAYMENT
On February 18, 1999, we entered into an agreement to purchase fiber optic
cable for the German network for $20.3 million plus value-added tax. We have
incurred additional borrowings under this agreement of approximately
$4.0 million since December 31, 1999. At our option, either the seller will
provide financing for the entire amount of the purchase, or we may pay in full
by December 31, 2000 without interest. Amounts payable to the seller will not
accrue interest unless and until the loan is provided on January 1, 2001. The
loan, if provided, will bear interest at a 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 us without charge.
NORTEL FINANCING
We also entered into a financing facility with Nortel Networks Inc., a major
equipment supplier, on June 25, 1999. The Nortel facility allows us to borrow
money to purchase network equipment from Nortel and, in limited amounts, other
suppliers. On November 8, 1999, we had drawn substantially the full amount of
$75,000,000 available under the Nortel facility. This advance bears interest at
a LIBOR-based floating rate, and the weighted average interest rate was 11.04%
per annum at December 31, 1999. The facility provides for covenants and events
of default similar to those in the indentures governing the 13 1/4% senior
notes. We intend to repay Nortel with the proceeds of this offering.
INTERIM CREDIT FACILITY
We have entered into an interim credit facility pursuant to a $200,000,000
credit agreement dated as of December 21, 1999 with Morgan Stanley Senior
Funding, Inc. and Citibank N.A. as lead arrangers. As of December 31, 1999, we
had drawn [EURO]10,000,000 under the facility which bears interest at a
LIBOR-based floating rate, which was 6.72% at December 31, 1999. The facility
allows us to draw up to a maximum amount of $200,000,000, or its equivalent in
euros, for purposes of refinancing the $75,000,000 Nortel facility, financing
the acquisition and installation of telecommunications equipment and other
general corporate purposes. Affiliates of some of the underwriters are also
lenders under this facility. We intend to repay all amounts outstanding under
this facility, currently [EURO]40,000,000, with the proceeds of this offering,
as required by the interim credit facility. Under the terms of the facility, the
commitments of the lenders will be reduced in an amount equal to the proceeds of
this offering.
The facility is available until November 30, 2000 and has a scheduled
maturity of December 20, 2000. Advances will bear interest at dollar or euro
LIBOR rates plus a margin which increases over time and is adjusted upon any
default in payment. Interest is payable periodically, at the time of any
repayment and at maturity. We may make voluntary pre-payments of amounts drawn
under the facility without penalty and are required to apply specified proceeds,
including the net cash proceeds from this offering and the issuance of any
additional debt or equity securities, subject to exceptions, first to prepay
amounts outstanding under the facility and then reduce the commitments under the
facility. The facility contains covenants and events of default similar to those
in the indentures governing the 13 1/4% senior notes.
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DESCRIPTION OF SHARE CAPITAL
SET FORTH BELOW IS A SUMMARY OF CERTAIN INFORMATION CONCERNING CARRIER1
INTERNATIONAL'S SHARE CAPITAL AND CERTAIN MATERIAL PROVISIONS OF CARRIER1
INTERNATIONAL'S ARTICLES OF INCORPORATION AND LUXEMBOURG LAW ON COMMERCIAL
COMPANIES IN EFFECT AS OF THE DATE OF THIS PROSPECTUS. THIS SUMMARY CONTAINS
INFORMATION THAT WE CONSIDER TO BE MATERIAL REGARDING THE SHARE CAPITAL OF
CARRIER1 INTERNATIONAL, BUT IT DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO CARRIER1 INTERNATIONAL'S ARTICLES OF
INCORPORATION AND THE LUXEMBOURG LAW ON COMMERCIAL COMPANIES.
As of the date of this prospectus, Carrier1 International has outstanding
33,065,840 shares with a par value of $2.00, all of which have been paid in
full, representing a subscribed capital amount of $66,131,680.
The total authorized capital of Carrier1 International, including the
outstanding subscribed capital, is set at $110,000,000, consisting of a total of
55,000,000 shares, par value $2.00. Pursuant to Carrier1 International's
articles of incorporation, the board of directors has been authorized to issue
further shares so as to bring the total capital of Carrier1 International up to
the total authorized capital in whole or in part from time to time. The
authorization lapses five years after the publication in the Luxembourg official
gazette of the grant of authorization, which occurred in May 1999, and may be
renewed by shareholder vote at an extraordinary meeting. Carrier1 International
intends to issue additional shares, including issuances from authorized capital
from time to time to Carrier One, LLC or its designees and directors and
employees of the Carrier1 group as provided in its 1999 share option plan and
its securities purchase agreement. Following completion of this offering, the
issued share capital of Carrier1 International will consist of 40,590,490 shares
(not including additional shares issuable upon exercise of options held by our
directors and employees or upon exercise of the warrants described below, other
than warrants being exercised in connection with this offering).
MEETINGS OF SHAREHOLDERS
Meetings of shareholders may be either ordinary or extraordinary. At
ordinary meetings, which do not currently require a quorum, shareholders can
decide on most matters, but they cannot decide matters that entail a
modification of the articles. Only at extraordinary meetings, for which more
stringent quorum and majority conditions apply, can shareholders modify the
articles. Among other things, a merger, liquidation or transformation of
Carrier1 International into another form of company, increases (unless decided
by the board of directors within the limits of the authorized capital) or
decreases of share capital or issuance of a new class of shares would all
require modification of the articles. A quorum of 50% and a vote of two-thirds
of the shares present or represented are required to amend the articles. If the
quorum is not achieved, however, then a second meeting may be called, at which
no quorum is required.
Carrier1 International must hold a general meeting every year at the place
and date indicated in the articles. This annual general shareholders' meeting is
an ordinary meeting. Annual general shareholders' meetings usually have on their
agenda the approval of the annual accounts and related issues, such as approval
of the management report prepared by the board and of the report of the
statutory auditor, and the use of profits shown on the balance sheet, including
the distribution of dividends. See "--Dividends" for further details about
Carrier1 International's dividend policy.
Ordinary and extraordinary shareholders' meetings may be called by the board
or by the statutory auditor. The board and the statutory auditor must convene a
meeting if requested in writing by shareholders representing at least 20% of the
subscribed capital of Carrier1 International.
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VOTING AND QUORUM REQUIREMENTS
Matters brought before ordinary shareholders' meetings must receive a
majority of the votes cast to pass. Extraordinary meetings, which are required
to amend the articles, require a quorum of at least half of the outstanding
shares and may only act with a vote of two-thirds of the shares present. If the
quorum condition is not fulfilled, however, a second meeting with the same
agenda may be called, for which the same two-thirds majority condition applies
but for which no quorum is required.
A "change of nationality," for purposes of Luxembourg law, of Carrier1
International would require approval by all the shareholders. Such a "change of
nationality" would typically consist of a permanent transfer of its registered
office outside of Luxembourg, but would not include a merger with a
non-Luxembourg company in which the non-Luxembourg company survives. An increase
of any obligations of shareholders set forth in the articles would also require
approval of all shareholders affected.
DIRECTORS
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF 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. Carrier1
International, 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 Carrier1 International).
The articles contain such an agreement.
APPOINTMENT AND REMOVAL OF DIRECTORS. The articles provide that directors
are elected by the shareholders at a general meeting for a maximum term of six
years (except in case of a vacancy where the board may provisionally appoint a
director to fill such a vacancy until the next general meeting). Directors may
be re-elected indefinitely for further terms of up to six years. Under the
articles, a minimum of three directors is required but there is no maximum
unless so resolved by the shareholders at a general meeting.
There are no restrictions in the articles or under Luxembourg law as to
nationality, residence or professional qualifications for directors. There is no
age limit nor are directors required to retire by rotation. Directors may be
removed, at any time with or without cause, at any ordinary shareholders'
meeting.
POWERS OF THE BOARD. The board has wide powers to perform all acts
necessary or desirable for accomplishing Carrier1 International's aims. The
board may delegate daily management to one or more directors, officers,
executives, employees or other persons, provided that any delegation to a member
of the board has been previously authorized by the shareholders at a general
meeting.
OFFICERS
Under Luxembourg law, an employee of Carrier1 International can only be
liable to Carrier1 International 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 International would be contrary to public
policy. Employees are liable to third parties under general tort law and may
enter into arrangements with Carrier1 International providing for
indemnification against third party claims.
An indemnification arrangement can never cover a willful act or gross
negligence.
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DIVIDENDS
Dividends may only be paid out of the distributable profits and unrestricted
reserves of Carrier1 International as shown in Carrier1 International's audited
accounts for the most recently completed financial year, which would consist of
the profit (if any) for such year and retained earnings from prior years after
deduction for losses carried over from prior years and reserves required by law
or the articles. The Luxembourg law on companies requires Carrier1 International
to set up a reserve equal to 10% of the subscribed capital by allocating yearly
at least 5% of its profits to the reserve account until it reaches the 10%
threshold. Since Carrier1 International has not had profits through
December 31, 1999, it has not allocated any amount to the reserve account to
date.
Under Luxembourg law, Carrier1 International's board of directors may pay
interim dividends because the articles of incorporation contain a specific
provision to that effect. However, formal and substantive requirements have to
be met in order for Carrier1 International to pay interim dividends. These
include a requirement that Carrier1 International prepare financial statements
showing that funds are available for distribution. The amount of such
distribution may not exceed the profits earned by Carrier1 International since
the end of the last financial year for which the annual accounts have been
approved by the general shareholders' meeting plus retained earnings and
withdrawals from unrestricted reserves and minus carried-forward losses and
amounts to be mandatorily paid to a reserve account. No interim dividends may be
paid out during the first six months of the company's accounting year nor before
the approval of the annual accounts of the previous accounting year by a general
shareholders' meeting.
Carrier1 International's statutory auditor must verify whether the
conditions for the payment of interim dividends are fulfilled.
If an interim dividend exceeds the dividend set by the shareholders at the
annual ordinary shareholders' meeting, the excess is deemed an advance payment
of the next dividend.
Dividends may be paid in U.S. dollars or in shares or otherwise as the board
may determine in accordance with Luxembourg law. Payment of any dividends will
be made to holders of shares at their addresses in the register maintained by or
on behalf of Carrier1 International. Carrier1 International has never declared
or paid any dividends and does not expect to do so in the foreseeable future.
See "Dividend Policy."
Nonresidents of Luxembourg who hold shares or ADSs may be subject to
Luxembourg statutory withholding tax in respect of any cash dividends paid. See
"Taxation--Certain Luxembourg Tax Considerations."
CAPITAL INCREASES; PREEMPTIVE RIGHTS
The subscribed capital and the authorized capital of Carrier1 International
may be increased or reduced by the shareholders at a shareholders' meeting under
the same quorum and majority requirements applicable to an amendment of the
articles. The board may issue shares (up to the amount authorized by the
articles) without shareholder approval, and, if so decided by the board,
shareholders will have no pre-emptive rights in connection with such issuance.
Holders of shares outstanding prior to this offering will have no pre-emptive
rights in connection with this offering.
In the event that preemptive rights are not disallowed by the board, all
shareholders will be notified of the period during which preemptive rights may
be exercised, as determined by the board. Under Luxembourg law, this period must
be at least 30 days. Preemptive rights are transferable and may be sold, prior
to exercise.
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LIQUIDATION RIGHTS
The shareholders of Carrier1 International may dissolve Carrier1
International under the conditions prescribed for modification of the articles.
If such dissolution were to occur, Carrier1 International would then be
liquidated, and after payment of its debts or consignment of the sums necessary
to pay such debts, the shareholders would be entitled to the remaining assets of
Carrier1 International, in proportion to their holdings.
FORM AND TRANSFER OF SHARES
As a general matter under Luxembourg law, shares may be issued in registered
or bearer form, at the option of the shareholder, except that shares underlying
the ADSs quoted on the Nasdaq National Market are available in registered form
only. Shares which have not been fully paid up must be in registered form.
Shares may be evidenced at the holder's option in certificates representing two
or more shares.
The shares sold in this offering, including the shares sold by the selling
shareholders, will be in registered global form and will be delivered into the
custody of Clearstream Banking AG, Frankfurt am Main, or Clearstream, Frankfurt.
Clearstream, Frankfurt will be registered in our share register as the sole
shareholder for the shares sold in this offering. Beneficial interests in the
shares can be transferred in accordance with the rules and regulations of
Clearstream, Frankfurt. The shares are also expected to be accepted for
clearance through Clearstream, Frankfurt, Euroclear and Clearstream Banking,
societe anonyme, or Clearstream, Luxembourg. The shares may be credited at the
option of investors either to a German bank's Clearstream, Frankfurt account or
to the accounts of participants with Euroclear or Clearstream, Luxembourg. The
ADSs quoted on the Nasdaq National Market will be delivered against payment in
U.S. dollars through The Depository Trust Company's book-entry facilities. The
shares to be listed on the Neuer Markt segment of the Frankfurt Stock Exchange
will be delivered in book-entry form against payment in euro through
Clearstream, Frankfurt's, Euroclear's and Clearstream Luxembourg's book entry
facilities.
In general, title to shares in bearer form passes by delivery of the
certificates evidencing the shares. Transfers of registered shares require
either (i) an inscription of the transfer in the share register of Carrier1
International signed by the transferor and the transferee or their respective
agents or (ii) a notification of the transfer by the transferor or the
transferee to Carrier1 International which in turn must record such transfer in
the share register maintained by it or on its behalf. Carrier1 International or
its registrar may also enter the transfer in the register on the basis of
correspondence or other documents that establish the existence of an agreement
between the transferor and the transferee.
It is generally held that contractual restrictions on the transfer of shares
are legal provided they do not render the shares inalienable for a prolonged
period of time. Currently, the articles provide that, if the board determines
that a proposed transfer of shares would violate a restriction on transfer
agreed to by the owner of such shares or its predecessor in interest and brought
to the attention of the board, the board may refuse to record such transfer in
the share register of Carrier1 International (with a provision that such refusal
will not result in a situation where a shareholder is forced to continue to hold
shares for an extended period of time).
DESCRIPTION OF THE WARRANTS
GENERAL
In connection with the issuance of the 13 1/4% senior dollar and euro notes,
Carrier1 International issued dollar warrants and euro warrants. The following
summary of certain provisions of the warrant
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agreements does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the warrant agreements. Wherever
particular defined terms of the warrant agreements, not otherwise defined in
this prospectus, are referred to, those defined terms are incorporated by
reference in this prospectus. A copy of each warrant agreement and the
registration rights agreement referred to below is filed as an exhibit to the
registration statement of which this prospectus is a part.
Each dollar warrant is exercisable to purchase 6.71013 shares at the
exercise price per share equal to the greater of $2.00 and the minimum par value
required by Luxembourg law (currently 50 Luxembourg francs) (excluding a 1%
Luxembourg capital duty which is payable by Carrier1 International), subject to
adjustment. Each euro warrant is exercisable to purchase 7.53614 shares at the
same exercise price. The warrants may be exercised at any time beginning
February 19, 2000, and prior to the close of business on February 19, 2009,
unless redeemed. Warrants that are not exercised by this expiration date will
expire. We delivered a notice to warrant holders pursuant to the registration
rights agreement which, among other things, notified the warrant holders of the
opportunity, subject to the terms of the registration rights agreement, to
exercise their warrants to purchase shares and include those shares in this
offering. Certain warrant holders will participate pro rata with Carrier One,
LLC in the sale of 1,875,000 shares and up to an additional 281,250 shares in
the over-allotment option, if exercised.
As at December 31, 1999, the aggregate number of the warrants outstanding
was 245,000 and the aggregate number of shares for which the warrants may be
exercised was 1,714,193.
Upon the occurrence of a merger with a person in connection with which the
consideration to shareholders of Carrier1 International is not all cash and
where the shares (or other securities) issuable upon exercise of the warrants
are not registered under the Exchange Act, Carrier1 International or its
successor by merger will be required to offer (or cause an affiliate to offer)
to repurchase the warrants for cash in the manner specified in the warrant
agreements.
The shareholders of Carrier1 International may be required to reauthorize
and reserve the shares issuable upon exercise of all outstanding warrants. To
the extent such reauthorization or reservation is required by applicable law,
Carrier1 International has agreed (to the extent permitted by applicable law) to
take any and all actions required, and Carrier One, LLC has agreed (to the
extent permitted by applicable law) to vote any shares held by it, to
reauthorize and reserve the shares for issuance upon exercise of the warrants at
least 31 days prior to the date such reauthorization would be required under
Luxembourg law.
ANTI-DILUTION PROVISIONS
Each warrant agreement contains provisions adjusting the exercise price and
the number of shares or other securities issuable upon exercise of a warrant of
the relevant series under specified circumstances. Each warrant agreement also
contains other provisions that will provide alternative equivalent adjustments
or other protections in the event that the adjustment provisions would result in
a reduction of the exercise price to below either the par value of the
underlying shares or the minimum par value required by Luxembourg law. Each
warrant agreement prohibits Carrier1 International from increasing the par value
of the underlying shares to an amount greater than the exercise price, except to
the extent required by applicable law.
No adjustment in the number of shares purchasable upon exercise of the
warrants is required, however, for certain public offerings or private
placements, for certain grants, or exercises, of options or other rights to
purchase granted to or for the benefit of management investors, for certain
issuances of shares to or for the benefit of management investors, for grants,
or exercises of options, warrants or other rights to purchase pursuant to
agreements existing on the date the warrants were issued, for
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issuances of shares pursuant to options, warrants or other agreements or rights
to purchase capital stock of Carrier1 International existing on the date the
warrants were issued and in other circumstances specified in the warrant
agreements, or unless such adjustment would require an increase or decrease of
at least one percent in the number of shares purchasable upon the exercise of a
warrant or if certain other limited exceptions are applicable.
OTHER PROVISIONS
The terms of the warrant agreements also permit the warrant holders to
participate in merger transactions and impose reporting obligations on Carrier1
International. In addition, the warrant holders have registration rights
pursuant to a registration rights agreement. Under the terms of the registration
rights agreement, the holders of the warrants have "piggy-back" registration
rights for the shares or other securities issuable upon exercise of the warrants
in connection with specified public offerings of shares or other securities
issuable upon exercise of the warrants conducted subsequent to this initial
public offering. Carrier1 International will be required to use its best efforts
to cause to be declared effective, no later than six months after the closing
date of this initial public offering, a shelf registration statement with
respect to the issuance of or in certain cases, resales of the shares or other
securities issuable upon exercise of the warrants. Carrier1 International is
required to use reasonable efforts to maintain the effectiveness of that shelf
registration statement until the earlier of the date all warrants have been
exercised and the expiration date of the warrants. Carrier1 International has
the ability to suspend the availability of this registration statement for
specified time periods. In addition, the warrant holders have agreed to certain
restrictions on transfer of the warrants and other securities during the period
ending 180 days after the date of this prospectus. These restrictions will apply
to the same extent as the restrictions on transfer described under
"Underwriters."
NO RIGHTS AS SHAREHOLDERS
The holders of unexercised warrants are not entitled to receive dividends or
other distributions, receive notice of any meeting of the shareholders, consent
to any action of the shareholders, receive notice of any other shareholder
proceedings, or to any other rights as shareholders of Carrier1 International.
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DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
Bankers Trust Company will act as the depositary for the American Depositary
Shares. The depositary's offices are located at 4 Albany Street, New York, New
York. American Depositary Shares are frequently referred to as ADSs and
represent ownership interests in shares that are on deposit with the depositary
or its custodian. ADSs are normally represented by certificates that are
commonly known as American Depositary Receipts, or ADRs.
We have appointed the depositary pursuant to a deposit agreement. A copy of
the deposit agreement will be filed with the United States Securities and
Exchange Commission as an exhibit to a registration statement on Form F-6. You
may obtain a copy of the deposit agreement from the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
We are providing you with a summary description of the ADSs and your rights
as an owner of ADSs. This is only a summary and may not contain all of the
information that may be important to you. For complete information, you should
review the deposit agreement in its entirety, as well as the form of ADR
attached to the deposit agreement.
Each ADS represents 0.2 of one share on deposit with the custodian. An ADS
will also represent any other property received by the depositary or the
custodian on behalf of the owner of the ADS but that has not been distributed to
the owners of ADSs because of legal restrictions or practical considerations.
If you become an owner of ADSs, you will become a party to the deposit
agreement and therefore will be bound by its terms and by the terms of the ADRs
that represent your ADSs. The deposit agreement and the ADR specify our rights
and obligations as well as your rights and obligations as an owner of ADSs and
those of the depositary. The deposit agreement is governed by New York law.
As an owner of ADSs, you may hold your ADSs either by means of an ADR
registered in your name or through a brokerage or safekeeping account. If you
decide to hold your ADSs through your brokerage or safekeeping account, you must
rely on the procedures of your broker or bank to assert your rights as an ADS
owner. Please consult with your broker or bank to determine what those
procedures are. This summary description assumes you have opted to own the ADSs
directly by means of an ADR registered in your name and, as such, we will refer
to you as the "holder."
DIVIDENDS AND DISTRIBUTIONS
As a holder, you generally have the right to receive the distributions we
make on the shares deposited with the custodian. Your receipt of these
distributions may be limited, however, by practical considerations and legal
limitations. Holders will receive distributions under the terms of the deposit
agreement in proportion to the number of ADSs held as of a specified record
date.
DISTRIBUTIONS OF CASH
If we make a cash distribution for the shares on deposit with the custodian,
we will notify the depositary. Upon receipt of such notice, if the distribution
is not in U.S. dollars, the depositary will arrange for the funds to be
converted into U.S. dollars and for the distribution of the U.S. dollars to the
holders.
The conversion into U.S. dollars will take place only if practicable and if
the U.S. dollars are transferable to the United States. The amounts distributed
to holders will be net of the fees, expenses, taxes and governmental charges
payable by holders under the terms of the deposit agreement. The depositary will
apply the same method for distributing the proceeds of the sale of any property
(such as undistributed rights) held by the custodian in respect of shares on
deposit.
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DISTRIBUTIONS OF SHARES
Whenever we make a free distribution of shares for the shares on deposit
with the custodian, we will notify the depositary. Upon receipt of such notice,
the depositary will either distribute to holders new ADSs representing the
shares deposited or modify the ADS to shares ratio, in which case each ADS you
hold will represent rights and interests in the additional shares so deposited.
Only whole new ADSs will be distributed. Fractional entitlements will be sold
and the proceeds of such sale will be distributed as in the case of a cash
distribution.
The distribution of new ADSs or the modification of the ADS to share ratio
upon a distribution of shares will be made net of the fees, expenses, taxes and
governmental charges payable by holders under the terms of the deposit
agreement. In order to pay such taxes or governmental charges, the depositary
may sell all or a portion of the new shares so distributed.
No such distribution of new ADSs will be made if it would violate a law
(including the U.S. securities laws) or if it is not operationally practicable.
If the depositary does not distribute new ADSs as described above, it will use
its best efforts to sell the shares received and will distribute the proceeds of
the sale as in the case of a distribution of cash.
DISTRIBUTIONS OF RIGHTS
Whenever we intend to distribute rights to purchase additional shares, we
will give prior notice to the depositary and we will assist the depositary in
determining whether it is lawful and reasonably practicable to distribute rights
to purchase additional ADSs to holders.
The depositary will establish procedures to distribute rights to purchase
additional ADSs to holders and to enable such holders to exercise such rights if
it is lawful and reasonably practicable to make the rights available to holders
of ADSs, and if we provide all of the documentation contemplated in the deposit
agreement (such as opinions to address the lawfulness of the transaction). You
may have to pay fees, expenses, taxes and other governmental charges to
subscribe for the new ADSs upon the exercise of your rights. The depositary is
not obligated to establish procedures to facilitate the distribution and
exercise by holders of rights to purchase new shares directly rather than new
ADSs.
The depositary will not distribute the rights to you if:
- we do not request that the rights be distributed to you or we ask that the
rights not be distributed to you, or
- we fail to deliver satisfactory documents to the depositary, or
- it is not reasonably practicable to distribute the rights.
The depositary will attempt to sell the rights that are not exercised or not
distributed if such sale is lawful and reasonably practicable. The net proceeds
of such sale will be distributed to holders as in the case of a cash
distribution. If the depositary is unable to sell the rights, it will allow the
rights to lapse.
OTHER DISTRIBUTIONS
Whenever we intend to distribute property other than cash, shares or rights
to purchase additional shares, we will notify the depositary in advance and will
indicate whether we wish such distribution to be made to you. If so, we will
assist the depositary in determining whether such distribution to holders is
lawful and reasonably practicable.
If it is reasonably practicable to distribute such property to you and if we
provide all of the documentation contemplated in the deposit agreement, the
depositary will distribute the property to the holders in a manner it deems
practicable.
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The distribution will be made net of fees, expenses, taxes and governmental
charges payable by holders under the terms of the deposit agreement. In order to
pay such taxes and governmental charges, the depositary may sell all or a
portion of the property received.
The depositary will not distribute the property to you and will sell the
property if:
- we do not request that the property be distributed to you or if we ask
that the property not be distributed to you, or
- we do not deliver satisfactory documents to the depositary, or
- the depositary determines that all or a portion of the distribution to you
is not reasonably practicable.
The net proceeds of such a sale will be distributed to holders as in the
case of a cash distribution.
CHANGES AFFECTING SHARES
The shares held on deposit for your ADSs may change from time to time. For
example, there may be a change in nominal or par value, a split-up,
cancellation, consolidation or classification of such shares or a
recapitalization, reorganization, merger, consolidation or sale of assets.
If any such change were to occur, your ADSs would, to the extent permitted
by law, represent the right to receive the property received or exchanged in
respect of the shares held on deposit. The depositary may in such circumstances
deliver new ADSs to you or call for the exchange of your existing ADSs for new
ADSs. If the depositary may not lawfully distribute such property to you, the
depositary may sell such property and distribute the net proceeds to you as in
the case of a cash distribution.
ISSUANCE OF ADSS UPON DEPOSIT OF SHARES
The depositary may issue ADSs on your behalf if you or your broker deposit
shares with the custodian. The depositary will deliver ADRs representing these
ADSs to the person you indicate only after you pay any applicable issuance fees
and any charges and taxes payable for the transfer of the shares to the
custodian.
The issuance of ADSs may be delayed until the depositary or the custodian
receives confirmation that all required approvals have been given and that the
shares have been duly transferred to the custodian. The depositary will only
issue ADSs in whole numbers and will not accept fractions of shares for deposit.
When you make a deposit of shares, you will be responsible for transferring
good and valid title to the depositary. As such, you will be deemed to represent
and warrant that:
- the shares are duly authorized, validly issued, fully paid, non-assessable
and legally obtained,
- all preemptive (and similar) rights, if any, with respect to such shares
have been validly waived or exercised,
- you are duly authorized to deposit the shares, and
- the shares presented for deposit are not, and the ADSs issuable upon such
deposit will not be, restricted securities (as defined in the deposit
agreement).
If any of the representations or warranties are incorrect in any way, we and
the depositary may, at your cost and expense, take any and all actions necessary
to correct the consequences of the misrepresentations.
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WITHDRAWAL OF SHARES UPON CANCELLATION OF ADSS
As a holder, you will be entitled to present your ADSs to the depositary for
cancellation and then receive the whole number of underlying shares represented
by such ADSs at the custodian's offices. In order to withdraw the shares
represented by your ADSs, you will be required to pay to the depositary the fees
for cancellation of ADSs and any charges and taxes payable upon the transfer of
the shares being withdrawn. You assume the risk for delivery of all funds and
securities upon withdrawal. Once canceled, the ADSs will not have any rights
under the deposit agreement.
The withdrawal of the shares represented by your ADSs may be delayed until
the depositary receives satisfactory evidence of compliance with all applicable
laws and regulations. Please keep in mind that the depositary will only accept
ADSs for cancellation that represent a whole number of securities on deposit.
You will have the right to withdraw the shares represented by your ADSs at
any time except, among other things, for:
- temporary delays that may arise because (i) the transfer books for the
shares or ADSs are closed, or (ii) shares are immobilized on account of a
shareholders' meeting or a payment of dividends,
- obligations to pay fees, taxes and similar charges, and
- restrictions imposed because of laws or regulations applicable to ADSs or
the withdrawal of shares on deposit.
The deposit agreement may not be modified to impair your right to withdraw
the shares represented by your ADSs except to comply with mandatory provisions
of law.
VOTING RIGHTS
As a holder, you generally have the right under the deposit agreement to
instruct the depositary to exercise the voting rights for the whole shares
represented by your ADSs.
At our request, the depositary will mail to registered holders of ADSs any
notice of shareholders' meeting received from us together with information
explaining how to instruct the depositary to exercise the voting rights of the
shares represented by ADSs. To the extent you are not a registered holder of
ADSs, you will need to look to the financial institution with whom you hold your
ADSs for voting materials.
If the depositary receives timely voting instructions from a holder of ADSs,
it will endeavor to vote the shares represented by the holder's ADSs in
accordance with such voting instructions.
Please note that the ability of the depositary to carry out voting
instructions may be limited by practical and legal limitations and the terms of
the shares on deposit. We cannot assure you that you will receive voting
materials in time to enable you to return voting instructions to the depositary
in a timely manner. Shares for which no voting instructions have been received
will not be voted.
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FEES AND CHARGES
As an ADS holder, you will be required to pay the following service fees to
the depositary:
<TABLE>
<CAPTION>
SERVICE FEES
- ------- ----
<S> <C>
Issuance of ADSs Up to $.05 per ADS issued
Cancellation of ADSs Up to $.05 per ADS canceled
Exercise of rights to purchase
additional ADSs Up to $.05 per ADS issued
Distribution of cash upon sale of
rights and other entitlements Up to $.02 per ADS held
</TABLE>
As an ADS holder you will also be responsible to pay certain fees and
expenses incurred by the depositary and certain taxes and governmental charges
such as:
- fees for the transfer and registration of shares (upon deposit and
withdrawal of shares),
- expenses incurred for converting foreign currency into U.S. dollars,
- expenses for cable, telex and fax transmissions and for delivery of
shares, and
- taxes and duties upon the transfer of shares (when shares are deposited or
withdrawn from deposit).
We have agreed to pay certain other charges and expenses of the depositary.
Note that the fees and charges you may be required to pay may vary over time and
may be changed by us and by the depositary. You will receive prior notice of
such changes.
AMENDMENTS AND TERMINATION
We may agree with the depositary to modify the deposit agreement at any time
without your consent. We undertake to give holders 30 days' prior notice of any
modifications that would prejudice any of their substantial rights under the
deposit agreement (except in very limited circumstances enumerated in the
deposit agreement).
You will be bound by the modifications to the deposit agreement if you
continue to hold your ADSs for 30 days after notice of the modifications to the
deposit agreement are given to you. The deposit agreement cannot be amended to
prevent you from withdrawing the shares represented by your ADSs (except as
permitted by law).
We have the right to direct the depositary to terminate the deposit
agreement. Similarly, the depositary may in certain circumstances on its own
initiative terminate the deposit agreement. In either case, the depositary must
give notice to the holders at least 30 days before termination.
Upon termination, the following will occur under the deposit agreement:
- You will be able to request the cancellation of your ADSs and the
withdrawal of the shares represented by your ADSs and the delivery of all
other property held by the depositary in respect of those shares on the
same terms as prior to the termination. During such six months' period,
the depositary will continue to collect all distributions received on the
shares on deposit but will not distribute any such property to you until
you request the cancellation of your ADSs.
- After the expiration of such six months' period, the depositary may sell
the shares held on deposit. The depositary will hold the proceeds from
such sale and any other funds then held for
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the holders of ADSs in a non-interest bearing account. At that point, the
depositary will have no further obligations to holders other than to
account for the funds then held for the holders of ADSs still outstanding.
BOOKS OF DEPOSITARY
The depositary will maintain ADS holder records at its depositary office.
You may inspect such records at such office during regular business hours but
solely for the purpose of communicating with other holders in the interest of
business matters relating to the ADSs and the deposit agreement.
The depositary will maintain in New York facilities to record and process
the issuance, cancellation, combination, split-up and transfer of ADRs.
LIMITATIONS ON OBLIGATIONS AND LIABILITIES
The deposit agreement limits our obligations and the depositary's
obligations to you. Please note the following:
- We and the depositary are obligated only to take the actions specifically
stated in the depositary agreement without negligence or bad faith.
- The depositary disclaims any liability for any failure to carry out voting
instructions, for any manner in which a vote is cast or for the effect of
any vote, provided it acts without negligence, in good faith and in
accordance with the terms of the deposit agreement.
- We and the depositary disclaim any liability if we are prevented, delayed
or forbidden from acting on account of any law or regulation, any
provision of our articles of incorporation, any provision of any
securities on deposit or by reason of any act of God or war or other
circumstances beyond our control.
- We and the depositary disclaim any liability by reason of any exercise of,
or failure to exercise, any discretion provided for the deposit agreement.
- We and the depositary further disclaim any liability for any action or
inaction in reliance on the advice or information received from legal
counsel, accountants, any person presenting shares for deposit, any holder
of ADSs or authorized representative of any holder, or any other person
believed by either of us in good faith to be competent to give such advice
or information.
- We and the depositary also disclaim liability for the inability by a
holder to benefit from any distribution, offering, right or other benefit
which is made available to holders of shares but is not, under the terms
of the deposit agreement, made available to you.
- We and the depositary may rely without any liability upon any written
notice, request or other document believed to be genuine and to have been
signed or presented by the proper parties.
PRE-RELEASE TRANSACTIONS
The depositary may, in certain circumstances, issue ADSs before receiving a
deposit of shares or release of shares before receiving ADSs. These transactions
are commonly referred to as pre-release transactions. The deposit agreement
limits the aggregate size of pre-release transactions and imposes a number of
conditions on such transactions (for example, the need to receive collateral,
the type of collateral required or the representations required from brokers).
The depositary may retain any compensation received from the pre-release
transactions.
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TAXES
You will be responsible for the taxes and other governmental charges payable
on the ADSs and the shares represented by the ADSs. We, the depositary and the
custodian may deduct from any distribution the taxes and governmental charges
payable by holders and may sell any and all property on deposit to pay the taxes
and governmental charges payable by holders. You will be liable for any
deficiency if the sale proceeds do not cover the taxes that are due.
The depositary may refuse to issue ADSs, to deliver transfer, split and
combine ADRs or to release shares on deposit until all taxes and charges are
paid by the applicable holder. The depositary and the custodian may take
reasonable administrative actions to obtain tax refunds and reduced tax
withholding for any distributions on your behalf. However, you may be required
to provide to the depositary and to the custodian proof of taxpayer status and
residence and such other information as the depositary and the custodian may
require to fulfill legal obligations. You are required to indemnify us, the
depositary and the custodian for any claims with respect to taxes based on any
tax benefit obtained for you.
FOREIGN CURRENCY CONVERSION
The depositary will arrange for the conversion of all foreign currency
received into U.S. dollars if such conversion is practicable, and it will
distribute the U.S. dollars in accordance with the terms of the deposit
agreement. You may have to pay fees and expenses incurred in converting foreign
currency, such as fees and expenses incurred in complying with currency exchange
controls and other governmental requirements.
If the conversion of foreign currency is not practicable or lawful, or if
any required approvals are denied or not obtainable at a reasonable cost or
within a reasonable period, the depositary may take the following actions in its
discretion:
- convert the foreign currency to the extent practicable and lawful and
distribute the U.S. dollars to the holders for whom the conversion and
distribution is lawful and practicable.
- distribute the foreign currency to holders entitled to receive such
foreign currency.
- hold the foreign currency (uninvested without liability for interest) for
the holders entitled to receive such foreign currency.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, there will be 40,590,490 shares of
Carrier1 International outstanding (assuming no exercise of the underwriters'
over-allotment option), of which the 9,375,000 shares to be sold in the
offering, whether in the form of shares or ADSs, will be freely tradeable
without restriction by persons other than "affiliates" of Carrier1. The
remaining shares will be deemed "restricted" securities within the meaning of
the U.S. Securities Act, and, as such, may not be sold within the United States
in the absence of registration under the U.S. Securities Act or an exemption
therefrom, including the exemptions contained in Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have owned
shares of an issuer for at least one year, including an "affiliate," is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of 1% of the then outstanding number of shares of such class
(approximately 405,904 shares after the offering) or the average weekly trading
volume in composite trading in all national securities exchanges during the four
calendar weeks preceding the filing of the required notice of such sale. A
person (or persons whose shares are required to be aggregated) who is not deemed
an affiliate of an issuer at the time of the sale and for at least three months
prior to the sale and who has owned shares for at least two years is entitled to
sell such shares under Rule 144 without regard to the volume limitations
described above. Affiliates continue to be subject to such limitations. As
defined in Rule 144, an "affiliate" of an issuer is a person that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, such issuer.
Under a registration rights agreement, our majority shareholder, Carrier
One, LLC, may at any time request registration under the Securities Act of its
shares and certain other equity securities. The registration rights agreement
also gives certain piggyback registration rights to Carrier One, LLC and other
original investors and, under specified circumstances, possibly additional
employees. In addition, Carrier1 International will be required to use its best
efforts to cause to be declared effective, no later than six months after the
closing date of this initial public offering, a shelf registration statement
with respect to the issuance of or, in certain cases, resales of the shares or
other securities issuable upon exercise of the warrants.
Each of Carrier1 International, its executive officers and directors, the
selling shareholders and substantially all of the other shareholders of Carrier1
International have agreed that, without the prior written consent of Morgan
Stanley & Co. International Limited and Salomon Brothers International Limited,
or certain of their affiliates, on behalf of the underwriters, it will not, for
a period of 180 days from the date of this prospectus, subject to certain
exceptions:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Carrier1 International or any securities
convertible into or exercisable or exchangeable for shares of Carrier1
International or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
shares of Carrier1 International,
whether any such transaction described above is to be settled by delivery of
shares of Carrier1 International or such other securities, in cash or otherwise,
for a period of 180 days after the date of this prospectus. See "Underwriters."
In addition, under the rules of the Neuer Markt segment of the Frankfurt Stock
Exchange, the shareholders have undertaken not to offer or sell shares, directly
or indirectly, in an exchange or off-exchange transaction, within a period of
six months from the date of admission of the shares to the Neuer Markt.
Prior to the offering, there has been no established market for the shares
or ADSs, and no predictions can be made about the effect, if any, that future
sales of shares or ADSs or the availability of such shares for sale would have
on the market price prevailing from time to time. Sales of substantial amounts
of shares or ADSs in the public market, or the perception that such sales could
occur, may have an adverse impact on the market price for the shares and the
ADSs or on the ability of Carrier1 International to raise capital through an
offering of its equity securities.
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TAXATION
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal income tax
consequences of the acquisition, ownership and disposition of common shares or
ADSs, which we collectively refer to in this discussion as shares, to U.S.
Holders (as defined below). The discussion is based upon provisions of the U.S.
Internal Revenue Code of 1986, as amended, known as the Code, its legislative
history, judicial authority, current administrative rulings and practice, and
existing and proposed Treasury regulations, all as in effect and existing on the
date of this prospectus. 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 share is or will be held as a capital asset (as defined in Section 1221 of
the Code) by the holders of the share. Except as otherwise described in this
prospectus, this discussion applies only to a person who is an initial holder or
other beneficial owner of shares purchased pursuant to this offering and who is
for U.S. federal income tax purposes (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized in or under the
laws of the United States, any State of the United States or the District of
Columbia, (iii) an estate that is not a foreign estate for U.S. federal income
tax purposes or (iv) 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 the acquisition, ownership
and disposition of shares. 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 shares 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 PURCHASER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH PURCHASER'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 SHARES.
SHARES
GENERAL
For purposes of the Code, holders of ADSs will be treated as the beneficial
owners of the common shares represented by those ADSs.
Carrier1 International has not paid any dividends on its shares and does not
intend to pay dividends in the foreseeable future. See "Dividend Policy".
However, if a U.S. Holder receives a dividend on shares generally it will be
required to include such distribution in gross income as a taxable dividend to
the extent such distribution is paid from the current or accumulated earnings
and profits of Carrier1 International as determined under U.S. federal income
tax principles. Distributions in excess of the earnings and profits of Carrier1
International generally will first be treated, for U.S. federal income tax
purposes, as a nontaxable return of capital to the extent of the U.S. Holder's
basis in the shares and then as gain from the sale or exchange of a capital
asset, provided that the shares constitute
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a capital asset in the hands of the U.S. Holder. Dividends received on shares by
U.S. corporate shareholders will not be eligible for the corporate dividends
received deduction.
A U.S. Holder will be entitled to claim a foreign tax credit with respect to
income received from Carrier1 International only for foreign taxes (such as
withholding taxes), if any, imposed on dividends paid to such U.S. Holder, and
not for taxes, if any, imposed on Carrier1 International or on any entity in
which Carrier1 International has made an investment. For so long as Carrier1
International is a "United States-owned foreign corporation," distributions with
respect to shares that are taxable as dividends generally will be treated as
foreign source passive income (or, for U.S. Holders that are "financial service
entities" as defined in the Treasury Regulations, financial service income) or
U.S. source income for U.S. foreign tax credit purposes, in proportion to the
earnings and profits of Carrier1 International in the year of such distribution
allocable to foreign and U.S. sources, respectively. For this purpose, Carrier1
International will be treated as a United States-owned foreign corporation so
long as stock representing 50% or more of the voting power or value of Carrier1
International is owned, directly, or indirectly, by "United States persons." 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.
With certain exceptions, gain or loss on the sale or exchange of shares will
be treated as U.S. source capital gain or loss (if such shares are held as a
capital asset). Such capital gain or loss will be long-term capital gain or loss
if the U.S. Holder has held the shares for more than one year at the time of the
sale or exchange.
Various provisions contained in the Code impose special taxes in certain
circumstances on U.S. or foreign corporations and their stockholders. The
following is a summary of certain provisions which could have an adverse impact
on Carrier1 International and the U.S. Holders.
PERSONAL HOLDING COMPANY
A corporation that is a personal holding company ("PHC") is subject to a
39.6% tax on its undistributed personal holding company income (generally, U.S.
taxable income with certain adjustments, reduced by distributions to
shareholders). A corporation which is neither a foreign personal holding company
nor a passive foreign investment company (each of which is discussed below)
generally is a PHC if (i) more than 50% of the stock of which measured by value
is owned, directly or indirectly (taking into account certain ownership
attribution rules), by five or fewer individuals (without regard to their
citizenship or residence) and (ii) which receives 60% or more of gross income,
as specifically adjusted, from certain passive sources. For purposes of this
gross income test, a foreign corporation generally only includes taxable income
derived from U.S. sources or income that is effectively connected with a U.S.
trade or business.
More than 50% of the outstanding shares of Carrier1 International, by value,
may be currently treated as owned (through attribution) by five or fewer
individuals, and Carrier1 International believes that the stockholder test may
be met on a going forward basis. Carrier1 International anticipates, however,
that neither it nor its foreign subsidiaries should be classified as a PHC. In
addition, since it is anticipated that Carrier1 International's U.S.
subsidiaries will derive most or all of their income from non-passive sources,
it further believes that none of such subsidiaries will satisfy the foregoing
income test and, thus, will not be classified as a PHC. While Carrier1
International currently believes that neither it nor any of its subsidiaries
would be classified as a PHC, it is possible that Carrier1 International or one
or more of its subsidiaries would meet the foregoing income test and would
qualify as a PHC for that year. Carrier1 International intends to manage its
affairs and the affairs of its subsidiaries so as to attempt to avoid or
minimize the imposition of the personal holding company tax, to the extent such
management of its affairs is consistent with its other business goals.
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FOREIGN PERSONAL HOLDING COMPANY
In general, if Carrier1 International or any of its foreign corporate
subsidiaries were to be classified as a foreign personal holding company
("FPHC"), the undistributed foreign personal holding company income (generally,
taxable income with certain adjustments) of Carrier1 International or such
subsidiary would be imputed to all of the U.S. Holders who were deemed to hold
Carrier1 International's stock or the stock of such subsidiary on the last day
of its taxable year. Such income would be taxable to such persons as a dividend,
even if no cash dividend were actually paid. U.S. Holders who dispose of their
shares prior to such date generally would not be subject to tax under these
rules. If Carrier1 International were treated as an FPHC, U.S. Holders who
acquire shares from decedents would, in certain circumstances, be denied the
step-up of the income tax basis for such shares to fair market value at the date
of death which would otherwise have been available and instead would have a tax
basis equal to the lower of the fair market value or the decedent's basis.
A foreign corporation will be classified as an FPHC if (i) five or fewer
individuals, who are U.S. citizens or residents, directly or indirectly (taking
into account certain ownership attribution rules), own more than 50% of the
corporation's stock (measured either by voting power or value) (the "stockholder
test") and (ii) the corporation receives at least 60% of its gross income
(regardless of source), as specifically adjusted, from certain passive sources
(the "income test"). After a corporation becomes an FPHC, the income test
percentage for each subsequent taxable year is reduced to 50%.
Five or fewer individuals who are U.S. citizens or residents currently may
be treated as owning a beneficial interest of more than 50% of the voting power
of the outstanding shares of Carrier1 International and its foreign corporate
subsidiaries for purposes of the FPHC rules, and Carrier1 International believes
that the stockholder test may be met on a going forward basis. Carrier1
International believes, however, that neither Carrier1 International nor its
foreign corporate subsidiaries, should be classified as an FPHC because
Carrier1 International and each of the subsidiaries should not satisfy the
foregoing income test.
While Carrier1 International currently believes that neither it nor any of
its foreign corporate subsidiaries would be classified as an FPHC, it is
possible that Carrier1 International or one or more of such subsidiaries would
meet the foregoing income test in a given taxable year and would qualify as an
FPHC for that year. If Carrier1 International concludes that it or any of its
foreign corporate subsidiaries would be classified as an FPHC for any profitable
taxable year, Carrier1 International intends to manage its affairs and the
affairs of the subsidiaries so as to attempt to avoid or minimize having income
imputed to the U.S. shareholders under these rules, to the extent such
management of its affairs is consistent with its other business goals.
PASSIVE FOREIGN INVESTMENT COMPANY
In general, a foreign corporation is a "passive foreign investment company"
("PFIC") if either (i) 75% or more of its gross income constitutes "passive
income," or (ii) 50% or more of the average value of its assets produce passive
income or are held for the production of passive income. Carrier1 International
intends to manage its affairs and the affairs of its subsidiaries so as to avoid
or minimize the chances that Carrier1 International will be classified as a PFIC
following this offering, to the extent consistent with its other business goals.
If, however, Carrier1 International becomes a PFIC for any taxable year,
U.S. Holders of shares (including certain indirect U.S. Holders) may be subject
to reporting requirements and special tax and interest charge upon a sale or
other disposition of such shares, or upon the receipt of certain distributions
from Carrier1 International, unless such U.S. Holder elected to be taxed
annually on its pro rata share of the ordinary earnings and net capital gain of
the PFIC or, under certain circumstances, on the difference between the fair
market value and the adjusted basis of such shares as described below.
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The special tax is computed by assuming that the gain, if any, with respect
to the shares was earned in equal portions throughout the holder's period of
ownership. The portion allocable to the year of the disposition is taxed as
ordinary income. The portion allocable to each year prior to the year of the
disposition is taxed as ordinary income at the maximum marginal tax rate
applicable for each such period. The interest charge is imposed on the amount of
the special tax in each such prior year that is deemed to arise from the
allocation of the gain to such prior year and is charged at the applicable rates
imposed on underpayments of U.S. federal income tax for the period commencing on
the due date of the tax return for each prior period and ending on the due date
of the tax return for the year of the gain. These rules would also apply to the
receipt of an "excess distribution" with respect to shares. In general, a
shareholder of a PFIC is treated as having received an excess distribution to
the extent that the amount of the distribution is more than 125% of the average
annual distributions with respect to its shares during the three preceding
taxable years (or shorter period during which the taxpayer held the shares).
If Carrier1 International were a PFIC, U.S. Holders who acquire shares from
decedents could be denied the step-up of the income tax basis for such shares
which would otherwise have been available.
Under certain circumstances, a shareholder of a PFIC may elect to treat a
PFIC as a "qualified electing fund" (a "QEF"), in which case the electing
shareholder would generally not be subject to the special tax rules discussed
above. Instead, the electing shareholder would include in its income each year
its pro rata share of the PFIC's ordinary earnings and net capital gain, whether
or not distributed. If Carrier1 International determines that it is a PFIC,
Carrier1 International will provide the requisite information to a shareholder
upon reasonable request of such shareholder to enable such shareholder to make
the "QEF" election if the shareholder so desires.
As an alternative election, a mark-to-market election may be made by a U.S.
person who owns marketable stock in a PFIC at the close of such person's taxable
year. An electing U.S. Holder would, in general, include as ordinary income in
each taxable year an amount equal to the increase, if any, in value of its
shares for that year (measured at the close of the U.S. Holder's taxable year)
and would be allowed a deduction for any decrease in the value of its shares for
that year, but only to the extent of previously included mark-to-market income.
The mark-to-market election is made with respect to marketable stock in a PFIC
on a shareholder-by-shareholder basis and, once made, can only be revoked with
the consent of the IRS. Under Treasury regulations published on January 25,
2000, the term "marketable stock" includes stock of a PFIC that is "regularly
traded" on a qualified exchange or other market. For these purposes, a class of
stock is regularly traded on a qualified exchange or other market for any
calendar year during which such class of stock is traded (other than in DE
MINIMIS quantities) on at least 15 days during each calendar quarter. It is
expected that the shares will be treated as marketable stock for these purposes,
but no assurances can be given.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE EFFECT
OF THE PFIC RULES (INCLUDING THE PROPOSED REGULATIONS) ON THE OWNERSHIP, SALE OR
OTHER DISPOSITION OF THE SHARES.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payment of
dividends on shares and the proceeds of certain sales of shares in respect of
U.S. Holders other than certain exempt persons (such as corporations.) Further,
a 31% backup withholding tax will apply to such payment if the U.S. Holder fails
to report in full all dividend income and the IRS notifies the payor of such
under-reporting or fails to satisfy certain other reporting requirements.
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 payments
made after December 31, 2000, modify certain of the certification requirements
for backup
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withholding. It is possible that Carrier1 International and other withholding
agents may request a new withholding exemption certification 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 PURCHASER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX CONSULTANTS TO DETERMINE POSSIBLE
LUXEMBOURG TAX CONSEQUENCES OF A PURCHASE OF SHARES.
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 shares. It does not examine tax consequences to
residents or to some extent, former residents.
COMMON STOCK
Non-Resident Holders of shares are not liable for Luxembourg tax on capital
gains on any such shares; PROVIDED, HOWEVER, that if they hold more than 25% of
the share capital of Carrier1 International, they are subject to tax on capital
gains on the disposal of shares held for not more than six months.
Dividends paid on shares to Non-Resident Holders are subject to a
withholding tax of 25%. Under certain circumstances, European Union Non-Resident
Holders may benefit from an exemption of withholding tax. Reductions of the
withholding rate may also be provided by tax treaties. In the case of the
current treaty between Luxembourg and the United States, the withholding tax is
reduced to 12.5% or less, and in the new proposed treaty the rate will be
reduced to 15%, PROVIDED that the holder is entitled to claim treaty benefits.
No inheritance tax is payable by a non-resident holder of shares except if
the deceased holder was a resident of Luxembourg at the time of death.
The issuance of shares will trigger the levy of a capital duty payable by
Carrier1 International of 1% of the subscription price.
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UNDERWRITERS
Pursuant to an underwriting agreement dated February , 2000, the
underwriters named below have severally agreed to purchase and Carrier1
International and the selling shareholders have agreed to sell to them the
respective number of shares set forth opposite each underwriter's name below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Morgan Stanley & Co. International Limited..................
Salomon Brothers International Limited......................
UBS AG, acting through its division Warburg Dillon Read.....
Merrill Lynch International.................................
Bear, Stearns International Limited.........................
Commerzbank Aktiengesellschaft..............................
---------
Total....................................................... 9,375,000
=========
</TABLE>
Morgan Stanley & Co. International Limited and Salomon Brothers
International Limited are acting as Joint Global Coordinators of the offering.
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares offered in this
prospectus are subject to the approval of certain legal matters by their counsel
and to certain other conditions. The underwriters are obligated to take and pay
for all of the shares offered (other than those covered by the over-allotment
option described below) if any shares are taken.
The underwriters initially propose to offer shares and ADSs directly to the
public at the initial public offering price set forth on the cover page of this
prospectus, and to certain securities dealers at a price that represents a
concession of [EURO] ($ ) per share or $ per ADS. The
underwriters may allow, and such dealers in the United States may reallow, a
concession not in excess of [EURO] ($ ) per share or $ per ADS to
certain other brokers and dealers. After the shares and ADSs are released for
sale, the offering price and other selling terms may from time to time be varied
by the Joint Global Coordinators.
Pursuant to the underwriting agreement, Carrier1 International and the
selling shareholders have granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to an aggregate of
1,406,250 additional shares, 1,125,000 from Carrier1 International and 281,250
from the selling shareholders, which may be in the form of shares or ADSs, at
the initial public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. Any additional shares purchased by the
underwriters will be purchased first from Carrier1 International and then from
the selling shareholders on a pro rata basis. The underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering of shares offered hereby. To the extent
that such option is exercised, each underwriter will be obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth opposite such underwriter's name in
the preceding table bears to the total number of shares offered by the
underwriters hereby. If the underwriters' option is exercised in full, the total
price to public would be $ , the total underwriters' discounts and
commissions would be $ , total proceeds to Carrier1 International would be
$ and total proceeds to the selling shareholders would be $ .
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares
offered by them.
At our request, the underwriters have reserved up to 468,750 shares (in the
form of shares or ADSs) for sale at the initial public offering price, to
persons who are associated with us and our affiliates. The number of shares,
including shares in the form of ADSs, available for sale to the general public
in the offering will be reduced to the extent these persons purchase the
reserved shares or
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ADSs. Any reserved shares or ADSs that are not so purchased will be offered by
the underwriters on the same basis as the other shares and ADSs offered in this
prospectus. The underwriters engaged to sell the reserved shares or ADSs will be
indemnified against certain liabilities and expenses, including liabilities
under the Securities Act, in connection with the sale of the reserved shares and
ADSs.
We have applied to have the ADSs quoted on the Nasdaq National Market under
the symbol "CONE" and to have the shares listed on the Neuer Markt segment of
the Frankfurt Stock Exchange under the symbol "CJN".
Each of Carrier1 International, its executive officers and directors, the
selling shareholders and substantially all of the other shareholders of Carrier1
International have agreed that, without the prior written consent of Morgan
Stanley & Co. International Limited and Salomon Brothers International Limited,
or certain of their affiliates, on behalf of the underwriters, it will not, for
a period of 180 days from the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of Carrier1 International or any securities
convertible into or exercisable or exchangeable for shares of Carrier1
International, or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
shares of Carrier1 International,
whether any such transaction described above is to be settled by delivery of
shares of Carrier1 International or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of the shares to the underwriters,
- the issuance by Carrier1 International of shares upon the exercise of an
option or warrant or the conversion of a security outstanding on the date
hereof of which the underwriters have been advised in writing,
- transactions by any person other than Carrier1 International relating to
shares or other securities acquired in open market transactions after the
completion of the offering,
- transfers of shares or other securities by any person other than Carrier1
International to Carrier1 International or any of its subsidiaries
pursuant to any purchase rights under our share purchase and share option
plans,
- the issuance by Carrier1 International of shares of its common stock to
employees of Carrier1 International or its subsidiaries, or to
subsidiaries of Carrier1 International, pursuant to its existing share
purchase plans described in this prospectus,
- the grant of options to purchase shares pursuant to its share option plan
and
- certain transfers by persons other than Carrier1 International to its
members, partners, affiliates, immediate family, or certain trusts who
agree in writing to be bound by the above restrictions. In addition, each
selling shareholder, has agreed that, without the prior written consent of
the Joint Global Coordinators on behalf of the underwriters, it will not,
during a period of 180 days from the date of this prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares or any security convertible into or exercisable or exchangeable for
shares.
From time to time, some of the underwriters have provided, and continue to
provide, investment banking services to us for which they have received
customary fees and commissions. In addition,
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Victor A. Pelson, a Senior Advisor to Warburg Dillon Read, is a member of the
board of directors of Carrier1 International.
In addition to the initial public offering price, you may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country in which you purchased the shares. See "Taxation."
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares or
the ADSs. The initial public offering price will be determined by negotiations
between Carrier1 and the Joint Global Coordinators. Among the factors to be
considered in determining the initial public offering price will be our future
prospects, sales, earnings, the prospects of our industry in general, some of
our other financial and operating information in recent periods, our
price-earnings ratios, price-sales ratios, market prices of securities and
selected financial and operating information of companies engaged in activities
similar to ours. The estimated initial public offering price range listed on the
cover page of this prospectus may change as a result of market conditions and
other factors.
SELLING RESTRICTIONS
Pursuant to the underwriting agreement, in connection with offers and sales
outside the United States and Canada each underwriter has represented and agreed
that:
- it has not offered or sold and, prior to the date six months after the
closing date for the sale of the shares to the underwriters, will not
offer or sell, any shares to persons in the United Kingdom except to
persons whose ordinary activities 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 have not
resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995,
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986, and
- it has and will distribute any document relating to the shares in the
United Kingdom only to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to
whom such document may otherwise lawfully be distributed.
Pursuant to the underwriting agreement, in connection with offers and sales
outside the United States and Canada, each underwriter has further represented
that it has not offered or sold, and has agreed not to offer or sell, in The
Netherlands or to or for the account of any resident or legal entity thereof,
any of the shares, other than to individuals or legal entities who or which
trade or invest in securities in the conduct of their profession or trade, which
include banks, brokers, dealers, insurance companies, pension funds and other
institutional investors, and commercial enterprises which regularly, as an
ancillary activity, invest in securities.
Pursuant to the underwriting agreement, in connection with offers and sales
outside the United States and Canada, each of the underwriters and Carrier1
International has represented and agreed that (i) it has not offered or sold and
will not offer or sell, directly or indirectly, any shares to the public in
France, and (ii) offers and sale of shares in France will be made in accordance
with Article 6 of the Ordinance n DEG. 67-833 dated September 28, 1967, as
amended, and Decree n DEG. 98-880 dated October 1, 1998 relating to offers to a
limited number of investors and/or qualified investors. In addition, neither
this prospectus, which has not been submitted to the clearance procedures of the
French COMMISSION DES OPERATIONS DE BOURSE, nor any offering material relating
to the shares may be
109
<PAGE>
distributed or caused to be distributed in France other than to investors to
whom offers and sales of shares in France may be made as described above.
Pursuant to the underwriting agreement, in connection with offers and sales
outside the United States and Canada, each underwriter has represented and
agreed that (i) it is aware of the fact that, prior to the approval of the
Frankfurt Stock Exchange, no sales prospectus in Germany has been and will be
published in connection with the sale of the shares to investors in Germany and
(ii) it has complied and will comply with the German Securities Prospectus Act
(WERTPAPIER-VERTAUFSPROSPEKTGESETZ) and the restrictions set forth therein
applying to the offer and sale to German investors of securities for which no
sales prospectus has been published.
Pursuant to the underwriting agreement, in connection with offers and sales
outside the United States and Canada, each underwriter has represented and
agreed that:
- the sale of the shares in the Republic of Italy shall be effected in
accordance with all Italian securities, tax and other applicable laws and
regulations, and
- it will not offer, sell or deliver any shares or distribute copies of this
prospectus or any other document relating to the shares in the Republic of
Italy unless such offer, sale or delivery of the shares or distribution of
copies of this prospectus or any other document relating to the shares in
the Republic of Italy is:
- made by an investment firm, bank or financial intermediary permitted to
conduct such activities in the Republic of Italy in accordance with
Legislative Decree No. 385 dated September 1, 1993 ("Decree No. 385"),
Legislative Decree No. 58 dated February 24, 1998, CONSOB Regulation
No. 11971 dated May 14, 1999 and any other applicable laws and
regulations,
- in compliance with Article 129 of Decree No. 385 and the implementing
instructions of the Bank of Italy, pursuant to which the issue, trading
or placement of securities in Italy is subject prior to notification to
the Bank of Italy, unless an exemption applies, and
- in compliance with any other applicable notification requirement or
limitation which may be imposed by CONSOB or the Bank of Italy or any
other Italian regulatory authority.
Pursuant to the underwriting agreement, in connection with offers and sales
outside the United States and Canada, each underwriter has represented and
agreed that it has not offered or sold, and has agreed not to offer or sell,
directly or indirectly, in Japan or to or for the account of any resident
thereof, any of the shares acquired in connection with this offering, except
pursuant to an exemption from the registration requirements of the Securities
and Exchange Law of Japan and otherwise in compliance with applicable provisions
of Japanese law. Each underwriter has further agreed to send to any dealer who
purchases from it any of the shares a notice stating in substance that, by
purchasing such shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, any of such shares, directly or
indirectly, in Japan or to or for the account of any resident thereof except
pursuant to an exemption from the registration requirements of the Securities
and Exchange Law of Japan and otherwise in compliance with applicable provisions
of Japanese law, and that such dealer will send to any other dealer to whom it
sells any of such shares a notice containing substantially the same statement as
is contained in this sentence.
LEGAL MATTERS
Bonn & Schmitt, our special Luxembourg counsel, will pass upon the validity
of the shares. Debevoise & Plimpton, our special U.S. counsel, will pass upon
certain legal matters. Shearman & Sterling, U.S. counsel for the underwriters,
and De Bandt, van Hecke, Lagae & Loesch, Luxembourg counsel for the
underwriters, will pass upon certain legal matters.
110
<PAGE>
EXPERTS
The consolidated financial statements as of December 31, 1999 and 1998, and
for the year ended December 31, 1999, and for the period from February 20, 1998
(date of inception) to December 31, 1998, included in this prospectus and the
related financial statement schedule included elsewhere in the registration
statement 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.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Act of 1934
and, accordingly, file annual and quarterly and other information with the
United States Securities and Exchange Commission. You may read and copy at
prescribed rates any reports, statements and other information we file at the
Commission's public reference rooms located at: Room 1024, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. You may also obtain information
about us from the following regional offices of the Commission: 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. 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. When the ADSs begin trading
on the Nasdaq National Market, copies of the information we file with the
Commission may also be read at the offices of the National Association of
Securities Dealers at 1735 K Street, N.W., Washington, D.C. 20006. We are also
subject to periodic reporting requirements in the Netherlands. Accordingly, we
file information with the Securities Board of the Netherlands.
We have filed a registration statement on Form S-1 to register with the
Commission the shares and ADSs being offered by this prospectus. 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. You should
read the registration statement for further information with respect to the
shares and ADSs.
111
<PAGE>
CARRIER INTERNATIONAL S.A. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1999 AND THE PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998:
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statement of Shareholders' Equity
(Deficit)............................................... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
CARRIER1 INTERNATIONAL S.A.
We have audited the accompanying consolidated balance sheets of Carrier1
International S.A. and subsidiaries (collectively, the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for the year ended
December 31, 1999 and 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 audits.
We conducted our audits 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 audits provide 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, 1999 and 1998, and the results of its operations
and its cash flows for the year ended December 31, 1999 and 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/ Aniko Smith
- -------------------------------------------- --------------------------------------------
David Wilson Aniko Smith
</TABLE>
Erlenbach, Switzerland
February 11, 2000
F-2
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 28,504 $ 4,184
Restricted cash........................................... 5,512 1,518
Restricted investments held in escrow..................... 61,863 --
Accounts receivables, net of allowance for doubtful
accounts of $840 and $0 at December 31, 1999 and 1998,
respectively............................................ 26,795 1,217
Unbilled receivables...................................... 18,226 1,645
Value-added tax refunds receivable........................ 20,499 3,014
Prepaid expenses and other current assets................. 9,873 3,179
--------- -------
Total current assets.................................... 171,272 14,757
RESTRICTED INVESTMENTS HELD IN ESCROW....................... 28,314 --
PROPERTY AND EQUIPMENT--Net (See Notes 5, 7 and 8).......... 213,743 31,091
INVESTMENTS IN JOINT VENTURES (See Note 6).................. 4,691 4,675
OTHER ASSETS................................................ 19,635 911
--------- -------
TOTAL....................................................... $ 437,655 $51,434
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 46,338 $27,602
Accrued network costs..................................... 22,154 516
Accrued refile costs...................................... 18,234 1,515
Accrued interest.......................................... 12,984 --
Other accrued liabilities................................. 17,020 2,612
Short-term debt (See Note 7).............................. 12,658
--------- -------
Total current liabilities............................... 129,388 32,245
DEFERRED REVENUE............................................ 5,020
LONG-TERM DEBT (See Note 7):
Senior notes.............................................. 243,415 --
Other long-term debt...................................... 94,341 --
--------- -------
Total long-term debt.................................... 337,756 --
--------- -------
COMMITMENTS AND CONTINGENCIES (See Note 8)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $2 par value, 55,000,000 and 30,000,000
shares authorized, respectively, 33,010,700 and
18,885,207 issued and outstanding, respectively......... 66,021 37,770
Additional paid-in capital................................ 2,524 --
Accumulated deficit....................................... (107,734) (19,235)
Accumulated other comprehensive income.................... 4,688 654
Common stock held in treasury, 4,083 shares at
December 31, 1999....................................... (8)
--------- -------
Total shareholders' equity (deficit).................... (34,509) 19,189
--------- -------
TOTAL....................................................... $ 437,655 $51,434
========= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
FEBRUARY 20, 1998
YEAR (DATE OF INCEPTION)
ENDED TO
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -------------------
<S> <C> <C>
REVENUES.................................................... $ 97,117 $ 2,792
OPERATING EXPENSES:
Cost of services (exclusive of items shown separately
below).................................................. 113,809 11,669
Selling, general and administrative....................... 18,369 8,977
Depreciation and amortization............................. 13,849 1,409
-------- --------
Total operating expenses................................ 146,027 22,055
-------- --------
LOSS FROM OPERATIONS........................................ (48,910) (19,263)
OTHER INCOME (EXPENSE):
Interest expense.......................................... (29,475) (11)
Interest income........................................... 5,859 92
Currency exchange loss, net............................... (15,418) (53)
Other, net................................................ (555) --
-------- --------
Total other income (expense)............................ (39,589) 28
-------- --------
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT).................... (88,499) (19,235)
INCOME TAX EXPENSE (BENEFIT)--Net of valuation allowance
(See Note 10)............................................. -- --
-------- --------
NET LOSS.................................................... $(88,499) $(19,235)
======== ========
EARNINGS (LOSS) PER SHARE:
Net loss:
Basic................................................... $ (2.97) $ (2.61)
======== ========
Diluted................................................. $ (2.97) $ (2.61)
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM
FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER COMMON
COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCK HELD
STOCK CAPITAL DEFICIT INCOME IN TREASURY TOTAL
-------- ---------- ----------- ------------- ----------- --------
<S> <C> <C> <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
Issuance of shares
(14,125,493 shares)....... 28,251 $ 220 28,471
Issuance of warrants........ 2,304 2,304
Repurchase of shares (4,083
shares)................... $ (8) (8)
Comprehensive income
(loss):...................
Net loss.................. (88,499) (88,499)
Other comprehensive
income, net of tax:
Currency translation
adjustments........... 4,034 4,034
--------
Total comprehensive
loss.................... (84,465)
-------- -------- --------- -------- -------- --------
BALANCE--December 31,
1999...................... $ 66,021 $ 2,524 $(107,734) $ 4,688 $ (8) $(34,509)
======== ======== ========= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM
FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
FEBRUARY 20,
1998 (DATE OF
YEAR ENDED INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(88,499) $(19,235)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 13,849 1,409
Amortization of financing costs......................... 987 --
Changes in operating assets and liabilities:
Restricted cash......................................... (3,994) (1,518)
Receivables............................................. (61,641) (5,838)
Prepaid expenses and other current assets............... (6,266) (3,165)
Other assets............................................ (5,626) (898)
Accounts payable and accrued liabilities................ 67,811 14,804
Deferred revenue........................................ 5,020
-------- --------
Net cash used in operating activities................. (78,359) (14,441)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts from maturity of restricted investments.......... 53,071 --
Purchases of property and equipment....................... (160,485) (15,191)
Purchases of restricted investments held in escrow........ (145,817) --
Investment in joint ventures.............................. (16) (4,675)
-------- --------
Net cash used in investing activities................... (253,247) (19,866)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt............................ 339,185 --
Payments on debt.......................................... (1,776) --
Proceeds from issuance of common stock and warrants....... 30,775 37,770
Proceeds from subscription of stock....................... 465 --
Purchase of treasury stock................................ (8)
Cash paid for financing costs............................. (15,191) --
-------- --------
Net cash provided by financing activities............... 353,450 37,770
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... 2,476 721
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 24,320 4,184
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... 4,184 --
-------- --------
End of period............................................. $ 28,504 $ 4,184
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 16,491
========
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING, INVESTING AND
FINANCING ACTIVITIES:
At December 31, 1999 and 1998, equipment purchases of
approximately $39,720 and $17,315, respectively, are
included in accounts payable and accrued network costs.
During 1999, Carrier1 acquired property and equipment of
$7,944 by entering into a capital lease. In addition,
Carrier1 acquired $15,746 of equipment by entering into
a long-term financing agreement with a vendor.
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND 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"), operate in the telecommunications industry
offering voice, Internet and bandwidth and related telecommunications services.
Carrier1 offers these services primarily to other telecommunications service
providers. Carrier1 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. ORGANIZATION
In February 1998, the investors of Carrier1 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, Carrier1 reorganized the ownership structure of all of its
subsidiaries. SA, 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 Carrier1'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 generally
accepted accounting principles in the United States of America 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,
long-term customer contracts, allowances for uncollectible receivables,
investments, costs of services, depreciation and amortization, employee benefit
plans and taxes.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Carrier1 are prepared in accordance
with generally accepted accounting principles in the United States of America.
The financial statements include the consolidated accounts of Carrier1 with all
significant intercompany balances and transactions eliminated. Investments in
joint ventures are accounted for using the equity method.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is Carrier1's functional and reporting currency. The
financial statements of Carrier1'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 (deficit).
F-7
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND 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)
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
Carrier1 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.
Bandwidth sales in the form of grants of indefeasible rights of use ("IRUs")
of fiber and fiber capacity, in exchange for cash, are accounted for as leases.
IRUs are evaluated for sales-type lease accounting which resulted in certain
lease transactions being accounted for as sales at the time of acceptance of the
fiber by the customer. IRUs that do not meet the criteria for a sales-type lease
are accounted for as an operating lease, and the cash received is recognized as
revenue over the term of the IRU. IRUs exchanged for cash entered into after
June 30, 1999 are accounted for as operating leases. See "New Accounting
Pronouncements" below.
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 year ended
December 31, 1999 and 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 warrants, 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. Carrier1 considers all highly-liquid
investments with a maturity of 90 days or less at the time of 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, 1999 and 1998, $5,512 and $1,518, respectively, of cash was
pledged as collateral on outstanding letters of credit and guarantees to
telecommunication companies that provide refile services to Carrier1.
RESTRICTED INVESTMENTS HELD IN ESCROW
Restricted investments held in escrow in connection with the line of credit
securing certain construction commitments (see Note 6) and the terms of a
long-term debt agreement (see Note 7) are classified as held-to-maturity. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," securities
are
F-8
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND 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)
classified as held-to-maturity when Carrier1 has the positive intent and ability
to hold the securities to maturity. Held-to-maturity investments are stated at
cost, adjusted for amortization of premiums or discounts to maturity.
At December 31, 1999, such investments had an aggregate amortized cost of
$90,177 and a fair value of $91,738.
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
because management believes that, due to anticipated advances in technology,
Carrier1's IRUs are not likely to be productive assets beyond 15 years. During
the period from February 20, 1998 (date of inception) to December 31, 1998,
Carrier1 acquired a 25-year IRU on a transatlantic cable. This IRU is being
amortized over a useful life of 15 years. Maintenance, repairs, and
reengineering costs are charged to expense as incurred.
LONG-LIVED ASSETS
Carrier1 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
necessary. The write-down would be measured as the difference between the
discounted estimated future operating cash flows from such asset and the
carrying value.
OTHER ASSETS
At December 31, 1999, other assets included deferred financing costs of
$14,204, net of accumulated amortization of $987, incurred in connection with
the issuance of the senior notes, the Nortel financing facility, and the interim
credit facility (see Note 7). Amortization of deferred financing costs is
recognized as interest expense. Also included in other assets are licenses of
$3,554, net of accumulated amortization of $40.
F-9
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND 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)
NONMONETARY EXCHANGES
Carrier1 accounts for swaps of IRUs for fiber and fiber wavelength capacity
as nonmonetary exchanges in accordance with Accounting Principles Board ("APB")
Opinion No. 29, "Accounting for Nonmonetary Transactions."
PENSION PLANS
Carrier1 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 Carrier1'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. Carrier1 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
Carrier1 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, 1999 and 1998, the carrying amounts of Carrier1's financial
instruments approximate their fair value, except for notes payable and certain
other long-term debt. The fair values of the dollar and euro notes payable was
determined using quoted market prices. Fair value for the seller financing for
the German Network was estimated using discounted cash flows analyses based on
Carrier1's estimated borrowing rate at December 31, 1999. Based on these
methods, fair values of these financial instruments at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
BOOK VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Notes payable:
Dollar.................................................... $160,000 $160,800
Euro...................................................... 85,541 90,887
Other long-term debt:
Seller financing.......................................... 15,746 14,296
</TABLE>
F-10
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND 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)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66." The interpretation is effective for sales of real estate with property
improvements or integral equipment entered into after June 30, 1999. Under this
interpretation, fiber is considered integral equipment and accordingly title
must transfer to a lessee in order for a lease transaction to be accounted for
as a sales-type lease. After June 30, 1999, the effective date of FASB
Interpretation No. 43, sales-type lease accounting will no longer be appropriate
for fiber leases and, therefore, these transactions will be accounted for as
operating leases unless title to the fibers under lease transfers to the lessee
or the agreement was entered into prior to June 30, 1999. During the second
quarter of 1999, Carrier1 recognized revenue of approximately $3.2 million and
cost of services of approximately $1.9 million from one bandwidth IRU contract
that was treated as a sales-type lease. In the future, similar revenues and
expenses will be recognized over the term of the related contracts, typically 15
to 20 years.
In June 1998, the FASB issued 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 balance sheet 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 the first
quarter of 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.
F-11
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
4. EARNINGS PER SHARE
The following details the earnings per share calculations for the year ended
December 31, 1999 and the period from February 20, 1998 (date of inception) to
December 31, 1998:
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
1998 (DATE
OF INCEPTION)
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -------------
<S> <C> <C>
Loss from operations................................ $ (48,910) $ (19,263)
========== ==========
Net loss............................................ $ (88,499) $ (19,235)
========== ==========
Total number of shares used to compute
basic earnings (loss) per share................... 29,752,000 7,367,000
========== ==========
Loss from operations:
Basic loss per share.............................. $ (1.64) $ (2.61)
========== ==========
Diluted loss per share............................ $ (1.64) $ (2.61)
========== ==========
Net loss:
Basic loss per share.............................. $ (2.97) $ (2.61)
========== ==========
Diluted loss per share............................ $ (2.97) $ (2.61)
========== ==========
</TABLE>
Potential dilutive securities have been excluded from the computation for
the year ended December 31, 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998 as their effect is anti-dilutive. Had Carrier1
been in a net income position for the year ended December 31, 1999 or the period
from February 20, 1998 (date of inception) to December 31, 1998, the number of
weighted-average shares used to compute diluted earnings per share would have
included an additional 4,288,000 and 2,822,000 shares, respectively, related to
outstanding warrants, stock options and stock subscriptions (determined using
the treasury stock method at the estimated average market value).
F-12
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND 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, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Network equipment........................................ $ 81,220 $14,613
Indefeasible right of use investments.................... 49,099 11,106
Leasehold improvements................................... 10,333 1,712
Furniture, fixtures and office equipment................. 8,652 709
Construction in progress................................. 78,549 4,353
-------- -------
227,853 32,493
Less: accumulated depreciation and amortization.......... (14,110) (1,402)
-------- -------
Property and equipment, net............................ $213,743 $31,091
======== =======
</TABLE>
6. INVESTMENT IN JOINT VENTURE
Carrier1 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 set 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 agreed to form a company (the "Developer")
to act as their agent to arrange construction of the German Network.
As of December 31, 1998, the parties were in negotiations with respect to
the legal structure of the Developer and the definitive project terms. Until
such development agreement was negotiated and executed by the parties, Viatel
provided such services as the Developer is obligated to provide under the LOI.
Each of the parties had contributed $4.05 million for incremental costs, and
their pro-rata share of $2.5 million for pre-development costs. Each party was
obligated to provide the Developer with a $75 million letter of credit,
conditional upon the ability of each of Carrier1 and Metromedia to raise at
least $75 million through financing or equity. 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.
On February 19, 1999, the parties executed a development agreement. In
accordance with the development agreement, Carrier1 provided a 109.5 million
German Mark letter of credit (approximately $64.8 million) to the Developer to
fund Carrier1's share of construction costs. Pursuant to the development
agreement, all decisions required to be made by Viatel, Metromedia and Carrier1
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. During
1999, the Developer entered into a construction contract for which each party,
and not the Developer, is 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 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
F-13
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND 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)
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.
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.
As of December 31, 1999, Carrier1 estimates that its share of the
development costs of the German Network will be up to approximately
$105 million, including the fiber deployed, and is expected to be incurred
before December 31, 2000. The network is expected to be completed in the first
quarter of 2000.
7. DEBT
LONG-TERM DEBT
On February 19, 1999, Carrier1 issued $160 million and [EURO]85 million 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.
Carrier1 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, Carrier1 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. Carrier1 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 Carrier1'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.
As required by the terms of the Notes, 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
F-14
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
7. DEBT (CONTINUED)
pledged these portfolios for the benefit of the holders of the respective series
of Notes to secure and fund the first five interest payments.
Other long-term debt as of December 31, 1999 consists of the following:
<TABLE>
<S> <C>
Seller financing............................................ $90,749
Network fiber lease......................................... 3,592
-------
$94,341
=======
</TABLE>
Approximately $15.7 million of other long-term indebtedness is attributable
to seller financing of fiber optic cable for Carrier1's German Network. Pursuant
to the terms of the financing agreement, 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.
Carrier1 entered into a financing facility with Nortel Networks Inc.
("Nortel"), a major equipment supplier, on June 25, 1999. The Nortel facility
allows 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 bear interest at a floating rate tied to LIBOR, and interest
payments are 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
this facility after December 31, 2000. Advances are to be repaid in sixteen
equal quarterly installments beginning March 31, 2001. As of December 31, 1999,
Carrier1 has borrowed approximately $75 million under this agreement on an
unsecured basis. These borrowings bear interest at a weighted-average rate of
11.04% per annum as of December 31, 1999.
Approximately $3.6 million of other long-term indebtedness is attributable
to a lease of capacity Carrier1 entered into on April 1, 1999. The lease
requires Carrier1 to make monthly payments of $274, including operating and
maintenance costs, for 36 months, after which Carrier1 will obtain a 15 year IRU
in the capacity underlying the lease. Carrier1 will be required to pay an annual
operating and
F-15
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
7. DEBT (CONTINUED)
maintenance fee of $250 for the term of the IRU. Minimum lease payments under
this arrangement are due as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31:
- -------------------------------
<S> <C>
2000........................................................ $3,038
2001........................................................ 3,038
2002........................................................ 759
------
6,835
Amounts representing interest............................... (666)
------
$6,169
======
</TABLE>
SHORT-TERM DEBT
At December 31, 1999, short-term debt consists of the following:
<TABLE>
<S> <C>
Interim credit facility..................................... $10,081
Current portion of capital lease obligation................. 2,577
-------
$12,658
=======
</TABLE>
On December 21, 1999, Carrier1 entered into an interim credit facility with
Morgan Stanley Senior Funding, Inc. and Citibank N.A. as lead arrangers. As of
December 31, 1999, Carrier1 had drawn [EURO]10 million under the facility. The
facility allows Carrier1 to draw up to a maximum amount of $200 million, or its
equivalent in euros, for purposes of refinancing the $75 million Nortel
facility, financing the acquisition and installation of telecommunications
equipment and other general corporate purposes. The facility is available until
November 30, 2000 and has a scheduled maturity of December 20, 2000. Advances
will bear interest at LIBOR plus a margin to be determined by reference to
factors including the value of the security delivered by Carrier1 and any
default in payment. At December 31, 1999, such interest rate was 6.72%. Interest
is payable periodically, at the time of any repayment and at maturity. Carrier1
may make voluntary pre-payments of amounts drawn under the facility without
penalty and is required to apply specified proceeds, including the net cash
proceeds from the initial public offering of equity securities and the issuance
of any additional debt or equity securities, subject to exceptions, to prepay
amounts outstanding under the facility and then to reduce the commitments under
the facility. The facility contains covenants and events of default similar to
those in the indentures governing the 13 1/4% senior notes.
8. COMMITMENTS AND CONTINGENCIES
LEASES
Carrier1 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 Carrier1 to pay
additional amounts for operating and maintenance costs. As of
F-16
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
December 31, 1999, future minimum lease payments under operating leases with
remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31:
- -------------------------------
<S> <C>
2000........................................................ $13,454
2001........................................................ 7,038
2002........................................................ 6,812
2003........................................................ 6,560
2004........................................................ 4,229
Thereafter.................................................. 11,959
-------
Total minimum lease payments.............................. $50,052
=======
</TABLE>
Total rental expense under operating leases was $24,712 and $5,171,
respectively, during the year ended December 31, 1999 and the period from
February 20, 1998 (date of inception) to December 31, 1998.
PURCHASE AND SUPPLY COMMITMENTS
During the period from February 20, 1998 (date of inception) to
December 31, 1998, Carrier1 entered into an agreement to purchase a Multiple
Investment Unit ("MIU") that gives Carrier1 rights to a portion of a
trans-Atlantic cable scheduled for completion in early 2000. Currently, Carrier1
estimates its remaining share of development and construction costs to be
$11,013. Carrier1 has also entered into various contracts with vendors to
provide network set-up and maintenance services.
On April 16, 1999, Carrier1 signed an agreement to swap wavelengths on the
basis of a 15-year IRU. Carrier1 is to receive two unprotected wavelengths on
diverse routes between Hamburg, Copenhagen and Malmo and provide two unprotected
wavelengths on the routes between Hamburg and Frankfurt, Hamburg and Berlin, and
Berlin and Frankfurt in exchange. The wavelengths are expected to be exchanged
by the third quarter of 2000.
On April 29, 1999, Carrier1 signed a letter of intent with Nortel for the
purchase of network equipment to light up dark fiber in Germany and the United
Kingdom. The value of the purchases and the associated services to be performed
before December 31, 2000 amounts to $22 million. Through December 31, 1999,
Carrier1 had not received any equipment or services under this contract.
On May 7, 1999, Carrier1 signed a contract to swap a 10-year IRU for
wavelength capacity from London to Amsterdam, Frankfurt, Paris and Brussels for
a 10-year IRU for wavelength capacity from London to Frankfurt, Amsterdam and
Paris. In addition, Carrier1 paid $3.0 million on the date of acceptance. The
capacity was received in August 1999. Carrier1 expects to deliver capacity to
the other party in the first quarter of 2000.
On August 17, 1999, Carrier1 signed a contract to swap 12 strands of dark
fiber on Carrier1's German Network for 12 strands of dark fiber covering
substantially all of the major cities in France. The French fiber infrastructure
will become available in phases throughout 2000. Each party will provide certain
network maintenance services for the other party in their respective countries.
F-17
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On September 3, 1999, Carrier1 signed a swap agreement under which it will
provide Internet services for a total amount of $20.7 million in exchange for
bandwidth capacity connecting Stockholm, Malmo, Oslo and Gothenburg. The
bandwidth capacity is scheduled to be provided in August 2000. Carrier1 has the
right to convert the wavelength any time after May 31, 2000 to an 18-year IRU of
one fiber pair.
On September 29, 1999, Carrier1 contracted to build a 44-kilometer, multiple
duct city ring connecting major telecommunications points-of-presence in
Amsterdam. The ring will pass much of Amsterdam's business and financial
district, and is scheduled to be completed in the second quarter of 2000. Parts
of the ring are expected to be usable in the first quarter of 2000. The
construction cost is estimated to be approximately $4.8 million.
On October 1, 1999, Carrier1 entered into an agreement to acquire fiber
capacity on the basis of a 10-year IRU on the route connecting Paris, Kehl,
Milan, Geneva and Zurich for a total purchase price of $6.8 million. Carrier1
received access to this capacity in December 1999. In addition, Carrier1 will be
required to pay an annual operating and maintenance charge of $380. The contract
also contains options which allow Carrier1 to purchase additional capacity with
a value of $3.8 million and to sell certain capacity back to the seller after
November 30, 2000 for 70% of its original value. If Carrier1 exercises its
option to acquire additional capacity, the annual operating and maintenance
charge will increase to $440.
On October 19, 1999, Carrier1 signed an agreement to swap one of the ducts
of the Amsterdam city ring for one duct on a city ring connecting Amsterdam
south with the business centers in Amsterdam-Schiphol and Amsterdam-Hoofddorp.
During November 1999, Carrier1 entered into a joint venture to form Hubco
S.A. to build facilities in which Carrier1 will house and manage both its own
and its customers' telecommunications equipment. Carrier1 has committed $23.25
million to this $155 million project. An affiliate of Providence Equity Partners
L.P., the majority unitholder of LLC, is expected to be one of the partners in
the venture.
Based on Carrier1's current network development plans, the costs of the MIU
and network services are expected to be paid as follows:
<TABLE>
<CAPTION>
NETWORK
FISCAL YEAR ENDING DECEMBER 31: MIU SERVICES TOTAL
- ------------------------------- -------- -------- --------
<S> <C> <C> <C>
2000............................................. $10,061 $ 9,360 $19,421
2001............................................. 952 -- 952
------- ------- -------
$11,013 $ 9,360 $20,373
======= ======= =======
</TABLE>
9. 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
F-18
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
9. INCENTIVE COMPENSATION PLANS (CONTINUED)
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 Carrier1's cash bonus
plan (the "Cash Bonus Plan").
In connection with the recapitalization of Carrier1 during December 1998,
Carrier1 canceled the 1998 Share Option Plan and replaced it with the new 1999
Share Option Plan (the "1999 Option Plan"), under which SA and related companies
of the consolidated Carrier1 group (the "Related Corporations") may grant to any
employee of Carrier1 or Related Corporations options in equity securities (the
"Options") issued by Carrier1. This effectively reduced the number of
outstanding shares of Carrier1 by half and, therefore, reduced the number of
options under the 1998 Share Option Plan by half and increased the per share
exercise price value to $2 per share.
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 Carrier1 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
March 1, 1999. 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 commencement of
employment. 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. During 1999, Carrier1 canceled the options
granted under the 1998 Stock Option Plan and issued replacement options under
the 1999 Option Plan.
As of September 9, 1999, the number of shares granted exceeded the amount
authorized under the plan by 37,940 options. The Board approved the overrun and
increased the number of shares available under the 1999 Option Plan to
2,747,222.
In addition, Carrier1 has granted to two directors options to purchase a
total of 40,000 shares at an exercise price of $2.00 per share.
F-19
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
9. INCENTIVE COMPENSATION PLANS (CONTINUED)
The status of Carrier1's stock option plans, reflecting the effects of the
option replacement in 1999 as of December 31, 1998, is summarized below as of
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1998........................ 2,022,221 $ 2.00
Granted............................................... 456,997 12.55
Exercised............................................. -- --
Canceled.............................................. (750) 2.00
---------
Outstanding at December 31, 1999........................ 2,478,468 $ 3.95
=========
Options exercisable at December 31, 1999................ 808,888 $ 2.00
=========
</TABLE>
As required by SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), Carrier1 has determined the pro-forma information as if Carrier1
had accounted for stock options under the fair value method of SFAS 123. The
weighted-average fair value of options granted during the year ended
December 31, 1999 and the period from February 20, 1998 (date of inception) to
December 31, 1998 was $3.12 and $0.15 per option, respectively. During the year
ended December 31, 1999, the fair value of option grants is estimated on the
date of grant using the following assumptions: dividend yield of 0%, risk-free
interest rate range of 5.5% to 5.8%, expected option life of 3 years, and
volatility factor of 25%. During the period from February 20, 1998 (date of
inception) to December 31, 1998, the fair value of option grants was 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.
Had compensation cost for Carrier1's stock option plans been determined
under SFAS 123, based on the fair market value at the grant dates, Carrier1's
pro-forma net loss and net loss per share for the year ended December 31, 1999
and the period from February 20, 1998 (date of inception) to December 31, 1998
would have been reflected as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net loss:
As reported........................................... $(88,499) $(19,235)
======== ========
Pro forma............................................. $(88,778) $(19,461)
======== ========
Net loss per share--basic basis:
As reported........................................... $ (2.97) $ (2.61)
======== ========
Pro forma............................................. $ (2.98) $ (2.64)
======== ========
</TABLE>
In March 1998, Carrier1 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
F-20
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
9. INCENTIVE COMPENSATION PLANS (CONTINUED)
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 Carrier1 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 $1.4 million. 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 Carrier1
in December 1998, Carrier1 amended the Stock Purchase Plan so that employees
will be issued shares of common stock of Carrier1 rather than shares of LLC.
This effectively reduced the number of shares to be issued under the previous
plan by half and increased the par value of the shares to $2 per share. Carrier1
collected the amounts due from employees under the Stock Purchase Plan at
December 31, 1998 during 1999 and issued the related shares in 1999. During the
year ended December 31, 1999, employees committed to purchase approximately
2,354,000 additional shares with an aggregate value of approximately
$5.3 million, including 400,000 shares sold at $2.00 per share to LLC for the
benefit of two directors.
10. INCOME TAXES
The income tax expense (benefit) for the year ended December 31, 1999 and
the period from February 20, 1998 (date of inception) to December 31, 1998
consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current.................................................. $ -- $ --
Deferred................................................. 24,037 5,378
-------- -------
24,037 5,378
Valuation allowance...................................... (24,037) (5,378)
-------- -------
Total.................................................... $ -- $ --
======== =======
</TABLE>
Carrier1 has tax loss carryforwards of approximately $29,415 and $5,378 at
December 31, 1999 and 1998, respectively. The ability of Carrier1 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 - $67;
2004 - $341; 2005 - $4,753; 2006 - $13,636; 2013 - $46; 2014 - $79. Net
operating losses totaling $10,493 do not expire. Due to its limited history,
Carrier1 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, 1999 and 1998.
F-21
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
11. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999 and the period from February 20,
1998 (date of inception) to December 31, 1998, Carrier1 reimbursed certain
companies, which are shareholders in LLC, for expenses incurred in connection
with the formation of Carrier1 and the negotiation of certain agreements entered
into by Carrier1. Such reimbursements totaled $96 and $339, respectively, during
1999 and 1998 and were expensed as selling, general and administrative expenses.
Carrier1 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.
Carrier1 has loaned an officer of the company approximately $68. The loan
bears interest at 12% per annum and will be repaid in five equal installments of
principal and interest of approximately $19 beginning July 1, 2001.
In December 1999, Carrier1 entered into an agreement with an affiliate of
Worldwide Fiber Inc. ("Worldwide Fiber") under which it will sell bandwidth
capacity in the form of IRUs to Worldwide Fiber beginning in March 2001. Under
the agreement, Worldwide Fiber also has the option to swap excess trans-Atlantic
capacity for capacity on Carrier1's German Network once it has purchased a
certain amount of capacity. A fund managed by Providence Equity Partners L.P.
invests in Worldwide Fiber. In addition, one of Carrier1's directors is also a
director of Worldwide Fiber.
12. EMPLOYEE BENEFIT PLANS
Carrier1 contributes to defined contribution pension plans in accordance
with the laws and practices of the countries in which it operates. During the
year ended December 31, 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998, Carrier1 recorded pension expense totaling $770
and $267, respectively.
13. SEGMENT AND RELATED INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires Carrier1 to disclose certain information related to
segments and geographic areas in which Carrier1 operates and its major
customers.
SEGMENT INFORMATION
Carrier1 has identified two reportable operating segments as defined in SFAS
No. 131: voice services and Internet and bandwidth 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 Internet and bandwidth services segment
provides telecommunications services to Internet service providers and other
telecommunications companies.
F-22
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
13. SEGMENT AND RELATED INFORMATION (CONTINUED)
Carrier1'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. Carrier1 evaluates performance
of segments based on its fixed cost contribution, which is defined as segment
revenues less direct variable costs incurred directly by the segment. Certain
direct costs, such as network and transmission costs, are shared by the segments
and are not allocated by management to the segments. 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
year ended December 31, 1999 or the period from February 20, 1998 (date of
inception) to December 31, 1998.
Summarized financial information concerning Carrier1's reportable segments
as of December 31, 1999 and 1998, and for the year ended December 31, 1999 and
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. As of
December 31, 1999 and 1998, network equipment with a cost basis of $42,857 and
$12,008, respectively, has been identified as relating to a specific segment and
network equipment of $38,363 and $2,605, respectively, is shared by the
segments. The remaining assets, including but not limited to IRU investments and
construction in progress, are not allocated to segments since such assets are
considered to be either shared or corporate-related.
YEAR ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
INTERNET AND
VOICE BANDWIDTH
SERVICES SERVICES OTHER CONSOLIDATED
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Revenues.......................... $87,619 $9,498 $ -- $ 97,117
Fixed cost contribution........... 12,614 7,561 -- 20,175
Identifiable assets............... 33,984 3,482 400,189 437,655
Depreciation and amortization..... 4,406 614 8,829 13,849
Capital expenditures.............. 28,587 2,262 164,527 195,376
</TABLE>
F-23
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
13. SEGMENT AND RELATED INFORMATION (CONTINUED)
PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998:
<TABLE>
<CAPTION>
INTERNET AND
VOICE BANDWIDTH
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>
The following table reconciles the fixed cost contribution for reportable
segments to the loss before income tax expense (benefit) for the year ended
December 31, 1999 and the period from February 20, 1998 (date of inception) to
December 31, 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Total fixed cost contribution for reportable segments....... $ 20,175 $ 118
Unallocated amounts:
Unallocated cost of services (exclusive of items shown
separately below)....................................... (36,867) (8,995)
Selling, general and administrative expenses.............. (18,369) (8,977)
Depreciation and amortization............................. (13,849) (1,409)
Other income (expense).................................... (39,589) 28
-------- --------
Loss before income tax expense (benefit).................... $(88,499) $(19,235)
======== ========
</TABLE>
Unallocated cost of services include network and transmission costs that are
shared by the voice and Internet and bandwidth services segments.
F-24
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
13. SEGMENT AND RELATED INFORMATION (CONTINUED)
The following table provides detail of the other identifiable assets as of
December 31, 1999 and 1998 in the table shown above:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash and cash equivalents (including restricted cash)....... $ 34,016 $ 5,702
Receivables................................................. 65,520 5,876
Prepaid expenses and other current assets................... 9,873 3,179
Restricted investments...................................... 90,177 --
Investment in joint ventures................................ 4,691 4,675
Other noncurrent assets..................................... 19,635 911
Property and equipment:
Unallocated network equipment............................. 38,363 2,605
Indefeasible right of use investments..................... 49,099 11,106
Leasehold improvements.................................... 10,333 1,712
Furniture, fixtures and office equipment.................. 8,652 709
Construction in progress.................................. 78,549 4,353
Accumulated depreciation and amortization................. (8,719) (794)
-------- -------
Total other identifiable assets............................. $400,189 $40,034
======== =======
</TABLE>
GEOGRAPHIC INFORMATION
The following table provides detail of Carrier1's revenues for the year
ended December 31, 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998 and long-lived assets as of December 31, 1999
and 1998 on a geographic basis. Revenues have been allocated based on the
location of the customer. IRU investments are included based on the entity which
owns the investment. Carrier1 did not earn any revenues in its country of
domicile, Luxembourg.
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Germany.............................................. $40,235 $ 91,115 $ 878 $10,369
Switzerland.......................................... 6,240 72,052 108 14,186
United Kingdom....................................... 26,549 25,582 1,768 7,399
United States........................................ 3,299 4,582 -- 3,006
Netherlands.......................................... 7,985 9,713 38 725
France............................................... 6,627 3,924 -- 407
Luxembourg........................................... -- 14,294 -- --
Other countries...................................... 6,182 16,807 -- 585
------- -------- ------ -------
$97,117 $238,069 $2,792 $36,677
======= ======== ====== =======
</TABLE>
MAJOR CUSTOMERS
During the year ended December 31, 1999 and the period from February 20,
1998 (date of inception) to December 31, 1998, Carrier1 earned 14% and 69%,
respectively, of its revenues from major customers. During 1999, revenues earned
from one major customer amounted to approximately
F-25
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
13. SEGMENT AND RELATED INFORMATION (CONTINUED)
14% of total revenues. During 1998, revenues earned from one major customer
amounted to approximately 46% of total revenues, to another major customer,
approximately 13% of total revenues, and to a third major customer,
approximately 10% of total revenues.
14. SUBSEQUENT EVENTS
SHORT-TERM DEBT
As of February 11, 2000, Carrier1 had borrowed an additional [EURO]15
million under the interim credit facility with Morgan Stanley Senior Funding,
Inc. and Citibank N.A.
INVESTMENT IN JOINT VENTURE
In February 2000, Carrier1 provided a [EURO]20 million (approximately $20
million) letter of credit to the Developer to fund Carrier1's share of
additional project costs for the German Network. The letter of credit is fully
cash collateralized.
F-26
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares, par value $2.00 per
share, offered hereby.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 243,526
NASD Filing Fee............................................. 30,500
NASDAQ Original Listing Fee................................. 95,000
Neuer Markt Filing Fee...................................... 12,500
Blue Sky Fees and Expenses.................................. 10,000
Legal Fees and Expenses..................................... 1,500,000
Accounting Fees............................................. 190,000
Printing and Engraving Costs................................ 300,000
Transfer Agent and Registration Fees........................ 150,000
Miscellaneous Expenses...................................... 183,000
----------
Total................................................... $2,714,526
==========
</TABLE>
- ------------------------
ITEM 14. 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's articles of incorporation 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
II-1
<PAGE>
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 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 15. RECENT SALES OF UNREGISTERED SECURITIES
Since our inception on February 20, 1998, we have sold and issued the
following securities:
1. Between March 1, 1998 and June 14, 1999 we sold to employees 2,537,236
shares of our capital stock at $2.00 per share for an aggregate
consideration of $5,074,472; between June 15, 1999 and September 8, 1999 we
sold to employees 90,664 shares of our capital stock at $5.00 per share, for
an aggregate consideration of $453,320; and between September 9, 1999 and
December 31, 1999
II-2
<PAGE>
we sold to employees 37,940 shares of our capital stock at $10.00 per share,
for an aggregate consideration of $379,400.
2. From time to time from our inception to February 19, 1999 we issued to
Carrier One, LLC a total of 29,999,999 shares of our capital stock at $2.00
per share for an aggregate consideration of $59,999,998. In addition, in
1998 we issued to Providence Equity Partners L.P. 1 share of our capital
stock for $2.00.
3. On June 14, 1999, we sold to Carrier One LLC a total of 400,000 shares of
our capital stock at $2.00 per share for an aggregate consideration of
$800,000, which amount was funded by Messrs. Thomas Wynne and Victor Pelson,
both directors of Carrier1 International S.A., who received a total of
800,000 Class A Units in Carrier One LLC at $1.00 per Class A Unit.
4. Between our inception and September 8, 1999, we granted to our employees
pursuant to our 1999 share option plan options to purchase 2,255,718 shares
of our capital stock, at an exercise price of $2.00 per share.
5. Between September 9, 1999 and December 1, 1999 we granted to our employees
pursuant to our 1999 share option plan options to purchase 123,500 shares of
our capital stock, at an exercise price of $10.00 per share.
6. On December 6, 1999 we granted to Mr. Alexander Schmid, a new member of
management, pursuant to our 1999 share option plan options to purchase
100,000 shares of our capital stock, at an exercise price of $40.34 per
share.
7. In addition, on September 9, 1999 we granted to Messrs. Wynne and Pelson
options to purchase a total of 40,000 shares of our capital stock (20,000
shares each) at an exercise price of $2.00 per share.
8. On February 19, 1998, we issued 160,000 dollar units each consisting of one
13 1/4% senior dollar note together with one detachable warrant entitling
the holder to purchase 6.71013 shares of our capital stock, and 85,000 euro
units, each consisting of one 13 1/4% senior euro note togther with one
detachable warrant entitling the holder to purchase 7.53614 shares of our
capital stock. The aggregate principal amount of the dollar notes was
$160 million and the aggregate principal amount of the euro notes was
[EURO]85 million. The warrants become exercisable on February 19, 2000 and
have an exercise price per share equal to the greater of $2.00 and the
minimum par value required by Luxembourg law (currently 50 Luxembourg
francs) excluding a 1% Luxembourg capital duty which is payable by us.
Morgan Stanley Dean Witter, Salomon Smith Barney, Warburg Dillon Read LLC
and Bear, Stearns & Co. Inc. acted as placement agents in connection with
this offering.
The securities issued in the transactions described above were deemed exempt
from registration under the Securities Act in reliance upon Section 4(2) of the
Securities Act, or Regulation D or Regulation S under the Securities Act, or
Rule 701 under the Securities Act as transactions by an issuer not involving a
public offering, or transactions pursuant to compensation benefit plans and
contracts relating to compensation. The recipients of securities in each of such
transactions represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution of the securities. All recipients were either furnished with or had
adequate access to, through their relationship with us, information about
Carrier1 International.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
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 (filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4 (No.
333-75195) (the "Registrant's Form S-4"))*
4.2 Form of 13 1/4% Senior Dollar Note (included in Exhibit 4.1
to this registration statement)
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 (filed as Exhibit 4.3 to the
Registrant's Form S-4)*
4.4 Form of 13 1/4% Senior Euro Note (included in Exhibit 4.3 to
this registration statement)
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. (filed as Exhibit 4.5
to the Registrant's Form S-4)*
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 (filed as Exhibit 4.6 to
the Registrant's Form S-4)*
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 (filed as Exhibit 4.7 to
the Registrant's Form S-4)*
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 (filed as Exhibit 4.8 to the Registrant's Form S-4)*
4.9 Credit Agreement, dated as of December 21, 1999, among
Carrier1 International S.A., certain of its subsidiaries as
Borrowers and certain of its subsidiaries as Guarantors, the
Lenders and Financial Institutions named therein, and Morgan
Stanley Senior Funding, Inc. and Citibank, N.A. as Lead
Arrangers and Morgan Stanley Senior Funding, Inc. as
Administrative Agent and Security Agent.***
5.1 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 (filed as Exhibit 10.1 to the
Registrant's Form S-4)*
10.2 Euro Warrant Agreement, dated as of February 19, 1999,
between Carrier1 International S.A. and The Chase Manhattan
Bank, as Warrant Agent (filed as Exhibit 10.2 to the
Registrant's Form S-4)*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
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 (filed as Exhibit 10.3 to
the Registrant's Form S-4)*
10.4 Carrier1 International S.A. 1999 Share Option Plan (filed as
Exhibit 10.4 to the Registrant's Form S-4)*
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 (filed as
Exhibit 10.5 to the Registrant's Form S-4)*
10.6 Form of Option Agreement (filed as Exhibit 10.6 to the
Registrant's Form S-4)*
10.7 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Stig Johansson (filed as Exhibit 10.7 to
the Registrant's Form S-4)*
10.8 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Eugene A. Rizzo (filed as Exhibit 10.8 to
the Registrant's Form S-4)*
10.9 Employment Agreement, dated as of March 26, 1998, between
Carrier One AG and Terje Nordahl (filed as Exhibit 10.9 to
the Registrant's Form S-4)*
10.10 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Joachim Bauer (filed as Exhibit 10.10 to
the Registrant's Form S-4)*
10.11 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Kees van Ophem (filed as Exhibit 10.11 to
the Registrant's Form S-4)*
10.12 Securities Purchase Agreement, dated as of March 1, 1999,
among Carrier1 International S.A., Carrier One LLC and the
employee investors named therein (filed as Exhibit 10.12 to
the Registrant's Form S-4)*
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 (filed as
Exhibit 10.13 to the Registrant's Form S-4)*
10.14 Securityholders' Agreement, dated as of March 1, 1999, among
Carrier1 International S.A. and the employee investors named
therein (filed as Exhibit 10.14 to the Registrant's Form
S-4)*
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. (filed as Exhibit 10.15 to the Registrant's
Form S-4)* ++
10.16 Amendment No. 1 to Securityholders' Agreement and
Registration Rights Agreement, dated as of March 1, 1999
(filed as Exhibit 10.16 to the Registrant's Form S-4)*
10.17 Amendment No. 2 to Securityholders' Agreement and Securities
Purchase Agreement, dated as of March 1, 1999 (filed as
Exhibit 10.17 to the Registrant's Form S-4)*
10.18 Amendment No. 3 to Securityholders' Agreement and Securities
Purchase Agreement, dated as of March 1, 1999 (filed as
Exhibit 10.18 to the Registrant's Form S-4)*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.19 Amendment No. 4 to Securityholders' Agreement and Securities
Purchase Agreement, dated as of March 1, 1999 (filed as
Exhibit 10.19 to the Registrant's Form S-4)*
10.20 Amended and Restated Shareholders Agreement, dated as of
January 13, 2000, among Carlyle Hubco International
Partners, L.P., iaxis B.V., Carrier1 International S.A.,
Providence Equity Hubco (Cayman) L.P., and Hubco S.A. (filed
as Exhibit 10.1 to the Registrant's periodic report filed on
Form 8-K /A dated January 4, 2000 (the "Registrant's
Form 8-K/A"))* ++
10.21 Strategic Anchor Tenant Agreement, dated November 23, 1999,
between Carrier1 International S.A. and Hubco S.A., (filed
as Exhibit 10.3 to the Registrant's Form 8-K /A)* ++
10.22 Registration Rights Agreement, dated November 23, 1999, by
and among The Carlyle entities named therein, iaxis B.V.,
Carrier1 International S.A., Providence Equity Partners III
L.P., Providence Equity Operating Partners III L.P. and
Hubco S.A. (filed as Exhibit 10.2 to the Registrant's
periodic report filed on Form 8-K/A dated February 17, 2000
(the "Registrant's Revised Form 8-K/A"))*
10.23 Amendment No. 1 to Registration Rights Agreement, dated as
of January 13, 2000, by and among Hubco S.A. and the Persons
listed on the signature pages thereto (filed as
Exhibit 10.4 to the Registrant's Revised Form 8-K/A)*
21.1 List of Subsidiaries of Carrier1 International S.A.***
23.1 Consent of Deloitte & Touche Experta AG
23.2 Consent of Bonn & Schmitt (included in Exhibit 5.1 to this
registration statement)
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 W. Bauer***
24.8 Certified Resolution as to Power of Attorney***
27.1 Financial Data Schedule***
</TABLE>
- ------------------------
* Incorporated by reference.
** To be filed by amendment.
*** Previously filed.
++ Previously filed under a request for confidential treatment.
II-6
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- ------------ ------------------- ---------- ----------
ADDITIONS
-------------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
BEGINNING OF AND TO OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------- ------------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1999:
Reserves deducted from assets to which
they apply:
Allowance for doubtful accounts
receivable........................... $ -- $ 870 $ -- $ 30(1) $ 840
======== ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Deductions consist entirely of currency translation adjustments.
All other 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 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
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.
The undersigned registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus 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.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ZURICH ON
FEBRUARY 18, 2000.
<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
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<C> <S> <C>
Director, Chief Executive
* Officer and President
------------------------------------------- (Principal Executive February 18, 2000
Stig Johansson Officer)
Chief Financial Officer
* (Principal Financial
------------------------------------------- Officer and Principal February 18, 2000
Joachim W. Bauer Accounting Officer)
*
------------------------------------------- Director February 18, 2000
Glenn M. Creamer
*
------------------------------------------- Director February 18, 2000
Jonathan E. Dick
*
------------------------------------------- Director February 18, 2000
Mark A. Pelson
*
------------------------------------------- Director February 18, 2000
Victor A. Pelson
*
------------------------------------------- Director February 18, 2000
Thomas J. Wynne
Authorized Representative
CARRIER 1, INC. in the U.S. February 18, 2000
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: *
-------------------------------------- February 18, 2000
Joachim W. Bauer, ITS SECRETARY
*By: /s/ NEIL CRAVEN
-------------------------------------- February 18, 2000
by Power of Attorney
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
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 (filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4 (No.
333-75195) (the "Registrant's Form S-4"))*
4.2 Form of 13 1/4% Senior Dollar Note (included in Exhibit 4.1
to this registration statement)
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 (filed as Exhibit 4.3 to the
Registrant's Form S-4)*
4.4 Form of 13 1/4% Senior Euro Note (included in Exhibit 4.3 to
this registration statement)
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. (filed as Exhibit 4.5
to the Registrant's Form S-4)*
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 (filed as Exhibit 4.6 to
the Registrant's Form S-4)*
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 (filed as Exhibit 4.7 to
the Registrant's Form S-4)*
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 (filed as Exhibit 4.8 to the Registrant's Form S-4)*
4.9 Credit Agreement, dated as of December 21, 1999, among
Carrier1 International S.A., certain of its subsidiaries as
Borrowers and certain of its subsidiaries as Guarantors, the
Lenders and Financial Institutions named therein, and Morgan
Stanley Senior Funding, Inc. and Citibank, N.A. as Lead
Arrangers and Morgan Stanley Senior Funding, Inc. as
Administrative Agent and Security Agent.***
5.1 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 (filed as Exhibit 10.1 to the
Registrant's Form S-4)*
10.2 Euro Warrant Agreement, dated as of February 19, 1999,
between Carrier1 International S.A. and The Chase Manhattan
Bank, as Warrant Agent (filed as Exhibit 10.2 to the
Registrant's Form S-4)*
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 (filed as Exhibit 10.3 to
the Registrant's Form S-4)*
10.4 Carrier1 International S.A. 1999 Share Option Plan (filed as
Exhibit 10.4 to the Registrant's Form S-4)*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
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 (filed as
Exhibit 10.5 to the Registrant's Form S-4)*
10.6 Form of Option Agreement (filed as Exhibit 10.6 to the
Registrant's Form S-4)*
10.7 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Stig Johansson (filed as Exhibit 10.7 to
the Registrant's Form S-4)*
10.8 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Eugene A. Rizzo (filed as Exhibit 10.8 to
the Registrant's Form S-4)*
10.9 Employment Agreement, dated as of March 26, 1998, between
Carrier One AG and Terje Nordahl (filed as Exhibit 10.9 to
the Registrant's Form S-4)*
10.10 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Joachim Bauer (filed as Exhibit 10.10 to
the Registrant's Form S-4)*
10.11 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Kees van Ophem (filed as Exhibit 10.11 to
the Registrant's Form S-4)*
10.12 Securities Purchase Agreement, dated as of March 1, 1999,
among Carrier1 International S.A., Carrier One LLC and the
employee investors named therein (filed as Exhibit 10.12 to
the Registrant's Form S-4)*
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 (filed as
Exhibit 10.13 to the Registrant's Form S-4)*
10.14 Securityholders' Agreement, dated as of March 1, 1999, among
Carrier1 International S.A. and the employee investors named
therein (filed as Exhibit 10.14 to the Registrant's Form
S-4)*
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. (filed as Exhibit 10.15 to the
Registrant's Form S-4)*++
10.16 Amendment No. 1 to Securityholders' Agreement and
Registration Rights Agreement, dated as of March 1, 1999
(filed as Exhibit 10.16 to the Registrant's Form S-4)*
10.17 Amendment No. 2 to Securityholders' Agreement and Securities
Purchase Agreement, dated as of March 1, 1999 (filed as
Exhibit 10.17 to the Registrant's Form S-4)*
10.18 Amendment No. 3 to Securityholders' Agreement and Securities
Purchase Agreement, dated as of March 1, 1999 (filed as
Exhibit 10.18 to the Registrant's Form S-4)*
10.19 Amendment No. 4 to Securityholders' Agreement and Securities
Purchase Agreement, dated as of March 1, 1999 (filed as
Exhibit 10.19 to the Registrant's Form S-4)*
10.20 Amended and Restated Shareholders Agreement, dated as of
January 13, 2000, among Carlyle Hubco International
Partners, L.P., iaxis B.V., Carrier1 International S.A.,
Providence Equity Hubco (Cayman) L.P., and Hubco S.A. (filed
as Exhibit 10.1 to the Registrant's periodic report filed on
Form 8-K/A dated February 9, 2000 (the "Registrant's
Form 8-K/A"))* ++
10.21 Strategic Anchor Tenant Agreement, dated November 23, 1999,
between Carrier1 International S.A. and Hubco S.A., (filed
as Exhibit 10.3 to the Registrant's Form 8-K/A)* ++
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.22 Registration Rights Agreement, dated November 23, 1999, by
and among The Carlyle entities named therein, iaxis B.V.,
Carrier1 International S.A., Providence Equity Partners III
L.P., Providence Equity Operating Partners III L.P. and
Hubco S.A. (filed as Exhibit 10.2 to the Registrant's
periodic report filed on Form 8-K/A dated February 17, 2000
(the "Registrant's Revised Form 8-K/A"))*
10.23 Amendment No. 1 to Registration Rights Agreement, dated as
of January 13, 2000, by and among Hubco S.A. and the Persons
listed on the signature pages thereto (filed as
Exhibit 10.4 to the Registrant's Revised Form 8-K/A)*
21.1 List of Subsidiaries of Carrier1 International S.A.***
23.1 Consent of Deloitte & Touche Experta AG
23.2 Consent of Bonn & Schmitt (included in Exhibit 5.1 to this
registration statement)
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 W. Bauer***
24.8 Certified Resolution as to Power of Attorney***
27.1 Financial Data Schedule***
</TABLE>
- ------------------------
* Incorporated by reference.
** To be filed by amendment.
*** Previously filed.
++ Previously filed under a request for confidential treatment.
<PAGE>
Exhibit 1.1
9,375,000 SHARES
CARRIER 1 INTERNATIONAL S.A.
COMMON STOCK (PAR VALUE $2 PER SHARE)
UNDERWRITING AGREEMENT
[______], 2000
<PAGE>
[_____________], 2000
Morgan Stanley & Co. International Limited
Salomon Brothers International Limited
(as representatives of the several Underwriters
named in Schedule I hereto)
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Carrier 1 International S.A., a societe anonyme organized
under the laws of the Grand Duchy of Luxembourg (the "COMPANY"), proposes to
issue and sell, and certain shareholders of the Company (the "SELLING
SHAREHOLDERS") named in Schedule II hereto severally propose to sell, to the
several Underwriters named in Schedule I hereto (the "UNDERWRITERS") an
aggregate of 9,375,000 shares of common stock, par value $2 per share, of the
Company (the "FIRM SHARES") of which 7,500,000 shares are to be issued and sold
by the Company and 1,875,000 shares are to be sold by the Selling Shareholders,
each Selling Shareholder selling the amount set forth opposite such Selling
Shareholder's name in Schedule II hereto. The shares to be sold by the Selling
Shareholders other than Carrier One, LLC, a Delaware limited liability company
("CARRIER ONE LLC") (the "WARRANTHOLDERS") will be issued upon exercise of
outstanding warrants (the "WARRANTS").
The Company and the Selling Shareholders also severally
propose to sell to the several Underwriters up to an additional 1,125,000 and
281,250 shares (the "ADDITIONAL SHARES") of common stock, par value $2 per
share, if and to the extent that Morgan Stanley & Co. International Limited
("MSIL"), after consultation with Salomon Brothers International Limited ("SBIL"
and together with MSIL, the "GLOBAL COORDINATORS") shall have determined to
exercise, on behalf of the Underwriters, the right to purchase such Additional
Shares granted to the Underwriters in Section 2 hereof, each Selling Shareholder
selling up to the amount of Additional Shares set forth opposite such Selling
Shareholder's name in Schedule II hereto. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "SHARES." All shares of
common stock, par value $2 per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby, including the shares to be
retained by its existing shareholders, are hereinafter referred to as the "SHARE
CAPITAL." The Company and the Selling Shareholders are hereinafter collectively
referred to as the "SELLERS."
<PAGE>
It is expected that after subscription for the Shares pursuant
to Section 4 and after the then existing share capital of the Company has been
admitted for trading on the Neuer Markt segment of the Frankfurt Stock Exchange
and before the ADRs referred to below have been admitted for trading on the
Nasdaq Stock Market, the Company, the Selling Shareholders and the Global
Coordinators, on behalf of the Underwriters, will enter into a Pricing Agreement
(the "PRICING AGREEMENT"), the form of which is attached as ANNEX A hereto,
which sets forth, among other things, the price to be paid per Share for the
Firm Shares and any Additional Shares to be purchased by the several
Underwriters provided they are able to agree on such terms and the other matters
set forth therein.
Shares shall be sold in the form of registered shares or, at
the election of the Underwriters to provide for the preferences of those
purchasing from them in the United States and Canada, in the form of American
Depositary Shares ("ADSS"), each Share being represented by five such ADSs. The
Company will enter into a Deposit Agreement dated the Closing Date (as defined
below) (the "DEPOSIT AGREEMENT") among the Company, Bankers Trust Company, as
depositary (the "DEPOSITARY") and the holders from time to time of American
Depositary Receipts ("ADRS") issued thereunder by the Depositary and evidencing
the ADSs. The ADSs and the ADRs will be issued in accordance with the Deposit
Agreement. The Shares represented by the ADSs to be delivered on the Closing
Date are to be deposited with the Depositary on or prior to such date against
the issuance of ADRs evidencing such ADSs.
The Company has filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement on Form S-1 relating to
the Shares. The registration statement contains the U.S. prospectus, to be used
in connection with the offering and sale of Shares and ADSs in the United States
and Canada to United States and Canadian Persons (the "U.S. PROSPECTUS"). In
connection with the sale of the shares in Germany, the Company has filed with
the Frankfurt Stock Exchange a German language preliminary sales prospectus
which was approved (GEBILLIGT) by the Frankfurt Stock Exchange on [__________],
2000 (the "UNVOLLSTANDIGER VERKAUFSPROSPEKT") and published the day thereafter
and, prior to the Closing Date intends to publish a German language final sales
prospectus (the "VERKAUFSPROSPEKT") which will also serve as the listing
prospectus (UNTERNEHMENSBERICHT) relating to the Shares to be offered in
Germany. The Unvollstandiger Verkaufsprospekt and the Verkaufsprospekt are
hereinafter referred to as the "GERMAN PROSPECTUS". The international prospectus
to be used in connection with sales outside of the United States, Canada and
Germany (the "INTERNATIONAL PROSPECTUS") is identical to the U.S. Prospectus
except for the outside front cover page.
The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the U.S. Prospectus and the
International Prospectus in the respective forms first used to confirm sales
<PAGE>
of Shares or ADSs and the German Prospectus are hereinafter collectively
referred to as the "PROSPECTUS." If the Company has filed an abbreviated
registration statement to register additional shares of common stock pursuant to
Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"),
then any reference herein to the term "REGISTRATION STATEMENT" shall be deemed
to include such Rule 462 Registration Statement. A registration statement on
Form F-6 relating to the ADSs has also been filed with the Commission (such
registration statement, as amended at the time it becomes effective, including
the exhibits thereto, is hereinafter referred to as the "ADS REGISTRATION
STATEMENT"). Unless the context otherwise requires, any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such ADS Registration
Statement.
The Underwriters have agreed to reserve a portion of the
Shares (in the form of Shares or ADSs) to be purchased under this Agreement for
sale to persons who are associated with the Company or its affiliates
(collectively, "PARTICIPANTS"), as set forth in the Prospectus under the heading
"Underwriters." The reservation of the shares for sale to the Participants is
referred to in this Agreement as the "DIRECTED SHARE PROGRAM". The Shares (in
the form of Shares or ADSs) to be sold pursuant to the Directed Share Program
are referred to hereinafter as the "DIRECTED SHARES." Any Directed Shares not
orally confirmed for purchase by any Participants by the end of the business day
on which this Agreement is executed will be offered to the public by the
Underwriters as set forth in the Prospectus.
The Board of Directors of the Company is authorized pursuant
to Article 5 of the articles of association of the Company (the "ARTICLES OF
ASSOCIATION") to increase the share capital of the Company within five years
from May 28, 1999 through the issuance of additional shares so that the total
share capital of the Company would be 55,000,000 shares, or $110,000,000 (the
"AUTHORIZED CAPITAL").
It is contemplated that the Board of Directors, or a duly
authorized committee thereof, by a resolution to be dated the date hereof, will
determine to increase the share capital of the Company with respect to the Firm
Shares, by $15,000,000, and issue 7,500,000 shares of common stock par value $2
per share with full dividend entitlement for the fiscal year 2000, which shares
shall be subscribed for by MSIL, on behalf of the other Underwriters, at a
subscription price of $2 per Firm Share (the "SUBSCRIPTION PRICE") pursuant to
the terms and conditions of this Agreement. It is further contemplated that the
Board of Directors, or a duly authorized committee thereof, by a resolution to
be dated on any Option Closing Date (as defined below), will determine to
increase the share capital of the Company with respect to the Additional Shares
to be sold by Company, by the aggregate Subscription Price for such Additional
Shares and issue such Additional Shares with full dividend entitlement for the
fiscal year 2000, which shares shall be subscribed for out of the aggregate
Share Offer Price of such Shares on the Option Closing Date pursuant to the
terms and conditions of this Agreement.
1. REPRESENTATIONS AND WARRANTIES.
<PAGE>
(I) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) At or before the time of the execution of the
Pricing Agreement, the Registration Statement shall have become
effective; no stop order suspending the effectiveness of the
Registration Statement shall be in effect, and no proceedings for such
purpose shall be pending before or threatened by the Commission.
(b) (i) The Registration Statement, on the date
hereof and when it becomes effective, and as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) the
Registration Statement and the U.S. Prospectus comply and, as amended
or supplemented, if applicable, will comply in all material respects
with the Securities Act and the applicable rules and regulations of the
Commission thereunder, (iii) the German Prospectus complies and, as
amended or supplemented, if applicable, will comply in all material
respects with all applicable laws of Germany and all applicable rules
and regulations of any competent German government, regulatory or stock
exchange authority, (iv) neither the U.S. Prospectus nor the
International Prospectus contains or, as amended or supplemented, if
applicable, will contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, and (v) the German Prospectus does not contain an untrue
statement of, or omit to state, a fact which is material for the
assessment of an investment in the shares (UNRICHTIGE ODER
UNVOLLSTANDIGE ANGABEN, WELCHE FUR DIE BEURTEILUNG DER WERTPAPIERE
WESENTLICH SIND), all within the meaning of Section 13 of the German
Securities Sales Prospectus Act and Section 45 of the German Stock
Exchange Act, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through the Global Coordinators expressly for use therein.
(c) The Company has been duly incorporated, is
validly existing as a societe anonyme under the laws of Luxembourg, has
the corporate power and authority to own its property and to conduct
its business as described in the Prospectus and is duly qualified to
transact business and is in good standing, if applicable, in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing, if
applicable, would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly
incorporated, organized or formed, as applicable, is validly existing
and, if applicable, in good
<PAGE>
standing under the laws of the jurisdiction of its incorporation or
organization, has the corporate or company power and authority to own
its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and, if applicable, is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing, if applicable, would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole; all of the issued
capital stock or membership interests of each subsidiary of the Company
has been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed
and delivered by the Company.
(f) The Deposit Agreement has been duly authorized,
and when executed and delivered by the Company and, assuming due
authorization, execution and delivery by the Depositary, will be a
valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, liquidation, "GESTION CONTROLEE," "SURSIS DE
PAIEMENT," "CONCORDAT" or similar laws affecting creditors' rights
generally and general principles of equity and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(g) The Pricing Agreement has been duly authorized by
the Company and, when executed and delivered by the Company and
assuming due authorization, execution and delivery by the other parties
thereto, will be a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject
to (i) applicable bankruptcy, insolvency, liquidation, "GESTION
CONTROLEE," "SURSIS DE PAIEMENT," "CONCORDAT" or similar laws affecting
creditors' rights generally and general principles of equity and (ii)
the availability of equitable remedies may be limited by equitable
principles of general applicability.
(h) Upon valid issuance by the Depositary of ADRs
evidencing ADSs against the deposit of Shares in respect thereof in
accordance with the Deposit Agreement and upon payment by the
Underwriters for the ADSs evidenced thereby, such ADSs will be duly and
validly issued and persons in whose names such ADRs are registered will
be entitled to the rights specified therein and in the Deposit
Agreement; and the Deposit Agreement, the ADSs and the ADRs conform in
all material respects to the descriptions thereof contained in the
Prospectus.
(i) The authorized capital stock of the Company
conforms as to legal matters to the description thereof contained in
the Prospectus and, except as described
<PAGE>
in the Prospectus or as otherwise advised to the Underwriters in
writing with respect to securities issued after the date of the
Prospectus, there are no outstanding securities convertible into, or
exchangeable for, or warrants, rights or options to purchase from the
Company, or obligations of the Company to issue, any shares of capital
stock or any securities that share in the net profits of the Company or
are entitled to any proceeds upon liquidation of the Company.
(j) The shares of common stock (including the Shares
to be sold by Carrier One LLC) outstanding prior to the subscription of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable.
(k) The Shares to be sold by the Company and the
Warrantholders have been duly authorized and, when issued and delivered
against receipt of payment therefor in accordance with this Agreement,
will be, validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or
similar rights; the Company has duly authorized the deposit of Shares
to be deposited with the Depositary against issuance of ADRs evidencing
ADSs; and, upon payment therefor on the Closing Date, the Shares and
the ADSs will be free from any restriction on transfer or subsequent
transfer, except as described in the Prospectus or in this Agreement.
(l) The execution and delivery by the Company of, and
the performance by the Company of its obligations under, this
Agreement, the Pricing Agreement and the Deposit Agreement, the deposit
of Shares with the Depositary against the issuance of ADRs evidencing
ADSs to be delivered pursuant to this Agreement and the issuance and
delivery of the Shares pursuant to this Agreement, will not contravene
any provision of applicable law (except as would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole or
except in so far as indemnity and contribution is limited by applicable
law or public policy) or the Articles of Association of the Company or
any agreement or other instrument binding upon the Company or any of
its subsidiaries that is material to the Company and its subsidiaries,
taken as a whole, or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, the
Pricing Agreement or the Deposit Agreement, to effect dividend payments
on any Shares or for the Depositary to convert such payments, if made
other than in U.S. dollars, to U.S. dollars for distribution to holders
of ADSs, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Shares and the ADSs and other than those already obtained from the
Frankfurt Stock Exchange and the Nasdaq Stock Market and under the
securities laws of The Netherlands, the Securities Act and the
Securities
<PAGE>
Exchange Act of 1934, as amended (the "EXCHANGE ACT") and those as may
be required for the listing of the Company's Share Capital on the Neuer
Markt segment of the Frankfurt Stock Exchange, assuming compliance by
the Underwriters with the provisions of Section 9(ii) hereof.
(m) This Agreement, the Pricing Agreement and the
Deposit Agreement, and any other document required to be furnished
hereunder or thereunder, is in proper legal form under the laws of
Luxembourg for the enforcement thereof against the Company in
Luxembourg without further action on the part of the Underwriters
(except that if any such document were to be exhibited before a
Luxembourg court or a Luxembourg public authority ("AUTORITE
CONSTITUEE"), registration thereof may be ordered, in which case a
registration duty would become payable and a translation thereof into
French or German may need to be produced); and to ensure the validity,
enforceability or admissibility in evidence in Luxembourg of this
Agreement, the Pricing Agreement, the Deposit Agreement or any other
document required to be furnished hereunder or thereunder, it is not
necessary that this Agreement, the Pricing Agreement, the Deposit
Agreement or such related document be submitted to, filed, recorded, or
registered with any court or other authority in Luxembourg or that any
tax, imposition or charge be paid on or in respect of this Agreement,
the Pricing Agreement, the Deposit Agreement or such related document
with respect to the institution of any judicial proceeding to enforce
this Agreement, the Pricing Agreement or the Deposit Agreement in
Luxembourg or in order to be able to enforce a foreign judgment with
respect thereto in Luxembourg (except that if any such document were to
be exhibited before a Luxembourg court or a Luxembourg public authority
("AUTORITE CONSTITUEE"), registration thereof may be ordered, in which
case a registration duty would become payable and a translation thereof
into French or German may need to be produced).
(n) There has not occurred any material adverse
change, or any development involving a prospective material adverse
change, in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus as in effect on the date
hereof (exclusive of any amendments or supplements thereto subsequent
to the date of this Agreement).
(o) There are no legal or governmental proceedings
pending or threatened to which the Company or any of its subsidiaries
is a party or to which any of the properties of the Company or any of
its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
<PAGE>
(p) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act
and the applicable rules and regulations of the Commission thereunder.
(q) The Company is not and, after giving effect to
the offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(r) The Company and its subsidiaries (i) are in
compliance with any and all applicable Luxembourg, foreign and U.S.
federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL
LAWS"), (ii) have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(s) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for cleanup, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(t) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
as in effect on the date hereof, (i) the Company and its subsidiaries
have not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of
its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any
material change in the capital stock, short-term debt or long-term debt
of the Company and its subsidiaries, except in each case as described
in the Prospectus as in effect on the date hereof.
(u) The Company and its subsidiaries have good and
marketable title
<PAGE>
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of
the Company and its subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not materially interfere with the use made and proposed
to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, in each case except as
described in the Prospectus.
(v) No material labor dispute with the employees of
the Company or any of its subsidiaries exists or, to the knowledge of
the Company, is imminent, except as described in the Prospectus; and
the Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that would reasonably be expected to have
a material adverse effect on the Company and its subsidiaries, taken as
a whole.
(w) The Company and its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any of
its subsidiaries has been refused any insurance coverage applied for;
and neither the Company nor any of its subsidiaries has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole, except as described in
the Prospectus.
(x) Except as set forth in the Prospectus, each of
the Company and its subsidiaries (i) have paid all fees required by any
Luxembourg, U.S. and foreign national, regional or local governmental
authorities, all self-regulatory organizations and all courts and
tribunals and (ii) have all necessary permits, licenses,
authorizations, consents, orders, certificates and approvals of and
from, and has made all necessary declarations and filings and has paid
all required fees with, all applicable Luxembourg, U.S. federal, state
and local, foreign and supranational governmental, administrative and
regulatory authorities, self-regulatory organizations and courts and
other tribunals to own, lease, license and use its properties and
assets and to conduct its business in the manner described in the
Prospectus, except in each case under this paragraph (y) to the extent
that the failure to pay such fees or to obtain such permits, licenses,
authorizations, consents, orders, certificates or approvals or to make
such declarations or filings would not, singly or in the aggregate,
reasonably be expected to have a material adverse effect on the Company
and its subsidiaries taken as a whole; neither the Company nor its
subsidiaries has received any notice of proceedings which remain
<PAGE>
unresolved relating to revocation or modification of any such permits,
licenses, authorizations, consents, orders, certificates or approvals,
nor is the Company or its subsidiaries in violation of, or in default
under, any such permits, licenses, authorizations, consents, orders,
certificates or approvals which proceedings, violations and defaults,
singly or in the aggregate, would reasonably be expected to have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(y) The Company and each of its subsidiaries maintain
a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(z) Except as described in the Prospectus, no
Luxembourg stamp or other issuance or transfer taxes or duties or
capital gains, income, withholding or other taxes are payable by or on
behalf of the Underwriters in Luxembourg or any political subdivision
or taxing authority thereof or therein in connection with the deposit
with the Depositary or its nominee of Shares by the Company against the
issuance of the ADRs evidencing ADSs, the purchase by the Underwriters
of the Shares (including Shares in the form of ADSs), the sale and
delivery by the Underwriters of the Shares or ADSs, the execution and
delivery of this Agreement, the Pricing Agreement and the Deposit
Agreement, or the consummation of the transactions contemplated hereby
and thereby, save that registration may be ordered and a registration
duty might become payable if this Agreement, the Pricing Agreement or
the Deposit Agreement were to be exhibited before a Luxembourg court or
a Luxembourg official authority (AUTORITE CONSTITUEE); although, in
practice, such registration is rarely ordered.
(aa) The Company and its obligations under this
Agreement, the Pricing Agreement and the Deposit Agreement are or will
be subject to civil and commercial law and to suit and neither the
Company nor any of its properties, assets or revenues has any right of
immunity under Luxembourg, U.S. federal or New York law from any legal
action, suit or proceeding, from the giving of any relief in any such
legal action, suit or proceeding, from setoff or counterclaim, from the
jurisdiction of any Luxembourg, New York or U.S. federal court, from
service of process, attachment upon or prior to judgment, or attachment
in aid of execution of judgment, or from execution of a judgment, or
other legal process or proceeding for the giving of any relief or for
the enforcement of a judgment, in any such court, with respect to its
obligations, liabilities or any other matter under or arising out of or
in connection with this Agreement, the Pricing Agreement or the Deposit
Agreement; and, to the extent
<PAGE>
that the Company or any of its properties, assets or revenues may have
or may hereafter become entitled to any such right of immunity in any
such court in which proceedings may at any time be commenced, to the
extent permitted by law the Company has waived or will waive such right
and has consented or will consent to such relief and enforcement as
provided in Section 15 of this Agreement, in Article 4 of the Pricing
Agreement and in Section 706 of the Deposit Agreement.
(bb) The Company has the power to submit, and
pursuant to this Agreement, the Pricing Agreement and the Deposit
Agreement, has or will have legally, validly, effectively and
irrevocably submitted, to the personal jurisdiction of any federal or
state court in the State of New York, Borough of Manhattan, The City of
New York, and has the power to designate, appoint and empower, and
pursuant to this Agreement, the Pricing Agreement and the Deposit
Agreement, has or will have legally, validly and effectively
designated, appointed and empowered, an agent for service of process in
any suit or proceeding based on or arising under this Agreement, the
Pricing Agreement and the Deposit Agreement in any federal or state
court in the State of New York, Borough of Manhattan, The City of New
York, as provided in Section 15 of this Agreement, in Article 4 of the
Pricing Agreement and in Section 706 of the Deposit Agreement.
(cc) The financial statements contained in the U.S.
Prospectus comply as to form in all material respects with the
accounting requirements of the Securities Act and the related published
rules and regulations.
(dd) Any final judgment for a fixed or readily
calculable sum of money rendered by any court of the State of New York
or of the United States located in the State of New York having
jurisdiction under its own domestic laws in respect of any suit, action
or proceeding against the Company based upon this Agreement, the
Pricing Agreement or the Deposit Agreement would be declared
enforceable against the Company by the courts of Luxembourg without
reexamination, review of the merits of the cause of action in respect
of which the original judgment was given or relitigation of the matters
adjudicated upon or payment of any stamp, registration, or similar tax
or duty, save that registration may be ordered and a registration duty
might become payable if this Agreement, the Pricing Agreement or the
Deposit Agreement were to be exhibited before a Luxembourg court or a
Luxembourg official authority (AUTORITE CONSTITUEE); although, in
practice, such registration is rarely ordered. The Company is not aware
of any reason why the enforcement in Luxembourg of such a judgment in
respect of this Agreement, the Pricing Agreement or the Deposit
Agreement would be contrary to public policy in Luxembourg or any
political subdivision thereof.
(ee) The choice of laws of the State of New York as
the governing law of this Agreement, the Pricing Agreement and the
Deposit Agreement is a valid and effective choice of law and in an
action brought before a court of competent
<PAGE>
jurisdiction in Luxembourg, the laws of the State of New York would be
recognized and applied by such court.
(ff) Based upon its current and anticipated
composition of income and assets, and its activities (assuming
consummation of the offering pursuant to the Prospectus and the use of
the net proceeds therefrom as contemplated under the caption entitled
"Use of Proceeds" in the Prospectus), the Company does not expect as of
the date hereof to be with respect to 2000, and does not expect to
become thereafter, a passive foreign investment company as defined in
Section 1297 of the U.S. Internal Revenue Code of 1986, as amended (the
"CODE") or a "foreign personal holding company" within the meaning of
Section 552 of the Code.
(gg) The Company did not face any material Year 2000
Problem (that is, the computer hardware and software applications used
by the Company and its subsidiaries have functioned after December 31,
1999 at least as effectively as they did on or before such date); as a
result of a review of its operations to evaluate the extent to which
the business or operations of the Company will be effected by the Year
2000 Problem, the Company (i) has no reason to believe, and does not
believe, that (1) there are any issues related to the Year 2000 Problem
that are of a character required to be described in the Registration
Statement or the Prospectus which have not been accurately described in
the Registration Statement or Prospectus and (2) the Year 2000 Problem
will have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, or result in any material loss
or interference with the business or operations of the Company and its
subsidiaries, taken as a whole; and (ii) reasonably believes, after due
inquiry, that the suppliers, vendors, customers or other material third
parties used or served by the Company and such subsidiaries have
addressed the Year 2000 Problem, except to the extent that a failure to
address the Year 2000 Problem by any supplier, vendor, customer or
material third party would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(hh) Except as described in the Prospectus, there are
no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement other than rights which have been waived.
(ii) The Registration Statement, the Prospectus and
any preliminary prospectus comply, and any amendments or supplements
thereto will comply, in all material respects with any applicable laws
or regulations of foreign jurisdictions in which the Prospectus or any
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, assuming
<PAGE>
compliance by the Underwriters with the provisions of Section 9(ii)
hereof.
(jj) No consent, approval, authorization or order of,
or qualification with, any governmental body or agency, other than
those which have been obtained or will be obtained prior to the Closing
Date, is required in connection with the offering of the Directed
Shares in any jurisdiction where the Directed Shares are being offered,
assuming compliance by the Underwriters with the provisions of Section
9(ii) hereof.
(kk) The Company (1) has not offered or sold and will
not offer or sell, directly or indirectly, any Shares to the public in
France, and (2) offers and sale of Shares in France will be made in
accordance with Article 6 of the Ordinance n*.67-833 dated September
28, 1967, as amended, and Decree n*.98-880 dated October 1, 1998
relating to offers to a limited number of investors and/or qualified
investors. In addition, the Company will not distribute or cause to be
distributed in France the Prospectus, any preliminary prospectus or any
offering material relating to the Shares other than to investors to
whom offers and sales of Shares in France may be made as described
above, assuming compliance by the Underwriters with the provisions of
Section 9(ii) hereof.
(ll) The Company has not offered, or caused MSIL or
any of its affiliates to offer, Shares to any person pursuant to the
Directed Share Program with the specific intent to unlawfully influence
(i) a customer or supplier of the Company to alter the customer's or
supplier's level or type of business with the Company, or (ii) a trade
journalist or publication to write or publish favorable information
about the Company or its products.
(mm) C1 Indirect Millennium Sub LLC has been duly
organized, is validly existing and in good standing under the laws of
Delaware and has the power and authority to own its property. C1
Indirect Millennium Sub LLC has duly authorized the purchase of the New
Firm Shares under Section 8 of this Agreement in the event this
Agreement is terminated in accordance with its terms. The performance
by C1 Indirect Millennium Sub LLC of its obligations under Section 8 of
this Agreement will not contravene any provision of applicable law or
the Articles of Association of the Company, the limited liability
company agreement or other organizational documents of C1 Indirect
Millennium Sub LLC or any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or agency is required for the purchase of the New Firm Shares by C1
Indirect Millennium Sub LLC under Section 8 of this Agreement.
(II) REPRESENTATIONS AND WARRANTIES OF THE SELLING
SHAREHOLDERS. Each Selling
<PAGE>
Shareholder represents and warrants to and agrees with each of the Underwriters
that:
(a) This Agreement has been duly authorized, executed
and delivered by or on behalf of such Selling Shareholder.
(b) The Pricing Agreement has been duly authorized by
such Selling Shareholder and, when executed and delivered, will be a
valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally and general
principles of equity.
(c) If such Selling Shareholder is a Warrantholder,
the execution and delivery by such Warrantholder of, and the
performance by such Warrantholder of its obligations under, this
Agreement, the Pricing Agreement and its Irrevocable Power of Attorney
and Custody Agreement (each, a "POWER OF ATTORNEY AND CUSTODY
AGREEMENT"), effective as of February 18, 2000 and signed by such
Warrantholder and The Chase Manhattan Bank as Custodian (the
"CUSTODIAN"), will not contravene any provision of applicable law
(except in so far as indemnity and contribution is limited by
applicable law and public policy), or any certificate of incorporation,
bylaws or other equivalent organizational documents of such
Warrantholder, or any agreement or other instrument binding upon such
Warrantholder that is material to such Warrantholder or any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over such Warrantholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or agency is required for the performance by such Warrantholder of its
obligations under this Agreement, the Pricing Agreement or the Power of
Attorney and Custody Agreement of such Warrantholder, except such as
may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares and the ADSs
and other than those already obtained from the Frankfurt Stock Exchange
and the Nasdaq Stock Market, and under the securities laws of The
Netherlands, the Securities Act, the Exchange Act and those as may be
required for the listing of the Company's Share Capital on the Neuer
Markt segment of the Frankfurt Stock Exchange.
(d) In the case of Carrier One LLC, the execution and
delivery by Carrier One LLC of, and the performance by Carrier One LLC
of its obligations under, this Agreement and the Pricing Agreement will
not contravene any provision of applicable law (except in so far as
indemnity and contribution is limited by applicable law and public
policy), or any certificate of formation, bylaws, limited liability
company agreement or other equivalent organizational documents of
Carrier One LLC, or any agreement or other instrument binding upon
Carrier One LLC that is material to Carrier One LLC or any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over Carrier One LLC, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or agency is
<PAGE>
required for the performance by Carrier One LLC of its obligations
under this Agreement and the Pricing Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares and the ADSs and other
than those already obtained from the Frankfurt Stock Exchange and the
Nasdaq Stock Market, and under the securities laws of The Netherlands,
the Securities Act, the Exchange Act and those as may be required for
the listing of the Company's Share Capital on the Neuer Markt segment
of the Frankfurt Stock Exchange.
(e) If such Selling Shareholder is a Warrantholder,
such Warrantholder has placed in custody under its Power of Attorney
and Custody Agreement a number of Warrants that will become
exercisable, in connection with the Offering, into the Shares to be
delivered and sold by such Selling Shareholder under this Agreement.
(f) If such Selling Shareholder is a Warrantholder,
such Warrantholder has valid title to the Warrants each entitling the
holder thereof to purchase the number of shares specified therein; such
Warrantholder, immediately prior to the time the Shares to be sold by
it are delivered to the Underwriters, will have valid title to the
Shares to be sold by such Selling Shareholder and each Selling
Shareholder has the legal right and power, and all authorization and
approval required by law, to enter into this Agreement, the Pricing
Agreement and the Power of Attorney and Custody Agreement of such
Selling Shareholder and to sell, transfer and deliver the Shares to be
sold by such Selling Shareholder and such Shares will be duly
authorized, validly issued, fully paid and non-assessable.
(g) Carrier One LLC has valid title to the Shares to
be sold by it and has the legal right and power, and all authorization
and approval required by law, to enter into this Agreement and the
Pricing Agreement and to sell, transfer and deliver the Shares to be
sold by it and such Shares are duly authorized, validly issued, fully
paid and non-assessable.
(h) If such Selling Shareholder is a Warrantholder,
the Power of Attorney and Custody Agreement of such Warrantholder has
been duly authorized, executed and delivered by such Warrantholder and
is a valid and binding agreement of such Warrantholder, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally and general
principles of equity.
(i) Delivery of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement and the Pricing Agreement will
pass title to such Shares free and clear of any security interests,
claims, liens, equities and other encumbrances.
(j) The Selling Shareholder has not taken and will
not take, directly or
<PAGE>
indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares.
(k) If such Selling Shareholder is a Warrantholder,
the information provided by the Warrantholder in the Instruction and
Request was true and correct as of the date on which it was made, and
as of the date hereof. The Warrantholder consents to the disclosure of
the information provided by it to the extent advisable in connection
with the Offering, including the use of such information by the
registered holder of the Warrants and the Custodian, and the registered
holder and the Custodian shall be deemed to be third-party
beneficiaries of this provision. Except as disclosed in the prospectus,
within the past three years the Warrantholder has held no position or
office or had any other material relationship with the Company.
(l) (i) The Registration Statement, on the date
hereof and when it becomes effective, will not contain and, as amended
or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement and the U.S. Prospectus
comply and, as amended or supplemented, if applicable, will comply in
all material respects with the Securities Act and the applicable rules
and regulations of the Commission thereunder, (iii) the German
Prospectus complies and, as amended or supplemented, if applicable,
will comply in all material respects with all applicable laws of
Germany and all applicable rules and regulations of any competent
German government, regulatory or stock exchange authority, (iv) neither
the U.S. Prospectus nor the International Prospectus contains or, as
amended or supplemented, if applicable, will contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and (v) the German Prospectus
does not contain an untrue statement of, or omit to state, a fact which
is material for the assessment of an investment in the shares
(UNRICHTIGE ODER UNVOLLSTANDIGE ANGABEN, WELCHE FUR DIE BEURTEILUNG DER
WERTPAPIERE WESENTLICH SIND), all within the meaning of Section 13 of
the German Securities Sales Prospectus Act and Section 45 of the German
Stock Exchange Act, except that the representations and warranties set
forth in this paragraph 1(II)(l) apply only to statements or omissions
in the Registration Statement or the Prospectus based upon information
relating to the Selling Shareholder or any shareholder, general partner
or limited partner or member of the Selling Shareholder, as the case
may be, or any other person holding a direct or indirect equity
interest in the Selling Shareholder and furnished to the Company or the
Custodian in writing by such Selling Shareholder, in the case of each
Warrantholder, for use therein and, in the case of Carrier One LLC,
specifically for use therein.
2. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and
not jointly,
<PAGE>
hereby agrees to sell to the several Underwriters, and each Underwriter, upon
the basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees, severally and not jointly, to
purchase from such Seller at the Share Offer Price (as defined below) the number
of Firm Shares (subject to such adjustments to eliminate fractional shares as
the Global Coordinators may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule I hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Company and each
of the Selling Shareholders agrees to sell to the several Underwriters the
Additional Shares, and the Underwriters shall have a one-time right to purchase,
severally and not jointly, up to an aggregate of 1,406,250 Additional Shares at
the Share Offer Price. If MSIL, after consultation with SBIL, elects to exercise
such option on behalf of the Underwriters, MSIL shall so notify the Company and
the Selling Shareholders in writing not later than 30 days after the Closing
Date, which notice shall specify the number of Additional Shares to be purchased
by the Underwriters and the date on which such shares are to be purchased (the
"OPTION CLOSING DATE"). Such date may be the same as the Closing Date but not
earlier than the Closing Date nor later than ten business days after the date of
such notice. Additional Shares may be purchased as provided in Section 5 hereof
solely for the purpose of covering overallotments made in connection with the
offering of the Firm Shares. If any Additional Shares are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase (a) first the number
of Additional Shares to be purchased from the Company (subject to such
adjustments to eliminate fractional shares as the Global Coordinators may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
in Schedule I hereto opposite the name of such Underwriter bears to the total
number of Firm Shares, and (b) then the number of remaining Additional Shares to
be purchased from the Selling Shareholders (subject to such adjustments to
eliminate fractional shares as the Global Coordinators may determine) that bears
the same proportion to the total number of remaining Additional Shares to be
purchased from the Selling Shareholders as the number of Firm Shares set forth
in Schedule I hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.
Each Seller hereby agrees that, without the prior written
consent of the Global Coordinators on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer to
sell, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of its common stock or any securities convertible into or exercisable or
exchangeable for its common stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of its common stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of
<PAGE>
shares of common stock or other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder, (B)
the issuance by the Company of shares of its common stock upon the exercise of
an option or warrant or the conversion of a security outstanding on the date
hereof of which the Underwriters have been advised in writing, (C) transactions
by any person other than the Company relating to shares of common stock or other
securities acquired in open market transactions after the completion of the
offering of the Shares, (D) transfers of shares of common stock or other
securities by any person other than the Company to the Company or any of its
subsidiaries pursuant to any purchase rights under the Company's share purchase
and share option plans, (E) the issuance by the Company of shares of its common
stock to employees of the Company or its subsidiaries, or to subsidiaries of the
Company, pursuant to its existing share purchase plans described in the
Prospectus and (F) the grant of options to purchase shares of its common stock
pursuant to its share option plan. In addition, each Selling Shareholder, agrees
that, without the prior written consent of the Global Coordinators on behalf of
the Underwriters, it will not, during the period ending 180 days after the date
of the Prospectus, make any demand for, or exercise any right with respect to,
the registration of any shares of common stock or any security convertible into
or exercisable or exchangeable for common stock, which consent is hereby given
for any action taken in connection with its rights and obligations under the
warrants registration rights agreement among the Company and The Chase Manhattan
Bank, as Warrant Agent.
Notwithstanding the foregoing, in connection with transfers by
any Selling Shareholder, (A)(i) gifts and transfers by will or intestacy or (ii)
transfers to (A) the Selling Shareholder's members, partners, affiliates or
immediate family or (B) a trust, the beneficiaries of which are the Selling
Shareholder and/or members of the Selling Shareholder's immediate family, shall
not be prohibited by this agreement; PROVIDED that (x) the donee or transferee
agrees in writing to be bound by the foregoing in the same manner as it applies
to the Selling Shareholder and (y) if the donor or transferor is a reporting
person subject to Section 16(a) of the Securities Exchange Act of 1934 (the
"EXCHANGE ACT"), any gifts or transfers made in accordance with this paragraph
shall not require such person to, and such person shall not voluntarily, file a
report of such transaction of Form 4 under the Exchange Act. "Immediate family"
shall mean spouse, lineal descendants, father, mother, brother or sister of the
transferor and father, mother, brother or sister of the transferor's spouse.
With respect to all or any portion of the shares to be
acquired for offer and sale in the United States or Canada to United States or
Canadian Persons, the Underwriters may elect to have Shares in the form of ADSs
delivered by the Company through the Depositary and to pay the ADS Offer Price
(as defined below) therefor, in lieu of and in satisfaction of the Company's
obligation to deliver such Shares and the obligation of such Underwriters to pay
the Share Offer Price for such Shares. Notice of such election shall be given by
the Global Coordinators by 12:00 p.m. Frankfurt time, one business day prior to
the Closing Date or the Option Closing Date, as the case may be (the
"NOTIFICATION TIME").
<PAGE>
3. TERMS OF OFFERINGS. The Sellers are advised by you that the
Underwriters propose to make a public offering in Germany and the United States
and private placements outside Germany and the United States of their respective
portions of the Shares and the ADSs as soon after the Registration Statement has
become effective (and, with respect to the public offering in Germany, after the
availability of the UNVOLLSTANDIGER VERKAUFSPROSPEKT has been published) as in
your judgment is advisable. The price at which the Shares are to be initially
offered (the "SHARE OFFER PRICE"), and the price at which the ADSs are to be
initially offered (the "ADS OFFER PRICE") will be determined in accordance with
the terms of the Pricing Agreement as mutually agreed by the parties thereto. In
addition, the Sellers are advised by you that the Shares are to be offered to
certain dealers selected by you at a price that represents a concession under
the Share Offer Price or ADS Offer Price, to any Underwriter or to certain other
dealers, and that any Underwriter may allow, and such dealers may reallow, a
concession, each as set forth in the Pricing Agreement. The Company shall also
pay to the Global Coordinators on behalf of the German listing consortium
(BORSENEINFUHRUNGSKONSORTIUM) a listing fee (BORSENEINFUHRUNGSPROVISION) of 1%
of the entire nominal share capital which is to be admitted for trading to the
Frankfurt Stock Exchange, Neuer Markt segment. Any Spread (as defined below) as
well as the listing fee, not otherwise deducted from the aggregate Share Offer
Price or ADS Offer Price to be paid to the Company or any Selling Shareholders,
shall be paid by the Company or by the Selling Shareholders, on a pro rata basis
in proportion to the number of Shares being sold by each Selling Shareholder,
upon demand to the Global Coordinators.
4. SUBSCRIPTION FOR NEW FIRM SHARES. (a) In accordance with
the provisions of this Section 4, MSIL shall (i) subscribe for 7,500,000 Firm
Shares to be issued by the Company on the date hereof (the "NEW FIRM SHARES") at
the Subscription Price and (ii) pay to the Company the Subscription Price for
each of the subscribed New Firm Shares for the purpose of effecting the capital
increase on the date hereof.
(b) For the purpose of effecting the capital increase
and the issuance of such New Firm Shares, the Underwriters authorize
MSIL to subscribe for New Firm Shares to be allocated to such
Underwriters, together with New Firm Shares to be allocated to MSIL for
its own account, at the Subscription Price per New Firm Share pursuant
to the conditions below, and to make available to the Company the full
amount of the Subscription Price for the New Firm Shares as specified
above. MSIL shall act in its own name and on its own account with
respect to that number of New Firm Shares to be issued by the Company
set forth across from the name of MSIL on Schedule I attached hereto,
and, to the extent that MSIL subscribes for New Firm Shares on behalf
of the other Underwriters, MSIL shall not act in its own name but in
its capacity as agent of the other Underwriters. MSIL shall not be
liable for the performance of the obligations of the other
Underwriters.
(c) MSIL shall subscribe for the number of New Firm
Shares set forth above by delivering to the Company a subscription
certificate substantially in the
<PAGE>
form as set out in Annex B ("SUBSCRIPTION CERTIFICATE") simultaneously
with the execution of this Agreement. The Subscription Certificate will
expire, in accordance with its terms, on the date of this Agreement,
11:00 a.m. Frankfurt time in the event that the increase of the
Company's capital represented by the New Firm Shares, as evidenced by a
certified copy of resolutions (the "RESOLUTIONS") of the Board of
Directors of the Company or a duly authorized committee thereof
authorizing such capital increase, has not been effected before that
time. For value on the date hereof, MSIL shall simultaneously effect
payment of the aggregate Subscription Price of the New Firm Shares for
which it has subscribed to a special account at Morgan Stanley & Co.
Incorporated (the "CAPITAL INCREASE ACCOUNT"), such account to be
non-interest bearing and free of charges.
(d) If the increase of the Company's share capital in
an amount equal to the aggregate par value of the New Firm Shares has
not been duly authorized by 11:00 a.m. Frankfurt time, on the date of
this Agreement, the Subscription Certificate for the New Firm Shares
shall expire and the Company hereby authorizes MSIL to immediately
transfer, in same day funds, the aggregate Subscription Price from the
Capital Increase Account to an account specified by MSIL. In such
event, MSIL and the Company may agree that MSIL shall submit a new
Subscription Certificate for the New Firm Shares subscribed pursuant to
Section 4 (to expire in accordance with its terms on a date to be
determined by MSIL) and effect a new credit for the aggregate
Subscription Price for such New Firm Shares to the Capital Increase
Account. If MSIL and the Company have not agreed on the submission of a
new Subscription Certificate for such New Firm Shares on or prior to
the second day following the date of the Agreement, all obligations of
MSIL to subscribe for, and all obligations of the Underwriters to
purchase, the New Firm Shares shall terminate.
(e) Upon passing by the Company of the Resolutions,
the Company will deliver the Global Share Certificates to MSIL who will
deliver the Global Share Certificates to Clearstream Banking AG,
Frankfurt am Main ("CLEARSTREAM, FRANKFURT").
(f) Notwithstanding any other provision in this
Agreement relating to the subscription for Firm Shares, Firm Shares may
be subscribed for by Morgan Stanley Bank AG or Morgan Stanley & Co.
Incorporated in full satisfaction of the obligation of MSIL to
subscribe for such Firm Shares. If and to the extent that Firm Shares
have been subscribed for by Morgan Stanley Bank AG or Morgan Stanley &
Co. Incorporated, each reference in this Agreement to MSIL in its
capacity as subscriber for such Firm Shares shall constitute a
reference to Morgan Stanley Bank AG or Morgan Stanley & Co.
Incorporated, as applicable.
5. PAYMENT AND DELIVERY. (a) (i) MSIL shall surrender the New
Firm Shares subscribed for and received on behalf of the Underwriters (other
than MSIL) against payment of the Share Offer Price or, in the case of shares to
be delivered in the form of ADSs,
<PAGE>
the ADS Offer Price, to an account to be specified by MSIL. Except as otherwise
provided for in the Agreement Among Underwriters dated the date hereof among the
Global Coordinators and the other Underwriters (the "AGREEMENT AMONG
UNDERWRITERS"), each of the Underwriters (except for MSIL) shall accept from
MSIL (and MSIL shall retain) the New Firm Shares sold by the Company up to the
number set forth in Schedule I opposite the name of such Underwriter.
(ii) Subject to receipt by MSIL of such
amounts from the several Underwriters, MSIL shall cause
payment to the Company on behalf of the several Underwriters
in satisfaction of their obligation to purchase the New Firm
Shares or Additional Shares to be sold by the Company
hereunder, of an amount equal to the aggregate number of such
Firm Shares or Additional Shares sold by the Company hereunder
multiplied by the Share Offer Price or, in the case of any
Shares to be delivered in the form of ADSs, the aggregate
number of such ADSs multiplied by the ADS Offer Price, less
the aggregate Subscription Price for such Firm Shares and the
aggregate amount of the gross spread, as set forth in the
Pricing Agreement (the "SPREAD"), in respect of such Firm
Shares or Additional Shares. Any such payment shall be made on
[__________], 2000, or on such other date as shall be agreed
by the Company and the Global Coordinators (the date of such
payment hereinafter being referred to as the "CLOSING DATE")
or the Option Closing Date, as the case may be, in immediately
available funds, to the Capital Increase Account, with respect
to the Shares delivered to purchasers in the form of Shares,
in Euro and, with respect to Shares delivered in the form of
ADSs, in U.S. dollars.
(iii) In the absence of instruction by the
Company to the contrary, MSIL shall promptly thereafter
transfer the complete balance in the Capital Increase Account
to an account of the Company at [Name of Company Bank].
(b) (i) Subject to receipt by MSIL of such amounts
from the other Underwriters, MSIL shall cause payment to the Custodian
on behalf of the Warrantholders on behalf of the several Underwriters
in satisfaction of their obligation to purchase the Firm Shares or
Additional Shares from the Warrantholders hereunder, of an amount equal
to the number of Firm Shares or Additional Shares multiplied by the
Share Offer Price or, in the case of any Shares to be delivered in the
form of ADSs, the aggregate number of such ADSs multiplied by the ADS
Offer Price less the aggregate Spread in respect of such Shares. Any
such payment shall be made on the Closing Date or the Option Closing
Date, as the case may be, in immediately available funds to the
Custodian on behalf of the Warrantholders as shall have been specified
in writing to the Global Coordinators not later than two business days
before the Closing Date or the Option Closing Date, as the case may be,
with respect to Shares delivered to purchasers in the form of Shares,
in Euro, and, with respect to Shares delivered in the form of ADSs,
in U.S. dollars.
<PAGE>
(ii) Subject to receipt by MSIL of such
amounts from the other Underwriters, MSIL shall cause payment
to Carrier One LLC on behalf of the several Underwriters in
satisfaction of their obligation to purchase the Firm Shares
or Additional Shares from Carrier One LLC hereunder, of an
amount equal to the number of Firm Shares or Additional Shares
multiplied by the Share Offer Price or, in the case of any
Shares to be delivered in the form of ADSs, the aggregate
number of such ADSs multiplied by the ADS Offer Price less the
aggregate Spread in respect of such Shares. Any such payment
shall be made on the Closing Date or the Option Closing Date,
as the case may be, in immediately available funds to an
account or accounts of Carrier One LLC as shall have been
specified in writing to the Global Coordinators not later than
two business days before the Closing Date or the Option
Closing Date, as the case may be, with respect to Shares
delivered to purchasers in the form of Shares, in Euro, and,
with respect to Shares delivered in the form of ADSs, in U.S.
dollars.
(c) All Shares to be delivered pursuant to this
Agreement at the Closing Date or the Option Closing Date shall be
delivered to the several Underwriters, against payment of the Share
Offer Price, by MSIL or the Global Coordinators, as the case may be, by
book entry transfer in Clearstream, Frankfurt to (i) deposit accounts
at Clearstream Frankfurt as specified by the Global Coordinators, (ii)
an account specified by Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear System and (iii) an
account specified by Clearstream Banking, societe anonyme
("CLEARSTREAM, LUXEMBOURG"), in each case, in such amount as the Global
Coordinators may designate.
(d) It is understood and agreed by the parties hereto
that no delivery of Shares or ADSs to be purchased and sold under this
Agreement at the Closing Date or at the Option Closing Date, as the
case may be, shall be effective until the Global Coordinators have been
furnished on the Closing Date or at the Option Closing Date, as the
case may be, with evidence reasonably satisfactory to the Global
Coordinators of the execution in favor of, or at the direction of, the
Underwriters of all book-entry transfers of Shares and ADSs to be made
in favor of, or at the direction of them on such date.
6. CONDITIONS TO MSIL'S OBLIGATION TO DELIVER A SUBSCRIPTION
CERTIFICATE FOR NEW FIRM SHARES. The obligation of MSIL to deliver a
Subscription Certificate for the New Firm Shares to be issued by the Company is
subject to the condition that, at and as of the time the Subscription
Certificate for such New Firm Shares are signed by MSIL and delivered to the
Company (the "SUBSCRIPTION TIME"):
(a) Subsequent to the signing of this Agreement and
prior to the
<PAGE>
delivery of the Subscription Certificate, there shall not have occurred
(i) any change, or any development involving a prospective change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus as in effect at the date of this
Agreement (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in the judgment of
MSIL, after consultation with SBIL, is material and adverse and that
makes it, in its judgment, impracticable to market the Shares and ADSs
on the terms and in the manner contemplated in the Prospectus, and (ii)
any downgrading, nor shall any notice have been given of any intended
or potential downgrading or of any review for a possible change that
does not indicate the direction of the possible change, in rating
accorded the Company or any of the Company's securities or in the
rating outlook for the Company by any "nationally recognized
statistical rating organization", as such term is defined for purposes
of Rule 436(g)(2) under the Securities Act.
(b) The Company shall have performed all of its
obligations hereunder theretofore to be performed.
(c) MSIL shall have received certified copies of the
Board of Directors' resolutions resolving to issue and sell the New
Firm Shares to be sold by the Company.
(d) MSIL shall have received an opinion of Bonn &
Schmitt, Luxembourg counsel for the Company, dated the date hereof,
covering the matters described in ANNEX C.
(e) MSIL shall have received an opinion of Debevoise
& Plimpton, Special New York counsel for the Company, dated the date
hereof, covering the matters described in ANNEX D.
(f) MSIL shall have received an opinion of the
General Counsel of the Carrier1 International GmbH, a wholly-owned
subsidiary of the Company, dated the date hereof, covering the matters
described in ANNEX E.
(g) MSIL shall have received an opinion of Elvinger,
Hoss & Prussen, special Luxembourg counsel for the Underwriters, dated
the date hereof, covering the matters described in ANNEX F.
(h) MSIL shall have received the comfort letter,
dated the date of the UNVOLLSTANDIGER VERKAUFSPROSPEKT, referred to in
Section 7(i) hereof.
(i) None of the events specified in Section 13,
clauses (a)(i) through (a)(iv), shall have occurred.
<PAGE>
7. CONDITIONS TO PAYMENT. The several obligations of the
Underwriters hereunder (except for the subscription and payment obligations
pursuant to Section 4 and Section 8 and the covenants in Section 9) shall be
subject to the conditions that prior to 9:00 a.m. Frankfurt time on the Closing
Date, unless otherwise specified below:
(a) (i) The Company shall have delivered to the
Global Coordinators in accordance with Section 4(e), duly executed
Global Share Certificates evidencing the New Firm Shares and a
certified copy of the Resolutions (ii) at or before the time the
Pricing Agreement is executed, (x) the Warrants shall have been
exercised and the underlying Shares shall have been issued by the
Company, as evidenced by certified resolutions of the Board of
Directors of the Company or a duly authorized committee thereof, a copy
of which has been provided to the Global Coordinators, authorizing an
increase in the Company's share capital in an amount equal to the
aggregate exercise price of the Warrants, which resolution may be
included with the Resolutions referred to above and (y) evidence that
such shares have been reflected in the Company's share registry, (iii)
the Warrantholders and the Company shall have delivered to the Global
Coordinators a Global Share Certificate evidencing the Firm Shares to
be sold by the Warrantholders, and (iv) Carrier One LLC and the Company
shall have delivered to the Global Coordinators a Global Share
Certificate evidencing the Firm Shares to be sold by Carrier One LLC,
which may be included in the Global Share Certificate delivered
pursuant to clause (i) above.
(b) At or before the time the Pricing Agreement is
executed, the Registration Statement shall have become effective.
(c) The Pricing Agreement shall have been duly
executed by the Company, the Selling Shareholders (including the
necessary approval of the Share Offer Price by the Company's Board of
Directors or a duly authorized committee thereof) and the Global
Coordinators on behalf of the Underwriters; prior to entering into the
Pricing Agreement the Global Coordinators shall have received the
certificates, letters and resolutions referred to in paragraphs (a),
(e), (h)(iii), (i), (k) and (n) of this Section in no event shall the
Global Coordinators be obliged to enter into the Pricing Agreement if
an event referred to in paragraph (d) below or Section 13, clauses a(i)
through a(iv) has occurred.
(d) Subsequent to the execution and delivery of this
Agreement and prior to the time of payment on the Closing Date:
(i) there shall not have occurred any
downgrading, nor shall any notice have been given of any
intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the
possible change, in the rating accorded the Company or any of
the Company's securities
<PAGE>
or in the rating outlook for the Company by any "nationally
recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities
Act; and
(ii) there shall not have occurred any
change, or any development involving a prospective change, in
the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries,
taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent
to the date of this Agreement) that, in the judgment of MSIL,
after consultation with SBIL, is material and adverse and that
makes it, in its judgment, impracticable to market the Shares
and ADSs on the terms and in the manner contemplated in the
Prospectus.
(e) The Underwriters shall have received both (i)
immediately prior to entering in to the Pricing Agreement and (ii) on
the Closing Date, a certificate dated the date of the Pricing Agreement
or the Closing Date, as the case may be, and signed by an executive
officer of the Company, to the effect set forth in Section 7(d)(i)
above and to the effect that the representations and warranties of the
Company contained in this Agreement and the Pricing Agreement are true
and correct as of such date and that the Company has complied with all
of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before such date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(f) No stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or, to the knowledge of the Company or
the Underwriters, threatened by the Commission.
(g) The Underwriters shall have received on the
Closing Date (i) an opinion of Bonn & Schmitt, Luxembourg counsel to
the Company, substantially in the form set forth in EXHIBIT B, (ii) an
opinion of Debevoise & Plimpton, special New York counsel for the
Company, dated the Closing Date, to the effect set forth in EXHIBIT C,
(iii) an opinion of the General Counsel of the Carrier1 International
GmbH, a wholly-owned subsidiary of the Company, to the effect set forth
in EXHIBIT D, (iv) opinions of local counsel in Germany, the United
Kingdom, The Netherlands, France and Sweden to the effect set forth in
EXHIBIT E, (v) opinion or opinions of counsel for Carrier One LLC to
the effect set forth in EXHIBIT F and (vi) opinions of counsel for the
Selling Shareholders that have requested inclusion of more than 50,000
Shares, prior to any cutback, as shall be satisfactory to the Global
Coordinators, covering the applicable matters described in EXHIBIT I.
Such opinions shall be rendered to the Underwriters at
<PAGE>
the request of the Company or one or more of the Selling Shareholders,
as the case may be, and shall so state therein.
(h) The Underwriters shall have received on the
Closing Date (i) an opinion of Shearman & Sterling, United States
counsel for the Underwriters, (ii) an opinion of De Bandt, van Hecke,
Lagae & Loesch, Luxembourg counsel for the Underwriters, and (iii) an
opinion of Shearman & Sterling, German counsel for the Underwriters,
each dated the Closing Date, in form and substance reasonably
satisfactory to the Global Coordinators and (iv) an opinion of
Elvinger, Hoss & Prussen, special Luxembourg counsel to the
Underwriters, substantially in the form set forth in EXHIBIT G.
(i) The Underwriters shall have received, on each of
the date hereof, the date of the Pricing Agreement, and the Closing
Date, a letter dated the date of the UNVOLLSTANDIGER VERKAUFSPROSPEKT,
the date of the Pricing Agreement and the Closing Date, respectively,
in form and substance satisfactory to the Underwriters, from Deloitte &
Touche Experta AG, independent public accountants, containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; PROVIDED that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier
than the date of the Pricing Agreement.
(j) The Underwriters shall have receive on the
Closing Date an opinion of Ziegler, Ziegler & Altman, counsel for the
Depositary, dated the Closing Date, covering the matters described in
EXHIBIT H hereto.
(k) The "lock-up" agreements, each substantially in
the form of EXHIBIT A hereto, executed by the shareholders, officers
and directors of the Company listed on EXHIBIT A-2 hereto, relating to
sales and certain other dispositions of common stock or certain other
securities, shall have been delivered to you on or before the date
hereof.
(l) The ADSs shall have been approved for quotation
on the Nasdaq National Market, subject only to official notice of
issuance, and the then existing share capital of the Company shall have
been approved for listing on the Neuer Markt segment of the Frankfurt
Stock Exchange.
(m) The representations and warranties of each
Selling Shareholder contained in this Agreement and the Pricing
Agreement shall be true and correct as of the date of the Pricing
Agreement and the Closing Date and each Selling Shareholder
shall have complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or
before the Closing Date. The
<PAGE>
Underwriters shall have received both (i) immediately prior to entering
into the Pricing Agreement and (ii) on the Closing Date, certificates
dated the Closing Date and signed by the Selling Shareholders or by
their attorneys-in-fact to the effect set forth above.
(n) You shall have received such other documents and
certificates as are reasonably requested by you or your counsel.
MSIL, after consultation with SBIL, may waive any of the
foregoing conditions in its discretion. If any of the foregoing conditions has
not occurred on the Closing Date and MSIL shall not have waived such condition
pursuant to the preceding sentence, MSIL, after consultation with SBIL, may
terminate this Agreement and the provisions set out in Section 8 shall apply.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the Global
Coordinators on the Option Closing Date of a Global Share Certificate evidencing
the Additional Shares to be sold by each of the Company and the Selling
Shareholders, or evidence otherwise satisfactory to the Global Coordinators that
such shares have been included in the Global Share Certificates referred to in
paragraph (a) above, and such documents as they may reasonably request in
connection with the issuance of the Additional Shares, which shall be in
substantially similar scope and substance to the documents delivered at the
Closing Date, including without limitation opinions of counsel.
8. CONSEQUENCES OF TERMINATION. If this Agreement has been
terminated for any reason after the delivery of the Subscription Certificate and
the passing by the Board of Directors of the Company of the Resolutions, then,
as soon as practicable but in any event within 30 days after the date of such
termination, the Company shall have the right to require that the Underwriters
sell such Firm Shares to the Company, a subsidiary of the Company or to a
purchaser designated in writing by the Company, and the Underwriters agree to
sell such Firm Shares to the Company, such subsidiary or such purchaser and
shall have the right to require the Company or C1 Indirect Millennium Sub LLC to
repurchase such New Firm Shares, at a price equal to the aggregate Subscription
Price paid for such shares plus (a) any financing costs incurred by the
Underwriters in connection with the funding of Capital Increase Account in the
period from subscription through the date of such sale and (b) expenses pursuant
to Section 10 below.
MSIL shall act in its own name and on its own account with
respect to that number of New Firm Shares subscribed by it set forth across from
the name of MSIL on Schedule I attached hereto, and, to the extent that MSIL
subscribes for New Firm Shares on behalf of the other Underwriters, MSIL shall
not act in its own name but in its capacity as agent of the other Underwriters.
MSIL shall not be liable for the performance of the obligations of the other
Underwriters.
9. COVENANTS. (i) In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
<PAGE>
(a) To furnish to you, without charge, [seven] signed
copies of the Registration Statement (including exhibits thereto) and
for delivery to each other Underwriter a conformed copy of the
Registration Statement (without exhibits thereto) and to furnish to you
in New York City, without charge, prior to 10:00 a.m. New York City
time on the business day next succeeding the date of this Agreement and
during the period mentioned in Section 9(c) below, as many copies of
the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule
424(b) under the Securities Act any prospectus required to be filed
pursuant to such Rule.
(c) If, (i) during such period after the first date
of the public offering of the Shares as in the reasonable opinion of
counsel for the Underwriters the Prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer or (ii)
at any time within six months following the completion of the offer and
sale of the Shares by the Underwriters, any event shall occur or
condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the reasonable opinion of counsel
for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare, file
with the Commission and the Frankfurt Stock Exchange, publish and
furnish, at its own expense, to the Underwriters and to the dealers
(whose names and addresses you will furnish to the Company) to which
Shares or ADSs may have been sold by you on behalf of the Underwriters
and to any other dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and
sale under the U.S. state securities or Blue Sky laws of such
jurisdictions as you shall reasonably request, applicable laws of
Germany, The Netherlands, Japan and of such other jurisdictions as
otherwise reasonably requested by you as a result of a change in law
occurring after the date hereof and prior to the Closing Date or Option
Closing Date; PROVIDED, HOWEVER, that the Company shall not be
obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in
<PAGE>
any jurisdiction in which it is not so qualified or to subject itself
to taxation in respect of doing business in any jurisdiction in which
it is not otherwise so subject.
(e) To make generally available to the Company's
security holders and to you as soon as practicable an earnings
statement covering the twelve-month period ending June 30, 2001 that
satisfies the provisions of Section 11(a) of the Securities Act and the
rules and regulations of the Commission thereunder and to generally
comply with the reporting requirements of the Neuer Markt segment of
the Frankfurt Stock Exchange.
(f) To comply with the undertakings set forth in the
Prospectus under the heading "Taxation--Certain United States Federal
Income Tax Considerations."
(g) To place stop transfer orders on any Directed
Shares that have been sold to Participants subject to the three month
restriction on sale, transfer, assignment, pledge or hypothecation
imposed by NASD Regulation, Inc. under its Interpretative Material
2110-1 on free-riding and withholding to the extent necessary to ensure
compliance with the three month restrictions.
(h) To comply in all material respects with all
applicable securities and other applicable laws, rules and regulations
in each jurisdiction in which the Directed Shares are offered in
connection with the Directed Share Program, assuming compliance by the
Underwriters with the provisions of Section 9(ii) hereof.
(i) To have the Firm Shares and any Additional Shares
which are sold by the Company and the Warrantholders pursuant to the
terms of this Agreement and the Pricing Agreement duly recorded on a
notarial deed as promptly as practicable following the date which is
the earlier of (i) 40 days after the Closing Date and (ii) the date on
which all the Additional Shares have been sold to the Underwriters
pursuant to this Agreement.
(j) Without the prior consent of the Global
Coordinators not to, and to use its best efforts to ensure that none of
its subsidiaries will, make any press or public announcement or public
comment, other than in the ordinary course of business, intended to be
published in the press concerning the Company or any of its
subsidiaries (or concerning the offering of the Shares and the ADSs in
Germany or elsewhere after the execution of this Agreement and prior to
30 days after the Closing Date (unless the Company is obligated to make
such announcement pursuant to applicable laws or rules of the Frankfurt
Stock Exchange or the Commission or the NASD or any other competent
regulatory body, in which event the Company prior to the release
thereof will consult with the Global Coordinators as to the text of any
such announcement).
<PAGE>
(k) To advise the Global Coordinators on behalf of
the Underwriters promptly after it receives notice thereof, of any
communications received by the Company from the Frankfurt Stock
Exchange or the Nasdaq Stock Market and to furnish the Global
Coordinators copies of any such written communications.
(l) To use its best efforts to have the Shares
approved for listing on the Neuer Markt segment of the Frankfurt Stock
Exchange and the ADSs approved for quotation on the Nasdaq National
Market.
(ii) Each Underwriter, jointly and severally, represents,
warrants and covenants with the Company as follows:
(a) Each Underwriter understands that no action has
been or will be taken in any jurisdiction by the Underwriters or the
Company that would permit a public offering of the Shares, or
possession or distribution of the Prospectus, in preliminary or final
form, in any jurisdiction where, or in any circumstances in which,
action for that purpose is required, other than the United States and
Germany. Each Underwriter represents, warrants and agrees that it has
complied with and will comply with all applicable laws and regulations,
and has made or obtained and will make or obtain all necessary filings,
consents or approvals, in each jurisdiction in which it purchases,
offers, sells or delivers Shares or distributes a prospectus or any
offering or publicity materials (including, without limitation, any
applicable requirements relating to the delivery of the International
Prospectus, in preliminary or final form). Each Underwriter further
represents, warrants and agrees that it has not made and will not make
any offer, sale or delivery of Shares that would require the Company to
make any filings or obtain any consents to comply with applicable laws
of any jurisdiction other than the United States, Germany, The
Netherlands and Japan and any other jurisdiction as agreed to between
the Company and the Global Coordinators pursuant to Section 9(i)(d)
hereof.
(b) Each Underwriter represents, warrants and agrees
that (1) it has not offered or sold and, prior to the date six months
after the Closing Date, will not offer or sell, any Shares to persons
in the United Kingdom except to persons whose ordinary activities
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 have not resulted and
will not result in an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995; (2) it
has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the Shares in, from or otherwise involving the United
Kingdom; and (3) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment
<PAGE>
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to
whom such document may otherwise lawfully be issued or passed on.
(c) Each Underwriter represents, warrants and agrees
that it has not offered or sold, and agrees not to offer or sell, in
The Netherlands or to or for the account of any resident or legal
entity thereof, any of the Shares, other than to individuals or legal
entities who or which trade or invest in securities in the conduct of
their profession or trade, which include banks, brokers, dealers,
insurance companies, pension funds and other institutional investors,
and commercial enterprises which regularly, as an ancillary activity,
invest in securities.
(d) Each Underwriter represents, warrants and agrees
that (1) it has not offered or sold and will not offer or sell,
directly or indirectly, any Shares to the public in France, and (2)
offers and sale of Shares in France will be made in accordance with
Article 6 of the Ordinance nDEG.67-833 dated September 28, 1967, as
amended, and Decree nDEG.98-880 dated October 1, 1998 relating to
offers to a limited number of investors and/or qualified investors. In
addition, each Underwriter agrees it will not distribute or cause to be
distributed in France the Prospectus, any preliminary prospectus or any
offering material relating to the Shares other than to investors to
whom offers and sales of Shares in France may be made as described
above.
(e) Each Underwriter represents, warrants and agrees
that (1) the sale of the Shares in the Republic of Italy shall be
effected in accordance with all Italian securities, tax and other
applicable laws and regulations, and (2) it will not offer, sell or
deliver any shares or distribute copies of this prospectus or any other
document relating to the shares in the Republic of Italy unless such
offer, sale or deliver of the shares or distribution of copies of this
prospectus or any other document relating to the shares in the Republic
of Italy is (a) made by an investment firm, bank or financial
intermediary permitted to conduct such activities in the Republic of
Italy in accordance with Legislative Decree No. 385 of 1 September 1993
("DECREE NO. 385"), Legislative Decree No. 58 of 24 February 1998,
COMMISSIONE NAZIONALE PER LE SOCIETA E LA BORSA ("CONSOB") Regulation
No. 11971 of 14 May 1999 and any other applicable laws and regulations,
(b) in compliance with Article 129 of Decree No. 385 and the
implementing instructions of the Bank of Italy, pursuant to which the
issue, trading or placement of securities in Italy is subject prior to
notification to the Bank of Italy, unless an exemption applies, and (c)
in compliance with any other applicable notification requirement or
limitation which may be imposed by CONSOB or the Bank of Italy or any
other Italian regulatory authority.
(f) Each Underwriter represents, warrants and agrees
that it has not offered or sold, and agrees not to offer or sell,
directly or indirectly, in Japan or to or for the account of any
resident thereof, any of the Shares acquired in connection with the
distribution contemplated hereby, except pursuant to any exemption from
the
<PAGE>
registration requirements of the Securities and Exchange Law of Japan
and otherwise in compliance with applicable provisions of Japanese law.
Each Underwriter further agrees to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by
purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares,
directly or indirectly, in Japan or to or for the account of any
resident thereof except pursuant to any exemption from the registration
requirements of the Securities and Exchange Law and otherwise in
compliance with applicable provisions of Japanese law, and that such
dealer will send to any other dealer to whom it sells any of such
Shares a notice containing substantially the same statement as is
contained in this sentence.
(g) Each underwriter represents, warrants and agrees
that (i) it is aware of the fact that, prior to the approval of the
Frankfurt Stock Exchange, no sales prospectus in Germany has been and
will be published in connection with the sale of the shares to
investors in Germany and (ii) it has complied and will comply with the
German Securities Prospectus Act (WERTPAPIER-VERTAUFSPROSPEKTGESETZ)
and the restrictions set forth therein applying to the offer and sale
to German investors of securities for which no sales prospectus has
been published.
10. EXPENSES. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Sellers
agree to pay or cause to be paid all expenses incident to the performance of
their obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel, the Company's accountants and Selling
Shareholders' counsel in connection with the registration and delivery of the
Shares and ADSs under the Securities Act and all other fees or expenses in
connection with the preparation and filing of the Registration Statement, any
preliminary prospectus, the Prospectus and amendments and supplements to any of
the foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares and ADSs to the Underwriters, including any
transfer or other similar taxes payable thereon, (iii) the cost of printing or
producing any Blue Sky or legal investment memorandum in connection with the
offer and sale of the Shares and ADSs under state securities laws and all
expenses in connection with the qualification of the Shares and ADSs for offer
and sale under state securities laws as provided in Section 9(i)(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection with such qualification and in connection with
the Blue Sky or legal investment memorandum, (iv) all filing fees and the
reasonable fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering of the Shares and
ADSs by the National Association of Securities Dealers, Inc. (v) all costs and
expenses incident to quotation of the ADSs on the Nasdaq National Market and the
listing of the then existing Share Capital of the Company on the Neuer Markt
segment of the Frankfurt Stock Exchange, (vi) the cost of printing certificates
representing the Shares and ADSs, (vii) the costs and charges of any transfer
agent, registrar or depositary, (viii) the costs
<PAGE>
and expenses of the Company relating to investor presentations on any "road
show" undertaken in connection with the marketing of the offering of the Shares
and ADSs, including, without limitation, expenses associated with the production
of road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show,(ix) all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other similar taxes, if any, incurred
by the Underwriters in connection with the Directed Share Program and (x) all
other costs and expenses incurred by the Company incident to the performance of
the obligations of the Company hereunder for which provision is not otherwise
made in this Section. It is understood, however, that except as provided in this
Section, Section 11 entitled "Indemnity and Contribution," and the last
paragraph of Section 13 below, the Underwriters will pay all of their costs and
expenses, including fees and disbursements of their counsel, stock transfer
taxes payable on resale of any of the Shares or ADSs by them and any advertising
expenses connected with any offers they may make.
11. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter, Morgan Stanley Bank AG, Salomon
Brothers AG and each other member of the German listing consortium that is not
an Underwriter, and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act, Section 20 of the Exchange
Act or Section 17 of the German Stock Corporation Act, from and against any and
all losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein PROVIDED, HOWEVER, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased Shares or ADSs, or any person
controlling such Underwriter, if it is established that a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person at or prior to the written confirmation of the sale
of the Shares or ADSs to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities, unless such failure is the result of noncompliance by
the Company with Section
<PAGE>
9(i)(a) hereof.
(b) Each Selling Shareholder, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of
either Section 15 of the Securities Act, Section 20 of the Exchange Act
or Section 17 of the German Stock Corporation Act, from and against any
and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or any
Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, but only with respect to information relating to such
Selling Shareholder or any shareholder, general partner or limited
partner or member of the Selling Shareholder, as the case may be, or
any other person holding a direct or indirect equity interest in the
Selling Shareholder, furnished to the Company in writing on behalf of
the Selling Shareholder expressly for use therein.
(c) Each Selling Shareholder, severally and not
jointly, agrees to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement and each
person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act, Section 20 of the Exchange Act or
Section 17 of the German Stock Corporation Act from and against any and
all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or any Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with
respect to information relating to such Selling Shareholder or any
shareholder, general partner or limited partner or member of the
Selling Shareholder, as the case may be, or any other person holding a
direct or indirect equity interest in the Selling Shareholder,
furnished to the Company in writing on behalf of the Selling
Shareholder expressly for use therein.
(d) Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, its directors, its
officers who sign the Registration Statement, and each person, if any,
who controls the Company within the meaning of either Section 15 of the
Securities Act, Section 20 of the Exchange Act or Section 17 of
<PAGE>
the German Stock Corporation Act and each Selling Shareholder and each
person, if any, who controls such Selling Shareholder within the
meaning of either Section 15 of
the Securities Act, Section 20 of the Exchange Act or Section 17 of the
German Stock Corporation Act to the same extent as the foregoing
indemnity from the Company or such Selling Shareholder to such
Underwriter (including any legal or other expenses reasonably incurred
by the Company in connection with defending or investigating any such
actions or claim), but only with reference to information relating to
such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments
or supplements thereto.
(e) In case any proceeding (including any
governmental investigation) shall be instituted involving any person in
respect of which indemnity may be sought pursuant to Sections 11(a),
11(b), 11(c) or 11(d), such person (the "INDEMNIFIED PARTY") shall
promptly notify the person against whom such indemnity may be sought
(the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in
respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for Underwriters and all persons, if
any, who control any Underwriter within the meaning of either Section
15 of the Securities Act, Section 20 of the Exchange Act or Section 17
of the German Stock Corporation Act, (ii) the fees and expenses of more
than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the
meaning of either such Section and (iii) the fees and expenses of more
than one separate firm (in addition to any local counsel) for Carrier
One LLC and for all Selling Shareholders and all persons, if any, who
control Carrier One LLC or any Selling Shareholder within the meaning
of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm
for the Underwriters and such control persons of any Underwriters, such
<PAGE>
firm shall be designated in writing by MSIL. In the case of any such
separate firm for the Company, and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the
Company. In the case of any such separate firm for Carrier One LLC, and
such directors, officers and control persons of Carrier
One LLC, such firm shall be designated in writing by Carrier One LLC.
In the case of any such separate firm for the Selling Shareholders and
such control persons of any Selling Shareholders, such firm shall be
designated in writing by the persons named as attorneys-in-fact for the
Selling Shareholders. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent,
but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of
such settlement or judgment.
Notwithstanding the foregoing paragraph, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the foregoing paragraph, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more
than 30 days after receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. Notwithstanding the immediately preceding sentence, if
at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of
counsel, an indemnifying party shall not be liable for any settlement
effected without its consent if such indemnifying party (i) reimburses
such indemnified party in accordance with such request to the extent
such request is reasonable and made in good faith and (ii) provides
written notice to the indemnified party substantiating the unpaid
balance as unreasonable, in each case prior to the date of such
settlement. No indemnifying party shall, without the prior written
consent of the indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder
by such indemnified party, unless such settlement (i) includes an
unconditional release of such indemnified party from all liability on
claims that are the subject matter of such proceeding and (ii) does not
include a statement as to, or an admission of, fault, culpability or a
failure to act, by or on behalf of any indemnified party.
(f) To the extent the indemnification provided for in
Sections 11(a), 11(b), 11(c) or 11(d) is unavailable to an indemnified
party or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party under
such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party or parties on the other hand from
the offering of the
<PAGE>
Shares and ADSs or (ii) if the allocation provided by Section 11(f)(i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
Section 11(f)(i) above but also the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or
parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities,
as well as any other relevant equitable considerations. The relative
benefits received by the Sellers on the one hand and the Underwriters
on the other hand in connection with the offering of the Shares and
ADSs shall be deemed to be in the same respective proportions as the
net proceeds from the offering of the Shares and ADSs (before deducting
expenses) received by each Seller and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth
in the table on the cover of the Prospectus, bear to the aggregate
Offering Price of the Shares and ADSs. The relative fault of the
Sellers on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Sellers or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 11 are several in proportion to the
respective number of Shares and ADSs they have purchased hereunder, and
not joint.
(g) The Sellers and the Underwriters agree that it
would not be just or equitable if contribution pursuant to this Section
11 were determined by PRO RATA allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 11(f). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 11, no Underwriter shall
be required to contribute any amount in excess of the amount by which
the total price at which the Shares or ADSs underwritten by it and
distributed to the public were offered to the public exceeds the amount
of any damages that such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section
11 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in
equity.
<PAGE>
(h) The indemnity and contribution provisions
contained in this Section 11 and the representations, warranties and
other statements of the Company and the Selling Shareholders contained
in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Shareholder or any person
controlling any Selling Shareholder, or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Shares or ADSs.
12. DIRECTED SHARE PROGRAM INDEMNIFICATION. (a) The Company
agrees to indemnify and hold harmless MSIL and its affiliates and each person,
if any, who controls MSIL or any of its affiliates within the meaning of either
Section 15 of the Securities Act, Section 20 of the Exchange Act or Section 17
of the German Stock Corporation Act ("MORGAN STANLEY ENTITIES"), from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) (i) caused by any untrue
statement or alleged untrue statement of a material fact contained in any
material prepared by or with the consent of the Company for distribution to
Participants in connection with the Directed Share Program, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; (ii)
caused by the failure of any Participant to pay for and accept delivery of
Directed Shares that the Participant has agreed to purchase; or (iii) related
to, arising out of, or in connection with the Directed Share Program other than
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental
investigation) shall be instituted involving any Morgan Stanley Entity
in respect of which indemnity may be sought pursuant to Section 12(a),
the Morgan Stanley Entity seeking indemnity shall promptly notify the
Company in writing and the Company, upon request of the Morgan Stanley
Entity, shall retain counsel reasonably satisfactory to the Morgan
Stanley Entity to represent the Morgan Stanley Entity and any other the
Company may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Morgan Stanley Entity unless (i) the Company shall
have agreed to the retention of such counsel or (ii) the named parties
to any such proceeding (including any impleaded parties) include both
the Company and the Morgan Stanley Entity and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Company shall not, in
respect of the legal expenses of the Morgan Stanley Entities in
connection with any proceeding or related proceedings the same
jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all Morgan Stanley
<PAGE>
Entities. Any such firm for the Morgan Stanley Entities shall be
designated in writing by MSIL. The Company shall not be liable for any
settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the
plaintiff, the Company agrees to indemnify the Morgan Stanley Entities
from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time a
Morgan Stanley Entity shall have requested the Company to reimburse it
for fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, the Company agrees that it shall be
liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30
days after receipt by the Company of the aforesaid request and (ii) the
Company shall not have reimbursed the Morgan Stanley Entity in
accordance with such request prior to the date of such settlement. The
Company shall not, without the prior written consent of MSIL, effect
any settlement of any pending or threatened proceeding in respect of
which any Morgan Stanley Entity is or could have been a party and
indemnity could have been sought hereunder by such Morgan Stanley
Entity, unless such settlement (i) includes an unconditional release of
the Morgan Stanley Entities from all liability on claims that are the
subject matter of such proceeding and (ii) does not include a statement
as to, or an admission of, fault, culpability or a failure to act, by
or on behalf of any Morgan Stanley Entity.
(c) To the extent the indemnification provided for in Section
12(a) is unavailable to a Morgan Stanley Entity or insufficient in
respect of any losses, claims, damages or liabilities referred to
therein, then the Company, in lieu of indemnifying the Morgan Stanley
Entity thereunder, shall contribute to the amount paid or payable by
the Morgan Stanley Entity as a result of such losses, claims, damages
or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Morgan Stanley Entities on the other hand from the offering of the
Directed Shares or (ii) if the allocation provided by Section 12(c)(i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
Section 12(c)(i) above but also the relative fault of the Company on
the one hand and of the Morgan Stanley Entities on the other hand in
connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company
on the one hand and of the Morgan Stanley Entities on the other hand in
connection with the offering of the Directed Shares shall be deemed to
be in the same respective proportions as the net proceeds from the
offering of the Directed Shares (before deducting expenses) and the
total underwriting discounts and commissions received by the Morgan
Stanley Entities for the Directed Shares, bear to the aggregate Share
Offer Price. If the loss, claim, damage or liability is caused by an
untrue or alleged untrue statement of a material fact, the relative
fault of the Company on the one hand and the Morgan Stanley Entities on
the other hand shall be determined by reference to, among other things,
whether the
<PAGE>
untrue or alleged untrue statement or the omission or alleged omission
relates to information supplied by the Company or by the Morgan Stanley
Entities and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(d) The Company and the Morgan Stanley Entities agree that it
would not be just or equitable if contribution pursuant to this Section
12 were determined by PRO RATA allocation (even if the Morgan Stanley
Entities were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable
considerations referred to in Section 12(c). The amount paid or payable
by the Morgan Stanley Entities as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by the
Morgan Stanley Entities in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
Section 12, no Morgan Stanley Entity shall be required to contribute
any amount in excess of the amount by which the total price at which
the Directed Shares distributed to the public were offered to the
public exceeds the amount of any damages that such Morgan Stanley
Entity has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. The remedies
provided for in this Section 12 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any Morgan
Stanley Entity at law or in equity.
(e) The indemnity and contribution provisions contained in
this Section 12 shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Morgan Stanley Entity or the
Company, its officers or directors or any person controlling the
Company and (iii) acceptance of and payment for any of the Directed
Shares.
13. TERMINATION. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the Frankfurt Stock Exchange, New York Stock Exchange, the
American Stock Exchange, the National Association of Securities Dealers, Inc.,
the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the
Chicago Board of Trade, (ii) trading of any securities of the Company shall have
been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in Frankfurt, London or New
York shall have been declared by authorities in Germany, the United Kingdom or
the United States or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in the judgment of MSIL after consultation with SBIL, is material and
adverse and (b) in the case of any of the events specified in clauses 13(a)(i)
through 13(a)(iv), such event, singly or together with any other such event,
makes it, in MSIL's judgment after consultation with SBIL, impracticable to
market the Shares or ADSs on the terms and in the manner
<PAGE>
contemplated in the Prospectus.
14. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares (including Shares in the form of ADSs) that it has or they have
agreed to purchase hereunder on such date, and the aggregate number of Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate number of the Shares to
be purchased on such date, the other Underwriters shall be obligated severally
in the proportions that the number of Firm Shares set forth opposite their
respective names in Schedule I bears to the aggregate number of Firm Shares set
forth opposite the names of all such non-defaulting Underwriters, or in such
other proportions as you may specify, to purchase the Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date; PROVIDED that in no event shall the number of Shares that any
Underwriter has agreed to purchase pursuant to this Agreement be increased
pursuant to this Section 14 by an amount in excess of one-ninth of such number
of Shares without the written consent of such Underwriter. If, on the Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased, and arrangements satisfactory to you, the Company and the Selling
Shareholders for the purchase of such Firm Shares are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter, the Company or the Selling Shareholders. In
any such case either you or the relevant Sellers shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on the
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting Underwriters would have been obligated to purchase in
the absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of any Seller to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason any Seller shall be unable to perform its obligations under
this Agreement, the Sellers will reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering
<PAGE>
contemplated hereunder.
15. SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENT FOR
SERVICE. The Company irrevocably agrees that any legal suit, action or
proceeding brought by any Underwriter or by any person who controls any
Underwriter arising out of or relating to this Agreement and the transactions
contemplated hereby and thereby may be instituted in any federal or state court
in the Borough of Manhattan, The City of New York, the State of New York and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding and any claim of inconvenient forum, and irrevocably submits to
the non-exclusive jurisdiction of any such court in any such suit, action or
proceeding.
The Company (i) irrevocably designates and appoints CT
Corporation System, 111 Eighth Avenue, 13th Floor, New York, New York 10011
(together with any successor, the "AUTHORIZED AGENT"), as its authorized agent
upon which process may be served in any suit, action or proceeding described in
the first sentence of this Section 15 and represents and warrants that the
Authorized Agent has accepted such designation and (ii) agrees that service of
process upon the Authorized Agent and written notice of said service to the
Company (mailed or delivered to Carrier 1 International S.A., c/o Carrier1
International GmbH, at Militarstrasse 36, CH-8004, Zurich, Switzerland,
Attention: General Counsel), shall be deemed in every respect effective service
of process upon the Company in any such suit or proceeding. The Company further
agrees to take any and all action, including the execution and filing of any and
all such documents and instruments, as may be necessary to continue such
designation and appointment of the Authorized Agent in full force and effect so
long as any of the Shares shall be outstanding.
If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than United
States dollars, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate at which in
accordance with normal banking procedures MSIL could purchase United States
dollars with such other currency in The City of New York on the business day
preceding that on which final judgment is given. The obligations of the Company
in respect of any sum due from it to any Underwriter shall, notwithstanding any
judgment in a currency other than United States dollars, be discharged only if
and to the extent on the first business day following receipt by such
Underwriter of any sum adjudged to be so due in such other currency, such
Underwriter may in accordance with normal banking procedures purchase United
States dollars with such other currency; if the United States dollars so
purchased are less than the sum originally due to such Underwriter hereunder,
the Company agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify such Underwriter against such loss. If the United States
dollars so purchased are greater than the sum originally due to such Underwriter
hereunder, such Underwriter agrees to pay to the Company (but without
duplication) an amount equal to the excess of the dollars so purchased over the
sum originally due to such Underwriter hereunder.
<PAGE>
To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with
respect to itself or its property, it hereby irrevocably waives such immunity in
respect of its obligations under the above-referenced documents, to the extent
permitted by law.
16. NOTICES. All notices and other communications under this
Agreement shall be in writing and mailed, delivered or sent by facsimile
transmission to: if sent to the Underwriters, Morgan Stanley & Co. International
Limited, 25 Cabot Square, Canary Wharf, London E14 4QA England, attention:
[____________________], facsimile number [__________] and, if sent to the
Company, to Carrier 1 International S.A., c/o Carrier1 International GmbH,
Militarstrasse 36, CH-8004, Zurich, Switzerland, Attention: General Counsel,
facsimile number 011-41-1-297-2601.
17. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
18. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
19. HEADINGS. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
Very truly yours,
CARRIER 1 INTERNATIONAL S.A.
By:_______________________
Name:
Title:
CARRIER ONE, LLC
By:_______________________
Name:
Title:
The Selling Shareholders other than
Carrier One LLC named in Schedule II
hereto, acting severally
By:_______________________
Attorney-in-Fact
<PAGE>
Accepted as of the date hereof
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
Acting severally on behalf of themselves
and the several Underwriters
named in Schedule I hereto.
Morgan Stanley & Co. International Limited
By: ____________________________
Name:
Title:
Salomon Brothers International Limited
By: ____________________________
Name:
Title:
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM
SHARES
UNDERWRITER TO BE PURCHASED
----------- -----------------
<S> <C>
Morgan Stanley & Co. International Limited.....................
Salomon Brothers International Limited.........................
Bear, Stearns International Limited............................
Merrill Lynch International....................................
UBS AG, acting through its division
Warburg Dillon Read.........................................
Commerzbank Aktiengesellschaft.................................
Total........................................................ 9,375,000
</TABLE>
<PAGE>
SCHEDULE II
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
NUMBER OF FIRM NUMBER OF ADDITIONAL
SELLING SHAREHOLDERS SHARES TO BE SOLD SHARES TO BE SOLD
-------------------- ----------------- --------------------
<S> <C> <C> <C>
Carrier One, LLC
[NAMES OF SELLING
SHAREHOLDERS]
</TABLE>
<PAGE>
ANNEX A
FORM OF PRICING AGREEMENT
PRICING AGREEMENT dated [__________], 2000
among
(1) CARRIER 1 INTERNATIONAL S.A. (the "COMPANY"),
(2) CARRIER ONE, LLC and each of the other selling shareholders listed on
Schedule II to the Underwriting Agreement referred to below (each a "SELLING
SHAREHOLDER" and together the "SELLING SHAREHOLDERS"), and
(3) MORGAN STANLEY & CO. INTERNATIONAL LIMITED and SALOMON BROTHERS
INTERNATIONAL LIMITED (each a "GLOBAL COORDINATOR" and together the "GLOBAL
COORDINATORS"), acting severally on behalf of themselves and the several
Underwriters named in Schedule I to the Underwriting Agreement.
RECITAL
The Company, the Selling Shareholders and the Underwriters have agreed,
subject to the terms and conditions stated herein and in the Underwriting
Agreement, dated [__________], 2000 (the "UNDERWRITING AGREEMENT"), between the
Company and Selling Shareholders on the one hand and the Global Coordinators and
the other Underwriters on the other hand, that the Company will issue and sell
and the Selling Shareholders will sell to the Underwriters, and the
Underwriters, severally and not jointly, will purchase from the Company and the
Selling Shareholders, the Firm Shares. The parties hereto desire to establish
herein the Share Offer Price and the ADS Offer Price to be paid by the
Underwriters for the Firm Shares pursuant to Section 3 of the Underwriting
Agreement.
ARTICLE 1 - DEFINITIONS
Unless otherwise defined herein, terms defined in the Underwriting Agreement are
used herein as therein defined.
ARTICLE 2 - PURCHASE AND SALE; OFFER PRICE
The parties hereto agree that the Share Offer Price shall be Euro
[_____] per Share and
<PAGE>
the ADS Offer Price shall be $[______] per ADS. Underwriting commissions,
discounts and fees shall be as set forth on Schedule A hereto.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
(a) The Company represents and warrants to each of the Underwriters
that the Registration Statement has become effective and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) Each of the Company and the Selling Shareholders represents and
warrants with respect to each of them to each of the Underwriters that the
representations and warranties set forth in Section 1 of the Underwriting
Agreement with respect to each of them are accurate as though expressly made at
and as of the date hereof.
(c) Each of the Underwriters represents and warrants with respect to
each of them to each of the Company and the Selling Shareholders that its
representations and warranties set forth in Section 9(ii) of the Underwriting
Agreement with respect to each of them are accurate as though expressly made at
and as of the date hereof.
ARTICLE 4 - SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENT FOR SERVICE
The Company irrevocably agrees that any legal suit, action or
proceeding brought by any Underwriter or by any person who controls any
Underwriter arising out of or relating to this Agreement and the transactions
contemplated hereby and thereby may be instituted in any federal or state court
in the Borough of Manhattan, The City of New York, the State of New York and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding and any claim of inconvenient forum, and irrevocably submits to
the non-exclusive jurisdiction of any such court in any such suit, action or
proceeding.
The Company (i) irrevocably designates and appoints CT Corporation
System, 111 Eighth Avenue, 13th Floor, New York, New York 10011 (together
with any successor, the "AUTHORIZED AGENT"), as its authorized agent upon
which process may be served in any suit, action or proceeding described in
the first sentence of this Article 4 and represents and warrants that the
Authorized Agent has accepted such designation and (ii) agrees that service
of process upon the Authorized Agent and written notice of said service to
the Company (mailed or delivered to Carrier 1 International S.A., c/o
Carrier1 International GmbH, at Militarstrasse 36, CH-8004, Zurich,
Switzerland, Attention: General Counsel), shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
The Company further agrees to take any and all action, including the
execution and filing of any and all such documents and instruments, as may be
necessary to continue
<PAGE>
such designation and appointment of the Authorized Agent in full force and
effect so long as any of the Shares shall be outstanding.
If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than United
States dollars, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate at which in
accordance with normal banking procedures MSIL could purchase United States
dollars with such other currency in The City of New York on the business day
preceding that on which final judgment is given. The obligations of the Company
in respect of any sum due from it to any Underwriter shall, notwithstanding any
judgment in a currency other than United States dollars, be discharged only if
and to the extent on the first business day following receipt by such
Underwriter of any sum adjudged to be so due in such other currency, such
Underwriter may in accordance with normal banking procedures purchase United
States dollars with such other currency; if the United States dollars so
purchased are less than the sum originally due to such Underwriter hereunder,
the Company agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify such Underwriter against such loss. If the United States
dollars so purchased are greater than the sum originally due to such Underwriter
hereunder, such Underwriter agrees to pay to the Company (but without
duplication) an amount equal to the excess of the dollars so purchased over the
sum originally due to such Underwriter hereunder.
To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, it
hereby irrevocably waives such immunity in respect of its obligations under the
above-referenced documents, to the extent permitted by law.
<PAGE>
ARTICLE 5 - APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
CARRIER 1 INTERNATIONAL S.A.
By: ____________________________
Name:
Title:
CARRIER ONE, LLC
By: ____________________________
Name:
Title:
The Selling Shareholders other than Carrier One LLC named in Schedule II to the
Underwriting Agreement
By: ____________________________
Attorney-in-Fact
<PAGE>
Accepted as of [________], 2000
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
Acting severally on behalf of themselves and the several Underwriters named in
Schedule I to the Underwriting Agreement.
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: ____________________________
Name:
Title:
SALOMON BROTHERS INTERNATIONAL LIMITED
By: ____________________________
Name:
Title:
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
OFFER PRICE AND COMMISSIONS
---------------------------------
IN EURO IN U.S. DOLLARS
------ ---------------
<S> <C> <C>
Share Offer Price per Share.................................. Euro US$
ADS Offer Price per ADS...................................... US$
Gross Spread per Share....................................... Euro US$
Gross Spread per ADS......................................... US$
Concession per Share......................................... Euro US$
Concession per ADS........................................... US$
U.S. Dealer Reallowance per Share............................ Euro US$
U.S. Dealer Reallowance per ADS.............................. US$
</TABLE>
Per Share amounts are quoted and priced in euro, and translated to U.S. dollars
at an exchange rate of $[______] to Euro 1.00 (the "EXCHANGE RATE"). ADSs are
quoted and priced in U.S. dollars, determined based on the per Share amounts by
applying a ratio of one Share to 5 ADSs and the Exchange Rate.
<PAGE>
ANNEX B
FORM OF SUBSCRIPTION CERTIFICATE
This Subscription Certificate is issued pursuant to Section 4 of the
Underwriting Agreement, dated as of [_____________], 2000 (the "Underwriting
Agreement"), among Carrier 1 International S.A. (the "Company"), certain
shareholders of the Company named in Schedule II thereto and Morgan Stanley &
Co. International Limited and Salomon Brothers International Limited on behalf
of the underwriters named in Schedule I thereto, and is subject to the
provisions of the Underwriting Agreement.
Pursuant to Arcticle 5 of the Articles of Incorporation of the Company, the
board of directors is authorized to increase the subscribed share capital of the
Company once or several times through issuance of new shares up to a total
amount of subscribed share capital of US$110,000,000 represented by 55,000,000
shares with a nominal value of US$2.00 per share.
On [__________], 2000, the board of directors decided to make use of this
authority and to increase the subscribed share capital of the Company by
US$15,000,000 through issuance of 7,500,000 registered shares with full right to
dividends starting with fiscal year 2000. Morgan Stanley & Co. International
Limited was permitted to subscribe to it. The new shares are issued at their
nominal value of US$2.00 per share.
We understand that the existing shareholders of the Company do not have any
subscription right with respect to the subscription and issuance of shares today
by the Company.
We hereby subscribe to and accept delivery of new shares in a total nominal
value of
US$15,000,000
divided into 7,500,000 shares with a nominal value of US$2.00 per share.
We have paid 100% of the nominal amount, or $15,000,000, through credit to the
"Capital Increase Account" of Carrier 1 International S.A. at Morgan Stanley &
Co. Incorporated.
Our subscription is not binding if we have not received a certified copy of the
resolution of the board of directors authorizing such capital increase by 11:00
a.m. (Frankfurt time) on [___________], 2000.
Luxembourg, on [__________], 2000
- ------------------------------------
Morgan Stanley & Co. International Limited
<PAGE>
ANNEX C
FORM OF OPINION OF BONN & SCHMITT
LUXEMBOURG COUNSEL TO THE COMPANY
1. Carrier 1 International S.A., a societe anonyme organized
under the laws of Grand Duchy of Luxembourg (the "COMPANY"), has been duly
incorporated, is validly existing as a corporation (SOCIETE ANONYME) under the
laws of Luxembourg and has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus.
2. The subscribed and authorized share capital of the Company
conformed at the date of the Prospectus, as to legal matters, to the description
thereof contained in the Prospectus.
3. The share capital outstanding prior to the execution of the
Underwriting Agreement (including the shares to be sold by Carrier One LLC) has
been duly authorized and validly issued, and is fully paid and non-assessable.
4. The Company has the corporate power and authority to enter
into the Underwriting Agreement, the Pricing Agreement and the Deposit Agreement
(the "AGREEMENTS"), the Agreements have been duly authorized, the Underwriting
Agreement, insofar as Luxembourg law governs the execution and delivery thereof,
has been duly executed and delivered by the Company, and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
5. The execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Agreements will not
contravene the articles of incorporation of the Company or, to the best of our
knowledge, any agreement or other instrument binding upon the Company or its
Luxembourg subsidiary that, in our opinion, is material to the Company and its
subsidiaries, taken as a whole, or, to the best of our knowledge, any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over the Company or its Luxembourg subsidiary, and no consent, approval,
authorization or order of, or qualification with, any Luxembourg governmental
body or agency is required for the performance by the Company of its obligations
under the Agreements.
Such opinion shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
<PAGE>
ANNEX D
FORM OF OPINION OF DEBEVOISE & PLIMPTON
SPECIAL NEW YORK COUNSEL FOR THE COMPANY
1. To the extent that the laws of the State of New York govern
the due execution and delivery of the Underwriting Agreement by Carrier 1
International S.A., a societe anonyme organized under the laws of Grand Duchy of
Luxembourg (the "COMPANY"), the Company has duly executed and delivered the
Underwriting Agreement.
2. The Underwriting Agreement constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer, reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights generally, (ii)
general principals of equity, whether such principles are considered in a
proceeding at law or equity, (iii) an implied covenant of good faith,
reasonableness and fair dealing, and standards of materiality, and (iv)
limitations with respect to enforceability of provisions providing for
indemnification or contribution arising under applicable law (including court
decisions) or public policy.
3. The execution, delivery and performance of the Underwriting
Agreement, the Pricing Agreement and the Deposit Agreement by the Company (the
"AGREEMENTS") will not violate any existing United States Federal or New York
State statute, or rule, regulation, judgment, order or decree of any United
States Governmental Agency, known to us to be binding upon the Company (other
than any state securities or Blue Sky laws statutes, rules, regulations or
orders as to which we express no opinion), except as would not to our knowledge
have a Material Adverse Effect and except that no opinion is expressed as to the
accuracy or completeness of the Registration Statement or any Prospectus.
4. No consent, approval, authorization or order of, or filing
or registration with, any United States Governmental Agency is required to be
obtained or made by the Company for the issuance and sale of the Shares or the
performance by the Company today of its obligations under the Agreements in
connection with the issuance and sale today of the Shares or ADSs by the Company
except (a) such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares and the ADSs,
(b) as have been obtained under the Securities Act and the Exchange Act, (c) as
disclosed in the Prospectus or as have been made or obtained, (d) as may be
required under or pursuant to applicable state securities laws, statutes, rules,
regulations or orders, (e) as may be required under or pursuant to applicable
telecommunications laws and (f) for other consents, approvals, authorizations,
orders, filings or registrations the failure of which to be obtained or made
would not to our knowledge have a material adverse effect .
<PAGE>
5. The Company is not and, upon the issuance and sale of the
Shares, will not be an "investment company," as that term is defined in the
Investment Company Act of 1940, as amended.
Such opinion shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
<PAGE>
ANNEX E
FORM OF OPINION OF THE GENERAL COUNSEL OF
CARRIER1 INTERNATIONAL GMBH
(A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY)
The execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Agreements will not
contravene any provision of existing applicable law or, to my knowledge, any
agreement or other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under the Agreements, except in each case as would not reasonably be expected to
have a Material Adverse Effect.
In rendering the opinion set forth above, I express no opinion
as to (i) the validity, binding effect or enforceability of any of the
Agreements or (ii) the application of or compliance with securities laws,
statutes, rules or regulations of any jurisdiction.
<PAGE>
ANNEX F
FORM OF OPINION OF SPECIAL
LUXEMBOURG COUNSEL TO THE UNDERWRITERS
1. The Shares issued today by the Company have been duly
authorized by the shareholders at their meeting of [_____________], 2000 and
have been validly issued at the par value thereof by the board of directors of
the Company pursuant to their resolution passed today and against the payment of
the Subscription Price, being the par value thereof, were fully paid at the par
value thereof, and are non-assessable.
2. The execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Underwriting Agreement,
the Pricing Agreement and the Deposit Agreement will not contravene any
provision of applicable Luxembourg law.
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated and
Salomon Smith Barney Inc., as Representatives of the several Underwriters (the
"REPRESENTATIVES"), propose to enter into an Underwriting Agreement (the
"UNDERWRITING AGREEMENT") with Carrier1 International, S.A., a societe anonyme
organized under the laws of Grand Duchy of Luxembourg (the "COMPANY"), providing
for the public offering (the "PUBLIC OFFERING") by several Underwriters,
including the Representatives (the "UNDERWRITERS"), of shares of common stock,
par value $2.00 per share, of the Company (the "COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of the
Representatives on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the final
prospectus relating to the Public Offering (the "PROSPECTUS"), (1) offer to
sell, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (2) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of Common Stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise. The foregoing sentence shall not apply to (1)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering, (2) gifts
and transfers by will or intestacy or (ii) transfers to (A) the undersigned's
members, partners, affiliates or immediate family or (B) a trust, the
beneficiaries of which are the undersigned and/or members of the undersigned's
immediate family, shall not be prohibited by this agreement; provided that (x)
the donee or transferee agrees in writing to be bound by the foregoing in the
same manner as it applies to the undersigned and (y) if the donor or transferor
is a reporting person subject to Section 16(a) of the Securities Exchange
<PAGE>
Act of 1934 (the "EXCHANGE ACT"), any gifts or transfers made in accordance
with this paragraph shall not require such person to, and such person shall
not voluntarily, file a report of such transaction of Form 4 under the
Exchange Act or (3) transfers of Common Stock or other securities to the
Company or any of its subsidiaries pursuant to any purchase rights under the
company's share purchase and share option plans. "Immediate family" shall
mean spouse, lineal descendants, father, mother, brother or sister of the
transferor and father, mother, brother or sister of the transferor's spouse.
In addition, the undersigned agrees that, without the prior written consent
of the Representatives on behalf of the Underwriters, it will not, during the
period commencing on the date hereof and ending 180 days after the date of
the Prospectus, make any demand for or exercise any right with respect to,
the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.
Very truly yours,
-----------------------
(Name)
-----------------------
(Address)
<PAGE>
EXHIBIT A-2
PERSONS DELIVERING LOCK-UP LETTERS
* Vollers Erik
* Gerard Sreeves
* Robert D'Occhio
* Karsten Wittkopf
* Marion Besslich
* Christelle Coeffe
* Hughes De Chateaunain
* Richard Faucheux
* Bruno Grosskopf
* Dragan Jelesijevic
* Stephen Kraft
* Sandrine Laponche
* Lemoine Olivier
* Isabelle Russier
* Virginia Verdon
* Carina Almroth
* Mark Bartlett-Twivey
* Andrew Betta
* Graeme Biggs
* Matthew Bird
* Harry Arthur Board
* Paul Bramwell
* Eric Bree
* Steven Burgess
* Kevin Richard Burke
* Paul Garrard
* Gemma Cashman
* Richard Chilvers
* Linda Clark
* Brian Congheady
* Julia Constantinides
* Anthony Cooney
* Ian Cooper
* Chris Cousins
* Chris Davidson
* Peter Davidson
* John Stephen Dennis
* Mark Diamond
* Peter Everett
* Marcus David Franks
<PAGE>
* Mark Garnham
* Alison Gooch
* Peter Good
* Michael Griffiths
* Peter Steven Hallam
* Paul Halliwell
* Paul Jenkins
* Alan Jones
* Michelle Jones
* Michelle Kelly
* Gary Lambert
* Greg Lewis
* Jonathan Lexton
* John Kirk
* John Merker
* Rick Mikolajczuk
* Simon Morris
* Nguyen Dang
* Philip Poulter
* Geoffrey Powell
* John Prendergast
* John Dennis Preston
* Sheila Raulinaitis
* H.V. Ruyter
* Samuel Saunders
* Jonathan Shanmuganathan
* Kasim Sheikh
* Ian Smith
* Sven Stoecker
* Christine Stubbs
* David Thomas
* Adam Thompson
* David Tibbott
* Jane Townend
* Jay Tribick
* Richard Walker Morecroft
* Graham Ward
* Richard Willson
* Stuart Wise
* Paul Wynne
* Nick Zak
* Vincenzo Zecca
* Rainer Dornauer
* Eva Messer
<PAGE>
* Robert Modliba
* Michael Pichler
* Viviana Alejandra Ancarani
* Olaf Bertschinger
* Heinz Bigler
* Bruno Burgisner
* Natasa De Carlo
* Oscar Escribano
* Nigel Findlater
* Goran Forslund
* Peter Gessler
* Stephen Harper
* Fred Karcher
* Martin Keller
* Christine Kohler
* Gilbert Koller
* Dominic McGlinchey
* Martin Peck
* Johanna Reichmuth
* Gustav Schaefer
* Jan Van Veldhoven
* Pim Versteeg
* Vanja Vidic
* Philip Walter
* Volker Weisshaar
* Judith Zollinger
* Stig Johansson
* Joachin Bauer
* Eugene A. Rizzo
* Kees van Ophem
* Neil Craven
* Teje Nordahl
* Alexander Schmid
* Sarah Colombo
* Sebastiano Galantucci
* Saviano Gaetano
* Tordin Daniele
* Mirco Viscardi
* Madlen Frederich
* Mikael Honkala
* Garman Larsson
* Robert Luscombe
* Thomas Svalstedt
* John Belanger
<PAGE>
* Michael Clark
* Carlos Colina
* Lee A. Geter
* Amelia Kamber-Enoch
* Coilbert Lee
* Evelien Aalberts
* Jos Ariaanno
* M. J. Gann
* Teus Oskam
* Rik Schalks
* Liliam Vacimo
* Harrie van Rooij
* Harm Werkman
* Howard Copestake
* Diethelm Dostert
* Tanja Eckert
* Dieter Friedrich
* Edward Allen Gross
* Vesna Herceg
* Cristine Keb
* Anastasia Koltsidis
* Udo Lorenz
* Thomas Lubke
* Christoph Mees
* Christoph Munch
* Matthias Neumann
* Christian Schultes
* Marc Theissen
* Erwin Trautmann
* Llitz Gertfried
* Astrid Werner
* Konstantina Widera
* Silke Wunderie
* Thomas Zahay
* Victor Pelson
* Glenn Creamer
* Mark Pelson
* * * * * * * * *
<PAGE>
EXHIBIT B
FORM OF OPINION OF BONN & SCHMITT
LUXEMBOURG COUNSEL TO THE COMPANY
1. Carrier 1 International S.A., a societe anonyme organized
under the laws of Grand Duchy of Luxembourg (the "COMPANY"), has been duly
incorporated, is validly existing as a corporation (SOCIETE ANONYME) under the
laws of Luxembourg and has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus.
2. The subsidiary of the Company organized under the laws of
Luxembourg, CARRIER 1 INTERNATIONAL MANAGEMENT (LUX) SARL, has been duly
incorporated, is validly existing as a corporation (SOCIETE A RESPONSABILITE
LIMITEE) under the laws of Luxembourg and has the corporate power and authority
to own its property and to conduct its business as described in the Prospectus.
All of the issued share capital of the Luxembourg subsidiary of the Company has
been duly and validly authorized and issued, is fully paid and non-assessable,
and is owned directly by the Company, to the best of our knowledge, free and
clear of all liens, encumbrances, equities or claims.
3. The subscribed and authorized share capital of the Company
conformed at the date of the Prospectus, as to legal matters, to the description
thereof contained in the Prospectus.
4. The share capital outstanding as of the date of the
Underwriting Agreement (including the Shares being sold by Carrier One LLC) has
been duly authorized and is validly issued, fully paid and non-assessable.
5. The Company has the corporate power and authority to enter
into the Underwriting Agreement, the Pricing Agreement and the Deposit Agreement
(the "AGREEMENTS"), and the Agreements have been duly authorized, and insofar as
Luxembourg law governs the execution and delivery thereof, have been duly
executed and delivered by the Company, and constitute valid and binding
agreement of the Company, enforceable again the Company in accordance with its
terms.
6. The execution and delivery by the Company of, and the
performance by the Company of its obligations under the Agreements does not and
will not contravene the Articles of Association of the Company or, to the best
of our knowledge, any agreement or other instrument binding upon the Company
that, in our opinion, is material to the Company and its subsidiaries, taken as
a whole, or, to the best of our knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company, and no
consent, approval, authorization or order of, or qualification with, any
Luxembourg governmental body or agency is required for the performance by the
Company of its
<PAGE>
obligations under the Agreements.
7. After due inquiry, we do not know of any legal or
governmental proceedings pending or threatened to which the Company is a party
or to which any of the properties of the Company is subject.
8. Except as set forth in the Prospectus, to the best of our
knowledge each of the Company and its Luxembourg subsidiary has all necessary
permits, licenses, authorizations, consents, orders, certificates and approvals
of and from all applicable Luxembourg governmental, administrative or regulatory
authorities, self-regulatory organizations and courts and other tribunals to
own, lease, license and use its properties and assets and to conduct its
business in the manner described in the Prospectus; to the best of our
knowledge, neither the Company nor and its Luxembourg subsidiary has not
received any notice of proceedings which remain unresolved relating to
revocation or modification of any such permits, licenses, authorizations,
consents, orders, certificates or approvals.
9. To the best of our knowledge, as of today, the Company, its
Luxembourg subsidiary and its foreign subsidiaries do not provide
telecommunication services in or from Luxembourg and therefore they do not need
any permits, licenses, authorizations, consents, orders, certificates or
approvals of or from any Luxembourg national, regional or local governmental
authorities, all self-regulatory organizations and all courts and tribunals
(collectively, the "GOVERNMENTAL AUTHORITIES") competent for telecommunication
matters.
10. To the best of our knowledge, after due inquiry, (i) no
decree or order of any Governmental Authority has been issued against the
Company and (ii) no litigation, proceeding, inquiry or investigation has been
commenced or threatened, against the Company before or by any Governmental
Authority.
11. The statements in (i) the Prospectus under the captions
"Business--Enforceability of Certain Civil Liabilities," "Business--Legal
Proceedings," "Description of Share Capital" and "Certain Relationships and
Related Transactions" and (ii) in the Registration Statement in Item 14, insofar
as such statements constitute summaries of the legal matters, documents or
proceedings referred to therein governed by Luxembourg law, fairly summarize in
all material respects the matters referred to therein.
12. The statements in the Prospectus under the caption
"Taxation--Certain Luxembourg Tax Considerations," insofar as such statements
constitute a summary of Luxembourg tax laws referred to therein, are accurate
and fairly summarize in all material respects the Luxembourg tax laws referred
to therein.
13. Except as described in the Prospectus, no Luxembourg stamp
or other issuance or transfer taxes or duties or capital gains, income,
withholding or other taxes are payable by or on behalf of the Underwriters in
Luxembourg or any political subdivision or
<PAGE>
taxing authority thereof or therein in connection with (i) the authorization,
issue or delivery by the Company of the Shares and ADSs or (ii) the purchase by
the Underwriters of the Shares or ADSs or the sale and delivery by the
Underwriters of the Shares or ADSs, provided that the Underwriters are not
Luxembourg residents for purposes of income taxes, the execution and delivery of
the Agreements or the consummation of the transactions contemplated thereby,
save that the registration may be ordered and a registration fee of 2.4 per cent
on the total amount involved might become payable if the Agreements were to be
exhibited before a Luxembourg Court or a Luxembourg official authority (AUTORITE
CONSTITUEE); in practice, the registration is rarely ordered.
14. The Company's agreement to the choice of law provisions
set forth in the Agreements is valid and binding under the laws of Luxembourg
and we do not know of any reason why the courts of Luxembourg would not give
effect to the choice of New York law as the proper law of the Agreements; the
Company has the legal capacity to sue and be sued in its own name under the laws
of Luxembourg; the Company has the power to submit, and has irrevocably
submitted, to the non-exclusive jurisdiction of the New York courts and has
validly and irrevocably appointed CT Corporation System as its authorized agent
as set forth and for the purpose described in the Agreements under the laws of
Luxembourg; the irrevocable submission of the Company to the non-exclusive
jurisdiction of the New York courts and the waivers by the Company of any
immunity and any objection to the venue of a proceeding in a New York court
located in the Agreements are legal, valid and binding under the laws of
Luxembourg and we do not know of any reason why the courts of Luxembourg would
not give effect to such submission and waivers; service of process in the manner
set forth in the Agreements will be effective to confer valid jurisdiction over
the Company under the laws of Luxembourg; and the courts in Luxembourg will
recognize and will enforce, subject to fulfillment of applicable recognition and
enforcement procedures (EXEQUATUR procedures), any final and conclusive judgment
against the Company obtained in a New York court arising out of or in the
Agreements.
Such opinion shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
<PAGE>
EXHIBIT C
FORM OF OPINION OF DEBEVOISE & PLIMPTON
SPECIAL NEW YORK COUNSEL FOR THE COMPANY
1. To the extent that the laws of the State of New York govern
the due execution and delivery of the Underwriting Agreement, the Pricing
Agreement or the Deposit Agreement (the "AGREEMENTS") by Carrier 1 International
S.A., a societe anonyme organized under the laws of Grand Duchy of Luxembourg
(the "COMPANY"), the Company has duly executed and delivered each Agreement.
2. Each of the Agreements constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer, reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights generally, (ii)
general principals of equity, whether such principles are considered in a
proceeding at law or equity, (iii) an implied covenant of good faith,
reasonableness and fair dealing, and standards of materiality, and (iv)
limitations with respect to enforceability of provisions providing for
indemnification or contribution arising under applicable law (including court
decisions) or public policy.
3. The execution, delivery and performance of the Agreements
by the Company do not violate any existing United States Federal or New York
State statute, or rule, regulation, judgment, order or decree of any United
States Governmental Agency, known to us to be binding upon the Company (other
than any state securities or Blue Sky laws statutes, rules, regulations or
orders as to which we express no opinion), except as would not to our knowledge
have a Material Adverse Effect and except that no opinion is expressed as to the
accuracy or completeness of the Registration Statement or any Prospectus.
4. Assuming the sale of the ADSs as contemplated in the
Underwriting Agreement and the due and authorized issuance by the Depositary of
the ADRs evidencing ADSs against deposit of the Shares in accordance with the
Deposit Agreement, such ADRs will be duly and validly issued and the persons in
whose names such ADRs are registered will be entitled to the rights specified in
the ADRs and the Deposit Agreement.
5. No consent, approval, authorization or order of, or filing
or registration with, any United States Governmental Agency is required to be
obtained or made by the Company for issuance and sale of the Shares or ADSs by
the Company or the performance by the Company today of its obligations under the
Agreements in connection with the issuance and sale today of the Share or ADSs
by the Company except (a) such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the Shares
and the ADSs, (b) as have been obtained under the Securities Act and the
Exchange Act, (c) as disclosed in the Prospectus or as have been made or
obtained, (d) as may be required
<PAGE>
under or pursuant to applicable state securities laws, statutes, rules,
regulations or orders, (e) as may be required under or pursuant to applicable
telecommunications laws and (f) for other consents, approvals, authorizations,
orders, filings or registrations the failure of which to be obtained or made
would not to our knowledge have a Material Adverse Effect.
6. The Company is not and, upon the issuance and sale today of
the Shares, will not be an "investment company," as that term is defined in the
Investment Company Act of 1940, as amended.
7. The statements set forth in the Prospectus under the
headings "Description of Certain Indebtedness," "Description of Share
Capital--Description of the Warrants," "Description of American Depositary
Receipts," in each case insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein, provide a fair
summary of the matters described therein in all material respects.
8. The statements set forth in the Prospectus under the
caption "Taxation--Certain United States Federal Income Tax Considerations,"
"Taxation--Common Stock," and "Taxation--Information Reporting and Backup
Withholding," insofar as such statements purport to summarize certain United
States Federal income tax laws relating to the purchase, ownership and
disposition of the Shares or ADSs by certain U.S. Holders (as such term is
defined in the Prospectus), provide a fair summary of such consequences under
current law in all material respects.
9. The Registration Statement and U.S. Prospectus (except for
financial statements, notes and schedules and other financial and statistical
data contained therein as to which we express no opinion) as of their respective
effective or issue dates, appear on their face to comply as to form in all
material respects with requirements of the Securities Act and the applicable
rules and regulations of the Securities and Exchange Commission thereunder.
10. Assuming the validity of such actions under Luxembourg
law, under the laws of the State of New York relating to personal jurisdiction
(including venue), (i) pursuant to Section 15 of the Underwriting Agreement,
Article 4 of the Pricing Agreement and Section 706 of the Deposit Agreement, the
Company has validly submitted to the nonexclusive jurisdiction of any United
States federal or New York state court located in the Borough of Manhattan, The
City of New York, the State of New York, in any action arising out of or
relating to any of the Agreements, has validly waived (to the extent permitted
by law) any objection to the venue of a proceeding in any such court, and has
validly appointed CT Corporation System as its authorized agent for the purpose
described in Section 15 of the Underwriting Agreement, Article 4 of the Pricing
Agreement and Section 706 of the Deposit Agreement, and (ii) service of process
effected on such agent in the manner set forth in Section 15 of the Underwriting
Agreement, Article 4 of the Pricing Agreement and Section 706 of the Deposit
Agreement will be effective to confer valid personal jurisdiction over the
Company, except that we express no opinion as to any waiver of inconvenient
forum.
<PAGE>
We have not ourselves checked the accuracy or completeness of,
or otherwise verified, and are not passing upon and assume no responsibility for
the accuracy or completeness of, the statements contained in the U.S.
Prospectus, except to the limited extent stated in paragraphs 7 and 8 above. In
the course of our review and discussion of the contents of the Registration
Statement and the Prospectus with certain officers and employees of the Company
and the Company's independent auditors, but without independent check or
verification, no facts have come to our attention that cause us to believe that
the Registration Statement (except for financial statements, notes and schedules
and other financial and statistical data contained therein, as to which we
express no belief), at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein not misleading, or that the Prospectus (except for
financial statements, notes and schedules and other financial and statistical
data contained therein, as to which we express no belief), as of its date and as
of the date hereof, contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or that any contract or other document that is of a
character required to be filed as an exhibit to the Registration Statement is
not so filed.
Such opinion shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
<PAGE>
EXHIBIT D
FORM OF OPINION OF THE GENERAL COUNSEL OF
CARRIER1 INTERNATIONAL GMBH
(A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY)
1. Each subsidiary of Carrier 1 International S.A., a societe
anonyme organized under the laws of Grand Duchy of Luxembourg (the "COMPANY"),
has been duly organized or formed, as applicable, and is validly existing under
the laws of the jurisdiction of its organization or formation (except where the
failure to be duly organized or formed would not reasonably be expected to have
a Material Adverse Effect), has the corporate or company power and authority to
own its property and to conduct its business as described in the Prospectus
(except where the failure to have such power or authority would not reasonably
be expected to have a Material Adverse Effect) and is duly qualified to transact
business in each jurisdiction in which the conduct of its business or leasing of
property requires such qualification (except where the failure to be so
qualified would not reasonably be expected to have a Material Adverse Effect).
The outstanding shares of capital stock or membership interests of each
subsidiary of the Company (other than any company in the process of formation
with no significant operations) have been duly authorized and validly issued and
are fully paid and non-assessable, and all such shares or membership interests
are owned by the Company or a wholly-owned subsidiary thereof, to my knowledge
free and clear of all liens, encumbrances, equities or claims.
2. Except as set forth in the Prospectus, (i) the Company has
all certificates, orders, permits, licenses, authorizations, consents and
approvals of and from, and has made all reports, filings and registrations with,
all Luxembourg national, regional or local governmental authorities, all
self-regulatory organizations and all courts and tribunals (collectively, the
"GOVERNMENTAL AUTHORITIES") necessary to own, lease, license or use its
properties and assets and conduct its business in the manner described in the
Prospectus, except as would not reasonably be expected to have a Material
Adverse Effect, and (ii) neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to revocation, modification or
non-renewal of any such certificates, orders, permits, licenses, authorizations,
consents or approvals, or the qualification or rejection of any such report,
filing or registration, the effect of which would reasonably be expected to have
a Material Adverse Effect.
3. Other than as set forth or contemplated in the Prospectus,
(i) no decree or order of any of the Governmental Authorities has been issued
against the Company or any of its subsidiaries and (ii) there is no action, suit
or judicial proceeding pending or overtly threatened to which the Company or any
of its subsidiaries is a party or to which its or their properties is subject,
and no notice of violation or order to show cause has been issued against the
Company or any of its subsidiaries, before or by any of the Governmental
Authorities, in
<PAGE>
the case of both (i) and (ii) that would reasonably be expected to materially
and adversely affect the issuance today of Shares and ADSs or that questions the
validity of the Underwriting Agreement, the Pricing Agreement or the Deposit
Agreement (the "AGREEMENTS") or that would reasonably be expected to have a
Material Adverse Effect.
4. The execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Agreements do not
contravene any provision of existing applicable law or, to my knowledge, any
agreement or other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under the Agreements, except in each case as would not reasonably be expected to
have a Material Adverse Effect.
In rendering the opinions set forth above, I express no
opinion as to (i) the validity, binding effect or enforceability of any of the
Agreements or (ii) the application of or compliance with securities laws,
statutes, rules or regulations of any jurisdiction.
I have not myself checked the accuracy or completeness of, or
otherwise verified, and am not passing upon and assume no responsibility for the
accuracy or completeness of, the statements contained in the U.S. Prospectus. In
the course of my review and discussion of the contents of the Registration
Statement and Prospectus with certain officers and employees of Carrier1 and
Carrier1's independent auditors, but without independent check or verification,
no facts have come to my attention that cause me to believe that (i) the
Registration Statement (except for financial statements, notes and schedules and
other financial and statistical data contained therein), at the time it became
effective, contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein not misleading or (ii)
the Prospectus (except for financial statements, notes and schedules and other
financial and statistical data contained therein), as of its date and as of the
date hereof, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (iii) that any contract or other document that is of a
character required to be filed as an exhibit to the Registration Statement is
not so filed.
Such opinion shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
<PAGE>
EXHIBIT E
FORM OF OPINION OF LOCAL COUNSEL
We are of the opinion that:
1. the descriptions in the Prospectus of matters in connection
with current [COUNTRY] statutes relating to telecommunications, and the
respective rules and regulations promulgated thereunder (collectively,
the "[COUNTRY] Communications Law"), including, without limitation, the
statements in the Prospectus under the captions "Business--Governmental
Regulation," are accurate in all material respects and fairly summarize
all matters described therein;
2. the Company [the Operating Company]1 is the holder of
license[s] issued by the [RELEVANT GOVERNMENT AGENCY], dated _________,
199_, issued under Section ____ of [RELEVANT LAW], relating to the
provision of telecommunications services in [COUNTRY];
3. (A) the execution and delivery of the Underwriting
Agreement and the Deposit Agreement by the Company, and the
consummation of the transactions (including, without limitation,
issuance of the Shares and the ADSs) contemplated thereby do not
violate (1) the [COUNTRY] Communications Law, (2) any rules or
regulations of [GOVERNMENT AGENCY] applicable to the Company and its
subsidiaries and (3) to the best of our knowledge after due inquiry,
any telecommunications related decree from any [COUNTRY] court, and (B)
no authorization of or filing with [GOVERNMENT AGENCY] is necessary for
the execution and delivery of the Underwriting Agreement or the Deposit
Agreement by the Company and the consummation of the transactions
(including, without limitation, issuance of the Shares and the ADSs)
contemplated thereby in accordance with the terms thereof;
4. (A) each of the Company and its subsidiaries has all
certificates, orders, permits, licenses, authorizations, consents and
approvals of and from, and has made all reports, filings and
registrations with, [GOVERNMENT AGENCY] necessary to own, lease,
license and use its properties and assets and to conduct its business,
and its contemplated business, in the manner described in the
Prospectus; and (B) to the best of
- --------
1To be used when the Company operates through a subsidiary incorporated in the
opinion giver's jurisdiction.
<PAGE>
our knowledge after due inquiry, neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation, modification or non-renewal of any such certificates,
orders, permits, licenses, authorizations, consents or approvals, or
the qualification or rejection of any such reports, filing or
registration, the effect of which, singly or in the aggregate, would
have a material adverse effect on the Company and its subsidiaries,
taken as a whole;
5. to the best of our knowledge after due inquiry, (A) each of
the Company and its subsidiaries is conducting its business in
accordance with [GOVERNMENT AGENCY] authorizations listed in Paragraph
4 above and (B) neither the Company nor any of its subsidiaries is in
violation of or in default under the [COUNTRY] Communications Law or
the rules or regulations of [GOVERNMENT AGENCY], the effect of which,
singly or in the aggregate, would have a material adverse effect on the
Company and its subsidiaries, taken as a whole; and
6. to the best of our knowledge, after due inquiry, (A) no
decree or order of the [GOVERNMENT AGENCY] has been issued against the
Company or any of its subsidiaries; (B) no litigation, proceeding,
inquiry or investigation has been commenced or threatened, and no
notice of violation or order to show cause has been issued, against the
Company or any of its subsidiaries before or by [GOVERNMENT AGENCY] and
(C) there are no rulemakings or other administrative proceedings
pending before [GOVERNMENT AGENCY] which, (i) are generally applicable
to telecommunications services or the resale thereof and (ii) if
decided adversely to the interest of the Company or its subsidiaries,
would have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
* Unless otherwise defined herein, capitalized terms used herein have the
meanings assigned to such terms in the Underwriting Agreement.
Such opinion shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
<PAGE>
EXHIBIT F
FORM OF OPINION OF CARRIER ONE LLC COUNSEL
(a) The execution and delivery by Carrier One LLC of, and the
performance by Carrier One LLC of its obligations under, the
Underwriting Agreement and the Pricing Agreement will not contravene
any provision of applicable law (except in so far as indemnity and
contribution is limited by applicable law and public policy), or any
certificate of incorporation, bylaws or other equivalent organizational
documents of Carrier One LLC, or, to such counsel's knowledge, any
agreement or other instrument binding upon Carrier One LLC that is
material to Carrier One LLC or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over Carrier One
LLC, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by Carrier One LLC of its obligations under the
Underwriting Agreement or the Pricing Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares and the ADSs and other
than those already obtained from the Frankfurt Stock Exchange and the
Nasdaq Stock Market, and under the securities laws of The Netherlands,
the Securities Act and the Exchange Act and those as may be required
for the listing of the Company's Share Capital on the Neuer Markt
segment of the Frankfurt Stock Exchange.
(b) This Agreement has been duly authorized, executed and
delivered by or on behalf of Carrier One LLC.
(c) The Pricing Agreement has been duly authorized by Carrier
One LLC and, assuming due execution and delivery by the other parties
thereto, is a valid and binding agreement of Carrier One LLC,
enforceable in accordance with its terms, subject to (i) the effects of
bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer,
reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, (ii) general
principals of equity, whether such principles are considered in a
proceeding at law or equity, (iii) an implied covenant of good faith,
reasonableness and fair dealing, and standards of materiality, and (iv)
limitations with respect to enforceability of provisions providing for
indemnification or contribution arising under applicable law (including
court decisions) or public policy.
<PAGE>
EXHIBIT G
FORM OF OPINION OF SPECIAL
LUXEMBOURG COUNSEL TO THE UNDERWRITERS
1. The Shares issued by the Company on [_______________], 2000
have been duly authorized by the shareholders at their meeting of
[_____________], 2000 and have been validly issued at the par value thereof by
the board of directors of the Company pursuant to their resolution passed at
their meeting of [________________], 2000 and against the payment of the
Subscription Price, being the par value thereof, were fully paid at the par
value thereof, and are non-assessable. After the subsequent payment on such
Shares of the Share Offer Price less the par value of such Shares less
applicable fees and commissions (the "Additional Payment") pursuant to the
Underwriting Agreement, such Shares are fully paid at the par value thereof plus
the Additional Payment, and non-assessable. The Shares sold today by the
Warrantholders have been duly authorized and are validly issued, fully paid and
non-assessable. The issuance by the Company of the Shares being sold by the
Company and by the Warrantholders is not subject to any preemptive or similar
rights.
7. The execution and delivery by the Company of, and the
performance by the Company of its obligations under the Underwriting Agreement,
the Pricing Agreement and the Deposit Agreement do not and will not contravene
any provision of applicable Luxembourg law.
<PAGE>
EXHIBIT H
FORM OF OPINION OF ZIEGLER, ZIEGLER & ALTMAN
1. The Deposit Agreement has been duly authorized, executed
and delivered by the Depositary and constitutes a valid and legally
binding agreement of the Depositary, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and general principles of equity.
2. Upon issuance by the Depositary of ADRs evidencing the ADSs
against the deposit of Registered Shares in respect thereof in
accordance with the terms of the Deposit Agreement, such ADRs will be
duly and validly issued, and the Holders thereof will be entitled to
the rights specified in such ADRs and in the Deposit Agreement.
<PAGE>
EXHIBIT I
FORM OF OPINION OF WARRANTHOLDER COUNSEL
(a) The execution and delivery by the Warrantholder of, and
the performance by such Warrantholder of its obligations under, the
Underwriting Agreement, the Pricing Agreement and its Irrevocable Power
of Attorney and Custody Agreement will not contravene any provision of
applicable law (except in so far as indemnity and contribution is
limited by applicable law and public policy), or any certificate of
incorporation, bylaws or other equivalent organizational documents of
such Warrantholder, or, to such counsel's knowledge, any agreement or
other instrument binding upon such Warrantholder that is material to
such Warrantholder or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over such Warrantholder, and
no consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by such
Warrantholder of its obligations under the Underwriting Agreement, the
Pricing Agreement or the Power of Attorney and Custody Agreement of
such Warrantholder, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and
sale of the Shares and the ADSs and other than those already obtained
from the Frankfurt Stock Exchange and the Nasdaq Stock Market, and
under the securities laws of The Netherlands, the Securities Act and
the Exchange Act and those as may be required for the listing of the
Company's Share Capital on the Neuer Markt segment of the Frankfurt
Stock Exchange.
(b) The Warrantholder has valid title to the Warrants each
entitling the holder thereof to purchase the number of shares specified
therein; the Warrantholder assuming exercise of Warrants in accordance
with the Irrevocable Power of Attorney and Custody Agreement,
immediately prior to the time the Shares to be sold by it are delivered
to the Underwriters, will have valid title to the Shares to be sold by
such Warrantholder; and the Warrantholder has the legal right and
power, and all authorization and approval required by law, to enter
into the Underwriting Agreement, the Pricing Agreement and the Power of
Attorney and Custody Agreement of such Warrantholder and to sell,
transfer and deliver the Shares to be sold by such Warrantholder.
(c) The Irrevocable Power of Attorney and Custody Agreement of
the Warrantholder has been duly authorized, executed and delivered by
such Warrantholder and is a valid and binding agreement of such
Warrantholder, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally and general principles of equity.
<PAGE>
(d) The Underwriting Agreement and the Pricing Agreement have
been duly authorized by the Warrantholder and, when executed and
delivered will be valid and binding agreements of such Warrantholder,
enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
(e) Assuming exercise of Warrants in accordance with the
Irrevocable Power of Attorney and Custody Agreement, delivery of the
Shares to be sold by the Warrantholder pursuant to the Underwriting
Agreement and the Pricing Agreement will pass title to such Shares free
and clear of any security interests, claims, liens, equities and other
encumbrances.
<PAGE>
Exhibit 5.1
[Lux. Counsel Letterhead]
February 17, 2000
Carrier 1 International S.A.
Route d'Arlon 3
L-8009 Strassen, Luxembourg
Carrier 1 International S.A.
Registration Statement on Form S-1
(File No. 333-94541)
--------------------
Dear Sirs:
We have acted as counsel to Carrier 1 International S.A., a
Luxembourg corporation (the "Company"), in connection with the Registration
Statement on Form S-1 referenced above (the "Registration Statement") filed by
the Company with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act of 1933, as amended (the "Act"), relating to
7,500,000 shares of the Company's common shares, par value $2.00 per share,
<PAGE>
being offered by the Company and an additional 1,125,000 shares solely to cover
over-allotments (collectively, the "Company Shares"), and 1,875,000 shares of
the Company's common shares being offered by the selling shareholders referred
to in the Registration Statement and an additional 281,250 shares solely to
cover over-allotments (collectively, the "Shareholder Shares" and together with
the Company Shares, the "Shares"), such Shares to be sold in the form of
registered shares or, upon request in the United States and Canada, in the form
of American Depositary Shares representing the right to receive 0.2 Shares.
In so acting, we have examined and relied upon the originals,
or copies certified or otherwise identified to our satisfaction, of such
records, documents, certificates and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
Strictly limited to Luxembourg law, we are of the opinion that
(a) upon issuance, delivery and full payment therefor in the manner described in
the Registration Statement and in accordance with the terms of the underwriting
agreement (the form of which is filed as an Exhibit to the Registration
Statement), the Company Shares will be duly authorized, validly issued and
outstanding, fully paid and non-assessable; (b) the Shareholder Shares of
Carrier One, LLC are, and the Shareholder Shares to be received upon exercise of
the Company's Euro Warrants and Dollar Warrants upon issuance, delivery and full
payment therefor in accordance with the terms of the Euro Warrants or Dollar
Warrants, as the case may be, will be, duly authorized, validly issued and
outstanding, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus forming a part thereof. This opinion is
governed by Luxembourg law and is subject to exclusive jurisdiction of the
ordinary courts in Luxembourg.
Very truly yours,
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement
No. 333-94541 of Carrier1 International S.A. on Form S-1 of our report dated
February 11, 2000 appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the headings "Summary
Consolidated Financial Data," "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of Carrier1
International S.A., listed in Item 16(b). This financial schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE EXPERTA AG
/s/ David Wilson /s/ Aniko Smith
David Wilson Aniko Smith
Erlenbach, Switzerland
February 18, 2000
